Document:

hmi10q_08302014ex10(e)

HM SPRINGBOARD, INC. 
STOCK OPTION PLAN

ARTICLE I. 
PURPOSE
1.1    GENERAL.  The purpose of the HM Springboard, Inc. Stock Option Plan (the “Plan”) is to promote the success and enhance the value of HM Springboard, Inc. (the “Company”) by linking the personal interests of the members of the Board, employees, and officers of the Company and any Subsidiary, to those of Company stockholders and by providing such individuals with an incentive for outstanding performance to generate superior returns to Company stockholders.  The Plan is further intended to provide flexibility to the Company in its ability to motivate, attract, and retain the services of members of the Board, employees, and officers of the Company and its Subsidiaries upon whose judgment, interest, and special effort the successful conduct of the Company’s operation is largely dependent.  The Plan is effective on July 28, 2014 (the “Effective Date”). 
ARTICLE II.     
DEFINITIONS AND CONSTRUCTION
2.1    DEFINITIONS.  The following words and phrases, when the initial letter is capitalized, shall have the following meanings:
(a)    “Affiliate” means with respect to any Person, (i) any Person which, directly or indirectly, controls, is controlled by or is under common control with such Person, or (ii) where applicable, an individual’s spouse and descendants (whether natural or adopted) and any trust formed solely for the benefit of such individual and/or such individual’s spouse and/or descendants.
(b)    “Board” means the Board of Directors of the Company.
(c)    “Cause” has the meaning given in an employment or services agreement between the Participant and the Company or a Subsidiary, or in the absence of such agreement or in the absence of a definition of “cause” in such agreement, means the Participant’s dishonesty, fraud, misconduct, unauthorized use or disclosure of confidential information or trade secrets, or conviction or confession of a crime punishable by law (except minor violations), in each case as determined by the Board, and its determination shall be conclusive and binding.
(d)    “Change of Control” means the occurrence of all of the following:
(i)    any transaction (other than a sale of securities by the Company in a private placement or as contemplated by subparagraph (ii) below) as a result of which any Person is or becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company (excluding from the securities beneficially owned by such Person any securities acquired directly from the Company or its Affiliates) representing more than fifty percent (50%) of the total voting power of the Company’s then outstanding voting securities; or
(ii)    the consummation of a merger or consolidation of the Company with or into any other corporation or any other corporate reorganization if more than fifty percent (50%) of the combined voting power of the voting securities of the Company or such surviving entity (or any parent thereof) outstanding immediately after such merger, consolidation, or reorganization is owned by Persons who were not stockholders of the Company immediately prior to such merger, consolidation or reorganization; or
(iii)    the sale or disposition by the Company of all or substantially all of the Company’s assets.
The Board shall have full and final authority, which shall be exercised in its discretion, to determine conclusively whether a Change of Control of the Company has occurred pursuant to the above definition, and the date of the occurrence of such Change of Control and any incidental matters relating thereto.
(e)    “Code” means the Internal Revenue Code of 1986, as amended.
(f)    “Disability” means, for purposes of this Plan, that the Participant qualifies to receive long-term disability payments under the Company’s long-term disability insurance program, as it may be amended from time to time.
(g)    “Employee” means any officer or other employee (as defined in accordance with Section 3401(c) of the Code) of the Company or any Subsidiary.
(h)    “Exchange Act” means the Securities Exchange Act of 1934, as amended.
(i)    “Fair Market Value” shall mean, as of any date, the value of a share of Stock determined as follows:
(i)    If an independent appraisal of the value of a share of Stock has been obtained, the value as determined by the most recently completed appraisal prior to the date of determination (provided such appraisal is not more than 12 months old); or
(ii)    In the absence of such an appraisal, or if the Board determines in good faith that the most recent appraised value is no longer representative of the fair market value of a share of Stock, then Fair Market Value shall be determined in good faith by the Board.
(j)    “Good Reason” has the meaning given in an employment or services agreement between the Participant and the Company or a Subsidiary, or in the absence of such agreement or in the absence of a definition of “Good Reason” (or similar concept) in such agreement, means the occurrence of any of the following events after a Change of Control without the Participant's express written consent, and the failure of the successor corporation to cure such event or condition within 30 days after receipt of written notice from the Participant: 
(i)    any of (A) the assignment to the Participant of any duties inconsistent in any material adverse respect with the Participant's position(s), duties, responsibilities or status with the Company immediately prior to such Change of Control, (B) a change in any material adverse respect in the Participant's reporting responsibilities, titles or offices with the Company as in effect immediately prior to such Change of Control or (C) any removal or involuntary termination of the Participant from any position held by the Participant with the Company immediately prior to such Change of Control or any failure to re-elect the Participant to any position with the Company held by the Participant immediately prior to such Change of Control;
(ii)    a reduction by the Company in the Participant's rate of annual base salary or annual target bonus as in effect immediately prior to such Change of Control or as the same may be increased from time to time thereafter; 
(iii)    any requirement of the Company that the Participant be based at a location in excess of 50 miles from the facility which is the Participant's principal business office at the time of the Change of Control; or
(iv)    a reduction of at least 5% in the aggregate benefits provided to the Participant and the Participant's dependents under the Company's employee benefit plans (including, without limitation, retirement, medical, prescription, dental, disability, salary continuance, employee life, group life, accidental death and travel, accident insurance plans and programs) in which the Participant is participating immediately prior to such Change in Control.
(k)    “Incentive Stock Option” means an Option that meets the requirements of Section 422 of the Code or any successor provision thereto.
(l)    “Non-Qualified Stock Option” means an Option that does not qualify as an Incentive Stock Option.
(m)    “Option” means a right granted to a Participant pursuant to Article 5 of the Plan to purchase a specified number of shares of Stock at a specified price during specified time periods or upon the occurrence of one or more specified events.  An Option may be either an Incentive Stock Option or a Non-Qualified Stock Option.
(n)    “Option Agreement” means any written agreement, contract, or other instrument or document evidencing an Option.
(o)    “Participant” means a person who, as a member of the Board, consultant to the Company or a Subsidiary or an Employee, has been granted an Option.
(p)    “Person” means any natural person, entity or any other natural person or entity in its own or any representative capacity
(q)    “Plan” means this HM Springboard, Inc. Stock Option Plan, as it may be amended from time to time.
(r)    “Stock” means the common stock of the Company, par value $0.001 per share, and such other securities of the Company that may be substituted for Stock pursuant to Article 7.
(s)    “Subsidiary” means any corporation or other entity of which a majority of the outstanding voting stock or voting power is beneficially owned directly or indirectly by the Company.
ARTICLE III.     
SHARES SUBJECT TO THE PLAN
3.1    NUMBER OF SHARES.
(a)    SHARES RESERVED.  Subject to Article 7, the aggregate number of shares of Stock which may be issued pursuant to Options shall be 662,400 shares.  The maximum number of shares of Stock that may be issued pursuant to Incentive Stock Options is 662,400 shares.
(b)    SHARES COUNTED AGAINST RESERVE. To the extent that an Option terminates, expires, or lapses for any reason, any shares of Stock subject to the Option shall again be available for the grant of an Option.  Additionally, any shares of Stock tendered or withheld to satisfy the exercise price or tax withholding obligation pursuant to any Option shall again be available for the grant of an Option.  To the extent permitted by applicable law, shares of Stock issued in assumption of, or in substitution for, any outstanding Options of any entity acquired after the Effective Date of the Plan in any form of combination by the Company or any Subsidiary shall not be counted against shares of Stock available for grant pursuant to this Plan.  To the extent that an Option is settled in cash or a form other than shares of Stock, the shares that would have been delivered had there been no such cash or other settlement shall not be counted against the shares available for issuance under this Plan.
3.2    STOCK ISSUED.  Any Stock issued pursuant to an Option may consist, in whole or in part, of authorized and unissued Stock or treasury Stock.
ARTICLE IV.     
ELIGIBILITY AND PARTICIPATION
4.1    ELIGIBILITY. 
(a)    GENERAL.  Persons eligible to participate in this Plan include Employees, consultants to the Company and all members of the Board, as selected by the Board.
(b)    FOREIGN PARTICIPANTS.  In order to assure the viability of Options granted to Participants employed in foreign countries, the Board may provide for such special terms as it may consider necessary or appropriate to accommodate differences in local law, tax policy, or custom.  Moreover, the Board may approve such supplements to, or amendments, restatements, or alternative versions of, the Plan as it may consider necessary or appropriate for such purposes without thereby affecting the terms of the Plan as in effect for any other purpose; provided, however, that no such supplements, amendments, restatements, or alternative versions shall increase the share limitations contained in Section 3.1 of the Plan.
4.2    ACTUAL PARTICIPATION.  Subject to the provisions of the Plan, the Board may, from time to time, select from among all eligible individuals, those to whom Options shall be granted and shall determine the nature and amount of each Option.  No individual shall have any right to be granted an Option pursuant to this Plan.
ARTICLE V.     
STOCK OPTIONS
5.1    GENERAL.  The Board is authorized to grant Options to Participants on the following terms and conditions:
(a)    EXERCISE PRICE.  The exercise price per share of Stock subject to an Option shall be determined by the Board and set forth in the Option Agreement; provided that the exercise price for any Option shall not be less than 100% of the Fair Market Value on the date of grant.  Notwithstanding the foregoing, with respect to Options assumed from Design Within Reach, Inc. pursuant to the provisions of Section 1.5 of that certain Stock Purchase Agreement, dated as of July 17, 2014, with Herman Miller, Inc. (“HMI”), the sellers named therein and Glenhill Capital Advisors, LLC,  in its capacity as the seller representative (the “Purchase Agreement”), such Options shall have an exercise price as determined pursuant to Section 1.5 of the Purchase Agreement.  
(b)    TIME AND CONDITIONS OF EXERCISE.  The Board shall determine the time or times at which an Option may be exercised in whole or in part, provided that the term of any Option granted under the Plan shall not exceed ten years.  The Board shall also determine (i) the performance or other conditions, if any, that must be satisfied before all or part of an Option may be exercised and (ii) the conditions under which the Options will be subject to forfeiture.  The time and conditions of exercise for each Participant shall be set forth in each applicable Option Agreement.
(c)    PAYMENT.  The Board shall determine the methods by which the exercise price of an Option may be paid and the form of payment, including, without limitation, cash, promissory note bearing interest at no less than such rate as shall then preclude the imputation of interest under the Code, shares of Stock held for longer than six months having a Fair Market Value on the date of delivery equal to the aggregate exercise price of the Option or exercised portion thereof, or other property acceptable to the Board, and the methods by which shares of Stock shall be delivered or deemed to be delivered to Participants.
5.2    INCENTIVE STOCK OPTIONS.  Incentive Stock Options shall be granted only to Employees and the terms of any such Incentive Stock Options must comply with the following additional provisions of this Section 5.2:
(a)    INDIVIDUAL DOLLAR LIMITATION.  The aggregate Fair Market Value (determined as of the time the Option is granted) of all shares of Stock with respect to which Incentive Stock Options are first exercisable by a Participant in any calendar year may not exceed $100,000.00 or such other limitation as imposed by Section 422(d) of the Code, or any successor provision.  To the extent that Incentive Stock Options are first exercisable by a Participant in excess of such limitation, the excess shall be considered Non-Qualified Stock Options.
(b)    TEN PERCENT OWNERS.  An Incentive Stock Option shall be granted to any individual who, at the date of grant, owns stock possessing more than 10% of the total combined voting power of all classes of Stock of the Company only if such Option is granted at a price that is not less than 110% of Fair Market Value on the date of grant and the Option is exercisable for no more than five years from the date of grant.
(c)    TRANSFER RESTRICTION.  The Participant shall give the Company prompt notice of any disposition of shares of Stock acquired by exercise of an Incentive Stock Option within (1) two years from the date of grant of such Incentive Stock Option or (2) one year after the transfer of such shares of Stock to the Participant.
(d)    EXPIRATION OF INCENTIVE STOCK OPTIONS.  No award of an Incentive Stock Option may be made pursuant to this Plan after the Expiration Date.
(e)    RIGHT TO EXERCISE.  Except as provided by Section 6.3, during a Participant’s lifetime, an Incentive Stock Option may be exercised only by the Participant.
ARTICLE VI.     
PROVISIONS APPLICABLE TO OPTIONS
6.1    OPTION AGREEMENT.  Options under the Plan shall be evidenced by Option Agreements that set forth the terms, conditions and limitations for each Option as determined by the Board which may include the term of an Option, the provisions applicable in the event the Participant’s employment or service terminates, and the Company’s authority to unilaterally or bilaterally amend, modify, suspend, cancel or rescind an Option.
6.2    LIMITS ON TRANSFER.  No right or interest of a Participant in any Option may be pledged, encumbered, or hypothecated to or in favor of any party other than the Company or a Subsidiary, or shall be subject to any lien, obligation, or liability of such Participant to any other party other than the Company or a Subsidiary.  Except as otherwise provided by the Board, no Option shall be assigned, transferred, or otherwise disposed of by a Participant other than by will or the laws of descent and distribution.  The Board by express provision in the Option or an amendment thereto may permit an Option (other than an Incentive Stock Option) to be transferred to, exercised by and paid to certain persons or entities related to the Participant, including but not limited to members of the Participant’s family, charitable institutions, or trusts or other entities whose beneficiaries or beneficial owners are members of the Participant’s family and/or charitable institutions, or to such other persons or entities as may be expressly approved by the Board, pursuant to such conditions and procedures as the Board may establish.  Any permitted transfer shall be subject to the condition that the Board receive evidence satisfactory to it that the transfer is being made for estate and/or tax planning purposes (or to a “blind trust” in connection with the Participant’s termination of employment or service with the Company or a Subsidiary to assume a position with a governmental, charitable, educational or similar non-profit institution) and on a basis consistent with the Company’s lawful issue of securities.
6.3    BENEFICIARIES.  Notwithstanding Section 6.2, a Participant may, in the manner determined by the Board, designate a beneficiary to exercise the rights of the Participant upon the Participant’s death.  In the absence of such a designation, or if such beneficiary does not survive the Participant, any Options exercisable at or following the Participant’s death may be exercised by the representative or representatives of the Participant’s estate, or if so directed by the representative of the Participant’s estate, by the person or persons entitled to do so pursuant to the Participant’s last will and testament, or, if the Participant fails to make testamentary disposition of such Option or dies intestate, by the person or persons entitled to receive the Option pursuant to the applicable laws of descent and distribution.  In addition, upon the Participant’s Disability, the Participant’s legal guardian may exercise the Participant’s Options on the Participant’s behalf.  A beneficiary, legal guardian, legal representative, or other person claiming any rights pursuant to the Plan is subject to all terms and conditions of the Plan and any Option Agreement applicable to the Participant, except to the extent the Plan and Option Agreement otherwise provide, and to any additional restrictions deemed necessary or appropriate by the Board and shall provide such proof of their rights hereunder as the Company reasonably requests.  If the Participant is married and resides in a community property state, a designation of a person other than the Participant’s spouse as his beneficiary with respect to more than 50% of the Participant’s interest in the Option shall not be effective without the prior written consent of the Participant’s spouse.  Subject to the foregoing, a beneficiary designation may be changed or revoked by a Participant at any time provided the change or revocation is filed with the Board.
6.4    STOCK CERTIFICATES.  Notwithstanding anything herein to the contrary, the Company shall not be required to issue or deliver any certificates evidencing shares of Stock pursuant to the exercise of any Option, unless and until the Board has determined, with advice of counsel, that the issuance and delivery of such certificates is in compliance with all applicable laws, regulations of governmental authorities and, if applicable, the requirements of any exchange on which the shares of Stock are listed or traded.  All Stock certificates delivered pursuant to the Plan are subject to any stop-transfer orders and other restrictions as the Board deems necessary or advisable to comply with federal, state, or foreign jurisdiction, securities or other laws, rules and regulations and the rules of any national securities exchange or automated quotation system on which the Stock is listed, quoted, or traded.  The Board may place legends on any Stock certificate to reference restrictions applicable to the Stock.  In addition to the terms and conditions provided herein, the Board may require that a Participant make such reasonable covenants, agreements, and representations as the Board, in its discretion, deems advisable in order to comply with any such laws, regulations, or requirements.  The Board shall have the right to require any Participant to comply with any timing or other restrictions with respect to the settlement or exercise of any Option, including a window-period limitation, as may be imposed in the discretion of the Board.
6.5    COMPANY RIGHTS WITH RESPECT TO STOCK.  All shares of Stock issued pursuant to Options shall be subject to the provisions of Appendix A hereto. 
ARTICLE VII.     
CHANGES IN CAPITAL STRUCTURE
7.1    ADJUSTMENTS.  In the event of any stock dividend, stock split, combination or exchange of shares, merger, consolidation, spin-off, recapitalization or other distribution (other than normal cash dividends) of Company assets to stockholders, or any other change affecting the shares of Stock or the share price of the Stock, the Board shall make such proportionate and equitable adjustments, if any, as appropriate to reflect such change with respect to (i) the number and type of shares that may be issued under the Plan (including, but not limited to, adjustments of the share limitations in Section 3.1) or that are the subject of Options; (ii) the terms and conditions of any outstanding Options (including, without limitation, any applicable performance targets or criteria with respect thereto); and (iii) the exercise price per share for any outstanding Options.  
7.2    CHANGE OF CONTROL IN WHICH OPTIONS ARE NOT ASSUMED.  Except as otherwise provided in the applicable Option Agreement, upon the occurrence of a Change of Control in which outstanding Options are not being assumed or continued, 
(a)    All outstanding Options shall become immediately exercisable and shall remain exercisable for a period of fifteen (15) days; or
(b)    The Board may elect, in its sole discretion, to cancel any outstanding Options and pay or deliver, or cause to paid or delivered, to the holder thereof an amount in cash or securities having a value (as determined by the Board acting in good faith), equal to the product of the number of shares of Stock subject to such Options (the “Award Stock”) multiplied by the amount, if any, by which (x) the formula or fixed price per share paid or payable to holders of shares of Stock pursuant to such transaction exceeds (y) the exercise price applicable to such Award Stock.
With respect to the company’s establishment of an exercise window, (A) any exercise of an Option during the fifteen (15)-day period referred to above shall be conditioned upon the consummation of the applicable Change of Control and shall be effective only immediately before the consummation thereof, and (B) upon consummation of any Change of Control, the Plan and all outstanding but unexercised Options shall terminate.  The Board shall send notice of an event that shall result in such termination to all Participants who hold Options not later than the time at which the Company gives notice thereof to its shareholders.
7.3    CHANGE OF CONTROL IN WHICH OPTIONS ARE ASSUMED OR THE COMPANY IS THE SURVIVING ENTITY.  If a Change of Control occurs and the Company is the surviving entity and any adjustments necessary to preserve the intrinsic value of the Participant’s outstanding Options have been made, or the Company’s successor at the time of the Change of Control irrevocably assumes the Company’s obligations under this Plan or replaces the Participants’ outstanding Options having substantially the same intrinsic value and having terms and conditions no less favorable to the Participant than those applicable to the Participants’ Options immediately prior to the Change of Control, then such Options or their replacement awards shall become immediately exercisable, in full, upon the Participant’s termination of employment within two years after the Change of Control if the participant’s employment:
(a)    Is terminated without Cause;
(b)    Terminates with “Good Reason”; or
(c)    Terminates under circumstances that entitle the Participant to accelerated exercisability under any individual employment agreement between the Participant and the Company, a Subsidiary, or any successor thereof.
7.4    OUTSTANDING OPTIONS – OTHER CHANGES.  In the event of any other change in the capitalization of the Company or corporate change other than those specifically referred to in this Article 7, the Board may, in its absolute discretion, make such adjustments in the number and class of shares subject to Options outstanding on the date on which such change occurs and in the per share exercise price of each Option as the Board may consider appropriate to prevent dilution or enlargement of rights.
7.5    NO OTHER RIGHTS.  Except as expressly provided in the Plan, no Participant shall have any rights by reason of any subdivision or consolidation of shares of stock of any class, the payment of any dividend, any increase or decrease in the number of shares of stock of any class or any dissolution, liquidation, merger, or consolidation of the Company or any other corporation.  Except as expressly provided in the Plan or pursuant to action of the Board under the Plan, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number of shares of Stock subject to an Option or the grant or exercise price of any Option.
ARTICLE VIII.     
ADMINISTRATION
8.1    BOARD.  Unless and until the Board delegates administration to a committee as set forth below, the Plan shall be administered by the Board.  The Board may delegate administration of the Plan to a committee comprised of one or more members of the Board (the “Committee”), and in such event, the term “Board” shall apply to such Committee to whom such authority has been delegated to the extent of such delegation.  The Board may abolish the Committee at any time and revest in the Board the administration of the Plan.  Appointment of Committee members shall be effective upon acceptance of appointment.  Committee members may resign at any time by delivering written notice to the Board.  Vacancies in the Committee may only be filled by the Board.
8.2    ACTIONS.  A majority of the Committee shall constitute a quorum.  The acts of a majority of the members present at any meeting at which a quorum is present, and acts approved in writing by a majority of the Committee in lieu of a meeting, shall be deemed the acts of the Committee.  Each member of the Board or Committee is entitled to, in good faith, rely or act upon any report or other information furnished to that member by any officer or other employee of the Company or any Subsidiary, the Company’s independent certified public accountants, or any executive compensation consultant or other professional retained by the Company to assist in the administration of the Plan.
8.3    AUTHORITY OF BOARD.  Subject to any specific designation in the Plan, the Board has the exclusive power, authority and discretion to:
(a)    Designate Participants to receive Options;
(b)    Determine the type or types of Options to be granted to each Participant;
(c)    Determine the number of shares of Stock to which an Option will relate;
(d)    Determine the terms and conditions of any Option, including, but not limited to, the exercise price, any reload provision, any restrictions or limitations on the Option, any schedule for lapse of forfeiture restrictions or restrictions on the exercisability of an Option, and accelerations or waivers thereof, any provisions related to non-competition and recapture of gain on an Option, based in each case on such considerations as the Board in its sole discretion determines;
(e)    Determine whether, to what extent, and pursuant to what circumstances an Option may be settled in, or the exercise price of an Option may be paid in, cash, Stock, other Options, or other property, or an Option may be canceled, forfeited, or surrendered;
(f)    Prescribe the form of each Option Agreement, which need not be identical for each Participant;
(g)    Decide all other matters that must be determined in connection with an Option;
(h)    Establish, adopt, or revise any rules and regulations as it may deem necessary or advisable to administer the Plan;
(i)    Interpret the terms of, and any matter arising pursuant to, the Plan or any Option Agreement; and
(j)    Make all other decisions and determinations that may be required pursuant to the Plan or as the Board deems necessary or advisable to administer the Plan.
8.4    DECISIONS BINDING.  The Board’s interpretation of the Plan, any Options, any Option Agreement and all decisions and determinations by the Board with respect to the Plan or any Option are final, binding, and conclusive on all parties.
ARTICLE IX.     
EFFECTIVE AND EXPIRATION DATE
9.1    EFFECTIVE DATE.  The Plan is effective as of the Effective Date.
9.2    EXPIRATION DATE.  The Plan will expire on, and no Option may be granted after, the tenth anniversary of the Effective Date (the “Expiration Date”).  Any Options that are outstanding on the Expiration Date shall remain in force according to the terms of the Plan and the applicable Option Agreement.  

ARTICLE X.     
AMENDMENT, MODIFICATION, AND TERMINATION
10.1    AMENDMENT, MODIFICATION, AND TERMINATION.  At any time and from time to time, the Board may terminate, amend or modify the Plan; provided, however, that to the extent necessary and desirable to comply with any applicable law, regulation, or stock exchange rule, the Company shall obtain stockholder approval of any Plan amendment in such a manner and to such a degree as required.
10.2    OPTIONS PREVIOUSLY GRANTED.  No termination, amendment, or modification of the Plan shall adversely affect in any material way any Option previously granted without the prior written consent of the Participant affected thereby.
ARTICLE XI.     
GENERAL PROVISIONS
11.1    NO RIGHTS TO OPTIONS.  No Participant, employee, or other person shall have any claim to be granted any Option, and neither the Company nor the Board is obligated to treat Participants, employees, and other persons uniformly.
11.2    NO STOCKHOLDERS RIGHTS.  No Option gives the Participant any of the rights of a stockholder of the Company unless and until shares of Stock are in fact issued to such person in connection with such Option.
11.3    WITHHOLDING.  The Company or any Subsidiary shall have the authority and the right to deduct or withhold, or require a Participant to remit to the Company or any Subsidiary, an amount sufficient to satisfy federal, state, local and foreign taxes (including the Participant’s FICA obligation) required by law to be withheld with respect to any taxable event concerning a Participant arising as a result of this Plan.  The Board may in its discretion and in satisfaction of the foregoing requirement require or allow a Participant to elect to have the Company withhold shares of Stock otherwise issuable under an Option (or allow the return of shares of Stock) having a Fair Market Value equal to the sums required to be withheld.  Notwithstanding any other provision of the Plan, the number of shares of Stock which may be withheld with respect to the exercise of any Option in order to satisfy the Participant’s federal, state, local and foreign income and payroll tax liabilities with respect to the exercise of the Option shall be limited to the number of shares which have a Fair Market Value on the date of withholding or repurchase equal to the aggregate amount of such liabilities based on the minimum statutory withholding rates for federal, state, local and foreign income tax and payroll tax purposes that are applicable to such supplemental taxable income.
11.4    NO RIGHT TO EMPLOYMENT OR SERVICES.  Nothing in the Plan or any Option Agreement shall interfere with or limit in any way the right of the Company or any Subsidiary to terminate any Participant’s employment or services at any time, nor confer upon any Participant any right to continue in the employ or service of the Company or any Subsidiary.
11.5    INDEMNIFICATION.  To the extent allowable pursuant to applicable law, each member of the Board or of the Committee shall be indemnified and held harmless by the Company from any loss, cost, liability, or expense that may be imposed upon or reasonably incurred by such member in connection with or resulting from any claim, action, suit, or proceeding to which he or she may be a party or in which he or she may be involved by reason of any action or failure to act pursuant to the Plan and against and from any and all amounts paid by him or her in satisfaction of judgment in such action, suit, or proceeding against him or her, provided he or she gives the Company an opportunity, at its own expense, to handle and defend the same before he or she undertakes to handle and defend it on his or her own behalf.  The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which such persons may be entitled pursuant to the Company’s Certificate of Incorporation or Bylaws, as a matter of law, or otherwise, or any power that the Company may have to indemnify them or hold them harmless.
11.6    RELATIONSHIP TO OTHER BENEFITS.  No payment pursuant to the Plan shall be taken into account in determining any benefits pursuant to any pension, retirement, savings, profit sharing, group insurance, welfare or other benefit plan of the Company or any Subsidiary except to the extent otherwise expressly provided in writing in such other plan or an agreement thereunder.
11.7    EXPENSES.  The expenses of administering the Plan shall be borne by the Company and its Subsidiaries.
11.8    TITLES AND HEADINGS.  The titles and headings of the Sections in the Plan are for convenience of reference only and, in the event of any conflict, the text of the Plan, rather than such titles or headings, shall control.
11.9    FRACTIONAL SHARES.  No fractional shares of Stock shall be issued and the Board shall determine, in its discretion, whether cash shall be given in lieu of fractional shares or whether such fractional shares shall be eliminated by rounding up or down as appropriate.
11.10    SECTION 409A.
(a)    It is the intention of the Company that no Option shall be deferred compensation subject to Section 409A of the Code and the regulations and guidance promulgated thereunder (collectively “Code Section 409A”), and the Plan and the terms and conditions of all Options shall be interpreted and administered accordingly.
(b)    The Company shall have complete discretion to interpret and construe the Plan and any Option Agreement in any manner that establishes an exemption from the requirements of Code Section 409A.  If for any reason, such as imprecision in drafting, any provision of the Plan and/or any Option Agreement does not accurately reflect its intended establishment of an exemption from Code Section 409A, as demonstrated by consistent interpretations or other evidence of intent, such provision shall be considered ambiguous as to its exemption from Code Section 409A and shall be interpreted by the Company in a manner consistent with such intent, as determined in the discretion of the Company.  If, notwithstanding the foregoing provisions of this Section 11.10(b), any provision of the Plan or any Option Agreement would cause a Participant to incur any additional tax or interest under Code Section 409A, the Company shall reform such provision in a manner intended to avoid the incurrence by such Participant of any such additional tax or interest; provided that the Company shall maintain, to the extent reasonably practicable, the original intent and economic benefit to the Participant of the applicable provision without violating the provisions of Code Section 409A.
(c)    Notwithstanding the provisions of Section 7.1 to the contrary, (1) any adjustments made pursuant to Section 7.1 to Options shall be made in such a manner as to ensure that after such adjustment, the Options continue not to be subject to Code Section 409A; and (2) in any event, neither the Committee nor the Board shall have any authority to make any adjustments, substitutions or changes pursuant to Section 7.1 to the extent the existence of such authority would cause any Option to be subject to Code Section 409A.
11.11    GOVERNMENT AND OTHER REGULATIONS.  The obligation of the Company to make payment of Options in Stock or otherwise shall be subject to all applicable laws, rules, and regulations, and to such approvals by government agencies as may be required.  The Company shall be under no obligation to register pursuant to the Securities Act of 1933, as amended, any of the shares of Stock issued pursuant to the Plan.  If the shares issued pursuant to the Plan may be exempt from registration pursuant to the Securities Act of 1933, as amended, the Company may restrict the transfer of such shares in such manner as it deems advisable to ensure the availability of any such exemption.
11.12    GOVERNING LAW.  The Plan and all Option Agreements shall be construed in accordance with and governed by the laws of the State of Delaware, without reference to conflict of law principles thereof.

Appendix A
COMPANY’S RIGHTS WITH RESPECT TO STOCK
		
	1)
	Applicability.  This Appendix A shall apply to any Stockholder (as defined herein) who is not subject to any other agreement with the Company that contains provisions relating to the Company’s rights with respect to Stock, such as a Stockholders Agreement.  

		
	2)
	Definitions.  The following words and phrases, when the initial letter is capitalized, shall have the following meanings:

		
	a)
	“Appraiser” shall mean Stout Risius Ross. If Stout Risius Ross is unable or unwilling to act as an appraiser and the parties cannot agree on a replacement appraiser within five (5) business days, each party to the transaction for which an appraiser is required hereunder shall choose an appraiser at the conclusion of such five- (5)- day period, and the appraisers so chosen shall promptly (within five (5) business days) select a single appraiser whose determination of Fair Market Value shall govern and shall be binding and conclusive.

		
	b)
	“Capital Stock” means (i) shares of Stock and (whether now outstanding or hereafter issued in any context), (ii) shares of stock issued or issuable upon conversion of any securities issued by the Company and (iii) shares of stock issued or issuable upon exercise or conversion, as applicable, of stock options, warrants or other convertible securities of the Company, in each case now owned or subsequently acquired by any Stockholder, or their respective successors or permitted transferees or assigns. For purposes of the number of shares of Capital Stock held by a Stockholder (or any other calculation based thereon), all shares of any securities convertible into equity shall be deemed to have been converted into Common Stock at the then-applicable conversion ratio.

		
	c)
	“Determined Value” means the Fair Market Value as determined by the Appraiser who will be commissioned by the Company to perform an appraisal of the applicable Capital Stock as of the applicable Valuation Date (unless the applicable parties agree to a different valuation).  

		
	d)
	“Entity” means any general partnership, limited partnership, corporation, association, cooperative, joint stock company, trust, limited liability company, business trust, joint venture, unincorporated organization and governmental entity (or any department, agency or political subdivision thereof).

		
	e)
	“Fair Market Value” means the price, expressed in terms of cash equivalents, at which property would change hands between a hypothetical willing and able buyer and a hypothetical willing and able seller, acting at arms length in an open and unrestricted market, when neither is under compulsion to buy or sell and when both have reasonable knowledge of the relevant facts.

		
	f)
	“Herman Miller” means Herman Miller, Inc., a Michigan Corporation.

		
	g)
	“Permitted Transferee” means (i) with respect to any Stockholder, any trust or other Entity formed solely for the benefit of a Stockholder or a Stockholder’s siblings, lineal antecedents or descendants, children, grandchildren, spouse or any other relatives approved by the Board, provided such Stockholder retains full management and control rights over the Capital Stock, and (ii) with respect to Herman Miller, any Affiliate of Herman Miller.

		
	h)
	“Pro Rata Share” of a Stockholder means (i) the number of shares of Capital Stock owned by such Stockholder multiplied by (ii) the ratio of (A) the total number of shares of Capital Stock being sold by Herman Miller in a Disposition pursuant to Section 5(a), divided by (B) the total number of shares of Capital Stock owned by Herman Miller immediately prior to such Disposition.  

		
	i)
	“SEC” means the Securities and Exchange Commission.

		
	j)
	“Securities Act” means the Securities Act of 1933, as amended from time to time.

		
	k)
	“Stockholder” means each person who acquires shares of stock pursuant to the Plan or who receives an Option under the Plan.

		
	l)
	“Transfer” shall mean to sell, assign, transfer, convey, exchange, pledge, grant a security interest in or otherwise dispose of any Capital Stock or right therein, in each case, whether made directly or indirectly, voluntarily or involuntarily, absolutely or conditionally, or by operation of law or otherwise.

		
	3)
	Restrictions or Transfer of Capital Stock.  

		
	a)
	Prohibited Transfers.  

		
	i)
	No Stockholder shall have the right to Transfer all or any part of the Capital Stock owned or held by such Stockholder without the prior written consent of the Board.  Notwithstanding the foregoing, a Stockholder may transfer Capital Stock to a Permitted Transferee.  

		
	ii)
	For purposes of this Appendix, all references to Capital Stock owned or held by a Stockholder shall include all interests in Capital Stock now held or hereafter acquired by a spouse of such Stockholder (“Spouse”) as marital property or pursuant to the Spouse’s elective rights to deferred marital property or to an augmented marital property estate.  The creation of an interest in the Capital Stock in the Spouse by operation of marital property or community property laws (e.g., by reason of reclassification by agreement between the Stockholder and the Stockholder’s Spouse or because the Stockholder acquires a portion or all of the Stockholder’s interest in exchange for property that is classified as marital property or community property) during such Stockholder’s lifetime shall not be deemed to be a Transfer of the Capital Stock or any portion thereof for purposes of this Section 3(a) so long as (a) the Capital Stock in which such interest is created continues to be registered in the name of such Stockholder and (b) such Stockholder maintains full management and control rights with respect to such Capital Stock; provided, however, that if either of the foregoing conditions shall cease to be satisfied, then such Stockholder and the Company shall have the option to purchase such Spouse’s interest in the Capital Stock in the sequence and manner and upon the same terms and conditions as specified in Section 3(b) hereof as if the marital relationship of such Stockholder and such Stockholder’s Spouse had been terminated.  During the marriage of a Stockholder and the Stockholder’s Spouse, such Stockholder’s obligation to sell or offer to sell Capital Stock pursuant to this Appendix shall include an obligation on the part of such Stockholder’s Spouse to sell or offer to sell any interest of such Spouse in the Capital Stock in the same manner and upon the same terms and conditions.  For the avoidance of doubt, a Spouse shall not be permitted to Transfer any interest in Capital Stock without the prior written consent of the Board.

		
	b)
	Marriage, Other Involuntary Transfer, Termination of Employment.  

		
	i)
	Termination of Marriage of a Stockholder.  Upon the termination of the marriage of a Stockholder, by reason of the death of such Stockholder’s Spouse or by divorce, if such Stockholder does not succeed to the marital property or other interest of such Stockholder’s Spouse in the Capital Stock held by such Stockholder, then such Stockholder shall have the right to purchase such interest from such Stockholder’s Spouse or the personal representative of such Spouse’s estate, as the case may be, at the Determined Value as set forth in clause (iv) hereof, or as otherwise agreed by the parties thereto.  If such Stockholder elects to purchase all of his or her Spouse’s interest in the Capital Stock, he or she shall signify such election by delivering written notice to such effect to the Spouse or the personal representative of the Spouse’s estate, as the case may be, and to the Company within ninety (90) days after the date of the Spouse’s death or the effective date of termination of the marital relationship.  If the Stockholder fails to exercise such right and option in full within such ninety (90) day period, then the Company shall have the option to purchase, during the ninety (90) day period following the later of (A) the expiration of the ninety (90) day period described in the preceding sentence, or (B) the date upon which the Company shall receive actual notice of the Spouse’s death or divorce, and the Spouse or the personal representative of the Spouse’s interest, as the case may be, shall be required to sell and transfer, some or all (as designated by the Company) of the Spouse’s interest in the Stockholder’s Capital Stock at the Determined Value as set forth in clause (iv) hereof, or as otherwise agreed by the parties thereto upon the giving of written notice to such effect to the Stockholder.  With regard to shares of Capital Stock subject to the option to purchase, such Spouse or Spouse’s estate shall be under the same obligation to sell or to offer to sell such shares of Capital Stock in the same manner and upon the same terms and conditions as a Stockholder under clause (iii) hereof.

		
	ii)
	Involuntary Transfers.  If any Capital Stock owned by any Stockholder shall be subject to sale or other Transfer by reason of (A) bankruptcy or insolvency proceedings, whether voluntary or involuntary, (B) incompetency or insanity or (C) distraint, levy, execution or other involuntary transfer whether by operation of law or otherwise (an “Involuntary Transfer”), then such Stockholder shall give the Company written notice thereof promptly following the occurrence of such event stating the terms of such proposed transfer, the identity of the proposed transferee, the price or other consideration, if readily determinable, for which the shares of Capital Stock are proposed to be transferred and the number of shares of Capital Stock subject to such Involuntary Transfer.  Whenever the Company has any other actual notice or actual knowledge of any such attempted, impending or consummated Involuntary Transfer, it may give written notice thereof to the affected Stockholder.  In either case, the Stockholder agrees to disclose in writing immediately to the Company all pertinent information in his or her, possession relating to such Involuntary Transfer.  If any shares of Capital Stock are subject to any Involuntary Transfer, the Company shall at all times have the immediate and continuing right and option for a period of ninety (90) days after the Company first receives actual notice of such Involuntary Transfer to purchase such Capital Stock at the Determined Value as set forth in clause (iv) hereof, or as otherwise agreed by the parties thereto upon the giving of written notice to such effect to the Stockholder.  

		
	iii)
	Termination of Employment.  In the event that a Stockholder is no longer employed by the Company or any Affiliate of the Company (for any or no reason), or upon the Stockholder’s (or a Participant’s) exercise of an Option following his or her termination of employment from the Company or any Affiliate of the Company (for any or no reason), the Company shall have the option to purchase, during the ninety (90) day period following the termination of employment or any later exercise, as the case may be, and the Stockholder shall be required to sell and transfer, some or all (as designated by the Company) of the terminated Stockholder’s Capital Stock at the Fair Market Value.  With regard to shares of Capital Stock subject to the option to purchase, such Stockholder shall be under the same obligation to sell or to offer to sell such shares of Capital Stock in the same manner and upon the same terms and conditions as a Stockholder under clause (iv) hereof.

		
	iv)
	Company Option.  If a Stockholder’s Capital Stock is subject to the Company’s purchase option governed by clauses (i), (ii) or (iii) hereof, the Company shall at all times have the immediate and continuing right and option for a period of ninety (90) days after the Company first receives actual notice of such Transfer to purchase such shares of Capital Stock, in accordance with the provisions of this clause (iv), at the Determined Value as of the Valuation Date.  For purposes of this clause (iv), the “Valuation Date” shall mean (A) in the case of a purchase to which clause (i) applies, the date of the termination of the marriage giving rise to the repurchase right, (B) in the case of a purchase to which clause (ii) applies, the date on which the Company receives actual notice or actual knowledge of the Involuntary Transfer, and (C) in the case of a purchase to which clause (iii) applies, the date on which the Stockholder’s employment terminates or the date on which the Stockholder (or Participant) exercises an Option following such employment termination, as the case may be.  Notwithstanding anything herein to the contrary, if the time period for the Company to exercise its purchase right hereunder would result in negative accounting treatment for the Company with respect to the Options, then the Company’s right to exercise its purchase rights shall be delayed to the minimum extent necessary for such negative accounting treatment to be avoided, the time period set forth herein shall be measured with respect to such delayed date, and this Appendix shall be deemed amended accordingly to reflect such delay.

		
	v)
	Assignment of Company Purchase Option.  The Board may freely assign the Company’s purchase option under this subsection (b), in whole or in part.  Any Stockholder who accepts an assignment of the Company’s purchase option under this subsection (b) shall assume all of the Company’s rights and obligations under this subsection (b).  

		
	c)
	Effect of Failure to Comply.  Any purported Transfer not made in compliance with the requirements of this Appendix shall be null and void ab initio, shall not be recorded on the books of the Company or its transfer agent and shall not be recognized by the Company.  By exercising an Option, the Participant acknowledges and agrees that any breach of this Appendix would result in substantial harm to the Company for which monetary damages alone could not adequately compensate.  Therefore, each Participant and the Company unconditionally and irrevocably agrees that any non-breaching party hereto shall be entitled to seek protective orders, injunctive relief and other remedies available at law or in equity (including, without limitation, seeking specific performance or the rescission of purchases, sales and other transfers of Capital Stock not made in strict compliance with this Appendix).

		
	4)
	Exempt Transfers.

		
	a)
	Notwithstanding the foregoing or anything to the contrary herein, the provisions of Sections 3(b) and 3(c) shall not apply to any Transfer by a Stockholder to a Permitted Transferee; provided, in the case of any such transfer, that such Transfer is made pursuant to a transaction in which there is no consideration actually paid for such Transfer; provided, further in a case of any transfer pursuant to this Section, such transferee shall become a party to this Appendix by executing an Adoption Agreement in a form reasonably acceptable to the Company; provided, further, that each Stockholder proposing to make a Transfer permitted by this Section shall deliver a notice to the Company and Herman Miller not later than thirty (30) days prior to the consummation of such Transfer setting forth the name of the proposed transferee and the terms and conditions of such Transfer; and provided, further, all such permitted Transfers shall be made in compliance with applicable federal and state securities laws.

		
	5)
	Drag-Along Rights.

		
	a)
	Drag-Along Rights.  If Herman Miller desires to sell, Transfer, redeem or otherwise dispose of at least a majority of the shares of Capital Stock owned by Herman Miller to a Person other than a Permitted Transferee (a “Disposition”), then, at the option of Herman Miller, the Stockholders shall be obligated to participate in such Disposition as set forth in this Section 5(a) on a pro rata basis on the same terms, price and conditions as Herman Miller.  For purposes of this Section 5(a), each Stockholder shall be obligated to dispose of a number of shares of Capital Stock in connection with the Disposition equal to its Pro Rata Share.  Herman Miller shall give the Management Stockholders written notice of any Disposition at least thirty (30) days prior to the closing of the Disposition and such notice shall (i) provide the Management Stockholders with the date of closing for the Disposition, and (ii) indicate whether Herman Miller is exercising its rights pursuant to this Section 5(a).

		
	b)
	Indemnification Obligations.  Notwithstanding anything in this Appendix to the contrary, the Stockholders shall be severally (but not jointly) obligated to join on a pro rata basis (based on each such Stockholder’s Pro Rata Share) in any indemnification obligation that Herman Miller has agreed to in connection with the Disposition subject to this Section 5 (other than any such obligations that relate specifically to a particular Stockholder, such as indemnification with respect to representations and warranties given by a Stockholder regarding such Stockholder’s title to and ownership of Capital Stock, for which such Stockholder shall be solely responsible); provided, however, that unless a prospective transferee permits a Stockholder to give a guarantee, letter of credit or other mechanism (which shall be dealt with on an individual basis), any escrow of proceeds of any such transaction shall be withheld on a pro rata basis among all Stockholders (based on the number of shares of Capital Stock being sold in such Disposition); provided further that no Stockholder shall be obligated in connection with such Disposition to indemnify the prospective transferee in an aggregate amount in excess of the net cash proceeds actually paid to and received by such Stockholder in such Disposition.  Each Stockholder shall enter into any indemnification or contribution agreement reasonably requested by Herman Miller to ensure compliance with this Section 5.  Each Stockholder shall pay its Pro Rata Share (as if such expenses reduced the aggregate proceeds available for distribution to the Stockholders in such Disposition) of the expenses incurred by the Stockholders in connection with such Disposition to the extent such expenses are incurred for the benefit of all Stockholders.  Expenses incurred by any Stockholder on its own behalf (including the fees and disbursements of counsel, advisors and other Persons retained by such Stockholder in connection with such Disposition) will not be considered costs incurred for the benefit of all Stockholders and, to the extent not paid by the Company, will be the responsibility of such Stockholder.

		
	6)
	Put and Call Rights.

		
	a)
	Put by Stockholders.  The provisions of this Section 6 shall apply solely to shares of Capital Stock that are (x) issued under the Options assumed from Design Within Reach, Inc. pursuant to the provisions of Section 1.5 of the Purchase Agreement, (y) purchased from the Company by those employees of Design Within Reach, Inc. who were permitted to purchase such shares in connection with the settlement of claims related to their purported invalid option grants, and (z) issued under the Options designated as “matching options” that are granted by the Company in connection therewith (collectively, the Options described in clauses (x) and (z) are referred to herein as the “Transaction Options”).  All references herein to the “Closing Date” shall mean the Closing Date as so defined in the Purchase Agreement. 

		
	i)
	During the first Window Period (as defined below) that includes or follows the second (2nd) anniversary of the Closing Date, a Stockholder shall have the right to require the Company to purchase at Fair Market Value from such Stockholder all or any number of the shares of Capital Stock then owned by the Stockholder equal to twenty percent (20%) of the aggregate of (A) the total number of shares of Stock subject to the Stockholder’s Transaction Options and (B) the total number of shares purchased by the  Stockholder as described in clause (y) above (collectively, the “Transaction Shares”).

		
	ii)
	During the first Window Period that includes or follows the third (3rd) anniversary of the Closing Date, the Stockholder shall have the right to require the Company to purchase from such Stockholder at Fair Market Value all or any number of shares of Capital Stock then owned by the Stockholder equal to the difference between (i) thirty percent (30%) of the Stockholder’s Transaction Shares and (ii)  the actual number of shares the Stockholder put to the Company pursuant to Section 6(a)(i).

		
	iii)
	During the first Window Period that includes or follows the fourth (4th) anniversary of the Closing Date, the Stockholder shall have the right to require the Company to purchase from such Stockholder at Fair Market Value all or any number of shares of Capital Stock then owned by the Stockholder equal to the difference between (i) forty percent (40%) of the Stockholder’s Transaction Shares less and (ii) and the actual number of shares the Stockholder put to the Company pursuant to Sections 6(a)(i) and (ii).  

		
	iv)
	During the first Window Period that includes or follows the fifth (5th) anniversary of the Closing Date, the Stockholder shall have the right to require the Company to purchase at Fair Market Value all remaining issued and outstanding Transaction Shares owned by such Stockholder.

		
	v)
	In the event that a Stockholder’s employment by the Company or any Affiliate of the Company terminates (for any or no reason), the Stockholder shall have the right to require the Company to purchase at Fair Market Value during the first Window Period that includes or follows such termination of employment all issued and outstanding shares of Stock owned by such Stockholder during such Window Period. 

		
	vi)
	In the event that, by the end of the first Window Period that includes or follows the fifth (5th) anniversary of the Closing Date, a Stockholder shall not have sold to the Company all the Transaction Shares then owned by such Stockholder, the Company shall have the option to purchase, during the thirty (30) day period following the end of such Window Period, and the Stockholder shall be required to sell and transfer, some or all (as designated by the Company) of the Transaction Shares at their Fair Market Value.  

		
	b)
	Put Procedure.  If a Stockholder shall elect to sell such Capital Stock pursuant to subsections (a)(i) through (v) above, then the Stockholder shall give written notice to the Company of such intent during the relevant Window Period.  Such notice shall specify the number of shares of Stock to be sold (the “Put Stock”) .  Such written notice shall constitute an offer to sell the Put Stock to the Company as provided therein.  Such written notice shall be accompanied by the stock certificates for the shares of Put Stock, together with stock transfer instruments executed in blank sufficient to effect the transfer of all such Put Stock, which shall be held by the Company in trust pending completion of such transaction.

		
	c)
	Call Procedure.  If the Company shall elect to purchase such Stock pursuant to subsection (a)(vi) above, then the Company shall give written notice to the Stockholder of such intent prior to the end of the thirty (30) day call period specified in subsection (a)(vi) above.  Such notice shall specify the number of shares of Stock to be purchased (the “Call Stock”).

		
	d)
	Purchase Obligations.  Upon delivery of the written notice by the Stockholder pursuant to subsection (b) hereof or the Company pursuant to subsection (c) hereof, the Company (or its designee) shall have the obligation to purchase the Put Stock, and the Stockholder shall have the obligation to sell the Call Stock, as the case may be, at a price equal to the Fair Market Value of such Stock (the “Purchase Price”).  Such Purchase Price shall be payable, upon receipt of original stock certificates and duly executed stock powers evidencing the conveyance of the Stock to Company (or its designee) in form reasonably acceptable to the Company by wire transfer to an account designated by Stockholder within thirty (30) days following receipt of such written notice.

		
	e)
	Determination of Fair Market Value; Definition of Window Period. As long as the put and/or call options set forth in this Section 6 remains outstanding, the Company shall, at its expense and on an annual basis, cause an Appraiser to determine the Fair Market Value for purposes hereof as of May 31 in accordance with Section 3(b)(iv) (the “Appraisal”).  The “Window Period” shall be the sixty (60) day period following the Company’s receipt of the annual Appraisal.  The Company shall provide notice to the Stockholders of the Window Period and a copy of the Appraisal to the Stockholders promptly following the Company’s receipt thereof.

		
	7)
	Financial Information and Reports.

		
	a)
	The Company will furnish the following information without charge to any Stockholder:

		
	i)
	as soon as practicable, but in any event within thirty (30) days after the end of each of the first three (3) quarters of each fiscal year of the Company, unaudited statements of income and of cash flows for such fiscal quarter, and an unaudited balance sheet as of the end of such fiscal quarter, with comparisons to the Approved Budget, all prepared in accordance with generally accepted accounting principles applied (“GAAP”) (except that such financial statements may (A) be subject to normal year-end audit adjustments and (B) not contain all notes thereto that may be required in accordance with GAAP); and

		
	ii)
	within sixty (60) days after the end of each fiscal year of the Company, the Company’s unaudited financial statements (balance sheet, income statement and statement of cash flow) as of the end of such fiscal year, prepared substantially in accordance with GAAP on a consistent basis (except that such financial statements may (A) be subject to normal year-end audit adjustments and (B) not contain all notes thereto that may be required in accordance with GAAP).

		
	b)
	Inspection Rights.  The Company shall, upon reasonable notice and during normal business hours, allow each Stockholder to (i) examine the books and records of the Company, and (ii) request information at reasonable times and intervals concerning the general status of the Company’s financial condition and operations; provided, that the Company may, in its discretion, not disclose or provide access to any Stockholder to highly confidential proprietary information the disclosure of which would adversely affect the attorney-client privilege between the Company and its counsel.

		
	8)
	Voting Agreement.

		
	a)
	Agreement to Vote Shares.  Each Stockholder agrees to vote all of his, her or its shares of voting securities in the Company, whether now owned or hereafter acquired or which such Stockholder may be empowered to vote (together the “Designated Shares”), from time to time and at all times, in whatever manner shall be necessary to ensure that at each annual or special meeting of stockholders at which an election of directors is held or pursuant to any written consent of the stockholders (each such case is referred to herein as a “Vote”), the following persons shall be elected to the Board at each election of directors:  

		
	i)
	Three (3) individuals designated by Herman Miller, Inc. (whose initial designees shall be Brian Walker, Ben Watson, and Timothy Lopez);

		
	ii)
	One (1) individual designated by Herman Miller, which individual shall be independent and shall have retail/consumer business experience;

		
	iii)
	So long as John McPhee is employed by the Company, one (1) individual designated by John McPhee (whose initial designee shall be John McPhee); and

		
	iv)
	So long as John Edelman is employed by the Company, one (1) individual designated by John Edelman (whose initial designee shall be John Edelman).

		
	b)
	Size of the Board.  Each Stockholder agrees to vote, or cause to be voted, all Designated Shares from time to time and at all times, in whatever manner as shall be necessary to ensure that the size of the Board shall be set and remain at six (6) directors.

		
	c)
	No Voting Trusts.  No Stockholder shall deposit, nor permit any entity under the Stockholder’s control to deposit, any of his or her Designated Shares in a voting trust or subject any of his or her Designated Shares to any agreement, arrangement or understanding with respect to the voting of his or her Designated Shares inconsistent with this Appendix.

		
	d)
	Stockholder’s Representations.  Each Stockholder severally represents that: (i) the Stockholder has the complete and unrestricted power and unqualified right (subject to spousal consent, if applicable) to become bound by and perform the terms of this Appendix; and (ii) this Appendix constitutes a valid and binding agreement with respect to the Stockholder, enforceable against the Stockholder in accordance with its terms.

		
	9)
	Specific Performance and Remedies.  The Company and each Stockholder (each a “party”) hereto acknowledge that it will be impossible to measure in money the damage to the other party(ies) if a party hereto fails to comply with the obligations imposed by this Appendix  and that, in the event of such failure, the other party(ies) will not have an adequate remedy at law or in damages.  Accordingly, injunctive relief or other equitable remedy, in addition to remedies at law or in damages, is the appropriate remedy for any such failure.  No party will oppose the granting of such relief on the basis that the other party(ies) have an adequate remedy at law.  Each party shall seek, and each party hereby waives any requirement for, the securing or posting of a bond in connection with any other party’s seeking or obtaining such equitable relief.  In addition to all other rights or remedies which any party hereto may have against any other party hereto who defaults in the performance of such party’s obligations under this Appendix, such defaulting party shall be liable to the non-defaulting party for all litigation costs and attorneys’ fees incurred by the non-defaulting party(ies) in connection with the enforcement of any of the non-defaulting party’s rights or remedies against the defaulting party.

		
	10)
	Legend.  

Each certificate representing shares of Capital Stock held by the Stockholders or issued to any permitted transferee in connection with a transfer permitted by this Appendix shall be endorsed with the following legend:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED PURSUANT TO THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR ANY STATE SECURITIES LAW, AND SUCH SECURITIES MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS, OR UNLESS THE REGISTRATION REQUIREMENT OF SUCH ACT OR SUCH LAWS IS NOT REQUIRED AND AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY IS FURNISHED TO THE COMPANY TO THE EFFECT THAT REGISTRATION UNDER SUCH ACT OR SUCH LAWS IS NOT REQUIRED.
THE SALE, PLEDGE, HYPOTHECATION OR TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO, AND IN CERTAIN CASES PROHIBITED BY, THE TERMS AND CONDITIONS OF THE HM SPRINGBOARD, INC. STOCK OPTION PLAN.  COPIES OF SUCH PLAN MAY BE OBTAINED UPON WRITTEN REQUEST TO THE SECRETARY OF THE CORPORATION.
Each Stockholder agrees that the Company may instruct its transfer agent to impose transfer restrictions on the shares represented by certificates bearing the legend referred to in this Section to enforce the provisions of this Appendix, and the Company agrees to promptly do so.  The legend shall be removed upon termination of this Appendix at the request of the holder.
		
	11)
	Miscellaneous. 

		
	a)
	Term.  This Appendix shall cease to apply, with respect to any Stockholder, when such individual ceases to be a Stockholder of the Company.  Notwithstanding the foregoing, Section 12(m) shall survive the termination of this Appendix.

		
	b)
	Stock Split.  All references to numbers of shares in this Appendix shall be appropriately adjusted to reflect any stock dividend, split, combination or other recapitalization affecting the Capital Stock occurring after the date of this Plan.

		
	c)
	Notices.  All notices and other communications given or made pursuant to this Appendix shall be in writing and shall be deemed effectively given (i) upon personal delivery to the party to be notified, (ii) when sent by confirmed electronic mail or facsimile if sent during normal business hours of the recipient, and if not so confirmed, then on the next business day, (iii) five days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (iv) one day after deposit with a nationally recognized overnight courier, specifying next day delivery, with written verification of receipt.  All communications shall be sent to:  

if the Company:
HM Springboard, Inc.    
c/o Herman Miller, Inc.
855 East Main Street
Zealand, MI  45464
Attention:   H. Timothy Lopez
Facsimile: (616) 654-5234

if the Stockholder, at his or her address most recently on file with the
Company.
or to such e-mail address, facsimile number, or address as subsequently modified by written notice given in accordance with this subsection (c).  If notice is given to the Company, a copy shall also be sent to Foley & Lardner LLP, 777 E. Wisconsin Avenue, Milwaukee, Wisconsin 53202; facsimile number: (414) 297-4900; attention Kevin D. Makowski.  Each Stockholder acknowledges and agrees to receive any communications given or made by the Company in accordance with applicable law or this Appendix by electronic mail or other electronic transmission in accordance with the email address or facsimile numbers provided by the Company.  In the event that a Stockholder changes his, her or its email address or facsimile number, such Stockholder agrees, upon request from the Company, to supply an alternative email address, if one is available.  
		
	d)
	Entire Agreement.  This Appendix constitutes the full and entire understanding and agreement between the parties with respect to the subject matter hereof, and any other written or oral agreement relating to the subject matter hereof existing between the parties are expressly canceled.  

		
	e)
	Delays or Omissions.  No delay or omission to exercise any right, power or remedy accruing to any party under this Appendix, upon any breach or default of any other party under this Appendix, shall impair any such right, power or remedy of such non-breaching or non-defaulting party nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of or in any similar breach or default thereafter occurring; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring.  Any waiver, permit, consent or approval of any kind or character on the part of any party of any breach or default under this Appendix, or any waiver on the part of any party of any provisions or conditions of this Appendix, must be in writing and shall be effective only to the extent specifically set forth in such writing.  All remedies, either under this Appendix or by law or otherwise afforded to any party, shall be cumulative and not alternative.

		
	f)
	Waivers.  No waivers of or exceptions to any term, condition or provision of this Appendix, in any one or more instances, shall be deemed to be, or construed as, a further or continuing waiver of any such term, condition or provision.  Any amendment, termination or waiver affected in accordance with this subsection shall be binding on all parties hereto, even if they do not execute such consent.

		
	g)
	Transfers, Successors and Assigns.  

		
	i)
	The terms and conditions of this Appendix shall inure to the benefit of and be binding upon the respective successors and assigns of the parties.  Nothing in this Appendix, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Appendix, except as expressly provided in this Appendix.  

		
	ii)
	The rights of the Stockholders hereunder are not assignable without the Company’s written consent, except by each Stockholder to any constituent, partner, member or stockholder of such Stockholder or to an entity or entities controlled by, or under common control with, such Stockholder.  Except as expressly set forth herein or in connection with an assignment by the Company by operation of law to the acquirer of the Company, the rights and obligations of the Company hereunder may not be assigned under any circumstances.

		
	h)
	Consent of Spouse.  If any Stockholder is married on the date this Appendix becomes applicable to such Stockholder, such Stockholder’s spouse shall execute and deliver to the Company a consent of spouse in the form prescribed by the Company (“Consent of Spouse”), effective on the date thereof.  Notwithstanding the execution and delivery thereof, such consent shall not be deemed to confer or convey to the spouse any rights in such Stockholder’s shares of Capital Stock that do not otherwise exist by operation of law or the agreement of the parties.  If any Stockholder should marry or remarry subsequent to the date this Appendix becomes applicable to such Stockholder, such Stockholder shall within thirty (30) days thereafter obtain his/her new spouse’s acknowledgement of and consent to the existence and binding effect of all restrictions contained in this Appendix by causing such spouse to execute and deliver a Consent of Spouse acknowledging the restrictions and obligations contained in this Appendix and agreeing and consenting to the same.

		
	i)
	Confidentiality.  Each Stockholder agrees that such Stockholder will keep confidential and will not disclose, divulge or use for any purpose, other than to monitor its investment in the Company, any confidential information obtained from the Company pursuant to the terms of this Appendix, unless such confidential information (i) is known or becomes known to the public in general (other than as a result of a breach of this subsection by such Stockholder), (ii) is or has been independently developed or conceived by the Stockholder without use of the Company’s confidential information or (iii) is or has been made known or disclosed to the Stockholder by a third party without a breach of any obligation of confidentiality such third party may have to the Company; provided, however, that a Stockholder may disclose confidential information (A) to its attorneys, accountants, consultants, and other professionals to the extent necessary to obtain their services in connection with monitoring its investment in the Company, (B) to any prospective investor of any Capital Stock from such Stockholder as long as such prospective investor agrees to be bound by the provisions of this subsection, or (C) as may otherwise be required by law, provided that the Stockholder takes reasonable steps to minimize the extent of any such required disclosure.Exhibit 10.1

 

CREDIT FACILITY AGREEMENT

 

THIS CREDIT FACILITY AGREEMENT (the
“Agreement”), dated as of October 2, 2014 (the “Effective Date”), is entered
into by and between Flux Power Holdings, Inc., a Nevada corporation (the “Company”), and Leon Frenkel,
an individual (the “Lender”).

 

WHEREAS, the Company has requested
that Lender make available to the Company a credit facility in a maximum principal amount at any time outstanding of up to Five
Hundred Thousand dollars ($500,000), the proceeds of which shall be used by the Company for working capital purposes; and

 

WHEREAS, Lender is willing to advance
funds to the Company upon the terms and subject to the conditions set forth herein.

 

NOW, THEREFORE,
in consideration of the above recitals and for other good and valuable consideration, the receipt and adequacy of which is hereby
acknowledged, the Company and Lender hereby agree as follows:

 

1.          Credit
Facility.

 

(a)           At
the sole discretion of the Lender, and subject to the terms and conditions of this Agreement, the Lender hereby agrees to extend
credit (the “Advances”) to the Company from time to time from the date hereof until terminated by the
parties as provided in the Secured Convertible Promissory Note, dated the date hereof (the “Note”), in
the form attached hereto as Exhibit A, and secured by all the assets of the Company as provided in the Security Agreement
dated the date hereof (the “Security Agreement”), in the form attached hereto as Exhibit C, the
terms of both of which are incorporated herein by this reference. All Advances shall be made pursuant the terms and obligations
set forth in the Note.

 

(b)           For
the purposes of the Advances, subject to the limitations, terms and conditions set forth in the Note and subject to the sole discretion
of the Lender, the Company may, from time to time, prior to the Due Date (as defined in the Note) draw down on the Note by giving
notice to the Lender of the amount to be requested to be drawn down.

 

(c)           All
Advances shall be used by the Company solely for working capital purposes.

 

(d)           This
Agreement, Note, and Security Agreement, together with all of the other agreements, documents, and instruments heretofore or hereafter
executed in connection therewith or with the Loan to be made under this Agreement, as the same may be amended, supplemented or
modified from time to time, shall collectively be referred to herein as the “Loan Documents.”

 

2.          Interest
Rate and Fees. Interest and fees shall accrue and be payable on the Advances as set forth in the Note.

 

3.          Warrant.
In consideration of Lender’s commitment to provide the Advances to the Company, the Company shall issue a warrant to Lender
in the form attached hereto as Exhibit B (the “Warrant”).

 

4.          Representations
and Warranties of the Company. As a material inducement to the Lender to enter into and execute this Agreement and to perform
its covenants, agreements, duties and obligations hereunder, and in consideration therefore, the Company hereby makes the following
representations and warranties, each of which (a) is material and is being relied upon by the Lender as a material inducement to
enter into this Agreement, and (b) is true at and as of the date hereof.

 

    	1

    	 

    

 

4.1           Authorization.
All corporate action on the part of the Company, its officers, directors and shareholders necessary for the authorization, execution
and delivery of this Agreement, the Note and the Warrant, the sale and issuance of the Note, the Warrant and the shares issuable
upon conversion of the Note and exercise of the Warrant and the performance of the Company's obligations hereunder and under the
Note and the Warrant has been taken. The Company has the requisite corporate power to enter into the Loan Documents and carry out
and perform its obligations under the terms of the Loan Documents. The Company will have the requisite corporate power to issue
and sell the Note and the Warrant, and shares of Common Stock issued upon conversion or exercise of the Note and the Warrant (collectively,
the “Securities”). The Loan Documents have been duly executed and delivered by the Company and constitutes
the valid and binding obligation of the Company, enforceable against it in accordance with its terms, except (i) as limited by
general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application
affecting enforcement of creditors’ rights generally, (ii) as limited by laws relating to the availability of specific performance,
injunctive relief or other equitable remedies, and (iii) insofar as indemnification and contribution provisions may be limited
by applicable law.

 

4.2           Organization
and Good Standing. The Company is a corporation duly organized, validly existing and in good standing under the laws of the
State of Nevada and has all requisite corporate power and authority to carry on its business as now conducted.

 

4.3           Delivery
of SEC Documents; Business. The Company has made available to the Lender through the Securities and Exchange Commission’s
(“SEC”) EDGAR system, true and complete copies of the Company’s most recent Annual Report on Form
10-K for the fiscal year ended June 30, 2013 and Form 10-Q for the quarter ended March 31, 2014, and all other reports filed by
the Company pursuant to the Exchange Act since the filing of the Form 10-Q for the quarter ended March 31, 2014, and prior to the
date hereof (collectively, the “SEC Documents”). The Company is engaged in all material respects only
in the business described in the SEC Documents and the SEC Documents contain a complete and accurate description of the business
of the Company in all material respects.

 

4.4           No
Conflict with Other Instruments. The execution, delivery and performance of this Agreement, the issuance and sale of the Securities
to be sold by the Company under this Agreement and the consummation of the actions contemplated by this Agreement will not (a)
result in any violation of, be in conflict with, or constitute a material default under, with or without the passage of time or
the giving of notice (i) any provision of the Company’s Articles of Incorporation, as amended, or Bylaws, as amended (or
similar governing documents), (ii) any provision of any judgment, arbitration ruling, decree or order to which the Company is a
party or by which the Company is bound, or (iii) any bond, debenture, note or other evidence of indebtedness, or any material lease,
contract, mortgage, indenture, deed of trust, loan agreement, joint venture or other agreement, instrument or commitment to which
the Company is a party or by which the Company or its properties is bound, or (b) result in the creation or imposition of any lien,
encumbrance, claim, security interest or restriction whatsoever upon any of the properties or assets of the Company or any acceleration
of indebtedness pursuant to any obligation, agreement or condition contained in any bond, debenture, note or any other evidence
of indebtedness or any indenture, mortgage, deed of trust or any other agreement or instrument to which the Company is a party
or by which the Company is bound or to which any of the property or assets of the Company is subject.

 

    	2

    	 

    

 

4.5           Capitalization.
As of September 11, 2014, the authorized capital stock of the Company consists of (a) 145,000,000 shares of Common Stock, of which
(i) 93,274,113 shares are issued and outstanding, (b) 32,791,320 shares are reserved for issuance upon the exercise or conversion,
as the case may be, of outstanding options, warrants or other convertible securities, and (c) 5,000,000 shares of preferred stock,
none of which are outstanding or reserved for issuance upon the exercise or conversion, as the case may be, of outstanding options,
warrants or other convertible securities. Except as disclosed in the Company SEC Documents and set forth in the Company’s
Articles of Incorporation, as amended and contemplated in the Transaction Documents, there are no anti-dilution or price adjustment
provisions, co-sale rights, registration rights, rights of first refusal or other similar rights contained in the terms governing
any outstanding security of the Company that will be triggered by the issuance of the Securities.

 

4.6           Valid
Issuance of Securities. The Note and the Warrant, and shares of Common Stock issued upon conversion or exercise of the Note
and the Warrant, when issued in compliance with the provisions of this Agreement, the Note, and the Warrant will be validly issued
and will be free of any liens or encumbrances provided, however, that the Securities may be subject to restrictions on transfer
under state and/or federal securities laws as set forth herein, and as may be required by future changes in such laws. The Company
has reserved a sufficient number of shares of Common Stock for issuance upon conversion or exercise of the Note and the Warrant.

 

4.7           Litigation.
Except as set forth in the Company SEC Documents, there is no action, suit, proceeding or investigation pending or, to the Company’s
knowledge, currently threatened against the Company that (a) if adversely determined would reasonably be expected to have a Material
Adverse Effect, or (b) would be required to be disclosed in the Company’s Annual Report on Form 10-K under the requirements
of Item 103 of Regulation S-K. The foregoing includes, without limitation, any action, suit, proceeding or investigation, pending
or threatened, that questions the validity of this Agreement or the right of the Company to enter into such Agreement and perform
its obligations hereunder. The Company is not subject to any injunction, judgment, decree or order of any court, regulatory body,
arbitral panel, administrative agency or other governmental body. For the purpose of this Agreement “Material Adverse Effect”
means (i) a material adverse effect on the results of operations, assets, business, prospects or financial condition of the Company,
or (ii) material and adverse impairment of the Company’s ability to perform its obligations under any of the Loan Documents.

 

4.8           Governmental
Consents. No consent, approval, order or authorization of, or registration, qualification, designation, declaration or filing
with any federal, state, local or provincial governmental authority on the part of the Company is required in connection with the
consummation of the transactions contemplated by this Agreement, except for notices required or permitted to be filed with certain
state and federal securities commissions, which notices will be filed on a timely basis.

 

4.9           No
Material Changes. Except as disclosed in the Company SEC Documents, since September 11, 2014, there has not been any material
change that has had a Material Adverse Effect.

 

4.10         Investment
Company. The Company is not an “investment company” or an “affiliated person” of, or “promoter”
or “principal underwriter” for an investment company, within the meaning of the Investment Company Act of 1940 and
will not be deemed an “investment company” as a result of the transactions contemplated by this Agreement.

 

4.11         No
General Solicitation. Neither the Company, nor any of its affiliates, nor any person acting on its own or their behalf, has
engaged or will engage in any form of general solicitation or general advertising (within the meaning of Regulation D promulgated
under the Securities Act of 1933, as amended (“Securities Act”)) in connection with the offer or sale
of the Securities.

 

    	3

    	 

    

 

4.12         Placement
Agent. The Company has retained Security Research Associates Inc. (“SRA”), on a best-efforts basis, as its placement
agent for the placement of debt.. The Company will pay to SRA for services rendered in conjunction with this debt financing in
the amount of Five percent (5%) of the gross proceeds raised and a warrant for the purchase of the Common Shares. The number Common
Shares subject to the warrant will equal five percent (5%) of the aggregate gross proceeds from the Note received by the Company
from the Lender divided by Twenty Cents ($0.20) per share. The warrant will have a term of three (3) years and will include cashless
exercise provisions as well as representations and warranties that are customary and standard in warrants issued to placement agents
or underwriters. The exercise price will equal Twenty Cents ($0.20). The Company also agrees to reimburse SRA periodically, upon
request, or upon termination of SRA’s services, for SRA’s expenses incurred in connection with SRA’s financial
advisory services, including fees and expenses of legal counsel, travel expenses and printing. All such non-accountable fees and
expenses for the debt offering shall not exceed a combined aggregate amount of One Thousand Dollars ($1,000).

 

4.13         Conflict
of Interest. Mr. Collins is an Executive Chairman of the Company and spends a substantial amount of time on the affairs of
the Company. In addition, Mr. Collins is the President, CEO and Founder of KleenSpeed Technologies Inc. (“KleenSpeed”).
Mr. Collins has invested and advanced more than one million dollars in and to KleenSpeed during the past six years and is the largest
of approximately 50 shareholders. Mr. Collins, as CEO of KleenSpeed, negotiated with the Company the non-binding letter of intent
(“LOI”) for the proposed acquisition of KleenSpeed by the Company (“Acquisition”)
as more fully described in the Company Form 8-K filed with the SEC on June 27, 2013. Mr. Collins is also the President and CEO
of SRA, the investment banking firm that the Company has engaged as the placement agent to assist with its private placement. Therefore,
Mr. Collins will benefit financially from the compensation derived by SRA from this Loan and other private placements in which
SRA assists with, as well as the receipt of shares from the Company if and when the contemplated Acquisition of KleenSpeed is completed
and the recovery of advances he has made to KleenSpeed. Mr. Collins has solicited the advice of other partners in SRA as to the
structure and terms of the Company’s financing.

 

5.          Representations
and Warranties of the Lender. The Lender hereby represents and warrants to the Company as follows

 

5.1           Organization,
Authority If the Lender is an entity, such Lender is a corporation, limited liability company or partnership, association,
joint stock company, trust, unincorporated organization or other entity duly organized, validly existing and in good standing under
the laws of the jurisdiction of its organization with the requisite corporate, partnership or other power and authority to enter
into and to consummate the transactions contemplated by the Transaction Documents and otherwise to carry out its obligations hereunder
and thereunder. The purchase by such Lender of the Securities hereunder has been, to the extent such Lender is an entity, duly
authorized by all necessary corporate, partnership or other action on the part of such Lender. This Agreement has been duly executed
and delivered by such Lender and constitutes the valid and binding obligation of such Lender, enforceable against it in accordance
with its terms, except (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium
and other laws of general application affecting enforcement of creditors’ rights generally, (ii) as limited by laws relating
to the availability of specific performance, injunctive relief or other equitable remedies, and (iii) insofar as indemnification
and contribution provisions may be limited by applicable law.

 

5.2           Investment
Representations. In connection with the sale and issuance of the Securities, the Lender makes the following representations:

 

(a)          Investment
for Own Account. The Lender is acquiring the Securities for its own account, not as nominee or agent, and not with a view to,
or for resale in connection with, any distribution or public offering thereof within the meaning of the Securities Act. The Lender
has no present intention of selling, granting any participation in, or otherwise distributing the Securities. The Lender does not
have any contract, undertaking, agreement or arrangement with any person to sell, transfer or grant participation in any of the
Securities to such person or to any third person.

 

    	4

    	 

    

 

(b)          SEC
Documents; Disclosure Materials. The Lender has received, read and fully understands the SEC Documents and the Disclosure Material.
The Lender acknowledges that the Lender is basing its decision to invest in the Securities on the Disclosure Material and the exhibits
thereto and has relied only on the information contained in said material and has not relied upon any representations made by any
other person. The Lender recognizes that an investment in the Securities involves substantial risks and is fully cognizant of and
understands all of the risk factors related to the purchase of the Securities, including but not limited to, those risks set forth
in the section of the SEC Documents and Disclosure Materials entitled “RISK FACTORS.”

 

(c)          Lender
Status. At the time such Lender was offered the Securities, it was, at the date hereof
it is, and on the date which it exercises any Warrants, it will be an “accredited investor” as defined in Rule 501(a)
under the Securities Act or a “qualified institutional buyer” as defined in Rule 144A(a) under the Securities Act.
Such Lender is not a registered broker dealer registered under Section 15(a) of the Exchange Act, or a member of the Financial
Industry Regulatory Authority, Inc. (“FINRA”) or an entity engaged in the business of being a broker dealer. Such Lender
is not affiliated with any broker dealer registered under Section 15(a) of the Exchange Act or a member of FINRA, or an entity
engaged in the business of being a broker dealer.

 

(d)          Representations
and Reliance. The Lender understands that the Securities are being offered and sold to it in reliance on specific exemptions
from the registration requirements of the United States federal and state securities laws and that the Company is relying upon
the truth and accuracy of the representations, warranties, agreements, acknowledgments and understandings of the Lender set forth
herein, and in the Investor Suitability Questionnaire to determine the applicability of such exemptions and the suitability of
the Lender to acquire the Securities. All information which the Lender has provided to the Company, including but not limited to,
all information given herein and in the Investor Suitability Questionnaire or otherwise, concerning itself, investor status, address,
residence, financial position and knowledge and experience of financial and business matters are correct and complete, and that
if there should be any material change in such information, the Lender will immediately provide the Company with such information.
The Lender will promptly notify the Company of any material fact or circumstance that would cause any of the foregoing representations
to be untrue, incomplete, or misleading.

 

(e)          Restricted
Securities. The Lender understands that the Securities the Lender is purchasing are characterized as “restricted securities”
under the federal securities laws inasmuch as they are being acquired from the Company in a transaction not involving a public
offering and that under such laws and regulations such securities may be resold without registration under the Securities Act only
in certain limited circumstances. The Lender is familiar with Rule 144, as presently in effect, and understands the resale limitations
imposed thereby and by the Securities Act. The Lender also acknowledges that the Company was a former “shell company”
(as defined in Rule 12b-2 under the Exchange Act) and as such the Lender understands Rule 144 is not currently available for the
sale of the Securities and may never be so available.

 

(f)          Transfer
Restrictions, Legends. The Lender understands that (i) the Securities have not been registered under the Securities Act, (ii)
the Securities are being offered and sold pursuant to an exemption from registration, based in part upon the Company’s reliance
upon the statements and representations made by the Lender, and that the Securities must be held by the Lender indefinitely and
that the Lender must, therefore, bear the economic risk of such investment indefinitely, unless a subsequent disposition thereof
is registered under the Securities Act or is exempt from such registration, and (iii) each Certificate representing the Securities
will be endorsed with a legend substantially in the following form until the earlier of (1) such date as the Securities have been
registered for resale by the Lender, or (2) the date the Securities are eligible for sale under Rule 144.

 

    	5

    	 

    

 

THE SECURITIES REPRESENTED HEREBY
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR UNDER THE SECURITIES
LAWS OF ANY STATES. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD
EXCEPT AS PERMITTED UNDER THE SECURITIES ACT AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM.
UNLESS SOLD PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, THE ISSUER OF THESE SECURITIES MAY REQUIRE
AN OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN
COMPLIANCE WITH THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS.

 

(g)          Limited
Public Market. The Lender understands and acknowledges that there is only a limited public market for the Common Stock on the
OTCQB, and which market is very volatile, and the Company has made no assurances that a broader or more active public trading market
for the Common Stock will ever exist.

 

(h)          No
Transfer. The Lender covenants not to dispose of any of the Securities other than in conjunction with an effective registration
statement under the Securities Act, or in compliance with Rule 144 or pursuant to another exemption from registration, or to an
entity affiliated with the Lender, other than in compliance with the applicable securities regulations laws of any state.

 

(i)          Investment
Experience. Lender acknowledges that the Lender is able to bear the economic risk of the Lender’s investment, including
the complete loss thereof. The Lender has a preexisting personal or business relationship with the Company or one or more of its
officers, directors or other persons in control of the Company, and the Lender has such knowledge and experience in financial or
business matters that it is capable of evaluating the merits and risks of the investment in the Securities.

 

(j)          Financial
Sophistication; Due Diligence. The Lender has such knowledge and experience in financial or business matters that it is capable
of evaluating the merits and risks of the investment in connection with the transactions contemplated in this Agreement. Such Lender
has, in connection with its decision to purchase the Securities, relied only upon the representations and warranties contained
herein and the information contained in the Company’s SEC Documents. Further, the Lender has had such opportunity to obtain
additional information and to ask questions of, and receive answers from, the Company concerning the terms and conditions of the
investment and the business and affairs of the Company as the Lender considers necessary in order to form an investment decision.

 

(k)          General
Solicitation. The Lender is not purchasing the Securities as a result of any advertisement, article, notice or other communication
regarding the Securities published in any newspaper, magazine or similar media or broadcast over the television or radio or presented
at any seminar or any other general solicitation or general advertisement. Prior to the time that the Lender was first contacted
by the Company or either of the Agents, such Lender had a preexisting and substantial relationship with the Company or one of the
Agents. The Lender will not issue any press release or other public statement with respect to the transactions contemplated by
this Agreement without the prior written consent of the Company. Other than to other parties to this Agreement, the Lender has
maintained and will continue to maintain the confidentiality of all disclosures made to Lender in connection with this transaction,
including the existence and terms of this transaction.

 

    	6

    	 

    

 

5.3           No
Investment, Tax or Legal Advice. The Lender understands that nothing in the Company SEC Documents, this Agreement, or any other
materials presented to the Lender in connection with the purchase and sale of the Securities constitutes legal, tax or investment
advice. The Lender has consulted such legal, tax and investment advisors as it, in its sole discretion, has deemed necessary or
appropriate in connection with its purchase of Securities.

 

5.4           Disclosure
of Information. The Lender understands that no United States federal or state agency or any other government or governmental
agency has passed upon or made any recommendation or endorsement of the Securities. The Lender has reviewed the documents publicly
filed by the Company with the SEC and has read and understands the risk factors disclosed therein. The Lender has received all
the information it considers necessary or appropriate for deciding whether to purchase the Securities. The Lender is solely responsible
for conducting its own due diligence investigation of the Company.

 

5.5           Additional
Acknowledgement. The Lender acknowledges that it has independently evaluated the merits of the transactions contemplated by
this Agreement, that it has independently determined to enter into the transactions contemplated hereby, that it is not relying
on any advice from or evaluation by any other person. The Lender acknowledges that, if it is a client of an investment advisor
registered with the SEC, the Lender has relied on such investment advisor in making its decision to purchase Securities pursuant
hereto.

 

5.6           No
Short Position. As of the date hereof, and from the date hereof through the date of the closing, the Lender acknowledges and
agrees that it does not and will not (between the date hereof and the date of the closing) engage in any short sale of the Company’s
voting stock or any other type of hedging transaction involving the Company’s securities (including, without limitation,
depositing shares of the Company’s securities with a brokerage firm where such securities are made available by the broker
to other customers of the firm for purposes of hedging or short selling the Company’s securities).

 

6.          Additional
Covenants.

 

6.1           Confidential
Information. The Lender covenants that it will maintain in confidence the receipt and content of any information provided in
connection with this Agreement until such information (a) becomes generally publicly available other than through a violation of
this provision by the Lender or its agents, or (b) is required to be disclosed in legal proceedings (such as by deposition, interrogatory,
request for documents, subpoena, civil investigation demand, filing with any governmental authority or similar process) provided,
however, that before making any disclosure in reliance on this Section 6.1, the Lender will give the Company at least 15 days prior
written notice (or such shorter period as required by law) specifying the circumstances giving rise thereto and the Lender will
furnish only that portion of the non-public information which is legally required and will exercise its best efforts to ensure
that confidential treatment will be accorded any non-public information so furnished provided further, that notwithstanding the
Lender’s agreement to keep such information confidential, the Lender makes no such acknowledgement that any such information
is material, non-public information.

 

    	7

    	 

    

 

6.2           Transfer
Restrictions. The Lender covenants that the Securities will only be disposed of pursuant to an effective registration statement
under, and in compliance with the requirements of, the Securities Act or pursuant to an available exemption from the registration
requirements of the Securities Act, and in compliance with any applicable state securities laws. In connection with any transfer
of Securities other than pursuant to an effective registration statement or to the Company, or at such time that the Securities
may be sold without the requirement to be in compliance with Rule 144(c)(1) and otherwise without restriction or limitation pursuant
to Rule 144, the Company may require the transferor to provide to the Company an opinion of counsel selected by the transferor,
the form and substance of which opinion shall be reasonably satisfactory to the Company, to the effect that such transfer does
not require registration under the Securities Act. The Lender agrees to the imprinting of the restrictive legend in substantially
the form set forth in Section 5.2(f).

 

7.          Notices.
All notices and other communications which may be or are required to be given pursuant to any provision of this Agreement shall
be in writing and shall be deemed given if delivered personally or by commercial delivery service, mailed by registered or certified
mail (return receipt requested), sent by reputable overnight courier or sent via facsimile (with confirmation of receipt) or by
electronic mail, in each case addressed to the particular party at:

 

	If to the Company:	Flux Power Holdings, Inc.
	 	985 Poinsettia Avenue, Suite A
	 	Vista, California 92081
	 	Attn: Chief Executive Officer
	 	 
	If to Lender:	Leon Frenkel
	 	401 E. City Line Ave., Suite 528
	 	Bala Cynwyd, PA  19004

 

or at such other address of which any party
may, from time to time, advise the other party by notice in writing given in accordance with the foregoing. The date of receipt
of any such notice shall be deemed to be the date of delivery, facsimile or email (with confirmation) thereof.

 

8.          Entire
Agreement. This Agreement, the Loan Documents and the other agreements entered into in connection herewith supersede all prior
negotiations and agreements (whether written or oral) and constitute the entire understanding among the parties hereto.

 

9.          Successors.
This Agreement shall inure to the benefit of and be binding upon the parties named herein and their respective successors and assigns.

 

10.        Headings.
The section headings contained in this Agreement are for convenience only and shall not control or affect the meaning or construction
of any of the provisions of this Agreement.

 

11.        Governing
Law. This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania, without
regard to the conflicts of law provisions.

 

12.        Delay,
Etc. No delay or omission to exercise any right, power or remedy accruing to any party hereto shall impair any such right,
power or remedy of such party, nor be construed to be a waiver of any such right, power or remedy, nor constitute any course of
dealing or performance hereunder.

 

13.        Costs
and Attorneys’ Fees. If any action, suit, arbitration proceeding or other proceeding is instituted arising out of this
Agreement, the prevailing party shall recover all of such party’s costs, including, without limitation, the court costs and
reasonable attorneys’ fees incurred therein, including any and all appeals or petitions therefrom.

 

    	8

    	 

    

 

14.        Waiver
and Amendment. Any of the terms and provisions of this Agreement may be waived at any time by the party that is entitled to
the benefit thereof, but only by a written instrument executed by such party. This Agreement may be amended only by an agreement
in writing executed by the parties hereto.

 

15.        Agreement
in Counterparts; Facsimile Signatures. This Agreement may be executed in several counterparts and all so executed shall
constitute one Agreement, binding on all parties hereto, notwithstanding that all the parties are not signatories to the original
or the same counterpart. A signature transmitted by facsimile or other electronic means shall have the same effect as an original
signature.

 

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

 

	 	COMPANY:
	 	 
	 	Flux Power Holdings, Inc.
	 	 	 
	 	By:	/s/ Ronald Dutt
	 	Name:	Ronald Dutt
	 	Title:	Chief Executive Officer and Interim Chief
	 	 	Financial Officer
	 	 	 
	 	LENDER:
	 	 	 
	 	By:	/s/ Leon Frenkel
	 	Name:	Leon Frenkel

 

    	9

    	 

    

 

EXHIBIT A

 

SECURED CONVERTIBLE PROMISSORY NOTE

 

    	 

    	 

    

 

SECURED CONVERTIBLE PROMISSORY NOTE

 

	US $500,000	October 2, 2014

 

Pursuant to the terms
of the Credit Facility Agreement by and between Flux Power Holdings, Inc., a Nevada corporation (the “Company”),
and Leon Frenkel, an individual (the “Lender”), dated as of the date hereof (the “Credit
Facility Agreement”), the Company HEREBY UNCONDITIONALLY PROMISES TO PAY to the order of Lender, the aggregate unpaid
principal amount of all advances (the “Advances”) made by Lender to the Company under the terms of this
Note, up to a maximum principal amount of Five Hundred Thousand Dollars ($500,000), of which certain amounts have already been
advanced as set forth on Attachment A hereto. The Company shall also pay interest on the aggregate unpaid principal amount
of such Advances at the rates and in accordance with the terms of this Note. Subject to conversion provision of this Note, the
entire principal amount and all accrued interest shall be due and payable two (2) years from September 19, 2014 (the “Due
Date”), unless such Due Date is extended by the Lender in writing, is earlier prepaid as herein provided, or is earlier
converted as provided in Section 4 hereof. All payments under this Note shall be made only in lawful money of the United States
of America, at such place as the Lender hereof may designate in writing from time to time. Payment shall be credited first to the
accrued interest then due and payable and the remainder to principal.

 

1.          Advances.
Lender shall, at its sole discretion, provide Advances in increments of up to One Hundred Fifty Thousand Dollars ($150,000), hereunder
so long as the total of all unpaid Advances at the time of such request does not exceed Five Hundred Thousand Dollars ($500,000)
(the “Maximum Amount”). The Lender agrees to provide the first Advance of $150,000 to the
Company upon execution of this Note. If, at any time or for any reason, the amount of Advances pursuant to this Note owed by the
Company to Lender exceeds the Maximum Amount, the Company shall immediately pay to Lender, in cash, the amount of such excess.
Lender is hereby authorized to record the date and amount of each Advance on the grid attached hereto as Attachment A and
incorporated herein and any such recordation shall constitute prima facie evidence of the accuracy of the information so
recorded.

 

2.          Interest.
Interest shall accrue on each Advance from and after the date of disbursement of such advance at an annual rate of eight percent
(8%) (the “Interest Rate”). The Interest Rate shall be payable on each anniversary of the date of this
Note.

 

3.          Prepayment.
Except for that portion of the outstanding principal, accrued but unpaid interest and/or Late Charges (as defined below) for which
the Company has received a Conversion Notice in accordance with Section 4, this Note may be prepaid in part (or in full) at any
time prior to the Due Date (except as expressly provided herein), and from time to time, without premium or penalty, and without
the prior consent of the Lender hereof, on the conditions that (a) the Company shall concurrently pay all accrued but unpaid interest
on the amount of principal outstanding at the time of each prepayment and any Late Charges then due, and (b) the Company shall
provide Lender with thirty (30) days' prior written notice (“Prepayment Notice”) of the amount of the
prepayment. If the Lender does not receive the stated prepayment within thirty (30) days after receipt of the Notice of Prepayment,
such nonpayment shall constitute a Default under this Note and such Notice of Prepayment shall be of no further force or effect.

 

4.          Conversion.

 

(a)           At
the election of Lender, all or any portion of the outstanding principal, accrued but unpaid interest and/or Late Charges may be
converted (a “Conversion”) into shares of the Company’s Common Stock (“Shares”)
at any time after the date hereof at a Conversion price of Twelve Cents ($0.12) per share (the “Conversion Price”).

 

    	1

    	 

    

 

(b)           To
effect a Conversion of this Note, the Lender shall deliver a written request to convert all or a portion of the outstanding principal,
accrued but unpaid interest and/or Late Charges (“Conversion Notice”) to the Company at its principal
office, together with this Note. At its expense, the Company shall, as soon as reasonably practicable, cause the transfer agent
to issue and deliver to the Lender at the Company's principal office, or at such other place designated by the Lender, a certificate
(“Certificate”) evidencing such shares to which the Lender is entitled upon such Conversion.

 

(c)           Conversion
shall be deemed to be effective on the date the Company receives the original Conversion Notice (“Conversion Date”).
Thereafter, the Lender shall be treated for all purposes as the record holder of such shares as of the Conversion Date.

 

(d)           No
fractional shares will be issued in connection with any Conversion hereunder.

 

(e)           All
shares which may be issued upon the exercise of the rights represented by this Note will, upon issuance, be fully paid and nonassessable,
and free from all taxes, liens and charges with respect to the issuance thereof. During the period within which the conversion
rights represented by this Note may be exercised, the Company will at all times have authorized, and reserved for the purpose of
issuance upon exercise of the conversion rights evidenced by this Note, a sufficient number of shares of Common Stock, to provide
for the exercise of the conversion rights represented by this Note.

 

(f)           
Beneficial Ownership Restrictions. In no event shall the Lender be entitled to exercise any portion of this Note if the
number of shares of Common Stock to be issued pursuant to such conversion or exercise, when aggregated with all other shares of
Common Stock owned by the Lender at such time, would result in the Lender beneficially owning (as determined in accordance with
Section 13(d) of the Securities and Exchange Act of 1934, and the rules thereunder) in excess of 9.99% of the then issued and outstanding
shares of Common Stock outstanding at such time; provided, however, that upon the Lender providing the Company with sixty-one (61)
days notice (the "Waiver Notice") that the Lender would like to waive this Section 4(f) with regard to any or all shares
of Common Stock issuable upon conversion or exercise of this Note, this Section 4(f) shall be of no force or effect with regard
to those shares of Common Stock referenced in the Waiver Notice.

 

5.          Adjustments.
The number and kind of shares issuable upon conversion of this Note and the Conversion Price shall be subject to adjustment from
time to time upon the occurrence of certain events, as follows:

 

(a)           In
case of any reclassification or change of outstanding shares issuable upon conversion of this Note (other than a change in par
value, or from par value to no par value, or from no par value to par value), or in case of any merger of the Company with or into
another corporation (other than a merger with another corporation in which the Company is a continuing corporation and which does
not result in any reclassification or change of outstanding shares issuable upon conversion of this Note), or in case of any sale
of all, or substantially all, of the Company’s assets, the Company shall, as condition precedent to such transaction, execute
a new Note, or cause such successor or purchasing corporation, as the case may be, to execute a new Note, substantially in the
form, and with the terms, conditions and provisions of this Note, and providing that the Lender of this Note shall have the right
to convert such new Note, and upon such conversion to receive in lieu of each share theretofore issuable upon exercise of this
Note, the kind and amount of shares of stock, other securities, money and property receivable upon such reclassification, change
or merger by the holder of one share of the Company’s Common Stock. Such new Note shall provide for adjustments which shall
be as nearly equivalent as may be practicable to the adjustments provided for in this Section. The provisions of this Section shall
similarly apply to successive reclassifications, changes, mergers and sales of assets.

 

    	2

    	 

    

 

(b)           If
Company, at any time while this Note remains outstanding. subdivides or combines its Common Stock, the Conversion Price shall be
proportionately decreased in the case of a subdivision or increased in the case of a combination.

 

(c)           Whenever
the Conversion Price shall be adjusted pursuant to this Section, the Company shall prepare a certificate signed by an officer of
the Company setting forth, in reasonable detail, the event requiring the adjustment, the amount of the adjustment, the method by
which such adjustment was calculated and the Conversion Price after giving effect to such adjustment, and shall cause such certificate
to be mailed by first class mail, postage prepaid, to the Lender.

 

6.          Guaranty.
Pursuant to the terms of a Guaranty between the Lender and the Flux Power, Inc., a California corporation and wholly-owned subsidiary
of the Company (“Flux Power”), in substantially the form attached hereto as Attachment 1, the indebtedness of
the Company as evidenced by this Note shall be guaranteed by Flux Power.

 

7.          Rights
of Lender. The Lender shall not be entitled to vote or receive dividends, or be deemed the record owner of shares which may
at any time be issuable on the Conversion hereof for any purpose, nor shall anything contained herein be construed to confer upon
the Lender, as such, any of the rights of a shareholder of the Company or any right to vote for the election of directors, or upon
any matter submitted to shareholders at any meeting thereof, or to give or withhold consent to any corporate action (whether upon
any recapitalization, issuance of stock, reclassification of stock, change of par value or change of stock to no par value, consolidation,
merger, conveyance, or otherwise), or to receive notice of meetings, or to receive dividends or subscription rights or otherwise,
until the Note shall have been converted and the shares issuable upon the Conversion hereof shall have become deliverable, as provided
herein.

 

8.          Default.
The occurrence of any of the following events shall constitute an “Event of Default” hereunder:

 

(a)           The
non-payment of any principal and/or interest due and owing to the Lender under this Note and such failure to make payment shall
continue for a period of five (5) days or longer from the due date; or

 

(b)           Violation
by the Company of any covenant or obligation contained in the Credit Facility Agreement or the Note, or breach of any representation
or warranty contained in the Credit Facility Agreement or herein; or

 

(c)           The
Company (i) admits in writing its inability to pay its debts as they become due, (ii) files a petition under any chapter of the
Federal Bankruptcy Code or similar law, state or federal, not or hereafter existing, (iii) makes an assignment for the benefit
of its creditors, or (iv) is adjudged a bankrupt or insolvent.

 

Upon occurrence of
an Event of Default, the Lender shall notify the Company in writing. If the Event of Default is not cured within ten (10) days
after the giving of such notice of default, the Company shall be deemed to be in default under this Agreement (a “Default”).

 

    	3

    	 

    

 

9.          Default
and Acceleration. Upon the occurrence of a Default as set forth in Sections 3 and/or 8, at the option of the Lender hereof
(i) the entire outstanding principal balance, all accrued but unpaid interest and/or Late Charges at once shall become due and
payable upon written notice to the Company, and (ii) the Lender may pursue all other rights and remedies available under this Note
or by law.

 

10.        Default
Rate of Interest. Upon the occurrence of a Default, the Company promises to pay interest on the outstanding principal balance
of this Note, together with all accrued but unpaid, interest and Late Charges, at a rate of interest equal to eighteen percent
(18%) per annum (“Default Rate”).

 

11.        Late
Charge. If the Company shall fail to make any payment due under this Note, within five (5) days after the date the same is
due and payable, the Lender, at its option, may require the payment of a late charge (“Late Charge”)
in the amount of two percent (2%) of the delinquent sum.

 

12.        Early
Discharge. Upon Conversion of this Note in full, the outstanding principal balance and all accrued but unpaid interest and
Late Charges which are converted as provided herein, shall be fully discharged and the Note shall be cancelled and surrendered
to the Company.

 

13.        Remedies
Cumulative. The rights or remedies of the Lender as provided in this Note, and any instrument securing payment of this Note,
shall be cumulative and concurrent and may be pursued at the sole discretion of the Lender singularly, successively or together
against the Company. The failure to exercise any such right or remedy shall in no event be construed as a waiver or release of
such rights or remedies or the right to exercise them at any later time.

 

14.        Forbearance.
Any forbearance of the Lender in exercising any right or remedy hereunder or under the Credit Facility Agreement, or otherwise
afforded by applicable law, shall not be a waiver of or preclude the exercise of any right or remedy. The acceptance by the Lender
of payment of any sum payable hereunder after the due date of such payment shall not be a waiver of the Lender's right to either
require prompt payment when due of all other sums payable hereunder or to declare a Default for failure to make prompt payment.
No delay or omission on the part of the Lender in exercising any right hereunder shall operate as a waiver of such right or of
any other right under this Note.

 

15.        Application
of Payments. All payments made on this Note shall be applied first to any collection costs the Lender may have incurred by
procuring the Company’s performance hereunder, then to payment of the Late Charges, then to payment of accrued but unpaid,
interest and the remainder of all such payments shall be applied to the reduction of the outstanding principal balance on this
Note.

 

16.        Costs
and Expenses. The Company shall reimburse Lender for all actual attorneys’ fees, costs and expenses arising from and
after the date hereof, incurred by Lender in connection with the enforcement of Lender’s rights under this Note and each
of the documents referred to therein, including, without limitation, actual attorneys’ fees, costs and expenses for trial,
appellate proceedings, out of court negotiations, workouts and settlements, or for enforcement of rights under any state or federal
statute, including, without limitation, actual attorneys’ fees, costs and expenses incurred in bankruptcy and insolvency
proceedings such as, but not limited to, in connection with seeking relief from stay in a bankruptcy proceeding. The term “expenses,”
as used herein, means any expenses incurred by Lender in connection with any of the out of court, state, federal or bankruptcy
proceedings referenced above, including but not limited, to the fees and expenses of any appraisers, consultants and expert witnesses
retained or consulted by Lender in connection therewith. Lender shall also be entitled to its attorneys’ fees, costs and
expenses incurred in any post judgment proceedings to collect and enforce the judgment. This provision is separate and several
and shall survive the merger of this Note into any judgment on this Note.

 

    	4

    	 

    

 

17.        Usury.
In the event the interest provisions hereof, any exactions provided for herein or in the Credit Facility Agreement, shall result
in an effective rate of interest which exceeds the limit of the usury or any other applicable law, all sums in excess of those
lawfully collectible as interest for the period in question shall, without further agreement or notice between or by any party
hereto, be applied upon the outstanding principal balance of this Note immediately upon receipt of such moneys by the Lender, and
any such amount in excess of such outstanding principal balance shall be returned to the Company.

 

18.        Severance.
Whenever possible, each provision of the Note shall be interpreted in such a manner as to be effective and valid under all applicable
laws and regulations. However, if any provision of this Note shall be prohibited by or invalid under any such law or regulation
in any jurisdiction, it shall, as to such jurisdiction, be deemed modified to conform to the minimum requirements of such law or
regulation, or if for any reason it is not deemed so modified, it shall be ineffective and invalid only to the extent of such prohibition
or invalidity without affecting the remaining provisions of this Note, or the validity or effectiveness of such provision in any
other jurisdiction.

 

19.        No
Amendment or Waiver Except in Writing. This Note may be amended or modified only by a writing duly executed by the Company
and Lender, which expressly refers to this Note and the intent of the parties so to amend this Note. No provision of this Note
will be deemed waived by Lender, unless waived in writing executed by Lender, which expressly refers to this Note, and no such
waiver shall be implied from any act or conduct of Lender or any omission by Lender to take action with respect to any provision
of this Note. No such express written waiver shall affect any other provision of this Note or cover any default or time period
or event, other than the matter as to which an express written waiver has been given. The Company may not assign or delegate this
Note without the prior written consent of Lender.

 

20.        Governing
Law. The Company and Lender each: (i) acknowledge and agree that, in any suit, action or proceeding under this Note, the courts
of the Commonwealth of Pennsylvania or the courts of the United States District Court for the Eastern District of Pennsylvania
shall have the exclusive jurisdiction thereof, (ii) consent to the jurisdiction of such court, and (iii) consent to and waives
any objection which they now has or may hereafter have to proper venue existing in any of such courts. The Note shall in all respects
be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania without regard to its conflicts of
law.

 

21.        No
Benefit. Nothing expressed in or to be implied from this Note is intended to give, or shall be construed to give, any person
or entity, other than the parties hereto and their permitted successors and assigns hereunder, any benefit or legal or equitable
right, remedy or claim under or by virtue of this Note, or under or by virtue of any provision herein.

 

22.        Agreement
in Counterparts; Facsimile Signatures. This Note may be executed in several counterparts and all so executed shall constitute
one Note, binding on all parties hereto, notwithstanding that all the parties are not signatories to the original or the same counterpart.
A signature transmitted by facsimile or other electronic means shall have the same effect as an original signature.

 

23.        Notices.
Notices under this Note shall be in writing and shall be valid and sufficient if transmitted as provided in the Credit Facility
Agreement.

 

24.        Miscellaneous.

 

(a)           The
meaning of defined terms shall be equally applicable to both the singular and plural forms of the terms defined.

 

    	5

    	 

    

 

(b)          References
to agreements and other contractual instruments shall be deemed to include all subsequent amendments and other modifications thereto.

 

(c)          References
to statutes or regulations are to be construed as including all statutory and regulatory provisions consolidating, amending or
replacing the statute or regulation referred to.

 

(d)          Any
captions and headings are for convenience of reference only and shall not affect the construction of this Note.

 

    	6

    	 

    

 

IN WITNESS WHEREOF,
the undersigned duly authorized officer of the Company has executed this Note as of the date first set forth above.

 

	 	Company
	 	 
	 	Flux Power Holdings, Inc.,
	 	a Nevada corporation
	 	 	 
	 	By: 	/s/ Ron Dutt
	 	Name:	Ron Dutt
	 	Title:	Chief Executive Officer and Interim Chief 
	 	 	Financial Officer

 

    	7

    	 

    

 

ATTACHMENT A

 

SCHEDULE OF ADVANCES

 

	Date of Advance	 	 	Amount Advanced	 	 	Amount Repaid	 	 	Amount Available	 
	 	 	 	 	 	 	 	 	 	 	 
	 	September 19, 2014	 	 	$	50,000	 	 	$	0	 	 	$	450,000	 
	 	October 2, 2014	 	 	$	50,000	 	 	$	0	 	 	$	400,000	 

 

    	 

    	 

    

 

ATTACHMENT 1

 

GUARANTY

 

    	 

    	 

    

 

GUARANTY

 

THIS GUARANTY
(“Guaranty”) is made and given by Flux Power, Inc., a California corporation (the “Guarantor”)
to Leon Frenkel, an individual (“Lender”) and is entered into effective as of October 2, 2014 (the “Effective
Date”).

 

RECITALS

 

WHEREAS, Flux
Power Holdings, Inc., a Nevada corporation and parent of the Guarantor (“Borrower”) and the Lender entered
into a certain Credit Facility Agreement dated as of even date pursuant to which the Borrower issued a Secured Convertible Promissory
Note for up to $500,000 in favor of the Lender (the “Note”); and this Guaranty is also an exhibit to
such Note; and

 

WHEREAS, in
consideration for and as a condition of Lender agreeing to loan monies to Borrower as evidenced by the Note, Lender is requesting
that the Guarantor guaranty Borrower’s obligation and performance under the Note, and Guarantor is willing to grant such
guaranty pursuant to the terms of this Agreement.

 

AGREEMENT

 

NOW, THEREFORE,
in consideration of the foregoing and the mutual promises, set forth herein and for other good and valuable consideration, the
receipt and adequacy of which are hereby acknowledged, stipulated and agreed, Guarantor hereby agrees as follows:

 

1.            Guaranteed
Obligations. At any time after the Effective Date, should an “Event of Default” as defined in the Note occur, Guarantor
agrees to be jointly and severally liable along with Borrower for any and all such amounts owed under the Note.

 

2.            Lender’s
Rights. The rights and remedies of Lender hereunder or as otherwise provided by law are cumulative and the exercise
of any one or more of those rights or remedies will not be construed as a waiver of any of the other rights or remedies of Lender.
No delay or omission of Lender under this Guaranty in exercising any right or power arising from any Event of Default will prevent
Lender from exercising that right or power if the Event of Default continues. No waiver of an Event of Default, whether full or
partial, by Borrower will be taken to extend to any subsequent default, or to impair the rights of Lender in respect of the Note.
The giving, taking or enforcement of security, collateral or guarantee for the payment or discharge of the Note will in no way
operate to prejudice, waive or affect this Guaranty or any rights, powers or remedies exercised hereunder.

 

3.            Continuing
Guaranty. This Guaranty will be a continuing guaranty and will terminate only upon full payment of all amounts and all other
sums due and payable in connection with the Note and the performance of all of the terms, covenants, and conditions required to
be kept, observed, or performed in connection with the Note.

 

4.            Waivers.
Guarantor waive all presentments, demands for performance, notices of nonperformance, protests, notices of protests, notices of
dishonor, and notices of acceptance of this Guaranty. In addition, Guarantor waives any right to require Lender to proceed first
against Borrower.

 

5.            Assigns.
Guarantor may not assign this Guaranty without the prior written consent of Lender. Lender may, without notice, assign this Guaranty
along with the Note in whole or in part.

 

    	 

    	 

    

 

6.            Governing
Law; Venue. The Guarantor and Lender each: (i) acknowledge and agree that, in any suit, action or proceeding under this Note,
the courts of the Commonwealth of Pennsylvania or the courts of the United States District Court for the Eastern District of Pennsylvania
shall have the exclusive jurisdiction thereof, (ii) consent to the jurisdiction of such court, and (iii) consent to and waives
any objection which they now has or may hereafter have to proper venue existing in any of such courts. This Guaranty shall in all
respects be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania without regard to its conflicts
of law.

 

7.            Attorneys
Fees. Guarantor will pay all reasonable attorneys’ fees and all other costs and expenses which may be incurred by Lender
in the enforcement of this Guaranty.

 

8.            Indemnification.
Guarantor agree to indemnify and hold harmless Lender with respect to all claims, demands, losses, costs, expenses, liabilities
and damages, including but not limited to, interest, penalties, and reasonable attorney fees and amounts paid in settlement, which
Lender may directly or indirectly incur or suffer by reason of, or which results, arises out of or is based upon any failure by
Guarantor to perform in connection herewith.

 

9.            Amendment
and Modification. No amendment or waiver of any provision of this Guaranty nor consent to any departure from the terms of this
Guaranty by the Guarantor will in any event be effective unless the same will be in writing and signed by Lender and Guarantor,
and then such waiver or consent will be effective only in the specific instance and for the specific purpose for which given.

 

10.           Notices.
All notices and other communications which may be or are required to be given pursuant to any provision of this Agreement shall
be in writing and shall be deemed given if delivered personally or by commercial delivery service, mailed by registered or certified
mail (return receipt requested), sent by reputable overnight courier or sent via facsimile (with confirmation of receipt) or by
electronic mail, in each case addressed to the particular party at:

 

	If to the Guarantor:	Flux Power, Inc.
	 	985 Poinsettia Avenue, Suite A
	 	Vista, California 92081
	 	Attn: Chief Executive Officer
	 	 
	If to Lender:	Leon Frenkel
	 	401 E. City Line Ave., Suite 528
	 	Bala Cynwyd, PA  19004

 

11.           Termination.
This Guaranty will only terminate upon full satisfaction of the Note. Such satisfaction shall be evidenced by a writing signed
by Lender.

 

    	 

    	 

    

 

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

 

	 	GUARANTOR:
	 	 
	 	Flux Power, Inc.
	 	 
	 	By:	/s/ Ronald Dutt
	 	Name:	Ronald Dutt
	 	Title:	Chief Executive Officer 
	 	 	 
	 	LENDER:
	 	 	 
	 	By:	/s/ Leon Frenkel
	 	Name:	Leon Frenkel

 

    	 

    	 

    

 

EXHIBIT B

 

WARRANTS

 

    	 

    	 

    

 

THIS WARRANT CERTIFICATE AND
THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES
ACT”) OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER THE
SECURITIES ACT AND UNDER APPLICABLE STATE SECURITIES LAWS OR THE ISSUER SHALL HAVE RECEIVED AN OPINION OF COUNSEL REASONABLY SATISFACTORY
TO THE ISSUER THAT REGISTRATION OF SUCH SECURITIES UNDER THE SECURITIES ACT AND UNDER THE PROVISIONS OF APPLICABLE STATE SECURITIES
LAWS IS NOT REQUIRED.

 

FLUX POWER HOLDINGS, INC. 

 

WARRANT CERTIFICATE

 

 

	Original Date of Issuance: October 2, 2014	No.: W-084

 

THIS WARRANT CERTIFICATE is given
in connection with the Credit Facility Agreement dated October 2, 2014 (“Agreement”) , by and between
Flux Power Holdings, Inc., a Nevada corporation (the “Issuer”), and Leon Frenkel, an individual.

 

This Warrant Certificate
(“Warrant Certificate”) certifies that for value received, Leon Frenkel, an individual, or its registered
assigns (the “Holder”) is entitled to subscribe for and purchase, during the Term (as hereinafter defined),
the number of Warrants (“Warrants”) as determined below, each of which entitles the Holder thereof to
purchase during the term, one fully paid and non-assessable share of common stock, $.001 par value per share, of the Issuer, at
an exercise price per share equal to $0.20 (the “Warrant Price”), as may be adjusted, subject, however,
to the provisions and upon the terms and conditions hereinafter set forth. Capitalized terms used in this Warrant Certificate and
not otherwise defined herein shall have the respective meanings specified in Section 6 hereof.

 

The number of Warrants that Holder will
be entitled to will be based on the following formula:

 

Warrants = (A/0.12) x 100%

 

A =         the
aggregate amount of Advances (irrespective of any prepayments by the Company) made under the October 2, 2014 Secured Convertible
Promissory Note (“Note”) issued by the Company to the Holder under the Agreement, up to $500,000.

 

    	1

    	 

    

 

1.            Term.
The term of this Warrant Certificate shall commence on the Original Issue Date and shall expire at 6:00 p.m., Eastern Time, on
the fifth anniversary of the Original Issue Date (such period being the “Term”).

 

2.            Method
of Exercise; Payment; Issuance of New Warrant Certificate; Transfer and Exchange.

 

(a)          Time
of Exercise. The purchase rights represented by this Warrant Certificate may be exercised at any time during the Term.

 

(b)          Method
of Exercise. Each Warrant shall entitle the Holder to purchase one share of common stock of the Issuer at the Warrant Price.
The Holder hereof may exercise the Warrants, in whole or in part, by the surrender of the Warrant Certificate (with the exercise
form attached hereto duly executed) at the principal office of the Issuer, and by the payment to the Issuer of an amount of consideration
therefor equal to the Warrant Price in effect on the date of such exercise multiplied by the number of shares of Warrant Stock
with respect to which the Warrant Certificate is then being exercised, payable at such Holder’s election by certified or
official bank check or by wire transfer to an account designated by the Issuer.

 

(c)          The
Holder may, at its election exercised in its sole discretion, exercise this Warrant and, in lieu of making the cash payment otherwise
contemplated to be made to the Company upon such exercise in payment of the Warrant Price for the Warrant Shares specified in this
Warrant, elect instead to receive upon such exercise the “Net Number” of shares of Common Stock determined according
to the following formula (a “Cashless Exercise”):

 

	Net Number =	(A x B) - (A x C)	 
	 	B	 

 

For purposes of the foregoing formula:

 

A= the total number of shares
with respect to which this Warrant is then being exercised.

 

B= the Closing Price of the Common
Stock on the trading day immediately preceding the date of the notification by the Holder to the Company of a Cashless Exercise.

 

C=
the Warrant Price then in effect at the time of such exercise.

 

(d)          Issuance
of Stock Certificates. In the event of any exercise of the Warrants in accordance with and subject to the terms and conditions
hereof, certificates for the shares of Warrant Stock so purchased shall be dated the date of such exercise and delivered to the
Holder hereof within a reasonable time

 

    	2

    	 

    

 

(e)          Transferability
of Warrant. Subject to Section 2(f) hereof, the Warrants may be transferred by a Holder, in whole or in part, without
the consent of the Issuer. If transferred pursuant to this paragraph, the Warrants may be transferred on the books of the Issuer
by the Holder hereof in person or by duly authorized attorney, upon surrender of this Warrant Certificate at the principal office
of the Issuer, properly endorsed (by the Holder executing an assignment in the form attached here to) and upon payment of any necessary
transfer tax or other governmental charge imposed upon such transfer. This Warrant Certificate is exchangeable at the principal
office of the Issuer for Warrants to purchase the same aggregate number of shares of Warrant Stock, each new Warrant to represent
the right to purchase such number of shares of Warrant Stock as the Holder hereof shall designate at the time of such exchange.
All Warrants issued on transfers or exchanges shall be dated the Original Issue Date and shall be identical with this Warrant Certificate
except as to the number of shares of Warrant Stock issuable pursuant thereto.

 

(f)          Compliance
with Securities Laws.

 

(i)          The
Holder of this Warrant Certificate, by acceptance hereof, acknowledges that the Warrants and the shares of Warrant Stock to be
issued upon exercise hereof are being acquired solely for the Holder’s own account and not as a nominee for any other party,
and for investment, and agrees that the Holder will not acquire the Warrant Stock, offer, sell or otherwise dispose of this Warrant
or any shares of Warrant Stock to be issued upon exercise hereof except pursuant to an effective registration statement, or an
exemption from registration, under the Securities Act and any applicable state securities laws.

 

(ii)         This
Warrant Certificate and all certificates representing shares of Warrant Stock issued upon exercise hereof shall be stamped or imprinted
with a legend in substantially the following form:

 

THIS WARRANT CERTIFICATE, THE WARRANTS,
AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES
ACT”) OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER THE
SECURITIES ACT AND UNDER APPLICABLE STATE SECURITIES LAWS OR THE ISSUER SHALL HAVE RECEIVED AN OPINION OF COUNSEL REASONABLY SATISFACTORY
TO THE ISSUER THAT REGISTRATION OF SUCH SECURITIES UNDER THE SECURITIES ACT AND UNDER THE PROVISIONS OF APPLICABLE STATE SECURITIES
LAWS IS NOT REQUIRED.

 

(g)          Loss,
Theft, Destruction of Warrants. Upon receipt of evidence satisfactory to the Issuer of the ownership of and the loss, theft,
destruction or mutilation of any Warrant and, in the case of any such loss, theft or destruction, upon receipt of indemnity or
security satisfactory to the Issuer or, in the case of any such mutilation, upon surrender and cancellation of such Warrant, the
Issuer will make and deliver, in lieu of such lost, stolen, destroyed or mutilated Warrant, a new Warrant of like tenor and representing
the right to purchase the same number of shares of Warrant Stock.

 

(h)          Beneficial
Ownership Restrictions. In no event shall the Holder be entitled to exercise any portion of this Warrant if the number of shares
of Common Stock to be issued pursuant to such conversion or exercise, when aggregated with all other shares of Common Stock owned
by the Holder at such time, would result in the Holder beneficially owning (as determined in accordance with Section 13(d) of the
Securities and Exchange Act of 1934, and the rules thereunder) in excess of 9.99% of the then issued and outstanding shares of
Common Stock outstanding at such time; provided, however, that upon the Holder providing the Company with sixty-one (61) days notice
(the "Waiver Notice") that the Holder would like to waive this Section 2(h) with regard to any or all shares of Common
Stock issuable upon conversion or exercise of this Warrant, this Section 2(h) shall be of no force or effect with regard to those
shares of Common Stock referenced in the Waiver Notice.

 

    	3

    	 

    

 

3.            Adjustment
of Warrant Price and Number of Shares Issuable Upon Exercise. The Warrant Price and the Warrant Share Number shall be subject
to adjustment from time to time as set forth in this Section 3. The Issuer shall give the Holder notice of any event described
below that requires an adjustment pursuant to this Section 3 in accordance with the notice provisions set forth in Section
4.

 

(a)          Recapitalization,
Reorganization, Reclassification, Consolidation, Merger or Sale.

 

(i)          In
case the Issuer after the Original Issue Date shall do any of the following (each, a “Triggering Event”):
(A) consolidate or merge with or into any other Person and the Issuer shall not be the continuing or surviving corporation of such
consolidation or merger, or (B) permit any other Person to consolidate with or merge into the Issuer and the Issuer shall be the
continuing or surviving Person but, in connection with such consolidation or merger, any Capital Stock of the Issuer shall be changed
into or exchanged for Securities of any other Person or cash or any other property, or (C) transfer all or substantially all of
its properties or assets to any other Person, or (D) effect a capital reorganization or reclassification of its Capital Stock,
then, and in the case of each such Triggering Event, proper provision shall be made to the Warrant Price and the number of shares
of Warrant Stock that may be purchased upon exercise of this Warrant Certificate so that, upon the basis and the terms and in the
manner provided in this Warrant Certificate the Holder of this Warrant Certificate shall be entitled upon the exercise hereof at
any time after the consummation of such Triggering Event, to the extent the Warrants are not exercised prior to such Triggering
Event, to receive at the Warrant Price as adjusted to take into account the consummation of such Triggering Event, in lieu of the
Warrant Stock issuable upon such exercise of the Warrants prior to such Triggering Event, the Securities, cash and property to
which such Holder would have been entitled upon the consummation of such Triggering Event if such Holder had exercised the rights
represented by this Warrant Certificate immediately prior thereto subject to adjustments (subsequent to such corporate action)
as nearly equivalent as possible to the adjustments provided for elsewhere in this Section 3. Upon the occurrence of a Triggering
Event, the Issuer shall notify the Holder in writing of such Triggering Event and provide the calculations in determining the amount
of issuable Securities, cash or property issuable upon exercise of the new warrant and the adjusted Warrant Price. Upon the Holder’s
request, the continuing or surviving corporation as a result of such Triggering Event shall issue to the Holder a new warrant of
like tenor evidencing the right to purchase the adjusted amount of Securities, cash or property and the adjusted Warrant Price
pursuant to the terms and provisions of this Section 3(a)(i).

 

(b)          Stock
Dividends, Subdivisions and Combinations. If at any time the Issuer shall:

 

(i)          make
or issue or set a record date for the holders of the Common Stock for the purpose of entitling them to receive a dividend payable
in, or other distribution of, shares of Common Stock,

 

(ii)         subdivide
its outstanding shares of Common Stock into a larger number of shares of Common Stock, or

 

(iii)        combine
its outstanding shares of Common Stock into a smaller number of shares of Common Stock, then (A) the number of
shares of Warrant Stock for which this Warrant Certificate is exercisable immediately after the occurrence of any such event shall
be adjusted to equal the number of shares of Warrant Stock which a record holder of the same number of shares of Warrant Stock
for which this Warrant Certificate is exercisable immediately prior to the occurrence of such event would own or be entitled to
receive after the happening of such event, and (B) the Warrant Price then in effect shall be adjusted to equal (1) the Warrant
Price then in effect multiplied by the number of shares of Warrant Stock for which this Warrant is exercisable immediately prior
to the adjustment divided by (2) the number of shares of Warrant Stock for which this Warrant is exercisable immediately after
such adjustment.

 

    	4

    	 

    

 

4.            Notice
of Adjustments. Whenever the Warrant Price or Warrant Share Number is adjusted pursuant to Section 3 hereof (for purposes
of this Section 4, each an “Adjustment”), the Issuer shall cause its Chief Financial Officer
to prepare and execute a certificate setting forth, in reasonable detail, the event requiring the Adjustment, the amount of the
Adjustment, the method by which such Adjustment was calculated (including a description of the basis on which the Board made any
determination hereunder), and the Warrant Price and Warrant Share Number after giving effect to such Adjustment, and shall cause
copies of such certificate to be delivered to the Holder of this Warrant Certificate promptly after each Adjustment.

 

5.            Fractional
Shares. No fractional shares of Warrant Stock will be issued in connection with any exercise hereof, but in lieu of such fractional
shares, the Issuer shall round the number of shares to be issued upon exercise up to the nearest whole number of shares.

 

6.            Definitions.
For the purposes of this Warrant Certificate, the following terms have the following meanings:

 

“Advances”
shall have the meaning ascribed to it in the Note.

 

“Board”
shall mean the Board of Directors of the Issuer.

 

“Capital
Stock” means and includes (i) any and all shares, interests, participations or other equivalents of or interests
in (however designated) corporate stock, including, without limitation, shares of preferred or preference stock, (ii) all partnership
interests (whether general or limited) in any Person which is a partnership, (iii) all membership interests or limited liability
company interests in any limited liability company, and (iv) all equity or ownership interests in any Person of any other type.

 

“Closing Price”
means, on any particular date, (a) the last reported closing bid price per share of Common Stock on such date on the Trading Market,
or (b) if there is no such price on such date, the closing bid price on the Trading Market on the date nearest preceding such date,
or (c) if the Common Stock is not then listed or quoted for the Trading Market and if prices for the Common Stock are then reported
in the “pink sheets” published by Pink Sheets LLC (or a similar organization or agency succeeding to its functions
of reporting prices), the most recent bid price per share of the Common Stock so reported, or (d) if the shares of Common Stock
are not publicly traded, the fair market value of a share of Common Stock as determined by a qualified, independent appraiser selected
in good faith by the Company and reasonably acceptable to the Holder.

 

“Common
Stock” means the common stock, $0.001 par value per share, of the Issuer and any other Capital Stock into which such
stock may hereafter be changed.

 

“Issuer”
means Flux Power Holdings, Inc., a Nevada corporation, and its successors.

 

“Original Issue Date”
means date set forth on face of this Warrant Certificate.

 

    	5

    	 

    

 

“Person”
means an individual, corporation, limited liability company, partnership, joint stock company, trust, unincorporated organization,
joint venture, Governmental Authority or other entity of whatever nature.

 

“Securities”
means any debt or equity securities of any Person, whether now or hereafter authorized, any instrument convertible into or exchangeable
for Securities or a Security, and any option, warrant or other right to purchase or acquire any Security. “Security”
means one of the Securities.

 

“Securities
Act” means the Securities Act of 1933, as amended, or any similar federal statute then in effect.

 

“Term”
has the meaning specified in Section 1 hereof.

 

“Warrant
Share Number” means at any time the aggregate number of shares of Warrant Stock which may at such time be purchased
upon exercise of this Warrant Certificate, after giving effect to all prior adjustments and increases to such number made or required
to be made under the terms hereof.

 

“Warrant
Stock” means Common Stock issued or issuable upon exercise of any Warrant or Warrants or otherwise issuable pursuant
to any Warrant or Warrants.

 

7.            Amendment
and Waiver. Any term, covenant, agreement or condition in this Warrant Certificate may be amended or waived (either generally
or in a particular instance and either retroactively or prospectively) only with the written consent of the Issuer and the Holder.

 

8.            Governing
Law. This Warrant Certificate shall be governed by and construed in accordance with the internal laws of the State of Nevada,
without giving effect to any of the conflicts of law principles which would result in the application of the substantive law of
another jurisdiction. This Warrant Certificate shall not be interpreted or construed with any presumption against the party causing
this Warrant Certificate to be drafted.

 

9.           Notices.
All notices and other communications given or made pursuant to this Warrant Certificate shall be in writing and shall be deemed
effectively given upon the earlier of actual receipt or: (i) personal delivery to the party to be notified, (ii) when sent, if
sent by electronic mail or facsimile during normal business hours of the recipient, and if not sent during normal business hours,
then on the recipient’s next business day, (iii) five (5) days after having been sent by registered or certified mail, return
receipt requested, postage prepaid, or (iv) one (1) business day after deposit with a nationally recognized overnight courier,
freight prepaid, specifying next business day delivery, with written verification of receipt. All communications shall be sent
to the respective parties at the address indicated for such party in the Purchase Agreement, or at such other address as such party
may designate by 10 days advance written notice to the other party given in the foregoing manner.

 

10.           Successors
and Assigns. This Warrant Certificate and the rights evidenced hereby shall inure to the benefit of and be binding upon the
successors and assigns of the Issuer, the Holder hereof and (to the extent provided herein) the holders of Warrant Stock issued
pursuant hereto, and shall be enforceable by any such Holder or holder of Warrant Stock.

 

11.           Modification
and Severability. If, in any action before any court or agency legally empowered to enforce any provision contained herein,
any provision hereof is found to be unenforceable, then such provision shall be deemed modified to the extent necessary to make
it enforceable by such court or agency. If any such provision is not enforceable as set forth in the preceding sentence, the unenforceability
of such provision shall not affect the other provisions of this Warrant Certificate, but this Warrant Certificate shall be construed
as if such unenforceable provision had never been contained herein.

 

    	6

    	 

    

 

12.           Titles
and Subtitles. The titles and subtitles used in this Warrant Certificate are used for convenience only and are not to be considered
in construing or interpreting this Warrant Certificate.

 

13.           Force
Majeure. Neither party shall be liable for any delays or failures in performance resulting from acts beyond its reasonable
control including, without limitation, acts of God, terrorist acts, shortage of supply, breakdowns or malfunctions, interruptions
or malfunction of computer facilities, or loss of data due to power failures or mechanical difficulties with information storage
or retrieval systems, labor difficulties, war, or civil unrest.

 

IN WITNESS WHEREOF,
the Issuer has executed this Warrant Certificate as of the day and year first above written.

 

	 	 	FLUX POWER HOLDINGS, INC.
	 	 	 
	 	 	By:	/s/ Ronald Dutt
	 	 	 	Name: Ronald Dutt
	 	 	 	Title: Chief Executive Officer and Interim Chief Financial Officer
	 	 	 
	Acknowledged and Agreed Upon By:	 	 
	 	 	 
	“Holder”	 	 
	 	 	 
	/s/ Leon Frenkel	 	 
	Leon Frenkel	 	 

 

    	7

    	 

    

 

EXERCISE FORM

WARRANT

FLUX POWER HOLDINGS, INC.

 

The undersigned __________________, pursuant to the
provisions of the within Warrant Certificate (the “Warrant”), hereby elects to exercise __________________
warrants to purchase __________ shares of Common Stock of Flux Power Holdings, Inc. covered by the Warrant.

 

Number of shares of Common Stock beneficially owned or deemed
beneficially owned by the Holder on the date of Exercise:

 

Holder represents and warrants that Holder
is acquiring the Warrant Stock pursuant to an effective registration statement, or an exemption from registration, under the Securities
Act and any applicable state securities laws.

 

The undersigned intends that payment of the Warrant Price shall
be made as a cash exercise.

 

	Dated:	 	 	Signature	 
	 	 	 	 	 
	 	 	 	Print	 
	 	 	 	Name	 
	 	 	 	Address	 

 

    	 

    	 

    

 

ASSIGNMENT

 

FOR VALUE RECEIVED,   hereby
sells, assigns and transfers unto _____, ____ warrants under Warrant Certificate No. ____ and all rights evidenced
thereby and does irrevocably constitute and appoint _____________, attorney, to transfer the said Warrant on the books of the within
named corporation.

 

	Dated:	 	 	Signature	 
	 	 	 	 	 
	 	 	 	Address	 
	 	 	 	 	 
	 	 	 	 	 

 

FOR USE BY THE ISSUER ONLY:

 

This Warrant Certificate No. W-
_____ cancelled (or transferred or exchanged) this _____ day of ________________, ________________ shares of Common Stock
issued therefor in the name of ________________ , Warrant No. W-________________ issued for ________________ shares of
Common Stock in

the name of ________________.

 

    	 

    	 

    

 

EXHIBIT C

 

SECURITY AGREEMENT

 

    	 

    	 

    

 

SECURITY AGREEMENT

 

SECURITY AGREEMENT (this “Agreement”),
dated as of October 2, 2014, by and among Flux Power Holdings, Inc., a Nevada corporation (“Flux Power Holdings”),
Flux Power, Inc., a California corporation and wholly-owned subsidiary of Flux Power Holdings (“Flux Power”
and together with Flux Power Holdings referred to herein collectively, as the “Company”) and the secured party’s
signatory hereto and its respective endorsees, transferees and assigns ( the “Secured Party”).

 

WITNESSETH:

 

WHEREAS, the Flux Power
Holdings has agreed to issue to the Secured Party and the Secured Party has agreed to advance funds to Flux Power Holdings from
time to time pursuant to the terms of 8% Secured Convertible Promissory Note, due September 19, 2016 (the “Note”),
which is convertible into shares of the Company’s Common Stock (the “Common Stock”) and guaranteed by
Flux Power; and

 

WHEREAS, in order to
induce the Secured Party to advance such funds under the Note , the Company has agreed to execute and deliver to the Secured Party
this Agreement for the benefit of the Secured Party and to grant to it a first priority security interest in certain property of
the Company to secure the prompt payment, performance and discharge in full of all of Flux Power Holdings’ obligations under
the Note.

 

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

 

1.          Certain
Definitions. As used in this Agreement, the following terms shall have the meanings set forth in this Section 1. Terms used
but not otherwise defined in this Agreement that are defined in Article 9 of the UCC (such as “proceeds”) shall
have the respective meanings given such terms in Article 9 of the UCC.

 

(a)          “Collateral”
means the collateral in which the Secured Party is granted a security interest by this Agreement and which shall include the following,
whether presently owned or existing or hereafter acquired or coming into existence, and all additions and accessions thereto and
all substitutions and replacements thereof, and all proceeds, products and accounts thereof, including, without limitation, all
proceeds from the sale or transfer of the Collateral and of insurance covering the same and of any tort claims in connection therewith:

 

(i)          All
Goods of the Company, including, without limitations, all machinery, equipment, computers, motor vehicles, trucks, tanks, boats,
ships, appliances, furniture, special and general tools, fixtures, test and quality control devices and other equipment of every
kind and nature and wherever situated, together with all documents of title and documents representing the same, all additions
and accessions thereto, replacements therefor, all parts therefor, and all substitutes for any of the foregoing and all other items
used and useful in connection with the Company’s businesses and all improvements thereto (collectively, the “Equipment”);
and

 

(ii)         All
Inventory of the Company; and

 

    	 

    	 

    

 

(iii)        All
of the Company’s contract rights and general intangibles, including, without limitation, all partnership interests, stock
or other securities, licenses, distribution and other agreements, computer software development rights, leases, franchises, customer
lists, quality control procedures, grants and rights, goodwill, trademarks, service marks, trade styles, trade names, patents,
patent applications, copyrights, deposit accounts, and income tax refunds (collectively, the “General Intangibles”);
and

 

(iv)        All
Receivables of the Company including all insurance proceeds, and rights to refunds or indemnification whatsoever owing, together
with all instruments, all documents of title representing any of the foregoing, all rights in any merchandising, goods, equipment,
motor vehicles and trucks which any of the same may represent, and all right, title, security and guaranties with respect to each
Receivable, including any right of stoppage in transit; and

 

(v)         All
of the Company’s documents, instruments and chattel paper, files, records, books of account, business papers, computer programs
and the products and proceeds of all of the foregoing Collateral set forth in clauses (i)-(iv) above.

 

(vi)        All
intellectual property, including but not limited to the following:

 

(1)         Software
Intellectual Property:

 

a.           all
software programs (including all source code, object code and all related applications and data files), whether now owned, upgraded,
enhanced, licensed or leased or hereafter acquired by the Company, above;

 

b.           all
computers and electronic data processing hardware and firmware associated therewith;

 

c.           all
documentation (including flow charts, logic diagrams, manuals, guides and specifications) with respect to such software, hardware
and firmware described in the preceding clauses (a) and (b); and

 

d.           all
rights with respect to all of the foregoing, including, without limitation, any and all upgrades, modifications, copyrights, licenses,
options, warranties, service contracts, program services, test rights, maintenance rights, support rights, improvement rights,
renewal rights and indemnifications and substitutions, replacements, additions, or model conversions of any of the foregoing.

 

    	5

    	 

    

 

(2)         Copyrights:

 

a.           all
copyrights, registrations and applications for registration, issued or filed, including any reissues, extensions or renewals
thereof, by or with the United States Copyright Office or any similar office or agency of the United States, any state thereof,
or any other country or political subdivision thereof, or otherwise, including, all rights in and to the material constituting
the subject matter thereof;

 

b.           any
rights in any material which is copyrightable or which is protected by common law, United States copyright laws or similar laws
or any law of any State.

 

(3)         Copyright
License:

 

a.           any
agreement, written or oral, providing for a grant by the Company of any right in any Copyright.

 

(4)         Patents:

 

a.           all
letters patent of the United States or any other country or any political subdivision thereof, and all reissues and extensions
thereof;

 

b.           all
applications for letters patent of the United States and all divisions, continuations and continuations-in-part thereof or any
other country or any political subdivision.

 

(5)         Patent
License:

 

a.           all
agreements, whether written or oral, providing for the grant by the Company of any right to manufacture, use or sell any invention
covered by a Patent.

 

(6)         Trademarks:

 

a.           all
trademarks, trade names, corporate names, company names, business names, fictitious business names, trade styles, service marks,
logos and other source or business identifiers, and the goodwill associated therewith, now existing or hereafter adopted or acquired,
all registrations and recordings thereof, and all applications in connection therewith, whether in the United States Patent and
Trademark Office or in any similar office or agency of the United States, any state thereof or any other country or any political
subdivision thereof;

 

b.           all
reissues, extensions or renewals thereof.

 

(7)         Trademark
License:

 

a.           any
agreement, written or oral, providing for the grant by the Company of any right to use any Trademark.

 

    	6

    	 

    

 

(8)         Trade
Secrets:

 

a.           common
law and statutory trade secrets and all other confidential or proprietary or useful information and all know-how obtained by or
used in or contemplated at any time for use in the business of the Company (all of the foregoing being collectively called a “Trade
Secret”), whether or not such Trade Secret has been reduced to a writing or other tangible form, including all documents
and things embodying, incorporating or referring in any way to such Trade Secret, all Trade Secret licenses, and including the
right to sue for and to enjoin and to collect damages for the actual or threatened misappropriation of any Trade Secret and for
the breach or enforcement of any such Trade Secret license.

 

(b)          “Company”
shall mean, collectively, Flux Power Holdings, Inc. and Flux Power, Inc.

 

(c)          “Obligations”
means all of the Company’s obligations under this Agreement, the Guaranty, the Note, in each case, whether now or hereafter
existing, voluntary or involuntary, direct or indirect, absolute or contingent, liquidated or unliquidated, whether or not jointly
owed with others, and whether or not from time to time decreased or extinguished and later decreased, created or incurred, and
all or any portion of such obligations or liabilities that are paid, to the extent all or any part of such payment is avoided or
recovered directly or indirectly from the Secured Party as a preference, fraudulent transfer or otherwise as such obligations may
be amended, supplemented, converted, extended or modified from time to time.

 

(d)          “Permitted
Liens” shall mean (a) liens for taxes not yet delinquent or liens for taxes being contested in good faith and by appropriate
proceedings for which adequate reserves have been established; (b) liens in respect of property or assets imposed by law which
were incurred in the ordinary course of business, such as carriers’, warehousemen’s, materialmen’s and mechanics’
liens and other similar liens arising in the ordinary course of business which are not delinquent or remain payable without penalty
or which are being contested in good faith and by appropriate proceedings for which adequate reserves have been established; (c)
liens securing obligations under a capital lease if such liens do not extend to property other than the property leased under such
capital lease; (d) liens upon any equipment acquired or held by the Company or any of its subsidiaries to secure the purchase price
of such equipment or indebtedness incurred solely for the purpose of financing the acquisition of such equipment, so long as such
lien extends only to the equipment financed, and any accessions, replacements, substitutions and proceeds (including insurance
proceeds) thereof or thereto; and (e) leases or subleases and licenses or sublicenses granted in the ordinary course of the Company’s
business.

 

(e)          “UCC”
means the Uniform Commercial Code, as currently in effect in the State of California.

 

2.          Grant
of Security Interest. As an inducement for the Secured Party to purchase the Note and to secure the complete and timely payment,
performance and discharge in full, as the case may be, of all of the Obligations, the Company hereby, unconditionally and irrevocably,
pledges, grants and hypothecates to the Secured Party, a continuing security interest in, a continuing first lien upon, an unqualified
right to possession and disposition of and a right of set-off against, in each case to the fullest extent permitted by law, all
of the Company’s right, title and interest of whatsoever kind and nature in and to the Collateral (the “Security
Interest”); provided, however, the Secured Party has agreed that the first priority security interest granted
pursuant to this Section 2 shall be subordinate to Permitted Liens.

 

    	7

    	 

    

 

3.          Representations,
Warranties, Covenants and Agreements of the Company. The Company represents and warrants to, and covenants and agrees with,
the Secured Party as follows:

 

(a)          The
Company has the requisite corporate power and authority to enter into this Agreement and otherwise to carry out its obligations
thereunder. The execution, delivery and performance by the Company of this Agreement and the filings contemplated therein have
been duly authorized by all necessary action on the part of the Company and no further action is required by the Company. This
Agreement constitutes a legal, valid and binding obligation of the Company enforceable in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of
creditor’s rights generally.

 

(b)          The
Company represents and warrants that it has no place of business or offices where its respective books of account and records are
kept (other than temporarily at the offices of its attorneys or accountants) or places where Collateral is stored or located other
than the Company’s main facility listed in Section 13 of this Agreement;

 

(c)          Except
for the prior security interest granted to Esenjay Investments, LLC (“Esenjay”), the Company is the sole owner of the
Collateral (except for non-exclusive licenses granted by the Company in the ordinary course of business), free and clear of any
liens, security interests, encumbrances, rights or claims, and is fully authorized to grant the Security Interest in and to pledge
the Collateral. Except for the prior security interest granted to Esenjay, there is not on file in any governmental or regulatory
authority, agency or recording office an effective financing statement, security agreement, license or transfer or any notice of
any of the foregoing (other than those that have been filed in favor of the Secured Party pursuant to this Agreement) covering
or affecting any of the Collateral. So long as this Agreement shall be in effect, the Company shall not execute and shall not knowingly
permit to be on file in any such office or agency any such financing statement or other document or instrument (except to the extent
filed or recorded in favor of the Secured Party pursuant to the terms of this Agreement). Esenjay, which holds a senior security
interest in the Company’s assets, has agreed to subordinated its interest to the interests of the Secured Party.

 

(d)          No
part of the Collateral has been judged invalid or unenforceable. No written claim has been received that any Collateral or the
Company’s use of any Collateral violates the rights of any third party. There has been no adverse decision to the Company’s
claim of ownership rights in or exclusive rights to use the Collateral in any jurisdiction or to the Company’s right to keep
and maintain such Collateral in full force and effect, and there is no proceeding involving said rights pending or, to the best
knowledge of the Company, threatened before any court, judicial body, administrative or regulatory agency, arbitrator or other
governmental authority.

 

(e)          The
Company shall at all times maintain its books of account and records relating to the Collateral at its principal place of business
and its Collateral at the locations set forth in Section 13 and may not relocate such books of account and records or tangible
Collateral unless it delivers to the Secured Party at least 30 days prior to such relocation (i) written notice of such relocation
and the new location thereof (which must be within the United States) and (ii) evidence that appropriate financing statements
and other necessary documents have been filed and recorded and other steps have been taken to perfect the Security Interest to
create in favor of the Secured Party valid, perfected and continuing first priority liens in the Collateral.

 

    	8

    	 

    

 

(f)          This
Agreement creates in favor of the Secured Party a valid security interest in the Collateral securing the payment and performance
of the Obligations and, upon making the filings described in the immediately following sentence, a perfected first priority security
interest in such Collateral. Except for the filing of financing statements on Form-1 under the UCC, no authorization or approval
of or filing with or notice to any governmental authority or regulatory body is required either (i) for the grant by the Company
of, or the effectiveness of, the Security Interest granted hereby or for the execution, delivery and performance of this Agreement
by the Company or (ii) for the perfection of or exercise by the Secured Party of its rights and remedies hereunder.

 

(g)          Promptly
upon execution of this Agreement, the Company will deliver to the Secured Party one or more executed UCC financing statements on
Form UCC-1 in the jurisdiction of Nevada, California and in such other jurisdictions as may be requested by the Secured Party.

 

(h)          The
execution, delivery and performance of this Agreement does not conflict with or cause a breach or default, or an event that with
or without the passage of time or notice, shall constitute a breach or default, under any agreement to which the Company is a party
or by which the Company is bound. No consent (including, without limitation, from stock holders or creditors of the Company) is
required for the Company to enter into and perform its obligations hereunder.

 

(i)          The
Company shall at all times maintain the liens and Security Interest provided for hereunder as valid and perfected first priority
liens and security interests in the Collateral in favor of the Secured Party until this Agreement and the Security Interest hereunder
shall terminate pursuant to Section 11. The Company hereby agrees to defend the same against any and all persons. The Company shall
safeguard and protect all Collateral for the account of the Secured Party. At the request of the Secured Party, the Company will
sign and deliver to the Secured Party at any time or from time to time one or more financing statements pursuant to the UCC (or
any other applicable statute) in form reasonably satisfactory to the Secured Party and will pay the cost of filing the same in
all public offices wherever filing is, or is deemed by the Secured Party to be, necessary or desirable to effect the rights and
obligations provided for herein. Without limiting the generality of the foregoing, the Company shall pay all fees, taxes and other
amounts necessary to maintain the Collateral and the Security Interest hereunder, and the Company shall obtain and furnish to the
Secured Party from time to time, upon demand, such releases and/or subordinations of claims and liens which may be required to
maintain the priority of the Security Interest hereunder.

 

(j)          The
Company will not transfer, pledge, hypothecate, encumber, license (except for any Collateral disposed of in the ordinary course
of business), sell or otherwise dispose of any of the Collateral without the prior written consent of the Secured Party.

 

(k)          The
Company shall keep and preserve its Equipment, Inventory and other tangible Collateral in good condition, repair and order and
shall not operate or locate any such Collateral (or cause to be operated or located) in any area excluded from insurance coverage.

 

(l)          The
Company shall, within twenty (20) days of obtaining knowledge thereof, advise the Secured Party promptly, in sufficient detail,
of any substantial change in the Collateral, and of the occurrence of any event which would have a material adverse effect on the
value of the Collateral or on the Secured Party’s security interest therein.

 

(m)          The
Company shall promptly execute and deliver to the Secured Party such further deeds, mortgages, assignments, security agreements,
financing statements or other instruments, documents, certificates and assurances and take such further action as the Secured Party
may from time to time request and may in its sole discretion deem necessary to perfect, protect or enforce its security interest
in the Collateral.

 

    	9

    	 

    

 

(n)          The
Company shall permit the Secured Party and its representatives and agents to inspect the Collateral at any time, and to make copies
of records pertaining to the Collateral as may be requested by the Secured Party from time to time.

 

(o)          The
Company will take all steps reasonably necessary to diligently pursue and seek to preserve, enforce and collect any rights, claims,
causes of action and accounts receivable in respect of the Collateral.

 

(p)          The
Company shall promptly notify the Secured Party in sufficient detail upon becoming aware of any attachment, garnishment, execution
or other legal process levied against any Collateral and of any other information received by the Company that may materially affect
the value of the Collateral, the Security Interest or the rights and remedies of the Secured Party hereunder.

 

(q)          All
information heretofore, herein or hereafter supplied to the Secured Party by or on behalf of the Company with respect to the Collateral
is accurate and complete in all material respects as of the date furnished.

 

4.          Defaults.
The following events shall be “Events of Default”:

 

(a)          The
occurrence of an Event of Default (as defined in the Note) under the Note;

 

(b)          Any
representation or warranty of the Company in this Agreement shall prove to have been incorrect in any material respect when made;

 

(c)          The
failure by the Company to observe or perform any of its obligations hereunder for ten (10) days after receipt by the Company of
notice of such failure from the Secured Party; and

 

5.          Duty
To Hold In Trust. Upon the occurrence of any Event of Default and at any time thereafter, the Company shall, upon receipt by
it of any revenue, income or other sums subject to the Security Interest, whether payable pursuant to the Note or otherwise, or
of any check, draft, note, trade acceptance or other instrument evidencing an obligation to pay any such sum, hold the same in
trust for the Secured Party and shall forthwith endorse and transfer any such sums or instruments, or both, to the Secured Party
for application to the satisfaction of the Obligations.

 

6.          Rights
and Remedies Upon Default. Upon occurrence of any Event of Default and at any time thereafter, the Secured Party shall have
the right to exercise all of the remedies conferred hereunder and under the Note, and the Secured Party shall have all the rights
and remedies of a secured party under the UCC and/or any other applicable law (including the Uniform Commercial Code of any jurisdiction
in which any Collateral is then located). Without limitation, the Secured Party shall have the following rights and powers:

 

(a)          The
Secured Party shall have the right to take possession of the Collateral and, for that purpose, enter, with the aid and assistance
of any person, any premises where the Collateral, or any part thereof, is or may be placed and remove the same, and the Company
shall assemble the Collateral and make it available to the Secured Party at places which the Secured Party shall reasonably select,
whether at the Company’s premises or elsewhere, and make available to the Secured Party, without rent, all of the Company’s
respective premises and facilities for the purpose of the Secured Party taking possession of, removing or putting the Collateral
in saleable or disposable form.

 

    	10

    	 

    

 

(b)          The
Secured Party shall have the right to operate the business of the Company using the Collateral and shall have the right to assign,
sell, lease or otherwise dispose of and deliver all or any part of the Collateral, at public or private sale or otherwise, either
with or without special conditions or stipulations, for cash or on credit or for future delivery, in such parcel or parcels and
at such time or times and at such place or places, and upon such terms and conditions as the Secured Party may deem commercially
reasonable, all without (except as shall be required by applicable statute and cannot be waived) advertisement or demand upon or
notice to the Company or right of redemption of the Company, which are hereby expressly waived. Upon each such sale, lease, assignment
or other transfer of Collateral, the Secured Party may, unless prohibited by applicable law which cannot be waived, purchase all
or any part of the Collateral being sold, free from and discharged of all trusts, claims, right of redemption and equities of the
Company, which are hereby waived and released.

 

7.          Applications
of Proceeds. The proceeds of any such sale, lease or other disposition of the Collateral hereunder shall be applied first,
to the expenses of retaking, holding, storing, processing and preparing for sale, selling, and the like (including, without limitation,
any taxes, fees and other costs incurred in connection therewith) of the Collateral, to the reasonable attorneys’ fees and
expenses incurred by the Secured Party in enforcing its rights hereunder and in connection with collecting, storing and disposing
of the Collateral, and then to satisfaction of the Obligations, and to the payment of any other amounts required by applicable
law, after which the Secured Party shall pay to the Company any surplus proceeds. If, upon the sale, license or other disposition
of the Collateral, the proceeds thereof are insufficient to pay all amounts to which the Secured Party is legally entitled, the
Company will be liable for the deficiency, together with interest thereon, at the rate of 15% per annum (the “Default
Rate”), and the reasonable fees of any attorneys employed by the Secured Party to collect such deficiency. To the extent
permitted by applicable law, the Company waives all claims, damages and demands against the Secured Party arising out of the repossession,
removal, retention or sale of the Collateral, unless due to the gross negligence or willful misconduct of the Secured Party.

 

8.          Costs
and Expenses.         The Company agrees to pay all out-of-pocket fees, costs
and expenses incurred in connection with any filing required hereunder, including without limitation, any financing statements,
continuation statements, partial releases and/or termination statements related thereto or any expenses of any searches reasonably
required by the Secured Party. The Company shall also pay all other claims and charges which in the reasonable opinion of the Secured
Party might prejudice, imperil or otherwise affect the Collateral or the Security Interest therein. The Company will also, upon
demand, pay to the Secured Party the amount of any and all reasonable expenses, including the reasonable fees and expenses of its
counsel and of any experts and agents, which the Secured Party may incur in connection with (i) the enforcement of this Agreement,
(ii) the custody or preservation of, or the sale of, collection from, or other realization upon, any of the Collateral, or
(iii) the exercise or enforcement of any of the rights of the Secured Party under the Note. Until so paid, any fees payable
hereunder shall be added to the principal amount of the Note and shall bear interest at the Default Rate.

 

9.          Responsibility
for Collateral. The Company assumes all liabilities and responsibility in connection with all Collateral, and the obligations
of the Company hereunder or under the Note shall in no way be affected or diminished by reason of the loss, destruction, damage
or theft of any of the Collateral or its unavailability for any reason.

 

    	11

    	 

    

 

10.         Security
Interest Absolute. All rights of the Secured Party and all Obligations of the Company hereunder, shall be absolute and unconditional,
irrespective of: (a) any lack of validity or enforceability of this Agreement, the Note or any agreement entered into in connection
with the foregoing, or any portion hereof or thereof; (b) any change in the time, manner or place of payment or performance
of, or in any other term of, all or any of the Obligations, or any other amendment or waiver of or any consent to any departure
from the Note or any other agreement entered into in connection with the foregoing; (c)  any exchange, release or nonperfection
of any of the Collateral, or any release or amendment or waiver of or consent to departure from any other collateral for, or any
guaranty, or any other security, for all or any of the Obligations; (d) any action by the Secured Party to obtain, adjust,
settle and cancel in its sole discretion any insurance claims or matters made or arising in connection with the Collateral; or
(e) any other circumstance which might otherwise constitute any legal or equitable defense available to the Company, or a
discharge of all or any part of the Security Interest granted hereby. Until the Obligations shall have been paid and performed
in full, the rights of the Secured Party shall continue even if the Obligations are barred for any reason, including, without limitation,
the running of the statute of limitations or bankruptcy. The Company expressly waives presentment, protest, notice of protest,
demand, notice of nonpayment and demand for performance. In the event that at any time any transfer of any Collateral or any payment
received by the Secured Party hereunder shall be deemed by final order of a court of competent jurisdiction to have been a voidable
preference or fraudulent conveyance under the bankruptcy or insolvency laws of the United States, or shall be deemed to be otherwise
due to any party other than the Secured Party, then, in any such event, the Company’s obligations hereunder shall survive
cancellation of this Agreement, and shall not be discharged or satisfied by any prior payment thereof and/or cancellation of this
Agreement, but shall remain a valid and binding obligation enforceable in accordance with the terms and provisions hereof. The
Company waives all right to require the Secured Party to proceed against any other person or to apply any Collateral which the
Secured Party may hold at any time, or to marshal assets, or to pursue any other remedy. The Company waives any defense arising
by reason of the application of the statute of limitations to any obligation secured hereby.

 

11.         Term
of Agreement. This Agreement and the Security Interest shall terminate on the date on which all payments under the Note have
been made in full and all other Obligations have been paid or discharged. Upon such termination, the Secured Party, at the request
and at the expense of the Company, will join in executing any termination statement with respect to any financing statement executed
and filed pursuant to this Agreement.

 

12.         Power
of Attorney; Further Assurances.

 

(a)          The
Company authorizes the Secured Party, and does hereby make, constitute and appoint it, and its respective officers, agents, successors
or assigns with full power of substitution, as the Company’s true and lawful attorney-in-fact, with power, in its own name
or in the name of the Company, to, after the occurrence and during the continuance of an Event of Default, (i) endorse any
notes, checks, drafts, money orders, or other instruments of payment (including payments payable under or in respect of any policy
of insurance) in respect of the Collateral that may come into possession of the Secured Party; (ii) to sign and endorse any
UCC financing statement or any invoice, freight or express bill, bill of lading, storage or warehouse receipts, drafts against
debtors, assignments, verifications and notices in connection with accounts, and other documents relating to the Collateral; (iii) to
pay or discharge taxes, liens, security interests or other encumbrances at any time levied or placed on or threatened against the
Collateral; (iv) to demand, collect, receipt for, compromise, settle and sue for monies due in respect of the Collateral;
and (v) generally, to do, at the option of the Secured Party, and at the Company’s expense, at any time, or from time
to time, all acts and things which the Secured Party deems necessary to protect, preserve and realize upon the Collateral and the
Security Interest granted therein in order to effect the intent of this Agreement, the Note and the Warrants, all as fully and
effectually as the Company might or could do; and the Company hereby ratifies all that said attorney shall lawfully do or cause
to be done by virtue hereof. This power of attorney is coupled with an interest and shall be irrevocable for the term of this Agreement
and thereafter as long as any of the Obligations shall be outstanding.

 

    	12

    	 

    

 

(b)          On
a continuing basis, the Company will make, execute, acknowledge, deliver, file and record, as the case may be, in the proper filing
and recording places in any jurisdiction, all such instruments, and take all such action as may reasonably be deemed necessary
or advisable, or as reasonably requested by the Secured Party, to perfect the Security Interest granted hereunder and otherwise
to carry out the intent and purposes of this Agreement, or for assuring and confirming to the Secured Party the grant or perfection
of a security interest in all the Collateral.

 

(c)          The
Company hereby irrevocably appoints the Secured Party as the Company’s attorney-in-fact, with full authority in the place
and stead of the Company and in the name of the Company, for the sole purpose of taking any action and executing any instrument
which the Secured Party may deem necessary or advisable to accomplish the purposes of this Agreement, including the filing of one
or more financing or continuation statements, relative to any of the Collateral without the signature of the Company where permitted
by law.

 

13.         Notices.
All notices, requests, demands and other communications hereunder shall be in writing, with copies to all the other parties hereto,
and shall be deemed to have been duly given when (i) if delivered by hand, upon receipt, (ii) if sent by facsimile, upon
receipt of proof of sending thereof, (iii) if sent by nationally recognized overnight delivery service (receipt requested),
the next business day or (iv) if mailed by first-class registered or certified mail, return receipt requested, postage prepaid,
four days after posting in the U.S. mails, in each case if delivered to the following addresses:

 

	If to the Company:	Flux Power Holdings, Inc. and Flux Power, Inc.
	 	985 Poinsettia Avenue, Suite A
	 	Vista, CA  92081
	 	Telephone: 877-505-3589
	 	Facsimile: (760) 741-3535
	 	 
	If to the Secured Party:	Leon Frenkel
	 	401 E. City Avenue, Suite 528
	 	Bala Cynwyd, PA  19004
	 	Facsimile:  (610) 668-1919

 

14.         Other
Security. To the extent that the Obligations are now or hereafter secured by property other than the Collateral or by the guarantee,
endorsement or property of any other person, firm, corporation or other entity, then the Secured Party shall have the right, in
its sole discretion, to pursue, relinquish, subordinate, modify or take any other action with respect thereto, without in any way
modifying or affecting any of the Secured Party’s rights and remedies hereunder.

 

15.         Miscellaneous.

 

(a)          No
course of dealing between the Company and the Secured Party, nor any failure to exercise, nor any delay in exercising, on the part
of the Secured Party, any right, power or privilege hereunder or under the Note shall operate as a waiver thereof; nor shall any
single or partial exercise of any right, power or privilege hereunder or thereunder preclude any other or further exercise thereof
or the exercise of any other right, power or privilege.

 

(b)          All
of the rights and remedies of the Secured Party with respect to the Collateral, whether established hereby or by the Note or by
any other agreements, instruments or documents or by law shall be cumulative and may be exercised singly or concurrently.

 

(c)          This
Agreement constitutes the entire agreement of the parties with respect to the subject matter hereof and is intended to supersede
all prior negotiations, understandings and agreements with respect thereto. Except as specifically set forth in this Agreement,
no provision of this Agreement may be modified or amended except by a written agreement specifically referring to this Agreement
and signed by the parties hereto.

 

    	13

    	 

    

 

(d)          In
the event that any provision of this Agreement is held to be invalid, prohibited or unenforceable in any jurisdiction for any reason,
unless such provision is narrowed by judicial construction, this Agreement shall, as to such jurisdiction, be construed as if such
invalid, prohibited or unenforceable provision had been more narrowly drawn so as not to be invalid, prohibited or unenforceable.
If, notwithstanding the foregoing, any provision of this Agreement is held to be invalid, prohibited or unenforceable in any jurisdiction,
such provision, as to such jurisdiction, shall be ineffective to the extent of such invalidity, prohibition or unenforceability
without invalidating the remaining portion of such provision or the other provisions of this Agreement and without affecting the
validity or enforceability of such provision or the other provisions of this Agreement in any other jurisdiction.

 

(e)          No
waiver of any breach or default or any right under this Agreement shall be considered valid unless in writing and signed by the
party giving such waiver, and no such waiver shall be deemed a waiver of any subsequent breach or default or right, whether of
the same or similar nature or otherwise.

 

(f)          This
Agreement shall be binding upon and inure to the benefit of each party hereto and its successors and assigns.

 

(g)          Each
party shall take such further action and execute and deliver such further documents as may be necessary or appropriate in order
to carry out the provisions and purposes of this Agreement.

 

(h)          This
Agreement shall be construed in accordance with the laws of the Commonwealth of Pennsylvania, except to the extent the validity,
perfection or enforcement of a security interest hereunder in respect of any particular Collateral which are governed by a jurisdiction
other than the Commonwealth of Pennsylvania in which case such law shall govern. Each of the parties hereto irrevocably submit
to the exclusive jurisdiction of any state court sitting in Philadelphia, Pennsylvania or any federal court located in the Commonwealth
of Pennsylvania over any action or proceeding arising out of or relating to this Agreement, and the parties hereto hereby irrevocably
agree that all claims in respect of such action or proceeding may be heard and determined in such state or federal court. The
parties hereto agree that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions
by suit on the judgment or in any other manner provided by law. The parties hereto further waive any objection to venue in the
Commonwealth of Pennsylvania and any objection to an action or proceeding in the Commonwealth of Pennsylvania on the basis of
forum non conveniens. 

 

    	14

    	 

    

 

(i)          EACH
PARTY HERETO HEREBY AGREES TO WAIVE ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING
OUT OF THIS AGREEMENT. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL ENCOMPASSING OF ANY DISPUTES THAT MAY BE FILED IN ANY COURT
AND THAT RELATE TO THE SUBJECT MATTER OF THIS AGREEMENT, INCLUDING WITHOUT LIMITATION CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY
CLAIMS AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS. EACH PARTY HERETO ACKNOWLEDGES THAT THIS WAIVER IS A MATERIAL INDUCEMENT
FOR EACH PARTY TO ENTER INTO A BUSINESS RELATIONSHIP, THAT EACH PARTY HAS ALREADY RELIED ON THIS WAIVER IN ENTERING INTO THIS AGREEMENT
AND THAT EACH PARTY WILL CONTINUE TO RELY ON THIS WAIVER IN THEIR RELATED FUTURE DEALINGS. EACH PARTY FURTHER WARRANTS AND REPRESENTS
THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL, AND THAT SUCH PARTY HAS KNOWINGLY AND VOLUNTARILY WAIVES ITS RIGHTS TO
A JURY TRIAL FOLLOWING SUCH CONSULTATION. THIS WAIVER IS IRREVOCABLE, MEANING THAT, NOTWITHSTANDING ANYTHING HEREIN TO THE CONTRARY,
IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS AND SUPPLEMENTS
OR MODIFICATIONS TO THIS AGREEMENT. IN THE EVENT OF A LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY
THE COURT.

 

(j)          This
Agreement may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original and,
all of which taken together shall constitute one and the same Agreement. In the event that any signature is delivered by facsimile
transmission, such signature shall create a valid binding obligation of the party executing (or on whose behalf such signature
is executed) the same with the same force and effect as if such facsimile signature were the original thereof.

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

    	15

    	 

    

 

IN WITNESS WHEREOF,
the parties hereto have caused this Security Agreement to be duly executed on the day and year first above written.

 

	 	COMPANY
	 	 
	 	FLUX POWER HOLDINGS, INC.
	 	 
	 	By:	/s/ Ron Dutt
	 	Name: Ron Dutt
	 	Title:  Chief Executive Officer and Interim Chief Financial Officer
	 	 
	 	FLUX POWER,  INC.
	 	 
	 	By:	/s/ Ron Dutt
	 	 	Name: Ron Dutt
	 	 	Title:Chief Executive Officer
	 	 
	 	SECURED PARTY
	 	 
	 	By:	/s/ Leon Frenkel
	 	 	Leon Frenkel

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