Document:

Exhibit 10.19

 

XG
SCIENCES, INC

 

AMENDED
& RESTATED PURCHASE AGREEMENT

 

THIS
AMENDED & RESTATED PURCHASE AGREEMENT (this “Agreement”),
dated as of January 15, 2014 (the “Effective Date”),
is entered into by and between XG SCIENCES, INC., a Michigan corporation, with headquarters located at 3101 Grand Oak Drive,
Lansing, Michigan 48911 (the “Company”), and
XGS II, LLC, a Florida limited liability company, whose principal address is as set forth in Section 13
herein (the “Buyer”, and together with the
Company, the “Parties”). This Agreement amends
and restates the original Purchase Agreement between the Parties (the “Original Agreement”),
dated July 12, 2013 (the “Original Effective Date”).

 

WITNESSETH:

 

WHEREAS,
the Company entered into a Purchase Agreement, dated March 18, 2013 (the “Original Aspen
Agreement”), with Aspen Advanced Opportunity Fund,
LP, a Delaware limited partnership (“Aspen”),
pursuant to which Aspen agreed to provide up to an aggregate of $5,000,000 of financing to the Company in exchange for secured
convertible notes or an equipment financing arrangement; and

 

WHEREAS,
the Original Aspen Agreement was amended and restated on July 12, 2013 (the “First
Amended Aspen Agreement”), whereby Aspen agreed to
provide up to an aggregate of $10,000,000 of financing to the Company in exchange for secured convertible notes or an equipment
financing arrangement; and

 

WHEREAS,
pursuant to the Original Aspen Agreement and First Amended Aspen Agreement, Aspen purchased secured convertible promissory
notes in the aggregate principal amount of $4,403,846.58 (before the adjustments contemplated in Section 1(b) hereof) from the
Company prior to the Effective Date hereof (the “Existing Aspen Notes”):
and

 

WHEREAS,
pursuant to that certain letter agreement, dated March 18, 2013 (the “Letter Agreement”),
the Company and Michael Knox (“Knox”) agreed
to refinance $700,000 of the $1,000,000 of existing secured indebtedness held by Knox (the “Knox Debt”)
into the same form of the Existing Aspen Notes as issued to Aspen by the Company, and the remaining $300,000 of existing secured
indebtedness held by Knox will be paid in accordance with the terms of the Letter Agreement; and

 

WHEREAS,
pursuant to the Original Agreement, the Company agreed to issue and sell up to $750,000 (the “XGS II Max Investment
Amount”) of secured convertible notes, and as of the Effective
Date hereof has issued $200,000 of secured convertible notes to XGS II before the adjustments contemplated in Section 1(b) hereof
(the “Existing XGS II Notes”), and

 

WHEREAS,
prior to the Effective Date, the only secured indebtedness of the Company outstanding was the Existing XGS II Notes, the Knox
Debt, and the Existing Aspen Notes, and each of Knox, Aspen, and the Buyer have entered into that certain Amended and Restated
Intercreditor Agreement effective as of July 12, 2013; and

 

WHEREAS,
the Company desires to sell and issue to SVIC No. 15 New Technology Business Investment L.L.P. (“Samsung”),
$3,000,000 of secured debt securities on a pari passu basis with the Exisitng XGS II Notes, Knox Debt and Existing Aspen Notes,
and the Buyer desires to consent to the Company’s sale and issuance of such securities to Samsung; provided that (a) the
terms and rights of such sales, issuances and securities are no more favorable, as determined by and in the sole discretion of
the Buyer, than the terms of the form of Second Amended and Restated Secured Convertible Note attached hereto as Annex
I to be issued to the Buyer (the “Note(s)”)
and (b) Samsung becomes a party to the form of Second Amended and Restated Intercreditor Agreement attached hereto as Annex
VIII (the “Intercreditor Agreement”):
and

 

WHEREAS,
Aspen desires to allocate $490,575 of the principal amount of the Existing Aspen Notes to the benefit of Buyer pursuant to certain
agreements between Aspen and the Buyer, and Company has consented to such reallocation pursuant to this Agreement; and

 

     

     

    

 

WHEREAS,
the Buyer and the Company desire to amend and restate the Existing XGS II Notes to take into consideration the adjustments
to the principal and accrued interest described in Section 1(b) hereof in the form of Second Amended and Restated Secured Convertible
Note attached hereto as Annex I;
and

 

WHEREAS,
the Company desires to increase the XGS II Max Investment Amount to $1,000,000 and to amend and restate the Existing XGS II
Notes to take into consideration the adjustments to principal and accrued interest described in Section 1(b) hereof in the form
of Second Amended and Restated Secured Convertible Note attached hereto as Annex I;
and

 

WHEREAS,
in connection with the Original Agreement, the Company issued to the Buyer warrants (the “Original Warrants”)
to purchase 31,250 shares of the Company’s Series A Convertible Preferred Stock (the “Series
A Stock”) in the form attached to the Original Agreement,
(the “Existing Warrants”): and

 

WHEREAS,
in connection with this Agreement, the parties have agreed to exchange and cancel the Existing Warrants for the issuance of
a new warrant to the Buyer to purchase 83,333 shares of Series A Stock in the form attached as Annex II hereto (the “Replacement Warrants”
or the “Warrants”); and

 

WHEREAS,
the Company granted to Aspen, Knox, and the Buyer security interests in the Company’s assets as set forth in that certain
Amended and Restated Security Agreement effective as of July 12, 2013 and that certain Amended and Restated Intellectual Property
Security Agreement effective as of July 12, 2013, each of which are by and among, the Company, a collateral agent, Knox, Aspen,
and the Buyer; and

 

WHEREAS,
the Company and Samsung desire that Samsung become a party to and beneficiary of (i) a Second Amended and Restated Security
Agreement in the form attached hereto as Annex III (the
“Security Agreement”)
and (ii) a Second Amended and Restated IP Security Agreement in the form attached hereto as Annex IV (the
“IP Security Agreement”) and the Buyer desires
to consent to Samsung becoming a party to and a beneficiary of the Security Agreement and the IP Security Agreement; and

 

WHEREAS,
immediately after the consummation of the transactions contemplated in the immediately preceding paragraphs, there will be no
other secured indebtedness of the Company other than, indebtedness to the Buyer, Knox, Aspen, and Samsung; and

 

WHEREAS,
the Company and the Buyer are executing and delivering this Agreement in reliance upon the exemption from securities registration
for offers and sales to accredited investors afforded, interalia,
by Rule 506 under Regulation D (“Regulation D”)
as promulgated by the United States Securities and Exchange Commission (the “SEC”)
under the Securities Act of 1933, as amended (the “1933 Act”),
and/or Section 4(2) of the 1933 Act.

 

NOW
THEREFORE, in consideration of the premises and the mutual covenants contained herein and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the Parties agree as follows:

 

		1.	GENERAL
AGREEMENTS.

 

a.           (i)           The
Buyer hereby agrees to purchase from the Company, and the Company hereby agrees to sell to the Buyer, Note(s), upon and
subject to the terms and conditions set forth herein. The Notes will have an aggregate principal amount of at least $250,000
(the “Min Investment Amount”) and up to
$1,000,000 (the “Max Investment Amount”).
The calculation of the Min Investment Amount and the Max Investment Amount shall include the principal amount of the Existing
XGS II Notes, as adjusted pursuant to Section 1(b) hereof. The Buyer agrees to use its best efforts to fund at least $750,000
by the date which is the later of (a) March 31,2014 or (b) the date which is ninety (90) days from the date on which the
Buyer receives a mutually agreed upon “Financing Case” projection model which has been approved for use with
investors by the Company’s management, including the new CEO who is projected to start employment with the Company on
or around January 20, 2014; provided, however, the Buyer will not be required to purchase more than the Min Investment Amount
of Purchased Securities (as defined below) in the aggregate pursuant to this Agreement (the amount funded at any given time,
hereafter, the “Purchased Amount”). The Company will be required to
sell up to the Max Investment Amount of the Purchased Securities to the Buyer on terms and conditions set forth herein until
December 31, 2014 (the “Option End Date”)
if requested to do so by the Buyer. For the avoidance of doubt, the Company shall have no obligation to sell
additional Purchased Securities to Buyer after the expiration of the Option End Date.

 

     2

     

    

 

(ii)         The
Buyer hereby agrees to purchase from the Company Note(s) in at least the aggregate principal amount of the Min Investment Amount,
upon the terms and conditions outlined herein. The calculation of the Min Investment Amount shall include the principal amount
of the Existing XGS II Notes, as adjusted pursuant to Section 1(b) hereof.

 

(iii)        On
the Effective Date, all of the Existing XGS II Notes shall be exchanged (and cancelled) for the issuance of a new Note with a principal
amount of $739,349.83, which principal amount will be deemed to include:

 

1.          initial
principal of all previous convertible secured notes issued to the Buyer of $200,000, plus the principal adjustments of $490,575
specified in Section 1(b) hereof, such that the total amount of initial principal of secured convertible notes advanced to the
Company in the Existing XGS II Notes was $690,575, plus

 

2.          $48,774.83
of capitalized interest from the original issue date of each of the Existing XGS II Notes until the Effective Date, after taking
into consideration the accrued interest adjustments specified in Section 1(b) hereof.

 

(iv)        Each
Note issued to the Buyer shall be secured pursuant to the terms of the Security Agreement and the IP Security Agreement.

 

(v)         On
the Effective Date, the Company shall cancel the Existing Warrants and in exchange thereof deliver the Replacement Warrants to
purchase 83,333 shares of Series A Stock to the Buyer, as provided in Section 1(c) hereof.

 

(vi)        The
Replacement Warrants shall specify that for every $12 of funding provided pursuant to the Original Agreement and this Agreement,
that portion of the Replacement Warrants entitling the Buyer to purchase one (1) share of Series A Stock shall be deemed to be
vested. Such Replacement Warrant will also specify that 57,548 of the Shares are deemed vested as of the Effective Date.

 

(vii)       The
loans to be made by the Buyer through the Notes and the issuance of the Notes and the Warrants (the “Purchased Securities”’)
to the Buyer are sometimes referred to herein and in the other Transaction Agreements as the purchase and sale of the Purchased
Securities.

 

b.          Reallocation
of Certain Amounts of Principal and Accrued Interest from the Existing Aspen Notes to the Existing XGS II Notes. The Company
consents to the following reallocation of principal in the Existing Aspen Notes such that the amounts indicated in the “change”
column below will be deemed to have been removed from the principal balance of the Existing Aspen Notes and become part of the
principal balance of the Existing XGS II Notes as if the funds had originally been provided by XGS II and documented in forms
of Existing XGS II Notes issued and sold to XGS II on the dates indicated.

 

	 	 	Original	 	 	 	 	 	Revised	 
	Note Principal	 	Principal	 	 	Change	 	 	Deemed Principal	 
	 	 	 	 	 	 	 	 	 	 
	Adjustments
    to Aspen Existing Aspen Notes:	 	 	 	 	 	 	 	 	 	 	 	 
	Aspen Note #7 - 7/29/13	 	 	800,000.00	 	 	 	(490,575.00	)	 	 	309,425.00	 
	 	 	 	 	 	 	 	 	 	 	 	 	 
	Deemed
    XGS II Existing Note:	 	 	 	 	 	 	 	 	 	 	 	 
	Note #7 A - 7/29/13	 	 	-	 	 	 	490,575.00	 	 	 	490,575.00	 

 

     3

     

    

 

The
Company further consents to the following reallocation of accrued interest on the Existing Aspen Notes such that the amounts indicated
in the “change” column below will be deemed to have been removed from the accrued interest on the Existing Aspen Notes
(as adjusted above) from the original issue date of each such note and moved to the accrued interest on the Existing XGS II Notes
from the original issue date of each such note (as adjusted above).

 

	 	 	Unadjusted	 	 	 	 	 	Revised	 
	Accrued Interest Adjustments	 	Accrued Interest (1)	 	 	Change	 	 	Accrued Interest	 
	 	 	 	 	 	 	 	 	 	 
	Accrued Interest on Aspen Existing Aspen Notes	 	 	279,439.84	 	 	 	(14,380.50	)	 	 	265,059.34	 
	 	 	 	 	 	 	 	 	 	 	 	 	 
	Accrued Interest on Existing XGS II Notes	 	 	34,394.33	 	 	 	14,380.50	 	 	 	48,774.83	 

 

c.           Delivery
of Transaction Agreements.   Upon the Effective Date, the Company will deliver executed copies of this Agreement,
and amended and restated Note in the principal amount of $733,290.98, an Officer’s Certificate, the Replacement Warrants,
the Intercreditor Agreement, the Security Agreement, the IP Security Agreement, and the Registration Rights Agreement to the Buyer.
Upon any Subsequent Closing Date, the Company will deliver an Officer’s Certificate, and any additional Notes which correspond
to the funding provided in such subsequent closings under this Agreement.

 

d.           Certain
Definitions. As used herein, each of the following terms has the meaning set forth below, unless the context otherwise requires:

 

“Affiliate”
means, as to any Person: (a) any other Person that, directly or indirectly through one or more intermediaries, controls, is controlled
by, or is under common control with, such Person; (b) any other Person who is a director or officer (i) of such Person, (ii) of
any subsidiary of such Person, or (iii) of any Person described in clause (a) above with respect to such Person; (c) any other
Person which, directly or indirectly through one or more intermediaries, is the beneficial or record owner (as defined in Rule
13d-3 of the Securities Exchange Act of 1934, as amended (the “1934 Act”), as the same is in effect on the Effective
Date) of five percent (5%) or more of any class of the outstanding voting stock, securities or other equity or ownership interests
of such Person; and (d) in the case such Person is an individual, any other Person who is an immediate family member, spouse or
lineal descendant of individuals of such Person or any Affiliate of such Person. For purposes of this definition, the term “control”
(and the correlative terms, “controlled by” and “under common control with”) shall mean the
possession, directly or indirectly, of the power to direct or cause the direction of the management or policies, whether through
ownership of securities or other interests, by contract or otherwise. “Affiliate” shall include any Subsidiary.

 

“Buyer
Control Person” means the Buyer and each such other Persons as may be deemed in control of the Buyer pursuant to Rule
405 under the 1933 Act or Section 20 of the 1934 Act.

 

“By-laws”
means the Amended and Restated By-laws of the Company (howsoever denominated), substantially in the form attached hereto as Annex
XVII.

 

“Certificate
of Incorporation” means the certificate of incorporation, articles of incorporation or other charter document (howsoever
denominated) of the Company, as amended to date.

 

“Certificate
of Designations” means the Company’s Amended and Restated Certificate of Designations of Series A Convertible Preferred
Stock, as filed with the State of Michigan on July 10, 2013, in the form attached hereto as Annex IX, as amended pursuant
to this Agreement.

 

“Certificate
of Designations Amendment” means the amendment of the Amended and Restated Certificate of Designations to be filed with
the Secretary of State of Michigan in the form attached hereto as Annex XV.

 

“Closing”
means the closing of the transactions contemplated by this Agreement.

 

     4

     

    

 

“Closing
Date” means the date of the Closing
and any date on which a purchase and sale of the Purchased Securities takes place.

 

“Common
Stock” means the Company’s common
stock, no par value.

 

“Company
Control Person” means each director,
executive officer, promoter, and such other Persons as may be deemed in control of the Company pursuant to Rule 405 under the 1933
Act or Section 20 of the 1934 Act.

 

“Conversion
Shares” means (i) the shares of Common
Stock issued or issuable upon conversion of the Series A Stock (issued or issuable pursuant to the Purchased Securities), (ii)
the shares of Series A Stock issued or issuable upon conversion of the Notes or exercise of the Warrants or (iii) any or all of
them, as the context may require.

 

“Disclosure
Annex” means Annex XI
to this Agreement; provided, however, that the Disclosure Annex shall be arranged in sections corresponding to the identified Sections
of this Agreement, but the disclosure in any such section of the Disclosure Annex shall qualify other provisions in this Agreement
to the extent that it would be readily apparent to an informed reader from a reading of such section of the Disclosure Annex that
it is also relevant to other provisions of this Agreement.

 

“Existing
Creditor Term Sheet” means the Summary
Term Sheet, dated November 20, 2013 between the Company, Aspen, Knox, and Buyer.

 

“Full
Conversion” means the deemed conversion
of any outstanding Notes into Series A Stock and then into Common Stock, the deemed conversion of any outstanding Series A Stock
into Common Stock, and the deemed conversion of all other outstanding convertible debt and convertible equity securities of the
Company into Common Stock.

 

“Holder”
means the Person holding the relevant Securities at the relevant time.

 

“Initial
Closing Date” means the date of the
first closing of a purchase and sale of the Purchased Securities.

 

“Intercreditor
Agreement” means the Second Amended
and Restated Intercreditor Agreement substantially in the form attached hereto as Annex VIII.

 

“Last
Audited Date” means December 31, 2012.

 

“Landlord’s
Consent” means the Landlord’s
Consent substantially in the form attached hereto as Annex VI.

 

“Material
Adverse Effect” means an event or combination
of events, which individually or in the aggregate, would reasonably be expected to (x) adversely affect the legality, validity
or enforceability of the Purchased Securities or any of the Transaction Agreements, (y) have or result in a material adverse effect
on the results of operations, assets, or financial condition of the Company and its subsidiaries, taken as a whole, or (z) adversely
impair the Company’s ability to perform fully on a timely basis its material obligations under any of the Transaction Agreements
or the transactions contemplated thereby.

 

“Person”
means any living individual person or any legal entity, such as, but not necessarily limited to, a corporation, partnership or
trust,

 

“Officer’s
Certificate” means the Officer’s
Certificate substantially in the form attached hereto as Annex XIII.

 

“Other
Secured Creditors” shall mean Knox,
Aspen, and Samsung.

 

“Purchased
Securities” means the Notes and the
Warrants.

 

     5

     

    

 

“Registrable
Securities” means shares of Common
Stock issuable to the Holder (x) on conversion of the Series A Stock (issued or issuable pursuant to the Purchased Securities),
or (y) pursuant to any other provision of the Transaction Agreements as of the date of the filing of the Registration Statement
or any amendment thereof.

 

“Registration
Rights Agreement” means the Second Amended and Restated Registration
Rights Agreement substantially in the form attached hereto as Annex VII.

 

“Registration
Statement” means a registration statement
covering the resale by the Holder of Registrable Securities, including the S-1 Registration Statement.

 

“Samsung
Closing Date” shall mean the first
date on which Samsung has consummated the Samsung Transaction; the Parties shall use their best efforts to close the transactions
contemplated by this Agreement simultaneously with the Samsung Transaction on or before January 15, 2014.

 

“Samsung
Term Sheet” means the Summary Term
Sheet, dated November 20, 2013 between the Company, Aspen, Knox, Samsung, and the Buyer, which sets forth all of the contemplated
terms of the Samsung Transaction.

 

“Samsung
Transaction” shall mean the purchase
and sale of $3,000,000 of Notes by Samsung and the issuance of certain warrants to Samsung and the entry into the Intercreditor
Agreement, Security Agreement, and IP Security Agreement and any other ancillary and related transaction document by Samsung as
more fully contemplated by the Samsung Term Sheet.

 

“Securities”
means the Notes, the Warrants and the Conversion Shares.

 

“Series
A Stock” means Series A Convertible Preferred Stock of the
Company.

 

“Shareholder
Agreement” means the shareholder agreement in the form attached
hereto as Annex X. The Parties agree that the reference
to the “Purchase Agreement” in the Shareholder Agreement shall be deemed to include this Agreement, and that the reference
to the “Convertible Notes” in the Shareholder Agreement shall be deemed to include the Notes that are issued pursuant
to this Agreement.

 

“Shareholder
Stock” and “Shareholder’s
Stock” mean the shares of Common Stock,
Series A Stock, and other capital stock of the Company that are now owned or are subsequently acquired by a shareholder by gift;
conversion of the Notes, Series A Stock, or other convertible debt or convertible equity securities of the Company; purchase; dividend;
exercise of the Warrants or any other options, warrants or other security or right of any kind convertible into or exchangeable
for Common Stock issued by the Company; or any other means whether or not such securities are only registered in a shareholder’s
name or beneficially or are legally owned by such shareholder, including any interest of a spouse in any Shareholder Stock, whether
that interest is asserted pursuant to marital property laws or otherwise.

 

“Shares”
means the shares of Common Stock representing any or all of the Conversion Shares.

 

“Side
Letter” means the agreement in letter
form that is attached as Annex XII.

 

“State
of Incorporation” means Michigan.

 

“Subsidiary”
means, as of the relevant date, any subsidiary of the Company whether now existing or hereafter acquired or created.

 

“Subsequent
Closing Date” means any Closing Date
after the Initial Closing Date.

 

“Transaction
Agreements” means this Agreement, the
Original Agreement, the Letter Agreement, each Note issued to the Buyer, the Registration Rights Agreement, the Security Agreement,
the IP Security Agreement, the Landlord’s Consent, the Warrants, the Shareholder Agreement, the Certificate of Designations
Amendment, the Intercreditor Agreement, the Voting Rights Agreement, the Side Letter, all agreements entered into between the Parties
on July 12, 2013 in connection with the Original Agreement (as amended and/or restated as of the Effective Date), and the Disclosure
Annex and includes all ancillary documents referred to in those agreements (as amended and/or restated as of the Effective Date),
and each of those agreements as may be amended.

 

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“Voting
Rights Agreement” means the Voting
Rights Agreement substantially in the form attached as Annex XIV.

 

“Warrant”
means the warrant to purchase Series A Stock, substantially in the form attached as Annex II.

 

2.           BUYER
REPRESENTATIONS, WARRANTIES, ETC.; ACCESS TO INFORMATION; INDEPENDENT INVESTIGATION.

 

The
Buyer represents and warrants to, and covenants and agrees with, the Company, as of the Effective Date and, except as otherwise
noted, as of each Closing Date, as follows:

 

a.           Without
limiting Buyer’s right to sell the Securities pursuant to an effective registration statement or otherwise in compliance
with the 1933 Act, the Buyer is purchasing the Securities for the Buyer’s own account for investment only and not with a
view towards the public sale or distribution thereof and not with a view to or for sale in connection with any distribution thereof.

 

b.           The
Buyer is: (i) an “accredited investor” as that term is defined in Rule 501 of the General Rules and Regulations under
the 1933 Act; (ii) experienced in making investments of the kind described in this Agreement and the other Transaction Agreements;
(iii) able, by reason of the business and financial experience of the Buyer and the Buyer’s professional advisors (who are
not affiliated with or compensated in any way by the Company or any of its Affiliates or selling agents), to protect the Buyer’s
own interests in connection with the transactions described in this Agreement and the other Transaction Agreements, and to evaluate
the merits and risks of an investment in the Securities; and (iv) able to afford the entire loss of its investment in the Securities.

 

c.           All
subsequent offers and sales of the Securities by the Buyer shall be made pursuant to registration of the relevant Securities under
the 1933 Act or pursuant to an exemption from such registration.

 

d.           The
Buyer understands and agrees that the Securities have not been registered under the 1933 Act or any applicable state securities
laws, by reason of their issuance in a transaction that does not require registration under the 1933 Act (based in part on the
accuracy of the representations and warranties of the Buyer contained herein), and that such Securities must be held indefinitely
unless a subsequent disposition is registered under the 1933 Act or any applicable state securities laws or is exempt from such
registration. The Buyer understands that the Securities are being offered and sold to the Buyer in reliance on specific exemptions
from the registration requirements of the 1933 Act and state securities laws and that the Company is relying upon the truth and
accuracy of, and the Buyer’s compliance with, the representations, warranties, agreements, acknowledgments and understandings
of the Buyer set forth herein in order to determine the availability of such exemptions and the eligibility of the Buyer to acquire
the Securities.

 

e.           The
Buyer and the Buyer’s advisors, if any, have been furnished with or have been given access to all materials relating to the
business, finances and operations of the Company and materials relating to the offer and sale of the Purchased Securities which
have been requested by the Buyer, including those set forth in any annex attached hereto. The Buyer and the Buyer’s advisors,
if any, have been afforded the opportunity to ask questions of the Company and its management and have received complete and satisfactory
answers to any such inquiries.

 

f.           The
Buyer understands that its investment in the Securities involves a high degree of risk.

 

g.          The
Buyer hereby represents that, in connection with the Buyer’s investment or the Buyer’s decision to purchase the Securities,
the Buyer has not relied on any statement or representation of any Person, including any such statement or representation by the
Company or any of their respective controlling Persons, officers, directors, partners, agents and employees or any of their respective
attorneys, except as specifically set forth herein.

 

     7

     

    

 

h.          The
Buyer understands that no United States federal or state agency or any other government or governmental agency has passed on or
made any recommendation or endorsement of the Securities or the suitability of the investment in the Securities nor have any such
authorities passed upon or endorsed the merits of the offering of the Securities.

 

i.           This
Agreement and each of the other Transaction Agreements to which the Buyer is a party, and the transactions contemplated hereby
and thereby, have been duly and validly authorized by the Buyer. This Agreement has been executed and delivered by the Buyer, and
this Agreement is, and each of the other Transaction Agreements to which the Buyer is a party, when executed and delivered by the
Buyer (if necessary), will be valid and binding obligations of the Buyer enforceable in accordance with their respective terms,
subject as to enforceability to general principles of equity and to bankruptcy, insolvency, moratorium and other similar laws affecting
the enforcement of creditors’ rights generally.

 

j.           The
offer to sell the Securities was directly communicated to the Buyer by the Company. At no time was the Buyer presented with
or solicited by any leaflet, newspaper or magazine article, radio or television advertisement, or any other form of general
advertising or solicited or invited to attend a promotional meeting otherwise than in connection and concurrently with such
communicated offer.

 

k.          The
execution, delivery and performance of this Agreement and the consummation by the Buyer of the transactions contemplated
hereby or relating hereto do not and will not conflict with, or constitute a default (or an event which with notice or lapse
of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or
cancellation of any agreement, indenture or instrument or obligation to which the Buyer is a party or by which its properties
or assets are bound, or result in a violation of any law, rule, or regulation, or any order, judgment or decree of any court
or governmental agency applicable to such Buyer or its properties (except for such conflicts, defaults and violations as
would not, individually or in the aggregate, have a material adverse effect on the Buyer’s ability to fulfill its
obligations under this Agreement or the other Transaction Agreements). The Buyer is not required to obtain any consent,
authorization or order of, or make any filing or registration with, any court or governmental agency in order for it to
execute, deliver or perform any of its obligations under this Agreement or to purchase the Securities in accordance with
the terms hereof, provided that for purposes of the representation made in this sentence, the Buyer is assuming and relying
upon the accuracy of the relevant representations and agreements of the Company herein.

 

l.           The
Buyer is a limited liability company duly organized, validly existing and in good standing under the laws of the State of
Florida and has the requisite power to own its properties and to carry on its business as now being conducted.

 

m.         “Bad
Actor” Disqualification. The Buyer represents and warrants on behalf of itself and its Affiliates that neither: (x)
such Person; nor (y) any entity that controls such Person or is under the control of, or under common control with, such Person;
nor (z) any director of the Company that has been designated by such Person, if applicable; is subject to any Disqualification
Event (as defined in Section 3(k)(6) below), except for Disqualification Events covered by Rule 506(d)(2)(ii) or (iii) under the
1933 Act and disclosed in writing in reasonable detail to the Company. Buyer represents that it has exercised reasonable care
to determine the accuracy of the representation made by it this Section 2(m) and agrees to notify the Company if it becomes aware
of any fact that makes the representation given by it hereunder inaccurate.

 

3.           COMPANY
REPRESENTATIONS, WARRANTIES, ETC.   The Company represents
and warrants to the Buyer as of the Effective Date and as of each Closing Date that, except as otherwise provided in the Disclosure
Annex:

 

a.           Rights
of Others Affecting the Transactions. Except as set forth in
the Disclosure Annex, there are no preemptive rights of any stockholder of the Company to acquire the Securities that have not
otherwise been waived or adjudicated with any stockholders of the Company. No other party has a currently exercisable right of
first refusal which would be applicable to any or all of the transactions contemplated by the Transaction Agreements. Except as
set forth in the Disclosure Annex, no Person has, and as of the Closing Date, no Person shall have, any demand, “piggy-back”
or other rights to cause the Company to file any registration statement under the 1933 Act relating to any of its securities or
to participate in any such registration statement.

 

     8

     

    

 

b.           Status.
The Company is a corporation duly organized, validly existing
and in good standing under the laws of the State of Incorporation and has the requisite corporate power to own its properties and
to carry on its business as now being conducted. The Company is duly qualified as a foreign corporation to do business and is in
good standing in each jurisdiction where the nature of the business conducted or property owned by it makes such qualification
necessary, other than those jurisdictions in which the failure to so qualify would not have or result in a Material Adverse Effect.

 

c.          Authorized
Shares.

 

(i)          The
capitalization of the Company (including the number of shares of each class of stock which is authorized and the number of such
shares which are outstanding) is as set forth in the Disclosure Annex.

 

(ii)         Except
as set forth in the Disclosure Annex, there are no outstanding securities which are exercisable for, exchangeable for or convertible
into shares of Common Stock or exercisable for, exchangeable for or convertible into instruments which are convertible into shares
of Common Stock, whether such exercise, exchange or conversion is currently exercisable or exercisable only upon some future date
or the occurrence of some event in the future. If any such securities are listed on the Disclosure Annex, the number or amount
of each such outstanding convertible security and the conversion terms are set forth in said Disclosure Annex.

 

(iii)        All
issued and outstanding shares of Common Stock have been duly authorized and validly issued and are fully paid and non-assessable.
The Company has sufficient authorized and unissued shares of Common Stock as may be necessary to effect the issuance of the Shares
on the Closing Date, were the Notes fully converted on that date. In addition, the Company has sufficient authorized and unissued
shares of Common Stock as may be necessary to effect the issuance of any other shares of Common Stock in connection with any other
securities previously issued by the Company that are convertible or exchangeable into Common Stock including all such securities
listed in the Disclosure Annex.

 

(iv)        The
Shares have been duly authorized by all necessary corporate action on the part of the Company, and, when issued on conversion of,
or in payment of interest on, the Notes will have been duly and validly issued, fully paid and non-assessable and will not subject
the Holder thereof to personal liability by reason of being such Holder.

 

d.           Transaction
Agreements and Stock. This Agreement and each of the other
Transaction Agreements, and the transactions contemplated hereby and thereby, have been duly and validly authorized by the Company.
This Agreement has been duly executed and delivered by the Company and this Agreement is, and each of the Notes and each of the
other Transaction Agreements, when executed and delivered by the Company (if necessary), will be valid and binding obligations
of the Company enforceable in accordance with their respective terms, subject as to enforceability to general principles of equity
and to bankruptcy, insolvency, moratorium, and other similar laws affecting the enforcement of creditors’ rights generally.

 

e.          Non-contravention.
The execution and delivery of this Agreement and each of the other Transaction Agreements by the Company, the issuance of the Securities
in accordance with the terms hereof, and the consummation by the Company of the other transactions contemplated by this Agreement,
the Notes, the Warrants and the other Transaction Agreements do not and will not conflict with or result in a breach by the Company
of any of the terms or provisions of, or constitute a default under (i) the Certificate of Incorporation or By-laws, each as currently
in effect and as amended, (ii) any indenture, mortgage, deed of trust, or other material agreement or instrument to which the Company
is a party or by which it or any of its properties or assets are bound, including any listing agreement for the Common Stock except
as herein set forth, or (iii) to its knowledge, any existing applicable law, rule, or regulation or any applicable decree, judgment,
or order of any court, United States federal or state regulatory body, administrative agency, or other governmental body having
jurisdiction over the Company or any of its properties or assets, except such conflict, breach or default which would not have
or result in a Material Adverse Effect. The timely payment of interest on the Notes is not prohibited by the Certificate of Incorporation
or By-Laws, or any agreement, contract, document or other undertaking to which the Company is a party.

 

     9

     

    

 

f.           Securities
Law Matters; Approvals.

 

(i)          No
authorization, approval or consent of any court, governmental body, regulatory agency, self- regulatory organization, or stock
exchange or market or the stockholders of the Company is required to be obtained by the Company for the issuance and sale of the
Securities to the Buyer as contemplated by this Agreement, except such authorizations, approvals and consents that have been obtained.

 

(ii)         Assuming
the accuracy of the representations and warranties of the Buyer set forth in Section 2, the offer and sale by the Company of the
Purchased Securities is exempt from (A) the registration and prospectus delivery requirements of the 1933 Act and the rules and
regulations of the SEC thereunder and (B) the registration and/or qualification provisions of all applicable state and provincial
securities and “blue sky” laws.

 

g.          Absence
of Certain Changes. Since the Last Audited Date, there has
been no Material Adverse Effect, except as disclosed in the Disclosure Annex. Since the Last Audited Date, except as provided in
the Disclosure Annex, the Company has not (i) incurred or become subject to any material liabilities (absolute or contingent) except
liabilities incurred in the ordinary course of business consistent with past practices; (ii) discharged or satisfied any material
lien or encumbrance or paid any material obligation or liability (absolute or contingent), other than current liabilities paid
in the ordinary course of business consistent with past practices; (iii) declared or made any payment or distribution of cash or
other property to stockholders with respect to its capital stock, or purchased or redeemed, or made any agreements to purchase
or redeem, any shares of its capital stock; (iv) sold, assigned or transferred any other material tangible assets, or canceled
any material debts owed to the Company by any third party or material claims of the Company against any third party, except in
the ordinary course of business consistent with past practices; (v) waived any rights of material value, whether or not in the
ordinary course of business, or suffered the loss of any material amount of existing business; (vi) made any increases in employee
compensation, except in the ordinary course of business consistent with past practices; or (vii) experienced any material problems
with labor or management in connection with the terms and conditions of their employment.

 

h.          Full
Disclosure. There is no fact known to the Company (other than
conditions disclosed in the Disclosure Annex) that has not been disclosed in writing to the Buyer that would reasonably be expected
to have or result in a Material Adverse Effect.

 

i.           Absence
of Litigation. There is no action, suit, proceeding, inquiry
or investigation before or by any court, public board or body pending or, to the knowledge of the Company, threatened against or
affecting the Company before or by any governmental authority or non-governmental department, commission, board, bureau, agency
or instrumentality or any other person, wherein an unfavorable decision, ruling or finding would have a Material Adverse Effect
or which would adversely affect the validity or enforceability of, or the authority or ability of the Company to perform its obligations
under, any of the Transaction Agreements. The Company is not aware of any valid basis for any such claim that (either individually
or in the aggregate with all other such events and circumstances) could reasonably be expected to have a Material Adverse Effect.
Except as set forth in the Disclosure Annex, there are no outstanding or unsatisfied judgments, orders, decrees, writs, injunctions
or stipulations to which the Company is a party or by which it or any of its properties is bound, that involve the transaction
contemplated herein or that, alone or in the aggregate, could reasonably be expect to have a Material Adverse Effect.

 

j.           Absence
of Events of Default. Except as set forth in Disclosure Annex, no event of default (or its equivalent term), as defined in
the respective agreement to which the Company or its Subsidiary is a party, and no event which, with the giving of notice or the
passage of time or both, would become an event of default (or its equivalent term) (as so defined in such agreement), has occurred
and is continuing, which would have a Material Adverse Effect.

 

k.          Absence
of Certain Company Control Person Actions or Events. To the Company’s knowledge, except as disclosed in the Disclosure
Annex, none of the following has occurred during the past two (2) years with respect to a Company Control Person:

 

(1)  A
petition under the federal bankruptcy laws or any state insolvency law was filed by or against, or a receiver, fiscal agent or
similar officer was appointed by a court for the business or property of such Company Control Person, or any partnership in which
he was a general partner at or within two years before the time of such filing, or any corporation or business association of which
he was an executive officer at or within two years before the time of such filing;

 

     10

     

    

 

(2) Such
Company Control Person was convicted in a criminal proceeding or is a named subject of a pending criminal proceeding (excluding
traffic violations and other minor offenses);

 

(3) Such
Company Control Person was the subject of any order, judgment or decree, not subsequently reversed, suspended or vacated, of any
court of competent jurisdiction, permanently or temporarily enjoining him from, or otherwise limiting, the following activities:

 

(i) acting,
as an investment advisor, underwriter, broker or dealer in securities, or as an affiliated person, director or employee of any
investment company, bank, savings and loan association or insurance company, as a futures commission merchant, introducing broker,
commodity trading advisor, commodity pool operator, floor broker, any other Person regulated by the Commodity Futures Trading
Commission (“CFTC”) or engaging in or continuing any conduct or practice in connection with such activity;

 

(ii) engaging
in any type of business practice; or

 

(iii)  engaging
in any activity in connection with the purchase or sale of any security or commodity or in connection with any violation of federal
or state securities laws or federal commodities laws;

 

(4)  Such
Company Control Person was the subject of any order, judgment or decree, not subsequently reversed, suspended or vacated, of any
federal or state authority barring, suspending or otherwise limiting for more than sixty (60) days the right of such Company Control
Person to engage in any activity described in paragraph (3) of this item, or to be associated with Persons engaged in any such
activity; or

 

(5)  Such
Company Control Person was found by a court of competent jurisdiction in a civil action or by the CFTC or SEC to have violated
any federal or state securities law, and the judgment in such civil action or finding by the CFTC or SEC has not been subsequently
reversed, suspended, or vacated.

 

(6)  The
Company has exercised reasonable care to determine whether any Company Covered Person (as defined below) is subject to any of the
“bad actor” disqualifications described in Rule 506(d)(l)(i) through (viii), as modified by Rules 506(d)(2) and (d)(3),
under the 1933 Act (“Disqualification Events”). To the Company’s knowledge, no Company Covered Person is subject
to a Disqualification Event. The Company has complied, to the extent required, with any disclosure obligations under Rule 506(e)
under the 1933 Act. For purposes of this Agreement, “Company Covered Persons” are those persons specified in Rule 506(d)(1)
under the 1933 Act; provided, however, that Company Covered Persons do not include (a) the Buyer, (b) any person or entity that
is deemed to be an affiliated issuer of the Company solely as a result of the relationship between the Company and the Buyer, or
(c) any director of the Company that has been designated by the Buyer.

 

l.           No
Undisclosed Liabilities or Events. The Company has no liabilities or obligations other than those disclosed in the Transaction
Agreements or those incurred in the ordinary course of the Company’s business since the Last Audited Date, or which individually
or in the aggregate, do not or would not have a Material Adverse Effect. No event or circumstance has occurred or exists with
respect to the Company or its properties, business, operations, condition (financial or otherwise), or results of operations,
which, under applicable law, rule or regulation, requires public disclosure or announcement prior to the Effective Date by the
Company but which has not been so publicly announced or disclosed. There are no proposals currently under consideration or currently
anticipated to be under consideration by the Board of Directors or the executive officers of the Company which proposal would,
other than as contemplated in the Transaction Agreements (x) change the Certificate of Incorporation or the By-laws (except for
the By-law restatement contemplated in connection with the consummation of the transactions contemplated herein as set forth in
Annex XVII), each as currently in effect, with or without stockholder approval, which change would reduce or otherwise
adversely affect the rights and powers of the stockholders of the Common Stock or (y) materially or substantially change the business,
assets or capital of the Company, including its interests in subsidiaries. All unsatisfied judgments against the Company are disclosed
in the Disclosure Annex.

 

     11

     

    

 

m.         No
Integrated Offering. Neither the Company nor any of its Affiliates nor any Person acting on its or their behalf has, directly
or indirectly, at any time since January 1, 2007, made any offer or sales of any security or solicited any offers to buy any security
under circumstances that would eliminate the availability of the exemption from registration under Regulation D in connection with
the offer and sale of the Securities as contemplated hereby.

 

n.          Dilution. Each
of the Company and its executive officers and directors is aware that the number of Conversion Shares issuable on
conversion of the Notes into Series A Stock, exercise of the Warrants for Series A Stock, or the conversion of Series A Stock
into Common Stock, or pursuant to the other terms of the Transaction Agreements may have a dilutive effect on the ownership
interests of the other stockholders (and Persons having the right to become stockholders) of the Company. The Company
specifically acknowledges that its obligation to issue the Conversion Shares upon such instances is binding upon the Company
and enforceable regardless of the dilution such issuances may have on the ownership interests of other stockholders of the
Company, and the Company will honor such obligations, including, but not necessarily limited to, honoring every notice of
conversion (as contemplated by the Notes or the Series A Stock) or notice of exercise (as contemplated by the Warrant),
unless the Company is subject to an injunction (which injunction was not sought by the Company) prohibiting the Company from
doing so.

 

o.           Fees
to Brokers, Finders and Others. Buyer shall have no obligation with respect to such fees or with respect to any claims made
by or on behalf of other Persons for fees of a type contemplated in this paragraph that may be due in connection with the transactions
contemplated hereby except such fees as set forth on the Disclosure Annex. The Company shall indemnify and hold harmless each of
Buyer, its employees, officers, directors, agents, and partners, and their respective Affiliates, from and against all claims,
losses, damages, costs (including the costs of preparation and attorney’s fees) and expenses suffered in respect of any such claimed
or existing fees.

 

p.           Tax
Returns. The Company and each of its Subsidiaries has made and filed all federal and state income and all other tax
returns, reports and declarations required by any jurisdiction to which it is subject and (unless and only to the extent that
the Company and each of its Subsidiaries has set aside on its books provisions reasonably adequate for the payment of all
unpaid and unreported taxes) has paid all taxes and other governmental assessments and charges that are material in amount,
shown or determined to be due on such returns, reports and declarations, except those being contested in good faith and has
set aside on its books provision reasonably adequate for the payment of all taxes for periods subsequent to the periods to
which such returns, reports or declarations apply. Except as disclosed on the Disclosure Annex, there are no unpaid taxes in
any material amount claimed to be due by the taxing authority of any jurisdiction, and the officers of the Company know of no
basis for any such claim.

 

q.           Disclosure. All
information relating to or concerning the Company set forth in the Transaction Agreements is true and correct in all
material respects and the Company has not omitted to state any material fact necessary in order to make the statements made,
in light of the circumstances under which they were made, not misleading. No event or circumstance has occurred or exists or
is about to occur which has resulted in or would result in an Material Adverse Effect with respect to the Company or its
business, properties, prospects, operations or financial conditions, which has not been disclosed on the Disclosure
Annex.

 

r.           Existence
of Other Secured Indebtedness. The Company represents and warrants that other than holders of Permitted Liens (as defined
in the Notes) (a) there are no other secured creditors of the Company except for the Buyer, Knox, Aspen and Samsung, and (b)
all of such other secured creditors have each executed the Security Agreement, the IP Security Agreement and the
Intercreditor Agreement.

 

s.           Anti-Dilution
Rights of Holders of Convertible Debt and Other Equity-Linked Securities Issued by the Company. The Company represents and
warrants that, except as set forth in the Disclosure Annex, no convertible debt or other equity-linked securities, including, but
not limited to warrants to purchase common stock, containing any kind of anti-dilution or conversion price or exercise price reset
mechanism triggered by subsequent issuance of equity-linked securities to third parties have been previously issued to any parties.

 

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t.           Shareholder
Agreement. The Company represents and warrants that at least ninety percent (90%) of its existing shareholders have executed
the Shareholder Agreement prior to the Effective Date.

 

u.          Certificate
of Designation. The Company represents and warrants that the Certificate of Designation Amendment described in Annex XV
has been approved by the Board of Directors of the Company, and to the extent deemed necessary, a majority of Shareholders
and has been filed with the State of Michigan as of the Closing Date and that a sufficient number of shares of Series A Stock
are reserved for issuance in the event that the Buyer purchases Purchased Securities up to the Max Investment Amount.

 

v.           Landlord’s
Consent. The Company represents and warrants that the Landlord’s Consent has been fully executed by the Company’s
landlord prior to the Effective Date.

 

4.           CERTAIN
COVENANTS AND ACKNOWLEDGMENTS.

 

a.           Transfer
Restrictions. The Buyer acknowledges that (1) the Purchased
Securities have not been and are not being registered under the provisions of the 1933 Act and the Shares have not been and are
not being registered under the 1933 Act, and may not be transferred unless (A) subsequently registered thereunder or (B) the Buyer
shall have delivered to the Company an opinion of counsel, reasonably satisfactory in form, scope and substance to the Company,
to the effect that the Securities to be sold or transferred may be sold or transferred pursuant to an exemption from such registration;
(2) any sale of the Securities made in reliance on Rule 144 of the 1933 Act may be made only in accordance with the terms of said
rule and further, if said rule is not applicable, any resale of such Securities under circumstances in which the seller, or the
Person through whom the sale is made, may be deemed to be an underwriter, as that term is used in the 1933 Act, may require compliance
with some other exemption under the 1933 Act or the rules and regulations of the SEC thereunder; and (3) neither the Company nor
any other Person is under any obligation to register the Securities under the 1933 Act or to comply with the terms and conditions
of any exemption thereunder except pursuant to this Agreement.

 

b.           Restrictive
Legend. The Buyer acknowledges and agrees that, until such
time as the relevant Conversion Shares have been registered under the 1933 Act and may be sold in accordance with an effective
registration statement, or until such Conversion Shares can otherwise be sold without restriction, whichever is earlier, the certificates
and other instruments representing any of the Purchased Securities shall bear a restrictive legend in substantially the following
form (and a stop-transfer order may be placed against transfer of any such Securities):

 

THE
SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR
UNDER THE SECURITIES LAWS OF CERTAIN STATES. THESE SECURITIES MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED
EXCEPT AS PERMITTED UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS IN ACCORDANCE WITH APPLICABLE REGISTRATION REQUIREMENTS
OR AN EXEMPTION THEREFROM. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE ISSUER
THAT SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION OTHERWISE COMPLIES WITH THE ACT AND ANY APPLICABLE STATE SECURITIES
LAWS. THIS CERTIFICATE MUST BE SURRENDERED TO THE COMPANY OR ITS TRANSFER AGENT AS A CONDITION PRECEDENT TO THE SALE, TRANSFER,
PLEDGE OR HYPOTHECATION OF ANY INTEREST IN ANY OF THE SECURITIES REPRESENTED HEREBY.

 

c.           Filings.
The Company undertakes and agrees to make all filings required to be made by it in connection with the sale of the Purchased Securities
to the Buyer under the 1933 Act, the 1934 Act or any United States state securities laws and regulations thereof applicable to
the Company or by the rules and regulations of any securities exchange on which its securities are listed.

 

d.           Use
of Proceeds. The Company will use the net proceeds received
hereunder for general corporate purposes, including growth and capital initiatives, and refinancing of up to $100,000 of principal
and accrued interest thereon of Knox Debt.

 

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e.           Available
Shares.

 

(i)         The
Company shall have at all times authorized and reserved for issuance, free from preemptive rights, a number of
shares (the “Reserved Amount”) at least equal to the sum of (y) one hundred ten percent (110%) of the
Series A Stock issuable upon conversion of the Notes and exercise of the Warrants and (z) one hundred ten percent (110%) of
the number of shares of Common Stock issuable upon conversion of the Series A Stock, at any time, to satisfy the rights of
the Holders of any of the Purchased Securities through the maturity date of each such security plus interest thereon through
the maturity date (in each case, whether any of such outstanding Purchased Securities were originally issued to the Holder,
the Buyer or to any other party and without regard to any restrictions which might limit any Holder’s right to convert
any of the Purchased Securities held by such Holder).

 

(ii)        The
Reserved Amount shall be determined on the Initial Closing Date and after each Subsequent Closing Date thereafter,
(each such determination date, a “Reserved Share Determination Date”), and the number of shares to be
reserved shall be based on (A) all outstanding Purchased Securities and Series A Stock and the Conversion Price which would
have been applicable as of such Reserved Share Determination Date and (B) all unexercised warrants and options issued by the
Company as of such date. The Reserved Amount determined on such date shall remain the Reserved Amount until the next Closing
Date or the next quarterly determination, as the case may be. The Company shall give written instructions to its transfer
agent, if any, to reserve for issuance to the Buyer the number of shares equal to the Reserved Amount. The Company will, at
the request of the Buyer, provide written confirmation, certified by an executive officer of the Company, of the number of
shares then reserved for the Buyer and that the instructions referred to in the preceding sentence have been given to the
Company’s transfer agent, if any.

 

f.            Registration
Rights Agreement. The Company shall have entered into the Registration Rights Agreement with the Buyer effective
as of the Effective Date.

 

g.           Publicity,
Filings, Releases, Etc. Each of the Parties agrees that it will not disseminate any information relating to the Transaction
Agreements or the transactions contemplated thereby, including issuing any press releases, holding any press conferences or other
forums, or filing any reports (collectively, “Publicity”), without giving the other Party reasonable advance
notice and an opportunity to comment on the contents thereof. Neither Party will include in any such Publicity any statement or
statements or other material to which the other Party reasonably objects, unless in the reasonable opinion of counsel to the Party
proposing such statement, such statement is legally required to be included.

 

h.           Keeping
of Records and Books of Account. The Company shall keep and cause each Subsidiary, if any, to maintain a standard and uniform
system of accounting and to keep adequate records and books of account, in which complete entries will be made in accordance with
GAAP consistently applied, reflecting all financial transactions of the Company and such subsidiaries, and in which, for each fiscal
year, all proper reserves for depreciation, depletion, obsolescence, amortization, taxes, bad debts and other purposes in connection
with its business shall be made.

 

i.            Transactions
with Affiliates. While the Notes are outstanding, neither the Company nor any of its Subsidiaries shall, directly or indirectly,
enter into any material transaction or agreement with any stockholder, officer, director or Affiliate of the Company or family
member of any officer, director or Affiliate of the Company, unless the transaction or agreement is (i) reviewed and approved by
a majority of Independent Directors (as such term is hereinafter defined) and (ii) on terms no less favorable to the Company or
the applicable Subsidiary than those obtainable from a non-affiliated person. The term “Independent Director”
means a director who is not an executive officer or employee of the Company and who does not have a relationship that, in the reasonable
opinion of the Company’s board of directors, would interfere with the person’s exercise of independent judgment in
carrying out his or her responsibilities as a director. A director nominated by Aspen, POSCO, Hanwha Chemical Company, or Samsung
is not an Independent Director for the purposes of this provision.

 

     14

     

    

 

j.            Certain
Restrictions. While the Notes are outstanding, without the consent of the Buyer no dividends shall be declared or paid or set
apart for payment nor shall any other distribution be declared or made upon any capital stock of the Company, nor shall any capital
stock of the Company be redeemed, purchased or otherwise
acquired (other than a redemption, purchase or other acquisition of shares of Common Stock made for purposes of an employee incentive
or benefit plan (including a stock option plan) of the Company or pursuant to the security agreements, if any, listed on the Disclosure
Annex) for any consideration by the Company, directly or indirectly, nor shall any moneys be paid to or made available for a sinking
fund for the redemption of any Common Stock.

 

k.          Information
Rights. So long as the Buyer holds any Securities of the Company, the Company will deliver to the Buyer audited annual and
unaudited quarterly financial statements, annual budgets and other information reasonably requested by Buyer or any Affiliates
thereof. The Company shall also permit the Buyer or its authorized representatives, to visit and inspect the properties of the
Company, including its corporate and financial records, and to discuss its business and finances with officers of the Company and
make copies of any financial or other business records that the Buyer deems appropriate in its sole discretion, during normal business
hours following reasonable notice and as often as may be reasonably requested. Notwithstanding the forgoing, Buyer agrees that
it will enter into a mutually satisfactory form of confidentiality agreement prior to making any copies of records, if requested
by the Company.

 

l.            Expenses. The
Company agrees that it will reimburse the Buyer for all fees and expenses in connection with these transactions, promptly
upon submission of proof of such expenses but in no case later than fifteen (15) business days after such submission. Such
fees and expenses will include all accounting, consulting, legal and other syndication and formation fees and expense,
documentary stamp taxes, UCC filing fees and such other out of pocket expenses incurred by the Buyer in its sole discretion;
provided, however, that such reimbursements will not exceed $25,000 in the aggregate.

 

m.         Conversion
of Common Stock. For every $24 of Purchased Amount funded to the Company or on behalf of the Company pursuant to this
Agreement, the Buyer shall have the right to convert, or have any of its Affiliates convert, one (1) share of previously
acquired Company Common Stock into one (1) share of Series A Stock.

 

n.           Preemptive
Rights. The Company agrees that it will open a new round of preemptive rights financing pursuant to which the Company’s
stockholders will be permitted to purchase one (1) share of Series A Stock at a purchase price of $12 per share (each a “Preemptive
Share”) for every two (2) shares of Series A Stock and/or Common
Stock owned by such stockholder on the Closing Date. Furthermore, for every two (2) Preemptive Shares purchased by a stockholder,
the Company will issue that stockholder a warrant to purchase one (1) additional share of Series A Stock substantially in the
form attached hereto as Annex XVI (the “Preemptive Warrants”).
The preemptive rights granted in this section will expire on March 31, 2014. The Company shall also retroactively issue Preemptive
Warrants, on the same terms set forth herein, to those stockholders who participated in the preemptive rights round expiring on
October 31, 2013.

 

o.           Formation
of Audit Committee of the Board of Directors. The Company agrees that it will form an Audit Committee of the Board of Directors
by January 31, 2014, or such other date that is mutually agreed upon between the Parties, which shall be comprised of an odd number
of independent directors.

 

p.           Registration
Statement on Form S-1. The Company agrees to use its best efforts to complete and file an initial Registration Statement on
Form S-1 (the “S-1 Registration Statement”)
with the U.S. Securities and Exchange Commission to register shares of the Company’s Common Stock, consisting of such shares
identified by and agreed to by the Buyer, before March 31, 2014 or such other date as may be mutually agreed upon by the Parties
in writing. The Company further agrees that it will use commercially reasonable efforts to clear any comments that the SEC may
have during the registration process and have such S-1 Registration Statement declared effective by June 30, 2014.

 

q.           Public
Listing of the Company’s Common Stock. Providing that the SEC has declared the S-1 Registration Statement effective by
such time, the Company agrees to use its best efforts to have its Common Stock become publicly-traded on the New York Stock Exchange,
the NYSE Amex, or the NASDAQ Capital Market, or become qualified by and quoted on the OTCQB, OTCQX, or OTC PINK marketplace operated
by the OTC Markets Group, Inc. or any successor thereto, before June 30, 2014 or such other date that as may be mutually agreed
upon.

 

     15

     

    

 

r.          Access
to Monthly Financial Records. The Company agrees that it will provide its monthly unaudited financial statements to the Buyer
within twenty-one (21) days following the end of each calendar month and enable a mechanism whereby representatives of the Buyer
can remotely access the Company’s general ledger accounting during all times that either (a) the Notes are outstanding or
(b) the Buyer and its Affiliates own ten percent (10%) or more of the aggregate outstanding Shareholder Stock (calculated on a
Full Conversion basis).

 

s.          Formation
of the Nominating and Governance Committee of the Board of Directors. The Company agrees that it will form a Nominating and
Governance Committee of the Board of Directors by January 31, 2014, or such other date that is mutually agreed upon between the
Parties, which shall be comprised of an odd number of independent directors, one of whom shall be a director affiliated with Aspen.

 

t.          
Shareholder Election. The Company agrees that it will hold a shareholder vote to elect/re-elect directors for the
upcoming year no later than March 31, 2014.

 

u.          Adoption
of Amended By-Laws. The Company represents that the Amended and Restated By-Laws of the Company, in substantially the same
form as Annex XVII have been adopted as of the Samsung Closing Date.

 

v.           Entry
into the Voting Rights Agreement. The Company will use its best efforts to cause shareholders owning a majority of aggregate
outstanding Shareholder Stock to enter into the Voting Agreement in the form attached as Annex XIV, granting Samsung the
right to appoint one director at any election of directors in which Samsung owns 10% or more of the of the aggregate outstanding
Common Stock (assuming Full Conversion, but excluding any shares of Common Stock issuable upon exercise of any warrants held by
Samsung) (the “Samsung Director”). The Company
represents and warrants that the Samsung Director shall be required to execute the Company’s approved form of confidentiality,
non-competition and non-disclosure agreement for Directors prior to being elected or appointed to the Board. The Company further
represents and warrants that such Voting Rights Agreement will terminate upon, the first to occur of: (i) the date on which Samsung
no longer satisfies the minimum ownership requirement set forth in the Voting Agreement, (ii) the date on which that certain Shareholder
Agreement, originally executed March 18, 2013 by the Company and subsequently executed by a majority of shareholders, is terminated
for any reason, or (iii) the date that Samsung agrees in writing to terminate the Voting Agreement.

 

w.          Assignment
of Intellectual Property to newly Formed XG Sciences IP, LLC. The Company represents and warrants that it has formed XG Sciences
IP, LLC and has assigned to such entity all of its intellectual property that is described in the form of Assignment of Intellectual
Property attached hereto as Annex XVIII by executing such assignment and will record such assignment with the U.S. Patent
and Trademark Office and any other government entities in any country where it was required to record such assignment promptly
following the Effective Date. The Company represents and warrants that it is the sole holder of the membership interests of XG
Sciences IP, LLC and covenants that it shall not pledge or otherwise encumber such membership interests other than as contemplated
by the Transaction Agreements.

 

x.          New
Chief Executive Officer. The Company shall use its best efforts to hire a new Chief Executive Officer by January 20, 2014.

 

y.          Appointment
of New Managing Member of XG Sciences IP, LLC. The Company agrees that within thirty (30) calendar days after the start date
of the new Chief Executive Officer, it will appoint such person as the sole Manager of XG Sciences IP, LLC.

 

		5.	CLOSING
DATE.

 

a.           The
initial Closing Date (the “Initial Closing Date”)
occurred on July 12, 2013.

 

b.           Subject
to the provisions of this Agreement, any Closing Dates occurring after the Initial Closing Date shall occur (i) after the Buyer
has provided written notice of its intent to acquire or purchase Purchased Securities (up to the Max Investment Amount) and (ii)
following delivery of such notice, on the date which is the five (5) calendar days after each of the conditions contemplated by
Sections 6 and 7 hereof shall have either been satisfied
or been waived by the Party in whose favor such conditions run.

 

     16

     

    

 

		6.	CONDITIONS TO THE COMPANY’S OBLIGATION TO SELL.

 

The
Buyer understands that the Company’s obligation to sell the Purchased Securities to the Buyer pursuant to this Agreement on each
Closing Date is conditioned upon:

 

a.           the
consummation by Samsung of the Samsung Transaction on or before the Samsung Closing Date,

 

b.           the
execution of an amendment to the Purchase Agreement to the Amended & Restated Purchase Agreement dated July 12, 2013 between
the Company and Aspen, as contemplated in principal in the Existing Creditor Term Sheet on or before the Samsung Closing Date.

 

c.           the
satisfaction or completion of all other actions in the Existing Creditor Term Sheet that are contemplated in principal to be satisfied
or completed on or before the Samsung Closing Date.

 

d.           the
execution and delivery of this Agreement and, where indicated, the other Transaction Agreements by the Buyer on or before such
Closing Date.

 

e.           the
accuracy on such Closing Date of the representations and warranties of the Buyer contained in this Agreement, each as if made on
such date, and the performance by the Buyer on or before such date of all covenants and agreements of the Buyer required to be
performed on or before such date.

 

f.           there
shall not be in effect any law, rule or regulation prohibiting or restricting the transactions contemplated hereby, or requiring
any consent or approval which shall not have been obtained.

 

		7.	CONDITIONS
TO THE BUYER’S OBLIGATION TO PURCHASE.

 

The
Company understands that the Buyer’s obligation to purchase the Purchased Securities on each Closing Date is conditioned upon:

 

a.           The
issuance of a restated Secured Convertible Promissory Note to Knox by the Company that replaces the note dated March 18, 2013 on
or before the Samsung Closing Date.

 

b.           The
issuance of a restated Secured Convertible Promissory Note to Aspen by the Company that replaces the Existing Aspen Notes, and
adjusted the principal included in such note pursuant to Section 1(b) on or before the Samsung Closing Date.

 

c.           The
issuance, pursuant to the Existing Creditor Term Sheet, of a new warrant to Aspen for the purchase of up to 833,333 shares of Series
A Stock on or before the Samsung Closing Date.

 

d.           The
satisfaction or completion of all other actions in the Existing Creditor Term Sheet that are contemplated in principal to be satisfied
or completed on or before the Samsung Closing Date.

 

e.           Unless
otherwise waived by the Buyer, the Company shall have delivered to the Buyer an updated financial projection model that is acceptable
to the Buyer and given the Buyer the opportunity to discuss deviations in such projection model from the last such set of projections
provided to the Buyer.

 

f.           The
execution and delivery of this Agreement and the other Transaction Agreements by the Company and such other necessary parties on
or before such Closing Date.

 

g.           On
such Closing Date, each of the Transaction Agreements executed by the Company on or before such date shall, except for the Voting
Rights Agreement, be in full force and effect and the Company shall not be in default thereunder;

 

     17

     

    

 

h.          The
accuracy in all material respects on such Closing Date of the representations and warranties of the Company contained in this Agreement
and the other Transaction Agreements, each as if made on such date, and the performance by the Company on or before such date of
all covenants and agreements of the Company required to be performed on or before such date;

 

i.           The
Company shall have delivered to the Buyer an Officer’s Certificate similar in form and substance as that attached hereto
as Annex XIII to the effect that the representations and warranties of the Company in the Transaction Agreements continue
to be true and accurate in all material respects except for those changes occurring after the Initial Closing Date which have,
in the reasonable judgment of Buyer, no material adverse effect on the Company, and that there is no default on any of the Transaction
Agreements and all conditions specified in Section 7 have been fulfilled or otherwise waived by the Buyer;

 

j.           There
shall not be in effect any law, rule or regulation prohibiting or restricting the transactions contemplated hereby, or
requiring any consent or approval which shall not have been obtained, including, but not limited to, any new regulations
which may be promulgated after the date of this Agreement under the Dodd-Frank Wall Street Reform and Consumer Protection
Act; and

 

k.          The
Certificate of Designation Amendment shall have been filed with the State of Michigan.

 

		8.	CLOSING
ACTIONS.

 

a.          Joint
Company’s and Buyer’s Closing Actions on the Samsung Closing Date.
On the Samsung Closing Date, the Company and Buyer will execute and deliver: (i) this Agreement if not already executed and delivered,
(ii) the Second Amended and Restated Note contemplated in Section 1(a)(v) hereof if not already delivered, (iii) the Warrant, (iv)
the Intercreditor Agreement (along with executed copies thereof by the Other Secured Creditors), (v) the Security Agreement (along
with executed copies thereof by the Other Secured Creditors), (vi) the
IP Security Agreement (along with executed copies thereof by the Other Secured Creditors), (vii) the Registration Rights Agreement
(along with executed copies thereof by the Other Secured Creditors), and (viii) the Side Letter (along with executed copies thereof
by the Other Secured Creditors).

 

b.          Company’s
Closing Actions on each Subsequent Closing Date. At each Subsequent
Closing Date, the Company shall execute and deliver to the Buyer: (i) an Officer’s Certificate, and (ii) a Note in exchange
for any funds newly advanced to the Company, if any, as of such Closing Date.

 

		9.	INDEMNIFICATION
AND REIMBURSEMENT.

 

a.          (i)
The Company agrees to indemnify and hold harmless the Buyer and its officers, directors, employees, and agents, and each Buyer
Control Person from and against any losses, claims, damages, liabilities or expenses incurred (collectively, “Damages”),
joint or several, and any action in respect thereof to which the Buyer, its partners, Affiliates, officers, directors, employees,
and duly authorized agents, and any such Buyer Control Person becomes subject to, resulting from, arising out of or relating to
any misrepresentation, breach of warranty or nonfulfillment of or failure to perform any covenant or agreement on the part of Company
contained in this Agreement, as such Damages are incurred, except to the extent such Damages result primarily from Buyer’s failure
to perform any covenant or agreement contained in this Agreement or the Buyer’s or its officer’s, director’s, employee’s,
agent’s or Buyer Control Person’s illegal or willful misconduct, gross negligence, recklessness or bad faith (in each
case, as determined by a non-appealable judgment to such effect) in performing its obligations under this Agreement.

 

     18

     

    

 

(ii)         The
Company hereby agrees that, if the Buyer, other than by reason of its gross negligence or willful misconduct (in each case, as
determined by a non-appealable judgment to such effect), (x) becomes involved in any capacity in any action, proceeding or investigation
brought by any stockholder of the Company, in connection with or as a result of the consummation of the transactions contemplated
by this Agreement or the other Transaction Agreements, or if the Buyer is impleaded in any such action, proceeding or investigation
by any Person, or (y) becomes involved in any capacity in any action, proceeding or investigation brought by the SEC, any self-regulatory
organization or other body having jurisdiction, against or involving the Company or in connection with or as a result of the consummation
of the transactions contemplated by this Agreement or the other Transaction Agreements, or (z) is impleaded in any such action,
proceeding or investigation by any Person, then in any such case, the Company shall indemnify, defend and hold harmless the Buyer
from and against and in respect of all losses, claims, liabilities, damages or expenses resulting from, imposed upon or incurred
by the Buyer, directly or indirectly, and reimburse such Buyer for its reasonable legal and other expenses (including the cost
of any investigation and preparation) incurred in connection therewith, as such expenses are incurred. The indemnification and
reimbursement obligations of the Company under this paragraph shall be in addition to any liability which the Company may otherwise
have, shall extend upon the same terms and conditions to any Affiliates of the Buyer who are actually named in such action, proceeding
or investigation, and partners, directors, agents, employees and Buyer Control Persons (if any), as the case may be, of the Buyer
and any such Affiliate, and shall be binding upon and inure to the benefit of any successors, assigns, heirs and personal representatives
of the Company, the Buyer, any such Affiliate and any such Person. The Company also agrees that neither the Buyer nor any such
Affiliate, partner, director, agent, employee or Buyer Control Person shall have any liability to the Company or any Person asserting
claims on behalf of or in right of the Company in connection with or as a result of the consummation of this Agreement or the other
Transaction Agreements, except as may be expressly and specifically provided in or contemplated by this Agreement.

 

b.           All
claims for indemnification by any Indemnified Party (as defined below) under this Section shall be asserted and resolved as follows:

 

(i)          In
the event any claim or demand in respect of which any Person claiming indemnification under any provision of this Section (an “Indemnified
Party”) might seek indemnity under
paragraph (a) of this Section is asserted against or sought to be collected from such Indemnified Party by a Person other than
a Party hereto or an Affiliate thereof (a “Third Party Claim”),
the Indemnified Party shall deliver a written notification, enclosing a copy of all papers served, if any, and specifying the nature
of and basis for such Third Party Claim and for the Indemnified Party’s claim for indemnification that is being asserted under
any provision of this Section against any Person (the “Indemnifying Party”),
together with the amount or, if not then reasonably ascertainable, the estimated amount, determined in good faith, of such Third
Party Claim (a “Claim Notice”)
within ten (10) days of receipt of the Third Party Claim to the Indemnifying Party. If the Indemnified Party fails to provide the
Claim Notice with within said period, the Indemnifying Party shall not be obligated to indemnify the Indemnified Party with respect
to such Third Party Claim to the extent that the Indemnifying Party’s ability to defend has been prejudiced by such failure of
the Indemnified Party. The Indemnifying Party shall notify the Indemnified Party as soon as practicable within the period ending
thirty (30) calendar days following receipt by the Indemnifying Party of either a Claim Notice or an Indemnity Notice (as defined
below) (the “Dispute Period”)
whether the Indemnifying Party disputes its liability or the amount of its liability to the Indemnified Party under this Section
and whether the Indemnifying Party desires, at its sole cost and expense, to defend the Indemnified Party against such Third Party
Claim. The following provisions shall also apply.

 

(x)
If the Indemnifying Party notifies the Indemnified Party within the Dispute Period that the Indemnifying Party desires to defend
the Indemnified Party with respect to the Third Party Claim pursuant to this paragraph (b) of this Section, then the Indemnifying
Party shall have the right to defend, with counsel reasonably satisfactory to the Indemnified Party, at the sole cost and expense
of the Indemnifying Party, such Third Party Claim by all appropriate proceedings, which proceedings shall be vigorously and diligently
prosecuted by the Indemnifying Party to a final conclusion or will be settled at the discretion of the Indemnifying Party (but
only with the consent of the Indemnified Party in the case of any settlement that provides for any relief other than the payment
of monetary damages or that provides for the payment of monetary damages as to which the Indemnified Party shall not be indemnified
in full pursuant to paragraph (a) of this Section). The Indemnifying Party shall have full control of such defense and proceedings,
including any compromise or settlement thereof; provided, however, that the Indemnified Party may, at the sole cost and expense
of the Indemnified Party, at any time prior to the Indemnifying Party’s delivery of the notice referred to in the first
sentence of this subparagraph (x), file any motion, answer or other pleadings or take any other action that the Indemnified Party
reasonably believes to be necessary or appropriate protect its interests; and provided further, that if requested by the Indemnifying
Party, the Indemnified Party will, at the sole cost and expense of the Indemnifying Party, provide reasonable cooperation to the
Indemnifying Party in contesting any Third Party Claim that the Indemnifying Party elects to contest. The Indemnified Party may
participate in, but not control, any defense or settlement of any Third Party Claim controlled by the Indemnifying Party pursuant
to this subparagraph (x), and except as provided in the preceding sentence, the Indemnified Party shall bear its own costs and
expenses with respect to such participation. Notwithstanding the foregoing, the Indemnified Party may take over the control of
the defense or settlement of a Third Party Claim at any time if it irrevocably waives its right to indemnity under paragraph (a)
of this Section with respect to such Third Party Claim.

 

     19

     

    

 

(y)
If the Indemnifying Party fails to notify the Indemnified Party within the Dispute Period that the Indemnifying Party desires to
defend the Third Party Claim pursuant to paragraph (b) of this Section, or if the Indemnifying Party gives such notice but fails
to prosecute vigorously and diligently or settle the Third Party Claim, each in a reasonable manner, or if the Indemnifying Party
fails to give any notice whatsoever within the Dispute Period, then the Indemnified Party shall have the right to defend, at the
sole cost and expense of the Indemnifying Party, the Third Party Claim by all appropriate proceedings, which proceedings shall
be prosecuted by the Indemnified Party in a reasonable manner and in good faith or will be settled at the discretion of the Indemnified
Party (with the consent of the Indemnifying Party, which consent will not be unreasonably withheld). The Indemnified Party will
have full control of such defense and proceedings, including any compromise or settlement thereof; provided, however, that if requested
by the Indemnified Party, the Indemnifying Party will, at the sole cost and expense of the Indemnifying Party, provide reasonable
cooperation to the Indemnified Party and its counsel in contesting any Third Party Claim which the Indemnified Party is contesting.
Notwithstanding the foregoing provisions of this subparagraph (y), if the Indemnifying Party has notified the Indemnified Party
within the Dispute Period that the Indemnifying Party disputes its liability or the amount of its liability hereunder to the Indemnified
Party with respect to such Third Party Claim and if such dispute is resolved in favor of the Indemnifying Party in the manner provided
in subparagraph(z) below, the Indemnifying Party will not be required to bear the costs and expenses of the Indemnified Party’s
defense pursuant to this subparagraph (y) or of the Indemnifying Party’s participation therein at the Indemnified Party’s request,
and the Indemnified Party shall reimburse the Indemnifying Party in full for all reasonable costs and expenses incurred by the
Indemnifying Party in connection with such litigation. The Indemnifying Party may participate in, but not control, any defense
or settlement controlled by the Indemnified Party pursuant to this subparagraph (y), and the Indemnifying Party shall bear its
own costs and expenses with respect to such participation.

 

(z)
If the Indemnifying Party notifies the Indemnified Party that it does not dispute its liability or the amount of its liability
to the Indemnified Party with respect to the Third Party Claim under paragraph (a) of this Section or fails to notify the Indemnified
Party within the Dispute Period whether the Indemnifying Party disputes its liability or the amount of its liability to the Indemnified
Party with respect to such Third Party Claim, the amount of Damages specified in the Claim Notice shall be conclusively deemed
a liability of the Indemnifying Party under paragraph (a) of
this Section and the Indemnifying Party shall pay the amount of such Damages to the Indemnified Party on demand. If the Indemnifying
Party has timely disputed its liability or the amount of its liability with respect to such claim, the Indemnifying Party and the
Indemnified Party shall proceed in good faith to negotiate a resolution of such dispute; provided, however, that if the dispute
is not resolved within thirty (30) days after the Claim Notice, the Indemnifying Party shall be entitled to institute such legal
action as it deems appropriate.

 

(ii)         In
the event any Indemnified Party should have a claim under paragraph (a) of this Section against the Indemnifying Party that does
not involve a Third Party Claim, the Indemnified Party shall deliver a written notification of a claim for indemnity under paragraph
(a) of this Section specifying the nature of and basis for such claim, together with the amount or, if not then reasonably ascertainable,
the estimated amount, determined in good faith, of such claim (an “Indemnity Notice”)
within 10 days of discovery of said claim to the Indemnifying Party. The failure by any Indemnified Party to give the Indemnity
Notice shall not impair such party’s rights hereunder except to the extent that the Indemnifying Party demonstrates that it has
been irreparably prejudiced thereby. If the Indemnifying Party notifies the Indemnified Party that it does not dispute the claim
or the amount of the claim described in such Indemnity Notice or fails to notify the Indemnified Party within the Dispute Period
whether the Indemnifying Party disputes the claim or the amount of the claim described in such Indemnity Notice, the amount of
Damages specified in the Indemnity Notice will be conclusively deemed a liability of the Indemnifying Party under paragraph (a)
of this Section and the Indemnifying Party shall pay the amount of such Damages to the Indemnified Party on demand. If the Indemnifying
Party has timely disputed its liability or the amount of its liability with respect to such claim, the Indemnifying Party and the
Indemnified Party shall proceed in good faith to negotiate a resolution of such dispute; provided, however, that if the dispute
is not resolved within thirty (30) days after the Claim Notice, the Indemnifying Party shall be entitled to institute such legal
action as it deems appropriate.

 

     20

     

    

 

c.           The
indemnity agreements contained herein shall be in addition to (i) any cause of action or similar rights of the Indemnified Party
against the Indemnifying Party or others, and (ii) any liabilities the Indemnifying Party may be subject to.

 

10.         JURY
TRIAL WAIVER. The Company and the Buyer hereby waive a trial
by jury in any action, proceeding or counterclaim brought by either of the Parties hereto against the other in respect of any matter
arising out or in connection with the Transaction Agreements.

 

11.         SPECIFIC
PERFORMANCE. The Company and the Buyer acknowledge and agree
that irreparable damage would occur in the event that any provision of this Agreement or any of the other Transaction Agreements
were not performed in accordance with its specific terms or were otherwise breached. It is accordingly agreed that the Parties
(including any Holder) shall be entitled to an injunction or injunctions, without (except as specified below) the necessity to
post a bond, to prevent or cure breaches of the provisions of this Agreement or such other Transaction Agreement and to enforce
specifically the terms and provisions hereof or thereof, this being in addition to any other remedy to which any of them may be
entitled by law or equity; provided, however that the Company, upon receipt of a notice of conversion or a notice of exercise,
may not fail or refuse to deliver the stock certificates and the related legal opinions, if any, or if there is a claim for a breach
by the Company of any other provision of this Agreement or any of the other Transaction Agreements, the Company shall not raise
as a legal defense, based on any claim that the Holder or anyone associated or affiliated with the Holder has violated any provision
hereof or any other Transaction Agreement, has engaged in any violation of law or for any other reason, unless the Company has
first posted a bond for one hundred fifty percent (150%) of the principal amount and, if relevant, then obtained a court order
specifically directing it not to deliver said stock certificates to the Holder. The proceeds of such bond shall be payable to the
Holder to the extent that the Holder obtains judgment or its defense is recognized. Such bond shall remain in effect until the
completion of the relevant proceeding and, if the Holder appeals therefrom, until all such appeals are exhausted. This provision
is deemed incorporated by reference into each of the Transaction Agreements as if set forth therein in full.

 

		12.	GOVERNING
LAW: MISCELLANEOUS.

 

a.           This
Agreement shall be governed by and interpreted in accordance with the laws of the State of Michigan for contracts to be wholly
performed in such state and without giving effect to the principles thereof regarding the conflict of laws. Each of the Parties
consents to the exclusive jurisdiction of the federal courts whose districts encompass any part of Ingham County or the state
courts of the State of Michigan sitting in Ingham County in connection with any dispute arising under this Agreement or any of
the other Transaction Agreements and hereby waives, to the maximum extent permitted by law, any objection, including any objection
based on forum non conveniens, to the bringing of any such proceeding in such jurisdictions or to any claim that such venue
of the suit, action or proceeding is improper. To the extent determined by such court, the Company shall reimburse the Buyer for
any reasonable legal fees and disbursements incurred by the Buyer in enforcement of or protection of any of its rights under any
of the Transaction Agreements. Nothing in this Section shall affect or limit any right to serve process in any other manner permitted
by law.

 

b.           Failure
of any Party to exercise any right or remedy under this Agreement or otherwise, or delay by a Party in exercising such right or
remedy, shall not operate as a waiver thereof.

 

     21

     

    

 

c.           This
Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the Parties hereto. The Buyer
shall have the right to assign all or any portion of this Agreement, the Note, the Replacement Warrants, any Conversion Shares,
and the Registration Rights Agreement to (a) any Affiliate of the Buyer, (b) any investors in the Buyer or its direct assignees
or (c) any other “accredited investor” as that term is defined in Rule 501 of the General Rules and Regulations under
the 1933 Act.

 

d.           All
pronouns and any variations thereof refer to the masculine, feminine or neuter, singular or plural, as the context may require.

 

e.          This
Agreement may be signed in one or more counterparts, each of which shall be deemed an original.

 

f.           A
facsimile or other electronic transmission of this signed Agreement shall be legal and binding on all Parties hereto.

 

g.          The
headings of this Agreement are for convenience of reference and shall not form part of, or affect the interpretation of, this Agreement.

 

h.          If
any provision of this Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall
not affect the validity or enforceability of the remainder of this Agreement or the validity or enforceability of this Agreement
in any other jurisdiction.

 

i.           This
Agreement may be amended only by an instrument in writing signed by the Party to be charged with enforcement thereof,

 

j.           This
Agreement amends and restates the Original Agreement and supersedes all other agreements and understandings among the Parties
hereto with respect to the subject matter hereof.

 

k.          All
dollar amounts referred to or contemplated by this Agreement or any other Transaction Agreement shall be deemed to refer to US
Dollars, unless otherwise explicitly stated to the contrary.

 

13.         NOTICES.
Any notice required or permitted hereunder shall be given in writing (unless otherwise specified herein) and shall be deemed effectively
given on the earliest of

 

(a)        the
date delivered, if delivered by personal delivery as against written receipt therefor or by confirmed facsimile transmission,

 

(b)        the
fifth (5th) calendar day after deposit, postage prepaid, in the United States Postal Service by registered or certified
mail, or

 

(c)        the
third calendar day after mailing by domestic or international express courier, with delivery costs and fees prepaid,

 

in
each case, addressed to each of the other Parties thereunto entitled at the following addresses (or at such other addresses as
such Party may designate by ten (10) days’ advance written notice similarly given to each of the other Parties hereto):

 

	COMPANY:	XG Sciences, Inc.
	 	Attn: Chief Executive Officer
	 	3101 Grand Oak Drive
	 	Lansing, MI 48911
	 	Telephone:	517.703.1110
	 	Facsimile:	517.703.1113

 

     22

     

    

 

	with
    a copy to:	Matt
    G. Hrebec
	 	Foster Swift Collins & Smith PC
	 	313 South Washington Square
	 	Lansing, MI 48933-2193
	 	Telephone:	517.371.8256
	 	Facsimile:	517.367.7356

 

	BUYER:	XGS
    II, LLC
	 	Attn: David G, Pendell
	 	2338 Immokalee, Suite 131
	 	Naples, FL 34110-1448
	 	Telephone:	239.450.5097
	 	Facsimile:	_________

 

14.         SURVIVAL
OF REPRESENTATIONS AND WARRANTIES. The Company’s and
the Buyer’s representations and warranties herein shall survive the execution and delivery of this Agreement and the delivery
of the Purchased Securities and the payment of the purchase price, for a period of two (2) years after each Closing Date hereunder
and shall inure to the benefit of the Buyer and the Company and their respective successors and assigns.

 

**BALANCE
OF PAGE INTENTIONALLY LEFT BLANK**

 

     23

     

    

 

AMENDED
& RESTATED PURCHASE AGREEMENT

 

IN
WITNESS WHEREOF, each of the undersigned represents that the foregoing statements made by it above are true and correct and
that it has caused this Agreement to be duly executed on its behalf (if an entity, by one of its officers thereunto duly authorized)
as of the date first above written.

 

	 	BUYER:
	 	 
	 	XGS II, LLC
	 	 	 
	 	By:	/s/ David G. Pendell
	 	Name: 	David G. Pendell
	 	Title:	Managing Member
	 	 
	 	COMPANY:
	 	 
	 	XG SCIENCES, INC.
	 	 
	 	By:	/s/ Michael R. Knox
	 	Name: 	Michael R. Knox
	 	Title:	Chief Executive Officer

 

     

     

    

 

	ANNEX I	FORM OF SECOND AMENDED & RESTATED SECURED CONVERTIBLE NOTE
	 	 
	ANNEX II	FORM OF WARRANT
	 	 
	ANNEX III	FORM OF SECOND AMENDED & RESTATED SECURITY AGREEMENT
	 	 
	ANNEX IV	FORM OF SECOND AMENDED & RESTATED INTELLECTUAL PROPERTY SECURITY AGREEMENT
	 	 
	ANNEX V	[INTENTIONALLY OMITTED]
	 	 
	ANNEX VI	LANDLORD’S CONSENT
	 	 
	ANNEX VII	FORM OF SECOND AMENDED & RESTATED REGISTRATION RIGHTS AGREEMENT
	 	 
	ANNEX VIII	FORM OF SECOND AMENDED & RESTATED INTERCREDITOR AGREEMENT
	 	 
	ANNEX IX	AMENDED AND RESTATED SERIES A CERTIFICATE OF DESIGNATION
	 	 
	ANNEX X	FORM OF SHAREHOLDER AGREEMENT
	 	 
	ANNEX XI	DISCLOSURE ANNEX
	 	 
	ANNEX XII	FORM OF SIDE LETTER
	 	 
	ANNEX XIII	FORM OF OFFICER’S CERTIFICATE
	 	 
	ANNEX XIV	FORM OF VOTING RIGHTS AGREEMENT
	 	 
	ANNEX XV	CERTIFICATE OF DESIGNATION AMENDMENT
	 	 
	ANNEX XVI	FORM OF PREEMPTIVE WARRANTS
	 	 
	ANNEX XVII	AMENDED AND RESTATED BY-LAWS
	 	 
	ANNEX XVIII	FORM OF ASSIGNMENT OF INTELLECTUAL PROPERTY

 

     

     

    

 

XG
SCIENCES, INC.

 

PURCHASE
AGREEMENT

 

BETWEEN

XG
SCIENCES, INC.

AND

XGS
II, LLC

 

ANNEX
XI

 

DISCLOSURE
ANNEX

 

January
15, 2014

 

This
Disclosure Annex is arranged in sections corresponding to the identified Sections of the Purchase Agreement between XG Sciences,
Inc. and XGS II, LLC to which it is attached as Annex XI (the “Agreement”),
but the disclosure in any such Section shall qualify other provisions in the Agreement, as well as all disclosures in any of the
other Transaction Agreements, to the extent that it would be readily apparent to an informed reader from a reading of such Section
and the other Transaction Agreements that such disclosure is also relevant to other provisions of the Agreement or any of the other
Transaction Agreements.

 

Capitalized
terms that are used but not defined in this Disclosure Annex shall have the meanings set forth in the Agreement.

 

Section
3.a.

 

The
following agreements grant preemptive rights to stockholders of the Company with respect to the Company’s Common Stock: (1)
Stock Redemption Agreement dated July 15, 2006 (superseded by Shareholder Agreement); (2) Stock Redemption Agreement dated December
1, 2010 with Hanwha Chemical Corporation (superseded by Shareholder Agreement); (3) Stock Redemption Agreement dated June 8, 2011
with POSCO (superseded by Shareholder Agreement); (4) the Shareholder Agreement; (5) Section 4.n of the Agreement; (6) Section
4.n of the Purchase Agreement dated July 12, 2013 between the Company and Aspen Advanced Opportunity Fund, LP, as amended on the
Closing Date; and (7) Section 4.m. of the Purchase Agreement dated as of the Closing Date between the Company and SVIC No. 15 New
Technology Business Investment L.L.P.

 

Michigan
State University has tag-along and “piggy-back” registration rights under the Restated and Amended Exclusive License
Agreement between MSU and the Company.

 

	Section 3.c.(i).

 

	Outstanding Common Stock
	Name of Holder of Common Stock	 	Shares of Common Stock	 
	Michael R. Knox (and Linn Van Dyne)	 	 	127,047.0	 
	Lawrence T. Drzal, Trustee of Drzal Revocable Trust	 	 	50,550.0	 
	Hiroyuki Fukushima	 	 	50,000.0	 
	Inhwan Do	 	 	50,000.0	 
	Ann Arbor SPARK	 	 	36,257.0	 
	Robert Skandalaris	 	 	34,977.0	 
	Edward J. Demmer	 	 	30,000.0	 
	Mark S. Kerrins & Rosemary Kerrins (JTWROS)	 	 	32,500.0	 
	David J. Donovan	 	 	16,257.0	 
	Michigan State University Foundation	 	 	9,543.0	 
	W. D. Hamilton and S.M Heathfield	 	 	7,251.0	 
	Paul Nordstrom	 	 	3,637 .0	 

 

     

     

    

 

	Colin D. Cronin	 	 	2,803.0	 
	Stephen J. Linder trust No 1	 	 	5,251.0	 
	Matthew H. Frisch	 	 	2,087.5	 
	Jeffery A. Wesley	 	 	9,005.0	 
	Mark E. Hooper Revocable Living Trust	 	 	3,625.0	 
	Peter S, Bosanic & Lisa Kendzioski Bosanic (JTWROS)	 	 	1,925.0	 
	Kevin B. Miller	 	 	2,400.0	 
	William G. Lutz	 	 	1,653.0	 
	John W. Dourjalian	 	 	1,649.0	 
	Reed Shick	 	 	880.0	 
	Gary Griffin	 	 	1,500.0	 
	Robert L. McKellar	 	 	592.0	 
	Hanwha Chemical	 	 	150,000.0	 
	POSCO	 	 	200,000.0	 
	Marjorie E. Frisch	 	 	2,087.5	 
	Total Common Stock Issued and Outstanding	 	 	833,477.0	 

 

	Outstanding Series A Convertible Preferred Stock
	Name of Holder of Series A Convertible Preferred Stock	 	Shares of Series A
 Convertible Preferred Stock	 
	Paul Nordstrom	 	 	6,363.0	 
	Colin D. Cronin	 	 	5,300.0	 
	Peter S. Bosanic & Lisa Kendzioski Bosanic (JTWROS)	 	 	1,875.0	 
	John W. Dourjalian	 	 	3,123.0	 
	Dave and Vicky Pendell	 	 	3,157.0	 
	ASC-XGS, LLC	 	 	166,023.0	 
	Total Series A Convertible Preferred Stock Issued and Outstanding	 	 	185,841.0	 
	 	 	 	 	 
	Total Common Stock and Series A Convertible Preferred Stock Issued and Outstanding	 	 	1,019,318	 

 

Note:
The Corporation is authorized to issue: (A) 25,000,000 shares of Common Stock, and (B) 8,000,000 shares of Series A Convertible
Preferred Stock.

 

	Outstanding Warrants and Options
	Holder	 	Issue Date	 	Shares
 Subject to
 Warrant*	 	 	Shares
 Subject to
 Option	 	 	Expiration
 Date
	 	Exercise
 Price
	 
	Scott Murray	 	12/1/2007	 	 	0	 	 	 	10,000	 	 	12/1/2017	 	$	8.00	 
	William Lutz	 	7/31/2009	 	 	1,650	 	 	 	0	 	 	7/31/2014	 	$	15.00	 
	Michael R. Knox	 	3/15/2009	 	 	0	 	 	 	12,500	 	 	3/15/2014	 	$	12.00	 
	Michael R. Knox	 	7/1/2009	 	 	6,000	 	 	 	0	 	 	7/1/2019	 	$	8.00	 
	William Lutz	 	4/1/2010	 	 	5,000	 	 	 	0	 	 	4/1/2015	 	$	10.00	 
	ASC-XGS LLC	 	7/16/2010	 	 	21,044	 	 	 	0	 	 	7/16/2014	 	$	10.00	 
	Jihyun Chung	 	7/12/2011	 	 	4,000	 	 	 	0	 	 	7/31/2015	 	$	20.00	 
	Michael R. Knox	 	10/8/2012	 	 	5,000	 	 	 	0	 	 	10/8/2027	 	$	12.00	 
	Aspen Advanced Opportunity Fund, LP	 	3/18/2013	 	 	208,333	 	 	 	0	 	 	3/18/2023	 	$	12.00	 
	Arnold Allemang	 	6/1/2013	 	 	0	 	 	 	3,750	 	 	6/1/2021	 	$	12.00	 
	Iris Linder	 	6/1/2013	 	 	0	 	 	 	3,750	 	 	6/1/2021	 	$	12.00	 
	Steven Jones	 	6/1/2013	 	 	0	 	 	 	2,500	 	 	6/1/2021	 	$	12.00	 

 

     

     

    

 

	Scott Murray	 	6/1/2013	 	 	0	 	 	 	10,000	 	 	6/1/2021	 	$	12.00	 
	Robert Privette	 	6/1/2013	 	 	0	 	 	 	20,000	 	 	6/1/2021	 	$	12.00	 
	Liya Wang	 	6/1/2013	 	 	0	 	 	 	30,000	 	 	6/1/2021	 	$	12.00	 
	Michael R. Knox	 	6/1/2013	 	 	0	 	 	 	50,000	 	 	6/1/2021	 	$	13.20	 
	Corinne Lyon	 	6/1/2013	 	 	0	 	 	 	10,000	 	 	6/1/2021	 	$	12.00	 
	Aspen Advanced Opportunity Fund, LP	 	7/12/2013	 	 	208,333	*	 	 	0	 	 	7/12/2023	 	$	12.00	 
	XGS II, LLC	 	7/12/2013	 	 	31,250	*	 	 	0	 	 	7/12/2023	 	$	12.00	 
	 	 	 	 	 	490,610	*	 	 	152,500	 	 	 	 	 	 	 

 

*On
the Closing Date, the Company will cancel the warrants issued to each of Aspen Advanced Opportunity Fund, LP and XGS II, LLC; issue
a restated warrant to Aspen Advanced Opportunity Fund, LP for 833,333 shares; issue a restated warrant to XGS II, LLC for 83,333
shares; issue a warrant to SVIC No. 15 New Technology Business Investment L.L.P. for 100,000; and issue warrants to each of the
shareholders who participated in the preemptive rights offering that ended October 31, 2013 (2,121 to Paul Nordstrom, 1,767 to
Colin D. Cronin, 625 to Peter S. Bosanic & Lisa Kendzioski Bosanic (JTWROS), and 1,041 to John W. Dourjalian).

 

Section
3.c.(ii).

 

		•	The $603,846.58
secured convertible promissory note dated March 18, 2013 to Aspen Advanced Opportunity Fund, LP.** The note is convertible into
Series A Stock and then Common Stock.

 

		•	The $250,000.00
secured convertible promissory note dated April 3, 2013 to Aspen Advanced Opportunity Fund, LP.** The note is convertible into
Series A Stock and then Common Stock.

 

		•	The $250,000.00
secured convertible promissory note dated April 12, 2013 to Aspen Advanced Opportunity Fund, LP.** The note is convertible into
Series A Stock and then Common Stock.

 

		•	The $1,400,000.00
secured convertible promissory note dated April 26, 2013 to Aspen Advanced Opportunity Fund, LP.** The note is convertible into
Series A Stock and then Common Stock.

 

		•	The $800,000.00
secured convertible promissory note dated July 29, 2013 to Aspen Advanced Opportunity Fund, LP, of which $490,575 will be transferred
to the benefit of XGS II, LLC on the Closing Date.** The note is convertible into Series A Stock and then Common Stock.

 

		•	The $200,000.00
secured convertible promissory note dated September 30, 2013 to Aspen Advanced Opportunity Fund, LP.** The note is convertible
into Series A Stock and then Common Stock.

 

		•	The $300,000.00
secured convertible promissory note dated October 15, 2013 to Aspen Advanced Opportunity Fund, LP.** The note is convertible into
Series A Stock and then Common Stock.

 

		•	The $500,000.00
secured convertible promissory note dated December 2, 2013 to Aspen Advanced Opportunity Fund, LP.** The note is convertible into
Series A Stock and then Common Stock.

 

		•	The $100,000.00
secured convertible promissory note dated January 7, 2014 to Aspen Advanced Opportunity Fund, LP.** The note is convertible into
Series A Stock and then Common Stock.

 

		•	The $700,000.00
secured convertible promissory note dated March 18, 2013 to Michael Knox.*** The note is convertible into Series A Stock and then
Common Stock.

 

		•	The $200,000.00
secured convertible promissory note dated October 15, 2013 to XGS II, LLC, to which $490,575 will be transferred to the benefit
of XGS II, LLC on the Closing Date.*** The note is convertible into Series A Stock and then Common Stock.

 

		•	The Options and
Warrants set forth in Section 3.c.(i) of this Disclosure Annex.

 

     

     

    

 

**
On the Closing Date, this note will be restated and consolidated with all other notes issued by the Company to Aspen Advanced Opportunity
Fund, LP. The restated note will include capitalized interest through the Closing Date.

 

***
On the Closing Date, this note will be restated. The restated note will include capitalized interest through the Closing Date.

 

Section
3.g.(i).

 

The
Company issued the secured convertible promissory notes that are described above to and entered into the related transaction documents
with each of Aspen Advanced Opportunity Fund, LP, Michael Knox, and XGS II, LLC.

 

Section
3.g.(vii).

 

The
Company is engaged in litigation with a former employee, Heather Sommers. Heather Sommers signed a separation agreement with the
Company on July 27, 2012. On October 22, 2012, the Company received a complaint and demand for jury trial alleging wrongful termination,
breach of implied employment contract, discharge against public policy, violations of civil rights laws, violations of the whistleblower
protection act, and other claims. The Company’s insurer has reviewed the claim and advised the Company that the claim is
covered by the Company’s standard officers and directors’ insurance policy. The insurer has assumed the defense of
the claim. On September 24, 2013, the Circuit Court for the County of Ingham granted Defendant’s Motion for Summary Disposition,
resolving all pending claims and closing the case. On October 30,2013 the same court denied Plaintiff’s Motion for Reconsideration.

 

Section
3.h,

 

In
November of 2011, the Company entered into a license agreement between the Company and Cabot Corporation (“Cabot”),
a copy of which has been supplied to the Buyer (the “License Agreement”).
Subsequent to the execution of the License Agreement, Michigan State University (“MSU”) expressed concern regarding
the form of the License Agreement, including whether any MSU technology might have been included in the License Agreement. After
discussions among Cabot, MSU, and the Company, Cabot drafted a First Amendment to the License Agreement Between Cabot and the
Company (the “Amendment”). The Amendment contains
warranties, attested by both the Company and its Chief Scientist, Dr. Lawrence Drzal, asserting that no MSU technology had been
improperly transferred to Cabot. The Company executed the Amendment on January 29, 2013, and has provided a copy to the Buyer.
The Company understood that this matter was closed when it provided the Amendment to the Buyer. However, the Company subsequently
learned that Cabot has not yet signed the Amendment because a new Vice President had been appointed. Additionally, the Company
received a letter from MSU dated March 20, 2013 stating that MSU wanted to review this issue. The Company, Cabot, and MSU have
been renegotiating the Amendment. MSU is currently engaged in an audit of the technology transfer package associated with the
Cabot License Agreement.

 

Section
3.i.

 

The
Company is engaged in litigation with a former employee, Heather Sommers. Heather Sommers signed a separation agreement with the
Company on July 27, 2012. On October 22, 2012, the Company received a complaint and demand for jury trial alleging wrongful termination,
breach of implied employment contract, discharge against public policy, violations of civil rights laws, violations of the whistleblower
protection act, and other claims. The Company’s insurer has reviewed the claim and advised the Company that the claim is
covered by the Company’s standard officers and directors’ insurance policy. The insurer has assumed the defense of
the claim. On September 24, 2013, the Circuit Court for the County of Ingham granted Defendant’s Motion for Summary Disposition,
resolving all pending claims and closing the case. On October 30, 2013, the same court denied Plaintiff’s Motion for Reconsideration.

 

     

     

    

 

Section
3.o.

 

The
Company is obligated to pay SVIC No. 15 New Technology Business Investment L.L.P. transaction fees, up to $65,000, in
connection with the transactions contemplated by the purchase agreement between SVIC No. 15 New Technology Business
Investment L.L.P. and the Company.

 

The
Company is obligated to pay the Buyer’s and Aspen Advanced Opportunity Fund, LP’s transaction fees, up to $150,000
and $25,000, respectively, in connection with the transactions contemplated by the Agreement.

 

Section
3.s.

 

The
warrant to purchase 5,000 shares issued to Michael R. Knox contains an exercise price reset mechanism triggered by subsequent offerings
of Common Stock. Pursuant to that mechanism, the price was reset from $20 to $12 on August 21, 2013.

 

The
Company’s options and warrants contain anti-dilution protection with respect to stock splits, stock dividends, and other
recapitalizations.Exhibit 10.20

 

NEITHER THIS NOTE NOR THE SECURITIES INTO
WHICH THIS NOTE IS CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF
ANY STATE, IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES
ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS
OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS.

 

	No. 12	$739,349.83

 

XG SCIENCES, INC.

 

Secured Convertible Promissory Note

 

Due March 18, 2018

 

This Secured Convertible
Promissory Note (this “Note”) is issued this 15th day of January 2014, jointly and severally
by XG Sciences, Inc. (“XGS”), a Michigan corporation, and XG Sciences IP, LLC, a Michigan limited liability
company and wholly-owned subsidiary of XGS (collectively, the “Borrower” or the “Company”),
to XGS II, LLC, a Florida limited liability company (“XGS II” or the “Holder”).
This Note restates the $200,000.00 Secured Convertible Promissory Note issued on October 15, 2013 by XGS to XGS II (the “Prior
Note”) as adjusted to reflect an increase in the principal pursuant to a reallocation of principal and accrued interest
described in Section 1(b) of the Second Amended & Restated Purchase Agreement between XGS and Aspen Advanced Opportunity Fund,
LP. The Prior Note was issued pursuant to that certain Purchase Agreement between XGS and XGS II, originally entered on
July 12, 2013, and amended and restated on January 15, 2014 (the “Purchase Agreement”). The Prior
Note is hereby cancelled and replaced in its entirety by this Note. XGS II shall physically surrender the Prior Note to the Company
in exchange for the delivery of this Note.

 

FOR VALUE RECEIVED,
the Borrower hereby promises to pay to the Holder or his, her or its successors and assigns the principal sum of SEVEN HUNDRED
THIRTY-NINE THOUSAND THREE HUNDRED FORTY-NINE AND 83/100 DOLLARS ($739,349.83) on or before March 18, 2018 (the “Maturity
Date”) and to pay interest on the principal sum outstanding from time to time in arrears at the rate
of 12.0% per annum, accruing from the Original Issue Date (as defined in Section 7 hereof) until the date (each, an “Interest
Payment Date”) which is the earlier of (i) the next Conversion Date (as defined below), (ii) the date
which is the last day of the month that includes the Original Issue Date and the last day of every month thereafter, or (iii)
the Maturity Date, as the case may be. Interest shall accrue monthly (pro-rated on a daily basis for any period longer or shorter
than a month) from the later of the Original Issue Date or the previous Interest Payment Date and shall be payable in cash. If
not paid in full on an Interest Payment Date, interest shall be fully cumulative and shall accrue on a daily basis, based on a
360-day year, and compound monthly on the last day of each month beginning on the last day of the month that includes the
Original Issue Date, until paid.

 

    	 	1	 

     

    

  

Interest payable in cash hereunder shall
be paid on or before each Interest Payment Date in US Dollars to the Holder (such reference and all subsequent references to the
“Holder” shall include his, her or its permitted and recognized successors and assigns) at the
address last appearing on the Note register of the Borrower or as designated in writing by the Holder from time to time. Notwithstanding
the foregoing, at the Company’s option, interest payable hereunder may as it accrues be added to the principal amount of
this Note until December 31, 2014. After December 31, 2014, the Holder, at its option and upon written notice to the Company,
shall have the right to a) receive any interest payments currently due and payable in cash, or b) receive all or a portion of
such currently due interest in the form of Series A Convertible Preferred Stock of XGS (“Series A Stock”)
at a price per share equal to the then effective Series A Original Issue Price (as defined in XGS’s Certificate of Designations
of Series A Convertible Stock), or c) receive all or a portion of such currently due interest in the form of any other series
of Preferred Stock which may be outstanding at the time such interest is due pursuant to the provision of Section 4 hereof, or
d) elect to accrue such interest payment and add it to the balance of the Note.

 

In the event that
the entire principal amount of this Note is converted to XGS’ Preferred Stock pursuant to Section 4 below, all accrued interest
and other amounts due and owing under this Note shall be due immediately and shall be added to the principal amount hereof to
determine the total amount of indebtedness hereunder being converted to Preferred Stock. In the event that less than all of the
principal amount of this Note is converted to Preferred Stock, a pro rata portion of the accrued interest (based on the percentage
of this Note converted) shall be due immediately and shall be added to the portion of the principal amount of this Note being
converted to the Preferred Stock.

 

This Note is
subject to the following additional provisions (including the defined terms in Section 6 below that are spelled in title case
letters — i.e. initial capital letters):

 

Section 1.         Right
of Redemption. The Borrower at its option shall have the right, by giving fifteen (15) Business Days advance written
notice (the “Redemption Notice”) to the Holder, to redeem a portion or all amounts outstanding under
this Note prior to the Maturity Date. In such event, the Borrower shall pay an amount equal to the principal amount being redeemed
plus a pro rata portion (based upon the percentage of this Note being redeemed) of accrued interest and any other amounts due
and owing under this Note (collectively referred to as the “Redemption Amount”). The Borrower shall
deliver to the Holder the Redemption Amount on the fifteenth (15th) Business Day after the Redemption Notice unless
the Holder has elected to convert the Redemption Amount into Preferred Stock pursuant to Section 4 hereof.

 

Section 2.          Covenants.

 

(a)          Affirmative
Covenants.  The Borrower covenants and agrees that, until all of the Obligations under the Transaction Documents
have been fully performed and either Paid in Full in cash or converted into shares of Preferred Stock of XGS pursuant to Section
4 hereof and this Note has been terminated, it will abide by the following affirmative covenants and any other affirmative covenants
that may be listed in any of the other Transaction Documents:

 

(1)         Financial
Reports, Notices and Other Information.

 

(A)         Financial
Reports. Borrower shall furnish to Holder (i) as soon as available, and in any event when submitted to the Securities
and Exchange Commission (“SEC”) if required to be so submitted, but no later than one hundred
and five (105) calendar days after the end of each fiscal year, audited annual consolidated financial statements, including the
notes thereto, consisting of a consolidated balance sheet at the end of such completed fiscal year and the related consolidated
statements of income, retained earnings, cash flows and owners’ equity for such completed fiscal year, which financial statements
shall be prepared by an independent certified public accounting firm, (ii) as soon as available and in any event within forty
five (45) calendar days after the end of each fiscal quarter (60 calendar days after the end of any quarter which coincides with
the end of a fiscal year provided that such unaudited quarterly financials may be subject to further audit adjustment), unaudited
financial statements consisting of a balance sheet and statements of income and cash flows as of the end of the immediately preceding
calendar quarter, and (iii) as soon as available and in any event within thirty (30) calendar days after the end of each fiscal
month (45 calendar days after the end of any month which coincides with the end of a fiscal quarter provided that such unaudited
monthly financials may be subject to further audit adjustment), unaudited financial statements consisting of a balance sheet and
statements of income and cash flows as of the end of the immediately preceding calendar month. All such financial statements shall
be prepared in accordance with GAAP consistently applied with prior periods except for any normal quarter and year-end adjustments
which may be applied in future periods and for any changes in accounting methodology that may have been applied since any prior
period and except for the absence of footnotes for unaudited financial statements.

 

    	 	2	 

     

    

  

(B)         Notices.
Borrower shall promptly, and in any event within four (4) Business Days after it or any authorized officer of Borrower
obtains knowledge thereof, notify Holder in writing of (i) any pending or threatened litigation, suit, investigation,
arbitration, dispute resolution proceeding or administrative proceeding brought against or initiated by Borrower or otherwise
affecting or involving or relating to Borrower or any of its property or assets to the extent the amount in controversy
exceeds $50,000.00, or to the extent any of the foregoing seeks injunctive relief, (ii) any Default or Event of Default,
which notice shall specify the nature and status thereof, the period of existence thereof and what action is proposed to be
taken with respect thereto, (iii) any other development, event, fact, circumstance or condition that would reasonably be
expected to result in a Material Adverse Change, in each case describing the nature and status thereof and the action
proposed to be taken with respect thereto, (iv) any notice received by Borrower from any payor of a claim, suit or other
action such payor has, claims or has filed against Borrower, (v) any matter(s) affecting the value, enforceability or
collectability of any of the Collateral, including, without limitation, claims or disputes in the amount of $50,000.00 or
more, singly or in the aggregate, in existence at any one time, (vi) any notice given by Borrower to any other lender or any
notice received by Borrower from any other lender and shall furnish to Holder a copy of such notice, (vii) receipt of any
notice or request from any Governmental Authority regarding any liability or claim of liability in excess of
$50,000.00 singly or in the aggregate, (viii) Borrower being served with or receiving any search warrant, subpoena, civil
investigative demand or contact letter by or from any federal or state enforcement agency relating to an investigation, (ix)
Borrower becoming subject to any written complaint filed with or submitted to any Governmental Authority having jurisdiction
over Borrower or filed with or submitted to Borrower pursuant to Borrower’s policies relating to the filing
or submissions of such types of complaints, from employees, independent contractors, vendors, or any person that would
indicate that Borrower has violated any law, regulation or law, or (x) any other event occurs that would require Borrower to
file a Form 8K disclosure with the SEC, to the extent Borrower is publicly-traded at such time, in which case Borrower shall
either furnish a copy of such Form 8K filing or otherwise provide a description of the facts and circumstances around the
event or events giving rise to the need to file such Form 8K.

 

(C)         Ancillary
Materials to be Furnished Upon Request. Upon written request by Holder, Borrower shall use its best efforts to furnish to Holder
within ten (10) Business Days after the request therefore the following kinds of information: (i) any other reports, materials
or other information regarding or otherwise relating to the current or future business of the Borrower prepared by, for, or on
behalf of, Borrower or any of its subsidiaries, including, without limitation, operating budgets, sales and marketing plans, new
product development plans, staffing plans, current or future agreements of a material nature with other third parties, fundraising
plans and strategies, and plans for mergers and acquisitions, (ii) copies of material licenses and Permits required by applicable
federal, state, foreign or local law, statute, ordinance or regulation or Governmental Authority for the operation of Borrower’s
business and (iii) such other information as may be reasonably requested by Holder. Holder agrees that to the extent requested
by Borrower, it will execute a mutually agreeable form of confidentiality agreement with Borrower as part of any such request.
Borrower agrees that any information requested by and delivered to any Holder will be delivered to all Holders.

 

    	 	3	 

     

    

  

(2)         Conduct
of Business and Maintenance of Existence and Assets. Borrower shall (i) conduct its business in accordance with good business
practices customary to the industry, (ii) engage principally in the same or similar lines of business substantially as heretofore
conducted, (iii) collect its Accounts in the ordinary course of business, (iv) maintain all of its material properties, assets
and equipment used or useful in its business in good repair, working order and condition (normal wear and tear excepted and except
as may be disposed of in the ordinary course of business and in accordance with the terms of the Transaction Documents and otherwise
as determined by such Borrower using commercially reasonable business judgment), (v) from time to time to make all necessary or
desirable repairs, renewals and replacements thereof, as determined by such Borrower using commercially reasonable business judgment,
(vi) maintain and keep in full force and effect its existence and all material Permits and qualifications to do business and
good standing in each jurisdiction in which the ownership or lease of property or the nature of its business makes such Permits
or qualification necessary and in which failure to maintain such Permits or qualification could reasonably be expected to result
in a Material Adverse Change; and (vii) remain in good standing and maintain operations in all jurisdictions in which currently
located.

 

(3)         Compliance
with Legal and Other Obligations. Borrower shall (i) comply with all laws, statutes, rules, regulations, ordinances
and tariffs of all Governmental Authorities applicable to it or its business, assets or operations (ii) pay all taxes, assessments,
fees, governmental charges, claims for labor, supplies, rent and all other obligations or liabilities of any kind, except liabilities
being contested in good faith and against which adequate reserves have been established, (iii) perform in accordance with its
terms each contract, agreement or other arrangement to which it is a party or by which it or any of the Collateral is bound,
except where the failure to comply, pay or perform could not reasonably be expected to result in a Material Adverse Change, and
(iv) maintain and comply with all Permits necessary to conduct its business and comply with any new or additional requirements
that may be imposed on it or its business.

 

(4)         Insurance.
Borrower shall keep (i) all of its insurable properties, Collateral and assets adequately insured in all material respects
against losses, damages and hazards as are customarily insured against by businesses engaging in similar activities or owning similar
assets or properties and at least the minimum amount required by applicable law; (ii) maintain general public liability insurance
at all times against liability on account of damage to persons and property having such limits, deductibles, exclusions and co-insurance
and other provisions as are customary for a business engaged in activities similar to those of Borrower; and (iii) maintain insurance
under all applicable workers’ compensation laws; all of the foregoing insurance policies to be satisfactory in form and substance
to Holder. With respect to property, insurance covering business interruption, accounts receivable and the books and records in
connection therewith, Holder shall be named as loss payee and additional insured and with respect to general liability insurance
Holder shall be named as additional insured.

 

(5)         Inspections;
Periodic Audits and Reappraisals. Borrower shall permit the representatives of any Holder, at the expense of the Holder,
from time to time during normal business hours, but no more frequently than two times per year so long as no Default or Event
of Default occurs and is continuing, upon reasonable notice, to (i) visit and inspect any of its offices or properties or any
other place where Collateral is located to inspect the Collateral and/or to examine or audit all of Borrower’s books of account,
records, reports and other papers, (ii) make copies and extracts therefrom, and (iii) discuss its business, operations, prospects,
properties, assets, liabilities, condition and/or Accounts with its officers and independent public accountants (and by this provision
such officers and accountants are authorized to discuss the foregoing) upon seven (7) Business Days prior written notice; provided,
however, that no notice shall be required to do any of the foregoing if any Event of Default has occurred and is continuing.

 

    	 	4	 

     

    

  

(6)         Further
Assurances; Post-Closing.  At Borrower’s cost and expense, Borrower shall (i) within five (5) Business
Days after Holder’s request, take such further actions, obtain such consents and approvals and duly execute and deliver such further
agreements, assignments, instructions or documents as Holder may deem necessary in its Permitted Discretion with respect to furtherance
of the purposes, terms and conditions of the Transaction Documents and the consummation of the transactions contemplated thereby,
whether before, at or after the performance or consummation of the transactions contemplated hereby or the occurrence of a Default
or Event of Default, (ii) without limiting and notwithstanding any other provision of any Transaction Document, execute and deliver,
or cause to be executed and delivered, such agreements and documents, and take or cause to be taken such actions, and otherwise
perform, observe and comply with such obligations, as are set forth on Schedule 2(a)(6) attached hereto (if any so listed),
and (iii) upon the exercise by Holder or any of its Affiliates of any power, right, privilege or remedy pursuant to any Transaction
 Document or under applicable law or at equity which requires any consent, approval, registration, qualification or authorization
of any Governmental Authority, execute and deliver, or cause the execution and delivery of, all applications, certificates, instruments
and other documents requested by Holder in its Permitted Discretion that may be so required for such consent, approval, registration,
qualification or authorization. Without limiting the foregoing, upon the exercise by Holder or any of its Affiliates of any right
or remedy under any Transaction Document which requires any consent, approval or registration with, consent, qualification or authorization
by, any Person, Borrower shall execute and deliver, or cause the execution and delivery of, all applications, certificates, instruments
and other documents that Holder or its Affiliate may be required to obtain for such consent, approval, registration, qualification
authorization.

 

(7)         Subsidiaries,
and New Subsidiaries. As of the date of the Closing, Borrower has no subsidiaries other than those listed on Schedule
2(a)(7) hereof (if any). If at any time after the Closing Date, Borrower shall form or acquire any new Subsidiary, Borrower
shall promptly, and in any event not later than fifteen (15) Business Days after the creation or acquisition of such Subsidiary
or such longer period as Holder may determine in writing, execute, and cause such new Subsidiary to execute, and deliver to Holder
such joinder agreements and amendments to this Agreement and the other Transaction Documents, in form and substance satisfactory
to Holder, and providing such other documentation as Holder may reasonably request, including, without limitation, UCC searches,
as applicable, and filings, legal opinions and corporate authorization documentation, and to take such other actions in each case
as Holder deems necessary or advisable to (a) join and make such new Subsidiary a co-Borrower hereunder and thereunder, subject
to all the rights and benefits and obligations and burdens of a Borrower hereunder, (b) grant to Holder a perfected first priority
security interest in the Collateral of such new Subsidiary subject to no Liens other than the Permitted Liens.

 

(b)          Negative
Covenants. The Borrower covenants and agrees that, until all of the Obligations under the Transaction Documents have been
fully performed and either Paid in Full in cash or converted into shares of Preferred Stock of XGS pursuant to Section 4 hereof
and this Note has been terminated, it will abide by the following negative covenants and any other negative covenants that may
be listed in any of the other Transaction Documents:

 

(1)         Permitted
Payments. The Borrower shall not make any principal or interest payment on any Indebtedness other than Permitted Payments,
prior to the repayment or conversion of all of the principal amount outstanding under this Note without first obtaining the prior
written consent of the Holder.

 

(2)         Permitted
Indebtedness. The Borrower shall not create, incur, assume or suffer to exist any Indebtedness, other than Permitted Indebtedness,
prior to the repayment or conversion of all the Obligations outstanding under this Note without first obtaining the prior written
consent of the Holder.

 

    	 	5	 

     

    

  

(3)         Permitted
Liens. The Borrower shall not create, incur, assume or suffer to exist any Lien upon, in or against, or pledge of any
of the Collateral or any of its properties or assets, whether now owned or hereafter acquired, except for Permitted Liens, without
first obtaining the prior written consent of the Holder.

 

(4)         Location
of Collateral; Investments; New Facilities or Collateral; Subsidiaries. Borrower maintains its places of business only
at the locations listed on Schedule 2(b)(4), and all Accounts of Borrower arise, originate and are located, and all of
the Collateral and all books and records in connection therewith or in any way relating thereto or evidence of the Collateral
are located and shall be only, in and at such locations. Except as set forth on Schedule 2(b)(4), Borrower shall not, directly
or indirectly, enter into any agreement to, (i) purchase, own, hold, invest in or otherwise acquire obligations or stock or securities
of, or any other interest in, or all or substantially all of the assets of, any Person or any joint venture, or (ii) make or permit
to exist any loans, advances or guarantees to or for the benefit of any Person or assume, guarantee, endorse, contingently agree
to purchase or otherwise become liable for or upon or incur any obligation of any Person (other than those created by the Transaction
Documents and Permitted Indebtedness and other than (A) trade credit extended in the ordinary course of business, (B) advances
for business travel and similar temporary advances made in the ordinary course of business to officers, directors and employees,
(C) investments in cash equivalents and (D) the endorsement of negotiable instruments for deposit or collection or similar
transactions in the ordinary course of business). Borrower shall not, directly or indirectly, purchase, own, operate, hold, invest
in or otherwise acquire any facility, property or assets or any Collateral that is not located at the locations set forth on Schedule
2(b)(4) unless Borrower shall provide to Holder at least ten (10) Business Days prior written notice. Borrower shall not have
any Subsidiaries other than those Subsidiaries set forth on Schedule 2(a)(7) hereof.

 

Notwithstanding
the foregoing, Borrower shall be permitted to make Permitted Acquisitions with Holder’s prior written consent; provided,
however, that the consent of Holder shall not be required if the cash consideration paid in respect of the Permitted Acquisition
does not exceed $250,000 and Borrower fully complies with Section 2(a)(7) hereof.

 

(5)         Dividends;
Redemptions. Borrower shall not (i) declare, pay or make any Distribution, (ii) apply any of its funds, property or
assets to the acquisition, redemption or other retirement of any Capital Stock, (iii) otherwise make any payments or
Distributions to any stockholder, member, partner or other equity owner in such Person’s capacity as such, or (iv) make
any payment of any Management or Service Fee; provided however, that absent the occurrence and continuation of a Default or
Event of Default, and if a Default or Event of Default would not arise therefrom, Borrower may: (x) declare, pay or make
Distributions payable in its stock, or split-ups or reclassifications of its stock; and (y) redeem its Capital Stock from
terminated employees pursuant to, but only to the extent required under, the terms of the related employment agreements.

 

(6)         Transactions
with Affiliates. Except as set forth on Schedule 2(b)(6) or as contemplated in the Samsung Transaction Documents,
Borrower shall not enter into or consummate any transaction of any kind with any of its Affiliates other than: (i) salary, bonus,
severance, employee stock option and other compensation, consulting and employment arrangements with directors or officers in
the ordinary course of business, provided, that, no payment of any cash bonus or severance shall be permitted
if a Default or Event of Default has occurred and remains in effect or would be caused by or result from such payment, and no
payment of any severance shall be made, individually or in the aggregate, in excess of $250,000 in any twelve (12) month period,
(ii) Distributions permitted pursuant to Section 2(b)(5), and (iii) the making of payments permitted under and pursuant to a written
agreement entered into by and between Borrower and one or more of its Affiliates that both (A) reflects and constitutes a transaction
on overall terms at least as favorable to Borrower as would be the case in an arm’s-length transaction between unrelated parties
of equal bargaining power; provided, that, notwithstanding the foregoing Borrower shall not (Y) enter into or consummate
any transaction or agreement pursuant to which it becomes a party to any mortgage, Debenture, indenture or guarantee evidencing
any Indebtedness of any of its Affiliates or otherwise to become responsible or liable, as a guarantor, surety or otherwise, pursuant
to agreement for any Indebtedness of any such Affiliate, or (Z) make any payments to any of its Affiliates in excess of $50,000
in the aggregate during any consecutive twelve calendar month period without the prior written consent of Holder (other than payments
permitted pursuant to clause (i) or (ii) above).

 

    	 	6	 

     

    

  

(7)         Charter
Documents; Fiscal Year; Dissolution; Use of Proceeds. Except as contemplated in the Transaction Documents, Borrower shall
not (i) amend, modify, restate or change its certificate of incorporation or formation or bylaws or similar charter documents without
the prior written consent of the Holder, which consent shall not be unreasonably withheld, (ii) amend, alter or suspend or terminate
or make provisional in any material way, any material Permit without the prior written consent of Holder, which consent shall not
be unreasonably withheld. Notwithstanding the foregoing, the Holder acknowledges that the following will not be deemed to be a
violation of this covenant: any amendment of a license or Permit in the ordinary course of business to enable Borrower to pursue
additional opportunities; (iii) wind up, liquidate or dissolve (voluntarily or involuntarily) or commence or suffer any proceedings
seeking or that would result in any of the foregoing, or (iv) without providing at least thirty (30) calendar days prior written
notice to Holder, change its name or organizational identification number, if it has one.

 

(8)         Truth
of Statements. Borrower shall not (a) furnish to Holder any certificate or other document created or produced by
Borrower that contains any untrue statement of a material fact or that omits to state a material fact necessary to make it not
misleading in light of the circumstances under which it was furnished as of the date it was provided to Holder; and (b) furnish
any document created or produced by a third party that Borrower knows (A) contains any untrue statement of a material fact or (B)
omits to state a material fact necessary to make it not misleading in light of the circumstances under which it was furnished.

 

(9)         Transfer
of Assets. Notwithstanding any other provision of this Agreement or any other Transaction Document, Borrower
shall not, nor shall it permit any of its Subsidiaries to, sell, lease, transfer, assign, spin-off or otherwise dispose of
any interest in any properties or assets (other than the assignment of intellectual property by XG Sciences, Inc. to XG
Sciences IP, LLC as contemplated in the Transaction Documents and the Samsung Transaction Documents, and other than obsolete
fixed assets or excess fixed assets no longer needed in the conduct of the business in the ordinary course of business and
sales of inventory in the ordinary course of business), or agree to do any of the foregoing at any future time, without the
written consent of the Holder, except that:

 

(A)         Borrower
may lease or sublease (as lessor or sub-lessor) real or personal property pursuant to a true lease not constituting Indebtedness
and not entered into as part of a sale and leaseback transaction, in each case in the ordinary course of business and which could
not reasonably be expected to result in a Material Adverse Effect.

 

(B)         Borrower
may arrange for warehousing, fulfillment or storage of inventory at locations not owned or leased by Borrower, in each case in
the ordinary course of business;

 

(C)         Borrower
may license or sublicense Intellectual Property to third parties in the ordinary course of business; provided, that,
such licenses or sublicenses shall not interfere with the business or other operations of Borrower; and

 

    	 	7	 

     

    

  

(D)         Borrower
may consummate such other sales or dispositions of property or assets in excess of $50,000 (including any sale or transfer or disposition
of all or any part of its assets and thereupon and within one year thereafter rent or lease the assets so sold or transferred)
only to the extent prior written notice has been given to Holder and to the extent Holder has given its prior written consent thereto,
subject in each case to such conditions as may be set forth in such consent.

 

Section 3.          Events
of Default.

 

(a)          An “Event
of Default”, wherever used herein, means any one of the following events (whatever the reason and whether it
shall be voluntary or involuntary or effected by operation of law or pursuant to any judgment, decree or order of any court,
or any order, rule or regulation of any administrative or governmental body):

 

(i)          Any
default in the payment of the principal of, interest on, or other charges in respect of this Note, free of any claim of
subordination, as and when the same shall become due and payable (whether on an Interest Payment Date, a Conversion Date or the
Maturity Date or by Acceleration or otherwise);

 

(ii)         The
Borrower shall fail to observe or perform any other covenant, term, condition, agreement or obligation contained in, or
otherwise commit any breach or default of any provision of this Note (except as may be covered by Section 3(a)(i) hereof) or
any Transaction Document (as defined in Section 7 below) and such failure is not cured within (A) the time prescribed or (B)
if no time is prescribed, such failure is not cured within thirty (30) days after the Borrower’s receipt of written
notice from the Holder of such failure; or

 

(iii)        Any
of the representations or warranties made by the Borrower herein, in any of the other Transaction Documents or in any other written
or financial statements hereafter furnished by the Borrower to the Holder shall be false or misleading in any material respect
at the time made; or

 

(iv)        The
Borrower (A) fails to authorize and issue or to cause its Transfer Agent to issue shares of Preferred Stock upon the exercise
by the Holder of the conversion rights of the Holder in accordance with the terms of this Note (provided, however, that for purposes
of this provision, such failure to issue or cause the Transfer Agent to issue such shares shall not be deemed to occur until Five
(5) Business Days after the Conversion Date), (B) fails to transfer or to cause its Transfer Agent to transfer any
certificate for shares of Preferred Stock issued upon conversion of this Note and when required by this Note, and such transfer
is otherwise lawful, or (C) fails to remove a restrictive legend or cause its Transfer Agent to remove a restrictive legend on
any share certificate, in each case where such removal is lawful, and any such failure of A, B or C above shall continue uncured
for ten (10) days; or

 

(v)         The
Borrower shall make any principal or interest payment on any unsecured indebtedness prior to the repayment or conversion of all
of the principal amount outstanding under this Note without first obtaining the prior written consent of the Holder; or

 

(vi)        The
Borrower shall default on any other indebtedness or material obligation to which it is a party and any other party to any such
indebtedness or material agreement with the Company in default exercises any material remedies which it may be entitled; or

 

    	 	8	 

     

    

  

(vii)       The
Borrower or any Subsidiary of the Borrower shall commence, or there shall be commenced against the Borrower or any Subsidiary
of the Borrower, a proceeding under any applicable bankruptcy or insolvency laws as now or hereafter in effect or any successor
thereto, or the Borrower or any Subsidiary of the Borrower shall commence any other proceeding under any reorganization, arrangement,
adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction, whether now
or hereafter in effect, relating to the Borrower or any Subsidiary of the Borrower; or there is commenced against the Borrower
or any Subsidiary of the Borrower any such bankruptcy, insolvency or other proceeding which remains un-dismissed for a period
of sixty-one (61) days; or the Borrower or any Subsidiary of the Borrower is adjudicated insolvent or bankrupt; or any order of
relief or other order approving any such case or proceeding is entered; or the Borrower or any Subsidiary of the Borrower suffers
any appointment of any custodian, private or court appointed receiver or the like for it or any substantial part of its property,
which continues un-discharged or un-stayed for a period of sixty one (61) days; or the Borrower or any Subsidiary of the Borrower
makes a general assignment for the benefit of creditors; or the Borrower or any Subsidiary of the Borrower shall fail to pay,
or shall state that it is unable to pay, or shall be unable to pay, its debts generally as they become due; or the Borrower or
any Subsidiary of the Borrower shall by any act or failure to act expressly indicate its consent to, approval of or acquiescence
in any of the foregoing; or any corporate or other action is taken by the Borrower or any Subsidiary of the Borrower for the purpose
of effecting any of the foregoing; or

 

(viii)      In
the event that the Borrower shall experience a Change of Control at any time while the Note is outstanding.

 

(b)          If
an Event of Default shall have occurred and is continuing, then, unless and until such Event of Default shall have been cured
or waived in writing by the Holder (which waiver shall not be deemed to be a waiver of any subsequent default), at the option
of the Holder and in the Holder’s sole discretion, but without further notice from the Holder, the unpaid amount of this
Note, computed as of the date on which the Event of Default was first deemed to have occurred, will bear interest at the rate
(the “Default Rate”) equal to fifteen percent (15%) per annum or the highest rate allowed by
law, whichever is lower, from the date of the Event of Default until and including the date actually paid; and any partial payments
shall be applied in the order provided in Section 16 hereof.

 

(c)          During
the time that any portion of this Note is outstanding, if any Event of Default has occurred and any applicable cure period has
expired, the Holder, at its option, may declare that the full principal amount of this Note, together with any accrued interest
and other amounts owed pursuant to any other provision of this Note or any other Transaction Document are immediately due and
payable in cash (an “Acceleration”). In addition to any other remedies, the Holder shall have
the right (but not the obligation) to convert this Note at any time after an Event of Default at the Note Conversion Price (as
defined in Section 4(b)(i) below). The Holder need not provide and the Borrower hereby waives any presentment, demand, protest
or other notice of any kind; and immediately and without expiration of any grace period, the Holder may enforce any and all rights
and remedies hereunder and all other remedies available under the Security Agreement or under applicable law. Furthermore, a declaration
of an Event of Default may be rescinded and annulled by the Holder at any time prior to payment hereunder. No such rescission
or annulment shall affect or impair any of the Holder’s rights with respect to any subsequent Event of Default.

 

Section 4.          Conversion.

 

(a)          Conversion
at Option of Holder. Any principal, currently due interest, accrued interest, or other amounts due and payable under
this Note at any time (collectively, the “Outstanding Amount” as of such time) shall be convertible
into shares of Preferred Stock (as defined below) of XGS at the option of the Holder, in whole or in part at any time and from
time to time, after the Original Issue Date so long as this Note is outstanding; provided that if more than one series of convertible
preferred stock is outstanding on a Conversion Date, the Holder, in its sole discretion, shall be entitled to elect to convert
such amounts due and payable hereunder into any such series; or if no such convertible preferred stock has been issued
as of a Conversion Date, then shares of Series A Stock. The number of shares of Preferred Stock that may be issued upon a conversion
hereunder equals the quotient obtained by dividing (x) the Outstanding Amount of this Note, or any portion thereof, to
be converted as of the Conversion Date (as defined in Section 4(c)) by (y) the Note Conversion Price (as defined in Section
4(d) below). For the purposes of this Note, “Preferred Stock” shall mean any series of convertible
preferred stock issued by XGS which may be outstanding on any date on which a Holder Notice of Conversion (as defined in Section
4(c) below) is delivered to the Company.

 

    	 	9	 

     

    

 

(b)          Conversion
at Option of Borrower. Upon the Equity Threshold being reached, the Outstanding Amount due and payable under this
Note as of the Conversion Date may at the option of the Borrower, be converted into Series A Stock (the “Borrower
Option”) upon written notice delivered to the Holder fifteen (15) Business Days prior to the date on which
such Borrower Option will become effective. The number of shares of Series A Stock that shall be issued to the Holder upon an
exercise of the Borrower Option equals the quotient obtained by dividing (x) the Outstanding Amount of this Note as of
the Conversion Date by (y) the Note Conversion Price.

 

(c)          Exercise
of Conversion Options. The: (i) Holder shall effect conversions in Section 4(a) by delivering to the
Borrower a completed notices in the form attached hereto as Exhibit “A” (a “Holder
Notice of Conversion”), and (ii) Borrower shall effect the conversion in Section 4(b) by delivering written
notice to the Holder (a “Borrower Notice of Conversion”). The “Conversion Date”
shall be (A) if the Holder delivers a Holder Notice of Conversion, the date on which a Holder Notice of Conversion is
delivered, or (B) if the Borrower delivers a Borrower Notice of Conversion, the date which is fifteen (15) Business Days from
the date such notice is deemed to have been delivered pursuant to Section 19 hereof. The Borrower shall deliver the
applicable stock certificate to the Holder prior to the close of the fifth (5th) Business Day after a Conversion
Date. The Holder shall physically surrender this Note to the Borrower in connection with a conversion, whether a partial
conversion or a total conversion. In the event of a partial conversion, in order to reflect the reduction in the outstanding
principal amount of this Note and the reduction in the accrued and unpaid interest, the Borrower shall prepare and deliver to
the Holder a new Note, identical in all respects to the surrendered Note except for the principal amount outstanding
reflected on the first page hereof. Such replacement Note (resulting from the partial conversion) shall be delivered to the
Holder prior to the close of the fifth (5th) Business Day after the applicable Conversion Date. The Holder and the
Borrower shall maintain records showing the principal amount converted and the date of such conversions. In the event of any
dispute or discrepancy, the records of the Borrower shall be controlling and determinative in the absence of manifest error;
provided, however, that if the Borrower has not kept records or there is manifest error in the Borrower’s records, then
the records of the Holder shall be controlling and determinative.

 

(d)          Note
Conversion Price and Adjustments to Note Conversion Price.

 

(i)          The
conversion price in effect on any Conversion Date shall (i) if the conversion is into Series A Stock, then the conversion price
shall be the Series A Original Issue Price (as defined in the Series A Certificate of Designations); or (ii) if the conversion
is into any other series of convertible preferred stock which may be outstanding on a Conversion Date, then the conversion price
shall be the price per share at which such other series of convertible preferred stock is then being issued or was most recently
issued (such conversion price as may be in effect on a Conversion Date, herein generally referred to as the “Note
Conversion Price”).

 

(ii)         The
Borrower agrees to provide notice to the Holders of any event or issuance that would result in any adjustment to the Conversion
Price pursuant to this Section 4(d) and such notice shall specify the new Note Conversion Price in effect.

 

    	 	10	 

     

    

  

(e)          No
Taxes on Certificates. The issuance of certificates for shares of the Preferred Stock on conversion of this Note shall
be made without charge to the Holder thereof for any documentary stamp or similar taxes that may be payable in respect of the
issue or delivery of such certificate.

 

Section
5.          Exchange into New Securities Issued to Third
Parties. After the Original Issue Date, in the event that the Borrower consummates any financing transaction with
any other third party using any form of debt, equity or equity-linked security that has terms deemed to be more favorable, in
the Holder’s sole discretion, than the terms of this Note (any such security used in such new financing hereinafter referred
to as a “New Security”), then the Holder shall have the option, in its sole discretion, to
exchange all or any portion of the Obligations outstanding under this Note into such New Security on the same terms as such
New Security was offered to third parties (an “Exchange”). Upon an Exchange, the Holder also
shall be assigned all rights (and assume all obligations other than obligations to provide any incremental amounts of
financing to the Company) provided in the definitive agreements pursuant to which the New Security was sold. The Borrower
covenants and agrees that so long as all or any portion of this Note is outstanding, it will notify in writing any Holder of
this Note promptly within ten (10) Business Days of the issuance of any New Security and such notice will contain: (a) the
names and contact information for any holders of the New Security, (b) the aggregate dollar amount or principal amount of
such New Securities being issued to each new holder of such securities, and (c) a copy of all transaction documentation for
such New Security. So long as this Note remains outstanding, the Holder shall have the right to exchange all or any portion
of the Obligations outstanding under this Note for up to one hundred eighty (180) days after any such New Security is sold to
any other third party upon written notice to the Borrower.

 

Section
6.          Security Agreement. This Note is secured by
a Security Agreement of even date herewith (the “Security Agreement”) and an Intellectual Property
Security Agreement of even date herewith (the “IP Security Agreement”) between the Borrower,
the Holder, Aspen Advanced Opportunity Fund, L.P. (“Aspen”), SVIC No. 15 New Technology
Business Investment L.L.P. (“Samsung”), Mr. Michael R.
Knox, (“Knox” and together with Aspen and Samsung, the “Other Secured
Parties”), and the Agent specified in such Security Agreement and IP Security Agreement. The Holder
understands and acknowledges that the Borrower has previously issued secured indebtedness to Aspen and Knox secured by the
Collateral (as defined in the Security Agreement) as more fully described on Exhibit B and intends to issue either
simultaneously with this Note or at a subsequent time, additional Notes or other similar securities to the Holder and the
Other Secured Parties and consents to such additional secured indebtedness so long as all of the following conditions are
met:

 

		(a)	no more than $14,800,000 in the aggregate (as measured
by the initial principal amount outstanding before adding in capitalized interest which may be part of the principal balance of
this Note or any other similar notes held by the Other Secured Parties) of secured Indebtedness which is secured by the Collateral
defined in the Security Agreement has been or will be issued by the Borrower to the Holder or the Other Secured Parties at any
time while this Note is outstanding; and

 

		(b)	no other secured Indebtedness matures prior to the
Maturity Date of this Note, except for the Indebtedness described on paragraph 4 of Exhibit B, without the prior written consent
of the Holder; and

 

		(c)	no other secured Indebtedness has any more favorable
economic terms than the Note; and

 

		(d)	no other secured Indebtedness is issued in a manner
that would result in such Indebtedness being senior to this Note; and

 

    	 	11	 

     

    

 

		(e)	no other secured Indebtedness will be issued to any
Other Secured Parties until such Other Secured Parties have agreed to be bound by the terms of the Intercreditor Agreement, the
Security Agreement, and the IP Security Agreement and have executed copies of such documents; and

 

		(f)	all other secured Indebtedness issued by the Borrower
pursuant to this exception is issued in exchange for cash consideration or as a replacement to the form of note previously issued
in exchange for cash consideration.

 

Section
7.          Definitions.         
For the purposes hereof, the following terms shall have the following meanings:

 

“Accounts” shall mean
“accounts” as defined in Section 9-102 of the UCC.

 

“Affiliate” shall
mean, as to any Person (a) any other Person that, directly or indirectly through one or more intermediaries, controls,
is controlled by, or is under common control with, such Person, (b) any other Person who is a director or officer (i) of
such Person, (ii) of any Subsidiary of such Person, or (iii) of any Person described in clause (a) above with respect to
such Person, (c) any other Person which, directly or indirectly through one or more intermediaries, is the beneficial or
record owner (as defined in Rule 13d-3 of the Securities Exchange Act of 1934, as amended, as the same is in effect on the
date hereof) of five percent (5%) or more of any class of the outstanding voting stock, securities or other equity or
ownership interests of such Person and (d) in the case such Person is an individual, any other Person who is an immediate
family member, spouse or lineal descendant of individuals of such Person or any Affiliate of such Person. For purposes of
this definition, the term “control” (and the correlative terms, “controlled by” and “under
common control with”)  shall mean the possession, directly or indirectly, of the power to direct or cause the direction
of the management or policies, whether through ownership of securities or other interests, by contract or otherwise.
“Affiliate” shall include any Subsidiary.

 

“Business
Day” means any day except Saturday, Sunday and any day which shall be a federal legal holiday in the
United States  or a day on which banking institutions are authorized or required by law
or other government action to close.

 

“Capital
Lease” shall mean, as to any Person, a lease of any interest in any kind of property or asset by that Person as
lessee that is, should be or should have been recorded as a “capital lease” in accordance with GAAP.

 

“Capitalized Lease
Obligations” shall mean all obligations of any Person under Capital Leases, in each case, taken at the amount
thereof accounted for as a liability in accordance with GAAP.

 

“Capital Stock”
shall mean any and all shares, interests, participations or other equivalents (however designated) of capital stock of a corporation,
any and all equivalent ownership interests in a Person (other than a corporation) and any and all warrants, rights or options to
purchase any of the foregoing.

 

    	 	12	 

     

    

  

“Change
of Control” means the occurrence of any of the following events after the Original Issue Date: (i) any
“person” or “group” (as defined in Section 13(d) and 14(d) of the Securities Exchange Act of 1934, as
amended (the “Exchange Act”) together with their affiliates become the ultimate “beneficial owner”
(as defined in Rule 13d-3 of the Exchange Act) of voting stock of the Borrower representing more than 50% of the voting power
of the total voting stock of the Borrower; (ii) the Stockholders of the Borrower approve a merger or consolidation of the
Borrower with any other Corporation or entity regardless of which entity is the survivor, other than a merger or a
consolidation which would result in the voting stock of the Borrower outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or being converted into voting securities of the surviving entity or the parent
thereof) at least 50% of the combined voting power of the voting securities of the Borrower or such surviving entity or the
parent thereof, outstanding immediately after such merger or consolidation; or (iii) the stockholders of the Borrower approve
a plan of complete liquidation or winding up of the Borrower or an agreement for the sale or disposition by the Borrower of
all or substantially all of the Borrower’s assets.

 

“Closing” shall mean
the date on which this Note is issued by the Company to Holder.

 

“Closing Date” shall
mean the date upon which the Closing occurs.

 

“Collateral”
shall have the meaning set forth in the Security Agreement and IP Security Agreement.

 

“Common
Stock” means the common stock, no par value, of the Borrower and stock of any other class into which such
shares may hereafter be changed or reclassified.

 

“Conversion
Date” shall have the meaning set forth in Section 4(c).

 

“Debtor
Relief Law” shall mean, collectively, the Bankruptcy Code of the United States of America and all other
applicable federal and state liquidation, conservatorship, bankruptcy, moratorium, rearrangement, receivership, insolvency,
reorganization or similar debtor relief laws from time to time in effect affecting the rights of creditors generally, as
amended and in effect from time to time.

 

“Default” shall
mean any event, fact, circumstance or condition that, with the giving of applicable notice or passage of time or
both, would constitute or be or result in an Event of Default.

 

“Default Rate” shall
have the meaning set forth in Section 3(b).

 

“Deposit Accounts” shall
mean “deposit accounts” as defined in Section 9-102 of the UCC.

 

“Distribution” shall
mean any direct or indirect dividend, distribution or other payment of any kind or character (whether in
cash, securities or other property) in respect of any equity interests.

 

“Equity
Threshold” shall mean that XGS has received an aggregate of $15 million in cash consideration
(excluding amounts received from XGS II, Aspen, Samsung, and Knox) after the Samsung Closing Date from XGS’s Sale or
issuance of: (i) Common Stock, (ii) Preferred Stock, (iii) other equity-linked securities, (iv) rights, options, or warrants
to purchase equity securities of XGS, and (v) securities of any type whatsoever, including convertible debt, that are or may
become convertible into, exchange into, or exercisable for, equity securities of XGS.

 

“Event of Default” shall
mean the occurrence of any event set forth in Section 3(a).

 

“Existing
Indebtedness” shall mean any existing Indebtedness of the Borrower as of the Original Issue Date as set forth
on Exhibit B and Exhibit D hereto.

 

“GAAP”
shall mean generally accepted accounting principles in the United States as in effect on the Closing Date.

 

    	 	13	 

     

    

  

“Governmental
Authority” shall mean any federal, state, municipal, national, local or other governmental department, court,
commission, board, bureau, agency or instrumentality or political subdivision thereof, or any entity or officer exercising executive,
legislative or judicial, regulatory or administrative functions of or pertaining to any government or any court, in each case,
whether of the United States or a state, territory or possession thereof, a foreign sovereign entity or country or jurisdiction
or the District of Columbia.

 

“Indebtedness” of
any Person shall mean, without duplication, (a) all obligations for borrowed money, (b) all obligations evidenced by
bonds, debentures, notes, or other similar instruments and all reimbursement or other obligations in respect of letters of
credit or bankers acceptances, (c) all Capitalized Lease Obligations, (d) all obligations or liabilities of others secured by
a Lien on any asset of such Person or its Subsidiaries, irrespective of whether such obligation or liability is assumed, (e)
all obligations to pay the deferred purchase price of assets (other than trade payables incurred in the ordinary course
of business and not outstanding more than one hundred twenty (120) calendar days after the date such payable was created)
or such longer period as shall be agreed in writing by Holder and Borrower, (f) all net obligations owing to
counterparties under hedging agreements, (g) all obligations with respect to redeemable Capital Stock or repurchase
obligations under any Capital Stock issued by such Person, (h) the present value of future rental payments under all
synthetic leases (excluding specifically any operating leases or real estate leases) and (i) any obligation guaranteeing or
intended to guarantee (whether directly or indirectly guaranteed, endorsed, co-made, discounted, or sold with recourse) any
obligation of any other Person that constitutes Indebtedness under any of clauses (a) through (h) above.

 

“Investment Proper” shall
mean “investment property” as defined in Section 9-102 of the UCC.

 

“Landlord Waiver
and Consent” shall mean a waiver/consent from the owner/lessor/mortgagee of any premises either owned or occupied
by Borrower at which any of the Collateral is now or hereafter located for the purpose of providing Holder access to such Collateral,
in each case as such may be modified, amended or supplemented from time to time.

 

“Lien” shall
mean any mortgage, pledge, security interest, encumbrance, restriction, lien or charge of any kind (including any
agreement to give any of the foregoing, any conditional sale or other title retention agreement or any lease in the nature thereof), or any other arrangement pursuant to which title to the property is retained by or vested
in some other Person for security purposes.

 

“Management
or Service Fee” shall mean any management, service or related or similar fee paid by Borrower to any Person
with respect to any facility owned, operated or leased by Borrower.

 

“Material Adverse
Change” shall mean any event, condition or circumstance or set of events, conditions or circumstances or
any change(s) which (i) has, had or would reasonably be likely to have any material adverse effect upon or change in the validity
or enforceability of any Transaction Document, (ii) has been or would reasonably be expected to be adverse to the value of any
material portion of the Collateral, or to the priority of Holder’s security interest in any portion of the Collateral, (iii) has
been or would reasonably be expected to be materially adverse to the business, operations, prospects, properties, assets, liabilities
or financial condition of the Borrower, either individually or taken as a whole, or (iv) has materially impaired or would reasonably
be likely to materially impair the ability of any Borrower to pay any portion of the Obligations or otherwise perform the Obligations
or to consummate the transactions under the Transaction Documents executed by such Person.

 

“Note Conversion Price” shall
have the meaning set forth in Section 4(d) hereof.

 

    	 	14	 

     

    

 

“Obligations”
shall mean all present and future obligations, Indebtedness and liabilities of Borrower to Holder at any time and from time
to time of every kind, nature and description, direct or indirect, secured or unsecured, joint and several, absolute or contingent,
due or to become due, matured or unmatured, now existing or hereafter arising, contractual or tortious, liquidated or unliquidated,
(whether or not evidenced by a note or debenture), including, without limitation, all principal, interest, applicable fees, charges
and expenses and all amounts paid or advanced by Holder on behalf of or for the benefit of Borrower for any reason at any time,
including in each case obligations of performance as well as obligations of payment and interest that accrue after the commencement
of any proceeding under any Debtor Relief Law by or against any such Person.

 

“Original
Issue Date” shall mean the date of the first issuance of this Note regardless of the number of transfers and
regardless of the number of instruments, which may be issued to evidence such Note. For the purposes of this Note, the Original
Issue Date shall be deemed to be January 15, 2014.

 

“Paid
in Full” and “Payment in Full” means with respect to the Obligations, all
amounts owing with respect thereto (including any interest accruing thereon after the commencement of any proceeding under
any Debtor Relief Law by or against Borrower, whether or not allowed as a claim against such Borrower in such proceeding, but
excluding as yet unasserted contingent obligations), have been fully, finally and
completely paid in cash.

 

“Permit” shall mean collectively all licenses, leases, powers, permits, franchises, certificates, authorizations, approvals, certificates
of need, provider numbers and other rights.

 

“Permitted
Acquisition” shall mean any acquisition by Borrower, whether through a purchase of stock, membership interests
or otherwise or the purchase of assets or through a merger, consolidation or amalgamation, of another Person, or the assets constituting
an entire or any portion of any business or operating business unit or division of another Person
or securities of such other Person that satisfies the requirements set forth in Sections
2(a)(7) and 2(b)(4) hereof.

 

“Permitted
Discretion” shall mean a determination or judgment made by Holder in good faith in the exercise of reasonable
(from the perspective of a secured lender) business judgment.

 

“Permitted
Indebtedness” shall mean any of the following: (i) any current or future Indebtedness contemplated under
the Transaction Documents or the Samsung Transaction Documents, (ii) any Existing Indebtedness, (iii)
Capitalized Lease Obligations incurred after the Closing Date and Indebtedness incurred to purchase capital equipment
and secured by purchase money Liens constituting Permitted Liens in an aggregate amount outstanding at any time not to exceed
$2,000,000, provided, that, the debt service for such Indebtedness shall not exceed $600,000 for any twelve
(12) month period, (iv) accounts payable to trade creditors and current operating expenses (other than for borrowed money)
which are not aged more than one hundred twenty (120) calendar days from the date such payable was created or such longer
period as shall be agreed in writing by Holder, except, in each case incurred in the ordinary course of business and paid
within such time period, unless the same are being contested in good faith and by appropriate and lawful proceedings and such
reserves, if any, with respect thereto as are required by GAAP shall have been reserved, and (v) new unsecured Indebtedness
incurred in the ordinary course of business and not exceeding $2,000,000 individually or in the aggregate outstanding at any
one time when considered collectively with any Existing Indebtedness; provided, however,
that such new Indebtedness (A) shall not be secured by Collateral, any cash, money, Investment Property or Deposit Accounts;
(B) the debt service for such new Indebtedness and any remaining Existing Indebtedness shall not exceed $400,000 for any
twelve (12) month period; (C) upon the incurrence of such new Indebtedness and after giving effect thereto no Default or
Event of Default shall exist and be continuing, and (D) such new Indebtedness shall be subordinated in right of repayment and
remedies to all of the Obligations and to all of Holder’s rights pursuant to a written agreement among Holder, Borrower
and the lender with respect to such new Indebtedness, in form and substance satisfactory to Holder.

 

    	 	15	 

     

    

 

“Permitted
Liens” shall mean with respect to the Borrower any of the following: (i) Liens under the Transaction
Documents, the Samsung Transaction Documents, or otherwise arising in favor of any Holder of Indebtedness, (ii) Liens imposed
by law for taxes, assessments or charges of any Governmental Authority for claims not yet due or which are being contested in
good faith by appropriate proceedings and with respect to which adequate reserves or other appropriate provisions are being maintained
by such Person in accordance with GAAP to the satisfaction of Holder in its Permitted Discretion, (iii) (A) statutory Liens of
landlords (provided, that, with respect to Required Locations any such landlord has executed a Landlord Waiver
and Consent in form and substance satisfactory to Holder) and of carriers, warehousemen, mechanics, materialmen, and (B) other
Liens Liens by law or that arise by operation of law in the ordinary course of business from the date of creation thereof, in
each case only for amounts not yet due or which are being contested in good faith by appropriate proceedings and with respect
to which adequate reserves or other appropriate provisions are being maintained by such Person in accordance with GAAP to the
satisfaction of Holder in its Permitted Discretion, (iv) Liens (A) incurred or deposits made in the ordinary course of business
(including, without limitation, surety bonds and appeal bonds) in connection with workers’ compensation, unemployment insurance
and types of social security benefits or to secure the performance of tenders, bids, leases, contracts (other than for the repayment
of Indebtedness), statutory obligations and other similar obligations, or (B) arising as a result of progress payments under government
contracts, (v) purchase money (A) securing the type of Permitted Indebtedness set forth under clause (iii) of the definition of
“Permitted Indebtedness”, or (B) in connection with the purchase by such person of equipment in the normal course of
business, provided, that, such payables shall not exceed any limits on Indebtedness provided for herein and
shall otherwise be Permitted Indebtedness hereunder; (vi) any existing Liens disclosed in the Security Agreement.

 

“Permitted
Payments” shall mean (a) any payments principal, interest or accrued fees and expenses due
and owing on this Note, and (b), plus payments to holders of Indebtedness of the Company as outlined on Exhibit C hereof.

 

“Person”
means a corporation, an association a partnership, organization, a business, an individual, a government or political
subdivision thereof or a governmental agency.

 

“Required
Locations” shall mean collectively: (a) the leased premises located at, (i) 3101 Grand Oak Drive,
Lansing, MI 48911, (ii) 4055. English Oak, Suite B, Lansing, MI 48911, and (iii) 2100 S. Washington Avenue,
Lansing MI 48910, and (b) any location leased by Borrower at which books and records relating to Accounts are kept of Which
duplicates are not kept at the location identified in (a) above.

 

“Samsung
Closing Date” means the date on which the Company closes on the transactions contemplated in the Samsung Transaction
Documents with Samsung.

 

“Samsung
Transaction Documents” means the purchase agreement between XGS and Samsung of equal date with this Note and
any other agreements delivered in connection with such agreement.

 

“Subsidiary”
shall mean, (i) as to Borrower, any Person in which more than fifty percent (50%) of all equity, membership, partnership
or other ownership interests is owned directly or indirectly by such Borrower or one or more of its Subsidiaries, and (ii) as to
any other Person, any Person in which more than fifty percent (50%) of all equity, membership, partnership or other ownership interests
is owned directly or indirectly by such Person or by one or more of such Person’s Subsidiaries.

 

    	 	16	 

     

    

 

“Transaction
Documents” means the Purchase Agreement and any other agreement delivered in connection with the Purchase Agreement,
including, without limitation, this Note, the Security Agreement and the IP Security Agreement, and the purchase agreement and
related documents between XGS and Aspen originally entered on March 18, 2013, and amended and restated on the date of this Note,
each as may be amended from time to time hereafter.

 

“Transfer
Agent” means any stock transfer agent that the Borrower may appoint from time to time or if no such transfer
agent has been appointed, then the Borrower.

 

“UCC”
shall mean the Uniform Commercial Code as in effect in the State of Michigan from time to time.

 

Section 8.        No
Stockholder Rights. Except to the extent provided in the Transaction Documents, this Note shall not entitle the Holder
to any of the rights of a stockholder of the Borrower, including without limitation, the right to vote, to receive dividends and
other distributions, or to receive any notice of, or to attend, meetings of stockholders or any other proceedings of the Borrower,
unless and to the extent converted into shares of Preferred Stock in accordance with the terms hereof.

 

Section
9.         Spin-offs. If, at any time while any
portion of this Note remains outstanding, the Borrower spins off or otherwise divests itself of a part of its business or
operations or disposes of all or of a part of its assets in a transaction (the “Spin Off”) in
which the Borrower, in addition to or in lieu of any other compensation received and retained by the Borrower for such
business, operations or assets, causes securities of another entity (the “Spin Off Securities”) to
be issued to security holders of the Borrower, the Borrower shall cause (i) to be reserved Spin Off Securities equal to the
number thereof which would have been issued to the Holder had all of the Holder’s Notes outstanding on the record date
(the “Record Date”) for determining the amount and number of Spin Off Securities to be issued
to security holders of the Borrower (the “Outstanding Notes”) been converted as of the close
of business on the Business Day immediately before the Record date (the “Reserved Spin Off Shares”),
and (ii) to be issued to the Holder on the conversion of all or any of the Outstanding Notes, such amount of the Reserved Spin
Off Shares equal to (x) the reserved Spin Off Shares multiplied by (y) a fraction, of which (I) the numerator is the
principal amount of the Outstanding Notes then being converted, and (II) the denominator is the principal amount of the
Outstanding Notes.

 

Section 10.        Ranking;
Seniority. This Note is a direct obligation of the Borrower. This Note ranks pari passu with all other Indebtedness
listed on Exhibit B hereto issued by the Borrower prior to or simultaneously with the Notes on the Original Issue
Date and senior to all other indebtedness of the Borrower issued after the Original Issue Date. No Indebtedness of the Borrower,
either now or hereafter while this Note is outstanding, is or will be senior to this Note in right of payment, whether with respect
to interest, damages or upon liquidation or dissolution or otherwise, with respect to the assets of the Borrower. Without the
Holder’s consent, the Borrower shall not and shall not permit any of its Subsidiaries to, directly or indirectly,
enter into, create, incur, assume or suffer to exist any indebtedness of any kind, on or with respect to any of its property or
assets now owned or hereafter acquired or any interest therein or any income or profits therefrom that is senior in any respect
to the obligations of the Borrower under this Note.

 

    	 	17	 

     

    

 

Section
11.        Transferability. This Note has been
issued subject to investment representations of the original Holder hereof and may be transferred to a) any entity controlled
by the Holder, b) any investors in the Holder or their direct assignees or c) any other accredited investors or exchanged
only in compliance with the Securities Act of 1933, as amended (the “Act”), and other applicable state and
foreign securities laws. In the event of any proposed transfer of this Note, the Borrower may require, prior to issuance of a
new Note in the name of such other person, that it receive reasonable transfer documentation that is sufficient to evidence
that such proposed transfer complies with the Act and other applicable state and foreign securities laws. Prior to due
presentment for transfer of this Note, the Borrower and any agent of the Borrower may treat the person in whose name this
Note is duly registered on the Borrower’s Note register as the owner hereof for the purpose of receiving payment as
herein provided and for all other purposes, whether or not this Note be overdue, and neither the Borrower nor any such agent
shall be affected by notice to the contrary. Subject to the foregoing, this Note may be transferred or assigned, in whole or
in part, by the Holder at any time. The Notes will initially be issued in denominations determined by the Borrower, but are
exchangeable for an equal aggregate principal amount of Notes of different denominations, as requested by the Holder
surrendering the same. No service charge will be made for such registration or transfer or exchange.

 

Section
12.        Replacement. If this Note is mutilated, lost, stolen or
destroyed, the Borrower shall execute and deliver, in exchange and substitution for and upon cancellation of the mutilated
Note, or in lieu of or in substitution for a lost, stolen or destroyed Note, a new Note for the principal amount of this Note
so mutilated, lost, stolen or destroyed but only upon receipt of evidence of such loss, theft or destruction of such Note,
and of the ownership hereof, and an agreement to indemnify Borrower for any resulting claims, all reasonably satisfactory to
the Borrower.

 

Section
13.        Enforcement Expenses. If the Borrower fails to
strictly comply with the terms of this Note, then the Borrower shall reimburse the Holder promptly for all reasonable fees,
costs and expenses, including, without limitation, reasonable attorneys’ fees and expenses of the Holder in any action
in connection with this Note that are incurred: (a) during, any workout, attempted workout, and in connection with
the rendering of legal advice as to the Holder’s rights, remedies and obligations; (b) collecting any sums which
become due to the Holder, (c) defending or prosecuting any proceeding or any counterclaim to any proceeding or appeal;
or (d) the protection, preservation or enforcement of any rights or remedies of the Holder under this Note or any of
the Transaction Documents.

 

Section 14.        Waiver.
Any waiver by the Holder of a breach of any provision of this Note shall not operate as or be construed to be a waiver of any
other breach of such provision or of any breach of any other provision of this Note. The failure of the Holder to insist upon
strict adherence to any term of this Note on one or more occasions shall not be considered a waiver or deprive that party of the
right thereafter to insist upon strict adherence to that term or any other term of this Note. Any waiver must be in writing.

 

Section 15.        Severability.
If any provision of this Note is invalid, illegal or unenforceable, the balance of this Note shall remain in effect, and if any
provision is inapplicable to any person or circumstance, it shall nevertheless remain applicable to all other persons and circumstances.
If it shall be found that any interest or other amount deemed interest due hereunder shall violate applicable laws governing
usury, the applicable rate of interest due hereunder shall automatically be lowered to equal the maximum permitted rate of interest.
The Borrower covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, plead, or in any
manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law or other law which would prohibit
or forgive the Borrower from paying all or any portion of the principal of or interest on this Note as contemplated herein, wherever
enacted, now or at any time hereafter in force, or which may affect the covenants or the performance of this Note.

 

Section 16.        Payment
Dates; Payment Order of Priority. Whenever any payment or other obligation hereunder shall be due on a day other than
a Business Day, such payment shall be made on the next succeeding Business Day. All payments received shall be applied in the
following order of priority: (i) first to any amounts due to the Holder for the reimbursement of any expenses or fees under any
provision of this Note or the Transaction Documents, all of which shall be provided to the Borrower in writing in sufficient detail
prior the application of any payments for this purpose; and (ii) then amounts due to the Holder for accrued but unpaid interest
on this Note; and (iii) then, to principal of this Note.

 

    	 	18	 

     

    

 

Section
17.          WAIVER OF TRIAL BY JURY. THE PARTIES HEREBY KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT ANY OF THEM MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON
OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY TRANSACTION DOCUMENT OR ANY COURSE OF CONDUCT, COURSE OF
DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF ANY PARTY. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE PARTIES’
ACCEPTANCE OF THIS AGREEMENT.

 

Section 18.        Governing
Law. This Note shall be governed by and construed in accordance with the laws of the State of Michigan, without giving
effect to conflicts of laws thereof. Each of the parties consents to the jurisdiction of the state courts of the State of Michigan
sitting in Ingham County, Michigan and the U.S. District Court for the Western District of Michigan in connection with any dispute
arising under this Note and hereby waives, to the maximum extent Permitted by law, any objection, including any objection based
on forum non conveniens to the bringing of any such proceeding in such jurisdictions.

Section 19.        Notices.        Any
notices, consents, waivers or other communications required or permitted to be given
under the terms hereof must be in writing and will be deemed to have been delivered: (a) upon receipt, when delivered personally;
(b) upon receipt, when sent by, facsimile (provided confirmation of transmission is mechanically or electronically generated
and kept on file by the sending party); (c) on the next Business Day following deposit of with a nationally recognized
overnight delivery service; and (d) on the third Business Day following deposit of such notice with the U.S. Postal Service
in an envelope mailed Certified Mail The addresses and facsimile numbers for such communications shall be:

 

	If to the Borrower, to:	XG Sciences, Inc.
	 	3101 Grand Oak Drive
	 	Lansing, MI 48911
	 	Attn:  Chief Executive Officer
	 	Telephone:         (517) 703-1110, ext. 5445
	 	Facsimile:           (517) 703-1113

 

	With a copy to:	Matt G. Hrebec
	 	Attorney
	 	Faster Swift Collins & Smith PC
	 	313 South Washington Square
	 	Lansing, MI 48933-2193
	 	Telephone: 517.371.8256
	 	Facsimile: 517.367.7356

 

	If to the Holder:	XGS II, LLC
	 	Attn: David G. Pendell
	 	2338 Immokalee, Suite 131
	 	Naples, FL 34110-1448
	 	Telephone:      239.450.5097
	 	Facsimile:         ____________

 

    	 	19	 

     

    

 

Such address and facsimile number and
persons to receive notice may be changed from time to time by either party providing written notice to the other party three (3)
Business Days prior to the effectiveness of such change. Written confirmation of receipt (i) given by the recipient of
such notice, consent, waiver or other communication, (ii) mechanically or electronically generated by the sender’s facsimile
machine containing the time, date, recipient facsimile number and an image of the first page of such transmission, (iii)
provided by a nationally recognized overnight delivery service, and (iv) the Certified Mail records of the U.S. Postal
Service shall constitute rebuttable evidence of personal receipt in accordance with this Section 19.

 

Section 20.           Entire
Agreement; Cancellation of Prior Notes. This Note constitutes and contains the entire agreement of the Borrower and
the Holder with respect to the matters addressed herein and supersedes any and all prior negotiations, correspondence, understandings
and agreements between the Borrower and Holder respecting the subject matter hereof, including the Prior Notes, which are hereby
cancelled.

 

[The Remainder of this Page Intentionally
Blank.]

 

    	 	20	 

     

    

 

IN WITNESS WHEREOF,
the Borrower has caused this note to be duly executed by a duly authorized officer as of the date set forth above.

 

	 	XG
    SCIENCES, INC.
	 		 
	 	By:	/s/
    Michael R. Knox
	 	Name:   Michael R. Knox
	 	Title:     Chief Executive Officer
	 	 
	 	XG SCIENCES IP, LLC
	 	 	 
	 	By:	/s/
    Michael R. Knox
	 	Name:   Michael R. Knox
	 	Title:     Manager

 

CONSENT AND AGREEMENT TO
CANCELLATION AND RESTATEMENT OF THE PRIOR NOTE AS THIS NOTE:

 

	 	XGS II, LLC,
	 	a Florida limited liability company
	 	 	 
	 	By:	/s/ David G. Pendell
	 	Name:   David G. Pendell 
	 	Title:     Managing Member

 

     

     

    

 

EXHIBIT
“A”

 

NOTICE OF CONVERSION

 

(To be executed by the Holder in order
to convert this Note)

 

To:

XG Sciences, Inc.

3101 Grand Oak Drive

Lansing, MI 48911

Attn: Chief Executive Officer

 

The undersigned hereby
irrevocably elects to convert $                                of
the outstanding principal and/or accrued interest of the above Note into shares of Series A Convertible Preferred Stock of XG Sciences,
Inc., according to the conditions stated therein, as of the Conversion Date written below.

 

Conversion Date:

 

Applicable Note Conversion Price:

 

Signature:

 

Name:

 

Address:

 

	Amount to be converted:	$
	 	 
	Amount of Note unconverted:	$
	 	 
	Note Conversion Price per share:	$

 

Number of shares of Common Stock to
be issued:

 

Please issue the shares of

Common Stock in the following

name and to the following

address:

 

Issue to:

 

Authorized Signature:

 

Name:

 

Title:

 

Phone Number:

 

     

     

    

 

EXHIBIT “B”

 

EXISTING INDEBTEDNESS
OF BORROWER WHICH RANKS PARI PASSU TO THE NOTE

 

		1.	$4,178,330.92 Amended and Restated Secured Convertible Promissory Note issued on January 15, 2014
by the Borrower to Aspen Advanced Opportunity Fund, L.P.

 

		2.	$772,998.15 Amended and Restated Secured Convertible Promissory Note issued on January 15, 2014
by the Borrower to Michael R. Knox.

 

		3.	$3,000,000 Secured Convertible Promissory Note issued on January 15, 2014 by the Borrower to SVIC
No. 15 New Technology Business Investment L.L.P.

 

		4.	$300,000.00 Line of Credit Note, dated March 18, 2013, by and between XG Sciences, Inc. as
                                                                the                                                                 “Borrower” and Michael R. Knox as the
                                                                “Lender” thereunder, of which $100,000 of principal
                                                                remained outstanding as of January 15, 2014.

 

     

     

    

 

EXHIBIT “C”

 

PERMITTED PAYMENTS TO HOLDERS OF EXISTING
INDEBTEDNESS

 

		1)	TRADE ACCOUNT PAYABLES

 

		a)	100% of trade payables incurred in the ordinary course of business including unpaid employee compensation
and authorized compensation payable to Affiliates

 

		2)	ACCRUED LIABILITIES

 

		a)	100% of accrued liabilities incurred in the ordinary course of business including payroll, tax,
and other liabilities.

 

		3)	SECURED NOTES PAYABLE DESCRIBED ON EXHIBIT B

 

		a)	All interest payments relating to the Indebtedness listed on Exhibit B hereof to the extent such
interest payments are paid in cash.

 

		b)	Principal payments relating to that Indebtedness listed on Exhibit B, #4, provided, that
                                                                such principal payments will only be made in the amounts after the dates indicated below:

 

		-	$100,000 after the date on which Aspen and its Affiliates have provided $4.0. million of
                                                                                aggregate funding to the Company pursuant to Transaction Documents

 

		c)	Principal payments relating to that Existing Indebtedness listed on Exhibit B, #1, #2, and #3,
pursuant to the terms thereof, and subject to the terms of the Transaction Documents or the Samsung Transaction Documents, provided
that such principal payments are made pro rata to the holders thereof in proportion to the aggregate principal amount of all such
notes that may be outstanding as of the date of any such principal payments.

 

		4)	UNSECURED NOTES PAYABLE

 

		a)	Interest on the unsecured notes payable listed on Exhibit D hereof or any other amounts of Permitted
Indebtedness subject to any limitations established in the definition of Permitted Indebtedness.

 

     

     

    

 

EXHIBIT “D”

 

EXISTING INDEBTEDNESS

 

UNSECURED NOTES PAYABLE

 

 

None

 

     

     

    

 

SCHEDULES

 

Schedule 2(a)(6) –
Post Closing Obligations

 

Borrower
shall direct the Collateral Agent specified in the Security Agreement to file a UCC-1 Statement evidencing Holder’s security interest
in the Collateral within ten (10) days after the Closing Date.

 

Schedule 2(a)(7) –
Subsidiaries of Borrower

 

XG Sciences IP, LLC (wholly
owned subsidiary of XG Sciences, Inc.)

 

Schedule 2(b)(4) –
Location of Collateral

 

(Headquarters)

3101 Grand Oak Drive

Lansing, MI 48911

 

(R&D Facility)

4055 English Oak

Suite B

Lansing, MI 48911

 

(Pilot Plant)

2100 S. Washington Ave.

Lansing, MI 48910

 

Schedule 2(b)(4) –
Securities

 

100% of the membership
interests of XG Sciences IP, LLC is owned by XG Sciences, Inc.

 

Schedule 2(b)(4) – Transactions with Affiliates

 

		1.	$772,998.15 Amended and Restated Secured Convertible
Promissory Note issued on January 15, 2014 by the Borrower to Michael R. Knox.

 

		2.	$300,000.00 Line of Credit Note, dated March 18, 2013, by and between XG Sciences, Inc. as the “Borrower”
and Michael R. Knox as the “Lender” thereunder, of which $100,000 of principal remained outstanding as of January 15,
2014.

 

		3.	$3,000,000 Secured Convertible Promissory Note issued on January 15, 2014 by the Borrower to SVIC
No. 15 New Technology Business Investment L.L.P.

 

		4.	$4,178,330.92 Amended and Restated Secured Convertible Promissory Note issued on January 15, 2014
by the Borrower to Aspen Advanced Opportunity Fund, L.P.

 

		5.	One or more joint development agreements with Samsung SDI or any of its affiliates as contemplated
in the Samsung Transaction Documents.

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