Document:

Exhibit
10.17

 

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.
    17	$1,300,000.00

 

XG SCIENCES,
INC.

 

Secured
Convertible Promissory Note

 

Due
March 18, 2018

 

This
Secured Convertible Promissory Note (this “Note”) is issued this 18th day of March 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 Aspen Advanced Opportunity Fund, LP, a Delaware limited partnership (“Aspen”
or the “Holder”) pursuant to that certain Purchase Agreement, dated March 18, 2013 and amended
and restated on July 12, 2013 and further amended and restated on January 15, 2014 (the “Purchase Agreement”).

 

FOR
VALUE RECEIVED, the Borrower hereby promises to pay to the Holder or his, her or its successors and assigns the principal sum
of ONE MILLION AND THREE HUNDRED THOUSAND DOLLARS ($1,300,000.00) 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.

 

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 other 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 or 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.

 

(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.

 

    	 	5	 

     

    

 

(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

 

(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.

 

    	 	7	 

     

    

 

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 notice 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.

 

(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.

 

    	 	10	 

     

    

 

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, XGS II, LLC, a Florida limited liability company (“XGS
IF”), SVIC No. 15 New Technology Business Investment L.L.P., a limited liability company under the Republic of Korea Amended
Commercial Code (“Samsung”), Aspen Advanced Opportunity Fund, L.P. (“Aspen”
and together with XGS II 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 XGS II 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

 

		(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

 

    	 	11	 

     

    

 

		(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.

 

“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.

 

    	 	12	 

     

    

 

“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 the Knox, XGS II, Samsung, and Aspen) after the Samsung Closing Date from XGS’ 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.

 

“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.

 

    	 	13	 

     

    

 

“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
Property” 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 February 28, 2014.

 

“Paid
in Full” and “Payment in Full” mean, 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 imposed 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 other 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 Liens (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 of principal, interest or accrued fees and expenses due and owing on this
Note and (b), plus any 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.

 

“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.

 

    	 	16	 

     

    

 

“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.         Rankins; 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.

 

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.

 

    	 	17	 

     

    

 

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.

 

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.

 

    	 	18	 

     

    

 

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 such notice 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. 5453

        Facsimile:          
        (517) 703-1113

	 	 
	With
    a	Matt G. Hrebec
	copy
    to:	Attorney

        Foster
        Swift Collins & Smith PC

        313
        South Washington Square

        Lansing,
        MI 48933-2193

        Telephone:
        517.371.8256

        Facsimile:
        517.367.7356

	 	 
	If
    to the Holder:	Aspen
        Advanced Opportunity Fund, LP

        Attn:
        Steven C. Jones

        1740
        Persimmon Drive, Suite 100

        Naples,
        FL 34109

        Telephone:   (239)
         325-2001

        Facsimile:      (239) 325-2004

 

    	 	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 Note.
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 Note, which are hereby cancelled.

 

[The
Remainder of this Page Intentionally Left 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.
	 	 	 
	 	Bv:	/s/ Philip L. Rose
	 	Name:	Philip L. Rose
	 	Title:	Chief Executive Officer
	 	 
	 	XG SCIENCES IP, LLC
	 	 	 
	 	By:	/s/ Philip L. Rose
	 	Name:	Philip L. Rose
	 	Title:	Manager

 

    	 	 	 

     

    

 

 

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 11 issued on January 15, 2014 by the Borrower to Aspen Advanced Opportunity
Fund, L.P.

 

		2.	$739,349.83
Amended and Restated Secured Convertible Promissory Note 12 issued on January 15, 2014 by the Borrower to XGS II, LLC.

 

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

 

		4.	$772,998.15 Amended and Restated
                                                                                  Secured Convertible Promissory Note 14 issued on January 15, 2014 by
                                                                                  the Borrower to Michael R. Knox.

 

		5.	$1,000,000
Amended and Restated Secured Convertible Promissory Note 16 issued on February 28, 2014 by the Borrower to Aspen Advanced Opportunity
Fund, L.P.

 

    	 	 	 

     

    

 

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 and 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 the 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)(6) – Transactions with Affiliates

 

		1.	$4,178,330.92
Amended and Restated Secured Convertible Promissory Note 11 issued on January 15, 2014 by the Borrower to Aspen Advanced Opportunity
Fund, L.P.

 

		2.	$739,349.83 Amended and Restated
                                                                                  Secured Convertible Promissory Note 12 issued on January 15, 2014 by
                                                                                  the Borrower to XGS II, LLC.

 

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

 

		4.	$772,998.15 Amended and Restated
                                                                                  Secured Convertible Promissory Note 14 issued on January 15, 2014 by
                                                                                  the Borrower to Michael R. Knox.

 

		5.	$1,000,000 Amended and Restated
                                                                                  Secured Convertible Promissory Note 16 issued on February 28, 2014 by
                                                                                  the Borrower to Aspen Advanced Opportunity Fund, L.P.Exhibit
10.18

 

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.
    18	$900,000.00

 

XG
SCIENCES, INC.

 

Secured
Convertible Promissory Note 

 

Due
March 18, 2018

 

This
Secured Convertible Promissory Note (this “Note”) is issued
this 31st day of March 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 Aspen Advanced Opportunity Fund, LP, a Delaware limited partnership (“Aspen”
or the “Holder”)
pursuant to that certain Purchase Agreement, dated March 18, 2013 and amended and restated on July 12, 2013 and further
amended and restated on January 15, 2014 (the “Purchase Agreement”).

 

FOR
VALUE RECEIVED, the Borrower hereby promises to pay to the Holder or his, her or its successors and assigns the principal sum
of NINE HUNDRED THOUSAND DOLLARS ($900,000.00) 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.

 

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 preformed 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 other 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 or 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.

 

(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.

 

    	 	5	 

     

    

 

(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

 

(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.

 

    	 	7	 

     

    

 

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 inthe payment of the principal of, interest on, orother 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

 

(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

 

    	 	8	 

     

    

 

(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 notice 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 (5lh) 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 (5lh) 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.

 

(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.

 

    	 	10	 

     

    

 

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, XGS II,
LLC, a Florida limited liability company (“XGS II”), SVIC
No. 15 New Technology Business Investment L.L.P., a limited liability company under the Republic of Korea Amended Commercial Code
(“Samsung”), Aspen Advanced Opportunity Fund, L.P. (“Aspen”
and together with XGS II 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 XGS II 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 the Knox, XGS II, Samsung, and Aspen) after the Samsung Closing
Date from XGS’ 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
Property” 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 February 28, 2014.

 

“Paid
in Full” and “Payment
in Full” mean, 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 imposed
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 other 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 Liens (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 of principal, interest or accrued fees and expenses due and owing on this
Note and (b), plus any 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.

 

“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.

 

    	 	16	 

     

    

  

“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.

 

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.

 

    	 	17	 

     

    

  

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 such notice 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. 5453

        Facsimile:        (517) 703-1113

	 	 
	With
    a copy to:	Matt G. Hrebec
		
        Attorney

        Foster Swift Collins & Smith PC

        313 South Washington Square

        Lansing, MI 48933-2193

        Telephone: 517.371.8256

        Facsimile: 517.367.7356

	 	 
	If
    to the Holder:	Aspen Advanced Opportunity Fund, LP
		
        Attn: Steven C. Jones

        1740 Persimmon Drive, Suite 100

        Naples, FL 34109

        Telephone:   (239)325-2001

        Facsimile:      (239) 325-2004

 

    	 	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 Note. 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 Note, which
are hereby cancelled.

 

[The Remainder of this Page Intentionally
Left 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/ Philip L.
    Rose
	 	Name:	Philip L. Rose
	 	Title:	Chief Executive Officer
	 	 	 
	 	XG SCIENCES IP, LLC
	 	 	 
	 	By:	/s/ Philip L.
    Rose
	 	Name:	Philip L. Rose
	 	Title: 	Manager

 

     

     

    

  

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 11 issued on January 15, 2014 by the Borrower to Aspen
Advanced Opportunity Fund, L.P.

 

		2.	$739,349.83 Amended and Restated Secured Convertible Promissory Note 12 issued on January 15, 2014 by the Borrower to XGS II,
LLC.

 

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

 

		4.	$772,998.15 Amended and Restated Secured Convertible Promissory Note 14 issued on January 15, 2014 by the Borrower to Michael
R. Knox.

 

		5.	$1,000,000 Amended and Restated Secured Convertible Promissory Note 16
                                                                                  issued on February
                                                                                  28, 2014 by the Borrower to Aspen Advanced Opportunity Fund, L.P.

 

		6.	$1,300,000 Amended and Restated Secured Convertible Promissory Note
                                                                                  17 issued on
                                                                                  March 18, 2014 by the Borrower to Aspen Advanced
                                                                                  Opportunity Fund, L.P.

 

     

     

    

 

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 and 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 the 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)(6) - Transactions with Affiliates

 

		1.	$4,178,330.92 Amended and Restated Secured Convertible Promissory Note 11 issued on January 15, 2014 by the Borrower to Aspen
Advanced Opportunity Fund, L.P.

 

		2.	$739,349.83 Amended and Restated Secured Convertible Promissory Note 12 issued on January 15, 2014 by the Borrower to XGS II,
LLC.

 

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

 

		4.	$772,998.15 Amended and Restated Secured Convertible Promissory Note 14 issued on January 15, 2014 by the Borrower to Michael
R. Knox.

 

		5.	$1,000,000 Amended and Restated Secured Convertible Promissory Note 16 issued on February 28, 2014 by the Borrower to Aspen
Advanced Opportunity Fund, L.P.
	 	 	 

		6.	$1,300,000 Amended and Restated Secured Convertible Promissory Note 17 issued on March 18, 2014 by the Borrower to Aspen Advanced
Opportunity Fund, L.P.

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