Document:

Exhibit 10.2

 

NEITHER THE ISSUANCE AND SALE OF THE SECURITIES
REPRESENTED BY THIS CONVERTIBLE NOTE NOR THE SECURITIES INTO WHICH THIS CONVERTIBLE NOTE IS CONVERTIBLE HAVE BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD,
TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL TO THE HOLDER (IF REQUESTED BY THE COMPANY), IN A FORM REASONABLY ACCEPTABLE
TO THE COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD OR ELIGIBLE TO BE SOLD PURSUANT TO RULE 144
OR RULE 144A UNDER SAID ACT, PURSUANT TO A VALID OPINION OF COUNSEL, ACCEPTABLE TO THE COMPANY. NOTWITHSTANDING THE FOREGOING,
THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE
SECURITIES. ANY TRANSFEREE OF THIS NOTE SHOULD CAREFULLY REVIEW THE TERMS OF THIS NOTE, INCLUDING SECTIONS 3(c)(iii) AND 19(a)
HEREOF. THE PRINCIPAL AMOUNT REPRESENTED BY THIS NOTE AND, ACCORDINGLY, THE SECURITIES ISSUABLE UPON CONVERSION HEREOF MAY BE LESS
THAN THE AMOUNTS SET FORTH ON THE FACE HEREOF PURSUANT TO SECTION 3(c)(iii) OF THIS NOTE.

 

OPTEX SYSTEMS HOLDINGS, INC.

 

CONVERTIBLE NOTE

 

	Issuance Date:  November 17, 2014	Original Principal Amount: U.S. $[___]       

 

FOR VALUE RECEIVED,
Optex Systems Holdings, Inc., a Delaware corporation (the “Company”), hereby promises to pay to the order of
[______] or its registered assigns (“Holder”) the amount set out above as the Original Principal Amount (as
reduced pursuant to the terms hereof pursuant to redemption, conversion or otherwise, the “Principal”) when
due, whether upon the Maturity Date (as defined below), acceleration, redemption or otherwise (in each case in accordance with
the terms hereof) and to pay interest (“Interest”) on any outstanding Principal (as defined below) at the applicable
Interest Rate (as defined below) from the date set out above as the Issuance Date (the “Issuance Date”) until
the same becomes due and payable, whether upon the Maturity Date, or acceleration, conversion, redemption or otherwise (in each
case in accordance with the terms hereof). This Convertible Note (including all Convertible Notes issued in exchange, transfer
or replacement hereof, this “Note”) is one of an issue of Convertible Notes issued pursuant to the Note Purchase
Agreement dated as of the date hereof (the “Note Purchase Agreement” and such other Note, collectively, the
“Other Notes”) and such other Convertible Notes, if any, that have been issued pursuant to the Note Purchase
Agreement on the Closing Date or one or more additional Closing Dates that is not the Issuance Date (collectively, the “Additional
Notes”, and together with the Other Notes, the “Notes”). Certain capitalized terms used herein are
defined in Section ‎31.

 

1.    PAYMENTS
OF PRINCIPAL.  On the Maturity Date, the Company shall pay to the Holder an amount in cash representing all outstanding
Principal, accrued and unpaid Interest and accrued and unpaid Late Charges on such Principal and Interest. Other than as specifically
permitted by this Note, the Company may not prepay any portion of the outstanding Principal, accrued and unpaid Interest.

 

2.    INTEREST;
INTEREST RATE.  (a) Interest on this Note shall commence accruing on the Issuance Date and shall be computed on the
basis of a 360-day year and twelve 30-day months, shall be payable in arrears on each Conversion Date, if any, on each Event of
Default Redemption Date (as defined in Section 11), if any, on each Change of Control Redemption Date (as defined in Section 11),
if any and on the Maturity Date (each, an “Interest Date”). Interest shall be payable on each Interest Date,
to the record holder of this Note on the applicable Interest Date, in shares of Common Stock (“Interest Shares”)
so long as there has been no Equity Conditions Failure; provided, however, that the Company may, at its option following
written notice to the Holder, pay Interest on any Interest Date in cash (“Cash Interest”) or in
a combination of Cash Interest and Interest Shares. The Company shall 

 

    	 

    	 

    

 

deliver a written notice (each, an “Interest Election
Notice”) to each holder of the Notes on or prior to the Interest Notice Due Date (the date such notice is delivered
to all of the holder, the “Interest Notice Date”) which notice (i) either (A) confirms that Interest to be
paid on such Interest Date shall be paid entirely in Interest Shares or (B) elects to pay Interest as Cash Interest or a combination
of Cash Interest and Interest Shares and specifies the amount of Interest that shall be paid as Cash Interest and the amount of
Interest, if any, that shall be paid in Interest Shares and (ii) if the Company is paying all or any portion of Interest in Interest
Shares, certifies that there has been no Equity Conditions Failure. If an Equity Conditions Failure has occurred as of the Interest
Notice Date, then unless the Company has elected to pay such Interest as Cash Interest, the Interest Election Notice shall indicate
that unless the Holder waives the Equity Conditions Failure, the Interest shall be paid as Cash Interest. Notwithstanding anything
herein to the contrary, if no Equity Conditions Failure has occurred as of the Interest Notice Date but an Equity Conditions Failure
occurs at any time prior to the Interest Date, (A) the Company shall provide the Holder a subsequent notice to that effect and
(B) unless the Holder waives the Equity Conditions Failure, the Interest shall be paid as Cash Interest. Interest to be paid on
an Interest Date in Interest Shares shall be paid in a number of fully paid and non-assessable shares (rounded to the nearest
whole share in accordance with Section 3(a)) of Common Stock equal to the quotient of (1) the amount of Interest payable on such
Interest Date less any related Cash Interest paid on such Interest Date and (2) the Fixed Conversion Price in effect on the applicable
Interest Date.

 

(b)   When
any Interest Shares are to be paid on an Interest Date, and provided the Interest Shares are not required to bear a restrictive
legend pursuant to the Securities Act of 1933, as amended (the “Securities Act” and such legend, a “1933
Act Legend”) in which case the Company shall deliver certificated Interest Shares bearing a 1933 Act Legend, the Company
shall (A) provided that the Company's transfer agent (the “Transfer Agent”) is participating in the Depository
Trust Company (“DTC”) Fast Automated Securities Transfer Program, credit such aggregate number of Interest Shares
to which the Holder shall be entitled to the Holder's or its designee's balance account with DTC through its Deposit/Withdrawal
at Custodian system, or (B) if the Transfer Agent is not participating in the DTC Fast Automated Securities Transfer Program, issue
and deliver on the applicable Interest Date, to the address set forth in the register maintained by the Company for such purpose
pursuant to the Note Purchase Agreement or to such address as specified by the Holder in writing to the Company at least two (2)
Business Days prior to the applicable Interest Date, a certificate, registered in the name of the Holder or its designee, for the
number of Interest Shares to which the Holder shall be entitled. When any Cash Interest is to be paid on an Interest Date, the
Company shall pay to the Holder, in cash by wire transfer of immediately available funds, the amount of any Cash Interest.

 

(c)   Prior
to the payment of Interest on an Interest Date, Interest on this Note shall accrue at the Interest Rate and be payable by way of
inclusion of the Interest in the Conversion Amount on each Conversion Date in accordance with Section 3(b)(i) or upon any redemption
in accordance with Section 11. From and after the occurrence and during the continuance of any Event of Default, the Interest Rate
shall automatically be increased to fifteen percent (15.0%). In the event that such Event of Default is subsequently cured, the
adjustment referred to in the preceding sentence shall cease to be effective as of the calendar day immediately following the date
of such cure; provided that the Interest as calculated and unpaid at such increased rate during the continuance of such Event of
Default shall continue to apply to the extent relating to the days after the occurrence of such Event of Default through and including
the date of such cure of such Event of Default. The Company shall pay any and all taxes that may be payable with respect to the
issuance and delivery of Interest Shares.

 

3.    CONVERSION
OF NOTES.  This Note shall be convertible into validly issued, fully paid and non-assessable shares of Common Stock
(as defined below), on the terms and conditions set forth in this Section 3.

 

(a)   Conversion
Right. Subject to the provisions of Section 3(d), at any time or times on or after the Issuance Date, the Holder shall be entitled
to convert any portion of the outstanding and unpaid Conversion Amount (as defined below) into validly issued, fully paid and non-assessable
shares of Common Stock in accordance with Section 3(c), at the Conversion Rate (as defined below). The Company shall not issue
any fraction of a share of Common Stock upon any conversion. If the issuance would result in the issuance of a fraction of a share
of Common Stock, the Company shall round such fraction of a share of Common Stock up to the nearest whole share. The Company shall
pay any and all transfer, stamp, issuance and similar taxes that may be payable with respect to the issuance and delivery of Common
Stock upon conversion of any Conversion Amount. The Holder understands that such shares of Common Stock issuable upon conversion
of this Note, including Interest Shares, may be required to 

 

    	 

    	 

    

 

bear a 1933 Act Legend in which case such shares of Common Stock
shall be issuable in certificated form. For clarification purposes, the Company shall not be required to deliver unlegended shares
hereunder for any reason whatsoever until such time as such shares are sold pursuant to Rule 144 of the Securities Act or pursuant
to an effective Registration Statement on Form S-1 or S-3 and, notwithstanding anything to the contrary herein, may issue certificated
shares bearing the 1933 Act Legend.

 

(b)   Conversion
Rate. The number of shares of Common Stock issuable upon conversion of any Conversion Amount pursuant to Section 3(a) shall
be determined by dividing (x) such Conversion Amount by (y) the Conversion Price (the “Conversion Rate”).

 

(i)     “Conversion
Amount” means the portion of the Principal to be converted, redeemed or otherwise with respect to which this determination
is being made, plus all accrued and unpaid Interest with respect to such portion of the Principal amount and accrued and unpaid
Late Charges with respect to such portion of such Principal and such Interest.

 

(ii)   “Conversion
Price” means, as of any Conversion Date or other date of determination $0.0025 (the “Fixed Conversion Price”).  For
the avoidance of doubt, the Fixed Conversion Price shall be appropriately adjusted for any stock dividend, stock split, stock combination,
reclassification or similar transaction during the applicable calculation period. Notwithstanding anything to the contrary herein,
in no event shall the Fixed Conversion Price be adjusted such that it shall be lower than the par value of the Company’s
Common Stock then in effect.

 

(c)   Mechanics
of Conversion.

 

(i)   Optional
Conversion.  To convert any Conversion Amount into shares of Common Stock on any date (a “Conversion Date”),
the Holder shall deliver (whether via facsimile or otherwise), for receipt on or prior to 11:59 p.m., New York time, on such date,
a copy of an executed notice of conversion in the form attached hereto as Exhibit I (the “Conversion Notice”)
to the Company. If required by Section 3(c)(iii), within three (3) Trading Days following a conversion of this Note as aforesaid
(the “Share Delivery Date”), the Holder shall surrender this Note to a nationally recognized overnight delivery
service for delivery to the Company (or an indemnification undertaking with respect to this Note in the case of its loss, theft
or destruction as contemplated by Section 19(b)). On or before the first (1st) Trading Day following the date of receipt of a Conversion
Notice, the Company shall transmit by facsimile an acknowledgment of confirmation, in the form attached hereto as Exhibit II,
of receipt of such Conversion Notice to the Holder and the Transfer Agent. On or before the third (3rd) Trading Day following the
date of receipt of a Conversion Notice, the Company shall (x) provided that the Transfer Agent is participating in the DTC Fast
Automated Securities Transfer Program, credit such aggregate number of shares of Common Stock to which the Holder shall be entitled
to the Holder's or its designee's balance account with DTC through its Deposit/Withdrawal at Custodian system or (y) if the Transfer
Agent is not participating in the DTC Fast Automated Securities Transfer Program, issue and deliver (via reputable overnight courier)
to the address as specified in the Conversion Notice, a certificate, registered in the name of the Holder or its designee, for
the number of shares of Common Stock to which the Holder shall be entitled. If this Note is physically surrendered for conversion
pursuant to Section 3(c)(iii) and the outstanding Principal of this Note is greater than the Principal portion of the Conversion
Amount being converted, then the Company shall as soon as practicable and in no event later than three (3) Business Days after
receipt of this Note and at its own expense, issue and deliver to the Holder (or its designee) a new Note (in accordance with Section
19(d)) representing the outstanding Principal not converted. The Person or Persons entitled to receive the shares of Common Stock
issuable upon a conversion of this Note shall be treated for all purposes as the record holder or holders of such shares of Common
Stock on the Conversion Date.

 

(ii)    Company's
Failure to Timely Convert.  If the Company shall fail, for any reason or for no reason, other than a failure of the
Holder to provide correct information when required or to take any other required action, if the Transfer Agent is not participating
in the DTC Fast Automated Securities Transfer Program, to issue to the Holder on or prior to the Share Delivery Date, a certificate
for the number of shares of Common Stock to which the Holder is entitled and register such shares of Common Stock on the Company's
share register or, if the Transfer Agent is participating in the DTC Fast Automated Securities Transfer Program, on or prior to
the Share 

 

    	 

    	 

    

 

Delivery Date, to credit the Holder's or its
designee's balance account with DTC for such number of shares of Common Stock to which the Holder is entitled upon the Holder's
conversion of any Conversion Amount (as the case may be) (a “Conversion Failure”) and if on or after such Share
Delivery Deadline the Holder (or any other Person in respect, or on behalf, of the Holder) purchases (in an open market transaction
or otherwise) shares of Common Stock to deliver in satisfaction of a sale by the Holder of all or any portion of the number of
shares of Common Stock, or a sale of a number of shares of Common Stock equal to all or any portion of the number of shares of
Common Stock, issuable upon such conversion that the Holder so anticipated receiving from the Company, then, in addition to all
other remedies available to the Holder, the Company shall, within three (3) Business Days after receipt of the Holder's written
request and in the Holder's discretion, either: (i) pay cash to the Holder in an amount equal to the Holder's total purchase price
(including brokerage commissions and other out-of-pocket expenses, if any) for the shares of Common Stock so purchased (including,
without limitation, by any other Person in respect, or on behalf, of the Holder) (the “Buy-In Price”), at which
point the Company's obligation to so issue and deliver such certificate or credit the Holder's balance account with DTC for the
number of shares of Common Stock to which the Holder is entitled upon the Holder's conversion hereunder (as the case may be) shall
terminate, or (ii) promptly honor its obligation to so issue and deliver to the Holder a certificate or certificates representing
such shares of Common Stock or credit the Holder's balance account with DTC for the number of shares of Common Stock to which the
Holder is entitled upon the Holder's conversion hereunder (as the case may be) and pay cash to the Holder in an amount equal to
the excess (if any) of the Buy-In Price over the product of (A) such number of shares of Common Stock multiplied by (B) the lowest
Closing Sale Price of the Common Stock on any Trading Day during the period commencing on the date of the applicable Conversion
Notice and ending on the date of such issuance and payment under this clause (ii).

 

(iii)  Registration;
Book-Entry. The Company shall maintain a register (the “Register”) for the recordation of the names and
addresses of the holders of each Note and the principal amount of the Notes held by such holders (the “Registered Notes”).
The entries in the Register shall be conclusive and binding for all purposes absent manifest error. The Company and the holders
of the Notes shall treat each Person whose name is recorded in the Register as the owner of a Note for all purposes (including,
without limitation, the right to receive payments of Principal and Interest hereunder) notwithstanding notice to the contrary.
A Registered Note may be assigned, transferred or sold in whole or in part only by registration of such assignment or sale on the
Register. Upon its receipt of a written request to assign, transfer or sell all or part of any Registered Note by the holder thereof,
the Company shall record the information contained therein in the Register and issue one or more new Registered Notes in the same
aggregate principal amount as the principal amount of the surrendered Registered Note to the designated assignee or transferee
pursuant to Section 19, provided that if the Company does not so record an assignment, transfer or sale (as the case may be) of
all or part of any Registered Note within three (3) Business Days of its receipt of such a request, then the Register shall be
automatically updated to reflect such assignment, transfer or sale (as the case may be). Notwithstanding anything to the contrary
set forth in this Section 3, following conversion of any portion of this Note in accordance with the terms hereof, the Holder shall
not be required to physically surrender this Note to the Company unless (A) the full Conversion Amount represented by this Note
is being converted (in which event this Note shall be delivered to the Company following conversion thereof as contemplated by
Section 3(c)(i)) or (B) the Holder has provided the Company with prior written notice (which notice may be included in a Conversion
Notice) requesting reissuance of this Note upon physical surrender of this Note. The Holder and the Company shall maintain records
showing the Principal, Interest and Late Charges converted and/or paid (as the case may be) and the dates of such conversions and/or
payments (as the case may be) or shall use such other method, reasonably satisfactory to the Holder and the Company, so as not
to require physical surrender of this Note upon conversion.

 

  (iv)   Pro
Rata Conversion; Disputes. In the event that the Company receives a Conversion Notice from more than one holder of Notes for
the same Conversion Date and the Company can convert some, but not all, of such portions of the Notes submitted for conversion,
the Company, subject to Section 3(d), shall convert from each holder of Notes electing to have Notes converted on such date a pro
rata amount of such holder's portion of its Notes submitted for conversion based on the principal amount of Notes submitted for
conversion on such date by such holder relative to the aggregate principal amount of all Notes submitted for conversion on such
date. In the event of a dispute as to the number of shares of Common Stock issuable to the Holder in connection with a conversion
of this Note, the Company shall issue to the Holder the number of shares of Common Stock not in dispute and resolve such dispute
in accordance with Section 24.

 

    	 

    	 

    

 

(d)    Limitations
on Conversions.  Notwithstanding anything to the contrary set forth in this Note, the Company shall not effect the
conversion of this Note, and the Holder shall not have the right to convert this Note pursuant to the terms and conditions hereof
and any such conversion shall be null and void and treated as if never made, to the extent that after giving effect to such conversion,
the Holder together with any Attribution Parties to the Holder collectively would beneficially own in excess of 3.33% (the “Maximum
Percentage”) of the shares of Common Stock outstanding immediately after giving effect to such conversion. For purposes
of the foregoing sentence, the aggregate number of shares of Common Stock beneficially owned by the Holder and other Attribution
Parties to the Holder shall include the number of shares of Common Stock held by the Holder and all other Attribution Parties to
the Holder plus the number of shares of Common Stock issuable upon conversion of this Note with respect to which the determination
of such sentence is being made, but shall exclude shares of Common Stock which would be issuable upon (A) conversion of the remaining,
non-converted portion of this Note beneficially owned by the Holder or any other Attribution Parties to the Holder and (B) exercise
or conversion of the unexercised or non-converted portion of any other securities of the Company (including, without limitation,
any convertible notes or convertible preferred stock or warrants) beneficially owned by the Holder or any other Attribution Party
to the Holder subject to a limitation on conversion or exercise analogous to the limitation contained in this Section 3(d). For
purposes of this Section 3(d), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act. For
purposes of determining the number of outstanding shares of Common Stock the Holder may acquire upon the conversion of this Note
without exceeding the Maximum Percentage, the Holder may rely on the number of outstanding shares of Common Stock as reflected
in (x) the Company's most recent Annual Report on Form 10-K, Quarterly Report on Form 10-Q, Current Report on Form 8-K or other
public filing with the SEC, as the case may be, (y) a more recent public announcement by the Company or (z) any other written notice
by the Company or its transfer agent, if any, setting forth the number of shares of Common Stock outstanding (the “Reported
Outstanding Share Number”). If the Company receives a Conversion Notice from the Holder at a time when the actual number
of outstanding shares of Common Stock is less than the Reported Outstanding Share Number, the Company shall notify the Holder in
writing of the number of shares of Common Stock then outstanding and, to the extent that such Conversion Notice would otherwise
cause the Holder's beneficial ownership, as determined pursuant to this Section 3(d), to exceed the Maximum Percentage, the Holder
must notify the Company of a reduced number of shares of Common Stock to be purchased pursuant to such Conversion Notice. For any
reason at any time, upon the written or oral request of the Holder, the Company shall within one (1) Business Day confirm orally
and in writing or by electronic mail to the Holder the number of shares of Common Stock then outstanding. In any case, the number
of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the
Company, including any portion of this Note, by the Holder and any other Attribution Party since the date as of which the Reported
Outstanding Share Number was reported. In the event that the issuance of shares of Common Stock to the Holder upon conversion of
any portion of this Note results in the Holder and the other Attribution Parties to the Holder being deemed to beneficially own,
in the aggregate, more than the Maximum Percentage of the number of outstanding shares of Common Stock (as determined under Section
13(d) of the Exchange Act), the number of shares so issued by which the Holder's and the other Attribution Parties to the Holder’s
aggregate beneficial ownership exceeds the Maximum Percentage (the “Excess Shares”) shall be deemed null and
void and shall be cancelled ab initio, and the Holder shall not have the power to vote or to transfer the Excess Shares.
For purposes of clarity, the shares of Common Stock issuable upon conversion of this Note in excess of the Maximum Percentage shall
not be deemed to be beneficially owned by the Holder for any purpose including for purposes of Section 13(d) or Rule 16a-1(a)(1)
of the Exchange Act. No prior inability to convert any portion of this Note pursuant to this paragraph shall have any effect on
the applicability of the provisions of this paragraph with respect to any subsequent determination of convertibility. The provisions
of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section
3(d) to the extent necessary to correct this paragraph (or any portion of this paragraph) which may be defective or inconsistent
with the intended beneficial ownership limitation contained in this Section 3(d) or to make 

 

    	 

    	 

    

  

changes or supplements necessary or desirable
to properly give effect to such limitation. The limitation contained in this paragraph may not be waived and shall apply to each
successor holder of this Note.

 

 4.   RIGHTS
UPON EVENT OF DEFAULT.

 

(a)   Event
of Default. Each of the following events shall constitute an “Event of Default”:

 

(i)     the
suspension from trading or the failure of the Common Stock to be trading or listed (as applicable) on an Eligible Market or the
Principal Market for a period of five (5) consecutive Trading Days or for more than an aggregate of ten (10) Trading Days in any
365 day period;

  

(ii)     the
Company's (A) failure to cure a Conversion Failure by delivery of the required number of shares of Common Stock within five (5)
Trading Days after the applicable Conversion Date or (B) notice, written or oral, to any holder of the Notes, including, without
limitation, by way of public announcement or through any of its agents, at any time, of its intention not to comply, as required,
with a request for conversion of any Notes into shares of Common Stock that is requested in accordance with the provisions of the
Notes, other than pursuant to Section 3(d);

 

(iii)   at
any time following the ninetieth (90th) consecutive day that the Holder's Authorized Share Allocation is less than the number of
shares of Common Stock that the Holder would be entitled to receive upon a conversion of the full Conversion Amount of this Note
(without regard to any limitations on conversion set forth in Section 3(d) or otherwise);

 

(iv)    the Company's
or any Subsidiary's failure to pay to the Holder any amount of Principal, Interest, Late Charges or other amounts when and as due
under this Note (including, without limitation, the Company's or any Subsidiary's failure to pay any redemption payments or amounts
hereunder) or any other Transaction Document (as defined in the Note Purchase Agreement) or any other agreement, document, certificate
or other instrument delivered in connection with the transactions contemplated hereby and thereby, except, in the case of a failure
to pay Interest and Late Charges when and as due, in which case only if such failure remains uncured for a period of at least five
(5) days;

 

(v)    the
Company fails to remove any restrictive legend on any certificate or any shares of Common Stock issued to the Holder upon conversion
of this Note as and when required by the terms of this Note or the Note Purchase Agreement, unless otherwise then prohibited by
applicable state or federal securities laws, and any such failure remains uncured for at least five (5) days;

 

(vi)   the
occurrence of any default under, redemption of or acceleration prior to maturity of any Indebtedness (as defined in the Note Purchase
Agreement) in excess of $150,000 of the Company or any of its Subsidiaries, other than with respect to any Other Notes or Additional
Notes;

 

(vii)  bankruptcy,
insolvency, reorganization or liquidation proceedings or other proceedings for the relief of debtors shall be instituted by or
against the Company or any Subsidiary and, if instituted against the Company or any Subsidiary by a third party, shall not be dismissed
within thirty (30) days of their initiation;

 

(viii)  the
commencement by the Company or any Subsidiary of a voluntary case or proceeding under any applicable federal, state or foreign
bankruptcy, insolvency, reorganization or other similar law or of any other case or proceeding to be adjudicated a bankrupt or
insolvent, or the consent by it to the entry of a decree, order, judgment or other similar document in respect of the Company or
any Subsidiary in an involuntary case or proceeding under any applicable federal, state or foreign bankruptcy, insolvency, reorganization
or other similar law or to the commencement of any bankruptcy or insolvency case or proceeding against it, or the filing by it

 

    	 

    	 

    

 

of a petition or answer or consent seeking
reorganization or relief under any applicable federal, state or foreign law, or the consent by it to the filing of such petition
or to the appointment of or taking possession by a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar
official of the Company or any Subsidiary or of any substantial part of its property, or the making by it of an assignment for
the benefit of creditors, or the execution of a composition of debts, or the occurrence of any other similar federal, state or
foreign proceeding, or the admission by it in writing of its inability to pay its debts generally as they become due, the taking
of corporate action by the Company or any Subsidiary in furtherance of any such action or the taking of any action by any Person
to commence a Uniform Commercial Code foreclosure sale or any other similar action under federal, state or foreign law;

 

(ix)   the
entry by a court of (i) a decree, order, judgment or other similar document in respect of the Company or any Subsidiary of a voluntary
or involuntary case or proceeding under any applicable federal, state or foreign bankruptcy, insolvency, reorganization or other
similar law or (ii) a decree, order, judgment or other similar document adjudging the Company or any Subsidiary as bankrupt or
insolvent, or approving as properly filed a petition seeking liquidation, reorganization, arrangement, adjustment or composition
of or in respect of the Company or any Subsidiary under any applicable federal, state or foreign law or (iii) a decree, order,
judgment or other similar document appointing a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar
official of the Company or any Subsidiary or of any substantial part of its property, or ordering the winding up or liquidation
of its affairs, and the continuance of any such decree, order, judgment or other similar document or any such other decree, order,
judgment or other similar document unstayed and in effect for a period of thirty (30) consecutive days;

 

(x)   a
final judgment or judgments for the payment of money aggregating in excess of $150,000 are rendered against the Company and/or
any of its Subsidiaries and which judgments are not, within thirty (30) days after the entry thereof, bonded, discharged or stayed
pending appeal, or are not discharged within thirty (30) days after the expiration of such stay; provided, however, any judgment
which is covered by insurance or an indemnity from a credit worthy party shall not be included in calculating the $150,000 amount
set forth above so long as the Company provides the Holder a written statement from such insurer or indemnity provider (which written
statement shall be reasonably satisfactory to the Holder) to the effect that such judgment is covered by insurance or an indemnity
and the Company or such Subsidiary (as the case may be) will receive the proceeds of such insurance or indemnity within thirty
(30) days of the issuance of such judgment;

 

(xi)     the
Company and/or any Subsidiary, individually or in the aggregate, either (i) fails to pay, when due, or within any applicable grace
period, any payment with respect to any Indebtedness in excess of $150,000 due to any third party (other than, with respect to
unsecured Indebtedness only, payments contested by the Company and/or such Subsidiary (as the case may be) in good faith by proper
proceedings and with respect to which adequate reserves have been set aside for the payment thereof in accordance with GAAP) or
is otherwise in breach or violation of any agreement for monies owed or owing in an amount in excess of $150,000, which breach
or violation permits the other party thereto to declare a default or otherwise accelerate amounts due thereunder, or (ii) suffer
to exist any other circumstance or event that would, with or without the passage of time or the giving of notice, result in a default
or event of default under any agreement binding the Company or any Subsidiary, which default or event of default would or is likely
to have a material adverse effect on the business, assets, operations (including results thereof), liabilities, properties, condition
(including financial condition) or prospects of the Company or any of its Subsidiaries, individually or in the aggregate;

 

(xii)     other
than as specifically set forth in another clause of this Section 4(a), the Company or any Subsidiary breaches any representation,
warranty, covenant or other term or condition of any Transaction Document, except, in the case of a breach of a covenant or other
term or condition that is curable, only if such breach remains uncured for a period of three (3) consecutive Trading Days;

 

(xiii)    any
strike, lockout, labor dispute, embargo, condemnation, act of God or public enemy, or other casualty which causes, for more than
fifteen (15) consecutive days, the cessation or substantial curtailment of revenue producing activities at any facility of the
Company or any Subsidiary, if any such event or

 

    	 

    	 

    

 

circumstance could reasonably be expected to
have a Material Adverse Effect (as defined in the Note Purchase Agreement);

  
 

(xiv)   a
false or inaccurate certification (including a false or inaccurate deemed certification) by the Company that the Equity Conditions
are satisfied or that there has been no Equity Conditions Failure or as to whether any Event of Default has occurred;

 

(xv)    any
breach or failure in any respect by the Company or any Subsidiary to comply with any provision of Section 15 of this Note;

 

(xvi)    any
Material Adverse Effect occurs;

 

(xvii)   any
material provision of the Security Agreement, shall at any time after execution and delivery thereof (if ever) for any reason (other
than pursuant to the express terms thereof) cease to be valid and binding on or enforceable against the Company or any Subsidiary
intended to be a party thereto, or the validity or enforceability thereof shall be contested by any party thereto, or a proceeding
shall be commenced by the Company or any Subsidiary or any governmental authority having jurisdiction over any of them, seeking
to establish the invalidity or unenforceability thereof, or the Company or any Subsidiary shall deny in writing that it has any
liability or obligation purported to be created under the Security Agreement;

 

(xviii)   the
Security agreement or any other security document, after delivery thereof pursuant hereto, shall for any reason fail or cease to
create a valid and perfected and, except to the extent permitted by the terms hereof or thereof, priority lien in favor of the
holders of the Notes on any Collateral (as defined in the Security Agreement) purported to be covered thereby, subordinated only
to the existing security interest of AvidBank and its successors or assigns;

 

(xix)    the
Company's failure, on or prior to February 4, 2015, to effect a reverse stock split of its issued and outstanding common stock
at a ratio of 350:1;

 

(xx)    the
Company's failure to publicly file any quarterly report on Form 10-Q or annual report on Form 10-K, in each case, when such filings
are due (including by the deadline of any valid extension available) pursuant to, and otherwise in accordance with, the requirements
of the 1934 Act as then in effect (but regardless of whether or not the Company is required pursuant to the 1934 Act to make any
such filings) if any such failure continues for an aggregate of at least five (5) Business Days while this Note is outstanding;

 

(xxi)   any
Event of Default (as defined in the Other Notes) occurs with respect to any Other Notes; or

 

(xxii)  any
Event of Default (as defined in the Additional Notes) occurs with respect to any Additional Notes.

 

(b)   Notice
of an Event of Default; Redemption Right. Upon the occurrence of an Event of Default with respect to this Note, any Other Note
or any Additional Note, the Company shall within one (1) Business Day deliver written notice thereof via facsimile and overnight
courier (with next day delivery specified) (an “Event of Default Notice”) to the Holder. At any time after the
earlier of the Holder's receipt of an Event of Default Notice and the Holder becoming aware of an Event of Default, the Holder
may require the Company to redeem (regardless of whether such Event of Default has been cured) all or any portion of this Note
by delivering written notice thereof (the “Event of Default Redemption Notice”) to the Company, which Event
of Default Redemption Notice shall indicate the portion of this Note the Holder is electing to redeem. Each portion of this Note
subject to redemption by the Company pursuant to this Section 4(b) shall be redeemed by the Company at a price equal to the sum
of (I) the greater of (i) the product of (A) the Conversion Amount to be redeemed multiplied by (B) the Redemption Premium and
(ii) the product of (X) the Conversion Rate with respect to the Conversion Amount in

 

    	 

    	 

    

 

effect at such time as the Holder delivers
an Event of Default Redemption Notice multiplied by (Y) the product of (1) the Redemption Premium multiplied by (2) the average
VWAP of the Company’s Common Stock during the period commencing on the date immediately preceding such Event of Default and
ending on the date the Company makes the entire payment required to be made under this Section 4(b) (the price set forth in this
clause (I), the “Event of Default Redemption Price”). On the Event of Default Redemption Date (as defined in
Section 11) the Company shall deliver or shall cause to be delivered to the Holder the Event of Default Redemption Price in cash
by wire transfer of immediately available funds pursuant to wire instructions provided by the Holder in writing to the Company.  Redemptions
required by this Section 4(b) shall be made in accordance with the provisions of Section 11. To the extent redemptions required
by this Section 4(b) are deemed or determined by a court of competent jurisdiction to be prepayments of this Note by the Company,
such redemptions shall be deemed to be voluntary prepayments. Notwithstanding anything to the contrary in this Section 4, but subject
to Section 3(d), until the Event of Default Redemption Price (together with any Late Charges thereon) is paid in full, the Conversion
Amount submitted for redemption under this Section 4(b) may be converted, in whole or in part, by the Holder into Common Stock
pursuant to the terms of this Note. In the event of the Company's redemption of any portion of this Note under this Section 4(b)
(together with any Late Charges thereon), the Holder's damages would be uncertain and difficult to estimate because of the parties'
inability to predict future interest rates and the uncertainty of the availability of a suitable substitute investment opportunity
for the Holder. Accordingly, any redemption premium due under this Section 4(b) is intended by the parties to be, and shall be
deemed, a reasonable estimate of the Holder's actual loss of its investment opportunity and not as a penalty.

 

5.   RIGHTS
UPON FUNDAMENTAL TRANSACTION.

 

(a)    Assumption.  The
Company shall not enter into or be party to a Fundamental Transaction unless (i) the Successor Entity assumes in writing all of
the obligations of the Company under this Note and the other Transaction Documents in accordance with the provisions of this Section
5(a), including agreements to deliver to each holder of Notes in exchange for such Notes a security of the Successor Entity evidenced
by a written instrument substantially similar in form and substance to the Notes, including, without limitation, having a principal
amount and interest rate equal to the principal amounts then outstanding and the interest rates of the Notes held by such holder,
having similar conversion rights as the Notes and having similar ranking to the Notes, and satisfactory to the Holder and (ii)
the Successor Entity (including its Parent Entity) is a publicly traded corporation whose common stock is quoted on or listed for
trading on an Eligible Market. Upon the occurrence of any Fundamental Transaction, the Successor Entity shall succeed to, and be
substituted for (so that from and after the date of such Fundamental Transaction, the provisions of this Note and the other Transaction
Documents referring to the “Company” shall refer instead to the Successor Entity), and may exercise every right
and power of the Company and shall assume all of the obligations of the Company under this Note and the other Transaction Documents
with the same effect as if such Successor Entity had been named as the Company herein. Upon consummation of a Fundamental Transaction,
the Successor Entity shall deliver to the Holder confirmation that there shall be issued upon conversion or redemption of this
Note at any time after the consummation of such Fundamental Transaction, in lieu of the shares of the Company's Common Stock (or
other securities, cash, assets or other property (except such items still issuable under Sections 6 and 16, which shall continue
to be receivable thereafter) issuable upon the conversion or redemption of the Notes prior to such Fundamental Transaction, such
shares of the publicly traded common stock (or their equivalent) of the Successor Entity (including its Parent Entity) which the
Holder would have been entitled to receive upon the happening of such Fundamental Transaction had this Note been converted immediately
prior to such Fundamental Transaction (without regard to any limitations on the conversion of this Note), as adjusted in accordance
with the provisions of this Note. Notwithstanding the foregoing, the Holder may elect, at its sole option or the Required Holders
may elect on behalf of the Holders of all the Notes by delivery of written notice to the Company to waive this Section 5(a) to
permit the Fundamental Transaction without the assumption of this Note. The provisions of this Section 5 shall apply similarly
and equally to successive Fundamental Transactions and shall be applied without regard to any limitations on the conversion of
this Note.

 

(b)   Notice
of a Change of Control; Redemption Right. No sooner than twenty (20) Trading Days nor later than ten (10) Trading Days prior
to the consummation of a Change of Control (the “Change of Control Date”), but not prior to the public announcement
of such Change of Control, the Company shall deliver written notice thereof via facsimile and overnight courier to the Holder (a
“Change of Control Notice”). At any time during the period beginning after the Holder's receipt of a Change
of Control Notice or the Holder becoming aware of a

 

    	 

    	 

    

 

Change of Control of a Change of Control Notice is not delivered
to the Holder in accordance with the immediately preceding sentence (as applicable) and ending on the later of twenty (20) Trading
Days after (A) consummation of such Change of Control or (B) the date of receipt of such Change of Control Notice, the Holder may
require the Company to redeem all or any portion of this Note by delivering written notice thereof (“Change of Control
Redemption Notice”) to the Company, which Change of Control Redemption Notice shall indicate the Conversion Amount the
Holder is electing to redeem. The portion of this Note subject to redemption pursuant to this Section 5 shall be redeemed by the
Company at a price equal to the sum of the greater of (i) the product of (x) the Change of Control Redemption Premium multiplied
by (y) the Conversion Amount being redeemed, (ii) the product of (x) the Change of Control Redemption Premium multiplied by (y)
the product of (A) the Conversion Amount being redeemed multiplied by (B) the quotient determined by dividing (I) the greatest
Closing Sale Price of the shares of Common Stock during the period beginning on the date immediately preceding the earlier to occur
of (1) the consummation of the applicable Change of Control and (2) the public announcement of such Change of Control and ending
on the date the Holder delivers the Change of Control Redemption Notice by (II) the Conversion Price then in effect at the time
of delivery by the Holder of the Change of Control Redemption Notice and (iii) the product of (y) the Change of Control Redemption
Premium multiplied by (z) the product of (A) the Conversion Amount being redeemed multiplied by (B) the quotient of (I) the aggregate
cash consideration and the aggregate cash value of any non-cash consideration per share of Common Stock to be paid to the holders
of the shares of Common Stock upon consummation of such Change of Control (any such non-cash consideration constituting publicly-traded
securities shall be valued at the highest of the Closing Sale Price of such securities as of the Trading Day immediately prior
to the consummation of such Change of Control, the Closing Sale Price of such securities on the Trading Day immediately following
the public announcement of such proposed Change of Control and the Closing Sale Price of such securities on the Trading Day immediately
prior to the public announcement of such proposed Change of Control) divided by (II) the Conversion Price then in effect (the price
set forth in this clause (X), the “Change of Control Redemption Price”). On the Change of Control Redemption
Date (as defined in Section 11) the Company shall deliver or shall cause to be delivered to the Holder the Change of Control Redemption
Price in cash by wire transfer of immediately available funds pursuant to wire instructions provided by the Holder in writing to
the Company.   Redemptions required by this Section 5 shall be made in accordance with the provisions of Section 11 and
shall have priority to payments to stockholders in connection with such Change of Control. To the extent redemptions required by
this Section 5(b) are deemed or determined by a court of competent jurisdiction to be prepayments of this Note by the Company,
such redemptions shall be deemed to be voluntary prepayments. Notwithstanding anything to the contrary in this Section 5, but subject
to Section 3(d), until the Change of Control Redemption Price (together with any Late Charges thereon) is paid in full, the Conversion
Amount submitted for redemption under this Section 5(b) (together with any Late Charges thereon) may be converted, in whole or
in part, by the Holder into Common Stock pursuant to Section 3. In the event of the Company's redemption of any portion of this
Note under this Section 5(b), the Holder's damages would be uncertain and difficult to estimate because of the parties' inability
to predict future interest rates and the uncertainty of the availability of a suitable substitute investment opportunity for the
Holder. Accordingly, any redemption premium due under this Section 5(b) is intended by the parties to be, and shall be deemed,
a reasonable estimate of the Holder's actual loss of its investment opportunity and not as a penalty.

  

 6.   RIGHTS
UPON ISSUANCE OF PURCHASE RIGHTS AND OTHER CORPORATE EVENTS.

 

(a)     Purchase
Rights. In addition to any adjustments pursuant to Section 7 below, if at any time the Company grants, issues or sells any
Options, Convertible Securities or rights to purchase stock, warrants, securities or other property pro rata to the record holders
of any class of Common Stock (the “Purchase Rights”), then the Holder will be entitled to acquire, upon the
terms applicable to such Purchase Rights, the aggregate Purchase Rights which the Holder could have acquired if the Holder had
held the number of shares of Common Stock acquirable upon complete conversion of this Note (without taking into account any limitations
or restrictions on the convertibility of this Note) immediately before the date on which a record is taken for the grant, issuance
or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of Common Stock are to
be determined for the grant, issue or sale of such Purchase Rights (provided, however, to the extent that the Holder's right to
participate in any such Purchase Right would result in the Holder exceeding the Maximum Percentage, then the Holder shall not be
entitled to participate in such Purchase Right to such extent (or beneficial ownership of such shares of Common Stock as a result
of such Purchase Right to such extent) and such Purchase

 

    	 

    	 

    

 

Right to such extent shall be held in abeyance
for the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Maximum Percentage).

 

(b)    Other
Corporate Events.  In addition to and not in substitution for any other rights hereunder, prior to the consummation
of any Fundamental Transaction pursuant to which holders of shares of Common Stock are entitled to receive securities or other
assets with respect to or in exchange for shares of Common Stock (a “Corporate Event”), the Company shall make
appropriate provision to insure that the Holder will thereafter have the right to receive upon a conversion of this Note (i) in
addition to the shares of Common Stock receivable upon such conversion, such securities or other assets to which the Holder would
have been entitled with respect to such shares of Common Stock had such shares of Common Stock been held by the Holder upon the
consummation of such Corporate Event (without taking into account any limitations or restrictions on the convertibility of this
Note) or (ii) in lieu of the shares of Common Stock otherwise receivable upon such conversion, such securities or other assets
received by the holders of shares of Common Stock in connection with the consummation of such Corporate Event in such amounts as
the Holder would have been entitled to receive had this Note initially been issued with conversion rights for the form of such
consideration (as opposed to shares of Common Stock) at a conversion rate for such consideration commensurate with the Conversion
Rate. Provision made pursuant to the preceding sentence shall be in a form and substance satisfactory to the Required Holders.
The provisions of this Section 6 shall apply similarly and equally to successive Corporate Events and shall be applied without
regard to any limitations on the conversion or redemption of this Note.

 

7.    RIGHTS
UPON ISSUANCE OF OTHER SECURITIES.

 

(a)     Adjustment
of Fixed Conversion Price upon Issuance of Common Stock.  If and whenever on or after the Subscription Date the Company
issues or sells, or in accordance with this Section 7(a) is deemed to have issued or sold, any shares of Common Stock (including
the issuance or sale of shares of Common Stock owned or held by or for the account of the Company, but excluding any Excluded Securities
issued or sold or deemed to have been issued or sold) for a consideration per share (the “New Issuance Price”)
less than a price equal to the Fixed Conversion Price in effect immediately prior to such issue or sale or deemed issuance or sale
(such Fixed Conversion Price then in effect is referred to herein as the “Applicable Price”) (the foregoing
a “Dilutive Issuance”), then, immediately after such Dilutive Issuance, the Fixed Conversion Price then in effect
shall be reduced to an amount equal to the New Issuance Price. For all purposes of the foregoing (including, without limitation,
determining the adjusted Fixed Conversion Price and consideration per share under this Section 7(a)), the following shall be applicable:

 

(i)       Issuance
of Options. If the Company in any manner grants or sells any Options and the lowest price per share for which one share of
Common Stock is issuable upon the exercise of any such Option or upon conversion, exercise or exchange of any Convertible Securities
issuable upon exercise of any such Option is less than the Applicable Price, then such share of Common Stock shall be deemed to
be outstanding and to have been issued and sold by the Company at the time of the granting or sale of such Option for such price
per share. For purposes of this Section 7(a)(i), the “lowest price per share for which one share of Common Stock is issuable
upon the exercise of any such Option or upon conversion, exercise or exchange of any Convertible Securities issuable upon exercise
of any such Option” shall be equal to (1) the lower of (x) the sum of the lowest amounts of consideration (if any) received
or receivable by the Company with respect to any one share of Common Stock upon the granting or sale of such Option, upon exercise
of such Option and upon conversion, exercise or exchange of any Convertible Security issuable upon exercise of such Option and
(y) the lowest exercise price set forth in such Option for which one share of Common Stock is issuable upon the exercise of any
such Options or upon conversion, exercise or exchange of any Convertible Securities issuable upon exercise of any such Option minus
(2) the sum of all amounts paid or payable to the holder of such Option (or any other Person) upon the granting or sale of such
Option, upon exercise of such Option and upon conversion, exercise or exchange of any Convertible Security issuable upon exercise
of such Option plus the value of any other consideration received or receivable by, or benefit conferred on, the holder of such
Option (or any other Person). Except as contemplated below, no further adjustment of the Fixed Conversion Price shall be made upon
the actual issuance of such share of Common Stock or of such

 

    	 

    	 

    

 

Convertible Securities upon the exercise of
such Options or upon the actual issuance of such share of Common Stock upon conversion, exercise or exchange of such Convertible
Securities.

 

(ii)      Issuance
of Convertible Securities.  If the Company in any manner issues or sells any Convertible Securities and the lowest
price per share for which one share of Common Stock is issuable upon the conversion, exercise or exchange thereof is less than
the Applicable Price, then such share of Common Stock shall be deemed to be outstanding and to have been issued and sold by the
Company at the time of the issuance or sale of such Convertible Securities for such price per share. For the purposes of this Section
7(a)(ii), the “lowest price per share for which one share of Common Stock is issuable upon the conversion, exercise or exchange
thereof” shall be equal to (1) the lower of (x) the sum of the lowest amounts of consideration (if any) received or receivable
by the Company with respect to one share of Common Stock upon the issuance or sale of the Convertible Security and upon conversion,
exercise or exchange of such Convertible Security and (y) the lowest conversion price set forth in such Convertible Security for
which one share of Common Stock is issuable upon conversion, exercise or exchange thereof minus (2) the sum of all amounts paid
or payable to the holder of such Convertible Security (or any other Person) upon the issuance or sale of such Convertible Security
plus the value of any other consideration received or receivable by, or benefit conferred on, the holder of such Convertible Security
(or any other Person). Except as contemplated below, no further adjustment of the Fixed Conversion Price shall be made upon the
actual issuance of such share of Common Stock upon conversion, exercise or exchange of such Convertible Securities, and if any
such issue or sale of such Convertible Securities is made upon exercise of any Options for which adjustment of the Fixed Conversion
Price has been or is to be made pursuant to other provisions of this Section 7(a), except as contemplated below, no further adjustment
of the Fixed Conversion Price shall be made by reason of such issue or sale.

 

(iii)    Change
in Option Price or Rate of Conversion.  If the purchase or exercise price provided for in any Options, the additional
consideration, if any, payable upon the issue, conversion, exercise or exchange of any Convertible Securities, or the rate at which
any Convertible Securities are convertible into or exercisable or exchangeable for shares of Common Stock increases or decreases
at any time, the Fixed Conversion Price in effect at the time of such increase or decrease shall be adjusted to the Fixed Conversion
Price which would have been in effect at such time had such Options or Convertible Securities provided for such increased or decreased
purchase price, additional consideration or increased or decreased conversion rate (as the case may be) at the time initially granted,
issued or sold. For purposes of this Section 7(a)(iii), if the terms of any Option or Convertible Security that was outstanding
as of the Subscription Date are increased or decreased in the manner described in the immediately preceding sentence, then such
Option or Convertible Security and the shares of Common Stock deemed issuable upon exercise, conversion or exchange thereof shall
be deemed to have been issued as of the date of such increase or decrease. No adjustment pursuant to this Section 7(a) shall be
made if such adjustment would result in an increase of the Fixed Conversion Price then in effect.

 

(iv)    Calculation
of Consideration Received. If any Option or Convertible Security or Adjustment Right is issued or deemed issued in connection
with the issuance or sale or deemed issuance or sale of any other securities of the Company, together comprising one integrated
transaction, (x) such Option or Convertible Security (as applicable) or Adjustment Right (as applicable) will be deemed to have
been issued for consideration equal to the Black Scholes Consideration Value thereof and (y) the other securities issued or sold
or deemed to have been issued or sold in such integrated transaction shall be deemed to have been issued for consideration equal
to the difference of (I) the aggregate consideration received or receivable by the Company minus (II) the Black Scholes Consideration
Value of each such Option or Convertible Security (as applicable) or Adjustment Right (as applicable). If any shares of Common
Stock, Options or Convertible Securities are issued or sold or deemed to have been issued or sold for cash, the consideration received
therefor will be deemed to be the net amount of consideration received by the Company therefor. If any shares of Common Stock,
Options or Convertible Securities are issued or sold for a consideration other than cash, the amount of such consideration received
by the Company will be the fair value of such consideration, except where such consideration consists of publicly traded securities,
in which case the amount of consideration received by the Company for such securities will be the average VWAP of such security
for the five (5) Trading Day period immediately preceding the date of receipt. If any shares of Common Stock, Options or Convertible
Securities are issued to the owners of the non-surviving entity in connection with any merger in which the Company is the surviving
entity, the amount of consideration therefor will be deemed to be the fair value of such portion of the net assets and business
of the non-surviving entity as is attributable to such

 

    	 

    	 

    

 

shares of Common Stock, Options or Convertible
Securities (as the case may be). The fair value of any consideration other than cash or publicly traded securities will be determined
jointly by the Company and the Holder. If such parties are unable to reach agreement within ten (10) days after the occurrence
of an event requiring valuation (the “Valuation Event”), the fair value of such consideration will be determined
within five (5) Trading Days after the tenth (10th) day following such Valuation Event by an independent, reputable appraiser jointly
selected by the Company and the Holder. The determination of such appraiser shall be final and binding upon all parties absent
manifest error and the fees and expenses of such appraiser shall be borne by the Company.

 

(v)    Record
Date.  If the Company takes a record of the holders of shares of Common Stock for the purpose of entitling them (A)
to receive a dividend or other distribution payable in shares of Common Stock, Options or in Convertible Securities or (B) to subscribe
for or purchase shares of Common Stock, Options or Convertible Securities, then such record date will be deemed to be the date
of the issue or sale of the shares of Common Stock deemed to have been issued or sold upon the declaration of such dividend or
the making of such other distribution or the date of the granting of such right of subscription or purchase (as the case may be).

  

(b)    Adjustment
of Fixed Conversion Price upon Subdivision or Combination of Common Stock.  Without limiting any provision of Section
5 or Section 7(a), if the Company at any time on or after the Subscription Date subdivides (by any stock split, stock dividend,
stock combination, recapitalization or other similar transaction) one or more classes of its outstanding shares of Common Stock
into a greater number of shares, the Fixed Conversion Price in effect immediately prior to such subdivision will be proportionately
reduced. Without limiting any provision of Section 5 or Section 7(a), if the Company at any time on or after the Subscription Date
combines (by any stock split, stock dividend, stock combination, recapitalization or other similar transaction) one or more classes
of its outstanding shares of Common Stock into a smaller number of shares, the Fixed Conversion Price in effect immediately prior
to such combination will be proportionately increased. Any adjustment pursuant to this Section 7(b) shall become effective immediately
after the effective date of such subdivision or combination. If any event requiring an adjustment under this Section 7(b) occurs
during the period that a Fixed Conversion Price is calculated hereunder, then the calculation of such Fixed Conversion Price shall
be adjusted appropriately to reflect such event.

 

(c)    Holder's
Right of Alternative Fixed Conversion Price. In addition to and not in limitation of the other provisions of this Section 7,
if the Company in any manner issues or sells or enters into any agreement to issue or sell, any Common Stock, Options or Convertible
Securities (any such securities, “Variable Price Securities”) after the Subscription Date that are issuable
pursuant to such agreement or convertible into or exchangeable or exercisable for shares of Common Stock pursuant to such Options
or Convertible Securities, as applicable, at a price which varies or may vary with the market price of the shares of Common Stock,
including by way of one or more reset(s) to a fixed price, but exclusive of such formulations reflecting customary anti-dilution
provisions (such as share splits, share combinations, share dividends and similar transactions) (each of the formulations for such
variable price being herein referred to as, the “Variable Price”), the Company shall provide written notice
thereof via facsimile and overnight courier to the Holder on the date of such agreement and/or the issuance of such Convertible
Securities or Options, as applicable. From and after the date the Company enters into such agreement or issues any such Variable
Price Securities, the Holder shall have the right, but not the obligation, in its sole discretion to substitute the Variable Price
for the Fixed Conversion Price upon conversion of this Note by designating in the Conversion Notice delivered upon any conversion
of this Note that solely for purposes of such conversion the Holder is relying on the Variable Price rather than the Fixed Conversion
Price then in effect. The Holder's election to rely on a Variable Price for a particular conversion of this Note shall not obligate
the Holder to rely on a Variable Price for any future conversion of this Note.

 

(d)     Other
Events.  In the event that the Company (or any Subsidiary) shall take any action to which the provisions hereof are
not strictly applicable, or, if applicable, would not operate to protect the Holder from dilution or if any event occurs of the
type contemplated by the provisions of this Section 7 but not expressly provided for by such provisions (including, without limitation,
the granting of stock appreciation rights, phantom stock rights or other rights with equity features), then the Company's board
of directors shall in good faith determine and implement an appropriate adjustment in the Fixed Conversion Price so as to protect
the rights of the Holder, provided that no such adjustment pursuant to this Section 7(d) will increase the Fixed Conversion Price
as otherwise 

 

    	 

    	 

    

 

determined pursuant to this Section 7, provided
further that if the Holder does not accept such adjustments as appropriately protecting its interests hereunder against such dilution,
then the Company's board of directors and the Holder shall agree, in good faith, upon an independent investment bank of nationally
recognized standing to make such appropriate adjustments, whose determination shall be final and binding and whose fees and expenses
shall be borne by the Company.

 

(e)    Calculations.  All
calculations under this Section 7 shall be made by rounding to the nearest cent or the nearest 1/100th of a share, as applicable.
The number of shares of Common Stock outstanding at any given time shall not include shares owned or held by or for the account
of the Company, and the disposition of any such shares shall be considered an issue or sale of Common Stock.

  

8.    NON-CIRCUMVENTION.  The
Company hereby covenants and agrees that the Company will not, by amendment of its Certificate of Incorporation, as amended, Bylaws,
or through any reorganization, transfer of assets, consolidation, merger, scheme of arrangement, dissolution, issue or sale of
securities, or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Note,
and will at all times in good faith carry out all of the provisions of this Note and take all action as may be required to protect
the rights of the Holder of this Note. Without limiting the generality of the foregoing, the Company (i) shall not increase the
par value of any shares of Common Stock receivable upon conversion of this Note above the Fixed Conversion Price or the Conversion
Price then in effect, (ii) shall take all such actions as may be necessary or appropriate in order that the Company may validly
and legally issue fully paid and non-assessable shares of Common Stock upon the conversion of this Note, and (iii) shall, so long
as any of the Notes are outstanding, take all action necessary to reserve and keep available out of its authorized and unissued
shares of Common Stock, solely for the purpose of effecting the conversion of the Notes, the maximum number of shares of Common
Stock as shall from time to time be necessary to effect the conversion of the Notes then outstanding (without regard to any limitations
on conversion).

 

9.    RESERVATION
OF AUTHORIZED SHARES.

 

(a)      Reservation.
The Company shall reserve out of its authorized and unissued Common Stock a number of shares of Common Stock for each of the Notes
equal to 125% of the entire Conversion Rate with respect to the entire Conversion Amount of each such Note as of the most recent
Closing Date as of the applicable date of determination. For so long as any of the Notes are outstanding, the Company shall take
all action necessary to reserve and keep available out of its authorized and unissued Common Stock, solely for the purpose of effecting
the conversion of the Notes, 125% of the number of shares of Common Stock as shall from time to time be necessary to effect the
conversion of all of the Notes then outstanding, provided that at no time shall the number of shares of Common Stock so reserved
be less than the number of shares required to be reserved by the previous sentence (without regard to any limitations on conversions)
(the “Required Reserve Amount”). The initial number of shares of Common Stock reserved for conversions of the
Notes and each increase in the number of shares so reserved shall be allocated pro rata among the holders of the Notes based on
the original principal amount of the Notes held by each holder on the most recent Closing Date as of the applicable date of determination
or increase in the number of reserved shares (as the case may be) (the “Authorized Share Allocation”). In the
event that a holder shall sell or otherwise transfer any of such holder's Notes, each transferee shall be allocated a pro rata
portion of such holder's Authorized Share Allocation. Any shares of Common Stock reserved and allocated to any Person which ceases
to hold any Notes shall be allocated to the remaining holders of Notes, pro rata based on the principal amount of the Notes then
held by such holders.

  

(b)     Insufficient
Authorized Shares. If, notwithstanding Section 9(a), and not in limitation thereof, at any time after the Issuance Date while
any of the Notes remain outstanding the Company does not have a sufficient number of authorized and unreserved shares of Common
Stock to satisfy its obligation to reserve for issuance upon conversion of the Notes at least a number of shares of Common Stock
equal to the Required Reserve Amount (an “Authorized Share Failure”), then the Company shall immediately take
all action necessary to increase the Company's authorized shares of Common Stock to an amount sufficient to allow the Company to
reserve the Required Reserve Amount for the Notes then outstanding. Without limiting the generality of the foregoing sentence,
as soon as practicable after the date of the occurrence of an Authorized Share Failure, but in no 

 

    	 

    	 

    

 

event later than ninety (90) days after the
occurrence of such Authorized Share Failure, the Company shall hold a meeting of its stockholders for the approval of an increase
in the number of authorized shares of Common Stock. In connection with such meeting, the Company shall provide each stockholder
with a proxy statement and shall use its best efforts to solicit its stockholders' approval of such increase in authorized shares
of Common Stock and to cause its board of directors to recommend to the stockholders that they approve such proposal. In the event
that the Company is prohibited from issuing shares of Common Stock upon any conversion due to the failure by the Company to have
sufficient shares of Common Stock available out of the authorized but unissued shares of Common Stock (such unavailable number
of shares of Common Stock, the “Authorization Failure Shares”), in lieu of delivering such Authorization Failure
Shares to the Holder, the Company shall pay cash in exchange for the redemption of such portion of the Conversion Amount convertible
into such Authorized Failure Shares at a price equal to the sum of (i) the product of (x) such number of Authorization Failure
Shares and (y) the greatest Closing Sale Price of the Common Stock on any Trading Day during the period commencing on the date
the Holder delivers the applicable Conversion Notice with respect to such Authorization Failure Shares to the Company and ending
on the date of such issuance and payment under this Section 9(b) and (ii) to the extent the Holder purchases (in an open market
transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by the Holder of Authorization Failure Shares,
any brokerage commissions and other out-of-pocket expenses, if any, of the Holder incurred in connection therewith. Nothing contained
in Section 9(a) or this Section 9(b) shall limit any obligations of the Company under any provision of the Note Purchase Agreement.

 

10.    INTENTIONALLY
OMITTED.   

 

11.   REDEMPTIONS.

 

(a)     Mechanics.  The
Company shall deliver the applicable Event of Default Redemption Price to the Holder within two (2) Business Days after the Company's
receipt of the Holder's Event of Default Redemption Notice (an “Event of Default Redemption Date”). If the Holder
has submitted a Change of Control Redemption Notice in accordance with Section 5(b), the Company shall deliver the applicable Change
of Control Redemption Price to the Holder concurrently with the consummation of such Change of Control if such notice is received
prior to the consummation of such Change of Control and within two (2) Business Days after the Company's receipt of such notice
otherwise (a “Change of Control Redemption Date”). In the event of a redemption of less than all of the Conversion
Amount of this Note, the Company shall promptly cause to be issued and delivered to the Holder a new Note (in accordance with Section
19(d)) representing the outstanding Principal which has not been redeemed. In the event that the Company does not pay the applicable
Redemption Price (together with any Late Charges thereon) to the Holder within the time period required, at any time thereafter
and until the Company pays such unpaid Redemption Price in full, the Holder shall have the option, in lieu of redemption, to require
the Company to promptly return to the Holder all or any portion of this Note representing the Conversion Amount that was submitted
for redemption and for which the applicable Redemption Price has not been paid. Upon the Company's receipt of such notice, (x)
the applicable Redemption Notice shall be null and void with respect to such Conversion Amount, (y) the Company shall immediately
return this Note, or issue a new Note (in accordance with Section 19(d)), to the Holder, and in each case the principal amount
of this Note or such new Note (as the case may be) shall be increased by an amount equal to the difference between (1) the applicable
Redemption Price minus (2) the Principal portion of the Conversion Amount submitted for redemption and (z) the Conversion Price
of this Note or such new Notes (as the case may be) shall be automatically adjusted with respect to each conversion effected thereafter
by the Holder to the lowest of (A) the Conversion Price as in effect on the date on which the applicable Redemption Notice is voided
and (B) the VWAP of the Company’s Common Stock during the period beginning on and including the date on which the applicable
Redemption Notice is delivered to the Company and ending on and including the date on which the applicable Redemption Notice is
voided. The Holder's delivery of a notice voiding a Redemption Notice and exercise of its rights following such notice shall not
affect the Company's obligations to make any payments of Late Charges which have accrued prior to the date of such notice with
respect to the Conversion Amount subject to such notice.

 

(b)    Redemption
by Other Holders.  Upon the Company's receipt of notice from any of the holders of the Other Notes or the Additional
Notes for redemption or repayment as a result of an event or occurrence substantially similar to the events or occurrences described
in Section 4(b), Section 5(b), Section 10 or pursuant to 

 

    	 

    	 

    

 

equivalent provisions set forth in the Other
Notes and the Additional Notes (each, an “Other Redemption Notice”), the Company shall immediately, but no later
than one (1) Business Day of its receipt thereof, forward to the Holder by facsimile a copy of such notice. If the Company receives
a Redemption Notice and one or more Other Redemption Notices, during the seven (7) Business Day period beginning on and including
the date which is three (3) Business Days prior to the Company's receipt of the Holder's applicable Redemption Notice and ending
on and including the date which is three (3) Business Days after the Company's receipt of the Holder's applicable Redemption Notice
and the Company is unable to redeem all principal, interest and other amounts designated in such Redemption Notice and such Other
Redemption Notices received during such seven (7) Business Day period, then the Company shall redeem a pro rata amount from each
holder of the Notes (including the Holder) based on the principal amount of the Notes submitted for redemption pursuant to such
Redemption Notice and such Other Redemption Notices received by the Company during such seven (7) Business Day period.

  
 

12.   INTENTIONALLY
OMITTED.

  

13.   VOTING
RIGHTS. The Holder shall have no voting rights as the holder of this Note, except as required by law (including, without limitation,
the Delaware General Corporation Law) and as expressly provided in this Note.

 

14.   SECURITY.  Upon
the request of holders of a least a majority of the principal amount of Notes issued pursuant to the Note Purchase Agreement, the
Company shall, within thirty (30) days’ of such request deliver to Holders, a fully executed Security Agreement (the “Security
Agreement”) in the form mutually agreed upon by the parties (along with any applicable or required subordination or inter-creditor
agreements with existing secured lenders of the Company, other than AvidBank), providing to Holder and the holders of the Other
Notes and Additional Notes, if any, a valid and perfected security interest (subject to certain existing liens and obligations
as further described therein and which shall be subordinated only to the Company’s current line of credit with AvidBank)
in all assets of the Company and its Subsidiaries, whether presently existing or hereinafter acquired.  

 

15.   COVENANTS.
Until all of the Notes have been converted, redeemed or otherwise satisfied in accordance with their terms:

 

(a)   Rank.  All
payments due under this Note (i) shall rank pari passu with all Other Notes and Additional Notes and (ii) except for Permitted
Indebtedness secured by Permitted Liens, shall be senior to all other Indebtedness of the Company and its Subsidiaries.

 

(b)   Incurrence
of Indebtedness. The Company shall not, and the Company shall cause each of its Subsidiaries to not, directly or indirectly,
incur or guarantee, assume or suffer to exist any Indebtedness (other than (i) the Indebtedness evidenced by this Note, the Other
Notes and the Additional Notes and (ii) Permitted Indebtedness).

 

(c)   Existence
of Liens. The Company shall not, and the Company shall cause each of its Subsidiaries to not, directly or indirectly, allow
or suffer to exist any mortgage, lien, pledge, charge, security interest or other encumbrance upon or in any property or assets
(including accounts and contract rights) owned by the Company or any of its Subsidiaries (collectively, “Liens”)
other than Permitted Liens.

 

(d)   Restricted
Payments. The Company shall not, and the Company shall cause each of its Subsidiaries to not, directly or indirectly, redeem,
defease, repurchase, repay or make any payments in respect of, by the payment of cash or cash equivalents (in whole or in part,
whether by way of open market purchases, tender offers, private transactions or otherwise), all or any portion of any Indebtedness
(other than the Notes), whether by way of payment in respect of principal of (or premium, if any) or interest on, such Indebtedness
if at the time such payment is due or is otherwise made or, after giving effect to such payment, (i) an event constituting an Event
of Default has occurred and is continuing or (ii) an event that with the passage of time and without being cured would constitute
an Event of Default has occurred and is continuing.

 

    	 

    	 

    

  

(e)   Restriction
on Redemption and Cash Dividends.  The Company shall not, and the Company shall cause each of its Subsidiaries to
not, directly or indirectly, redeem, repurchase or declare or pay any cash dividend or distribution on any of its capital stock.

 

(f)   Restriction
on Transfer of Assets. The Company shall not, and the Company shall cause each of its Subsidiaries to not, directly or indirectly,
sell, lease, license, assign, transfer, spin-off, split-off, close, convey or otherwise dispose of any assets or rights of the
Company or any Subsidiary owned or hereafter acquired whether in a single transaction or a series of related transactions, other
than (i) sales, leases, licenses, assignments, transfers, conveyances and other dispositions of such assets or rights by the Company
and its Subsidiaries in the ordinary course of business and (ii) sales of inventory and finished goods in the ordinary course of
business.

 

(g)   Maturity
of Indebtedness.  The Company shall not, and the Company shall cause each of its Subsidiaries to not, directly or
indirectly, permit any Indebtedness of the Company or any of the Subsidiaries to mature or accelerate prior to the Maturity Date.

 

(h)  Change
in Nature of Business.  The Company shall not, and the Company shall cause each of its Subsidiaries to not, directly
or indirectly, engage in any material line of business substantially different from those lines of business conducted by the Company
and each of its Subsidiaries on the Subscription Date or any business substantially related or incidental thereto. The Company
shall not, and the Company shall cause each of its Subsidiaries to not, directly or indirectly, modify its or their corporate
structure or purpose.

 

(i)    Preservation
of Existence, Etc.  The Company shall maintain and preserve, and cause each of its Subsidiaries to maintain and
preserve, its existence, rights and privileges, and become or remain, and cause each of its Subsidiaries to become or remain,
duly qualified and in good standing in each jurisdiction in which the character of the properties owned or leased by it or in
which the transaction of its business makes such qualification necessary. Notwithstanding the foregoing, the Company may dissolve
or merge any Subsidiary which is no longer active or which it deems in its sole and absolute discretion no longer to be materially
necessary to its business.

 

(j)   Maintenance
of Properties, Etc.  The Company shall maintain and preserve, and cause each of its Subsidiaries to maintain and
preserve, all of its properties which are necessary or useful in the proper conduct of its business in good working order and condition,
ordinary wear and tear excepted, and comply, and cause each of its Subsidiaries to comply, at all times with the provisions of
all leases to which it is a party as lessee or under which it occupies property, so as to prevent any loss or forfeiture thereof
or thereunder.

 

(k)   Maintenance
of Insurance.  The Company shall maintain, and cause each of its Subsidiaries to maintain, insurance with responsible
and reputable insurance companies or associations (including, without limitation, comprehensive general liability, hazard, rent
and business interruption insurance) with respect to its properties (including all real properties leased or owned by it) and business,
in such amounts and covering such risks as is required by any governmental authority having jurisdiction with respect thereto or
as is carried generally in accordance with sound business practice by companies in similar businesses similarly situated.

 

16.   PARTICIPATION.
In addition to any adjustments pursuant to Section 7, the Holder, as the holder of this Note, shall be entitled to receive such
dividends paid and distributions made to the holders of Common Stock to the same extent as if the Holder had converted this Note
into Common Stock (without regard to any limitations on conversion herein or elsewhere) and had held such shares of Common Stock
on the record date for such dividends and distributions. Payments under the preceding sentence shall be made concurrently with
the dividend or distribution to the holders of Common Stock (provided, however, to the extent that the Holder's right to participate
in any such dividend or distribution would result in the Holder exceeding the Maximum Percentage, then the Holder shall not be
entitled to participate in such dividend or distribution to such extent (or the beneficial ownership of any such shares of Common
Stock as a result of such dividend or distribution to such extent) and such dividend or distribution to such extent shall be held
in abeyance for the benefit of the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding
the Maximum Percentage).

 

    	 

    	 

    

 

17.   AMENDING
THE TERMS OF THIS NOTE.  The prior written consent of the Required Holders shall be required for any change or amendment
to this Note. No consideration shall be offered or paid to the Holder to amend or consent to a waiver or modification of any provision
of this Note unless the same consideration is also offered to all of the holders of the Notes. The Holder shall be entitled, at
its option, to the benefit of any amendment to any of the Notes.

 

18.   TRANSFER.  This
Note and any shares of Common Stock issued upon conversion of this Note may be offered, sold, assigned or transferred by the Holder
without the consent of the Company.

 

19.   REISSUANCE
OF THIS NOTE.

 

(a)   Transfer.  If
this Note is to be transferred, the Holder shall surrender this Note to the Company, whereupon the Company will forthwith issue
and deliver upon the order of the Holder a new Note (in accordance with Section 19(d)), registered as the Holder may request, representing
the outstanding Principal being transferred by the Holder and, if less than the entire outstanding Principal is being transferred,
a new Note (in accordance with Section 19(d)) to the Holder representing the outstanding Principal not being transferred. The Holder
and any assignee, by acceptance of this Note, acknowledge and agree that, by reason of the provisions of Section 3(c)(iii) following
conversion or redemption of any portion of this Note, the outstanding Principal represented by this Note may be less than the Principal
stated on the face of this Note.

 

(b)   Lost,
Stolen or Mutilated Note.  Upon receipt by the Company of evidence reasonably satisfactory to the Company of the
loss, theft, destruction or mutilation of this Note (as to which a written certification and the indemnification contemplated below
shall suffice as such evidence), and, in the case of loss, theft or destruction, of any indemnification undertaking by the Holder
to the Company in customary and reasonable form and, in the case of mutilation, upon surrender and cancellation of this Note, the
Company shall execute and deliver to the Holder a new Note (in accordance with Section 19(d)) representing the outstanding Principal.

 

(c)   Note
Exchangeable for Different Denominations. This Note is exchangeable, upon the surrender hereof by the Holder at the principal
office of the Company, for a new Note or Notes (in accordance with Section 19(d) and in principal amounts of at least $1,000) representing
in the aggregate the outstanding Principal of this Note, and each such new Note will represent such portion of such outstanding
Principal as is designated by the Holder at the time of such surrender.

 

(d)   Issuance
of New Notes.  Whenever the Company is required to issue a new Note pursuant to the terms of this Note, such new
Note (i) shall be of like tenor with this Note, (ii) shall represent, as indicated on the face of such new Note, the Principal
remaining outstanding (or in the case of a new Note being issued pursuant to Section 19(a) or Section 19(c), the Principal designated
by the Holder which, when added to the principal represented by the other new Notes issued in connection with such issuance, does
not exceed the Principal remaining outstanding under this Note immediately prior to such issuance of new Notes), (iii) shall have
an issuance date, as indicated on the face of such new Note, which is the same as the Issuance Date of this Note, (iv) shall have
the same rights and conditions as this Note, and (v) shall represent accrued and unpaid Interest and Late Charges on the Principal
and Interest of this Note, from the Issuance Date.

 

20.   REMEDIES,
CHARACTERIZATIONS, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF. The remedies provided in this Note shall be cumulative
and in addition to all other remedies available under this Note and any of the other Transaction Documents at law or in equity
(including a decree of specific performance and/or other injunctive relief), and nothing herein shall limit the Holder's right
to pursue actual and consequential damages for any failure by the Company to comply with the terms of this Note. The Company covenants
to the Holder that there shall be no characterization concerning this instrument other than as expressly provided herein. Amounts
set forth or provided for herein with respect to payments, conversion and the like (and the computation thereof) shall be the amounts
to be received by the Holder and shall not, except as expressly provided herein, be subject to any other obligation of the Company
(or the performance thereof). The 

 

    	 

    	 

    

 

Company acknowledges that a breach by it of
its obligations hereunder will cause irreparable harm to the Holder and that the remedy at law for any such breach may be inadequate.
The Company therefore agrees that, in the event of any such breach or threatened breach, the Holder shall be entitled, in addition
to all other available remedies, to an injunction restraining any such breach or any such threatened breach, without the necessity
of showing economic loss and without any bond or other security being required. The Company shall provide all information and documentation
to the Holder that is requested by the Holder to enable the Holder to confirm the Company's compliance with the terms and conditions
of this Note (including, without limitation, compliance with Section 7).

 

21.   PAYMENT
OF COLLECTION, ENFORCEMENT AND OTHER COSTS. If (a) this Note is placed in the hands of an attorney for collection or enforcement
or is collected or enforced through any legal proceeding or the Holder otherwise takes action to collect amounts due under this
Note or to enforce the provisions of this Note or (b) there occurs any bankruptcy, reorganization, receivership of the Company
or other proceedings affecting Company creditors' rights and involving a claim under this Note, then the Company shall pay the
costs incurred by the Holder for such collection, enforcement or action or in connection with such bankruptcy, reorganization,
receivership or other proceeding, including, without limitation, attorneys' fees and disbursements. The Company expressly acknowledges
and agrees that no amounts due under this Note shall be affected, or limited, by the fact that the purchase price paid for this
Note was less than the original Principal amount hereof.

  

22.   CONSTRUCTION;
HEADINGS.  This Note shall be deemed to be jointly drafted by the Company and the Holder and shall not be construed
against any Person as the drafter hereof. The headings of this Note are for convenience of reference and shall not form part of,
or affect the interpretation of, this Note. Terms used in this Note but defined in the other Transaction Documents shall have the
meanings ascribed to such terms on the Subscription Date in such other Transaction Documents unless otherwise consented to in writing
by the Holder.

 

23.   FAILURE
OR INDULGENCE NOT WAIVER.  No failure or delay on the part of the Holder in the exercise of any power, right or privilege
hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude
other or further exercise thereof or of any other right, power or privilege. No waiver shall be effective unless it is in writing
and signed by an authorized representative of the waiving party.

 

24.   DISPUTE
RESOLUTION.  In the case of a dispute as to the determination of the Conversion Price, any Redemption Price, the
Closing Bid Price, the Closing Sale Price or fair market value (as the case may be) or the arithmetic calculation of the Conversion
Rate or the applicable Redemption Price (as the case may be), the Company or the Holder (as the case may be) shall submit the disputed
determinations or arithmetic calculations (as the case may be) via facsimile (i) within two (2) Business Days after receipt of
the applicable notice giving rise to such dispute to the Company or the Holder (as the case may be) or (ii) if no notice gave rise
to such dispute, at any time after the Holder learned of the circumstances giving rise to such dispute (including, without limitation,
as to whether any issuance or sale or deemed issuance or sale was an issuance or sale or deemed issuance or sale of Excluded Securities).
If the Holder and the Company are unable to agree upon such determination or calculation within two (2) Business Days of such disputed
determination or arithmetic calculation (as the case may be) being submitted to the Company or the Holder (as the case may be),
then the Company shall, within two (2) Business Days, submit via facsimile (a) the disputed determination of the Conversion Price,
any Redemption Price, the Closing Bid Price, the Closing Sale Price or fair market value (as the case may be) to an independent,
reputable investment bank selected by the Company and approved by the Holder or (b) the disputed arithmetic calculation of the
Conversion Rate or any Redemption Price (as the case may be) to an independent, outside accountant selected by the Holder that
is reasonably acceptable to the Company. The Company shall cause at its expense the investment bank or the accountant (as the case
may be) to perform the determinations or calculations (as the case may be) and notify the Company and the Holder of the results
no later than ten (10) Business Days from the time it receives such disputed determinations or calculations (as the case may be).
Such investment bank's or accountant's determination or calculation (as the case may be) shall be binding upon all parties absent
demonstrable error.

  

    	 

    	 

    

 

25.   NOTICES;
CURRENCY; PAYMENTS.

 

(a)   Notices.  Whenever
notice is required to be given under this Note, unless otherwise provided herein, such notice shall be given in accordance with
Section 8(d) of the Note Purchase Agreement. The Company shall provide the Holder with prompt written notice of all actions taken
pursuant to this Note, including in reasonable detail a description of such action and the reason therefore. Without limiting the
generality of the foregoing, the Company will give written notice to the Holder (i) immediately upon any adjustment of the Conversion
Price, setting forth in reasonable detail, and certifying, the calculation of such adjustment and (ii) at least fifteen (15) days
prior to the date on which the Company closes its books or takes a record (A) with respect to any dividend or distribution upon
the Common Stock, (B) with respect to any grant, issuances, or sales of any Options, Convertible Securities or rights to purchase
stock, warrants, securities or other property to holders of shares of Common Stock or (C) for determining rights to vote with respect
to any Fundamental Transaction, dissolution or liquidation, provided in each case that such information shall be made known to
the public prior to or in conjunction with such notice being provided to the Holder.

  

(b)   Currency.  All
dollar amounts referred to in this Note are in United States Dollars (“U.S. Dollars”), and all amounts owing
under this Note shall be paid in U.S. Dollars. All amounts denominated in other currencies (if any) shall be converted into the
U.S. Dollar equivalent amount in accordance with the Exchange Rate on the date of calculation.  “Exchange Rate”
means, in relation to any amount of currency to be converted into U.S. Dollars pursuant to this Note, the U.S. Dollar exchange
rate as published in the Wall Street Journal on the relevant date of calculation (it being understood and agreed that where an
amount is calculated with reference to, or over, a period of time, the date of calculation shall be the final date of such period
of time).

 

(c)   Payments.  Whenever
any payment of cash is to be made by the Company to any Person pursuant to this Note, unless otherwise expressly set forth herein,
such payment shall be made in lawful money of the United States of America by a certified check drawn on the account of the Company
and sent via overnight courier service to such Person at such address as previously provided to the Company in writing (which address,
in the case of each of the Holders, shall initially be as set forth on the signature page of such Holder attached to the Note Purchase
Agreement), provided that the Holder may elect to receive a payment of cash via wire transfer of immediately available funds by
providing the Company with prior written notice setting out such request and the Holder's wire transfer instructions. Whenever
any amount expressed to be due by the terms of this Note is due on any day which is not a Business Day, the same shall instead
be due on the next succeeding day which is a Business Day. Any amount of Principal or other amounts due under the Transaction Documents
which is not paid when due shall result in a late charge being incurred and payable by the Company in an amount equal to interest
on such amount at the rate of fifteen percent (15%) per annum from the date such amount was due until the same is paid in full
(“Late Charge”).

 

26.   CANCELLATION.  After
all Principal, accrued Interest, Late Charges and other amounts at any time owed on this Note have been paid in full, this Note
shall automatically be deemed canceled, shall be surrendered to the Company for cancellation and shall not be reissued.

 

27.   WAIVER
OF NOTICE.  To the extent permitted by law, the Company hereby irrevocably waives demand, notice, presentment, protest
and all other demands and notices in connection with the delivery, acceptance, performance, default or enforcement of this Note
and the Note Purchase Agreement.

 

28.   GOVERNING
LAW.  This Note shall be construed and enforced in accordance with, and all questions concerning the construction,
validity, interpretation and performance of this Note shall be governed by, the internal laws of the State of New York, without
giving effect to any choice of law or conflict of law provision or rule (whether of the State of New York or any other jurisdictions)
that would cause the application of the laws of any jurisdictions other than the State of New York. The Company hereby irrevocably
submits to the exclusive jurisdiction of the state and federal courts sitting in The City of New York, Borough of Manhattan, for
the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein,
and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally
subject to the jurisdiction of any such court, that such suit, action or proceeding is brought in an inconvenient forum or that
the venue of such suit, action or proceeding is improper. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law. In the event that any 

 

    	 

    	 

    

 

provision of this Note is invalid or unenforceable
under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict
therewith and shall be deemed modified to conform with such statute or rule of law. Any such provision which may prove invalid
or unenforceable under any law shall not affect the validity or enforceability of any other provision of this Note. Nothing contained
herein shall be deemed or operate to preclude the Holder from bringing suit or taking other legal action against the Company in
any other jurisdiction to collect on the Company's obligations to the Holder, to realize on any collateral or any other security
for such obligations, or to enforce a judgment or other court ruling in favor of the Holder.  THE COMPANY HEREBY IRREVOCABLY
WAIVES ANY RIGHT IT MAY HAVE TO, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION
WITH OR ARISING OUT OF THIS NOTE OR ANY TRANSACTION CONTEMPLATED HEREBY.

  

29.   JUDGMENT
CURRENCY.

 

(a)   If
for the purpose of obtaining or enforcing judgment against the Company in any court in any jurisdiction it becomes necessary to
convert into any other currency (such other currency being hereinafter in this Section 29 referred to as the “Judgment
Currency”) an amount due in U.S. dollars under this Note, the conversion shall be made at the Exchange Rate prevailing
on the Trading Day immediately preceding:

 

(i)     the
date actual payment of the amount due, in the case of any proceeding in the courts of New York or in the courts of any other jurisdiction
that will give effect to such conversion being made on such date: or

 

(ii)    the
date on which the foreign court determines, in the case of any proceeding in the courts of any other jurisdiction (the date as
of which such conversion is made pursuant to this Section 29(a)(ii) being hereinafter referred to as the “Judgment Conversion
Date”).

 

(b)   If
in the case of any proceeding in the court of any jurisdiction referred to in Section 29(a)(ii) above, there is a change in the
Exchange Rate prevailing between the Judgment Conversion Date and the date of actual payment of the amount due, the applicable
party shall pay such adjusted amount as may be necessary to ensure that the amount paid in the Judgment Currency, when converted
at the Exchange Rate prevailing on the date of payment, will produce the amount of US dollars which could have been purchased with
the amount of Judgment Currency stipulated in the judgment or judicial order at the Exchange Rate prevailing on the Judgment Conversion
Date.

 

(c)   Any
amount due from the Company under this provision shall be due as a separate debt and shall not be affected by judgment being obtained
for any other amounts due under or in respect of this Note.

 

30.    MAXIMUM
PAYMENTS.  Without limiting anything to the contrary herein, nothing contained herein shall be deemed to establish
or require the payment of a rate of interest or other charges in excess of the maximum permitted by applicable law. In the event
that the rate of interest required to be paid or other charges hereunder exceed the maximum permitted by such law, any payments
in excess of such maximum shall be credited against amounts owed by the Company to the Holder and thus refunded to the Company.

 

31.    CERTAIN
DEFINITIONS.  For purposes of this Note, the following terms shall have the following meanings:

 

(a)   Adjustment
Right” means any right granted with respect to any securities issued in connection with, or with respect to, any issuance
or sale (or deemed issuance or sale in accordance with Section 7) of shares of Common Stock (other than rights of the type described
in Sections 6 or 16 hereof) that could result in a decrease in the net consideration received by the Company in connection with,
or with respect to, such securities (including, without limitation, any cash settlement rights, cash adjustment or other similar
rights).

  

    	 

    	 

    

 

(b)   “Approved
Stock Plan” means any benefit plan which has been approved by the board of directors of the Company prior to or subsequent
to the date hereof pursuant to which shares of Common Stock, options to purchase Common Stock and other equity incentive awards
may be issued to any employee, officer or director for services provided to the Company in their capacity as such.

 

(c)    “Attribution
Parties” means, with respect to any given Holder, collectively, the following Persons and entities: (i) any investment
vehicle, including, any funds, feeder funds or managed accounts, currently, or from time to time after the Issuance Date, directly
or indirectly managed or advised by such Holder's investment manager or any of its Affiliates or principals, (ii) any direct or
indirect Affiliates of such Holder or any of the foregoing, (iii) any Person acting or who could be deemed to be acting as a Group
(as that term is used in Section 13(d) of the Exchange Act and as defined in Rule 13d-5 thereunder) together with such Holder or
any of the foregoing and (iv) any other Persons whose beneficial ownership of the Company's Common Stock would or could be aggregated
with such Holder's and the other Attribution Parties for purposes of Section 13(d) of the Exchange Act. For clarity, the purpose
of the foregoing is to subject collectively such Holder and all other Attribution Parties to the Maximum Percentage.

 

(d)   “Black
Scholes Consideration Value” means the value of the applicable Option, Convertible Security or Adjustment Right (as the
case may be) as of the date of issuance thereof calculated using the Black Scholes Option Pricing Model obtained from the “OV”
function on Bloomberg utilizing (i) an underlying price per share equal to the Closing Sale Price of the Common Stock on the Trading
Day immediately preceding the public announcement of the execution of definitive documents with respect to the issuance of such
Option, Convertible Security or Adjustment Right (as the case may be), (ii) a risk-free interest rate corresponding to the U.S.
Treasury rate for a period equal to the remaining term of such Option, Convertible Security or Adjustment Right (as the case may
be) as of the date of issuance of such Option, Convertible Security or Adjustment Right (as the case may be), (iii) a zero cost
of borrow and (iv) an expected volatility equal to the greater of 100% and the 100 day volatility obtained from the HVT function
on Bloomberg (determined utilizing a 365 day annualization factor) as of the Trading Day immediately following the date of issuance
of such Option, Convertible Security or Adjustment Right (as the case may be).

 

(e)    “Bloomberg”
means Bloomberg, L.P.

 

(f)    “Business
Day” means any day other than Saturday, Sunday or other day on which commercial banks in The City of New York are authorized
or required by law to remain closed.

 

(g)    “Change
of Control” means any Fundamental Transaction other than (i) any merger of the Company or any of its, direct or indirect,
wholly-owned Subsidiaries with or into any of the foregoing Persons, (ii) any reorganization, recapitalization or reclassification
of the shares of Common Stock in which holders of the Company's voting power immediately prior to such reorganization, recapitalization
or reclassification continue after such reorganization, recapitalization or reclassification to hold publicly traded securities
and, directly or indirectly, are, in all material respects, the holders of the voting power of the surviving entity (or entities
with the authority or voting power to elect the members of the board of directors (or their equivalent if other than a corporation)
of such entity or entities) after such reorganization, recapitalization or reclassification, or (iii) pursuant to a migratory merger
effected solely for the purpose of changing the jurisdiction of incorporation of the Company or any of its Subsidiaries.

 

(h)   “Change
of Control Redemption Premium” means 125%.

 

(i)     “Closing
Bid Price” and “Closing Sale Price” means, for any security as of any date, the last closing bid price
and last closing trade price, respectively, for such security on the Principal Market, as reported by Bloomberg, or, if the Principal
Market begins to operate on an extended hours basis and does not designate the closing bid price or the closing trade price (as
the case may be) then the last bid price or last trade price, respectively, of such security prior to 4:00:00 p.m., New York time,
as reported by Bloomberg, or, if the Principal 

 

    	 

    	 

    

 

Market is not the principal securities exchange
or trading market for such security, the last closing bid price or last trade price, respectively, of such security on the principal
securities exchange or trading market where such security is listed or traded as reported by Bloomberg, or if the foregoing do
not apply, the last closing bid price or last trade price, respectively, of such security in the over-the-counter market on the
electronic bulletin board for such security as reported by Bloomberg, or, if no closing bid price or last trade price, respectively,
is reported for such security by Bloomberg, the average of the bid prices, or the ask prices, respectively, of any market makers
for such security as reported in the “pink sheets” by OTC Markets Group Inc. (formerly Pink Sheets LLC). If the Closing
Bid Price or the Closing Sale Price cannot be calculated for a security on a particular date on any of the foregoing bases, the
Closing Bid Price or the Closing Sale Price (as the case may be) of such security on such date shall be the fair market value as
mutually determined by the Company and the Holder. If the Company and the Holder are unable to agree upon the fair market value
of such security, then such dispute shall be resolved in accordance with the procedures in Section 24. All such determinations
shall be appropriately adjusted for any stock splits, stock dividends, stock combinations, recapitalizations or other similar transactions
during such period.

 

(j)    “Closing
Date” shall have the meaning as set forth in the Note Purchase Agreement.

 

(k)   “Common
Stock” means (i) the Company's shares of common stock, $0.001 par value per share, and (ii) any capital stock into which
such common stock shall have been changed or any share capital resulting from a reclassification of such common stock.

 

(l)    “Convertible
Securities” means any stock or other security (other than Options) that is at any time and under any circumstances, directly
or indirectly, convertible into, exercisable or exchangeable for, or which otherwise entitles the holder thereof to acquire, any
shares of Common Stock.

 

(m)   “Current
Subsidiary” means any Person in which the Company on the Subscription Date, directly or indirectly, (i) owns a majority
of the outstanding capital stock or holds a majority of any equity or similar interest of such Person or (ii) controls or operates
all or any part of the business, operations or administration of such Person, and all of the foregoing, collectively, “Current
Subsidiaries.”

 

(n)    “Eligible
Market” means The New York Stock Exchange, the NYSE MKT, the Nasdaq Global Select Market, the Nasdaq Capital Market,
the Nasdaq Global Market, the Over-the-Counter Bulletin Board or the Principal Market.

 

(o)   “Equity
Conditions” means: (i) on each day during the period beginning three months prior to the applicable date of determination
and ending on and including the applicable date of determination (the “Equity Conditions Measuring Period”),
the Common Stock (including all of the shares of Common Stock issuable upon conversion of this Note or otherwise pursuant to the
terms of this Note (collectively, the “Underlying Shares”)) is listed or designated for quotation (as applicable)
on an Eligible Market and shall not have been suspended from trading on an Eligible Market (other than suspensions of not more
than two (2) days and occurring prior to the applicable date of determination due to business announcements by the Company) nor
shall delisting or suspension by an Eligible Market have been threatened (with a reasonable prospect of delisting occurring) or
pending either (A) in writing by such Eligible Market or (B) by falling below the minimum listing maintenance requirements of the
Eligible Market on which the Common Stock is then listed or designated for quotation (as applicable); (ii) on each day during the
Equity Conditions Measuring Period, the Company shall have delivered all shares of Common Stock issuable upon conversion of this
Note on a timely basis as set forth in Section 3 hereof and all other shares of capital stock required to be delivered by the Company
on a timely basis as set forth in the other Transaction Documents; (iii) any shares of Common Stock to be issued in connection
with the event requiring determination may be issued in full without violating Section 3(d) hereof; (iv) any shares of Common Stock
to be issued in connection with the event requiring determination may be issued in full without violating the rules or regulations
of the Eligible Market on which the Common Stock is then listed or designated for quotation (as applicable); (v) on each day during
the Equity Conditions Measuring Period, no public announcement of a pending, proposed or intended Fundamental Transaction shall
have occurred which has not been abandoned, terminated or consummated; (vi) no Current Information Failure exists or is continuing;
(vii) the Holder shall not be in (and no 

 

    	 

    	 

    

 

other holder shall be in) possession of any
material, non-public information provided to any of them by the Company, any of its affiliates or any of their respective employees,
officers, representatives, agents or the like; (viii) on each day during the Equity Conditions Measuring Period, the Company otherwise
shall have been in compliance with each, and shall not have breached any provision, covenant, representation or warranty of any
Transaction Document and (ix) on each day during the Equity Conditions Measuring Period, there shall not have occurred an Event
of Default or an event that with the passage of time or giving of notice would constitute an Event of Default.

 

(p)   “Equity
Conditions Failure” means that on any day during the period commencing ten (10) Trading Days prior to the applicable
date of determination through the applicable date of determination, the Equity Conditions have not been satisfied (or waived in
writing by the Holder).

 

(q)   “Excluded
Securities” means any (i) shares of Common Stock or standard options to purchase Common Stock issued to directors, officers
or employees of the Company in their capacity as such pursuant to an Approved Stock Plan, provided that (A) all such issuances
(taking into account the shares of Common Stock issuable upon exercise of such options) after the date hereof pursuant to this
clause (i) do not, in the aggregate, exceed more than 15% of the Common Stock issued and outstanding immediately prior to the Subscription
Date and (B) the exercise price of any such options is not lowered after issuance by subsequent amendment thereof, none of such
options are amended subsequent to issuance to increase the number of shares issuable thereunder and none of the terms or conditions
of any such options are subsequent to issuance otherwise materially changed in any manner that adversely affects any of the Holders;
(ii) shares of Common Stock issued upon the conversion or exercise of Convertible Securities or contractual agreements (other than
options to purchase Common Stock or other equity incentive awards issued pursuant to an Approved Stock Plan that are covered by
clause (i) above) issued prior to the date hereof, provided that the conversion price of any such Convertible Securities (other
than options to purchase Common Stock issued pursuant to an Approved Stock Plan that are covered by clause (i) above) is not lowered
by subsequent amendment, none of such Convertible Securities (other than standard options to purchase Common Stock issued pursuant
to an Approved Stock Plan that are covered by clause (i) above) are subsequently amended to increase the number of shares issuable
thereunder and none of the terms or conditions of any such Convertible Securities (other than options to purchase Common Stock
issued pursuant to an Approved Stock Plan that are covered by clause (i) above) are otherwise materially changed in any manner
that adversely affects any of the Buyers; and (iii) the shares of Common Stock issuable upon conversion of the Notes or otherwise
pursuant to the terms of the Notes.

 

(r)    “Fundamental
Transaction” means that (i) the Company or any of its Subsidiaries shall, directly or indirectly, in one or more related
transactions, (1) consolidate or merge with or into (whether or not the Company or any of its Subsidiaries is the surviving corporation)
any other Person, or (2) sell, lease, license, assign, transfer, convey or otherwise dispose of all or substantially all of its
respective properties or assets to any other Person, or (3) allow any other Person to make a purchase, tender or exchange offer
that is accepted by the holders of more than 50% of the outstanding shares of Voting Stock of the Company (not including any shares
of Voting Stock of the Company held by the Person or Persons making or party to, or associated or affiliated with the Persons making
or party to, such purchase, tender or exchange offer), or (4) consummate a stock or share purchase agreement or other business
combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with any other
Person whereby such other Person acquires more than 50% of the outstanding shares of Voting Stock of the Company (not including
any shares of Voting Stock of the Company held by the other Person or other Persons making or party to, or associated or affiliated
with the other Persons making or party to, such stock or share purchase agreement or other business combination), or (5) reorganize,
recapitalize or reclassify the Common Stock, or (ii) any “person” or “group” (as these terms are used for
purposes of Sections 13(d) and 14(d) of the 1934 Act and the rules and regulations promulgated thereunder) is or shall become the
“beneficial owner” (as defined in Rule 13d-3 under the 1934 Act), directly or indirectly, of 50% of the aggregate ordinary
voting power represented by issued and outstanding Voting Stock of the Company.

 

(s)   “GAAP”
means United States generally accepted accounting principles, consistently applied.

 

    	 

    	 

    

  

(t)    “Interest
Notice Due Date” means the second (2nd) Trading Day immediately prior to the applicable Interest Date.

 

(u)   “Interest
Rate” means twelve percent (12.00%) per annum, as may be adjusted from time to time in accordance with Section 2.

  

(v)    “Maturity
Date” shall mean November 17, 2016; provided, however, the Maturity Date may be extended at the option of the Holder
(i) in the event that, and for so long as, an Event of Default shall have occurred and be continuing or any event shall have occurred
and be continuing that with the passage of time and the failure to cure would result in an Event of Default or (ii) through the
date that is twenty (20) Business Days after the consummation of a Fundamental Transaction in the event that a Fundamental Transaction
is publicly announced or a Fundamental Transaction Notice is delivered prior to the Maturity Date, provided further that if a
Holder elects to convert some or all of this Note pursuant to Section 3 hereof, and the Conversion Amount would be limited pursuant
to Section 3(d) hereunder, the Maturity Date shall automatically be extended until such time as such provision shall not limit
the conversion of this Note.

 

(w)    “New
Subsidiary” means, as of any date of determination, any Person in which the Company after the Subscription Date, directly
or indirectly, (i) owns or acquires any of the outstanding capital stock or holds any equity or similar interest of such Person
or (ii) controls or operates all or any part of the business, operations or administration of such Person, and all of the foregoing,
collectively, “New Subsidiaries.”

 

(x)    “Note
Purchase Agreement” means that certain Note Purchase Agreement, dated as of the Subscription Date, by and among the Company
and the holders of the Notes pursuant to which the Company issued the Notes, as may be amended from time to time.

 

(y)   “Options”
means any rights, warrants or options to subscribe for or purchase shares of Common Stock or Convertible Securities.

 

(z)    “Parent
Entity” of a Person means an entity that, directly or indirectly, controls the applicable Person and whose common stock
or equivalent equity security is quoted or listed on an Eligible Market, or, if there is more than one such Person or Parent Entity,
the Person or Parent Entity with the largest public market capitalization as of the date of consummation of the Fundamental Transaction.

 

(aa)  “Permitted
Indebtedness” means (i) Indebtedness evidenced by this Note, the Other Notes and the Additional Notes, (ii) Indebtedness
incurred by the Company that (1) is made expressly subordinate in right of payment to the Indebtedness evidenced by this Note
and (2) is subject to an inter-creditor agreement, in each case, as reflected in a written agreement acceptable to the Required
Holders and the Collateral Agent (if any) and approved by the Required Holders and Collateral Agent (if any) in writing, and which
Indebtedness does not provide at any time for (a) the payment, prepayment, repayment, repurchase or defeasance, directly or indirectly,
of any principal, interest or premium, if any, thereon prior to the Maturity Date and (b) total interest and fees at a rate in
excess of 12.00% per annum, (iii) unsecured trade debt in an amount not to exceed $1,000,000; (iv) the Company’s credit
line with AvidBank and any increase thereto; (iv) Indebtedness secured by Permitted Liens described in clause (iv) of the definition
of Permitted Liens; and (v) Indebtedness existing as of the Subscription Date, as disclosed in the Note Purchase Agreement.

 

(bb)  “Permitted
Liens” means (i) any Lien for taxes not yet due or delinquent or being contested in good faith by appropriate proceedings
for which adequate reserves have been established in accordance with GAAP, (ii) any statutory Lien arising in the ordinary course
of business by operation of law with respect to a liability that is not yet due or delinquent, (iii) any Lien created by operation
of law, such as materialmen's liens, mechanics' liens and other similar liens, arising in the ordinary course of business with
respect to a liability that is not yet due or delinquent or that are being contested in good faith by appropriate proceedings,
(iv) Liens (A) upon or in any equipment or inventory acquired or held by the Company or any of its Subsidiaries to secure the purchase
price of such equipment or inventory or indebtedness incurred solely for the purpose of financing the acquisition or 

 

    	 

    	 

    

 

lease of such equipment or inventory, or (B)
existing on such equipment at the time of its acquisition, provided that the Lien is confined solely to the property so acquired
and improvements thereon, and the proceeds of such equipment, in either case, with respect to indebtedness in an aggregate amount
not to exceed $4 million and, if applicable, 50% or less warrant coverage, (v) leases or subleases and licenses and sublicenses
granted to others in the ordinary course of the Company's business, not interfering in any material respect with the business of
the Company and its Subsidiaries taken as a whole, (vi) Liens in favor of customs and revenue authorities arising as a matter of
law to secure payments of custom duties in connection with the importation of goods, (vii) Liens arising from judgments, decrees
or attachments in circumstances not constituting an Event of Default under Section 4(a)(x), (viii) Liens existing as of the Subscription
Date, as disclosed in the Note Purchase Agreement (ix) the liens existing as a result of the Company’s current line of credit
with AvidBank and all extensions, amendments and renewals thereof, and (x) Liens securing Permitted Indebtedness set forth in clause
(ii) of the definition of “Permitted Indebtedness” in Section 31(jj).

 

(cc)   “Person”
means an individual, a limited liability company, a partnership, a joint venture, a corporation, a trust, an unincorporated organization,
any other entity or a government or any department or agency thereof.

 

(dd)  “Principal
Market” means the OTCQB Market or the OTC Pinksheets.

 

(ee)   “Redemption
Notices” means, collectively, the Event of Default Redemption Notices and the Change of Control Redemption Notices, and
each of the foregoing, individually, a “Redemption Notice.”

 

(ff)    “Redemption
Premium” means (i) in the case of the Events of Default described in Section ‎4(a) (other than Sections 4(a)(vii)
through 4(a)(ix)), 125% or (ii) in the case of the Events of Default described in Sections 4(a)(vii) through 4(a)(ix), 100%.

 

(gg)  “Redemption
Prices” means, collectively, Event of Default Redemption Prices and the Change of Control Redemption Prices, and each
of the foregoing, individually, a “Redemption Price.”

 

(hh)  “Required
Holders” means, at any given time, the holders of a majority of the aggregate principal amount of the Notes, outstanding
as of such time (excluding any Notes held by the Company or any of its Subsidiaries.

 

(ii)    “SEC”
means the United States Securities and Exchange Commission or the successor thereto.

 

(jj)    “Subscription
Date” means November 17, 2014.

 

(kk)   “Subsidiaries”
means, as of any date of determination, collectively, all Current Subsidiaries and all New Subsidiaries, and each of the foregoing,
individually, a “Subsidiary.”

 

(ll)    “Successor
Entity” means the Person (or, if so elected by the Holder, the Parent Entity) formed by, resulting from or surviving
any Fundamental Transaction or the Person (or, if so elected by the Holder, the Parent Entity) with which such Fundamental Transaction
shall have been entered into.

 

(mm)  “Trading
Day” means any day on which the Common Stock is traded on the Principal Market, or, if the Principal Market is not the
principal trading market for the Common Stock, then on the principal securities exchange or securities market on which the Common
Stock is then traded, provided that “Trading Day” shall not include any day on which the Common Stock is scheduled
to trade on such exchange or market for less than 4.5 hours or any day that the Common Stock is suspended from trading during the
final hour of trading on such exchange or market (or if such exchange or market does not designate in advance the closing time
of trading on such 

 

    	 

    	 

    

 

exchange or market, then during the hour ending
at 4:00:00 p.m., New York time) unless such day is otherwise designated as a Trading Day in writing by the Holder.

 

(nn)  “Treasury
Rate” means a rate per annum (computed on the basis of actual days elapsed over a year of 360 days) equal to the rate
listed in The Wall Street Journal for United States Treasury securities having a term of not greater than sixty (60) months.

 

(oo)  “Voting
Stock” of a Person means capital stock of such Person of the class or classes pursuant to which the holders thereof have
the general voting power to elect, or the general power to appoint, at least a majority of the board of directors, managers, trustees
or other similar governing body of such Person (irrespective of whether or not at the time capital stock of any other class or
classes shall have or might have voting power by reason of the happening of any contingency).

 

(pp)  “VWAP”
means, for any security as of any date, the dollar volume-weighted average price for such security on the Principal Market (or,
if the Principal Market is not the principal trading market for such security, then on the principal securities exchange or securities
market on which such security is then traded) during the period beginning at 9:30:01 a.m., New York time, and ending at 4:00:00
p.m., New York time, as reported by Bloomberg through its “Volume at Price” function or, if the foregoing does
not apply, the dollar volume-weighted average price of such security in the over-the-counter market on the electronic bulletin
board for such security during the period beginning at 9:30:01 a.m., New York time, and ending at 4:00:00 p.m., New York time,
as reported by Bloomberg, or, if no dollar volume-weighted average price is reported for such security by Bloomberg for such hours,
the average of the highest closing bid price and the lowest closing ask price of any of the market makers for such security as
reported in the “pink sheets” by OTC Markets Group Inc. (formerly Pink Sheets LLC). If the VWAP cannot be calculated
for such security on such date on any of the foregoing bases, the VWAP of such security on such date shall be the fair market
value as mutually determined by the Company and the Holder. If the Company and the Holder are unable to agree upon the fair market
value of such security, then such dispute shall be resolved in accordance with the procedures in Section 24. All such determinations
shall be appropriately adjusted for any stock dividend, stock split, stock combination, recapitalization or other similar transaction
during such period.

 

 32.    DISCLOSURE.  Upon
receipt or delivery by the Company of any notice in accordance with the terms of this Note, unless the Company has in good faith
determined that the matters relating to such notice do not constitute material, non-public information relating to the Company
or any of its Subsidiaries, the Company shall within one (1) Business Day after any such receipt or delivery publicly disclose
such material, non-public information on a Current Report on Form 8-K or otherwise. In the event that the Company believes that
a notice contains material, non-public information relating to the Company or any of its Subsidiaries, the Company so shall indicate
to such Holder contemporaneously with delivery of such notice, and in the absence of any such indication, the Holder shall be allowed
to presume that all matters relating to such notice do not constitute material, non-public information relating to the Company
or its Subsidiaries. Nothing contained in this Section 32 shall limit any obligations of the Company, or any rights of the Holder,
under the terms of the Note Purchase Agreement.

 

[signature page follows]

 

    	 

    	 

    

 

IN WITNESS WHEREOF,
the Company has caused this Note to be duly executed as of the Issuance Date set out above.

 

	OPTEX SYSTEMS HOLDINGS, INC.
	 	 	 
	 	 	 
	By:  	 	 
	Name:	 
	Title: 	 

 

    	 

    	 

    

 

EXHIBIT I

 

OPTEX SYSTEMS HOLDINGS, INC.

 

CONVERSION NOTICE

 

Reference is made to the
Convertible Note (the “Note”) issued to the undersigned by Optex Systems Holdings, Inc., a Delaware corporation
(the “Company”). In accordance with and pursuant to the Note, the undersigned hereby elects to convert the Conversion
Amount (as defined in the Note) of the Note indicated below into shares of Common Stock, $0.001 par value per share (the “Common
Stock”), of the Company, as of the date specified below. Capitalized terms not defined herein shall have the meaning
as set forth in the Note.

 

	 	 
	Date of Conversion:	 
	 	 
	 	 
	Aggregate Principal to be converted:	 
	 	 
	 	 
	Aggregate accrued and unpaid Interest and accrued and unpaid Late Charges with respect to such portion of the Aggregate Principal and such Aggregate Interest to be converted:	 
	 	 
	 	 
	AGGREGATE CONVERSION AMOUNT TO BE CONVERTED:	 
	 	 
	 	 
	Please confirm the following information:	 
	 	 
	 	 
	Conversion Price:	 
	 	 
	 	 
	 	 
	Number of shares of Common Stock to be issued:	 
	 	 
	 	 
	Please issue the Common Stock into which the Note is being converted in the following name and to the following address:	 
	 	 

 

	Issue to:	 
	 	 
	 	 
	Facsimile Number:	 
	 	 

 

    	 

    	 

    

 

	Holder:	 
	 	 
	 	 
	By:	 
	 	 
	 	 
	Title:	 
	 	 
	 	 
	Dated:	 
	 	 
	 	 
	Account Number:	 
	 	 
	 	 
	(if electronic book entry transfer)	 
	 	 
	 	 
	Transaction Code Number:	 
	 	 
	 	 
	(if electronic book entry transfer)	 
		 

 

    	 

    	 

    

 

EXHIBIT II

 

ACKNOWLEDGMENT

 

The Company hereby acknowledges
this Conversion Notice and hereby directs Equity Stock Transfer to issue the above indicated number of shares of Common Stock in
accordance with the Transfer Agent Instructions dated [_____] 2014 from the Company and acknowledged and agreed to by Equity Stock
Transfer.

 

	 	OPTEX SYSTEMS HOLDINGS, INC.
	 	 
	 	By:                                                                 
	 	Name:
	 	Title:Exhibit 10.3

 

REGISTRATION RIGHTS AGREEMENT

 

THIS REGISTRATION RIGHTS
AGREEMENT (this “Agreement”) is made as of _________ 2014, among the undersigned corporation (the “Company”),
and each signatory hereto (each, an “Investor” and collectively, the “Investors”).

 

RECITALS

 

WHEREAS, the Company and
the Investors are parties to Note Purchase  Agreements (the “Purchase Agreements”), dated  as
of the date hereof, as such may be amended and supplemented from time to time;

 

WHEREAS, the Investors’
obligations under the Purchase Agreements are conditioned upon certain registration rights under the Securities Act of 1933, as
amended (the “Securities Act”); and

 

WHEREAS, the Investors
and the Company desire to provide for the rights of registration under the Securities Act as are provided herein upon the execution
and delivery of this Agreement by such Investors and the Company.

 

NOW, THEREFORE, in consideration
of the promises, covenants and conditions set forth herein, the parties hereto hereby agree as follows:

 

1.    Registration
Rights.

 

1.1        Definitions.  As
used in this Agreement, the following terms shall have the meanings set forth below:

 

(a)          “Commission”
means the United States Securities and Exchange Commission.

 

(b)          “Common
Stock” means the Company’s common stock, par value $0.001 per share.

 

(c)          “Effectiveness
Date” means the date that is one hundred and twenty (120) days after the Trigger Date.

 

(d)          “Exchange
Act” means the Securities Exchange Act of 1934, as amended.

 

(e)          “Filing
Date” means the date that is sixty (60) days after the Trigger Date.

 

(f)          
“Investor” means any person owning Registrable Securities who becomes party to this Agreement by executing a
counterpart signature page hereto, or other agreement in writing to be bound by the terms hereof, which is accepted by the Company.

 

(g)          The
terms “register,” “registered” and “registration” refer to a registration
effected by preparing and filing a registration statement or similar document in compliance with

 

    	 

    	 

    

 

the Securities Act, and the declaration
or ordering of effectiveness of such registration statement or document.

 

(h)          “Registrable
Securities” 125% of the maximum number of Shares of Common Stock issued and issuable pursuant to the Notes as of the
Trading Day (as defined in the Notes) immediately preceding the applicable date of determination (without taking into account any
limitations on the conversion of the Notes set forth therein); provided, however, that Registrable Securities shall
not include any securities of the Company that have previously been registered and remain subject to a currently effective registration
statement or which have been sold to the public either pursuant to a registration statement or Rule 144, or which have been sold
in a private transaction in which the transferor’s rights under this Section 1 are not assigned, or which may be sold immediately
without registration under the Securities Act and without restriction or imitation pursuant to Rule 144 and without the requirement
to be in compliance with Rule 144(c)(1).

 

(i)          “Rule
144” means Rule 144 as promulgated by the Commission under the Securities Act, as such Rule may be amended from time
to time, or any similar successor rule that may be promulgated by the Commission.

 

(j)          “Rule
415” means Rule 415 as promulgated by the Commission under the Securities Act, as such Rule may be amended from time
to time, or any similar successor rule that may be promulgated by the Commission.

 

(k)          “Shares” means the shares of Common Stock  issuable upon conversion of the Notes.

 

(l)          “Trigger
Date” means the Final Closing Date (as defined in the Purchase Agreement).

 

1.2             Company
Registration.

 

(a)          On
or prior to the Filing Date, the Company shall prepare and file with the Commission a registration statement covering the Registrable
Securities for an offering to be made on a continuous basis pursuant to Rule 415.  The registration statement shall be
on Form S-1 or, if the Company is so eligible, on Form S-3 (except if the Company is not then eligible to register for resale the
Registrable Securities on Form S-1 or Form S-3, as the case may be, in which case such registration shall be on another appropriate
form in accordance herewith) and shall contain (unless otherwise directed by Investors holding an aggregate of at least 75% of
the Registrable Securities on a fully diluted basis) substantially the “Plan of Distribution” attached hereto
as Annex A.  The Company shall cause the registration statement to become effective and remain effective as provided
herein.  The Company shall use its reasonable best efforts to cause the registration statement to be declared effective
under the Securities Act as soon as possible and, in any event, by the Effectiveness Date.  The Company shall use its
reasonable best efforts to keep the registration statement continuously effective under the Securities Act until all Registrable
Securities covered by such registration statement have been sold, or may be sold without the requirement to be in compliance with
Rule 144(c)(1) and otherwise without

 

    	 

    	 

    

 

restriction or limitation pursuant to Rule 144, as determined by the counsel to the Company
(the “Effectiveness Period”).  

 

(b)           The
Company shall pay to Investors a fee of 1% per month of the Investors’ investment, payable in cash, for every thirty (30)
day period up to a maximum of 6%, (i) following the Filing Date that the registration statement has not been filed and (ii) following
the Effectiveness Date that the registration statement has not been declared effective; provided, however, that the
Company shall not be obligated to pay any such liquidated damages if (i) the Registrable Securities that would other be covered
by the registration statement may be sold without the requirement to be in compliance with Rule 144(c)(1) and otherwise without
restriction or limitation pursuant to Rule 144 under the Securities Act or (ii) the Company is unable to fulfill its registration
obligations as a result of rules, regulations, positions or releases issued or actions taken by the Commission pursuant to its
authority with respect to “Rule 415”, and the Company registers at such time the maximum number of shares of Common
Stock permissible upon consultation with the staff of the Commission.  

 

(c)           If
during the Effectiveness Period, the number of Registrable Securities at any time exceeds 100% of the number of shares of Common
Stock then registered in a registration statement, the Company shall file as soon as reasonably practicable an additional registration
statement covering the resale of not less than the number of such Registrable Securities.

 

(d)           The
Company shall bear and pay all expenses incurred in connection with any registration, filing or qualification of Registrable Securities
with respect to the registrations pursuant to this Section 1.2 for each Investor, including (without limitation) all registration,
filing and qualification fees, printer’s fees, accounting fees and fees and disbursements of counsel for the Company, but
excluding any brokerage or underwriting fees, discounts and commissions relating to Registrable Securities and fees and disbursements
of counsel for the Investors.

 

(e)           If
at any time during the Effectiveness Period there is not an effective Registration Statement covering all of the Registrable Securities,
then the Company shall notify each Investor in writing at least fifteen (15) days prior to the filing of any registration statement
under the Securities Act, in connection with a public offering of shares of Common Stock (including, but not limited to, registration
statements relating to secondary offerings of securities of the Company but excluding any registration statements (i) on Form S-4
or S-8 (or any successor or substantially similar form), or of any employee stock option, stock purchase or compensation plan or
of securities issued or issuable pursuant to any such plan, or a dividend reinvestment plan, (ii) otherwise relating to any employee,
benefit plan or corporate reorganization or other transactions covered by Rule 145 promulgated under the Securities Act, (iii)
on any registration form which does not permit secondary sales or does not include substantially the same information as would
be required to be included in a registration statement covering the resale of the Registrable Securities. In the event an Investor
desires to include in any such registration statement all or any part of the Registrable Securities held by such Investor, the
Investor shall within ten (10) days after the above-described notice from the Company, so notify the Company in writing, including
the number of such Registrable Securities such Investor wishes to include in such registration statement. If an Investor decides
not to include all of its

 

    	 

    	 

    

 

Registrable Securities in any registration statement thereafter filed by the Company such Investor shall
nevertheless continue to have the right to include any Registrable Securities in any subsequent registration statement or registration
statements as may be filed by the Company with respect to the offering of the securities, all upon the terms and conditions set
forth herein.

 

1.3       Obligations
of the Company.  Whenever required under this Section 1 to effect the registration of any Registrable Securities,
the Company shall, as expeditiously as reasonably possible:

 

(a)          Prepare
and file with the Commission a registration statement with respect to such Registrable Securities and use its reasonable best efforts
to cause such registration statement to become effective and to keep such registration statement effective during the Effectiveness
Period;

 

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

 

(c)          Furnish
to the Investors such numbers of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements
of the Securities Act, and such other documents as they may reasonably request in order to facilitate the disposition of Registrable
Securities owned by them (provided that the Company would not be required to print such prospectuses if readily available to Investors
from any electronic service, such as on the EDGAR filing database maintained at www.sec.gov);

 

(d)          Use
its reasonable best efforts to register and qualify the securities covered by such registration statement under such other securities’
or blue sky laws of such jurisdictions as shall be reasonably requested by the Investors; provided that the Company shall not be
required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of
process in any such states or jurisdictions;

 

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

 

(f)          Promptly
notify each Investor holding Registrable Securities covered by such registration statement at any time when a prospectus relating
thereto is required to be delivered under the Securities Act, within one business day, (i) of the effectiveness of such registration
statement, or (ii) of the happening of any event as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein
or necessary to make the statements therein not misleading in the light of the circumstances then existing;

 

(g)          Cause
all such Registrable Securities registered pursuant hereto to be listed on each securities exchange or nationally recognized quotation
system on which similar securities issued by the Company are then listed; and

 

    	 

    	 

    

 

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

 

1.4       Furnish
Information.  It shall be a condition precedent to the Company’s obligations to take any action pursuant to
this Section 1 with respect to the Registrable Securities of any selling Investor that such Investor shall furnish to the Company
such information regarding such Investor, the Registrable Securities held by such Investor, and the intended method of disposition
of such securities in the form attached to this Agreement as Annex B, or as otherwise reasonably required by the Company or the
managing underwriters, if any, to effect the registration of such Investor’s Registrable Securities.

 

1.5       Delay
of Registration.  No Investor shall have any right to obtain or seek an injunction restraining or otherwise delaying
any such registration as the result of any controversy that might arise with respect to the interpretation or implementation of
this Section 1.

 

1.6       Indemnification.

 

(a)          To
the extent permitted by law, the Company will indemnify and hold harmless each Investor, any underwriter (as defined in the Securities
Act) for such Investor and each person, if any, who controls such Investor or underwriter within the meaning of the Securities
Act or the Exchange Act, against any losses, claims, damages or liabilities (joint or several) to which any of the foregoing persons
may become subject under the Securities Act, the Exchange Act or other federal or state securities law, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any of the following statements,
omissions or violations (collectively, a “Violation”): (i) any untrue statement or alleged untrue statement
of a material fact contained in a registration statement, including any preliminary prospectus or final prospectus contained therein
or any amendments or supplements thereto (collectively, the “Filings”), (ii) the omission or alleged omission
to state in the Filings a material fact required to be stated therein, or necessary to make the statements therein not misleading,
or (iii) any violation or alleged violation by the Company of the Securities Act, the Exchange Act, any state securities law or
any rule or regulation promulgated under the Securities Act, the Exchange Act or any state securities law; and the Company will
pay any legal or other expenses reasonably incurred by any person to be indemnified pursuant to this Section 1.6(a) in connection
with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the indemnity
agreement contained in this Section 1.6(a) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability
or action if such settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld),
nor shall the Company be liable in any such case for any such loss, claim, damage, liability or action to the extent that it arises
out of or is based upon a Violation that occurs in reliance upon and in conformity with written information furnished expressly
for use in connection with such registration by any such Investor, underwriter or controlling person.  

 

(b)          To
the extent permitted by law, each Investor will indemnify and hold harmless the Company, each of its directors, each of its officers
who has signed the registration statement, each person, if any, who controls the Company within the meaning of the Securities Act
or the Exchange Act, any underwriter, any other Investor selling securities in such

 

    	 

    	 

    

 

registration statement and any controlling
person of any such underwriter or other Investor, against any losses, claims, damages or liabilities (joint or several) to which
any of the foregoing persons may become subject under the Securities Act, the Exchange Act or other federal or state securities
law, insofar as such losses, claims, damages or liabilities (or actions in respect thereto) arise out of or are based upon any
Violation, in each case to the extent (and only to the extent) that such Violation occurs in reliance upon and in conformity with
written information furnished by such Investor expressly for use in connection with such registration; and each such Investor will
pay any legal or other expenses reasonably incurred by any person to be indemnified pursuant to this Section 1.6(b) in connection
with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the indemnity
agreement contained in this Section 1.6(b) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability
or action if such settlement is effected without the consent of the Investor (which consent shall not be unreasonably withheld);
provided, however, in no event shall any indemnity under this subsection 1.6(b) exceed the net proceeds received
by such Investor upon the sale of the Registrable Securities giving rise to such indemnification obligation.

 

(c)          Promptly
after receipt by an indemnified party under this Section 1.6 of notice of the commencement of any action (including any governmental
action), such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section
1.6, deliver to the indemnifying party a written notice of the commencement thereof and the indemnifying party shall have the right
to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed,
to assume the defense thereof with counsel mutually satisfactory to the parties; provided, however, that an indemnified
party (together with all other indemnified parties that may be represented without conflict by one counsel) shall have the right
to retain one separate counsel, with the fees and expenses to be paid by the indemnifying party, if representation of such indemnified
party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential differing interests between
such indemnified party and any other party represented by such counsel in such proceeding. The failure to deliver written notice
to the indemnifying party within a reasonable time of the commencement of any such action, if materially prejudicial to its ability
to defend such action, shall relieve such indemnifying party of any liability to the indemnified party under this Section 1.6,
but the omission so to deliver written notice to the indemnifying party will not relieve it of any liability that it may have to
any indemnified party otherwise than under this Section 1.6.

 

(d)          If
the indemnification provided for in Sections 1.6(a) and (b) is held by a court of competent jurisdiction to be unavailable to an
indemnified party with respect to any loss, claim, damage or expense referred to herein, then the indemnifying party, in lieu of
indemnifying such indemnified party hereunder, shall contribute to the amount paid or payable by such indemnified party as a result
of such loss, claim, damage or expense in such proportion as is appropriate to reflect the relative fault of the indemnifying party
on the one hand and of the indemnified party on the other in connection with the statements or omissions or alleged statements
or omissions that resulted in such loss, liability, claim or expense as well as any other relevant equitable considerations. The
relative fault of the indemnifying party and of the indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact relates to information supplied by the indemnifying party or
by the indemnified party and the parties’ relative intent, knowledge, access to

 

    	 

    	 

    

 

information and opportunity to correct or
prevent such statement or omission.  In no event shall any Investor be required to contribute an amount in excess of
the net proceeds received by such Investor upon the sale of the Registrable Securities giving rise to such indemnification obligation.

 

(e)          The
obligations of the Company and Investors under this Section 1.6 shall survive the completion of any offering of Registrable Securities
in a registration statement under this Section 1, and otherwise.

 

1.7       Reports
Under Securities Exchange Act.  With a view to making available the benefits of certain rules and regulations of
the Commission, including Rule 144, that may at any time permit an Investor to sell securities of the Company to the public without
registration or pursuant to a registration on Form S-1 or Form S-3, the Company agrees to:

 

(a)          make
and keep public information available, as those terms are understood and defined in Rule 144, at all times after the Final Closing
Date;

 

(b)          take
such action, including the voluntary registration of its Common Stock under Section 12 of the Exchange Act, as is necessary to
enable the Investors to utilize Form S-1 for the sale of their Registrable Securities, such action to be taken as soon as practicable
after the end of the fiscal year in which the registration statement is declared effective;

 

(c)          file
with the Commission in a timely manner all reports and other documents required of the Company under the Securities Act and the
Exchange Act; and

 

(d)          furnish
to any Investor, so long as the Investor owns any Registrable Securities, forthwith upon request (i) a written statement by the
Company that it has complied with the reporting requirements of Rule 144 the Securities Act and the Exchange Act (at any time after
it has become subject to such reporting requirements), or that it qualifies as a registrant whose securities may be resold pursuant
to Form S-1 or Form S-3 (at any time after it so qualifies), (ii) a copy of the most recent annual or quarterly report of the Company
and such other reports and documents so filed by the Company, and (iii) such other information as may be reasonably requested in
availing any Investor of any rule or regulation of the Commission that permits the selling of any such securities without registration
or pursuant to such form.

 

1.8       Transfer
or Assignment of Registration Rights.  The rights to cause the Company to register Registrable Securities pursuant
to this Section 1 may be transferred or assigned, but only with all related obligations, by an Investor to a transferee or assignee
who (a) acquires at least 25,000 Shares or Notes to acquire at least 25,000 Shares (subject to appropriate adjustment for stock
splits, stock dividends and combinations) from such transferring Investor, unless waived in writing by the Company, or (b) holds
Registrable Securities immediately prior to such transfer or assignment; provided, that in the case of (a), (i) prior to
such transfer or assignment, the Company is furnished with written notice stating the name and address of such transferee or assignee
and identifying the securities with respect to which such registration rights are being transferred or assigned, (ii) such transferee
or assignee agrees in writing to be bound by and subject to the terms and conditions of this Agreement and (iii) such transfer
or assignment shall

 

    	 

    	 

    

 

be effective only if immediately following such transfer or assignment the further disposition of such securities
by the transferee or assignee is restricted under the Securities Act.

 

2.    Legend.

 

(a)          Each
certificate representing Shares of Common Stock held by the Investors shall be endorsed with the following legend:

 

“THE SECURITIES REPRESENTED
BY THIS CERTIFICATE HAVE NOT 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 AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT,
THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY.  THE SECURITIES ISSUABLE UPON EXERCISE OF THIS
SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.”

 

(b)          The
legend set forth above shall be removed, and the Company shall issue a certificate without such legend to the transferee of the
Shares represented thereby, if, unless otherwise required by state securities laws, (i) such Shares have been sold under an effective
registration statement under the Securities Act, (ii) in connection with a sale, assignment or other transfer, such holder provides
the Company with an opinion of counsel, reasonably acceptable to the Company, to the effect that such sale, assignment or transfer
is being made pursuant to an exemption from the registration requirements of the Securities Act, or (iii) such holder provides
the Company with reasonable assurance that the Shares are being sold, assigned or transferred pursuant to Rule 144 or Rule 144A
under the Securities Act.

 

3.    Miscellaneous.

 

3.1        Governing
Law.    The parties hereby agree that any dispute which may arise between them arising out of or in connection with
this Agreement shall be adjudicated only before a federal court located in the State of New York and they hereby submit to the
exclusive jurisdiction of the federal and state courts of the State of New York with respect to any action or legal proceeding
commenced by any party, and irrevocably waive any objection they now or hereafter may have respecting the venue of any such action
or proceeding brought in such a court or respecting the fact that such court is an inconvenient forum, relating to or arising out
of this Agreement or any acts or omissions relating to the registration of the securities hereunder, and consent to the service
of process in any such action or legal proceeding by means of registered or

 

    	 

    	 

    

 

certified mail, return receipt requested, in care of
the address set forth below or such other address as the undersigned shall furnish in writing to the other.

 

3.2        WAIVER
OF JURY TRIAL.  IN ANY ACTION, SUIT, OR PROCEEDING IN ANY JURISDICTION BROUGHT BY ANY PARTY AGAINST ANY OTHER PARTY,
THE PARTIES EACH KNOWINGLY AND INTENTIONALLY, TO THE GREATEST EXTENT PERMITTED BY APPLICABLE LAW, HEREBY ABSOLUTELY, UNCONDITIONALLY,
IRREVOCABLY AND EXPRESSLY WAIVES FOREVER TRIAL BY JURY

 

3.3        Waivers
and Amendments.   This Agreement may be terminated and any term of this Agreement may be amended or waived (either
generally or in a particular instance and either retroactively or prospectively) with the written consent of the Company and Investors
holding at least a majority of the Registrable Securities then outstanding (the “Majority Investors”).  Notwithstanding
the foregoing, additional parties may be added as Investors under this Agreement, and the definition of Registrable Securities
expanded, with the written consent of the Company and the Majority Investors.  No such amendment or waiver shall reduce
the aforesaid percentage of the Registrable Securities, the holders of which are required to consent to any termination, amendment
or waiver without the consent of the record holders of all of the Registrable Securities. Any termination, amendment or waiver
effected in accordance with this Section 3.3 shall be binding upon each holder of Registrable Securities then outstanding, each
future holder of all such Registrable Securities and the Company.

 

3.4        Successors
and Assigns.   Except as otherwise expressly provided herein, the provisions of this Agreement shall inure to the
benefit of, and be binding upon, the successors, assigns, heirs, executors and administrators of the parties hereto.

 

3.5        Entire
Agreement.  This Agreement constitutes the full and entire understanding and agreement among the parties with regard
to the subject matter hereof, and no party shall be liable or bound to any other party in any manner by any warranties, representations
or covenants except as specifically set forth herein.

 

3.6        Notices.   All
notices and other communications required or permitted under this Agreement shall be in writing and shall be delivered personally
by hand or by overnight courier, mailed by United States first-class mail, postage prepaid, sent by facsimile or sent by electronic
mail directed (a) if to an Investor, at such Investor’s address, facsimile number or electronic mail address set forth in
the Company’s records, or at such other address, facsimile number or electronic mail address as such Investor may designate
by ten (10) days’ advance written notice to the other parties hereto or (b) if to the Company, to its address, facsimile
number or electronic mail address set forth on its signature page to this Agreement and directed to the attention of its  President,
or at such other address, facsimile number or electronic mail address as the Company may designate by ten (10) days’ advance
written notice to the other parties hereto. All such notices and other communications shall be effective or deemed given upon delivery,
on the date that is three (3) days following the date of mailing, upon confirmation of facsimile transfer or upon confirmation
of electronic mail delivery.

 

    	 

    	 

    

 

3.7        Interpretation.   The
words “include,” “includes” and “including” when used herein shall be deemed in each case to
be followed by the words “without limitation.”  The titles and subtitles used in this Agreement are used
for convenience only and are not considered in construing or interpreting this Agreement.

 

3.8        Severability.   If
one or more provisions of this Agreement are held to be unenforceable under applicable law, such provision shall be excluded from
this Agreement, and the balance of the Agreement shall be interpreted as if such provision were so excluded, and shall be enforceable
in accordance with its terms.

 

3.9        Independent
Nature of Investors’ Obligations and Rights. The obligations of each Investor hereunder are several and not joint with
the obligations of any other Investor hereunder, and no Investor shall be responsible in any way for the performance of the obligations
of any other Investor hereunder. Nothing contained herein or in any other agreement or document delivered at any closing, and no
action taken by any Investor pursuant hereto or thereto, shall be deemed to constitute the Investors as a partnership, an association,
a joint venture or any other kind of entity, or create a presumption that the Investors are in any way acting in concert with respect
to such obligations or the transactions contemplated by this Agreement. Each Investor shall be entitled to protect and enforce
its rights, including without limitation the rights arising out of this Agreement, and it shall not be necessary for any other
Investor to be joined as an additional party in any proceeding for such purpose.

 

3.10      Counterparts.  This
Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute
one instrument.

 

3.11      Telecopy
Execution and Delivery.  A facsimile, telecopy or other reproduction of this Agreement may be executed by one or
more parties hereto, and an executed copy of this Agreement may be delivered by one or more parties hereto by facsimile or similar
electronic transmission device pursuant to which the signature of or on behalf of such party can be seen, and such execution and
delivery shall be considered valid, binding and effective for all purposes.  At the request of any party hereto, all
parties hereto agree to execute an original of this Agreement as well as any facsimile, telecopy or other reproduction hereof.

 

[SIGNATURE PAGE FOLLOWS]

 

    	 

    	 

    

 

IN WITNESS WHEREOF, the
Company has caused this Agreement to be executed by its duly authorized officer, as of the date, month and year first set forth
above.

 

	 	OPTEX SYSTEMS HOLDINGS, INC.
	 	 
	 	By:________________________________
	 	Name:
	 	Title:
	 	 
	 	Address for notice:

 

[COMPANY SIGNATURE PAGE TO REGISTRATION RIGHTS
AGREEMENT]

 

    	 

    	 

    

 

IN WITNESS WHEREOF, the
undersigned Investor has executed this Agreement as of the date, month and year that such Investor became the owner of Registrable
Securities.

 

	 	“Investor”
	 	 
	 	___________________________________
	 	 
	 	By:________________________________
	 	Name
	 	Title:
	 	 
	 	 
	 	Address:
	 	 
	 	___________________________________
	 	 
	 	___________________________________
	 	 
	 	___________________________________
	 	 
	 	Telephone:__________________________
	 	 
	 	Facsimile:___________________________
	 	 
	 	Email:______________________________

 

[INVESTOR COUNTERPART SIGNATURE PAGE TO 

REGISTRATION RIGHTS AGREEMENT]

 

    	 

    	 

    

 

Annex A

Plan of Distribution

 

Each selling stockholder
of the common stock and any of their pledgees, assignees and successors-in-interest may, from time to time, sell any or all of
their shares of common stock on the Over-the-Counter Bulletin Board, OTCQB or any other stock exchange, market or trading facility
on which the shares are traded or in private transactions. These sales may be at fixed or negotiated prices. A selling stockholder
may use any one or more of the following methods when selling shares:

 

		·	ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;

 

		·	block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the
block as principal to facilitate the transaction;

 

		·	purchases by a broker-dealer as principal and resale by the broker-dealer for its account;

 

		·	an exchange distribution in accordance with the rules of the applicable exchange;

 

		·	privately negotiated transactions;

 

		·	settlement of short sales entered into after the effective date of the registration statement of which this prospectus is a
part;  

 

		·	broker-dealers may agree with the selling stockholders to sell a specified number of such shares at a stipulated price per
share;

 

		·	through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise;

 

		·	a combination of any such methods of sale; or

 

		·	any other method permitted pursuant to applicable law.

 

The selling stockholders
may also sell shares under Rule 144 under the Securities Act of 1933, as amended, if available, rather than under this prospectus.

 

Broker-dealers engaged
by the selling stockholders may arrange for other brokers-dealers to participate in sales. Broker-dealers may receive commissions
or discounts from the selling stockholders (or, if any broker-dealer acts as agent for the purchaser of shares, from the purchaser)
in amounts to be negotiated, but, except as set forth in a supplement to this prospectus, in the case of an agency transaction
not in excess of a customary brokerage commission in compliance with FINRA Rule 2440; and in the case of a principal transaction
a markup or markdown in compliance with FINRA IM-2440.

 

    	 

    	 

    

 

In connection with the
sale of the common stock or interests therein, the selling stockholders may enter into hedging transactions with broker-dealers
or other financial institutions, which may in turn engage in short sales of the common stock in the course of hedging the positions
they assume. The selling stockholders may also sell shares of the common stock short and deliver these securities to close out
their short positions, or loan or pledge the common stock to broker-dealers that in turn may sell these securities. The selling
stockholders may also enter into option or other transactions with broker-dealers or other financial institutions or the creation
of one or more derivative securities which require the delivery to such broker-dealer or other financial institution of shares
offered by this prospectus, which shares such broker-dealer or other financial institution may resell pursuant to this prospectus
(as supplemented or amended to reflect such transaction).

 

The selling stockholders
and any broker-dealers or agents that are involved in selling the shares may be deemed to be “underwriters” within
the meaning of the Securities Act of 1933, as amended, in connection with such sales. In such event, any commissions received by
such broker-dealers or agents and any profit on the resale of the shares purchased by them may be deemed to be underwriting commissions
or discounts under the Securities Act of 1933, as amended. Each selling stockholder has informed us that it does not have any written
or oral agreement or understanding, directly or indirectly, with any person to distribute the common stock. In no event shall any
broker-dealer receive fees, commissions and markups which, in the aggregate, would exceed eight percent (8%).

 

We are required to pay
certain fees and expenses incurred by us incident to the registration of the shares. We have agreed to indemnify the selling stockholders
against certain losses, claims, damages and liabilities, including liabilities under the Securities Act of 1933, as amended.

 

Because selling stockholders
may be deemed to be “underwriters” within the meaning of the Securities Act of 1933, as amended, they will be subject
to the prospectus delivery requirements of the Securities Act of 1933, as amended, including Rule 172 thereunder. In addition,
any securities covered by this prospectus which qualify for sale pursuant to Rule 144 under the Securities Act of 1933, as amended
may be sold under Rule 144 rather than under this prospectus. There is no underwriter or coordinating broker acting in connection
with the proposed sale of the resale shares by the selling stockholders.

 

We agreed to keep this
prospectus effective until the earlier of (i) the date on which the shares may be resold by the selling stockholders without registration
and without the requirement to be in compliance with Rule 144(c)(1) and otherwise without restriction or limitation pursuant to
Rule 144 or (ii) all of the shares have been sold pursuant to this prospectus or Rule 144 under the Securities Act or any other
rule of similar effect. The resale shares will be sold only through registered or licensed brokers or dealers if required under
applicable state securities laws. In addition, in certain states, the resale shares may not be sold unless they have been registered
or qualified for sale in the applicable state or an exemption from the registration or qualification requirement is available and
is complied with.

 

Under applicable rules
and regulations under the Securities Exchange Act of 1934, as amended, any person engaged in the distribution of the resale shares
may not simultaneously

 

    	 

    	 

    

 

engage in market making activities with respect to the common stock for the applicable restricted period,
as defined in Regulation M, prior to the commencement of the distribution. In addition, the selling stockholders will be subject
to applicable provisions of the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder, including
Regulation M, which may limit the timing of purchases and sales of shares of the common stock by the selling stockholders or any
other person. We will make copies of this prospectus available to the selling stockholders and have informed them of the need to
deliver a copy of this prospectus to each purchaser at or prior to the time of the sale (including by compliance with Rule 172
under the Securities Act of 1933, as amended).

 

    	 

    	 

    

 

Annex B

 

Selling Securityholder Notice and Questionnaire

 

The undersigned beneficial owner of common
stock (the “Registrable Securities”) of Optex Systems Holdings, Inc., a Delaware corporation (the “Company”),
understands that the Company has filed or intends to file with the Securities and Exchange Commission (the “Commission”)
a registration statement (the “Registration Statement”) for the registration and resale under Rule 415 of the
Securities Act of 1933, as amended (the “Securities Act”), of the Registrable Securities, in accordance with
the terms of the Registration Rights Agreement (the “Registration Rights Agreement”) to which this document
is annexed. A copy of the Registration Rights Agreement is available from the Company upon request at the address set forth below.  All
capitalized terms not otherwise defined herein shall have the meanings ascribed thereto in the Registration Rights Agreement.

 

Certain legal consequences arise from being
named as a selling securityholder in the Registration Statement and the related prospectus.  Accordingly, holders and
beneficial owners of Registrable Securities are advised to consult their own securities law counsel regarding the consequences
of being named or not being named as a selling securityholder in the Registration Statement and the related prospectus.

 

NOTICE

 

The undersigned beneficial owner (the “Selling
Securityholder”) of Registrable Securities hereby elects to include the Registrable Securities owned by it in the Registration
Statement.

 

The undersigned hereby provides the following information to the
Company and represents and warrants that such information is accurate:

 

QUESTIONNAIRE

 

1.          Name.

 

(a)          Full
Legal Name of Selling Securityholder

 

 

 

 

(b)          Full
Legal Name of Registered Holder (if not the same as (a) above) through which Registrable Securities are held:

 

 

 

 

(c)          Full
Legal Name of Natural Control Person (which means a natural person who directly or indirectly alone or with others has power to
vote or dispose of the securities covered by this Questionnaire):

 

    	 

    	 

    

 

2.         Address
for Notices to Selling Securityholder:

 

 

 

 

 

 

 

Telephone:

Fax:

Contact Person:

 

3.         Broker-Dealer
Status:

 

(a)       Are
you a broker-dealer?

 

Yes            No

 

(b)       If
“yes” to Section 3(a), did you receive your Registrable Securities as compensation for investment banking services
to the Company?

 

Yes            No  

 

Note:   If “no” to Section 3(b),
the Commission’s staff has indicated that you should be identified as an underwriter in the Registration Statement.

 

(c)       Are
you an affiliate of a broker-dealer?

 

Yes            No  

 

(d)       If
you are an affiliate of a broker-dealer, do you certify that you purchased the Registrable Securities in the ordinary course of
business, and at the time of the purchase of the Registrable Securities to be resold, you had no agreements or understandings,
directly or indirectly, with any person to distribute the Registrable Securities?

 

Yes            No  

 

Note:   If “no” to Section 3(d),
the Commission’s staff has indicated that you should be identified as an underwriter in the Registration Statement.

 

4.  Beneficial Ownership of Securities of the Company
Owned by the Selling Securityholder.

 

Except as set forth below in this Item 4,
the undersigned is not the beneficial or registered owner of any securities of the Company other than the securities issuable pursuant
to the Purchase Agreement.

 

    	 

    	 

    

 

(a)          Type
and Amount of other securities beneficially owned by the Selling Securityholder:

 

 

 

 

 

 

5.  Relationships with the Company:

 

Except as set forth below, neither the undersigned
nor any of its affiliates, officers, directors or principal equity holders (owners of 5% of more of the equity securities of the
undersigned) has held any position or office or has had any other material relationship with the Company (or its predecessors or
affiliates) during the past three years.

 

State any exceptions here:

 

 

 

 

 

 

The undersigned agrees to promptly notify the
Company of any inaccuracies or changes in the information provided herein that may occur subsequent to the date hereof at any time
while the Registration Statement remains effective.

 

By signing below, the undersigned consents
to the disclosure of the information contained herein in its answers to Items 1 through 5 and the inclusion of such information
in the Registration Statement and the related prospectus and any amendments or supplements thereto.  The undersigned
understands that such information will be relied upon by the Company in connection with the preparation or amendment of the Registration
Statement and the related prospectus.

 

IN WITNESS WHEREOF the undersigned, by authority
duly given, has caused this Notice and Questionnaire to be executed and delivered either in person or by its duly authorized agent.

 

Date:

 

	 	Beneficial Owner: 
	 	 
	 	By:_________________________________
	 	     Name:
	 	     Title:

 

[SIGNATURE PAGE FOR SELLING SECURITYHOLDER
NOTICE AND QUESTIONNAIRE]

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