S-1/A

As Filed with the Securities and Exchange Commission on March 1, 2016 Registration No.333-209131

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

________________

AMENDMENT NO. 1

TO

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

________________

XG Sciences, INC.

(Exact name of registrant as specified in its charter)

Michigan	2821	20-4998896
(State or other jurisdiction of incorporation or organization)	(Primary Standard Industrial Classification Code Number)	(I.R.S. Employer Identification Number)

3101 Grand Oak Drive

Lansing, MI 48911

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

Philip L. Rose

Chief Executive Officer

XG Sciences, Inc.

3101 Grand Oak Drive

Lansing, MI 48911

Telephone: (517) 703-1110

(Name, address, including zip code, and telephone number, including area code, of agent for service)

________________

Copies to:

Clayton E. Parker, Esq.

Matthew Ogurick, Esq.

Camielle N. Green, Esq.

K&L Gates LLP

200 South Biscayne Boulevard, Suite 3900

Miami, Florida 33131-2399

Telephone: (305) 539-3306

Facsimile: (305) 358-7095

________________

Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. x

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act of 1933, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act of 1933, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act of 1933, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ¨	Accelerated filer ¨	Non-accelerated filer ¨	Smaller reporting company x
		(Do not check if a smaller reporting company)

CALCULATION OF REGISTRATION FEE

Title of Each Class of Securities to be Registered	Amount to be Registered	Proposed Maximum Offering Price Per Share(1)		Proposed Maximum Aggregate Offering Price(1)		Amount of Registration Fee
Primary Offering By XG Sciences, Inc.
Common stock, no par value per share	3,000,000	$	8.00	$	24,000,000	$	2,417
Total:	3,000,000	$	8.00	$	24,000,000	$	2,417	(2)

____________

(1) Calculated in accordance with Rule 457(o) under the Securities Act of 1933.

(2)Previously paid.

The Registrant amends this registration statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this registration statement shall hereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, or until the registration statement shall become effective on such date as the Commission, acting pursuant to Section 8(a), may determine.

The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission becomes effective. This prospectus is not an offer to sell these securities and we are not soliciting offers to buy these securities in any state where the offer or sale is not permitted.

PRELIMINARY PROSPECTUS

Subject to completion, dated March 1, 2016

3,000,000 shares of Common Stock of

XG SCIENCES, INC.

This is the initial public offering of common stock of XG Sciences, Inc., and no public market currently exists for the securities being offered. We are registering for sale a total of 3,000,000 shares of common stock at a fixed price of $8.00 per share to the general public in a self underwritten, best efforts offering. We intend to engage the services of non-exclusive sales agents to assist us with selling the shares. If we engage such sales agents, we intend to pay a commission fee of up to 8%. For additional information please see the “Plan of Distribution”.

We estimate our total offering registration costs to be approximately $1,060,000 assuming we pay sales agents an 8% commission fee. There is no minimum number of shares that must be sold by us for the offering to proceed, and we will retain the proceeds (net of any sales agent commissions) from the sale of any of the offered shares.

The offering shall terminate on the earlier of (i) when the offering period ends (180 days from the effective date of this prospectus), (ii) the date when the sale of all 3,000,000 shares is completed, and (iii) when our Board of Directors decides that it is in the best interest of the Company to terminate the offering prior to the completion of the sale of all 3,000,000 shares registered under the Registration Statement of which this prospectus is part.

There has been no public market for our securities and a public market may never develop, or, if any market does develop, it may not be sustained. Our common stock is not currently quoted on or traded on any exchange or on any over-the-counter market.

After this offering is completed, we intend to seek either (i) a listing of our common stock on a securities exchange registered with the Securities and Exchange Commission (SEC) under Section 6(a) of the Securities Exchange Act of 1934, as amended, such as the NASDAQ Capital Market or the New York Stock Exchange, or (ii) the quotation of our common stock on the OTCQB or OTCQX marketplaces operated by OTC Markets Group, Inc. (any of the foregoing generally referred to as a “Qualified National Exchange” and the act of achieving such listing or quotation, generally referred to hereafter as a “Public Listing” in this prospectus). In order to achieve a Public Listing, we will have to meet certain initial listing qualifications of the Qualified National Exchange on which we are seeking the Public Listing. In addition, we will need to have market makers agree to make a market in our common stock and file a FINRA Form 15c211 with the SEC on our behalf before we can achieve a Public Listing, and we will also need to remain current in our quarterly and annual filings with the SEC.

There can be no assurance that our common stock will ever be quoted or traded on a Qualified National Exchange or that any market for our common stock will develop.

We are an “emerging growth company” as that term is used in the Jumpstart Our Business Startups Act of 2012 and, as such, may elect to comply with certain reduced public company reporting requirements for future filings. Please refer to discussions under “Prospectus Summary” on page 1 and “Risk Factors” on page 7 of how and when we may lose emerging growth company status and the various exemptions that are available to us.

Investing in our securities involves a high degree of risk. See the section entitled “Risk Factors” on page 7 of this prospectus and in the documents we filed with the Securities and Exchange Commission that are incorporated in this prospectus by reference for certain risks and uncertainties you should consider.

Neither the SEC nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.

The date of this prospectus is        , 2016.

TABLE OF CONTENTS

PROSPECTUS SUMMARY	1
THE OFFERING	5
RISK FACTORS	7
FORWARD-LOOKING STATEMENTS	19
MARKET AND INDUSTRY DATA AND FORECASTS	19
USE OF PROCEEDS	20
CAPITALIZATION	21
MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS	22
DIVIDEND POLICY	24
DETERMINATION OF OFFERING PRICE	25
DILUTION	26
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	27
DESCRIPTION OF OUR BUSINESS	39
MANAGEMENT	60
EXECUTIVE COMPENSATION	70
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS	73
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS	75
DESCRIPTION OF SECURITIES	78
PLAN OF DISTRIBUTION	88
LEGAL MATTERS	90
EXPERTS	90
WHERE YOU CAN FIND ADDITIONAL INFORMATION	90
FINANCIAL STATEMENTS OF XG SCIENCES, INC.	F-1
PROSPECTUS	F-31
PART II: INFORMATION NOT REQUIRED IN THE PROSPECTUS	II-1
SIGNATURES	II-9
POWER OF ATTORNEY	II-9

You should rely only on the information contained in this prospectus. We have not authorized any person to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. This prospectus is not an offer to sell securities in any state where the offer or solicitation is not permitted. The information contained in this prospectus is complete and accurate as of the date on the front cover of this prospectus, but information may have changed since that date. We are responsible for updating this prospectus to ensure that all material information is included and will update this prospectus to the extent required by law.

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PROSPECTUS SUMMARY

This prospectus of XG Sciences, Inc., a Michigan corporation (together with its sole subsidiary, the “Company”, “XG Sciences”, “XGS” or “we”, “us”, or “our”) is a part of a registration statement on Form S-1 that we filed with the Securities and Exchange Commission (SEC). This summary highlights selected information contained elsewhere in this prospectus. This summary does not contain all the information that you should consider before investing in our common stock. You should carefully read the entire prospectus, including “Risk Factors”, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the financial statements and related notes beginning on page F-1 before making an investment decision.

XG Sciences was formed in May 2006 for the purpose of commercializing certain technology to produce graphene nanoplatelets. First isolated and characterized in 2004, graphene is a single layer of carbon atoms configured in an atomic-scale honeycomb lattice. Among many noted properties, graphene is harder than diamonds, lighter than steel but significantly stronger, and conducts electricity better than copper. Graphene nanoplatelets are particles consisting of multiple layers of graphene. Graphene nanoplatelets have unique capabilities for energy storage, thermal conductivity, electrical conductivity, barrier properties, lubricity and the ability to impart strength when incorporated into plastics or other matrices.

We believe the unique properties of graphene and graphene nanoplatelets will enable numerous new product applications and the market for such products will quickly grow to be a significant market opportunity. Our business model is to design, manufacture and sell advanced materials we call xGnP® graphene nanoplatelets and value-added products based on these nanoplatelets. We currently have hundreds of customers trialing our products for numerous applications, including, but not limited to lithium ion batteries, supercapacitors, thermal shielding and heat transfer, inks and coatings, printed electronics, construction materials, composites, and military uses.

We target our xGnP® nanoplatelets for use in a range of large and growing end-use markets. Our proprietary manufacturing processes allow us to produce nanoplatelets with varying performance characteristics that can be tuned to specific end-use applications based on customer requirements. We currently offer three commercial “grades” of bulk materials, each of which is available in various particle sizes. Other grades may be made available, depending on the needs for specific applications. In addition, we sell our material in the form of pre-dispersed mixtures with water, alcohol, or other organic solvents and resins. We also formulate xGnP® nanoplatelets into value-added products and formulations that further enhance the value we deliver to our customers. We have also licensed some of our base manufacturing technology to other companies and we consider technology licensing a component of our business model.

We sell products to customers around the world and have sold materials to over 1,000 customers (entities that have purchased our materials) in 47 countries since 2008. Some of these customers are research organizations and some are commercial organizations. Because graphene is a new material, our customers are developing new uses for our products and purchase them in quantities consistent with development purposes. A few of our customers have indicated to us that they have introduced commercial products that use our materials, but our customers are under no obligation to report to us on the usage of our materials. Our customers have included well-known automotive and OEM suppliers around the world (Ford, Johnson Controls, Magna, Honda Engineering) world-scale lithium ion battery manufacturers in the US, South Korea and China (Samsung SDI, LG Chem, Lishen, A123) and diverse specialty material companies (3M, BASF, Henkel, Dow Chemical, Dupont) as well as many others. We also work closely with our licensees, POSCO and Cabot Corporation (“Cabot”), who further extend our technology through their customer network. Ultimately, we expect to benefit in terms of royalties on sales of xGnP^® produced and sold by our licensees.

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The above graphs show total orders and customers based on actual purchases of our materials and do not include free samples or materials used in joint development programs. The average order size in 2014 was $2,175, which indicates these orders were for materials that were not yet incorporated into large-volume commercial products. However, six customers have informed us of their intent to begin commercializing products using our products during 2016. As a result, we expect to begin shipping significantly greater quantities of our products in 2016. Based on the status of current discussions with such customers, we believe that we will begin to scale up revenue as 2016 progresses and that we will be able to book approximately $5-10 million of revenue in 2016.

In addition to graphene nanoplatelets, we also offer a sheet product, called XG Leaf^®, to customers for a variety of thermal spreading and other applications. XG Leaf^® is ideally suited for use in thermal management in cell phones, tablets and PC’s. As these devices continue to adopt faster electronics, higher data management capabilities, brighter displays with ever increasing definition, they generate more and more heat. Managing that heat is a key requirement for the portable electronics market and our XG Leaf^® product line is well suited to address the need. In a press release dated March 3, 2015, Gartner, Inc., a leading research organization, estimated the 2014 global cell phone market at 1.88 billion units. Every cell phone has some form of thermal management system, and we believe many of the new smart phones being developed can benefit from the performance advantages we are able to achieve with XG Leaf^®. In August 2015, International Data Corporation (IDC) in their Worldwide Quarterly Tablet Tracker, estimated the global shipment of tablets in 2015 at 212 million units. Thus, we believe our XG Leaf^® product line is well positioned to address a very large and rapidly growing market.

According to Prismark Partners, LLC, a leading electronics industry consulting firm specializing in advanced materials, the 2014 market for finished graphitic heat spreaders as sold to the OEM and EMS companies with adhesive, PET, and/or copper backing for selected portable applications was $600 million, and is expected to reach $900 million in 2018. The market is currently in a significant expansion period driven by the demand for portable devices.

We also offer a specially formulated silicon-graphene composite material (also referred to as “SiG” in this prospectus) for use in lithium-ion battery anodes. SiG targets the never-ending need for higher battery capacity and longer life. In several customer trials, our SiG material has demonstrated the potential to increase battery energy storage capacity by 3-5x what is currently available with conventional lithium ion batteries today. The market for materials used in lithium ion battery anodes is large and growing as shown in the figure below (Avicenne Energy, “The Rechargeable Battery Market, 2014–2025”, July 2015). We believe our ability to address next generation anode materials represents a significant opportunity for us.

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We also offer specially-formulated inks and coatings for electrical and thermal applications that are showing promise in diverse customer applications such as advanced packaging, electrostatic dissipation and thermal management.

These three product areas — custom XG Leaf® sheets, our SiG anode materials, and custom inks/coatings — comprise the set of core value-added product groups on which we are focusing our internal development resources.

Some of our proprietary manufacturing processes were developed at Michigan State University (MSU) and licensed to us in 2006. We licensed four U.S. patents and patent applications from MSU. However, over time, our scientists and engineers have made many further discoveries and inventions that are embodied in the form of ten additional patent applications, and numerous trade secrets. Our general IP strategy is to keep as trade secrets those manufacturing processes that are difficult to enforce should they be disclosed and to seek patent coverage for other manufacturing processes, materials derived from those processes, unique combinations of materials and end uses of materials containing graphene nanoplatelets. We believe that the combination of our rights under the MSU license, patents and patent applications, and our trade secrets create a strong intellectual property position.

We have developed and scaled-up capacity for two manufacturing processes — one based on chemical intercalation of graphite and subsequent exfoliation and classification; and the second based on a high-shear mechanical process. In March 2012, we took possession of a production facility under terms of a long-term lease and moved our headquarters to this new location. Initial production commenced in this facility in September 2012. Currently, this facility is capable of producing approximately 30 – 50 tons per year of intercalated materials (depending on product mix) if operated on a continuous basis. We also operate a separate production facility in leased manufacturing space which is used for the production of certain specialty materials. This facility is capable of producing approximately 30 – 60 tons per year of materials (depending on product mix) if operated on a continuous basis. We believe these manufacturing facilities will be sufficient to meet demands for the majority of our bulk materials for a number of years, with suitable additions of capital equipment as warranted. However, additional manufacturing capabilities for certain value-added products and certain bulk materials remain to be developed and will likely require the acquisition of additional facilities. In particular, the production processes for XG Leaf® and our silicon-graphene electrode materials and our conductive inks will require additional capital and additional facilities to meet expected future customer demand.

Many of the Company’s products are new products that have not yet been fully developed and for which manufacturing operations have not yet been fully scaled. This means that investors are subject to the risks incident to the creation and development of multiple new products and their associated manufacturing processes. As of the date of this prospectus, we have not yet demonstrated sales of products at a level capable of covering our fixed expenses. Although we expect to begin to significantly scale revenue in 2016, we have not yet demonstrated the capability to produce sufficient materials to generate the ongoing revenues necessary to sustain our operations in the long-term.

Our ability to become profitable depends primarily on our ability to successfully commercialize our products in the future. Even if we successfully develop and market our products, we may not generate sufficient or sustainable revenue to achieve or sustain profitability. As a result, there can be no assurance that the Company will ever produce a profit. For additional information please see “Risk Factors”.

Developing, manufacturing and selling nanomaterials in commercially-viable quantities requires substantial funding. Since inception, we have raised approximately $32 million of capital through the issuance of equity and equity-linked securities and through licensing fees. Notable investors in the Company include Samsung Ventures, Hanwha Chemical Corporation, POSCO Corporation, and the Aspen Advanced Opportunity Fund.

Since our inception we have incurred annual losses every year and have accumulated a deficit from operations of $(43,371,368) at December 31, 2015. As of December 31, 2015 our total stockholder’s deficit was $(4,071,624). On December 31, 2015, we issued and sold non-convertible promissory notes (“December Notes”) which mature on June 30, 2016 and warrants (“December Warrants”) to purchase 20,625 shares of our common stock having a strike price of $8.00 and a five year term to several existing stockholders (the “December Placement”) for proceeds to the Company of $550,000. As a result, as of December 31, 2015, we had cash on hand of $1,060,224.

However, as of the date of this prospectus, we have cash on hand that is only sufficient to fund our operations through the end of March 2016. We also believe that we will need approximately $4.8 million to sustain us for the next 12 months. The Company’s financial projections show that the Company may need to raise an additional $11,000,000 or more before it is capable of achieving sustainable cash flow from operations. We intend that the primary means for raising such funds will be through this offering. However, there is no assurance that the Company will be able to raise these funds or that the terms and conditions

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of future financing will be workable or acceptable for the Company and its stockholders. In the event that the Company is not able to raise substantial additional funds in the future on terms that are acceptable or adjust its business model accordingly, the Company may be forced to curtail or cease operations and you could lose all or a significant part of your investment.

As a result of the December Placement, the conversion price of our Series A Preferred Stock was adjusted to $6.40 per share and holders of Series B Preferred Stock received the right to exchange Series B Units (consisting of one share of Series B Preferred Stock with a liquidation preference of $16.00 per share and warrants to purchase shares of common stock) for shares of common stock at a rate of two shares of common stock for each Series B Unit. Although holders of Series B Units have no obligation to do so, we expect that most, if not all, of such holders will exchange their units into common stock pursuant to their exchange rights.

Pursuant to as defined in the Certificates of Designation for the Series A and Series B Preferred Stock, the Company has the right to convert the Series A and Series B Preferred Stock, respectively, into shares of common stock upon the listing of the Company’s common stock on a Qualified National Exchange (a securities exchange registered with the SEC under Section 6(a) of the Securities Exchange Act of 1934, as amended (Exchange Act), such as the NASDAQ Capital Market or the New York Stock Exchange, or (ii) the quotation of our common stock on the OTCQB or OTCQX marketplaces operated by OTC Markets Group, Inc. (OTC Markets), and the act of achieving such listing or quotation, generally referred to hereafter as a “Public Listing” in this prospectus). As a result, there will only be one class of equity securities outstanding — common stock — after the Company achieves a Public Listing.

In order to achieve a Public Listing, we will have to meet certain initial listing qualifications of the Qualified National Exchange on which we are seeking the Public Listing. In addition, we will need to have market makers agree to make a market in our common stock and file a FINRA Form 15c211 with the SEC on our behalf before we can achieve a Public Listing, and we will also need to remain current in our quarterly and annual filings with the SEC. There can be no assurance that our common stock will ever be quoted or traded on Qualified National Exchange or that any market for our common stock will develop.

As of the date of this prospectus, we had 22 full-time employees. Employees include the following four senior managers that report to the CEO: a Vice President of Operations, a Vice President of Energy Markets, a Vice President of Research & Development, and a Controller. The Company employs a total of 6 full-time scientists and technicians in its R&D group, including the Vice President of Research & Development.

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THE OFFERING

Common stock to be offered by the Company	3,000,000 shares
Common stock issued and outstanding before the offering	836,544 shares
Offering price	$8.00 per share
Duration of offering	This offering shall commence on the effective date of this prospectus and terminate on the earlier of (i) 180 days from the effective date of this prospectus, (ii) the date when the sale of all 3,000,000 shares is completed, and (iii) when the Board of Directors decides that it is in the best interest of the Company to terminate the offering prior the completion of the sale of all 3,000,000 shares registered under the Registration Statement of which this prospectus is part.
Common stock issued and outstanding after the offerings after giving effect to the sale of 3,000,000 shares by the Company	3,836,544 shares
Pro forma common stock issued and outstanding after the offering after giving effect to the sale of 3,000,000 shares by the Company and the conversion of all shares of Series A and Series B Preferred Stock into common stock on or before a Public Listing(1)	7,752,817
Ticker Symbol and Market for our common stock	This is our initial public offering and no public market currently exists for our shares and a public market may never develop, or, if any market does develop, it may not be sustained.
	After this offering is completed, we intend to seek either (i) a listing of our common stock on a securities exchange registered with the SEC under Section 6(a) of the Exchange Act, such as the NASDAQ Capital Market or NYSE, or (ii) the quotation of our common stock on the OTCQB or OTCQX marketplaces operated by OTC Markets. In order to achieve such a a Public Listing, we will have to meet certain initial listing qualifications of such Qualified National Exchange on which we are seeking the Public Listing. In addition, we will need to have market makers agree to make a market in our common stock and file a FINRA Form 15c211 with the SEC on our behalf before we can achieve a Public Listing. No market maker has agreed to file such application. We will also need to remain current in our quarterly and annual filings with the SEC to achieve and maintain a Public Listing. There can be no assurance that our common stock will ever be quoted on Qualified National Exchange or that any market for our common stock will develop.
Offering use of proceeds	We intend to use the net proceeds from the sale of 3,000,000 shares by the Company for (a) capital expenditures in 2016 and 2017 (31%), working capital purposes (15%) and other general corporate purposes (54%). Pending such use, we reserve the right to temporarily invest the proceeds.

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Subscriptions	All subscriptions, once accepted by us, are irrevocable.
Risk Factors	The common stock offered hereby involves a high degree of risk and should not be purchased by investors who cannot afford the loss of their entire investment. See “Risk Factors” beginning on page 7.
Dividend policy	We do not intend to pay dividends on our common stock. We plan to retain any earnings for use in the operation of our business and to fund future growth.

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(1)Assumes the conversion of 1,800,696 shares of Series A Preferred Stock into 3,376,299 shares of common stock and the exchange of all Series B Units (consisting of 269,987 shares of Series B Preferred Stock and warrants to purchase 224,897 shares of common stock) into 539,974 shares of common stock.

Unless we specifically state otherwise, the share information in this prospectus is as of December 31, 2015, and reflects or assumes:

•the exchange of each Series B Unit for two shares of common stock;

• the exclusion of 419,750 shares of common stock issuable upon exercise of outstanding options, at a weighted average purchase price of $12.05 per share;

•the exclusion of the additional 180,250 shares of common stock reserved for issuance pursuant to our 2007 Stock Option Plan;

•the exclusion of 31,625 shares of common stock issuable upon exercise of outstanding common stock warrants at a weighted average purchase price of $8.63 per share; and

•the exclusion of 2,011,347 shares of common stock issuable upon exercise of outstanding Series A Preferred Stock warrants (assuming full conversion into common stock) at a weighted average purchase price of $6.40 per share.

There is no assurance that we will raise the full $24,000,000 anticipated from the sale by the Company of 3,000,000 shares, and there is no guarantee that we will receive any proceeds from the offering. We may sell only a small portion or none of the offered shares.

Emerging Growth Company

In April 2012, the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, was enacted. Section 107 of the JOBS Act provides that an “emerging growth company,” or EGC, can take advantage of the extended transition period for complying with new or revised accounting standards. Thus, an EGC can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have irrevocably elected not to avail ourselves of this extended transition period and, as a result, we will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies.

We are in the process of evaluating the benefits of relying on other exemptions and reduced reporting requirements under the JOBS Act. Subject to certain conditions, as an EGC, we intend to rely on certain of these exemptions, including exemptions from the requirement to provide an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act and from any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements, known as the auditor discussion and analysis. We will remain an EGC until the earlier of: the last day of the fiscal year in which we have total annual gross revenues of $1.0 billion or more; the last day of the fiscal year following the fifth anniversary of the date of the completion of this offering; the date on which we have issued more than $1.0 billion in nonconvertible debt during the previous three years; or the date on which we are deemed to be a large accelerated filer under the rules of the SEC.

Corporate Information

The Company was incorporated in Michigan on May 23, 2006 and is organized as a “C” corporation under the applicable laws of the United States and State of Michigan. Our headquarters and principal executive offices are located at 3101 Grand Oak Drive, Lansing, Michigan, 48911 and our telephone number is (517) 703-1110. Our website address is http://www.xgsciences.com, although the information contained in, or that can be accessed through, our website is not part of this prospectus.

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RISK FACTORS

THE SECURITIES BEING OFFERED INVOLVE A HIGH DEGREE OF RISK AND, THEREFORE, SHOULD BE CONSIDERED EXTREMELY SPECULATIVE. THEY SHOULD NOT BE PURCHASED BY PERSONS WHO CANNOT AFFORD THE POSSIBILITY OF THE LOSS OF THEIR ENTIRE INVESTMENT. PROSPECTIVE INVESTORS SHOULD READ THE ENTIRE PROSPECTUS, INCLUDING ALL EXHIBITS, AND CAREFULLY CONSIDER, AMONG OTHER FACTORS, THE FOLLOWING RISK FACTORS.

Risks Relating to Our Business and Industry

We are a young company with a limited operating history, making it difficult for you to evaluate our business and your investment.

XG Sciences, Inc. was incorporated on May 23, 2006. We have not yet demonstrated sales of products at a level capable of covering our fixed expenses. Since inception, we have not demonstrated the capability to produce sufficient materials to generate the ongoing revenues necessary to sustain our operations in the long-term. Nor have we demonstrated the ability to generate sufficient sales to sustain the business. There can be no assurance that the Company will ever produce a profit.

Many of the Company’s products represent new products that have not yet been fully developed and for which manufacturing operations have not yet been fully scaled. This means that investors are subject to all the risks incident to the creation and development of multiple new products and their associated manufacturing processes, and each investor should be prepared to withstand a complete loss of their investment.

Because we are subject to these uncertainties, there may be risks that management has failed to anticipate and you may have a difficult time evaluating our business and your investment in our Company. Our ability to become profitable depends primarily on our ability to successfully commercialize our products in the future. Even if we successfully develop and market our products, we may not generate sufficient or sustainable revenue to achieve or sustain profitability, which could cause us to cease operations and you will lose all of your investment.

We have no sustainable base of products approved for commercial use by our customers, have never generated significant product revenues and may never achieve sufficient revenues for profitable operations, which could cause us to cease operations.

XG Sciences primarily sells bulk materials or products made with these materials to other companies for incorporation into their products. To date, there has been no significant incorporation of our materials or products into customer products that are released for commercial sale. Because there is no demonstrated history of commercial success for our products, it is possible that such commercial success may never happen and that we will never achieve the level of revenues necessary to sustain our business.

We will need to raise substantial additional capital in the future to fund our operations and we may be unable to raise such funds when needed and on acceptable terms, which could have a materially adverse effect on our business.

Developing, manufacturing and selling nanomaterials in commercially-viable quantities requires substantial funding. On December 31, 2015, we issued and sold December Notes and December Warrants for proceeds to the Company of $550,000. As a result, as of December 31, 2015, we had cash on hand of approximately $1.1 million. However, as of the date of this prospectus, we have cash on hand that is only sufficient to fund our operations through the end of March 2016. We also believe that we will need approximately $4.8 million to sustain us for the next twelve months. The Company’s financial projections show that the Company may need to raise an additional $11,000,000 or more before it is capable of achieving sustainable cash flow from operations. We intend that the primary means for raising such funds will be through this offering. The Company can make no assurance that it will be able to raise these funds or that the terms and conditions of future financing will be workable or acceptable for the Company and its stockholders. In the event that the Company is not able to raise substantial additional funds in the future on terms that are acceptable or adjust its business model accordingly, the Company may be forced to curtail or cease operations and you could lose all or a significant part of your investment.

If we are unable to continue as a going concern, our securities will have little or no value.

The report of our independent registered public accounting firm that accompanies our consolidated financial statements for the year ended December 31, 2015 contains a going concern qualification in which such firm expressed substantial doubt about our ability to continue as a going concern. We currently anticipate that our cash and cash equivalents will be sufficient to fund

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our operations through March 2016, without raising additional capital. Our continuation as a going concern is dependent upon continued financial support from our shareholders, the ability of us to obtain necessary equity and/or debt financing to continue operations, and the attainment of profitable operations. These factors raise substantial doubt regarding our ability to continue as a going concern. We cannot make any assurances that additional financings will be available to us and, if available, completed on a timely basis, on acceptable terms or at all. If we are unable to complete an equity or debt offering, or otherwise obtain sufficient financing when and if needed, it would negatively impact our business and operations, which would likely cause the price of our common stock to decline. It could also lead to the reduction or suspension of our operations and ultimately force us to cease our operations.

We have limited experience in the higher volume manufacturing that will be required to support profitable operations, and the risks associated with scaling to larger production quantities may be substantial.

We have limited experience manufacturing our products. We have established small-scale commercial or pilot-scale production facilities for our bulk powders, XG Leaf^® and SiG materials, but these facilities do not have the existing production capacity to produce sufficient quantities of materials for us to reach sustainable sales levels. In order to develop the capacity to produce much higher volumes, it will be necessary to produce multiples of existing processes or engineer new production processes in some cases. There is no guarantee that we will be able to economically scale-up our production processes to the levels required. If we are unable to scale-up our production processes and facilities to support sustainable sales levels, the Company may be forced to curtail or cease operations and you could lose all or a significant part of your investment.

Projection of fixed monthly expenses and operating losses for the near future means that investors may not earn a return on their investment or may lose all of their investment.

Because of the nature of the Company’s business, the Company projects considerable fixed expenses that lead to projected monthly deficits for the near future. Fixed manufacturing expenses to maintain production facilities, compensation expenses for scientists and other critical personnel, and ongoing rent and utilities amount to several hundred thousand dollars per month, and the Company believes that such expenses are required as a precursor to significant customer sales. However, there can be no assurance that monthly sales will ever reach a sufficient level to cover the cost of ongoing monthly expenses. If sufficient regular monthly sales are not generated to cover these fixed expenses, we will continue to experience monthly profit deficits which, if not eliminated, will require continuing new investment in the Company. If monthly deficits continue beyond levels that investors find tolerable, we may not be able to raise additional funds may be forced to curtail or cease operations and you could lose all or a significant part of your investment.

We have a long and complex sales cycle and have not demonstrated the ability to operate successfully in this environment.

It has been our experience since our inception that the average sales cycle for our products can range from one to seven years from the time a customer begins testing our products until the time that they could be successfully used in a commercial product. The product introduction timing will vary based on the target market, with automotive uses typically being toward the long end and consumer electronics toward the shorter end. We have not demonstrated a track record of success in completing customer development projects, which makes it difficult for you to evaluate the likelihood of our future success. The sales and development cycle for our products is subject to customer budgetary constraints, internal acceptance procedures, competitive product assessments, scientific and development resource allocations, and other factors beyond our control. If we are not able to successfully accommodate these factors to enable customer development success, we will be unable to achieve sufficient sales to reach profitability. In this case, the Company may not be able to raise additional funds and may be forced to curtail or cease operations and you could lose all or a significant part of your investment.

We could be adversely affected by our exposure to customer concentration risk.

We are subject to customer concentration risk as a result of our reliance on a relatively small number of customers for a significant portion of our revenues. For 2015 and 2014 we had one customer whose revenue was 20% and 37%, respectively, of total revenues. In 2015 and 2014 we also had another customer that represented 12% and 28% of total revenues, respectively. Due to the nature of our business and the relatively large size of many of the applications our customers are developing, we anticipate that we will be dependent on a relatively small number of customers for the majority of our revenues for the next several years. It is possible that only one or two customers could place orders sufficient to utilize most or all of our existing manufacturing capacity. In this case, there would be a risk of significant loss of future revenues if one or more of these customers were to stop ordering our materials, which could in turn have a material adverse effect on our business and on your investment.

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Our revenues often fluctuate significantly based on one-off orders from customers or from the recognition of grant revenues which vary from period-to-period, which may materially impact our financial results from period to period.

Because of the potential for large revenue swings from one-time large orders or grants it may be difficult to accurately forecast the needs for inventory, working capital, and other financial resources from period-to-period. Such orders would require a significant short-term increase in our production capacity and would require the financial resources to add staff and support the associated working capital. If such large one-time orders were not handled smoothly, customer confidence in us as a viable supplier could be reduced and we might not succeed in capturing the additional larger orders that may be reflected in our business plan.

We operate in an advanced technology arena where hypothesized properties and benefits of our products may not be achieved in practice, or in which technological change may alter the attractiveness of our products.

Because there is no sustained history of successful use of our products in commercial applications, there is no assurance that broad successful commercial applications may be technically feasible. Most, if not all, of the scientific and engineering data related to our products has been generated in our own laboratories or in laboratory environments at our customers or third-parties, like universities and national laboratories. It is well known that laboratory data is not always representative of commercial applications.

Likewise, we operate in a market that is subject to rapid technological change. Part of our business strategy is to monitor such change and take steps to remain technologically current, but there is no assurance that such strategy will be successful. If the Company is not able to adapt to new advances in materials sciences, or if unforeseen technologies or materials emerge that are not compatible with our products and services or that could replace our products and services, our revenues and business prospects would likely be adversely affected. Such an occurrence may have severe consequences, including the potential for our investors to lose all of their investment.

Competitors that are larger and better funded may cause the Company to be unsuccessful in selling its products.

The Company operates in a market that is expected to have significant competition in the future. Global research is being conducted by substantially larger companies who have greater financial, personnel, technical, and marketing resources. There can be no assurance that the Company’s strategy of offering better materials based on the Company’s proprietary exfoliated graphite nanoplatelets will be able to compete with other companies, many of whom will have significantly greater resources, on a continuing basis. In the event that we cannot compete successfully, the Company may be forced to cease operations and investors may lose some or all of their investment.

Because of our small size and limited operating history, we are dependent on key employees.

The Company’s operations and development are dependent upon the experience and knowledge of Philip L. Rose, our Chief Executive Officer, Dr. Liya Wang, Vice President of Research & Development, Robert Privette, Vice President of Energy Markets, Scott Murray, Vice President of Operations, and Dr. Hiroyuki Fukushima, Technical Director. If the services of any of these individuals should become unavailable, the Company’s business operations might be adversely affected. If several of these individuals became unavailable at the same time, the ability of the Company to continue normal business operations might be adversely affected to the extent that revenue or profits could be diminished and you could lose all or a significant amount of your investment.

Our success depends in part on our ability to protect our intellectual property rights, and our inability to enforce these rights could have a material adverse effect on our competitive position.

We rely on the patent, trademark, copyright and trade-secret laws of the United States and the countries where we do business to protect our intellectual property rights. We may be unable to prevent third parties from using our intellectual property without our authorization. The unauthorized use of our intellectual property could reduce any competitive advantage we have developed, reduce our market share or otherwise harm our business. In the event of unauthorized use of our intellectual property, litigation to protect or enforce our rights could be costly, and we may not prevail.

Many of our technologies are not covered by any patent or patent application, and our issued and pending U.S. and non-U.S. patents may not provide us with any competitive advantage and could be challenged by third parties. Our inability to secure issuance of our pending patent applications may limit our ability to protect the intellectual property rights these pending

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patent applications were intended to cover. Our competitors may attempt to design around our patents to avoid liability for infringement and, if successful, our competitors could adversely affect our market share. Furthermore, the expiration of our patents may lead to increased competition.

Our pending trademark applications may not be approved by the responsible governmental authorities and, even if these trademark applications are granted, third parties may seek to oppose or otherwise challenge these trademark applications. A failure to obtain trademark registrations in the United States and in other countries could limit our ability to protect our products and their associated trademarks and impede our marketing efforts in those jurisdictions.

In addition, effective patent, trademark, copyright and trade secret protection may be unavailable or limited in some foreign countries. In some countries, we do not apply for patent, trademark or copyright protection. We also rely on unpatented proprietary manufacturing expertise, continuing technological innovation and other trade secrets to develop and maintain our competitive position. Although we generally enter into confidentiality agreements with our employees and third parties to protect our intellectual property, these confidentiality agreements are limited in duration and could be breached, and may not provide meaningful protection of our trade secrets or proprietary manufacturing expertise. Adequate remedies may not be available if there is an unauthorized use or disclosure of our trade secrets and manufacturing expertise. In addition, others may obtain knowledge about our trade secrets through independent development or by legal means. The failure to protect our processes, apparatuses, technology, trade secrets and proprietary manufacturing expertise, methods and compounds could have a material adverse effect on our business by jeopardizing critical intellectual property.

Where a product formulation or process is kept as a trade secret, third parties may independently develop or invent and patent products or processes identical to our trade-secret products or processes. This could have an adverse impact on our ability to make and sell products or use such processes and could potentially result in costly litigation in which we might not prevail.

We could face intellectual property infringement claims that could result in significant legal costs and damages and impede our ability to produce key products, which could have a material adverse effect on our business, financial condition and results of operations.

If we fail to maintain effective internal controls over financial reporting, the price of our common stock may be adversely affected.

We are required to establish and maintain appropriate internal controls over financial reporting. Failure to establish those controls, or any failure of those controls once established, could adversely impact our public disclosures regarding our business, financial condition or results of operations. Any failure of these controls could also prevent us from maintaining accurate accounting records and discovering accounting errors and financial frauds. Rules adopted by the SEC pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 require annual assessment of our internal control over financial reporting, and the standards that must be met for management to assess the internal control over financial reporting as effective are new and complex, and require significant documentation, testing and possible remediation to meet the detailed standards. We may encounter problems or delays in completing activities necessary to make an assessment of our internal control over financial reporting. If we cannot assess our internal control over financial reporting as effective, investor confidence and share value may be negatively impacted.

In addition, management’s assessment of internal controls over financial reporting may identify weaknesses and conditions that need to be addressed in our internal controls over financial reporting or other matters that may raise concerns for investors. Any actual or perceived weaknesses and conditions that need to be addressed in our internal control over financial reporting, disclosure of management’s assessment of our internal controls over financial reporting, or disclosure of our independent registered public accounting firm’s report on management’s assessment of our internal controls over financial reporting may have an adverse impact on the price of our common stock.

Future adverse regulations could affect the viability of the business.

The Company’s bulk products have been approved for sale in the United States by the U.S. Environmental Protection Agency after a detailed review of our products and production processes for our H, M and C grade materials. In most cases, as far as we are aware, there are no current regulations elsewhere in the world that prevent or prohibit the sale of the Company’s products. Nevertheless, the sale of nano-materials is a subject of regulatory discussion and review in many countries around the world. In some cases, there is a discussion of potential testing requirements for toxicity or other health effects of nano-materials before they can be sold in certain jurisdictions. If such regulations are enacted in the future, the Company’s business could be adversely affected because of the requirement for expensive and time-consuming tests or other regulatory compliance. There can be no assurance that future regulations might not severely limit or even prevent the sale of the Company’s products in major markets, in which case the Company’s financial prospects might be severely limited, causing investors to lose some or all of their investment.

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Compliance with changing regulation of corporate governance and public disclosure will result in additional expenses and will divert time and attention away from revenue generating activities.

Changing laws, regulations and standards relating to corporate governance and public disclosure, including the Sarbanes-Oxley Act of 2002 and related SEC regulations, have created uncertainty for public companies and significantly increased the costs and risks associated with accessing the public markets and public reporting. Our management team will need to invest significant management time and financial resources to comply with both existing and evolving standards for public companies, which will lead to increased general and administrative expenses and a diversion of management time and attention from revenue generating activities to compliance activities, which could have an adverse effect on our business.

Risks Relating To Our Common Stock

There is a risk of dilution of your percentage ownership of common stock in the Company.

In addition to the shares which we may sell pursuant to this offering, the Company has the right to raise additional capital or incur borrowings from third parties to finance its business. The Company may also implement public or private mergers, business combinations, business acquisitions and similar transactions pursuant to which it would issue substantial additional capital stock to outside parties, causing substantial dilution in the ownership of the Company by its existing stockholders. Subject to certain exceptions (See “Management — Shareholder Side Letter”), our Board of Directors has the authority, without the consent of any of the stockholders, to cause the Company to issue more shares of common stock and/or preferred stock at such price and on such terms and conditions as are determined by the Board in its sole discretion.

The sale of the shares being offered by us hereunder, as well as the shares of common stock and Series A Preferred Stock issuable upon the exercise of warrants, the shares issuable upon conversion of Series A Preferred Stock, the shares issuable upon the exercise of other options and warrants, shares of Series A Preferred Stock which were issued upon the conversion of secured convertible notes on December 31, 2015, shares issuable upon conversion of Series B Preferred Stock, shares issuable upon exchange of the Series B Units, and the issuance of additional shares of capital stock by the Company will dilute your ownership percentage in the Company and could impair our ability to raise capital in the future through the sale of equity securities.

Certain stockholders who are also officers and directors of the Company may have significant control over our management, which may not be in your best interests.

As of December 31, 2015, the directors, or the entities they represent, and executive officers of the Company owned approximately 73.7% of the voting stock of the Company. Certain of these executives and directors, or the companies they represent, converted secured convertible notes into an additional 1,456,126 shares of the Series A Preferred Stock in the Company on December 31, 2015.

Additionally, our existing stockholders are a party to that certain Shareholder Agreement, which was amended on February 26, 2016. Pursuant to the Shareholders’ Agreement, (a) so long as AAOF or its affiliates own 10% of more of the aggregate outstanding Shareholder Stock (as defined in the Shareholder Agreement), (i) the size of the Board of Directors shall be set at seven individuals (provided, however, that the number of directors on the Board of Directors may be increased or decreased with the prior written consent of AAOF and shareholders (including AAOF) who in the aggregate then own Shareholder Stock representing a majority of the then issued and outstanding voting stock of the Company), (ii) one person nominated by AAOF shall be elected to the Board of Directors, (iii) two members of the Board of Directors, other than those nominated by AAOF, POSCO or Hanwha Chemical, shall qualify as independent Directors; (b) so long as POSCO owns 10% of more of the aggregate outstanding Shareholder Stock, one person nominated by POSCO shall be elected to the Board of Directors; and (c) so long as Hanwha Chemical owns 10% of more of the aggregate outstanding Shareholder Stock, one person nominated by Hanwha Chemical shall be elected to the Board of Directors.

The Shareholder Agreement contains certain restrictions on transfer. Pursuant to the Shareholder Agreement, the Company has a first right of first refusal with respect to certain stock transfers. In the event that the Company does not exercise this right, each non-transferring shareholder shall have the right to purchase its pro rata share of the transferring shareholder’s stock. Subject to certain exclusions, each shareholder and holder of convertible notes who is a signatory to the Shareholders Agreement has a preemptive right to purchase his, her or its pro rata share of the Company’s common stock in subsequent offerings. The Shareholders Agreement also contains a right of co-sale and bring-along rights where a shareholder or shareholders owning more than 50% of the Company’s common stock on a fully diluted basis may cause other shareholders to tender their shares to a third party purchaser.

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Under the Shareholders Agreement, shareholders may not, while such person is a shareholder, directly or indirectly, either alone or in association with others, in any other capacity: (i) conduct, become engaged or interested in, any business that competes, directly or indirectly, with the business of the Company or any of its affiliates worldwide; (ii) solicit, divert or take away or attempt to solicit, divert or take away, directly or indirectly, any of the Company’s or its affiliates current, prior, or prospective customers: or (iii) solicit or attempt to solicit any person who is employed or engaged to perform services by the Company or its affiliates to leave his or her employment or engagement with Company or its Affiliates. After such shareholder ceases to be a shareholder, the former shareholder may not for a period of three (3) years from the date of sale, directly or indirectly, either alone or in association with others, for himself or herself or in any other capacity: (i) conduct, become engaged in, or interested in, any business that competes, directly or indirectly, with the business of the Company or any of its affiliates worldwide; (ii) solicit, divert or take away or attempt to solicit, divert or take away, directly or indirectly, any of the Company’s or its affiliates current, prior, or prospective customers; or (iii) solicit or attempt to solicit any person who is employed or engaged to perform services by the Company or its affiliates to leave his or her employment or engagement with Company or its affiliates. These restrictions on competition and solicitation will not be violated, however, by a shareholder’s passive ownership of up to 2% of a class of outstanding publicly traded shares of a corporation that is listed or quoted on a national securities exchange including any such corporation that competes with the business of the Company.

On February 26, 2016, the Shareholders Agreement was amended (the “Amendment to Shareholders Agreement”) to provide that holders of Excluded Stock are not subject to the terms of the Shareholders Agreement. Excluded Stock means shares of common stock that are subject to a registration statement that has been filed with the SEC and has been declared effective. The Amendment to Shareholders Agreement takes effect when a majority of the Board of Directors and shareholders holding at least 60% of the voting power of all shares of Shareholder Stock have consented to the amendment to the Shareholders Agreement, and a registration statement registering the shares of common stock has been filed with the SEC and declared effective. The Amendment to Shareholders Agreement further clarifies that preemptive rights shall not apply to Excluded Stock, and amends the termination date of the Shareholders Agreement. Specifically, the Shareholder Agreement has been amended to provide that it continues in effect until (i) the date of the closing of a public offering of common stock pursuant to a registration statement filed with the SEC that is declared effective in which the Company receives gross proceeds of at least $10,000,000, on which date it shall terminate in its entirety, unless the Shareholder Agreement is earlier terminated in accordance with its terms, or (ii) the date on which the Company’s common stock is listed on the NASDAQ Stock Market of the New York Stock Exchange.  As a result, in the event that the Company is unable to raise at least $10,000,000 in this offering, the Shareholder Agreement will continue to remain in effect and certain of our larger shareholders will be entitled to continue to exercise their rights under such Shareholders Agreement, but purchasers of shares of common stock under this registration statement, if it is made effective, will not be required to adopt the Shareholders Agreement.

Furthermore, in conjunction with a financing from Samsung Ventures on January 15, 2014, we and our existing stockholders entered into a voting agreement with Samsung Ventures whereby for so long as Samsung Ventures owns 10% or more of the aggregate outstanding common stock of XGS (assuming Full Conversion, but excluding any shares of common stock issuable upon the exercise of any warrants held by Samsung Ventures), each stockholder made a party thereto shall vote all of his, her or its voting securities from time to time in whatever manner is necessary to ensure that at each annual or special meeting of the stockholders at which an election of Directors is held or pursuant to any written consent of the stockholders, one person nominated by Samsung Ventures is elected to our Board as a Director. The rights granted to Samsung Ventures under a voting agreement are effective until the first to occur of (1) the date on which the Minimum Ownership Requirement is no longer satisfied, (2) the date on which the Shareholder Agreement (which is described above) is terminated for any reason and (3) the date that Samsung Ventures agrees in writing to terminate the Agreement.

As a result, such entities have a significant influence on the affairs and management of the Company, as well as on all matters requiring stockholder approval, including electing and removing members of the Company’s Board of Directors, causing the Company to engage in transactions with affiliated entities, causing or restricting the sale or merger of the Company, and certain other matters. Such concentration of ownership and control could have the effect of delaying, deferring or preventing a change in control of the Company even when such a change of control would be in the best interests of the Company’s stockholders.

We may, in the future, issue additional shares of common stock, which would reduce investors’ percent of ownership and may dilute our share value.

Our Articles of Incorporation, as amended, authorize the issuance of up to 25,000,000 shares of common stock and up to 8,000,000 shares of preferred stock. As of December 31, 2015, the Company had 836,544 shares of common stock, 1,800,696 shares of Series A Preferred Stock and 269,987 shares of Series B Preferred Stock issued and outstanding. Upon a Public Listing on a Qualified National Exchange, we have the right to and intend to convert our Series A Preferred Stock

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at a per share ratio of 1.875 to 1, which would result in a post-conversion issuance of 3,376,299 shares of common stock. In addition, holders of Series B Preferred Stock have the right, at their discretion, to exchange each Series B Unit for two shares of common stock, which would result in the issuance of 539,974 shares of common stock in exchange for the cancellation of all outstanding Series B Units (this includes the cancellation of the underlying 269,987 shares of Series B Preferred Stock and 224,897 warrants to purchase common stock at an exercise price of $16.00 per share). As of the date of this prospectus, no Series B Unit holder has exchanged their Series B Units into shares of common stock.

In addition, as of December 31, 2015, the Company had also granted options to purchase up to 419,750 shares of common stock and had issued warrants to purchase up to 256,522 shares of common stock (including the 224,897 shares underlying warrants which are a component of the Series B Units) and warrants to purchase up to 1,072,720 shares of Series A Preferred Stock, which are in turn convertible into 2,011,347 shares of common stock. In total, therefore, we have already issued or committed to issue up to 7,215,539 shares of common stock (assuming the exchange of all Series B Units and the conversion of Series A Preferred Stock) and we are authorized to issue up to 17,784,458 additional shares of common stock. The future issuance of common stock may result in substantial dilution in the percentage of our common stock held by our then existing stockholders. We may value any common stock issued in the future on an arbitrary basis. The issuance of common stock for future services or acquisitions or other corporate actions may have the effect of diluting the value of the shares held by our investors, might have an adverse effect on any trading market for our common stock and could impair our ability to raise capital in the future through the sale of equity securities.

We have a large number of restricted shares outstanding, a portion of which may be sold under Rule 144, which may reduce the market price of our shares.

Of the 836,544 shares of common stock issued and outstanding as of December 31, 2015, the 1,800,696 outstanding shares of Series A Preferred Stock and the 269,987 shares of Series B Preferred Stock that we intend to convert into shares of common stock upon the listing of our common stock on a Qualified National Exchange (as defined in the Certificate of Designations of Series A Convertible Preferred Stock “Series A Designations”, see also “Description of Securities — Preferred Stock”), and assuming no notes, warrants or stock options are converted or exercised, 762,770 shares are held by non-affiliates and 2,144,547 are held by affiliates of the Company. The 2,144,547 shares held by affiliates are deemed “restricted securities” within the meaning of Rule 144 as promulgated under the Securities Act. Our Series A Preferred Stock will be converted at a per share ratio of 1.875 to 1, which would result in a post-conversion common stock underlying Series A Preferred Stock of 3,376,299 shares. In addition to the 269,987 shares of Series B Preferred Stock issued, holders of Series B Preferred Stock have the right, at their discretion, to exchange each Series B Unit for two shares of common stock which result in the issuance of 539,974 shares of common stock.

It is anticipated that all of the “restricted securities” will be eligible for resale under Rule 144. In general, under Rule 144, subject to the satisfaction of certain other conditions, a person, who is not an affiliate (and who has not been an affiliate for a period of at least three months immediately preceding the sale) and who has beneficially owned restricted shares of our common stock for at least six months is permitted to sell such shares without restriction, provided that there is sufficient public information about us as contemplated by Rule 144. An affiliate who has beneficially owned restricted shares of our common stock for a period of at least one year may sell a number of shares equal to one percent of our issued and outstanding common stock approximately every three months.

The possibility that substantial amounts of our common stock may be sold under Rule 144 into the public market may adversely affect prevailing market prices for the common stock and could impair our ability to raise capital in the future through the sale of equity securities.

The Company is considered a smaller reporting company and is exempt from certain disclosure requirements, which could make our stock less attractive to potential investors.

Rule 12b-2 of the Exchange Act defines a “smaller reporting company” as an issuer that is not an investment company, an asset-backed issuer, or a majority-owned subsidiary of a parent that is not a smaller reporting company and that:

• Had a public float of less than $75 million as of the last business day of its most recently completed second fiscal quarter, computed by multiplying the aggregate worldwide number of shares of its voting and non-voting common equity held by non-affiliates by the price at which the common equity was last sold, or the average of the bid and asked prices of common equity, in the principal market for the common equity; or

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• In the case of an initial registration statement under the Securities Act or Exchange Act for shares of its common equity, had a public float of less than $75 million as of a date within 30 days of the date of the filing of the registration statement, computed by multiplying the aggregate worldwide number of such shares held by non-affiliates before the registration plus, in the case of a Securities Act registration statement, the number of such shares included in the registration statement by the estimated public offering price of the shares; or

• In the case of an issuer whose public float as calculated under paragraph (1) or (2) of this definition was zero, had annual revenues of less than $50 million during the most recently completed fiscal year for which audited financial statements are available.

As a “smaller reporting company” (in addition to and without regard to our status as an “emerging growth company”) we are not required and may not include a “Compensation Discussion and Analysis” section in our proxy statements; we provide only 3 years of business development information; provide fewer years of selected financial data; and have other “scaled” disclosure requirements that are less comprehensive than issuers that are not “smaller reporting companies” which could make our stock less attractive to potential investors, which could make it more difficult for you to sell your shares.

The Company is considered an “emerging growth company” and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our common stock less attractive to investors.

We are an “emerging growth company,” as defined in the Jumpstart our Business Startups Act of 2012, and we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.

We will remain an emerging growth company until the earlier of (i) the last day of the fiscal year (A) following the fifth anniversary of our first sale of common equity securities pursuant to an effective registration statement, (B) in which we have total annual gross revenue of at least $1.0 billion, or (C) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of our common stock that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter, and (ii) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period.

We cannot predict if investors will find our common stock less attractive because we may rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile when trading occurs.

We will become subject to the periodic reporting requirements of the Exchange Act, which will require us to incur audit fees and legal fees in connection with the preparation of such reports. These additional costs will negatively affect our ability to earn a profit.

Following the effective date of the registration statement in which this prospectus is included, we will be required to file periodic reports with the Securities and Exchange Commission pursuant to the Exchange Act and the rules and regulations thereunder. In order to comply with such requirements, our independent registered auditors will have to review our financial statements on a quarterly basis and audit our financial statements on an annual basis. Moreover, our legal counsel will have to review and assist in the preparation of such reports. Factors such as the number and type of transactions that we engage in and the complexity of our reports cannot accurately be determined at this time and may have a major negative effect on the cost and amount of time to be spent by our auditors and attorneys. However, the incurrence of such costs will be an expense to our operations and thus have a negative effect on our ability to meet our overhead requirements and earn a profit.

However, for as long as we remain an “emerging growth company” we intend to take advantage of certain exemptions from various reporting requirements until we are no longer an “emerging growth company.”

We also qualify as a smaller reporting company, and so long as we remain a smaller reporting company, we benefit from the same exemptions and exclusions as an emerging growth company. In the event that we cease to be an emerging growth company as a result of a lapse of the five year period, but continue to be a smaller reporting company, we would continue to be subject to the exemptions available to emerging growth companies until such time as we were no longer a smaller reporting company.

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After, and if ever, we are no longer an “emerging growth company,” we expect to incur significant additional expenses and devote substantial management effort toward ensuring compliance with those requirements applicable to companies that are not “emerging growth companies,” including Section 404 of the Sarbanes-Oxley Act.

For so long as we are an emerging growth company, we may rely on certain exemptions provided in the JOBS Act, including reduced disclosure regarding executive compensation, not seeking an advisory vote with respect to executive compensation and not requiring our independent registered public accounting firm to attest to the effectiveness of our internal control over financial reporting, which could make our common stock less attractive to investors due to the nature of the reduced disclosure.

We are an “emerging growth company,” as defined in the JOBS Act, and may remain an emerging growth company for up to five years. For so long as we remain an emerging growth company, we are permitted and plan to rely on exemptions from certain disclosure requirements that are applicable to other public companies that are not emerging growth companies. These exemptions include not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, or SOX Section 404, not being required to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements, reduced disclosure obligations regarding executive compensation and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. In this prospectus, we have provided only two years of audited financial statements and have not included all of the executive compensation related information that would be required if we were not an emerging growth company. We cannot predict whether investors will find our common stock less attractive if we rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.

In addition, the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. This allows an emerging growth company to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards and, therefore, we will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.

If securities or industry analysts do not publish research or reports or publish unfavorable research about our business, the price and trading volume of our common stock could decline.

The trading market for our common stock will depend in part on the research and reports that securities or industry analysts publish about us or our business. We do not currently have and may never obtain research coverage by securities and industry analysts. If no securities or industry analysts commence coverage of us, the trading price for our common stock and other securities would be negatively affected. In the event we obtain securities or industry analyst coverage, if one or more of the analysts who covers us downgrades our securities, the price of our securities would likely decline. If one or more of these analysts ceases to cover us or fails to publish regular reports on us, interest in the purchase of our securities could decrease, which could cause the price of our common stock and other securities and their trading volume to decline.

If our common stock becomes a “penny stock,” you may have greater difficulty selling your shares.

Penny stocks are generally equity securities with a price of less than $5.00, other than securities registered on certain national securities exchanges or quoted on the Nasdaq system, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or quotation system. After a Public Listing, our common stock may become a “penny stock” within the meaning of the rules, the rules apply to us and to our securities if we are not listed on a national securities exchange. These rules may further affect the ability of owners of shares to sell our securities in any market that might develop for them. As long as the trading price of our common stock is less than $5.00 per share, even if our common stock is quoted on either the OTCQX or OTCQB market place operated by the OTC Markets, our common stock will be subject to Rule 15g-9 under the Exchange Act (the “Penny Stock Rules”). The Penny Stock Rules require a broker-dealer, prior to a transaction in a penny stock, to deliver a standardized risk disclosure document prepared by the SEC, that:

• contains a description of the nature and level of risk in the market for penny stocks in both public offerings and secondary trading;

• contains a description of the broker’s or dealer’s duties to the customer and of the rights and remedies available to the customer with respect to a violation to such duties or other requirements of securities laws;

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• contains a brief, clear, narrative description of a dealer market, including bid and ask prices for penny stocks and the significance of the spread between the bid and ask price;

• contains a toll-free telephone number for inquiries on disciplinary actions;

• defines significant terms in the disclosure document or in the conduct of trading in penny stocks; and

• contains such other information and is in such form, including language, type, size and format, as the SEC shall require by rule or regulation.

The broker-dealer also must provide, prior to effecting any transaction in a penny stock, the customer with: (a) bid and offer quotations for the penny stock; (b) the compensation of the broker-dealer and its salesperson in the transaction; (c) the number of shares to which such bid and ask prices apply, or other comparable information relating to the depth and liquidity of the market for such stock; and (d) a monthly account statements showing the market value of each penny stock held in the customer’s account. In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from those rules; the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written acknowledgment of the receipt of a risk disclosure statement, a written agreement to transactions involving penny stocks, and a signed and dated copy of a written suitably statement. These disclosure requirements may have the effect of reducing the trading activity in the secondary market for our stock it becomes designated as a Penny Stock.

Because we do not intend to pay any cash dividends on our common stock, our stockholders will not be able to receive a return on their shares unless they sell them.

We intend to retain any future earnings to finance the development and expansion of our business. We do not anticipate paying any cash dividends on our common stock in the foreseeable future. Unless we pay dividends, our stockholders will not be able to receive a return on their shares unless they sell them. There is no assurance that stockholders will be able to sell shares when desired.

Downturns in general economic conditions could adversely affect our profitability.

Downturns in general economic conditions can cause fluctuations in demand for our products, product prices, volumes and gross margins. Future economic conditions may not be favorable to our industry. A decline in the demand for our products or a shift to lower-margin products due to deteriorating economic conditions could adversely affect sales of our products and our profitability and could also result in impairments of certain of our assets.

Furthermore, any uncertainty in economic conditions may result in a slowdown to the global economy that could affect our business by reducing the prices that our customers may be able or willing to pay for our products or by reducing the demand for our products.

An increase in the cost of raw materials or electricity might affect our profits.

Any increase in the prices of our raw materials or energy might affect the overall cost of our products. If we are not able to raise our prices to pass on increased costs to our customers, we would be unable to maintain our existing profit margins. Our major cost components include items such as graphite, sulfuric acid, and electricity, which items are normally readily available industrial commodities. During our history as a business, we have not seen any material impact (as defined by GAAP) on our cost structure from fluctuations in raw material or energy costs, but this could change in the future.

Our results of operations could deteriorate if our manufacturing operations were substantially disrupted for an extended period.

Our manufacturing operations are subject to disruption due to extreme weather conditions, floods and similar events, major industrial accidents, strikes and lockouts, adoption of new laws or regulations, changes in interpretations of existing laws or regulations or changes in governmental enforcement policies, civil disruption, riots, terrorist attacks, war, and other events. We cannot assure you that no such events will occur. If such an event occurs, it could have a material adverse affect on us.

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Significant risks may be associated with future acquisitions.

Our Company may pursue the acquisition of other companies or product lines in order to add new businesses and/or product lines or simply complement our existing businesses and product lines. Along with such acquisitions come certain risks, including, but not limited to the following:

• the difficulty of identifying appropriate acquisition candidates;

• the difficulty of assimilating the operations and personnel of the acquired entities;

• the potential disruption of our ongoing business;

• the potential incurrence of new debt or the issuance of new equity that could increase our leverage or dilute our stockholders’ equity interests;

• our inability to capitalize on the opportunities presented by acquisitions; and

• our failure to implement and maintain uniform standards, controls, procedures and policies at any acquired businesses.

Given our limited resources, we may not effectively manage our growth.

There is no guarantee that we have the resources, financial or operational, required to manage our growth. This is particularly true as we expand facilities and manufacture our products on a greater commercial scale. Furthermore, rapid growth in our operations may place a significant strain on our management, administrative, operational and financial infrastructure. The inability to adequately manage our growth could have a material and adverse affect on our business, financial condition or results of operations, thus resulting in a lower quoted price of our common stock.

Risks Related to this Offering

Because the offering price for the primary shares has been arbitrarily set by the Company, you may not realize a return on your investment upon the resale of your shares.

The offering price of the primary offering of each share and other terms and conditions relative to the Company’s shares have been arbitrarily determined by us and do not bear any relationship to assets, earnings, book value or any other objective financial criteria. Additionally, as the Company was formed on May 23, 2006, and has only a limited operating history with no earnings, the price of the offered shares is not based on its past earnings, and no investment banker, appraiser, or other independent third party, has been consulted concerning the offering price for the shares or the fairness of the offering price used for the shares, as such our stockholders may not be able to receive a return on their investment when they sell their shares of common stock.

We are selling 3,000,000 shares in this offering and may engage the assistance of non-exclusive sales agents; we may be unable to sell any shares.

We intend to engage the services of non-exclusive sales agents to sell the shares for a commission of up to 8%. There is no guarantee that the Company, with the assistance of any sales agent, will be able to sell any or all of the shares. Unless we are successful in receiving the proceeds in the amount of not less than $16,000,000 from this offering, we may have to seek alternative financing to implement our business plan.

Our officers and directors have limited prior experience offering and selling securities to the public, and our offering does not require a minimum amount to be raised; as a result, we may not be able to raise sufficient funds to commence and sustain our business and investors may lose their entire investment.

If we determine not to engage any sales agents, certain of our officers and directors will conduct the offering on our behalf. See “Plan of Distribution”. We are conducting a best efforts offering which does not require a minimum amount to be raised. Our officers and directors have limited experience conducting a public securities best efforts offering and we may not be able to successfully raise any funds. If we are not able to raise sufficient funds, we may not be able to fund our operations as planned, and we may be forced to curtail or cease operations and you could lose all or a significant part of your investment. Our inability to successfully conduct a best efforts offering could be the basis of your losing your entire or a significant part of your investment in us.

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Due to the lack of trading market for our securities, you may have difficulty selling any shares you purchase in this offering.

We are not registered on any market or public stock exchange. There is presently no demand for our common stock and no public market exists for the shares being offered in this prospectus. Although, after the offering is completed, we intend to seek a listing or a quotation on a Qualified National Exchange and we cannot make any assurance that our common stock will ever be quoted on Qualified National Exchange or that any market for our stock will develop. In order to achieve a Public Listing, we will have to meet certain initial listing qualifications of the Qualified National Exchange on which we are seeking the Public Listing. In addition, we will need to have market makers agree to make a market in our common stock and file a FINRA Form 15c211 with the SEC on our behalf before we can achieve a Public Listing. As of the date of this prospectus, there have been no discussions or understandings between the Company and anyone acting on our behalf, with any market maker regarding participation in a future trading market for our securities. If we are successful in achieving a Public Listing for our common stock, we will also need to remain current in our quarterly and annual filings with the SEC to achieve and maintain such Public Listing. Market makers are not permitted to begin quotation of a security whose issuer does not meet these filing requirements. Furthermore, if we are not able to pay the expenses associated with our ongoing reporting obligations we will not be able to achieve or maintain a Public Listing. If no market is ever developed for our common stock, it will be difficult for you to sell any shares you purchase in this offering. In such a case, you may find that you are unable to achieve any benefit from your investment or liquidate your shares without considerable delay, if at all. In addition, if we fail to have our common stock quoted on a public trading market, your common stock will not have a quantifiable value and it may be difficult, if not impossible, to ever resell your shares, resulting in an inability to realize any value from your investment.

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FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements which relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks in the section entitled “Risk Factors” that may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. In addition, you are directed to factors discussed in the Business section and in the Management’s Discussion of Financial Condition and Results of Operations section and those discussed elsewhere in this prospectus.

Although these forward-looking statements, and any assumptions upon which they are based, are made in good faith and reflect our current judgment regarding the direction of our business, actual results will almost always vary, sometimes materially, from any estimates, predictions, projections, assumptions or other future performance suggested herein. Except as required by applicable law, including by the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.

MARKET AND INDUSTRY DATA AND FORECASTS

This prospectus includes estimates of market share and industry data and forecasts that we obtained from industry publications and surveys and/or internal company sources. Industry publications and surveys and forecasts generally state that the information contained therein has been obtained from sources believed to be reliable, but there can be no assurance as to the accuracy or completeness of included information. We have not independently verified any of the data from third-party sources, nor have we ascertained the underlying economic assumptions relied upon therein. Similarly, while we believe our internal estimates with respect to our industry are reliable, our estimates have not been verified by any independent sources. Although we are not aware of any misstatements regarding any industry data presented in this prospectus, our estimates, in particular as they relate to market share and our general expectations, involve risks and uncertainties and are subject to change based on various factors, including those discussed under the section entitled “Risk Factors” beginning on page 7. Unless otherwise noted, all market share data is based on net sales in the applicable market.

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USE OF PROCEEDS

This offering is being made on a best efforts basis: no minimum number of shares must be sold in order for the offering to proceed. The offering price per share is $8.00. The following table sets forth the uses of proceeds assuming the sale of 25%, 50%, 75% and 100%, respectively, of the securities offered for sale by the Company. There is no assurance that we will raise the full $24,000,000 as anticipated and there is no guarantee that we will receive any proceeds from the offering. We intend to use the estimated net proceeds from the sale of the shares of common stock being offered by the Company hereunder as follows:

	If 25% of Primary Shares are Sold		If 50% of Primary Shares are Sold		If 75% of Primary Shares are Sold		If 100% of Primary Shares are Sold
GROSS PROCEEDS	$	6,000,000	$	12,000,000	$	18,000,000	$	24,000,000
Offering Expenses	$	100,000	$	100,000	$	100,000	$	100,000
Offering Expenses Attributable to Sales Agent*	$	240,000	$	480,000	$	720,000	$	960,000
NET PROCEEDS	$	5,660,000	$	11,420,000	$	17,180,000	$	22,940,000
Capital Expenditures	$	500,000	$	4,000,000	$	7,000,000	$	7,000,000
Working Capital	$	500,000	$	2,000,000	$	3,500,000	$	3,500,000
Intellectual Property	$	—	$	250,000	$	500,000	$	1,000,000
General Corporate Expenses	$	4,660,000	$	5,170,000	$	6,180,000	$	11,440,000

____________

*The above estimates assume that we engage the services of non-exclusive sales agents payable to each agent at a commission of 8% and further assumes expenses attributable to sales agent(s) based on allocating up to 50% of the shares being offered to the sales agent(s).

The above estimates assume that, if we raise gross proceeds of $24,000,000, we will fund general corporate expenses of approximately $11.44 million over the next two years, by which time the Company might begin generating positive cash flow from operations, we will fund working capital increases of $3,500,000, and we will spend the remaining funds to expand capacity during the two year period following the close of the offering and invest in intellectual property, primarily in form of accelerated filings and increase the Company’s field sales and technical service organizations. On the other hand, if we sell only 25% of the shares, we will use the majority of net proceeds from the offering to fund general corporate expenses. In between these two scenarios, we would plan to primarily fund general corporate expenses but would begin to invest in working capital and capacity expansion with the remaining funds. Pending such use, we reserve the right to temporarily invest the proceeds.

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CAPITALIZATION

The following table sets forth our cash and cash equivalents and our capitalization as of December 31, 2015:

Cash	$	1,060,224
Convertible notes payable, net:	$	—
Derivative liability – warrants	$	8,235,163
Series A convertible preferred stock, 3,000,000 shares authorized, 1,800,696 shares issued and outstanding, liquidation value of $21,608,376	$	21,291,912
Series B convertible preferred stock, 3,000,000 shares authorized, 269,987 shares issued and outstanding, liquidation value of $4,319,792	$	3,651,533
Common stock, no par value, 25,000,000 shares authorized and 836,544 shares outstanding	$	8,565,225
Additional paid-in-capital	$	5,791,074
Accumulated deficit	$	(43,371,368	)
Total stockholders’ deficit	$	(4,071,624	)
Total capitalization	$	4,163,539

The table above assumes the following:

• the exchange of each Series B Unit for two shares of common stock;

• the exclusion of 419,750 shares of common stock issuable upon exercise of outstanding options, at a weighted average purchase price of $12.05 per share;

•the exclusion of the additional 180,250 shares of common stock reserved for issuance pursuant to our 2007 Stock Option Plan; and

• the exclusion of 31,625 shares of common stock issuable upon exercise of outstanding common stock warrants at a weighted average purchase price of $8.63 per share; and

• the exclusion of 2,011,347 shares of common stock issuable upon exercise of outstanding Series A Preferred Stock warrants (assuming full conversion into common stock) at a weighted average purchase price of $6.40 per share.

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MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

Market for Common Equity

This is our initial public offering and no public market currently exists for our shares and a public market may never develop, or, if any market does develop, it may not be sustained.

After this offering is completed, we intend to seek either (i) a listing of our common stock on a securities exchange registered with the SEC under Section 6(a) of the Exchange Act, such as the NASDAQ Capital Market or the NYSE, or (ii) the quotation of our common stock on the OTCQB or OTCQX marketplaces operated by OTC Markets (Qualified National Exchange). In order to achieve such a Public Listing, we will have to meet certain initial listing qualifications of the Qualified National Exchange on which we are seeking the Public Listing. In addition, we will need to have market makers agree to make a market in our common stock and file a FINRA Form 15c211 with the SEC on our behalf before we can achieve a Public Listing, and we will also need to remain current in our quarterly and annual filings with the SEC. As of the date of this prospectus, there have been no discussions or understandings between the Company and anyone acting on our behalf, with any market maker regarding participation in a future trading market for our securities. There can be no assurance that our common stock will ever be quoted or traded on Qualified National Exchange or that any market for our common stock will develop.

Holders of Equity

As of December 31, 2015, we had 29 record holders of our common stock, and a total of 836,544 shares of common stock issued and outstanding. We had 13 record holders of Series A Preferred Stock and a total of 1,800,696 shares of Series A Preferred Stock issued and outstanding. We also had 65 record holders of Series B Preferred Stock and a total of 269,987 shares of Series B Preferred Stock issued and outstanding.

In addition to the 269,987 shares of Series B Preferred Stock issued, holders of Series B Preferred Stock have the right to exchange each Series B Unit for two shares of common stock. As of the date of this prospectus, no Series B Unit holder has exchanged their Series B Units into shares of common stock. Under the terms of the Series A Designations and the Series B Designations, all outstanding shares of Series A Preferred Stock and Series B Preferred Stock, respectively, automatically convert into shares of common stock at a ratio of 1.875 to 1 upon the listing of the common stock on a Qualified National Exchange. Notwithstanding the foregoing, the Series B Preferred Stock shall not be subject to such mandatory conversion until all outstanding Convertible Securities (any evidences of indebtedness, shares or other securities convertible into or exchangeable for common stock or preferred stock) are also converted into common stock.

Further, each share of Series A Preferred Stock shall be convertible, at the option of the holder thereof, at any time after the date of issuance of such share and prior to the listing of the common stock on a Qualified National Exchange, into that number of fully paid, non-assessable shares of common stock determined by dividing the Series A Original Issue Price by the Conversion Price, as such terms are defined in the Series A Designations. The conversion price of the Series A Preferred Stock is subject to adjustments pursuant to the occurrence of certain specified events.

In addition, the Company issued secured convertible notes that converted into 1,456,126 shares of Series A Preferred Stock on December 31, 2015. Upon listing of our stock on a Qualified National Exchange, all of these shares will convert into shares of common stock. As of December 31, 2015, the Company had also granted options to purchase up to 419,750 shares of common stock and had issued warrants to purchase up to 256,522 shares of common stock (comprised of warrants to purchase 11,000 shares that were issued in 2009 and 2012 to Michael Knox in connection with loans to the Company, and warrants to purchase 224,897 shares that were issued in April and June of 2015 and 20,625 December Warrants issued in December 2015), and 1,800,696 shares of Series A Preferred Stock (which will be converted into 3,376,299 shares of common stock upon the listing of our stock on a Qualified National Exchange). Therefore, we have already issued or committed to issue up to 7,215,539 shares of common stock (assuming conversion of the Series A Preferred Stock and the exchange of the Series B Preferred Stock) and we are authorized to issue up to 18,723,088 additional shares of common stock. The future issuance of common stock may result in substantial dilution in the percentage of our common stock held by our then existing stockholders.

Securities Authorized for Issuance under Equity Compensation Plans

As of December 31, 2014 and December 31, 2015, the Company had granted options to purchase up to 464,750 and 419,750 shares of common stock, respectively.

In 2007, the Company implemented a Stock Option Plan and initially reserved 75,000 shares of common stock to cover stock options that might be issued under the Stock Option Plan. As of December 31, 2014 and November 23, 2015, the number of shares reserved for issuance under the plan was 600,000 and 600,000 shares, respectively.

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As of December 31, 2014, stock options to purchase a total of 464,750 shares at prices ranging from $8.00 to $13.20 per share had been granted to Company employees and Directors, with expiration dates ranging from April 2015 to November 2022, with a weighted average purchase price of $12.04 per share.

As of December 31, 2015, stock options to purchase a total of 419,750 shares at prices ranging from $8.00 to $13.20 per share had been granted to Company employees and Directors, with expiration dates ranging from December 2017 to March 2022, with a weighted average purchase price of $12.05 per share.

Equity Compensation Plans as of December 31, 2015

Equity Compensation Plan Information
Plan category	Number of securities to be issued upon exercise of outstanding options, warrants and rights (a)	Weighted-average exercise price of outstanding options, warrants and rights (b)		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c)
Equity compensation plans approved by security holders(1)	419,750	$	12.00	180,250
Equity compensation plans not approved by security holders	—		—	—
Total	419,750	$	12.00	180,250

____________

(1)Reflects our 2007 Stock Option Plan for the benefit of our directors, officers, employees and consultants. As of December 31, 2015, we had reserved 600,000 shares of common stock for such persons pursuant to that plan.

Securities that May be Sold under Rule 144

Of the 836,544 shares of common stock issued and outstanding as of December 31, 2015, and the 1,800,696 outstanding shares of Series A Preferred Stock and the 269,987 shares of Series B Preferred Stock that may be exchanged for shares of common stock, and assuming no notes, warrants or stock options are converted or exercised, 762,770 shares are held by non-affiliates and 2,144,547 are held by affiliates of the Company. All of the Company’s securities are deemed “restricted securities” within the meaning of Rule 144 as promulgated under the Securities Act. No underwriters were utilized and no commissions or fees were paid with respect to any issuances of the Company’s securities, and we relied on Regulation S, Section 4(2), 4(a)/2 and/or Rule 506 of Regulation D of the Securities Act for all issuances since none of the transactions involved any public offering.

It is anticipated that all of the “restricted securities” will be eligible for resale under Rule 144, provided there is a public market for resale. In general, under Rule 144, subject to the satisfaction of certain other conditions, a person, who is not an affiliate (and who has not been an affiliate for a period of at least three months immediately preceding the sale) and who has beneficially owned restricted shares of our common stock for at least six months is permitted to sell such shares without restriction, provided that there is sufficient public information about us as contemplated by Rule 144. An affiliate who has beneficially owned restricted shares of our common stock for a period of at least one year may sell a number of shares equal to one percent of our issued and outstanding common stock approximately every three months.

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DIVIDEND POLICY

Since inception, we have not paid any dividends on our common stock. We currently do not anticipate paying any cash dividends in the foreseeable future on our common stock, because we intend to retain our earnings, if any, to finance the growth of our business. Our Board of Directors will have the discretion to declare and pay dividends in the future. Payment of dividends in the future will depend upon our earnings, capital requirements, and other factors, which our Board of Directors may deem relevant.

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DETERMINATION OF OFFERING PRICE

The offering price in this offering and other terms and conditions relative to the Company’s shares have been arbitrarily determined by us and do not bear any relationship to assets, earnings, book value or any other objective financial criteria. In determining the number of shares to be offered and the offering price, we took into consideration our cash on hand and the amount of money we would need to implement our business plan. Accordingly, the offering price should not be considered an indication of the actual value of the securities.

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DILUTION

If you invest in our shares of common stock, you will incur immediate, substantial dilution based on the difference between the public offering price per share you will pay in the offering and the net tangible book value per share of common stock immediately after the primary offering.

Our net tangible book value as of December 31, 2015 was approximately $(4,483,413), or $(5.36) per share, based on 836,544 shares of common stock outstanding on December 31, 2015. Based on the per share offering price of $8.00, investors will incur further dilution from the sale by us of shares of our common stock offered in the offering, and after deducting the estimated offering expenses of $1,060,000, our as adjusted net tangible book value as of December 31, 2015 would have been $18,456,587, or $4.81 per share, based on shares outstanding after the offering. This represents an immediate increase in net tangible book value of $10.17 per share to our existing stockholders and an immediate dilution of $3.19 per share to the new investors purchasing shares of our common stock in the offering.

The following table illustrates this per share dilution:

Assumed public offering price per share	$	8.00
Net tangible book value per share as of December 31, 2015		(5.36	)
Increase per share attributable to new public investors		10.17
Net tangible book value per share after this offering		4.81
Dilution per share to new public investors	$	3.19

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

This section of the prospectus includes a number of forward-looking statements that reflect our current views with respect to future events and financial performance. Forward-looking statements are often identified by words like “believe”, “expect”, “estimate”, “anticipate”, “intend”, “project” and similar expressions, or words which, by their nature, refer to future events. You should not place undue certainty on these forward-looking statements. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our predictions.

Overview of our Business

We manufacture and sell advanced materials we call xGnP^® graphene nanoplatelets and value-added products based on these materials. We have also licensed some of our base manufacturing technology to other companies and we consider technology licensing a component of our business model.

We sell our products to customers around the world and have sold materials to over 1,000 customers in 47 countries since 2008. We offer four main types of products, each of which may be customized for a particular customer:

1.Bulk materials, which we sell under the trademarked brand name of xGnP^® graphene nanoplatelets. These materials are produced in various grades, which are analogous to average particle thickness, average particle diameters and with varying levels of typically, oxygen-containing surface functionality. Overall, there are three standard grades, each of which is available in three different standard particle sizes and multiple customer sizes. Other grades may be available, depending upon customer performance requirements. These bulk materials are especially applicable for use as additives in polymeric or metallic composites, or in coatings or other formulations where particular electrical, thermal or barrier applications are desired by our customers.

2. Energy storage materials. These consist of specialty advanced materials that have been formulated for specific applications in the energy storage segment. Chief among these is our silicon-graphene composite material (SiG) that we offer to manufacturers of li-ion batteries. Additionally, we offer various bulk materials for use as conductive additives for cathodes and anodes in li-ion batteries, as an additive to anode slurries for lead-carbon batteries and are investigating the use of our materials as part of other battery components.

3. XG Leaf^®. XG Leaf^® is a family of sheet products that we manufacture for industrial, electronics, and automotive markets. These sheets are made using special formulations of xGnP^® graphene nanoplatelets as precursors, along with other materials for specific applications. There are several different types of XG Leaf^® available in various thicknesses, depending on the end-use requirements for thermal conductivity, electrical conductivity, or resistive heating.

4. Inks and Coatings. These consist of specially-formulated dispersions of xGnP^® together with solvents, binders, and other additives to make electrically or thermally conductive products designed for printing or coating and which are suitable for a variety of industrial applications.

The process of “designing-in” new materials is a relatively complex process that involves the use of relatively small amounts of the new material in laboratory and engineering development for an extended period of time. Following successful development, we expect customers that incorporate our materials into their products will then order much larger quantities of material to support commercial production. Thus, while many of our customers are currently purchasing our materials in kilogram (one or two pound) quantities, we expect many of our commercial customers will require tons or even hundreds of tons of material. The majority of our customers are still in the development stage and our product sales thus consist of many orders for relatively small quantities of materials being used in a variety of research or development activities and early phase adoption in limited commercial applications.

Operating Segment

We have one reportable operating segment that manufactures xGnP^® graphene nanoplatelets and products produced therefrom, that conducts research on graphene nanoplatelets and related products and licenses our technology as appropriate. As of December 31, 2015 we shipped products on a worldwide basis, but all of our assets were located within the United States.

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Our Critical Accounting Policies

US GAAP requires management to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, together with amounts disclosed in the related notes to the consolidated financial statements. Actual results and outcomes may differ from management’s estimates, judgments and assumptions. Significant estimates, judgments and assumptions used in these consolidated financial statements include, but are not limited to, those related to revenues, accounts receivable and related allowances, contingencies, useful lives and recovery of long-term assets, income taxes, and the fair values of stock-based compensation and derivative financial instrument liabilities. These estimates, judgments, and assumptions are reviewed periodically and the effects of material revisions in estimates are reflected in the financial statements prospectively from the date of the change in estimate.

Revenue Recognition

We recognize revenues when (a) the price is fixed or determinable, (b) persuasive evidence of a sales arrangement exists, (c) the service is performed or delivery has occurred and (d) collectability of the resulting receivable is reasonably assured.

We recognize product revenues when products are shipped to customers. At that time, product ownership and risk have transferred to the customer and we have no further obligations. We record product sales at net selling prices that are reflective of discounts and allowances. Shipping and handling costs are recorded as a component of direct costs, as are shipping and handling costs billed to customers.

Revenue related to licensing agreements is recorded upon substantial performance of the terms of the licensing contract. In the case of licensing arrangements that involve up-front payments, revenue is recorded when management determines that the appropriate terms of the contract have been fulfilled. For example, this may occur when technology has been transferred via written documents or, if training is involved, whenever all contracted training has occurred. In the case of licenses where product delivery is also embedded in the deliverable, a portion of revenue would be recognized when products are delivered.

In the case of licensing arrangements that involve ongoing royalties based on sales of products produced with our technology, royalty income is recorded when received or, in the case of minimum royalties due, in the period when due. 

Grant contract revenue is recognized over the life of the contracts as the services are performed.

Amounts received in excess of revenues earned are recorded as deferred revenue.

Stock-Based Compensation

We recognize compensation expense in our statement of operations for all share-based option and stock awards, based on estimated grant-date fair values.

We estimate the grant-date fair value of stock-based compensation awards using the Black-Scholes option valuation model. This model is affected by the estimated value of our common stock on the date of the grant as well as assumptions regarding a number of highly complex and subjective variables. These variables include the expected term of the option, the exercise price, expected risk-free rates of return, the expected volatility of our common stock, and expected dividend yield, each of which is more fully described below. The assumptions for the estimated value of our common stock, expected term and expected volatility are the assumptions that most significantly affect the grant date fair value.

Estimated Value of our common stock: The estimated fair value of the Company’s common stock was based on a number of objective and subjective factors, including external market conditions affecting the Company’s industry sector, the prices at which the Company sold shares of convertible preferred stock, and the superior rights and preferences of securities senior to the Company’s common stock at the time. The Company used the option pricing method, utilizing the back-solve method, which is a form of the market approach defined in the American Institute of Certified Public Accountants, or AICPA, Audit and Accounting Practice Aid Series: Valuation of Privately Held Company Equity Securities Issued as Compensation, used to estimate the fair value of common stock. The valuation methodology included estimates and assumptions that require the Company’s judgment.

Expected Term:  Because we have limited experience related to the exercise of employee stock options, we use the simplified method permitted by SEC Staff Accounting Bulletin Topic 14 to estimate the expected term of the options. The expected term of an option is estimated to be equal to the mid-point between the vesting and expiration dates of the option.

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Risk-free Interest Rate: We base the risk-free interest rate used on the implied yield at the grant date of U.S. Treasury zero-coupon issues with a term approximately equal to the expected term of the stock-based award being valued.

Expected Stock Price Volatility: Because we are a private company with very limited stock sales history, we use a blended average weekly volatility of certain publicly traded peer companies. We believe that the use of this blended average peer volatility is reflective of market conditions and a reasonable indicator of our expected future volatility.

Dividend Yield: Because we have never paid a dividend and do not expect to begin doing so in the foreseeable future, we have assumed a 0% dividend yield in valuing our stock-based awards.

The grant-date fair value of the award is recognized as expense over the requisite service period using the straight-line method.

Fair Value Measurements

FASB ASC 820: “Fair Value Measurements and Disclosures” defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

Level 1: Quoted prices in active markets for identical assets or liabilities.

Level 2: Inputs other than quoted prices included within Level 1 which are either directly or indirectly observable.

Level 3: Inputs to the valuation methodology are unobservable and significant to the fair value measurement.

A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Our derivative liabilities are classified as Level 3 within the fair value hierarchy because they were valued using other unobservable inputs. The valuation technique used to measure fair value of the derivative liabilities is based on a lattice model with significant assumptions and inputs determined by the Company. A lattice model was used to estimate the fair value of the derivative liabilities because management believes it reflects all the assumptions that market participants would likely consider including early exercise of the warrants. The fair value of the derivative liabilities will be significantly influenced by the fair value of our common stock, stock price volatility and the risk free interest components of the lattice technique.

The following is a reconciliation of the beginning and ending balances for liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the years ended December 31, 2015 and 2014:

	2015		2014
Balance at January 1	$	5,000,752	$	1,190,261
Warrants issued with additional financing		—		2,676,570
Warrants issued with private placement of Series B Preferred Stock		660,378		—
Warrants issued with preferred stock sold under preemptive rights		7,881		316,366
Warrants issued with bridge financing		52,676		—
Warrants issued for debt modification		—		1,320,741
Gain (Loss) recognized in earnings		2,513,476		(503,186	)
Balance at December 31	$	8,235,163	$	5,000,752

Derivative Financial Instruments

We do not use derivative instruments to hedge exposures to cash flow, market or foreign currency risk. The terms of convertible preferred stock and convertible notes that we issue are reviewed to determine whether or not they contain embedded derivative instruments that are required by ASC 815: “Derivatives and Hedging” to be accounted for separately from the host contract, and recorded at fair value. In addition, freestanding warrants are also reviewed to determine if they achieve equity classification. Certain stock warrants that we have issued did not meet the conditions for equity classification and are classified as derivative instrument liabilities measured at fair value. The fair values of these derivative liabilities are revalued at each reporting date, with the change in fair value recognized in earnings. See Note 9 for additional information.

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Beneficial Conversion Feature of Convertible Notes

If the embedded conversion option in a convertible note is not required to be separated and accounted for as a derivative instrument liability, then ASC 470: “Debt with Conversion and Other Options” requires separate recognition of any beneficial conversion feature (“BCF”) related to the convertible instrument. Accordingly, we recognized a BCF related to the secured convertible notes that we issued in 2014. The BCF for the convertible instruments is recognized by allocating to additional paid-in capital a portion of the proceeds received equal to the intrinsic value of the conversion feature. Generally, the intrinsic value is calculated at the commitment date as the difference between the effective conversion price and the fair value of the common stock or other securities into which the security is convertible, multiplied by the number of shares into which the security is convertible. When certain other securities, such as warrants, are issued in conjunction with the convertible security, the proceeds are allocated among the different components. The portion of the proceeds allocated to the convertible security is divided by the contractual number of the conversion shares to determine the effective conversion price which is then used to measure the BCF. The value of the BCF recognized is limited to the amount of proceeds received that is initially allocated to the convertible security. See Note 10 for additional information related to the BCF resulting from our secured convertible notes.

Beneficial Conversion Feature of Preferred Stock

Equity instruments that contain a BCF are recorded as a deemed dividend to the holders of the convertible equity instruments. The deemed dividend amount is recorded as an increase to additional paid-in capital. For the years ended December 31, 2015 and 2014, we recorded a deemed dividend of $2,214,856 and $316,366, respectively. The deemed dividend recorded in 2015 was related to the adjustment of the conversion price of the Series A Preferred Stock from $12.00 to $6.40 per share which resulted in a BCF due to the new conversion price being lower than the value of the underlying common stock. See Note 9 for additional information related to the BCF resulting from our Series A Preferred Stock.

Going Concern

We have historically incurred losses from operations and we may continue to generate negative cash flows as we implement our business plan. Our consolidated financial statements are prepared using US GAAP as applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business.

We currently do not have sufficient cash or commitments for financing to sustain our operations for the next twelve months. Our plan is to develop customer relationships and increase our revenues derived from our products and IP licensing. Furthermore, although we have historically incurred operating losses, we have been able to fund such losses primarily by selling common and preferred stock and convertible notes. We had cash on hand at December 31, 2015 of $1,060,224, and as of the date of this prospectus, we have cash on hand which is only sufficient to fund our operations through the end of March 2016. We believe we will need approximately $4.8 million to sustain us for the next twelve months. The Company’s financial projections show that the Company may need to raise an additional $15,000,000 or more before it is capable of achieving sustainable cash flow from operations. We intend that the primary means for raising such funds will be through this offering. However, we cannot make any assurance that the Company will be able to raise these funds or that the terms and conditions of future financing will be workable or acceptable for the Company and its stockholders.

In the event we are unable to fund our operations from existing cash on hand, operating cash flows, additional borrowings or raising equity capital, we may be forced to reduce our expenses, slow down our growth rate, or discontinue operations. Our consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should we be unable to continue as a going concern.

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update No. 2014-09, Revenue From Contracts With Customers, or ASU 2014-09. Pursuant to this update, an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The amendments in this update are currently effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period, and are to be applied retrospectively, or on a modified retrospective basis. Early application is not permitted. In July 2015, the FASB approved a one year deferral of the effective date for annual reporting periods beginning after December 15, 2017 with early adoption permitted for annual periods beginning after December 15, 2016. We are currently evaluating the impact of adopting ASU 2014-09 on our financial statements.

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In June 2014, the FASB issued ASU No. 2014-10, Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic 810, Consolidation, or Topic 915. The guidance set forth in Topic 915 is intended to reduce the overall cost and complexity associated with financial reporting for development stage entities without reducing the availability of relevant information. The FASB also believes the changes will simplify the consolidation accounting guidance by removing the differential accounting requirements for development stage entities. As a result of these changes, there no longer will be any accounting or reporting differences in generally accepted accounting principles, or GAAP, between development stage entities and other operating entities. For organizations defined as public business entities, the presentation and disclosure requirements in Topic 915 will no longer be required starting with the first annual period beginning after December 15, 2014, including interim periods therein. Early application is permitted for any annual reporting period or interim period for which the entity’s financial statements have not yet been issued (public business entities) or made available for issuance (other entities). This standard had no impact on our financial position, results of operations or cash flows.

In August 2014, FASB issued ASU 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, or ASU 2014-15. ASU 2014-15 explicitly requires a company’s management to assess an entity’s ability to continue as a going concern, and to provide related footnote disclosures in certain circumstances. The new standard will be effective in the first annual period ending after December 15, 2016, although early application is permitted. We are currently evaluating the potential impact of the adoption of this standard, but believe its adoption will have no impact on our financial position, results of operations or cash flows.

In November 2014, the FASB issued ASU No. 2014-16, Determining Whether the Host Contract in a Hybrid Financial Instrument Issued in the Form of a Share is more akin to Debt or to Equity, or ASU 2014-16. ASU 2014-16 clarifies how current GAAP should be interpreted in evaluating the economic characteristics and risks of a host contract in a hybrid financial instrument that is issued in the form of a share. Specifically, ASU 2014-16 provides that an entity should consider all relevant terms and features, including the embedded derivative feature being evaluated for bifurcation, in evaluating the nature of the host contract. ASU 2014-16 is effective for public companies for fiscal years and interim periods within those fiscal years beginning after December 15, 2015 with early adoption permitted. We adopted this guidance for the year ended December 31, 2014 and have properly applied it to hybrid financial instruments.

In April 2015, the FASB issued ASU No. 2015-03, Simplifying the Presentation of Debt Issuance Costs, or ASU 2015-03. ASU 2015-03 requires debt issuance costs to be presented in the balance sheet as a direct deduction from the carrying value of the associated debt liability, consistent with the presentation of a debt discount. The standard also aligns the GAAP presentation with International Financial Reporting Standards and will remedy the long-standing conflict with the guidance in FASB Concepts Statement No. 6, Elements of Financial Statements, which indicates that debt issuance costs do not meet the definition of an asset, because they provide no future economic benefit. ASU No. 2015-03 is effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. Early adoption is permitted for financial statements that have not been previously issued. The new guidance will be applied on a retrospective basis. The adoption of this guidance during the year ended December 31, 2015 did not have a material impact on our balance sheets.

JOBS Act

In April 2012, the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, was enacted. Section 107 of the JOBS Act provides that an “emerging growth company,” or EGC, can take advantage of the extended transition period for complying with new or revised accounting standards. Thus, an EGC can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have irrevocably elected not to avail ourselves of this extended transition period and, as a result, we will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies.

We are in the process of evaluating the benefits of relying on other exemptions and reduced reporting requirements under the JOBS Act. Subject to certain conditions, as an EGC, we intend to rely on certain of these exemptions, including exemptions from the requirement to provide an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act and from any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements, known as the auditor discussion and analysis. We will remain an EGC until the earlier of: the last day of the fiscal year in which we have total annual gross revenues of $1.0 billion or more; the last

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day of the fiscal year following the fifth anniversary of the date of the completion of this offering; the date on which we have issued more than $1.0 billion in nonconvertible debt during the previous three years; or the date on which we are deemed to be a large accelerated filer under the rules of the SEC.

Internal Control Over Financial Reporting

Assessing our staffing and training procedures to improve our internal control over financial reporting is an ongoing process. We are not currently required to comply with Section 404 of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, and are therefore not required to make an assessment of the effectiveness of our internal control over financial reporting. As a result, our management did not perform an evaluation of our internal control over financial reporting as of December 31, 2015 or 2014. Further, our independent registered public accounting firm has not been engaged to express, nor have they expressed, an opinion on the effectiveness of our internal control over financial reporting.

Results of Operations for the Year Ended December 31, 2015 Compared with the Year Ended December 31, 2014

The following table summarizes the results of our operations for the years ended December 31, 2015 and 2014.

	Year Ended December 31						Change 2014 - 2015
	2015			2014			$		%
Total Revenues	$	642,592		$	1,635,002		(992,410	)	(60.7	)
Cost of Goods Sold		1,847,714			2,749,331		(901,617	)	(32.8	)
Gross Profit (Loss)		(1,205,122	)		(1,114,329	)	(90,793	)	8.1
Research & Development Expense		1,485,283			1,449,478		35,805		2.5
Sales, General & Administrative Expense		4,119,329			4,405,266		(285,937	)	(6.5	)
Total Operating Expense		5,604,612			5,854,744		(250,132	)	(4.3	)
Operating Loss		(6,809,734	)		(6,969,073	)	159,339		(2.3	)
Other Income (Expense)		(9,872,911	)		(4,454,985	)	(5,417,926	)	121.6
Net Loss		(16,682,645	)		(11,424,058	)	(5,258,587	)	46.0
Deemed dividend on Series A Convertible preferred stock		(2,214,856	)		(316,366	)	(1,898,490	)	600.1
Net loss attributable to common stockholders	$	(18,897,501	)	$	(11,740,424	)	(7,157,077	)	61.0

Revenues

Revenues for the years ended December 31, 2015 and 2014, by category, are shown below.

Revenue Summary

	Year Ended December 31				Change 2014 - 2015
	2015		2014		$		%
Product Sales	$	164,153	$	874,469	(710,316	)	(81.2	)
Grants		378,439		660,533	(282,094	)	(42.7	)
Licensing Revenues		100,000		100,000	—		—
Total	$	642,592	$	1,635,002	(992,410	)	(60.7	)

Product sales consist of two broad categories: (1) material sold to customers for research or development purposes; and (2) production orders for customers. Typically, the order sizes for the first category are relatively small, however we expect orders in the second category to be much larger. In 2015, product sales were down $710,316, or 81%. The main reason for the decrease in the current year was that in the prior year there was one large customer order for approximately $600,000 in the first half of the year for a custom version of our graphene nanoplatelets. The table below shows a comparison of product sales by product line.

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Product Sales Summary

	Year Ended December 31				Change 2014 - 2015
	2015		2014		$		%
Product
xGnP Bulk Material	$	104,797	$	810,107	(705,310	)	(87.1	)
Battery Anode Materials (SiG)		29,215		37,388	(8,173	)	(21.9	)
XG Leaf		15,281		20,006	(4,725	)	(23.6	)
Inks and Coatings		14,860		6,968	7,892		113.3
Total	$	164,153	$	874,469	(710,316	)	(81.2	)

We ship our products from our Lansing manufacturing facilities to customers around the world. During 2015, we shipped materials to customers in 26 different countries, versus 28 countries in 2014. Shipments to only one country other than the United States accounted for more than 10% of product revenues during the years ended December 31, 2015 and 2014. That country (South Korea) accounted for approximately 12% of total product revenues during each of the respective periods.

The table below shows a comparison of orders received, both domestic and international, and the average order size in dollars. These numbers indicate that our customer base remains active with development or research projects that use our materials and indicate the breadth of our geographic coverage. However, the small average order size indicates that almost all orders are for quantities that are far smaller than anticipated orders once our products are commercialized in an industrial or consumer product. 2015 orders have increased nearly 50% as compared to the previous year. The average order size decreased compared to previous year periods due to the previously mentioned custom order placed in 2014. We do not consider these fluctuations to be especially significant, given the relatively small order size in comparison to our expectations for future commercial orders.

Order Summary

	Year Ended December 31		Change 2014-2015
	2015	2014	$		%
Number of orders – domestic	317	261	56		21
Number of orders – international	208	214	(6	)	(3	)
Number of orders – total	525	475	50		11
Average order size – $	1,583	2,233	(650	)	(29	)

Grant revenues of $378,439 in 2015 consisted entirely of revenue from the Phase II SBIR grant from the US Department of Energy. This Phase II SBIR was a grant awarded from the DOE as a follow-on for continued development of the materials investigated under the Phase I program entitled “Low-cost, High-Energy Si/Graphene Anodes for Li-Ion Batteries.” This award was for a total of $999,899 to fund a research project over a planned two-year period commencing in January 2014 and originally expiring December 2015. A no cost contract extension has been approved with a new expiration date of June 22, 2016. A total of $841,532 has been billed against the grant, $463,093 in 2014, and $378,439 as of December 31, 2015. All 2014 and 2015 grant revenues are recorded as time and expenses are incurred according to the grant contracts. The table below shows the components of grant revenue.

Components of Grant Revenue

	Year Ended December 31
	2015		2014
US Department of Energy grant	$	378,439	$	463,093
Navitas Systems sub-contract award		—		30,000
Michigan Economic Development Corporation Emerging
Technologies award		—		128,000
Pure Michigan Connect Technology award		—		39,440
Total	$	378,439	$	660,533

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Licensing revenues during the years ended December 31, 2015 and 2014 were accrued based on minimum royalty payments from a production license granted in 2011, which stipulates a minimum of $100,000 in royalties are due to XGS starting in 2014 and annually thereafter. These revenues are being accrued at the rate of $25,000 per quarter. However a dispute has arisen regarding interpretation of the licensing agreement, so we reserved half of these revenues as a potential bad debt. Please see the discussion of bad debt expense in the subsection entitled “Sales, General and Administrative Expenses” herein below.

Cost of Goods Sold

We use a standard cost system to estimate the direct costs of products sold. Direct costs include estimates of raw material costs, packaging, freight charges net of those billed to customers, and an allocation for direct labor and manufacturing overhead. Because of the nature of our production processes, there is a substantial fixed manufacturing expense requirement that represents the ongoing cost of maintaining production facilities that are not directly related to products sold, so we use a “full capacity” allocation of overhead based on an estimate of what product costs would be if the manufacturing facilities were operating on a full-time basis and producing products at the designed capacity. This estimate involves estimating both the level of expenses as well as production amounts as if the manufacturing facility were operating on a continuous, three-shift, production basis.

The following table shows the relationship of direct costs to product sales for the years ended December 31, 2015 and 2014:

Gross Profit Summary

	Year Ended December 31						Change 2014 - 2015
	2015			2014			$		%
Product Sales	$	164,153		$	874,469		(710,316	)	(81.2	)
Direct Costs		97,590			226,678		(129,088	)	(56.9	)
Direct Cost Margin	$	66,563		$	647,791		(581,228	)	(89.7	)
% of Sales		40.5	%		74.1	%
Unallocated Manufacturing Expense		1,750,124			2,522,653		(772,529	)	(30.6	)
Gross Profit (Loss) on Product Sales	$	(1,683,561	)	$	(1,874,862	)	191,301		10.2

We believe that the fluctuations in direct cost from period to period are not indicative of overall performance or of future margins because of the relatively small size of our sales in comparison to our future expectations. Direct costs vary depending on the size of an order, the specific products being ordered, and other factors like shipping destination. Furthermore, the sales for the first half of 2014 were influenced by one large order for custom materials which was priced with higher than average prices as compared with our standard materials.

Costs associated with grant revenues tend to be a mixture of facilities use, management time, labor from scientists, technicians and manufacturing personnel, and some supplies. Because of the difficulty of developing and maintaining an administrative system to gather direct costs for grants, together with the relatively small size of grant revenues, we do not track direct costs for grant revenues as a separate cost category. Therefore, we do not calculate direct cost margins associated with grant revenues but, rather, we view these revenues as being supported by indirect corporate expenses.

Costs associated with licensing revenue tend to be a mixture of IP costs as well as management and administrative expenses that are indirect in nature. As such, we do not assign direct costs to licensing revenues. Where revenues from a license agreement can be assigned to specific product revenues, we classify these revenues as product sales and, using our standard cost system, assign direct costs to those sales.

The remaining “non-direct” costs of operating our manufacturing facilities are recorded as unallocated manufacturing expenses. This expense includes personnel costs, rent, utilities, indirect supplies, depreciation, and related indirect expenses. Unallocated manufacturing expenses are expensed as incurred.

Overall product margins are greatly influenced by unallocated manufacturing expenses, which are those overhead costs that represent the fixed costs of our factory, production personnel, utilities, and so forth that are not yet being covered by our sales level. We allocate these costs as direct product costs on the basis of the proportion of these expenses that would be representative product costs if we were operating our factory at full capacity. 

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For the year ended December 31, 2015, unallocated manufacturing expenses were down by $772,529 or 31% from the comparable period in 2014. The largest part of this decrease was decreased payroll, tax and benefit costs caused by a reduction in work force. Total manufacturing personnel fluctuated from period to period. On December 31, 2015 there were 9 manufacturing personnel as compared to 27 on December 31, 2014. Overall decreases in other unallocated expense areas were due to cost containment measures.

The following table shows a comparison of the major expense categories that make up unallocated manufacturing expense for the years ended December 31, 2015 and 2014:

Manufacturing Expense

	Year Ended December 31						Change 2014 - 2015
	2015			2014			$		%
Payroll, Tax & Benefits	$	384,368		$	881,949		(497,581	)	(56.4	)
Materials Used		79,670			183,905		(104,235	)	(56.7	)
Supplies		53,860			88,306		(34,446	)	(39.0	)
Equipment Repairs & Maintenance		130,652			188,223		(57,571	)	(30.6	)
Building Lease		216,929			192,223		24,706		12.9
Utilities		179,267			191,231		(11,964	)	(6.3	)
Depreciation		783,153			681,983		101,170		14.8
Tools & Equipment		19,532			52,934		(33,402	)	(63.1	)
All Other		50,303			256,746		(206,443	)	(80.4	)
Allocated to Direct Costs		(147,610	)		(194,847	)	47,237		(24.2	)
Total	$	1,750,124		$	2,522,653		(772,529	)	(30.6	)

Research and Development Expenses

The following table shows a comparison of the major expense categories that make up research and development expenses for the years ended December 31, 2015 and 2014:

Research & Development Expenses

	Year Ended December 31				Change 2014 - 2015
	2015		2014		$		%
Payroll, Tax & Benefits	$	797,308	$	876,183	(78,875	)	(9.0	)
Lab Supplies		103,444		37,023	66,421		179.4
Equipment Repairs & Maintenance		30,831		6,394	24,437		382.2
Building Lease		112,906		108,080	4,826		4.5
Utilities		30,305		22,962	7,343		32.0
Depreciation		146,970		142,785	4,185		2.9
Tools & Equipment		40,247		15,637	24,610		157.4
Contracted Services		180,982		203,271	(22,289	)	(11.0	)
All Other		42,290		37,143	5,147		13.9
Total	$	1,485,283	$	1,449,478	35,805		2.5

There were sizable increases in the current year for purchases of lab supplies, tools, equipment and maintenance. Most of the current year increases are attributable to increased activity on the US Department of Energy (DOE) grant previously mentioned. Payroll related expenses in the current year are lower than prior year because of a reduction in staff in the fourth quarter of 2015.

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Sales, General and Administrative Expenses

The following table shows a comparison of the major expense categories that make up sales, general and administrative expenses for the years ended December 31, 2015 and 2014:

Sales, General & Administrative Expenses

	Year Ended December 31					Change 2014 - 2015
	2015			2014		$		%
Payroll, Tax & Benefits	$	2,361,489		$	2,341,088	20,401		0.9
Non-cash Stock Option Compensation		554,666			588,529	(33,863	)	(5.8	)
Building Lease		57,324			51,104	6,220		12.2
Professional Fees		447,993			721,024	(273,031	)	(37.9	)
Capital Funding Expense		—			56,287	(56,287	)	(100.0	)
Travel & Entertainment		76,412			114,795	(38,383	)	(33.4	)
Directors Fees & Expense		74,114			81,758	(7,644	)	(9.3	)
Contract Engineering		(10,630	)		79,075	(89,705	)	(113.4	)
All Other		557,961			371,606	186,355		50.1
Total	$	4,119,329		$	4,405,266	(285,937	)	(6.5	)

During 2015, the overall expenses in this category decreased 6.5%, from the corresponding period in 2014, primarily because of sizable decreases in professional fees, capital funding expenses, and travel and entertainment.

The most notable increases can be seen in our sample costs and our bad debt expense. The current year includes $37,000 of sample cost for one large customer. The current year also includes a charge for $100,000 to bad debt expense which represents an allowance for the potential that a portion of the $150,000 recorded in Other Current Assets at December 31, 2015 may not be collectible from the licensing agreement with POSCO. The terms of the agreement are being disputed by POSCO and may have to be settled by arbitration.

Other Income (Expense)

The following table shows a comparison of other income and expense by major expense component for the years ended December 31, 2015 and 2014:

Other Income (Expense)

	Year Ended December 31						Change 2014 - 2015
	2015			2014			$		%
Incentive Refund & Interest Income	$	94,507		$	117,940		(23,433	)	(19.9	)
Interest Expense		(7,387,256	)		(1,507,374	)	(5,879,882	)	390.1
Gain (loss) from change in fair valuc of derivative liability – warrants		(2,513,476	)		503,186		(3,016,662	)	(599.5	)
Extinguishment Loss on Covetable Notes		—			(3,513,770	)	3,513,770		(100.0	)
Loss on disposal of equipment and intangible assets		(66,686	)		(54,967	)	(11,719	)	21.3
Total	$	(9,872,911	)	$	(4,454,985	)	(5,417,926	)	121.6

Interest expense for the year ended December 31, 2015 is $5.9 million higher as compared to the same period in the prior year for two reasons: (1) because the current year reflects accrued interest on $14.1 million of convertible notes and in prior year the convertible note balances fluctuated between $4.5 million and $13.7 million as proceeds from the note sales occurred throughout the year; and (2) upon conversion of our secured convertible notes (which occurred on December 31, 2015 as opposed to their original maturity date of March 18, 2018) the remaining unamortized discount of $5.1 million was recognized as a non-cash interest expense. The loss on extinguishment of the secured convertible notes in 2014 was a one-time entry to reflect the note modifications executed on January 15, 2014.

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Cash Flow Summary

Ongoing cash usage for operations has decreased in 2015 as compared to the same period in 2014 because of reduced operating expenses, as discussed above. The following simplified cash flow statement compares cash usage for the past two years.

Cash Flow Summary

	Year Ended December 31						Change 2014 - 2015
	2015			2014			$		%
Cash, beginning of period	$	2,088,866		$	95,342		1,993,524		2090.9
Net Cash provided (used) by:
Operating activities		(5,635,517	)		(6,490,914	)	855,397		(13.2	)
Investing Activities		(246,759	)		(1,083,196	)	836,437		(77.2	)
Financing Activities		4,853,634			9,567,634		(4,714,000	)	(49.3	)
Net increase (decrease) in cash		(1,028,642	)		1,993,524		(3,022,166	)	(151.6	)
Cash, end of period	$	1,060,224		$	2,088,866		(1,028,642	)	(49.2	)

Accounts receivable balances of $54,413 and $124,983 at December 31, 2015 and 2014 respectively are included in the current assets line item in the table above (net of a $10,000 allowance for uncollectible accounts in each year). The decrease is as a result of decreased revenues during 2015.

Inventory balances of $229,034 and $132,459 at December 31, 2015 and 2014 respectively are included in the current assets line item in the table above. The increase of $96,575 represents increased finished product on hand in the current year as the Company ramps up for anticipated sales volume in the future.

Current assets at December 31, 2015 are $1,005,088 lower than the previous year. The decrease is primarily caused by the decrease in available cash due to the reduction of new financing from 2014 to 2015 discussed further below.

A decrease in accounts payable of $369,761 reflects the pay down of high accounts payable balances at both fiscal year-ends. The payables balances were high at year-end because of cash flow management related to the timing of new financings.

During 2014, we had significant financing activity and raised a total of $9.6 million in new financing, primarily from the sale of convertible notes, giving us a cash balance on December 31, 2014 of $2.1 million. In the first half of 2015, we raised an additional $4.3 million in new financing through the sale of Series B Units at a price of $16 per unit. In December 2015, we sold $0.6 million of December Notes and related December Warrants.

Net capital expenditures for the purchase of property and equipment were $131,842 during 2015, down from $924,947 during the corresponding period in 2014. These levels of capital expenditures are relatively lower than expected in the future as we begin to ramp up our production capacity to meet customer orders. Therefore, these expenditures should not be interpreted as indicative of future expenditures in this area. Overall investment activities used a total of $246,759 during 2015, much lower than the $1,083,196 spent during 2014.

Liquidity and Capital Expenditures

Ongoing cash flow from operations has been negative throughout our history. In addition, we have invested significant amounts in research and manufacturing capabilities. We anticipate that we will need to invest further to support ongoing operations for a minimum of another one to two years. We currently do not have sufficient cash or commitments for financing to sustain our operations for the next twelve months. Our plan is to develop customer relationships and increase our revenues derived from our products and IP licensing. Furthermore, although we have historically incurred operating losses, we have been able to fund such losses primarily by selling common and preferred stock and convertible notes. We had cash on hand at December 31, 2015 of $1,060,224, and as of the date of this prospectus, we have cash on hand which is only sufficient to fund our operations through the end of March 2016. We believe we will need approximately $4.8 million to sustain us for the next twelve months.

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The Company’s financial projections show that the Company may need to raise an additional $15,000,000 or more before it is capable of achieving sustainable cash flow from operations. We intend that the primary means for raising such funds will be through this offering. However, we cannot make any assurance that the Company will be able to raise these funds or that the terms and conditions of future financing will be workable or acceptable for the Company and its stockholders.

We also currently forecast a need for additional capital expenditures to execute on our business plan. The amount and timing of such expenditures will be dependent on the timing and magnitude of sales orders received from customers, but we currently anticipate a need to invest approximately $1 million to $6 million per year during the upcoming three-year period. We plan to fund these investments through a mixture of capital lease financing, debt financing, and equity financing. If we are unable to obtain such financing, we may be forced to curtail our investment activities and this may limit our ability to grow our revenues as fast as we would like.

Additionally, we anticipate that as our sales increase we will need to invest funds in working capital to support additional inventory and accounts receivable. We anticipate that, for every $1 million increase in annual sales, we may need to invest as much as $250,000 in working capital.

Taken together, these multiple cash requirements will likely exceed our cash flow from operations for at least one to two years, so we foresee a need to continue investing in our business.

Although there can be no guarantee of successful funding in the future, we intend to pursue the sale of additional equity, as discussed throughout this prospectus, as well as additional debt or lease financing in the future, until such time as ongoing revenues begin to generate a positive monthly cash flow from the business sufficient to cover our cash requirements.

In the event we are unable to fund our operations from existing cash on hand, operating cash flows, additional borrowings or raising equity capital, we may be forced to reduce our expenses, slow down our growth rate, or discontinue operations. Our consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should we be unable to continue as a going concern.

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DESCRIPTION OF OUR BUSINESS

Overview

XG Sciences, Inc. was formed in May 2006 for the purpose of commercializing certain technology to produce graphene that had been developed at MSU. First discovered in 2004, graphene is a single layer of carbon atoms configured in an atomic-scale honeycomb lattice, and is noted for its strength, density, impermeability, light weight, and both electrical and thermal conductivity. Among many noted properties, graphene is harder than diamonds, lighter than steel but 200–300 times stronger, and conducts electricity better than copper. Graphene nanoplatelets are particles consisting of multiple layers of graphene. The technology licensed from MSU consists of several U.S. patents, patent applications in process and MSU Invention Disclosures. In addition, our in-house personnel have made many further discoveries and inventions that are embodied in the form of issued patents, additional patent applications, and trade secrets and other proprietary information. (See also subsection entitled “Description of Our Business — Intellectual Property” below).

We manufacture and sell a material we call xGnP® brand graphene nanoplatelets. This material consists of ultrathin particles of graphite that are short stacks of graphene. We currently offer this material in different thicknesses, designated by the “grade” of material, as well as different particle sizes within each grade. There are three commercially available grades, each of which is currently offered in three standard particle sizes. We have other developmental grades that may be made available on a commercial basis if their need in the market warrants commercialization. We believe graphene nanoplatelets are a game changer for numerous industries and we estimate the market for graphene will quickly grow to be a billion dollar opportunity with XGS as a first mover. Graphene is a new material and is just beginning to find commercial applications. However, not all graphene is the same. The primary manufacturing processes in use today are plotted below as a function of their ability to tailor both thickness (correlates with surface area) and particle size.

These attributes, as summarized below, will impact their fit for various applications. XG Sciences uses two primary, proprietary processes to create our xGnP® nanoplatelets. We believe we are well positioned from both a cost and performance perspective to be able to address a wide range of end-use applications. We have chosen to not pursue a graphene oxide process as it is inherently more costly, produces nanoplatelets with more surface functional groups and higher levels of dislocation (e.g., holes) in the basel planes, both of which tend to degrade electrical and thermal performance. Gas phase processes produce very small particle sizes which make them slightly better for applications where optical purity is a requirement. However, gas phase processes are both costly and difficult to scale. Expanded graphite is created by swelling natural graphite in a solvent like NMP and then sonicating (the act of applying sound energy to agitate particles) to separate the layers. The process tends to make rather thick material which limits the amount of platelet overlap that can be achieved and therefore degrades properties such as electrical and thermal conductivity. In addition, many applications will not tolerate residual solvent that is difficult and costly to remove.

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Graphene has been hailed as a “miracle material” because of its many potential uses in products ranging from hand-held electronics to automobiles to spacecraft. Its material properties include very high strength, very high thermal conductivity, good electrical conductivity, strong barrier properties, and very high stiffness. These properties make graphene potentially useful in thousands of specific products.

The term “graphene” is used in the popular press to cover a variety of specific forms of the material, but we generally think about two broad classes of graphene materials:

1. One-atom thick films of carbon, manufactured from gases by assembling molecules to form relatively large, transparent sheets of material. We do not manufacture these films and do not participate in the markets for these films.

2. Ultra-thin particles of carbon that usually consist of a few layers of graphene sheets. Because they are thin and can be manufactured in a range of diameters, these graphene particles are useful for a wide variety of applications. Our typical particles are about 5 nanometers thick — or about 50,000 times thinner than a human hair and range in diameter from less than 1 micron to 100 microns. The manufacture of these graphene particles is our main area of expertise, and their use in practical applications is the focus of our marketing and development efforts.

XG Sciences offers an advanced material platform in that we can produce varying grades of graphene nanoplatelets, each of which can be customized in many ways. Our manufacturing processes control the attributes of the graphene nanoparticles as summarized below. These attributes contribute to a range of properties that can be mapped to various functions and applications. Because we have multiple production processes and because we have invested in application know-how and development of value-added product formulations, we are able to address a range of market needs in multiple market segments, providing breadth to our base capabilities and product portfolio.

Graphene market projections are difficult to accurately predict. This is primarily related to the fact that it is a relatively new material for which no historical use data exists on a commercial scale. However, because graphene is a new form of carbon and with unique performance attributes, one may consider other carbon forms such as carbon nanotubes or carbon fibers or activated carbon as a basis for estimating the potential market size for graphene where graphene’s enhanced performance may take market share from one or more of the more established forms of carbon. We also estimate target market sizes by using a

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bottom-up approach where we look at existing applications for graphene and estimate sales by year as a function of graphene’s unique performance attributes and value proposition for specific customers. In some instances, we are able to get fairly granular data on market estimates. In other areas, we must infer a potential market size from related materials.

The figure given below provides estimates for the 2018 total available market in a range of target applications. Since our advanced materials are sometimes used as a replacement material to supplant the current materials used in these applications and are sometimes used as an additive material to augment the incumbent materials, it is difficult to determine exact market potential by segment. This information does provide an indication the relevant markets and their respective sizes. Naturally, we do not expect to capture all of these markets, but we do see opportunities to capture significant market share (1% to 20%) in these targeted markets. However, there can be no guarantees. The following discussion applies to the individual segments of the chart:

• “High strength composites” is the size of the carbon fiber market used in advanced composites for automobiles and industrial applications. xGnP® offers improvements in physical properties in a range of matrices and is a candidate to augment and/or substitute carbon fibers in high strength composites.

• “Lithium Ion Battery Anode Active Materials” is a forecast for total carbon materials sold into the application, for which our SiG materials are a potential direct replacement with significant performance advantages.

• “Thermal Paper” is the forecast annual sales of “carbon-based” sheet products used to control thermal spreading or provide heat management in portable electronic devices.

• “Automotive” includes miscellaneous automotive applications such as electronic shielding of engine or control components, circuits printed with conductive inks, and thermal shielding.

• “Sensors” includes carbon-based sheets or printed substrates into which our materials may be incorporated to improve results.

• “Packaging” includes conductive inks or coatings printed on packages as part of circuits or sensors.

• “RFID” means Radio Frequency Identification Devices that are printed or installed on packaged items to facilitate tracking. Our materials can be used in conductive inks and components used to print circuits, batteries, or antennas.

• “Supercapacitors” means high-capacity capacitors that are typically fabricated with electrodes made from high-surface area carbon materials.

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Note: Market sizes estimated by XG Sciences, based on customer input as well as reference market sizes for equivalent or identical materials from outside market research sources including:

(1) ID Tech “Graphene Markets, Technologies and Opportunities 2013 – 2018.”

(2) ID Tech “Conductive Ink Markets 2014 – 2024, Silver & Copper Inks & Pastes — and Beyond.”

(3) Avicenne Energy “The Rechargeable Battery Market, 2014 – 2025” July 2015.

(4) Prismark Partners “Thin Carbon-Based Heat Spreaders” August 2014.

ID Tech, in a recently published study (Graphene Markets, Technologies and Opportunities 2013–2018), estimates 2018 global graphene sales slightly in excess of $100 million and in a range of applications. Their projections are based largely on replacement of existing carbon-based materials and with very minimal market penetration. They do not consider such products as SiG, and XG Leaf® that are new products incorporating our ability to tailor the form and function of xGnP® into value-added product platforms. We expect to generate sales from the design and manufacture of both our xGnP® nanoplatelets and products derived therefrom. As such, we are not able to rely on market projections such as those provided by ID Tech and use a combination of total available market data, customer input and internal estimates. We have sold materials to more than 850 customers, many of whom are household names, evaluating graphene for numerous different applications, including, but not limited to lithium ion batteries, supercapacitors, thermal shielding and heat transfer, inks and coatings, printed electronics, construction materials, composites, and military uses.

In addition to our bulk material, which normally ships in the form of a dry powder, we also offer our materials in the form of dispersions of nanoplatelets in liquids such as water, alcohol, or organic solvents, or mixed into resins or polymers such as epoxies or urethanes. Additionally, we offer a sheet product, called XG Leaf®, to potential customers for a variety of thermal spreading and other applications. XG Leaf® is ideally suited for use in thermal management in cell phones, tablets and PC’s. As these devices continue to adopt faster electronics, higher data management capabilities, brighter displays with ever increasing definition, they generate more and more heat. Managing that heat is a key requirement for the portable electronics market and our XG Leaf® product line is well suited to address the need. In a press release dated, March 3, 2015, Gartner, Inc., a leading research organization, estimated the 2014 global cell phone market at 1.88 billion units. Every cell phone has some form of thermal management system, and we believe many of the new smart phones being developed can benefit from the performance advantages we are able to achieve with XG Leaf®. In August 2015, IDC in their Worldwide Quarterly Tablet Tracker estimated the global shipment of tablets 2015 at 212 million units. Thus, we believe our XG Leaf® product line is well positioned to address a very large and rapidly growing market.

We also offer a specially formulated silicon-graphene composite material (also referred to as “SiG” in this prospectus) for use in lithium-ion battery anodes. SiG targets the never-ending need for higher battery capacity and longer life. In several customer trials, our SiG material has demonstrated the potential to increase battery energy storage capacity by 3-5x what is currently available with conventional lithium ion batteries today. The market for materials used in lithium ion battery anodes is large and growing as shown in the figure below (Avicenne Energy, “The Rechargeable Battery Market, 2014-2025”, July 2015). We believe our ability to address next generation anode materials represents a significant opportunity for us.

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We also offer specially-formulated inks for electrical and thermal applications that are showing promise in diverse customer applications such as advanced packaging, electrostatic dissipation and thermal management.

These three product areas — custom XG Leaf® sheets, our XG SiG™ anode materials, and custom inks/coatings — comprise the set of core value-added product groups on which we are focusing our internal development resources.

Significant Accomplishments

Since our founding in May 2006, we have been one of the global pioneers in graphene nanoplatelet markets. As a prospective manufacturer of a newly discovered advanced material, our development efforts required us to invent appropriate manufacturing processes and methods to scale these processes at economic costs, to hire world-class employees, to introduce our products to customers around the world, and to demonstrate the scientific merits of our materials. Specific accomplishments related to these tasks include, but are not limited to, the following:

• Developed and launched three grades (Grades C, H & M) of xGnP® graphene nanoplatelets bulk powders, each of which is offered in three standard particle sizes, for a standard bulk product portfolio of nine different materials.

• Developed and launched three higher margin, value-added product families:

- XG Leaf® sheet products for a variety of electronics and industrial applications.

- Silicon-graphene composite anode materials for lithium-ion batteries.

- Custom formulated inks and coatings designed to take advantage of the special properties of our graphene nanoplatelets in targeted customer applications.

• Established sales distributors in Japan, South Korea, Taiwan, Italy, Germany and China.

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• Completed a research contract from the US Air Force for high energy-density ultra-capacitors.

• Won a competition that resulted in a research contract from the U.S. Department of Energy (DOE) for ongoing development of high-capacity anode materials for electric vehicles based on the Company’s SiG material.

• Secured an additional $1.0 million grant from the DOE for further research into silicon graphene.

• Collaborated with Oak Ridge National Laboratory to explore metal-matrix materials using xGnP graphene nanoplatelets to modify the properties of metals like titanium.

• Was recognized as a world leader in the graphene market space by Lux Research and named one of the “Top Ten Innovative Companies” profiled by Lux.

• In March 2015 was named a “Michigan 50 Companies to Watch” by Michigan Celebrates Small Businesses.

• Hired Dr. Philip L. Rose as CEO. Prior to joining XGS, Dr. Rose was President of SAFC Hitech, a $100 million division of Sigma-Aldrich Corporation that makes precursors and performance materials for the LED, energy and display, and semiconductor markets.

• Hired Dr. Liya Wang, who led the A123 Systems next generation cathode development efforts, as Director of Emerging Technologies.

• Raised $31.2 million of equity and equity-linked capital from inception to August 31, 2015.

In addition, set forth below are tables which evidence our customer growth over time and orders by year from 2008 through 2014:

The above tables show total orders and customers based on actual purchases of our materials and do not include free samples or materials used in joint development programs. Nevertheless, the total dollar volume of these orders is not yet sufficient to cover our fixed operating expenses. The average order size in 2014, for example, was $2,175, which indicates to us that most of these orders are for materials that are not yet incorporated into large-volume commercial products.

Products

We manufacture and sell a material we call xGnP® brand graphene nanoplatelets. This material consists of ultrathin particles of graphite that are short stacks of graphene. We currently offer this bulk material in different thicknesses, designated by the “grade” of material, as well as different particle sizes within each grade. There are three commercial grades (Grades C, H & M), each of which is offered in three standard particle sizes. We use two different commercial processes to produce these bulk materials:

• Grade H/M materials are produced through chemical intercalation of natural graphite followed by thermal exfoliation. The “grade” designates the thickness of the material, and each grade is available in various average particle diameters. Surface area, calculated by the Brunauer, Emmet, and Teller (BET) Method, is used as a convenient proxy for thickness, so each grade in this area is designated by its average surface area, which ranges from 50 to 150 m2/g of material.

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• Grade C materials and some related composite materials are produced through a high-shear mechanical exfoliation using a process and equipment that we invented, designed, and constructed. The Grade C materials are smaller particles than the other grades, and Grade C materials are designated by their BET surface area, which ranges from 300 to 800 m2/g.

In addition to our bulk material, which normally ships in the form of a dry powder, we also offer our material in the form of dispersions of nanoplatelets in liquids such as water, alcohol, or organic solvents, or mixed into resins or polymers such as epoxies or urethanes. We recently introduced a new Grade of xGnP® powders, R-Grade, with improved electrical conductivity targeting use in LiB as a cathode conductive additive and for use in various conductive ink applications.

Additionally, we offer a value-added product line we call XG Leaf®, which consists of thin sheets formulated with the Company’s materials to meet a variety of thermal management and heat shielding applications.

We also offer a mixture of materials that we call “silicon-graphene composite material” (“SiG”, or “XG SiGTM”) that is intended for use in formulating anodes of lithium-ion batteries. This new material recently demonstrated 3-5 times the energy capacity of traditional carbon graphite anodes used in lithium ion batteries today, which the Company believes may be a revolutionary breakthrough for the battery market.

We also offer a set of standardized ink formulations suitable for printing. These inks offer the capability to print electrical circuits or antennas, or might be suitable for other electrical or thermal applications. All of these formulations can be customized for specific customer requirements.

Thus, we manage our business with four major product lines at this time:

• Bulk materials, which we sell under the trademarked brand name of xGnP® graphene nanoplatelets. These materials are produced in various grades, which are analogous to average particle thickness, and average particle diameters. Overall, there are three different standard commercial grades, each of which is available in three different standard particle sizes and multiple customer sizes. These bulk materials are especially applicable for use as additives in polymeric or metallic composites, or in coatings or other formulations where particular electrical, thermal or barrier applications are desired by our customers.

• Energy storage materials. These consist of specialty advanced materials that have been formulated for specific applications in the energy storage segment. Chief among these is our silicon-graphene composite material that we offer to manufacturers of li-ion batteries. Additionally, we offer various bulk materials for use as conductive additives for cathodes and anodes in li-ion batteries, as an additive to anode slurries for lead-carbon batteries and are investigating the use of our materials as part of other battery components.

• XG Leaf®. XG Leaf® is a family of sheet products that we manufacture for industrial, electronics, and automotive markets. These sheets are made using special formulations of xGnP® graphene nanoplatelets as precursors, along with other materials for specific applications. There are several different types of XG Leaf®, varying based on their composition and available in various thicknesses, depending on the end-use requirements for thermal conductivity, electrical conductivity, or resistive heating.

• Inks and Coatings. These consist of specially-formulated dispersions of xGnP® together with solvents, binders, and other additives to make electrically or thermally conductive products designed for printing or coating and which are suitable for a variety of industrial applications.

Our general business plan is to use our scientific and manufacturing expertise to develop specific products based on our xGnP® graphene nanoplatelets for end-use applications in industrial, electronics, aerospace, automotive, military, and similar OEM markets. Our initial focus is on developing high-value products that use our bulk materials as a significant component. We work closely with customers to design our products to meet their needs. Because these needs may be unique to a given customer and/or a given application, we may formulate and ultimately commercialize customer-specific formulations. These formulations, to the extent possible, will be made available to other customers. It is more likely that a new customer will require a combination of our technologies to derive a customer-specific performance outcome. Successful execution requires a close development relationship with customers and an ability to formulate products for use in multiple markets and for multiple customers.

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Within the various markets we serve, we prioritize our efforts in specific areas and with specific customers that we believe represent opportunities for either relatively near-term revenue or especially large and attractive markets. At this time, we focus our highest priority in two areas:

• Silicone-graphene composite materials for lithium-ion battery anodes. This is a material that has shown superior early results in laboratory and early prototype battery testing. Although there is still scientific development, testing and prototyping that remain to be done, we perceive a significant market opportunity in this area and we devote almost half of our development efforts to this product.

• XG Leaf® materials for thermal applications in electronics. Early testing with customers has produced promising results in applications requiring high thermal conductivity in thin (20–40 microns) and thick (70–120 microns) sheets, depending upon the end-use application. Typical applications include the use of these materials in smart phones, tablets, and portable computers. While there are many other applications for XG Leaf® that include electrostatic dissipation (“ESD”), electromagnetic interference (“EMI”) shielding and resistive heating, our initial focus is on thermal management.

The following diagram shows some of the specific application areas within our major target markets, and gives a general indication of the time horizons we assign to these application areas at this time.

GRAPHENE NANOPLATELETS, VALUE-ADDED PRODUCTS/APPLICATIONS AND RELATED 2018 TOTAL AVAILABLE MARKETS.

* Near Term means less than 2 years; Medium Term means 2-3 years; and Longer Term means longer than 3 years.

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Markets

Energy Storage Markets

One of the more exciting near term market opportunities is the market for rechargeable batteries. In general, lithium-ion battery (“LIB”) technology is the dominant technology for rechargeable batteries throughout the world. The global LIB market is large and growing rapidly. The figure below is a representation of the LIB value chain and the associated 2014 revenue, according to Avicenne Energy (The Rechargable Battery Market 2014-2015, July 2015). The 2014 LIB market was $13.6 billion at the cell level and $19.6billion at the pack level (multiple cells sold at the aggregate level). The primary materials used in the production of LIB’s represent $6.0 billion in 2014 revenue. We target our products and technology toward both the cathode and anode material segments. The 2014 market for cathode materials was $2.5 billion with a 2004 to 2014 compound annual growth rate of 16%. The 2014 market for anode materials was $0.8 billion with a 2004 to 2014 compound annual growth rate of 14%. The second figure, 2014 LIB Anode Materials, provides further segmentation of the materials comprising LIB anodes and their relative volume contributing to the $0.8 billion in 2014 revenue.

Our SiG materials target replacement of the carbon and graphite(s) used in current generation LIBs. Because our materials have a much higher energy density than these traditional materials, these market sizes do not translate exactly into the potential for our SiG materials, but we estimate that we are addressing a segment that represents in excess of $500 million sales opportunity by 2016. Although the anode segment that we address with our SIG materials is relatively large, it comprises only about 6% of the overall value of the finished battery. Thus, we believe there is room for premium products in this segment in exchange for higher overall battery performance. XGS is actively engaged with LIB manufacturers to design our SiG material for use as a component of anodes in next generation LIBs. We believe that our SiG material, once successfully developed, qualified and used commercially in next-generation LIBs, will allow for improved storage capacity and battery life — key performance features of interest within the LIB industry.

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We further target use of our xGnP® materials as conductive additives in LIB cathodes. The figure below provides details of the 2014 market volume for active materials used in LIB cathodes including: nickel cobalt aluminum, lithium iron phosphate (“LFP”), spinel-based lithium-ion (“LMO”), nickel cobalt magnesium and cobalt-based lithium ion (Avicenne Energy, The Rechargeable Battery Market 2014-2025, July 2015). Active cathode materials will vary by end-use performance requirements. Another material used in the cathode is a conductive additive, whose incorporation improves the electron transport characteristics of the cathode — a key performance feature of interest within the LIB industry. LFP- and LMO-based cathodes have relatively low inherent conductivity and can most benefit from use of a conductive additive. Conductive additives are typically used in 1–3% of the weight of the active cathode materials. We are engaged with LIB manufacturers to design our xGnP® materials for use as a cathode conductive additive in next generation LIBs.

The LIB market is often divided into two major segments, each of which has different technical, cost, and efficiency requirements:

- The industrial market consists of electric and hybrid vehicles, grid storage, and similar heavy-duty applications. These applications require long life, extreme safety, high-power capacity, durability, and the ability to operate in extreme ranges of environmental conditions.

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- The market for consumer electronics uses LIB technology to power the devices we carry in our pockets, purses and briefcases. These devices need small batteries, with high power density, that charge rapidly and do not cost much. This market is dynamic and has an insatiable appetite for smaller, cheaper, faster-charging, higher capacity batteries.

These market segments have different development timelines and the marketing strategies and the route-to-market that we pursue differs markedly in these two segments.

For industrial applications, we work closely with the DOE, which is the primary driving force in the US, as well as large US battery manufacturers. The DOE operates a number of national laboratories like Argonne, Oak Ridge, Lawrence Berkeley, and Los Alamos national labs, where much of the advanced battery research is performed. The DOE has laid out a “road map” for battery development in the US, with guidelines and targets for performance and costs for the next decade. The DOE spurs development of new technology by sponsoring research through grants and challenge programs. Therefore, we work to maintain close ties with the national laboratories as well as vehicle program managers in Washington D.C. and to participate in DOE grant programs, conferences, and joint development programs. Although we hope to receive grants to offset some of the research costs, the main advantages from this approach are that we stay abreast of technology developments and we get our technology dispersed through the battery research community in a highly credible manner. The development cycle for industrial batteries is a multi-year effort that is spearheaded by billions of dollars of government spending.

For consumer applications, we focus on the large consumer battery manufacturers, which are almost all in Asia. These companies perform their own research, development, and battery engineering. Names like Samsung, Panasonic, and LG Chem are familiar to most Western consumers, but other companies like ATL, Envision, Wanxiang, BYD, Lishen, BAK, and many other Chinese companies are rapidly growing and represent potentially large sales opportunities for XGS. Our general strategy in the Asian markets is to engage customers on sampling and joint development to design our technology into our customer’s products. We have a network of distributors, who have close connections to the customers in their countries and also provide assistance in customer collaboration.

Our main internal development focus has been on the use of our proprietary manufacturing processes and proprietary materials to produce a composite material composed primarily of silicon and graphene. We also develop xGnP® materials for use as conductive aids in both the cathode and anode formulations. We believe that our manufacturing processes and ability to control the structure of the SiG composite material at the nano-level offer the opportunity for us to develop new battery anode materials. During the past year, we made significant progress with our development efforts and have demonstrated in our labs a silicon-graphene nanocomposite material that delivers 3–5 times the energy storage capacity of traditional carbon graphite anodes. This material is produced using our proprietary process using readily available, low-cost precursors.

We believe this is a significant breakthrough for lithium-ion battery development for two reasons. First, this material has the highest capacity of any electrode that we are aware of that is currently available on the commercial market. Second, we believe we can offer this material at prices that are acceptable to most commercial battery manufacturers and at the needed scale. We believe that the combination of commercially viable pricing, demonstrated manufacturing scale and high performance for this new anode material will give us access to many of the more significant battery makers in the world today.

In January 2014, we announced an investment by Samsung Ventures in the Company’s secured convertible notes. As part of the investment, we agreed with Samsung Ventures that the two companies would engage in a joint development program to develop anode materials for lithium-ion batteries for use in certain Samsung applications. One Samsung subsidiary, Samsung SDI, is one of the world’s largest manufacturers of lithium-ion batteries. XGS and Samsung SDI entered into an agreement on April 8, 2014 to jointly develop and optimize our SiG for use in SDI’s lithium ion batteries.

XG Leaf® Markets

XG Leaf® is a unique family of thin sheets based on our graphene nanoplatelets. These sheets can be used for a variety of applications such as heat dissipation in electronics, ESD, EMI shielding, and resistive heating. Among these, thermal management applications in portable electronics have the biggest short-term market potential. There is an increased need for advanced thermal management in electronics of all sorts, but especially consumer electronics. As these products become smaller, thinner and more powerful, thermal management challenges are a major engineering barrier that needs to be overcome if the industry is to provide continued improvements in device and system performance. We developed XG Leaf® to meet such a market need.

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The key requirements for these products are thermal conductivity, thickness, mechanical strength, and cost. Currently, there are high-end products in the market such as highly ordered pyrolytic graphite (HOPG) papers which can be very thin and conductive, but are expensive due to the high-temperature, crystal-growth process involved in their manufacture. On the contrary, XG Leaf® is manufactured with a low-temperature process more akin to that of paper manufacture that offers acceptable thermal conductivity, thickness, and mechanical strength but with a lower cost. In 2012, the XG Leaf® team focused on product design and verification, process design and verification, and product/process improvement and validation. The product achieved its performance goals and samples were produced for testing by several potential customers. In late 2013, we built a pilot production line for XG Leaf® and we expanded our production capacity for XG Leaf® during the latter part of 2014 and into early 2015. As with many of our other advanced products, we are developing new production processes to produce materials for new applications and cannot be sure exactly when we will move into commercial production.

The total available market for carbon-based heat spreaders as sold to the OEM or EMS companies with adhesive, PET and/or copper backing, and for selected portable applications, is estimated by Prismark Partners as $600 million in 2014 and growing to $900 million in 2018. The market can be further segmented by both the desired thickness and thermal conductivity of the heat spreaders as shown in the table below (Source: Prismark Partners LLC, “Thin Carbon-Based Heat Spreaders”, August 2014). XG Leaf is currently ideally suited to meet the needs for >50% of the total available market and can be made in thicknesses ranging from approximately 20 microns to greater than 200 microns and with in-plane thermal conductivity up to 600 W/m^.K. We also target improved performance allowing us to meet the remaining market needs.

	Thermal Conductivity	Area (Thousand m2)
Thickness (µm)	(W/mK, in Plane)	2014	2018	CAAGR
<25	1,600 – 1,900	200	500	26%
25 – 40	1,300 – 1,600	800	1,500	17%
25 – 40	900 – 1,200	400	800	19%
25 – 40	400 – 800	1,300	3,000	23%
50 – 70	700 – 1,300	300	500	14%
50 – 70	400 – 600	400	700	15%
100 – 150	600 – 800	50	60	5%
100 – 150	300 – 500	150	200	7%
Total		3,600	7,260	19%

Markets for Ink and Coating Products

Our xGnP® graphene nanoplatelets can be made into coatings or inks for thermal, electrical, anti-corrosion, or lubricant applications. Various types of processing and application methods can be used, depending on customer systems and requirements. We have developed several products and also work with customers to provide formulations of inks or coatings to achieve targeted electrical and thermal properties.

xGnP® is potentially suited for formulating into ink-based products for deposition by flexo, gravure and screen printing processes. These inks show intermediate performance when compared to silver-based inks, the standard product used today for electrically-conductive ink requirements. Silver-based inks have high conductivity but are relatively expensive due to their use of silver. Carbon-based inks are lower cost, but have poor conductive performance and are well suited for few applications. xGnP® inks, although still a few orders of magnitude lower in conductivity than silver-based inks, are potentially less expensive to produce and have cost/performance benefits allowing them to be used in many applications. ID Tech, in a recently published report (Conductive Ink Markets 2014-2024), estimated the 2014 conductive ink market at just over $1.5 billion. In the short term, our xGnP®-based inks are designed for applications where silver-based inks exceed the cost and performance targets required for specific applications.

Other Markets

We may also choose to participate in a number of other broad market segments which we believe are large and growing and where the performance of our products may find a good fit with existing and emerging market needs. These market segments are variously referred to as “advanced materials” or “composites” or “nanotechnology” markets. Because we may compete with and replace existing materials or may create new opportunities, it is difficult to accurately quantify specific market segments. However, we believe that the broad range of existing materials and existing applications might account for hundreds of millions of dollars in annual sales. We may also participate in an emerging market segment called “nano-composites” that consists of

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new materials specifically designed to incorporate “nano” sized additives. Other product applications that have been identified for graphene and that we may pursue include, but are not limited to:

• The production of electrically-conductive composites for use in applications where electro-static dissipation (ESD), radio-frequency interference (RFI), and electro-magnetic interference (EMI) are important.

• The production of thermally-conductive composites for use in applications where heat transference is important or for applications where it is important that thermal expansion and contraction be limited.

• The production of composites that feature improved barrier performance (impermeability) to liquids or gases like engine fuels.

• The production of elastomeric-based (rubber) materials that are longer wearing and have a higher surface toughness than some alternative materials currently used.

• The production of materials designed to improve the performance of electrodes in EDLC capacitors (supercapacitors).

Multiple Applications and Products within Markets

It is also worth noting that many of our markets contain multiple applications for our products. For example, automotive markets may offer potential applications for multiple uses of our coatings technologies within one automobile, along with potential applications for our bulk material, battery anode materials, and composites made with our products. As another example, the following diagram shows possible uses for our materials within an electronic tablet.

Distribution Channels

Our business model includes the production of bulk materials and value-added products based on our proprietary production processes and the sale of these materials directly to customers around the world. We generate sales through our own sales and scientific personnel and also maintain a network of independent representatives who may assist in sales to smaller customers throughout North America. Additionally, we maintain a network of distributors and sales agents for handling customers in overseas locations. Currently, we have signed Sales Agency Agreements with companies in South Korea, Japan, Taiwan, China, and Italy and will add other distributors on a worldwide basis as needed.

We pursue a national and international customer base. We plan to develop a broader sales and marketing organization and also plan to extend production of our products to overseas locations as appropriate in the next several years. We plan to recruit and train a sales organization located at headquarters as well as locations around the world. We also plan to partner with other companies in the United States and other countries in order to further leverage our time-to-market advantage.

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Manufacturing Capacity and Concentration of Business

Our current manufacturing capacity depends on the specific grade and type of product that we are manufacturing but, given an average mix of orders, would generally be about 100 tons of annual production on a three-shift basis. We have plans to increase this capacity as needed, by adding additional equipment, but our existing facilities have capacity limits simply because of available space. If we are successful at building our revenues beyond our existing facilities’ capacity, we will consider adding additional capacity in the U.S. or overseas by adding new facilities as necessary.

Because of the nature of the applications that our customers are developing, we anticipate that we may see a few customers that account for the majority of our revenues. For example, in 2015, 2014 and 2013 the number one customer had revenue representing 15%, 37% and 77%, respectively, of total revenues. In 2015 and 2014 the customer with the second highest sales in each year represented 9% and 28% of total revenues. It is very conceivable that, as we go forward, we may have only a few customers that order enough materials to effectively utilize all of our manufacturing capacity. This would, of course, raise certain risks if those customers were to leave us in the future. Likewise, it is possible that we may find opportunities to serve these large customers with dedicated cooperative manufacturing facilities located near end-use points, or otherwise find ways to accommodate concentration risks.

Sources and Availability of Raw Materials

The raw materials we use for our products consist primarily of graphite and standard industrial chemicals that are readily available. Although we purchase raw materials used in the manufacturing of our products from a small number of sources in order to maintain the stability of the quality of the raw materials, we have the ability to purchase from numerous sources. We believe that all necessary raw materials for our products are readily available and will continue to be so in the foreseeable future. We have never had, nor do we anticipate experiencing, any shortages of such materials.

Strategic Investors

In addition to our sales of products, we also emphasize the importance of strategic investors, for several reasons. We see an opportunity to partner with larger companies as a way to accelerate our customer reach — particularly in parts of the world where we have not yet established a physical presence. In addition, many of our prospective customers are global companies with multiple manufacturing facilities in various parts of the world. These companies often seek local suppliers. In addition, these companies often seek multiple suppliers to avoid the risk of single-sourced supply. Thus, an important part of our business strategy has been to seek to develop relationships with other companies that we see as complementary partners that can help us develop our business for mutual benefit. These strategic partners typically have much greater resources than we do and represent manufacturing or technology partners or both.

During the past several years, XGS has formed relationships with a number of larger companies that it considers to be “strategic partners” where both companies can mutually benefit from combining their resources in specific ways. We foresee a likelihood of continuing partnerships with large companies as we focus on local production in non-U.S locations. The following is a short list of transactions with strategic partners or licensees:

• Hanwha Chemical. In December 2010, we sold 150,000 shares of common stock at $20.00 per share to Hanwha Chemical Company (Hanwha Chemical), a global company with headquarters in South Korea. At the same time, we signed a Mutual Collaboration Agreement that gave Hanwha Chemical a non-exclusive right to distribute XGS products in East and Southeast Asia.

• POSCO. In June 2011, the Company sold 200,000 shares of common stock at $20.00 per share to POSCO, a global corporation with headquarters in Pohang, South Korea. At the same time, the Company granted to POSCO a non-exclusive license to certain XGS production technology for use in Southeast Asia region defined therein, as well as a non-exclusive license to sell XGS products on a worldwide basis. POSCO currently maintains a seat on the XGS Board as a result of its investment in the Company. In March, 2014, POSCO purchased an additional 100,000 shares of Series A Preferred Stock at $12 per share as part of a preemptive rights share offering. The license to POSCO terminates on December 31, 2024 unless terminated earlier by mutual consent.

• Cabot Corporation. In November 2011 (as amended in January 2014), the Company granted a non-exclusive, royalty-bearing, worldwide license to certain of its production technology to Cabot Corporation (Cabot), a global corporation with headquarters in Boston, Massachusetts. Cabot is a customer of XGS and is also a development partner and licensee. We are not currently receiving royalty payments from Cabot.

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• Samsung. On January 15, 2014 the Company sold $3,000,000 of notes to Samsung Ventures. In conjunction with the sale of these notes, the Company also entered into a Joint Development Agreement with Samsung SDI on April 8, 2014, under which we will jointly develop anode materials for future versions of lithium-ion batteries to be manufactured by Samsung SDI. Samsung Ventures currently maintains the right to appoint a seat on the XGS Board. The Joint Development Agreement continued through June 2015. It is no longer active.

Samsung Ventures purchased secured convertible notes on terms identical to Aspen Advanced Opportunity Fund, LP’s (AAOF) terms with XGS. Such notes are convertible into Series A Preferred Stock which, in turn, is convertible into common stock at the lower of: (a) $12.00 per share, or (b) 80% of the price at which XGS sells any equity or equity-linked securities in the future. Samsung Ventures also received 40% warrant coverage on their investment with such warrants vesting according to the amount of cash payments made to XGS in connection with the joint development agreement and other commercial arrangements; the warrants have a four year term. In contrast, AAOF received 100% warrant coverage on its investment with up front vesting on any amounts funded, and the warrants have a ten year term.

Intellectual Property

We believe that our intellectual property (IP) is an important asset. Our strategy is to keep our production processes as legally defined and protected trade secrets rather than to patent them. We believe that by patenting our processes, we would simply be teaching others how to produce materials like ours. In addition, it would be difficult or impossible to detect infringement. Therefore, our basic intercalation and exfoliation processes are not patented. We have, however, patented some of the equipment used in these processes.

Our intellectual property consists of four main types of assets:

1. Employee knowledge and skills

2. Corporate “trade-secrets” and processing know-how

3. Exclusive license from Michigan State University on certain inventions

4. Patents and trademarks owned by the Company

In January 2014 in connection with the Samsung Ventures investment, we transferred all of our intellectual property into a newly created, wholly owned subsidiary of the Company called XG Sciences IP, LLC, a Michigan limited liability company.

Employee Knowledge and Skills

Our founding stockholders include three research scientists and one experienced entrepreneur. Our Chief Scientist, Dr. Lawrence Drzal, is a University Distinguished Professor at Michigan State University and has a worldwide reputation in the field of materials science. Dr. Drzal has been engaged in research in our product areas for over eleven years. Dr. Hiroyuki Fukushima, another founding stockholder, has been engaged in research in this area for over ten years and is a co-inventor of one of our proprietary manufacturing processes. Dr. Inhwan Do, also a founding stockholder, has been engaged in research in this area for over ten years and is a co-inventor of one of our proprietary production processes as well as a number of application inventions. Mr. Michael Knox, the Company’s Senior Vice President, is a successful entrepreneur with over forty years of experience in global corporate management as well as business development. He previously founded or co-founded five other successful businesses, four of which were sold in private transactions or went public.

Beginning in mid-2011, we started adding research scientists to our staff. As these scientists gather experience working with our materials, the cumulative research experience becomes increasingly valuable. We believe the cumulative knowledge of our employees is an important aspect of our intellectual property. In mid-2012, we hired Dr. Liya Wang as Vice President of Research & Development. Having served in a number of senior scientific positions for global battery makers, Dr. Wang significantly strengthened our experience base in the energy storage sector.

In January 2014, we hired Dr. Philip L. Rose as CEO. Prior to joining XGS, Dr. Rose was President of SAFC Hitech, a $100 million division of Sigma-Aldrich Corporation that makes precursors and performance materials for the LED, energy and display, and semiconductor markets. Before moving to Sigma Aldrich, Dr. Rose spent almost 20 years with Rohm and Haas in various leadership positions in the semiconductor and flat panel display industries.

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Corporate Trade-Secrets and Processing Know-How

The production of xGnP® brand graphene nanoplatelets involves significant processing know-how that we maintain as secret internal knowledge, commonly referred to as “trade-secrets”. These trade secrets have been internally documented and safeguarded through the use of limited documentation, stringent employee confidentiality agreements, and strict disclosure policies. We have chosen not to pursue patent protection for some of our processing know-how because of the public disclosure involved. Nevertheless, we believe that this processing know-how has a significant value and we believe that a prospective competitor would be forced to spend millions of dollars to duplicate the processing know-how necessary to produce products of a similar quality to our products. In part, this reasoning has been validated by two large global companies: POSCO and Cabot. Each of these companies independently researched worldwide technologies for production of graphene and each of them chose to license XG Sciences’ production processes. These two companies have paid millions of dollars for access to our trade secrets and the experience and knowledge of our personnel. In addition, we signed in April, 2014 an agreement with Samsung SDI, the world’s largest producer of lithium ion batteries for handheld devices, outlining a joint development program aimed at engineering our Silicon Graphene material into a next generation lithium ion battery platform.

Michigan State University License

We have acquired an exclusive license for a number of inventions from Michigan State University. These rights are embodied in a Technology Licensing Agreement between XGS and Michigan State University dated July 27, 2007 and amended on May 24, 2010 and May 27, 2011, which owns the rights to all intellectual property resulting from research performed at the University. This Agreement gives us the exclusive worldwide rights to the subject intellectual property in its field. In exchange for the rights to the technology covered by this Agreement, we paid MSU an initial fee and agreed to pay ongoing royalties on the basis of material sold by us in future years. Under a previous version of the Licensing Agreement, we also awarded a small amount of common stock to MSU.

The intellectual property covered by the Agreement is in various stages of development and legal protection. Because there is an active research program underway in this area, we also anticipate that future inventions will be made that will also fall under the terms of our license agreement with MSU. In some limited cases, depending on the source of research funds, other parties may have limited rights to use the inventions covered by these agreements. This is typical in the case of research funded by U.S. government agencies and is sometimes the case when research has been funded or partially funded by private corporations.

As of December 31, 2015 the following technologies were included in the MSU License Agreements with XGS and were being actively prosecuted at the U.S. Patent Office:

• U.S. Patent Application No. 12/587,645. “Electrically Conductive, Optically Transparent Films of Exfoliated Graphite NanoParticles & Methods of Making the Same”

• U.S. Patent Application No. 13/200,764. “Method of Preparing Metal Nanoparticles”

In addition, one licensed MSU invention has recently been granted a US Patent:

• U.S. Patent No. 8,834,959. “Method for the Preparation of Doped Single Graphene Sheets.”

In general, the current license arrangement with MSU provides us with an exclusive option to relevant MSU inventions, as documented by MSU invention disclosures. We, in turn, have an obligation to patent these disclosures in a timely manner. Disclosures that we do not pursue or that are not allowed as patentable by the USPTO are eventually considered as abandoned and drop out of the licensed technology package. It is contemplated that periodic amendments to the MSU — XGS License Agreement will update the list of existing technologies covered by the license.

In general, the MSU licensed technology relates to end-use applications for graphene nanoplatelets. Of particular interest are the discoveries and claims related to the use of graphene nanoplatelets in electrodes for lithium-ion batteries and supercapacitors.

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Our Patent Filings

In addition to the patent applications related to MSU technology discussed above, we also file for patents on some of our own inventions. As of December 31, 2015 the following patent applications were being managed by us and our patent attorneys:

• U.S. Patent Application No. 13/435,260. “Mechanical Exfoliation Apparatus”, allowed but not yet granted

• U.S. Patent Application No. 13/474,860. “Process of Dry Milling Particulate Materials”

• U.S. Patent Application No. 13/686,961. “Single Mode Microwave Device for Producing Exfoliated Graphite”

• U.S. Patent Application No. 61/786,735. “Graphene Carbon Compositions”

• U.S. Patent Application No. 61/786,745. “Electrodes for Capacitors from Mixed Carbon Compositions”

• U.S. Patent Application No. 13/858,149. “xGnP as conductive filler for resistor materials

• U.S. Patent Application No. 61/879,225. “Flexible Resin-Free Composites Containing Graphite & Fillers

• U.S. Patent Application No. 14/079,057. “Silicon-Graphene Nanocomposites for Electrochemical Applications”

• U.S. Patent Application No. 62/060,319. “LiF-Embedded SiG Powder for Lithium-Ion Battery.”

• U.S. Patent Application No. 62/482,797. “Thermal Interface Materials using Graphene Coated Fillers”

• U. S. Patent Application No. 62/244,927. “Heat Exchanger Elements and Devices”

In addition, some of our early patent filings have been granted:

• US Patent 8,715,720: “A Cloud Mixer and Method of Minimizing Agglomeration of Particles.”

• US Patent 9,061,259 B2 “Cloud Mixer and Method of Minimizing Agglomeration of Particles.”

Global Patent Filings

For each patent application filed in the US, we make a determination on the nature and value of the patent. For many of the applications filed in the US, additional filings are made in other countries such as the European Union, Japan, South Korea, China, Taiwan or other applicable countries. These filings and analyses are made on a case-by-case basis. Typically, patents that are defensive in nature are not filed abroad, while those that are protective of active XGS products or application areas are filed in relevant countries abroad.

Trademarks

We have obtained a registered trademark on the following:

• “xGnP®,” which is the brand name by which we designate our graphene nanoplatelets.

• The corporate logo “XG Sciences” (design logo plus words)

• The tag line “The Material Difference” which is used in conjunction with the corporate logo

• The product designation “XG Leaf®”, which is the brand name for our family of sheet products.

• The product designation “XG SiGTM”, which is the brand name for our battery anode materials.

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We also recently applied for protection for the product designation “XG TIM™”, which is the brand name for our thermal interface materials and which application is pending.

Protection of IP

We protect our IP through various agreements. Employee agreements, non-disclosure agreements, and confidentiality agreements all include provisions to prevent our confidential information from disclosure outside very tightly controlled circumstances. A sign-in sheet non-disclosure agreement is maintained at the entrance to each facility. Access to the lab and production facility is controlled on a need to know basis for non-XGS personnel.

Research and Development

During 2015 and 2014 we spent $1,485,283 and $1,449,478 on research and development activities, respectively. Of these amounts, $375,439 and $660,533 were funded by government agencies in the form of grants, recorded as revenues during 2015 and 2014, respectively. With the exception of these government grants, none of our research and development activities have been funded directly by customers.

Competition

We manufacture xGnP® graphene nanoplatelets and various value-added products made therefrom. In one sense, this is a new type of material that requires application development before it can be incorporated into customer products. In another sense, our material is similar to other carbon products in its chemistry and molecular composition. Therefore, there are many instances when our materials might be used interchangeably or in combination with other types of carbon materials like carbon nanotubes, carbon fibers, or carbon black. Because these other forms of carbon materials are much older, with markets that are significantly more developed, there are many companies that are much larger and more well-established than we are and that might compete in the same markets we address.

In addition, there are many different materials that may sometimes be used as full or partial substitutes for our materials. A large number of companies offer a wide variety of materials that may compete with us. Almost all of these competitors that manufacture alternative materials are significantly larger and better financed than we are. In addition to alternative materials, there are a number of emerging companies in the United States that have announced plans to offer graphene platelet materials purported to be similar to ours. In addition, several new companies in Europe and Asia have announced the availability of materials purported to be similar to ours. Many of these companies currently offer materials only in limited quantities, but we anticipate that it will face competition from a variety of companies in most of the markets in which we compete.

Graphene has excited great interest in the scientific community and there are hundreds of university groups and private corporations that are interested in this material. In addition to us, many other small companies are beginning to appear that have announced products based on graphene or graphene nanoplatelets in some form, and we expect this trend to continue. We believe that we are a first mover in this market and believe that our production processes are the lowest cost, but we expect competition from various sources in the future. Given the huge projected market sizes, we expect that several companies will share these markets, perhaps focused on specific niches.

Our strategy is to compete with other start-ups on the basis of our business model, our manufacturing techniques, our management team, our scientific credibility, and our strategic partners. Recognizing that the worldwide market for products and materials similar to ours is developing very rapidly and will be quite large, we intend to compete vigorously on a worldwide basis by:

• Implementing strategic partnerships with customers and other partners in many different geographic localities as well as specialized markets.

• Focusing our resources on remaining a low-cost supplier of high-quality materials with sufficient production capacity to meet the needs of large, global customers.

• Developing “value-added” products like XG Leaf®, XG SiG® battery anode materials, inks and coatings, and similar specialized products for specific markets.

• Investing in intellectual property, especially in areas covering novel formulations of our products and use of our products in end-use applications.

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Our Competitive Strengths

We believe that we are a world leader in the emerging global market for graphene nanoplatelets. The following competitive strengths distinguish us in our industry:

The strength of our intellectual property. Because of our focus on manufacturing process development, we believe we have one of the world’s strongest internal knowledge bases in graphene nanoplatelet manufacturing, with most of our proprietary knowledge maintained as trade secrets to avoid the disclosures required by patenting. The 14 patents/applications we are currently managing add value by protecting specific equipment, or high-value end-user product applications. The fact that two global companies have evaluated and licensed our production technology provides independent evidence of our technology’s effectiveness.

The breadth of our product offering. As far as we are aware, we have the broadest product offering in our industry. In addition to offering three standard particle sizes in three different grades of bulk materials, we offer four different grades of XG Leaf® in multiple thicknesses, two different grades of silicon-graphene composite materials, three standard ink formulations, and optional custom dispersions and formulations of our bulk materials.

The low-cost nature of our manufacturing processes. As far as we are aware, our manufacturing processes have the potential to be the lowest-cost approaches to the manufacture of graphene nanoplatelets (subject to economies of scale) based on our internal modelling of competitive processes as well as our analysis of alternative technologies.

Our corporate and strategic partners. Three global corporations have made the following investments in XGS, giving us a significant global reach as well as the ability to leverage the assets of our partners:

• Samsung Ventures — $3.0 Million (January 2014)

• POSCO — $5.2 Million (June 2011 and March 2014)

• Hanwha Chemical — $3 Million (December 2010)

Our licensees will accelerate our entry into large markets. Cabot Corporation, the largest U.S.-based manufacturer of carbon particles, and POSCO, one of the world’s largest steel producers, have licensed parts of our production technology. We believe these licensees will help us distribute our products and value-added products made with our xGnP® nanoplatelets more rapidly than we could do on our own.

The number of development partners that are working with our materials. As of November 23, 2015, we had supplied materials to 202 universities or government laboratories in 40 different countries around the world. A recent search of the U.S. patent database revealed 327 citations of XG Sciences in patents filed by other organizations. These other organizations include Goodrich Corporation, PPG Industries, Exxonmobil Research & Engineering, Toray, Solvay, Honda, Eastman Kodak, Baker Hughes, GM, Rohm and Haas and Sekisui Chemical.

The number of customers purchasing and working with our materials. As of August 31, 2014, we have supplied materials to more than 600 commercial companies around the world (in addition to universities and research laboratories) who are assessing their performance and potentially designing them into products. We have more than 20 active development relationships where we are working with end-use customers to design products for commercial use. We expect that these relationships will continue to expand.

Our know-how and ability to tailor our products for use in multiple applications. Many of our products and product-development activities target use of our xGnP® graphene nanoplatelets in various matrices to form composite products that are then used by our customers. We have extensive knowledge of how to tailor our products to deliver performance as composite products in various applications and we also have knowledge of how to tailor other components of a composite to adjust the performance of the composite for use in various applications.

We believe that the combination of these factors provides objective evidence that XGS is a world leader in the emerging global graphene particle industry. Other independent observers have agreed with this assessment. For example, Lux Research, in a July 2015 release listed XGS as a leading worldwide player in its industry. Further, Lux analysts wrote: “XG’s march of strategic relationship announcements — Hanwha Chemical in December 2010, POSCO in June 2011, and Cabot in November 2011 — arguably give it the strongest partnership portfolio in the space, and its recent expansion (see the May 7, 2012 LRMJ) makes it one of the low cost and capacity leaders.”

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Legal Proceedings

To our knowledge, neither we nor any of our officers or directors is a party to any material legal proceeding or litigation and such persons know of no material legal proceeding or contemplated or threatened litigation. There are no judgments against us or our officers or directors. None of our officers or directors has been convicted of a felony or misdemeanor relating to securities or performance in corporate office.

Governmental Regulation and Environmental Compliance

We believe we are in material compliance with all applicable governmental regulations, and that the cost and effect of compliance with environmental laws is not material. Most new chemical substances or materials sold in the U.S or in many other countries require regulation by government authorities. In the U.S., we have specifically reviewed our grades H, M and C materials and the associated production processes with the U.S. Environmental Protection Agency and have received written confirmation from that agency as to the appropriate classification of our materials and of our ability to offer these materials on a commercial basis within the U.S. In most other countries, there are no specific regulations that require additional regulation but some countries do have registration requirements with which we comply to the best our ability.

Our Production Facilities and Employees

In March of 2012, we took possession of a larger production facility at 3101 Grand Oak Drive, Lansing, Michigan, 48911 under terms of a long-term lease and moved our headquarters to this new location. We and Dart Container of Michigan LLC, a Michigan limited liability company (“Dart”) entered into a lease pursuant to which Dart, as landlord, agreed to lease such property for ten years at an annual base rent for each of the ten years in twelve equal monthly instalments each year. Such annual base rent for years one through ten were $189,996, $193,800, $197,676, $201,636, $205,668, $209,772, $213,972, $218,256, $222,612, and $227,064, respectively. In addition to base rent, we agreed to pay additional rent consisting of certain taxes, insurance costs, assessments and common area maintenance charges. Furthermore, we agreed to provide Dart with a letter of credit in the amount of $189,996, the terms of which are more specifically detailed in the lease. Additionally, under the terms of the lease, the parties agreed that Dart would pay costs up to $640,000 in connection with specified improvements (described in an exhibit to the lease) to the leased premises and that any costs over such amount would be borne by us.

Effective as of August 15, 2011, we and Dart amended certain provisions whereby the parties agreed that taxes payable shall be paid directly to the “appropriate taxing authority” instead of to Dart; that we shall provide copies of the tax or assessment being paid along with a copy of the applicable check; and that we shall pay our respective share of Taxes (as such term is defined in the lease) either for the entire year or its pro rata share of any partial year in which we occupied the leased premises. Furthermore, the parties amended the obligation of the landlord to deliver estimates of certain costs payable by us. The revision removed the requirement imposed on Dart to provide a Tax Estimate (as such term is defined in the lease) to us. The lease was also amended to provide for a default in the event the “appropriate taxing authority fails to receive any payment of Taxes within ten days after written notice from either landlord or the taxing authority that such payment is past due.”

The lease was further amended by us and Dart effective as of November 16, 2012 to include additional space as part of the leased premises from January 1, 2013 through December 31, 2017, and as such, we agreed to an increase to base rent by $6,667, $6,871, $7,074, $7,288 and $7,503 per month for the periods ranging from January 1, 2013 through December 31, 2013, January 1, 2014 through December 31, 2014, January 1, 2015 through December 31, 2015, January 1, 2016 through December 31, 2016, and January 1, 2017 through December 31, 2017, respectively. The parties further agreed that common cost estimates for such additional space was $2,147 per month for the calendar year 2013, said cost to be adjusted for each subsequent year. Additionally, we now have the ability to terminate the lease of the above-mentioned additional space by providing six months’ notice. A second amendment addresses utility payments in connection with additional rental space.

We also operate a separate production facility in leased manufacturing space, which is used for the production of certain specialty materials. On January 3, 2008, we entered into a lease agreement with Quality Dairy Company, as landlord, pursuant to which the landlord agreed to lease to us such 6,600 square feet of a building commonly referred to as “Building C” and an area approximately 16’ X 80’ of the parking lot adjacent to the aforementioned area located at 2100 S. Washington Ave., Lansing, MI 48910. We were also granted the non-exclusive right to use common facilities. The term of the lease was for six months, commencing on January 15, 2008 and ending on July 31, 2008. We agreed to pay base rent in monthly instalments in the amount of $12,798 for the term of the lease, and $1,969 per month thereafter. In addition to base rent, we agreed to pay certain utilities, janitorial services, and personal property taxes as they become due. Subsequently, we have extended this lease and now maintain our presence in this facility on a month-to-month basis.

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We believe our manufacturing facilities will be sufficient to meet demands for the majority of our bulk materials for a number of years, with suitable additions of capital equipment as warranted. However, additional manufacturing capabilities for certain value-added products and certain bulk materials remain to be developed and may require the acquisition of additional facilities. In particular, the production processes for XG Leaf® and our silicon-graphene electrode materials have not yet been scaled and will require additional capital to meet expected customer demand.

Our Employees

As of the date of this prospectus, we had 22 full-time employees. Employees include the following four senior managers that report to the CEO: a Vice President of Operations, a Vice President of Energy Markets, a Vice President of Research & Development and a Controller. The Company employs a total of 6 full-time scientists and technicians in its R&D group, including the Vice President of Research & Development.

Corporate Information

XG Sciences, Inc. was incorporated on May 23, 2006 in the State of Michigan and is organized as a “C” corporation under the applicable laws of the United States and State of Michigan. We do not currently have any affiliated companies or joint venture partners, and we have one wholly-owned subsidiary called XG Sciences IP, LLC. This subsidiary was created in 2014 for the purpose of holding our intellectual property. Our headquarters and principal executive offices are located at 3101 Grand Oak Drive, Lansing, Michigan, 48911 and our telephone number is (517) 703-1110.

Our website address is http://www.xgsciences.com, although the information contained in, or that can be accessed through, our website is not part of this prospectus. You may also contact Dr. Philip L. Rose, our Chief Executive Officer via email at p.rose@xgsciences.com.

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MANAGEMENT

The following table sets forth the name and age of the Company’s executive officers, Directors and significant employees as of the date of this prospectus. There are no family relationships among any of our executive officers or directors.

Name	Age	Position(s)
Philip L. Rose	53	Chief Executive Officer, President, Treasurer & Director
Arnold A. Allemang	72	Director, Chairman of the Executive Committee, and member of the Audit and Compensation Committees
Ravi Shanker	49	Director and member of the Executive and Compensation Committees
Steven C. Jones	51	Director, AAOF representative to the Board and member of the Audit, Executive and Compensation Committees
Wonil Kim	47	Director, POSCO representative to the Board
Michael Pachos	37	Director, Samsung representative on the Board and Audit Committee member
Dave Pendell	69	Director
Scott Murray	60	Vice President, Operations
Robert Privette	53	Vice President of Energy Markets
Liya Wang	56	Vice President of Research & Development

In addition to the persons listed above, Mr. David Pendell, a principal of AAOF, has observer rights to all meetings of the Board of Directors and is an advisor to the Company.

Biographies of Officers and Directors

The following short biographies of our officers and Directors as of the date of this prospectus:

Philip L. Rose, Ph.D.

Dr. Rose joined the Company in January 2014 and currently serves as our Chief Executive Officer, President, Treasurer and is a Director of the Company. Dr. Rose has extensive international business management experience in the electronic and specialty materials markets. Prior to joining XG Sciences, he spent 4 years as President of SAFC Hitech, a $100 million division of Sigma-Aldrich that makes precursors and performance materials for the LED, energy and display, and semiconductor markets. He also served concurrently for a period of time as CEO of Soulbrain-Sigma Aldrich based in South Korea and as an independent Director for Pixtronix, a company based in the Boston area. Before joining Sigma Aldrich, Dr. Rose spent almost 20 years with Rohm and Haas in various leadership positions in the semiconductor and flat panel display industries that include general management, mergers and acquisitions, business development and marketing. Dr. Rose has 7 years of experience living in Japan and South Korea and has travelled extensively in Asia over the past 15 years. Dr. Rose earned his Ph.D. in Physical Chemistry from Duke University and holds a B.S. in Chemistry from the University of Southern California and a certificate in Business Management from The Wharton School at the University of Pennsylvania. In light of the aforementioned experience qualifications, attributes and skills, we believe Dr. Rose is qualified to serve as a director.

Arnold A. Allemang

Mr. Allemang has served as a Director of XG Sciences since March 2010. Mr. Allemang is also a member of the Board of Directors of The Dow Chemical Company, headquartered in Midland, Michigan. Mr. Allemang joined Dow in 1965 in Freeport, Texas. After five years in the Solvents Development Lab, he transferred to Stade, Germany. In 1972, he returned to the United States for various technical and managerial assignments. Mr. Allemang was named unit manager for Freeport’s Chlorinated Ethanes in 1981, and two years later assumed the same role for Light Hydrocarbons and Acetylene. He transferred to Terneuzen, The Netherlands, in 1984 to become production manager for Light Hydrocarbons I, and in 1986 became responsible for process control and engineering functions. In 1988, he returned to Freeport to manage the site’s hydrocarbons production, and moved to Midland in 1989 as Director of Technology Centers. Mr. Allemang was named Manufacturing general manager for Dow Benelux in 1992, and in early 1993 was named regional vice president, Manufacturing and Administration, Dow Benelux. He was named vice president, Manufacturing Operations Dow Europe in late 1993. In August 1995, Mr. Allemang was named vice president, Operations, which included global manufacturing and engineering activities. He then became executive vice president of The Dow Chemical Company in 2000, and was named senior advisor in 2004. Mr. Allemang was elected to the Dow Board

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of Directors in July 1996. In March 2008, he retired as a Dow employee and remains on the Board as a non-employee Director. Mr. Allemang received a bachelor’s degree in chemistry from Sam Houston State University in Huntsville, Texas. In light of the aforementioned experience qualifications, attributes and skills, we believe Mr. Allemang is qualified to serve as a director.

Ravi Shanker, Ph.D.

Dr. Shanker has served as a Director of XG Sciences since March 2014. Since 1991, Dr. Shanker has been employed by the Dow Chemical Company (“Dow”) in various capacities. Dr. Shanker is currently the General Manager of the Lightweighting Platform, a position he has held since March 2015. From March 2013 until March 2015, Dr. Shanker was the Global Business Advisor at Dow. In this role, Dr. Shanker provides strategic insight into the portfolio of businesses that include Dow Epoxy Intermediates, Polymers and Systems. Previous to this role, Ravi served as the president and CEO of Dow Kokam. He led the team that created the Dow Kokam joint venture, and has many years of experience building, growing and running businesses with the Dow Chemical Company. Dr. Shanker first joined Dow in 1991 and has grown Dow’s business via new product and new business development. Starting in the research department, he focused on developing new manufacturing processes. Dr. Shanker also supported the office of the CEO in strategy development for near- and long-term business opportunities in emerging geographies. He was then appointed Global Business Director of Specialty Plastics in the Performance Products Portfolio. Before assuming his role with Dow Kokam, Dr. Shanker served as Corporate Director of Ventures and Business Development, where he incubated a portfolio of innovative business opportunities for Dow, driving many to commercialization. Ravi holds a Ph.D. in Mechanical Engineering from the University of Delaware and B. Tech in Mechanical Engineering from B.I.T. Sindri, in India. He also has an MBA from the University of Houston. In light of the aforementioned experience qualifications, attributes and skills, we believe Dr. Shanker is qualified to serve as a director.

Steven C. Jones

Mr. Jones has served as a Director of XG Sciences since March 2014. Mr. Jones has been the Executive Vice President of Finance and Chief Compliance Officer of NeoGenomics, Inc. (NASDAQ: NEO) (“NEO”) since November 30, 2009 and February 7, 2013, respectively, and serves as a Director. He previously served as the Chief Financial Officer for NEO from October 2003 until November 30, 2009. In December 2014, he was appointed to serve as a Director by the Aspen Advanced Opportunity Fund, LP in connection with their investment in XGS. Mr. Jones is the Chairman of Aspen Capital Group, LLC, a private equity firm headquartered in Naples, FL, which manages four private equity funds. Mr. Jones also serves as the President of Aspen Capital Advisors, LLC, which is Aspen Capital Group’s investment management subsidiary. Aspen believes its highest value is to be a “hands on” partner with the management teams of portfolio investments to help them achieve their growth objectives by bringing capital, strategic partners, customers, additional management and other business advice. Mr. Jones has substantial expertise in developing and financing emerging growth companies. In addition to his involvement with Aspen Capital Group, Mr. Jones serves on the Boards of T3 Communications, Inc., a business communications company, and SpinaDyne, Inc., a medical device company. Prior to his career in structured private equity, among other positions, Mr. Jones was a Vice President in the Telecommunications, Media and Technology Investment Banking Group of Merrill Lynch & Co in New York and was the chief executive officer or chief financial officer of various public and private companies. Mr. Jones has a BS degree in Computer Engineering from the University of Michigan and an MBA from the Wharton School of the University of Pennsylvania. In light of the aforementioned experience qualifications, attributes and skills, we believe Mr. Jones is qualified to serve as a director.

Wonil Kim

Mr. Wonil Kim has been the Director of the Advanced Materials Investment & Technology Group within South Korea’s POSCO, one of the largest multinational steel companies operating worldwide, since 2014. He has served the company for over 25 years and currently applies his diverse experiences into supervising and developing new businesses and technologies, expanding and broadening POSCO’s existing portfolio. Since 2010, Mr. Wonil Kim, primarily as a Director in Technology Strategy, has been involved in various industries within POSCO These include projects concerning carbon materials, anode/cathode technologies for rechargeable batteries, lithium and nickel extraction, magnesium, and other advanced materials. Prior to this role, from 2004 to 2009, he spent five years in Europe serving as a Senior Manager in Technology Scouting and Project Management and was also responsible for cultivating and producing partnerships across the European steel and automotive industry, academia, and consulting firms. From 2002 to 2004, Mr. Wonil Kim directed and streamlined processes concentrated on POSCO’s cold rolled steel, the business segment he had previously managed from 1990 to 2002. Mr. Wonil Kim has a Master of Science in the field of Mechanical Engineering from Lehigh University.

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Michael Pachos

Michael Pachos is a Principal at Samsung Ventures. He joined Samsung in 2008, first working out of the Seoul headquarters, and then transferring to their Silicon Valley offices in 2012, and has been a director at Samsung since early 2015. He focuses on Consumer, Display and Energy related investments. Prior to joining Samsung Ventures, Michael worked in the Samsung Group’s Global Strategy Group (“GSG”). GSG was established under the Chairman’s Office to address strategic and operational issues at the CEO level of Group companies. Michael worked on projects involving M&A, convergence and digital media, and channel strategy. Before joining Samsung, Michael was a CPU architect at DEC, Compaq/HQ and Intel. Michael is also a co-founder of Global Velocity; an enterprise security related Hardware Company. Michael earned his MBA at the Wharton School and completed law related coursework. Michael holds his B.S. degree in Computer Engineering from Washington University in St. Louis.

Dave Pendell

David Pendell is a principle in the Aspen Advanced Opportunity Fund. Dave was responsible for the successful launch and subsequent profitable sale of five start-up entities in which he was the lead entrepreneur and numerous other investments where he served as a lead investor/mentor/coach. Predominantly, Pendell led the growth of Pendell Printing, Inc. from a small print firm of less than $1MM in sales in 1971 to over $85MM in 1998 when the sale of the business was completed. Past management roles include Chairman of the Board/President of Pendell Printing Inc., co-founder of Envision Inc., a graphic solutions enterprise,; President and CEO of Baustert Engineering, Inc., a software business; co-founder of Ecoland, a timber/real estate development company; founder of The Earth Generation, an environmental education publisher, and co- Founder of Fuel Oil News, publication for the home heating industry. Currently, in addition to Aspen Advanced Opportunity Fund, Dave owns and operates AdvancedStage Capital LLC, ASC Lease Income, and is a general partner in Veterans Capital Fund. In addition to participation in the Michigan Angel Fund and Tamiami Angel Fund I and II, Pendell currently sits on the board of directors of Strategic Health Services Inc., and ERP Maestro Inc. Dave received his BS in Psychology from Central Michigan University in 1969.

Scott Murray

Scott Murray has extensive experience as a senior operations executive and is skilled in business management, product and process development, and strategic leadership of growth of businesses. These experiences ranged from small, privately owned companies to Fortune 500 Companies. Mr. Murray has been the Vice President of Operations of the Company since October 2007. Prior to his tenure with the Company, Mr. Murray was with Motor Wheel Corporation for 17 years having held positions in engineering, marketing, and plant management. He served in the positions of Chief Engineer and Director of Manufacturing prior to the leaving to form a new Company. Mr. Murray founded and was CEO of Uretech International Inc. from 1995 through 2004. He directed all process, product, marketing, and commercial activities for the Company. As a manufacturer of specialty chemicals and urethane products, Uretech International supplied products to many markets including the automotive, medical, and office furniture industries as well as a variety of industrial applications. Most recently, as Director of Development for McKechnie Automotive, Mr. Murray was responsible for the technical and market introduction of a new product line and the startup of a manufacturing operation for that product line in Kentucky. Mr. Murray is a graduate of Michigan Tech University, where he earned a degree in Metallurgical Engineering. As a member of the Society of Automotive Engineers and the American Iron and Steel Institute served on numerous task forces and technical committees for professional organizations in the automotive industry. He is a past Committee Chairman for the American Society of Non-Destructive Testing. Mr. Murray is a registered Professional Engineer and holds a Six Sigma Black Belt certification.

Robert Privette

Robert Privette is a technical business executive with more than 25 years of hands-on experience in technology development and commercialization related to fuel cells, batteries and other energy related devices. He has experience in managing large, complex programs with the US Department of Energy, DARPA, the US Army and the US Navy focusing on technology development, product design, new manufacturing process, and market-based product qualification testing with multiple corporate, university and laboratory partners. Mr. Privette was hired as the Vice President, Energy Markets for the Company in May 2011. In his current role as Vice President, Energy Markets, he is responsible for developing product markets and sales of graphene nanoplatelets and associated value-added XGS products for energy storage and conversion applications. Prior to joining XGS he was Director for Product Development at Energy Conversion Device (ECD) - Ovonic Fuel Cell Company. In this role he led the development and execution of the company business plan and technology roadmap for a 5 kW fuel cell product for

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stationary and portable power applications. Before joining ECD in 2006, he worked for Degussa, a large German materials and specialty chemicals supplier where he led customer product qualification programs developed for North American customers focused on accelerating market introduction and commercialization of state-of-the-art fuel cell membrane electrode assemblies and fuel processing catalysts for automotive and stationary fuel cell power applications. During 1989 through 2000 he worked for Babcock & Wilcox where he led a US Department of Energy development program for a 50 kW on-board gasoline fuel processor prototype for fuel cell vehicles. He received his MS degree in Mechanical Engineering from Purdue University in 1986 and has completed MBA coursework.

Liya Wang, Ph.D.

Dr. Liya Wang leads the research and development activities of the Company for a variety of applications. Previously, Dr. Wang was Principal Scientific Director at CIC Energigune in Spain from 2010 to 2012. There he helped build a world-class new energy research center and led the development of advanced batteries and capacitors. Prior to arriving at CIC Energigune, Dr. Wang was Director of Emerging Technologies from 2006 to 2010 at A123 Systems, a global Li-ion battery manufacturer based in US. He led the development of new generations of Li-ion battery cathodes and the transition of technologies into production. From 2003 to 2006, Dr. Wang worked as R&D Director at Pacific Industrial Development Corp and coordinated the development of nano materials for catalysis and luminescence applications. From 1999 to 2003, he was Manager of Materials Development and Vice President at T/J technologies where he built and led a multi-million dollar battery research program. From 1994 to 1999, he worked at IMRA America as a Researcher on electrochemical capacitors and high power lithium ion batteries. Dr. Wang received a Bachelor’s and a Master’s degree in Metallurgy from Beijing University of Science and Technology in China, and a Master’s and a PhD degree in Materials Science from University of Michigan in US. He is a Guest Professor at University of Electronic Science and Technology in China and an Adjunct Associate Professor at University of Michigan in USA.

Shareholder Agreement

In conjunction with a financing with AAOF, we and our stockholders listed therein entered into a Shareholder Agreement on March 18, 2013 that contains a number of specific provisions pertaining to the Board of Directors as well as individual Directors. On February 26, 2016, we amended the Shareholder Agreement, a copy of which is referenced as Exhibit 10.38 to the registration statement of which this prospectus is a part.

Among other things, the Shareholder Agreement provides for certain voting and nomination rights to be calculated on the basis of “Full Conversion” stock ownership (under which calculation, all convertible notes, preferred shares, or other convertible equity securities are deemed converted into common stock) as follows:

• So long as AAOF or its affiliates own 10% of more of the aggregate outstanding Shareholder Stock (as defined in the Shareholder Agreement):

– the size of the Board of Directors shall be set at seven individuals.

– one person nominated by AAOF shall be elected to the Board of Directors.

– two members of the Board of Directors, other than those nominated by AAOF, POSCO or Hanwha Chemical, shall qualify as independent Directors.

• So long as POSCO owns 10% of more of the aggregate outstanding Shareholder Stock, one person nominated by POSCO shall be elected to the Board of Directors.

•So long as Hanwha Chemical owns 10% of more of the aggregate outstanding Shareholder Stock, one person nominated by Hanwha Chemical shall be elected to the Board of Directors.

As of the date of this prospectus, the ownership percentage of AAOF and POSCO, as calculated for purposes of Director voting, required the stockholders bound by the Shareholder Agreement to vote for a Director nominated by AAOF and for a director nominated by POSCO. Mr. Jones is the AAOF representative to the Board and Mr. Oh is the POSCO representative to the Board pursuant to the terms of the Shareholder Agreement.

The Shareholder Agreement grants preemptive rights to shareholders and holders of convertible notes who are parties to the Shareholder Agreement. Pursuant to the terms therein, such shareholders and noteholders have the right to purchase their pro rata share of all shareholder stock that the Company may, from time to time, propose to sell, issue, or exchange after the date of the Shareholder Agreement, other than certain excluded stock which includes stock granted to employees or as merger consideration. Each shareholder’s pro rata shares shall be equal to the ratio of (i) the aggregate number of shares of the

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Company’s common stock on a fully diluted basis, owned by the such shareholder at the time of the delivery of a preemptive rights notice to (ii) the aggregate number of shares of Company’s common stock on a fully diluted basis owned by all of the Company’s shareholders at the time of the delivery of a preemptive rights notice.

The Shareholder Agreement may be amended or terminated by agreement (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of (i) a majority of the Company’s board of directors, and (ii) persons holding, in the aggregate, shares of Shareholder Stock representing at least sixty percent (60%) of the voting power of all shares of Shareholder Stock then held by Shareholders and their permitted assignees.

On February 26, 2016, the Shareholders Agreement was amended to provide that holders of Excluded Stock are not subject to the terms of the Shareholders Agreement. Excluded Stock means shares of common stock that are subject to a registration statement that has been filed with the SEC and has been declared effective. The Amendment to Shareholders Agreement takes effect when a majority of the Board of Directors and shareholders holding at least 60% of the voting power of all shares of Shareholder Stock have consented to the amendment to the Shareholders Agreement, and a registration statement registering the shares of common stock has been filed with the SEC and declared effective. The Amendment to Shareholders Agreement further clarifies that preemptive rights shall not apply to Excluded Stock, and amends the termination date of the Shareholders Agreement. Specifically, the Shareholder Agreement has been amended to provide that it continues in effect until (i) the date of the closing of a public offering of common stock pursuant to a registration statement filed with the SEC that is declared effective in which the Company receives gross proceeds of at least $10,000,000, on which date it shall terminate in its entirety, unless the Shareholder Agreement is earlier terminated in accordance with its terms, or (ii) the date on which the Company’s common stock is listed on the NASDAQ Stock Market of the New York Stock Exchange.  As a result, in the event that the Company is unable to raise at least $10,000,000 in this offering, the Shareholder Agreement will continue to remain in effect and the larger shareholders described above will be entitled to continue to exercise their rights under such Shareholders Agreement, but purchasers of shares of common stock under this registration statement, if it is made effective, will not be required to adopt the Shareholders Agreement.

Shareholder Side Letter

On January 15, 2014, AAOF, POSCO, SVIC, XGS II, Mike Knox and the Company entered into a letter agreement pursuant to which AAOF agreed to consent to, approve or otherwise sanction certain actions of the Company specified in the Shareholder Agreement so long as investors owning at least 66% of the voting securities on a fully diluted basis consent to the proposed Company action. These actions include if the Company (i) creates, obligates itself to create, authorizes or issues (by reclassification or otherwise) any new class or classes of securities which has a preference over or being on a parity with the Series A Preferred Stock in any respect; (ii) sells any material portion of the tangible or intangible assets of the Company that secures the indebtedness to AAOF; or (iii) incurs additional secured indebtedness.

Voting Agreement

In conjunction with a financing from Samsung Ventures on January 15, 2014, we and our stockholders entered into a voting agreement with Samsung Ventures whereby for so long as Samsung Ventures owns 10% or more of the aggregate outstanding common stock of XGS (assuming Full Conversion, but excluding any shares of common stock issuable upon the exercise of any warrants held by Samsung Ventures), each stockholder made a party thereto shall vote all of his, her or its voting securities from time to time in whatever manner is necessary to ensure that at each annual or special meeting of the stockholders at which an election of Directors is held or pursuant to any written consent of the stockholders, one person nominated by Samsung Ventures is elected to our Board as a Director.

The rights granted to Samsung Ventures under a voting agreement are effective until the first to occur of (1) the date on which the Minimum Ownership Requirement is no longer satisfied, (2) the date on which the Shareholder Agreement (which is described above) is terminated for any reason and (3) the date that Samsung Ventures agrees in writing to terminate the Agreement.

Code of Ethics

We have a Code of Ethics applicable to our principal executive, financial and accounting officers, a copy of which is referenced as Exhibit 14 to the registration statement of which this prospectus is a part.

Board Committees

Audit Committee

Our Board has established an Audit Committee, which is composed of Steven C. Jones and Arnold A. Allemang and Michael Pachos. Pursuant to our Audit Committee charter, the Audit Committee was established for the primary purpose of assisting the

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Board in its oversight of the Company’s tax, legal regulatory and ethical compliance. The Audit Committee assists the Board in certain areas, including, but not limited to:

• Oversight and monitoring of the Company’s financial statements, accounting and financial reporting processes, financial statement audits, and other financial information provided by the Company to its shareholders and others;

• Overseeing the Company’s compliance with legal, regulatory, and public disclosure requirements;

• Oversight of the Company’s registered public accounting firm’s (“independent auditor”) qualifications and independence;

• Overseeing the performance of the Company’s independent auditor and the internal audit function;

• Overseeing the Company’s systems of disclosure controls and procedures, internal controls over financial reporting, and compliance with ethical standards adopted by the Company;

• Oversight of treasury and finance matters;

• Oversight and monitoring of enterprise risk management, privacy, and data security;

• Oversight of the auditing, accounting, and financial reporting process generally;

• Preparation of a report of the Committee to be included in the Company’s annual proxy statement in accordance with any applicable rules of the SEC; and

• Review and approval of related-party transactions (as defined by any applicable rules of the SEC and any applicable listing standards of the NASDAQ).

The members of the Committee are appointed by the Board at its annual meeting from among the Company’s directors. Members are appointed to serve until their successors are duly elected and qualified by the Board, or until their resignation or removal. The Board determines the number of members on the Committee from time to time, but in any event the Committee is to be composed of at least three Board members or any greater minimum number as required by applicable law, the Company’s Bylaws, or the Company’s contractual obligations. The Board may appoint a chairperson and secretary for the Committee. If the Board does not appoint a chairperson or a secretary, the members of the Committee may elect a chairperson or secretary, respectively, by majority vote.

Each member of the Committee is and must be “independent” in accordance with the Company’s contractual obligations and any applicable SEC and NASDAQ rules. The Board determines the standards that are currently applicable to determining whether a member is “independent” and whether each member or nominee member of the Committee satisfies those standards.

The members of the Committee must also satisfy other applicable qualification rules of NASDAQ and the SEC. Generally, each member of the Committee must have a strong level of accounting or financial acumen and must be able to read and understand fundamental financial statements. A member of the Committee may not have participated in the preparation of financial statements of the Company or any current subsidiary of it at any time during the past three years. To the extent required by applicable rules of the SEC, at least one member of the Committee must be a “financial expert” as defined by the applicable rules of the SEC. In general, to be considered a “financial expert,” an audit committee member must have the following attributes:

• An understanding of generally accepted accounting principles and financial statements.

• The ability to assess the general application of generally accepted accounting principles in connection with the accounting for estimates, accruals, and reserves.

• Experience preparing, auditing, analyzing, or evaluating financial statements that present a breadth and level of complexity of accounting issues that are generally comparable to the breadth and complexity of issues that can reasonably be expected to be raised by the Company’s financial statements, or experience actively supervising one or more persons engaged in such activities.

• An understanding of internal controls and procedures for financial reporting.

• An understanding of audit committee functions.

Steven C. Jones qualifies as an “audit committee financial expert” as the term is defined under the SEC rules, as does Michael Pachos.

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Nominating and Corporate Governance Committee

Our Board has established and adopted a charter for a Nominating and Corporate Governance Committee. The Committee is composed of Steven C. Jones, Ravi Shanker and Wonil Kim. As provided in its charter, the Nomination and Corporate Governance Committee was established for the primary purposes of considering and reporting to the Board on matters relating to the identification, selection, and qualification of Board members and candidates nominated to the Board, and assisting the Board with respect to corporate governance matters. The Committee is responsible for providing support to the Board in certain areas, including:

• Assisting the Board by identifying individuals qualified to become Board members.

• Recommending to the Board the director nominees for the next annual meeting of shareholders.

• Leading the Board in an annual review of the Board’s performance.

• Recommending to the Board director nominees for each committee.

• Developing, maintaining, and overseeing the Company’s corporate governance guidelines.

• Making recommendations to the Board with respect to corporate governance matters.

The members of the Committee are appointed by the Board at its annual meeting from among the Company directors. The members of the Committee are appointed to serve until their successors are duly elected and qualified by the Board, or until their resignation or removal. The Board determines the number of members on the Committee from time to time, but in any event the Committee must be composed of at least three Board members or any greater minimum number as required by applicable law, the Company’s Bylaws, or the Company’s contractual obligations. The Board may appoint a chairperson and secretary for the Committee. If the Board does not appoint a chairperson or a secretary, the members of the Committee may elect a chairperson or secretary, respectively, by majority vote.

Each member of the Committee is and must be “independent” in accordance with the Company’s contractual obligations and any applicable SEC and NASDAQ rules. The Board determines the standards that are currently applicable to determining whether a member is “independent” and whether each member or nominee member of the Committee satisfies those standards.

Compensation Committee

Our Board has established a Compensation Committee, which is composed of Arnold A. Allemang, Ravi Shanker and Steven C. Jones. The Committee was established for the primary purpose of assisting the Board with the review and determination of executive compensation and the oversight, review, and approval of significant employee benefits programs, policies, and plans. The Board has adopted a Compensation Committee charter.

The members of the Committee are appointed by the Board at its annual meeting from among the Company’s directors. The members of the Committee are appointed to serve until their successors are duly elected and qualified by the Board, or until their resignation or removal. The Board will determine the number of members on the Committee from time to time, but in any event the Committee must be composed of at least three Board members or any greater minimum number as required by applicable law, the Company’s Bylaws, or the Company’s contractual obligations. The Board may appoint a chairperson and secretary for the Committee. If the Board does not appoint a chairperson or a secretary, the members of the Committee may elect a chairperson or secretary, respectively, by majority vote.

Each member of the Committee must be “independent” in accordance with the Company’s contractual obligations and any applicable SEC and NASDAQ rules. Each member of the Committee must also qualify as an “outside director” for purposes of 162(m) of the Internal Revenue Code of 1986, as amended. The Board shall determine the standards that are currently applicable to determining whether a member is “independent” and whether each member or nominee member of the Committee satisfies those standards.

Executive Committee

Our Board has established an Executive Committee, which is composed of Arnold A. Allemang, Steven C. Jones and Dr. Ravi Shanker. Pursuant to our Executive Committee charter, the Executive Committee was established for the primary purpose of exercising the powers and duties of the Board between Board Meetings and while the Board is not in session and to implement policy decisions of the Board.

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During the intervals between meetings of the Board, the Committee may exercise all of the powers and authority of the Board of Directors for the purpose of acting upon matters that should not be postponed until the next scheduled meeting of the Board. The members of the Executive Committee are to exercise their business judgment to act in what they reasonably believe to be in the best interests of the Corporation and its shareholders. The Committee will have all powers and authority of the Board enumerated in the Bylaws of the Corporation, except to:

1. Take action specifically reserved for another committee of the Board;

2. Amend the Corporation’s Articles of Incorporation or Bylaws;

3. Adopt an agreement of merger, conversion, or share exchange;

4. Recommend to shareholders the sale, lease, or exchange of all or substantially all of the Corporation’s property and assets;

5. Recommend to shareholders a dissolution of the Corporation or a revocation of a dissolution;

6. Fill vacancies in the Board;

7. Declare a distribution or dividend or to authorize the issuance of shares; or

8. Take action with respect to any other matter that the Board may not delegate to the Committee under the Michigan Business Corporation Act, the Corporation’s Articles of Incorporation, the Corporation’s Bylaws, or the Corporation’s contractual commitments.

Notwithstanding the foregoing, the Board may, by resolution or an amendment to this Charter, restrict the powers and authority of the Committee, in its sole discretion. In addition, the Committee shall comply with all directions of the Board and shall discharge all duties and responsibilities expressly delegated by the Board to the Committee.

The Committee may delegate any of its responsibilities, along with the authority to take action in relation to such responsibilities, to one or more subcommittees as the Committee may determine to be appropriate.

Conflicts of Interest

Certain potential conflicts of interest are inherent in the relationships between our officers and directors and us.

From time to time, one or more of our affiliates may form or hold an ownership interest in and/or manage other businesses both related and unrelated to the type of business that we own and operate. These persons expect to continue to form, hold an ownership interest in and/or manage additional other businesses which may compete with our business with respect to operations, including financing and marketing, management time and services and potential customers. These activities may give rise to conflicts between or among the interests of us and other businesses with which our affiliates are associated. Our affiliates are in no way prohibited from undertaking such activities, and neither we nor our stockholders will have any right to require participation in such other activities.

Further, because we have transacted business and intend to continue to do so with some of our officers, directors and affiliates, as well as with firms in which some of our officers, directors or affiliates have a material interest, including, without limitation, Samsung Ventures, XGS II and AAOF, potential conflicts may arise between the respective interests of us and these related persons or entities. We believe that such transactions will be effected on terms at least as favorable to us as those available from unrelated third-parties.

With respect to transactions involving real or apparent conflicts of interest, we have adopted policies and procedures which require that: (i) the fact of the relationship or interest giving rise to the potential conflict be disclosed or known to the directors who authorize or approve the transaction prior to such authorization or approval; and (ii) the transaction be fair and reasonable to us at the time it is authorized or approved by our directors.

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Risk Oversight

The Board of Directors is actively involved in the oversight of risks, including strategic, operational and other risks, which could affect our business. The Board of Directors does not have a standing risk management committee, but administers this oversight function directly through the Board of Directors as a whole, which oversee risks relevant to their respective functions. The Board of Directors considers strategic risks and opportunities and administers its respective risk oversight function by evaluating management’s monitoring, assessment and management of risks, including steps taken to limit our exposure to known risks, through regular interaction with our senior management and in board and committee deliberations that are closed to members of management. The interaction with management occurs not only at formal board and committee meetings but also through periodic and other written and oral communications.

Meetings of the Board and Committees

During 2015, there were 9 meetings of the Board of Directors. During the first half of 2016, there were 3 meetings of the Board of Directors. The Board of Directors also acted at times by unanimous written consent, as authorized by our Bylaws and the Michigan Business Corporation Act. The Compensation Committee met 2 times in 2015 and 1 time in 2016 as of the date of this prospectus. The Audit Committee met 4 times in 2015 and 1 time in 2016 as of the date of this prospectus.

Director Independence

We have six independent directors on our Board of Directors: Arnold A. Allemang, Ravi Shanker, Steven C. Jones, Michael Pachos, Dave Pendell and Wonil Kim. Philip L. Rose is not considered independent. Because our common stock is not currently listed on a national securities exchange, we have used the definition of “independence” of The NASDAQ Stock Market to make this determination.

NASDAQ Listing Rule 5605(a)(2) provides that an “independent director” is a person other than an officer or employee of the Company or any other individual having a relationship that, in the opinion of the Company’s Board, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. The NASDAQ listing rules provide that a director cannot be considered independent if:

• the director is, or at any time during the past three years was, an employee of the Company;

• the director or a family member of the director accepted any compensation from the Company in excess of $120,000 during any period of 12 consecutive months within the three years preceding the independence determination (subject to certain exclusions, including, among other things, compensation for board or board committee service);

• a family member of the director is, or at any time during the past three years was, an executive officer of the Company;

• the director or a family member of the director is a partner in, controlling stockholder of, or an executive officer of an entity to which the Company made, or from which the Company received, payments in the current or any of the past three fiscal years that exceed 5% of the recipient’s consolidated gross revenue for that year or $200,000, whichever is greater (subject to certain exclusions);

• the director or a family member of the director is employed as an executive officer of an entity where, at any time during the past three years, any of the executive officers of the Company served on the compensation committee of such other entity; or

• the director or a family member of the director is a current partner of the Company’s outside auditor, or at any time during the past three years was a partner or employee of the Company’s outside auditor, and who worked on the Company’s audit.

The following is a summary of certain of the experience, qualifications, attributes and skills that led the Company’s Board of Directors to conclude that such person should serve as a director or officer This information supplements the biographical information provided above.

Philip L. Rose, Ph.D., Chief Executive Officer, President, Treasurer & Director. Dr. Rose has extensive international business management experience, having previously served as the chief executive officer, president and director of several companies based both in the United States and abroad, and significant experience in the electronic and specialty materials markets. Based on his practical leadership and industry experience, Dr. Rose provides valuable experience and knowledge.

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Arnold A. Allemang, Director. Mr. Allemang’s previous board service for several corporations and substantial managerial and operational history will prove valuable to the Board as it seeks to implement and maintain growth strategies that will enable the Company to succeed.

Ravi Shanker, Director. Mr. Shanker’s experience supporting and advising companies with respect to their growth and business development will enable him to assist the Board and management as they endeavor to expand the Company.

Steven C. Jones, Director. Mr. Jones’ background in investment banking and in investing, as well as his prior experience serving as a member of several boards, enables him to provide the Board with valuable insight and expertise.

Wonil Kim, Director. Mr. Kim’s extensive business development and operational expertise will enable him to effectively serve the Board.

Michael Pachos, Director. Mr. Pachos has extensive experience in the investment and securities industries, as well as in implementing strategy, all of which experience will prove useful to the Board.

Dave Pendell, Director. Mr. Pendell’s experience in successfully building businesses in a range of end-use markets will prove very useful to the Board.

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EXECUTIVE COMPENSATION

Summary Compensation

The following table sets forth all compensation earned and accrued, in all capacities, during the fiscal years ended December 31, 2015 and 2014 by our named executive officers:

Name and Position	Year	Salary		Bonus		Option Expense(1)	Other			Total
Philip L. Rose, Chief Executive	2015	$	268,654	$	18,000	—		—		$	286,673
Officer, Treasurer	2014	$	259,135		—	—		—			—
Michael R. Knox, Former Principal	2015	$	160,000				$	254,400	(2)	$	417,000
Financial Officer, Former Chief Financial Officer, Former Senior	2014	$	161,154	$	13,500		$	120,200	(2)	$	294,854
Vice President and Former Secretary
Scott Murray, Vice President of	2015	$	140,000	$	6,725	—		—		$	148,824
Operations	2014	$	140,000	$	3,000	—	$	712	(2)	$	143,712
Robert Privette, Vice President of	2015	$	190,000	$	10,938	—		—		$	200,957
Energy Markets	2014	$	190,000	$	9,000	—		—		$	199,000
Liya Wang, Vice President of	2015	$	200,000	$	14,800	—		—		$	214,806
Research & Development	2014	$	200,000	$	10,000	—		—		$	210,000

____________

(1)Option expense is calculated using the fair value of options that vested during the period. See Note 11 to our December 31, 2015 financial statements included in this prospectus.

(2) Mr. Knox’s and Mr. Murray’s other compensation included payment of compensation previously deferred under the Company’s Phantom Stock Plan.

Outstanding Equity Awards

The Board of Directors of the Company occasionally awards stock options under the Company’s 2007 Stock Option Plan. Additionally, stock warrants have been issued to certain officers of the Company in conjunction with financing agreements. The following table sets forth information regarding outstanding stock option and stock warrant awards as of December 31, 2015:

Name and Position(s)	Number of Securities Underlying Unexercised Options and Warrants that are currently Exercisable	Number of Securities Underlying Unexercised Options and Warrants that are currently Unexercisable		Exercise Price		Expiration Date
Philip L. Rose, Chief Executive Officer, Treasurer	56,665	103,335		$	12.00	1/6/2022
Michael R. Knox, Former Chief Executive Officer,	6,000	15,000	(1)	$	8.00	7/1/2019
Former Senior Vice President and	5,000			$	12.00	10/8/2027
Former Secretary	35,000				13.20	6/1/2021
Scott Murray, Vice President of Operations	10,000	3,333	(2)	$	8.00	12/1/2017
	6,667			$	12.00	6/1/2021
Robert Privette, Vice President of Energy Markets	13,333	6,667	(3)	$	12.00	6/1/2021
Liya Wang, Vice President of Research & Development	20,000	10,000	(4)	$	12.00	6/1/2021

• Mr. Knox’s remaining unvested options vest at the rate of 15,000 per year on June 1, 2016 in proportion to the amount of time Knox has worked as an active XGS employee during the previous year compared with 1,500 hours per year.

• Mr. Murray’s remaining unvested options vest on June 1, 2016 providing he remains an employee.

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• Mr. Privette’s unvested options vest on June 1, 2016 providing he remains an employee.

• Mr. Wang’s unvested options vest on June 1, 2016 providing he remains an employee.

Director Compensation

Each of our non-employee Directors who was not appointed as a representative of a corporate investor in XGS is entitled to receive compensation in accordance with Director Compensation plans as amended by the full Board of Directors from time to time. The following table sets forth information concerning the compensation of eligible Directors for the year ended December 31, 2015:

Name	Period	Cash Compensation		Stock Option Expense(1)		Total Compensation
Arnold Allemang	2015	$	7,500	$	9,330	$	16,830
Steven Jones	2015	$	7,500	$	3,584	$	11,084
Ravi Shanker	2015	$	7,500	$	9,330	$	16,830

____________

(1)Option expense is calculated using the fair value of options that vested during the period. See Note 11 to the December 31, 2015 financial statements included in this prospectus.

2007 Stock Option Plan

We have established an incentive stock option plan under which we may grant to key employees and Directors options to purchase our common stock at not less than fair market value as of the grant date. Options for up to 600,000 shares may be awarded under the plan. Each option is exercisable into one share of our common stock. The plan expires December 2017. The fair value of the options granted was estimated on the date of grant using the Black Scholes option-pricing model. As of December 31, 2015 and 2014, respectively, 419,750 and 464,750 option shares have been granted. Vesting of the option shares with the employees range from immediately to 20% per year. Rights to exercise the options vest immediately upon a change in control of XGS or termination of the employee’s continuous service due to death or disability. The options expire at various dates through January 2022.

Phantom Stock Plan

On January 1, 2015, the former CEO, Michael R. Knox, was paid $254,400 in deferred compensation under the terms of the phantom stock plan. At the same time, he reinvested the entire payout in a Secured Promissory Note having a maturity on July 1, 2015. This Note was subsequently repaid by the Company in May 2015.

Employment Agreements and Potential Payments Upon Termination

The Company is party to two employment contracts. The following descriptions summarize the commitments in these agreements.

On December 16, 2013 the Company entered into an Employment Agreement with Philip L. Rose to serve as the Company’s Chief Executive Officer commencing on January 6, 2014 and continuing indefinitely, subject to termination by the Company for cause or without cause, or resignation by Dr. Rose with or without cause. If the Company terminates Dr. Rose without cause, or if Dr. Rose resigns with cause, the Company has agreed to pay Dr. Rose’s base salary for a period of six months, any permitted COBRA health insurance premiums for Dr. Rose and his family, and any pro-rata bonus amounts that are deemed to have been earned during Dr. Rose’s employment period prior to termination. In the event that the Company terminates Dr. Rose with cause, or if Dr. Rose resigns without cause, the Company has no further obligations beyond the severance date. The Agreement provides that Dr. Rose will be paid an initial base salary of $275,000 annually, with an annual Target Bonus opportunity of 30% of base salary, which may be earned up to a level of 150% of the Target Bonus under certain conditions. Additionally, Dr. Rose was awarded an option to purchase a total of 220,000 shares of common stock at $12.00 per share and with a life of eight years from the award date. These stock options vest in-part based on based on time and in-part based on the achievement of certain milestones. In addition, Dr. Rose was granted a temporary commuting allowance of up to $50,000 for the calendar years 2014 and 2015 and through August 31, 2016, and a one-time relocation allowance of up to $25,000 for a permanent relocation prior to August 31, 2016.

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On January 13, 2014 the Company entered into an Employment Agreement with Michael R. Knox, the Company’s former CEO and co-founder. Under the terms of the Agreement, Mr. Knox accepted employment as Senior Vice President for a period of three years unless terminated, with the understanding that Mr. Knox would work approximately 1,500 hours per year on a schedule to be mutually-agreed with the CEO. The Agreement provides Mr. Knox with a base salary of $160,000 annually and includes a continuation of regular employee benefits except paid time off. The Agreement is subject to termination by the Company at any time upon a 30-day notice. If such termination is without cause, the Company has agreed to continue to pay 50% of Mr. Knox’s base salary for the remaining term of the Agreement. This Agreement also references and incorporates a stock option award that vests over the term of the Agreement. On January 31, 2016, Mr. Knox informed the Company of his resignation, which was effective February 24, 2016.

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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

Related Party Transactions

On March 18, 2013, the Company entered into financing arrangements with two private funds (AAOF and XGS II) that were formed for the sole purpose of investing in the Company by two investors affiliated with ASC-XGS, LLC, a stockholder of the Company. During 2013, these two funds purchased $4,503,847 of secured convertible notes and also provided $635,770 in equipment lease financing. In 2014, these two funds purchased $5,500,000 of secured convertible notes and also provided $390,321 in equipment lease financing. No payments have been made on the secured convertible note and the balance due, including interest, was converted to Series A Preferred Stock on December 31, 2015.

On January 15, 2014, we sold $3 million of secured convertible notes to Samsung Ventures, a new lender and stockholder of the Company. As part of this investment, Samsung SDI, the largest maker of lithium ion batteries in the world, committed to entering into a joint development agreement with XGS to jointly development a new lithium ion battery anode material based on the Company’s proprietary silicon graphene material.

On March 31, 2014, we sold 100,000 shares of Series A Preferred Stock to POSCO for $1.2 million as part of a preemptive rights offering triggered by the AAOF and Samsung investments, bringing the total POSCO investment in XGS to $5.2 million.

During 2014, we issued 29,169 shares of Series A Preferred Stock to AAOF as payment for lease financing obligations under the terms of a Master Leasing Agreement.

During the year ended December 31, 2015, Michael R. Knox was paid $254,000 under the terms of a phantom stock agreement.

During the year ended December 31, 2015, we issued 28,560 shares of Series A Preferred Stock to AAOF as payment for lease financing obligations under the terms of a Master Leasing Agreement.

In April 2015, we commenced a private placement offering of up to $18,000,000 in units consisting of up to 1,125,000 shares of Series B Convertible Preferred Stock and Warrants to purchase common stock at an offering price of $16.00 per Unit. Each of Steven Jones and Arnold Allemang invested $250,000 in the offering of Series B Units.

On December 31, 2015, we issued December Notes and December Warrants to existing stockholders. The December Notes mature on June 30, 2016 and the December Warrants have a five year term and a strike price of $8.00. Each of Steven Jones, Arnold Allemang, and Dave Pendell purchased December Notes for $250,000, $250,000 and $50,000 respectively, and purchased December Warrants for 9,375, 9375, and 1,875 shares of common stock respectively.

Shareholder Agreement

The Shareholder Agreement shall continue in full force and effect until the date of the closing of a public offering of our common stock pursuant to a registration statement filed with the SEC is declared effective in which the Company receives gross proceeds of at least $10,000,000, on which date it shall terminate in its entirety, unless the Shareholder Agreement is earlier terminated in accordance with its terms. Until such time as it is terminated, however, new shareholders will be required to execute an adoption agreement to the Shareholder Agreement. By adopting the Shareholder Agreement, such new shareholders will be bound by its terms, including the transfer restrictions provided therein.

Shareholder Side Letter

On January 15, 2014, AAOF, POSCO, SVIC, XGS II, Mike Knox and the Company entered into a letter agreement pursuant to which AAOF agreed to consent to, approve or otherwise sanction certain actions of the Company specified in the Shareholder Agreement so long as investors owning at least 66% of the voting securities on a fully diluted basis consent to the proposed Company action. These actions include if the Company (i) creates, obligates itself to create, authorizes or issues (by reclassification or otherwise) any new class or classes of securities which has a preference over or being on a parity with the Series A Preferred Stock in any respect; (ii) sells any material portion of the tangible or intangible assets of the Company that secures the indebtedness to AAOF; or (iii) incurs additional secured indebtedness.

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Voting Agreement

In conjunction with a financing from Samsung Ventures on January 15, 2014, the Company and certain of its stockholders entered into a voting agreement with Samsung Ventures whereby for so long as Samsung Ventures owns 10% or more of the aggregate outstanding common stock of the Company (assuming Full Conversion, but excluding any shares of common stock issuable upon the exercise of any warrants held by Samsung Ventures), each stockholder made a party thereto shall vote all of his, her or its voting securities from time to time in whatever manner is necessary to ensure that at each annual or special meeting of the stockholders at which an election of Directors is held or pursuant to any written consent of the stockholders, one person nominated by Samsung Ventures is elected to the Company’s Board as a Director.

The rights granted to Samsung Ventures under a voting agreement are effective until the first to occur of (1) the date on which the Minimum Ownership Requirement is no longer satisfied, (2) the date on which the Shareholder Agreement (which is described above) is terminated for any reason and (3) the date that Samsung Ventures agrees in writing to terminate the Agreement.

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS

As of February 26, 2016, the following table sets forth certain information with respect to the beneficial ownership of our common stock, Series A Preferred Stock and Series B Preferred Stock by (i) by each of our directors and executive officers, (ii) by all of our director and executive officers as a group, and (iii) by each person or entity known by us to beneficially own more than 5% of any class of our outstanding shares. We have determined the number and percentage of shares beneficially owned by such person in accordance with Rule 13d-3 under the Exchange Act.

Name and Address of Beneficial Owner(1)(2)	Shares of Common Stock Beneficially Owned(3)	Percentage of Shares of Common Stock Beneficially Owned(4)		Shares of Series A Preferred Stock Beneficially Owned(5)	Percentage of Shares of Series A Preferred Stock Beneficially Owned(6)		Shares of Series B Preferred Stock Beneficially Owned(7)	Percentage of Shares of Series B Preferred Stock Beneficially Owned(8)		Total Percentage of Outstanding Shares of Voting Stock Beneficially Owned(9)
Directors, Executive Officers, and Significant Employees
Philip L. Rose(10)	226,250	21.31	%	—	—		6,250	1.14	%	4.54	%
Michael R. Knox(11)	323,470	27.89	%	135,423	3.86	%	—	—		6.37	%
Arnold A. Allemang(12)	36750	4.1	%	—	—		31,250	5.47	%		*
Steven C. Jones(13)	48,781	5.51	%	—	—		31,250	5.47	%	1.02	%
Wonil Kim(14)	—	—		—	—		—	—		—
Ravi Shanker(15)	4,000		*	—	—		2,000		*		*
Michael Pachos(16)	—	—		—	—		—	—		—
Scott Murray(17)	13,334	1.57	%	—	—		—	—			*
Robert Privette(18)	13,333	1.57	%	—	—		—	—			*
Liya Wang(19)	20,000	2.33	%	—	—		—	—			*
Directors & Executive Officers as a Group (10 persons)	685,918	45.05	%	135,423	3.86	%	70,750	11.58	%	12.61	%
Certain Other Beneficial Owners – Over 5% Ownership
Aspen Advanced Opportunity Fund, LP(20)	3,470,776	80.58	%	1,908,227	36.10	%	—	—		42.20	%
POSCO(21)	481,250	36.52	%	187,500	5.26	%	—	—		9.19	%
ASC-XGS, LLC(22)	311,293	27.12	%	311,293	8.44	%	—	—		6.15	%
Hanwha Chemical(23)	150,000	17.93	%	—	—		—	—		3.06	%
XGS II, LLC(24)	288,031	25.61	%	204,698	5.72	%	—	—		5.71	%
SVIC No. 15 New Technology Business Investment LLP(25)	590,081	41.36	%	590,081	14.88	%	—	—		11.04	%
Hiroyuki Fukushima(26)	51,405	5.79	%	937		*	—	—		1.07	%
Lawrence T. Drzal(27)	51,750	5.83	%	—	—		1,200		*	1.06	%

____________

*Less than 1%

(1)Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities. In accordance with SEC rules, shares of stock issuable upon the exercise of options, warrants and other convertible securities which are currently exercisable and convertible or which become exercisable or convertible within sixty (60) days following the date of the information in this table are deemed to be beneficially owned by, and outstanding with respect to, the holder of such option, warrant or other convertible security. Subject to community property laws where applicable, to our knowledge, each person listed is believed to have sole voting and investment power with respect to all shares owned by such person.

(2)Unless otherwise specified, the address of the beneficial owner shall be the business address of the Company, c/o XG Sciences, Inc., 3101 Grand Oak Drive, Lansing, MI 48911.

(3)Number of shares of common stock includes, as of February 26, 2016: (i) shares of common stock registered in the name of the respective stockholder; (ii) shares of Series A Preferred Stock registered in the name of the respective stockholder which are immediately convertible into shares of common stock; (iii) shares of Series B Preferred Stock registered in the name of the respective stockholder which are immediately convertible into shares of common stock; (iv) shares of common

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stock underlying options and/or warrants of the respective stockholder and which are exercisable within sixty (60) days of February 26, 2016; (v) shares of Series A Preferred Stock which are immediately convertible into shares of common stock underlying warrants and/or convertible notes of the respective stockholder which are exercisable or convertible into shares of Series A Preferred Stock within sixty (60) days of February 26, 2016; and (vi) shares of Series B Preferred Stock which are immediately convertible into shares of common stock underlying warrants and/or convertible notes of the respective stockholder which are exercisable or convertible into shares of Series B Preferred Stock within sixty (60) days of days of February 26, 2016. The shares of common stock herein does not include the common stock issuable upon conversion of the Series A Preferred Stock at a ration of 1.875 to 1 and does not include the common stock issuable upon exchange of the Series B Units for shares of common stock.

(4)Applicable percentage of ownership is based on 836,544 shares of common stock issued and outstanding as of February 26, 2016, together with: (i) shares of common stock registered in the name of the respective stockholder; (ii) shares of Series A Preferred Stock registered in the name of the respective stockholder which are immediately convertible into shares of common stock; (iii) shares of Series B Preferred Stock registered in the name of the respective stockholder which we will convert into shares of common stock; (iv) shares of common stock underlying options and/or warrants of the respective stockholder and which are exercisable within sixty (60) days of February 26, 2016.

(5)Number of shares of Series A Preferred Stock includes, as of February 26, 2016: (i) shares of Series A Preferred Stock registered in the name of the respective stockholder; and (ii) shares of Series A Preferred Stock underlying warrants and/or secured notes of the respective stockholder which are exercisable or convertible within sixty (60) days of February 26, 2016. The number of shares of Series A Preferred Stock assumes the conversion of the Series A Preferred Stock on a 1.875 to 1 ratio.

(6)Applicable percentage of ownership is based on 3,376,299 shares of Series A Preferred Stock issued and outstanding as of February 26, 2016, together with shares of Series A Preferred Stock underlying warrants and/or secured notes of the respective stockholder which are exercisable or convertible within sixty (60) days of February 26, 2016.

(7)Number of shares of Series B Preferred Stock includes, as of February 26, 2016, (i) shares of Series B Preferred Stock registered in the name of the respective stockholder; and (ii) shares of Series B Preferred Stock underlying warrants and/or secured notes of the respective stockholder which are exercisable or convertible within sixty (60) days of February 26, 2016. The number of Series B Preferred Stock used in the table assumes the exchange of the Series B Unit for common stock.

(8)Applicable percentage of ownership is based on 269,987 shares of Series B Preferred Stock issued and outstanding as of February 26, 2016 together with shares of Series B Preferred Stock underlying warrants and/or secured notes of the respective stockholder which are exercisable or convertible within sixty (60) days of February 26, 2016.

(9)Applicable percentage of ownership is based on 836,544 shares of common stock, 3,376,299 shares, assuming the conversion of 1,800,696 shares of Series A Preferred Stock, and 539,974 shares, assuming the exchange of 269,987 shares of Series B Preferred Stock, issued and outstanding as of February 26, 2016, together with shares of common stock underlying options and/or warrants of the respective stockholder which are exercisable within sixty (60) days of February 26, 2016 and shares of Series A Preferred Stock and Series B Preferred Stock underlying warrants and/or convertible notes of the respective stockholder which are convertible into shares of Series A Preferred Stock within sixty (60) days of February 26, 2016.

(10)Includes 220,000 shares of common stock underlying currently exercisable options and 6,250 shares of common stock underlying immediately convertible shares of Series B Preferred Stock, assuming exchange of Units

(11)Includes 127,047 shares of common stock, 50,000 shares of common stock underlying currently exercisable options, 11,000 shares underlying vested warrants to purchase common stock, and 135,423 shares of common stock underlying shares of immediately convertible Series A Preferred Stock, assuming conversion of the Series A Preferred Stock, which are currently issuable upon the conversion of outstanding convertible notes. Mr. Knox’s interest also includes 5,380 shares of stock issued in the name of his wife, Linnea Van Dyne.

(12)Includes 79,750 shares of common stock underlying currently exercisable options and 31,250 shares of common stock underlying immediately convertible shares of Series B Preferred Stock, assuming exchange of Units, and 9,375 warrants for common stock issued with bridge notes. The shares of Series B Preferred Stock are held in the name of the Arnold Avery Allemang Revocable Trust.

(13)Includes (i) 4,250 shares of common stock underlying currently exercisable options held by Steven Jones; (ii) 18,750 shares of common stock underlying Series B Preferred Stock and 7,969 shares of common stock underlying warrants, held in the name Jones Network, LP, of which Mr. Jones, a Director, is a partner; (ii) 6,250 shares of common stock underlying

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Series B Preferred Stock and 2,656 shares of common stock underlying warrants, held in the name Jones Extended Family Trust, of which Mr. Jones is trustee; and (iii) 6,250 shares of common stock underlying Series B Preferred Stock and 2,656 shares of common stock underlying warrants, held in the name Steven & Carisa Jones 401K Plan and Trust, of which Mr. Jones is trustee. Mr. Jones is an affiliate of Aspen Advanced Opportunity Fund, LP (“AAOF”), which owns 1,908,227 shares of Series A Preferred Stock which are issuable upon the conversion of immediately convertible notes. Mr. Jones disclaims beneficial ownership of the shares owned by AAOF.

(14)Mr. Kim is a director of POSCO and disclaims beneficial ownership of any shares owned by POSCO.

(15)Includes 3,000 shares of common stock underlying currently exercisable options, and 2,000 shares of common stock underlying immediately convertible shares of Series B Preferred Stock, assuming exchange of Units.

(16)Mr. Pachos was appointed to the Board by Samsung and disclaims beneficial ownership of any shares owned by Samsung.

(17)Includes 13,334 shares of common stock underlying currently exercisable options.

(18)Includes 13,333 shares of common stock underlying currently exercisable options.

(19)Includes 20,000 shares of common stock underlying currently exercisable options.

(20)Includes, assuming conversion, 1,908,277 shares of common stock underlying shares of Series A Preferred Stock which were issued upon the conversion of convertible notes, and 833,333 shares of Series A Preferred Stock issuable upon the exercise of warrants.

(21)Includes 200,000 shares of common stock, 187,500 shares of common stock underlying immediately convertible shares of Series A Preferred Stock, assuming conversion, and 50,000 shares of Series A Preferred Stock issuable upon the exercise of warrants.

(22)Includes, assuming conversion, 311,293 shares of common stock underlying immediately convertible shares of Series A Preferred Stock.

(23)Includes 150,000 shares of common stock.

(24)Includes 83,333 shares of Series A Preferred Stock issuable upon the exercise of warrants and, assuming conversion, 204,698 shares of common stock underlying Series A Preferred Stock which are issuable upon the conversion of immediately convertible notes.

(25)Includes, assuming conversion, 590,881 shares of common stock underlying Series A Preferred Stock which are issuable upon the conversion of immediately convertible notes.

(26)Includes 50,000 shares of common stock and, assuming conversion, 938 shares of common stock underlying immediately convertible shares of Series A Preferred Stock, and warrants for 468 shares of common stock.

(27)Includes 50,550 shares of common stock and 1,200 shares of common stock underlying immediately convertible shares of Series B Preferred Stock. The 50,550 shares of common stock are held in the name of the Drzal Revocable Trust, for which Mr. Drzal is the Trustee.

Change in Control Arrangements

We are not aware of any arrangements that could result in a change of control.

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DESCRIPTION OF SECURITIES

In the discussion that follows, we have summarized selected provisions of our Articles of Incorporation, as amended relating to our capital stock. This summary is not complete. This discussion is subject to the relevant provisions of the Michigan Business Corporation Act and is qualified in its entirety by reference to our Articles of Incorporation, as amended and our Bylaws. You should read the provisions of our Articles of Incorporation, as amended and our Bylaws as currently in effect for provisions that may be important to you.

Common Stock

As of December 31, 2015, we had 25,000,000 shares of common stock, no stated par value per share, authorized for issuance and 836,544 shares of common stock issued and outstanding.

In accordance with the terms of our Bylaws, each outstanding share of capital stock is entitled to one vote on each matter submitted to a vote, unless otherwise provided in our Articles of Incorporation, as amended. A vote may be cast either orally or in writing. When an action, other than the election of Directors, is to be taken by vote of the stockholders, it shall be authorized by a majority of the votes cast by the holders of shares of capital stock entitled to vote thereon, unless a plurality is required by the Articles of Incorporation, as amended or by the laws of the State of Michigan. Except as otherwise provided by our Articles of Incorporation, as amended, the Directors shall be elected by a plurality of the votes cast at an election of Directors. Holders of common stock do not have cumulative voting rights in the election of Director.

According to our Articles of Incorporation, as amended, and Bylaws, any action required or permitted to be taken at an annual or special meeting of stockholders may be taken without a meeting, without prior notice, and without a vote, if consents in writing, setting forth the action so taken, are signed by the holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or take the action at a meeting at which all shares entitled to vote on the action were present and voted.

Each stockholder is entitled to receive dividends, as the Board of Directors may, from time to time, declare in a manner and upon the terms and conditions provided by the laws of the State of Michigan and our Articles of Incorporation, as amended.

Holders of the common stock have no preemptive or other preferential rights to purchase additional shares of any class of the Company’s capital stock in subsequent stock offerings.

Preferred Stock

As of December 31, 2015, the Company has 8,000,000 shares of preferred stock authorized for issuance, no stated par value per share. As of December 31, 2015, 3,000,000 preferred shares have been designated as Series A Preferred Stock, of which 1,800,696 shares of Series A Preferred Stock are issued and are outstanding, 1,500,000 shares have been designated as Series B Preferred Stock, of which 269,987 are issued and outstanding, and the remaining 3,500,000 authorized shares are shares of blank check preferred stock which may be issued in one or more series, each of such series to have such designations, powers, preferences, and relative participating, optional, or other rights, and such qualifications, limitations, or restrictions, as may be stated in a resolution or resolutions providing for the issue of such series adopted by the Board of Directors.

Series A Convertible Preferred Stock

Pursuant to the Series A Designations, the Company’s Series A Preferred Stock have the following powers, preferences, rights, qualifications, limitations and restrictions:

Upon any liquidation, dissolution or winding up of the Company, either voluntary or involuntary, the holders of the Series A Preferred Stock shall be entitled to receive, prior and in preference to any distribution of any of the assets of the Company to the holders of common stock by reason of their ownership of such stock, an amount per share for each share of Series A Preferred Stock held by them equal to (i) the Liquidation Preference, as such term is defined in the Series A Designations, specified for such share of Series A Preferred Stock less (ii) all dividends (if any) paid on such share of Series A Preferred Stock.

With respect to any matter presented to the stockholders of the Company for their action or consideration at any meeting of stockholders of the Company, or by written consent of stockholders in lieu of a meeting, each holder of Series A Preferred Stock shall be entitled to cast the number of votes equal to the number of whole shares of common stock into which the shares

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of Series A Preferred Stock held by such holder are convertible as of the record date for determining stockholders entitled to vote on such matter.

Each share of Series A Preferred Stock shall be convertible, at the option of the holder thereof, at any time after the date of issuance of such share, into that number of fully paid, non-assessable shares of common stock determined by dividing the Series A Original Issue Price (which is $12.00 per share), subject to certain adjustments from time to time for recapitalizations, by the Conversion Price (which is $12.00), subject to adjustment from time to time for recapitalizations or as otherwise set forth in the Series A Designations. The conversion price of the Series A Preferred Stock is subject to adjustments pursuant to the occurrence of certain specified events. The number of shares of common stock into which each share of Series A Preferred Stock may be converted is the “Conversion Rate”.

Furthermore, the Company has the right to effect a mandatory conversion of each share of Series A Preferred Stock outstanding into fully paid, non-assessable shares of common stock at the then effective Conversion Rate, for such share upon the listing by the Company of its common stock on a Qualified National Exchange.

Upon any liquidation, dissolution or winding up of the Company, either voluntary or involuntary, the holders of the Series A Preferred Stock shall be entitled to receive, prior and in preference to any distribution of any of the assets of the Company to the holders of the common stock by reason of their ownership of such stock, an amount per share for each share of Series A Preferred Stock held by them equal to (i) the Liquidation Preference, as such term is defined in the Series A Designations, specified for such share of Series A Preferred Stock less (ii) all dividends (if any) paid on such share of Series A Preferred Stock.

With respect to any matter presented to the stockholders of the Company for their action or consideration at any meeting of stockholders of the Company, or by written consent of stockholders in lieu of a meeting, each holder of Series A Preferred Stock shall be entitled to cast the number of votes equal to the number of whole shares of common stock into which the shares of Series A Preferred Stock held by such holder are convertible as of the record date for determining stockholders entitled to vote on such matter.

Series B Convertible Preferred Stock

Pursuant to the Series B Designations, the Company’s Series B Preferred Stock has the following powers, preferences, rights, qualifications, limitations and restrictions:

Series B Preferred Stock shall rank (a) senior to all other equity or equity equivalent securities of the Company other than those securities which are explicitly senior or pari passu in rights and liquidation preference to the Series B Preferred Stock (“Junior Securities”) and (b) pari passu with the Company’s Series A Preferred Stock and (c) junior to all other series of the Company’s preferred stock that are explicitly senior in rights and liquidation preference which, as of the date hereof, is none.

In the event of any liquidation, dissolution or winding up of the Company, either voluntary or involuntary, holders of the Series B Preferred Stock shall be entitled to receive, prior and in preference to any distribution of any of the assets of the Company to the holders of Junior Securities, an amount per share for each share of Series B Preferred held by them equal to $16.00.

With respect to any matter presented to the stockholders of the Company for their action or consideration at any meeting of stockholders of the Company, or by written consent of stockholders in lieu of a meeting, each holder of Series B Preferred Stock shall be entitled to cast the number of votes equal to the number of whole shares of common stock into which the shares of Series B Preferred Stock held by such holder are convertible as of the record date for determining stockholders entitled to vote on such matter.

Each share of Series B Preferred Stock shall be convertible, at the option of the holder thereof, at any time after the date of issuance of such share, into that number of fully paid, non-assessable shares of common stock determined by dividing the Series B Original Issue Price (which is currently $16.00, subject to adjustments), by the Conversion Price (which is currently $16.00, subject to adjustments), as such terms are further defined in the Series B Designations. The conversion price of the Series B Preferred Stock is subject to adjustments pursuant to the occurrence of certain specified events.

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Furthermore, the Company shall have the right to effect the conversion of each share then currently outstanding into shares of common stock upon the listing by the Company of its common stock on a Qualified National Exchange. Notwithstanding the foregoing, the Series B Preferred Stock shall not be subject to such mandatory conversion until all outstanding Convertible Securities (any evidences of indebtedness, shares or other securities convertible into or exchangeable for common stock or preferred stock) are also converted into common stock.

Warrants

In conjunction with previous loans to the Company in 2009 and 2012 by Michael Knox, warrants to purchase 5,000 and 6,000 shares of common stock, respectively, were issued to Mr. Knox. In conjunction with the sale of Series B Preferred Stock in April and June of 2015, an additional 224,897 warrants to purchase shares of common stock were issued. In connection with the December Notes and December Warrants issuance, warrants to purchase 20,625 shares of common stock were issued. In 2014, warrants to purchase 1,072,720 shares of Series A Convertible Preferred Stock were issued in conjunction with the sale of Series A Convertible Preferred stock. All of these warrants are vested. These warrants have exercise prices ranging $8.00 to $16.00 per share, with a weighted average purchase price of $12.67 per share. These warrants expire on various dates ranging from July 2019 to October 2027.

As of December 31, 2015, outstanding warrants were as follows:

Holder	Issue Date	Warrant Shares	Expiration Date	Exercise Price		Total Vested on 12/31/2015	Total Not Vested on 12/31/2015
Warrants to Purchase Common Stock
Michael R. Knox	10/8/2012	5,000	10/8/2017	$	12.00	5,000	—
Michael R. Knox	7/1/2009	6,000	7/1/2019	$	8.00	6,000	—
Jones Network, LP	4/21/2015	7,969	4/21/2022	$	16.00	7,969	—
George Cardoza	4/22/2015	2,125	4/22/2022	$	16.00	2,125	—
William Robison	4/22/2015	26,563	4/22/2022	$	16.00	26,563	—
Steven Purcell	4/23/2015	5,313	4/23/2022	$	16.00	5,313	—
James D. Chambers	4/24/2015	5,100	4/24/2022	$	16.00	5,100	—
Golden Hills Investments, LLLP	4/24/2015	13,281	4/24/2022	$	16.00	13,281	—
Muriel F. Licht Trust	4/24/2015	2,656	4/24/2022	$	16.00	2,656	—
Hewit Hawn	4/24/2015	266	4/24/2022	$	16.00	266	—
First Trust Company of Onaga FBO Kenneth RJ Rettig	4/27/2015	956	4/27/2022	$	16.00	956	—
Jones Extended Family Trust	4/27/2015	2,656	4/27/2022	$	16.00	2,656	—
David G. Pendell Revocable Trust	4/28/2015	2,656	4/28/2022	$	16.00	2,656	—
Edelgard Traut	4/28/2015	850	4/28/2022	$	16.00	850	—
First Trust Company of Onaga FBO George A. Shaw	4/28/2015	2,656	4/28/2022	$	16.00	2,656	—
John M. O’Neill	4/28/2015	850	4/28/2022	$	16.00	850	—
L.D. Sipes, Jr.	4/28/2015	8,500	4/28/2022	$	16.00	8,500	—
Lexy and Steven Shroyer Family Trust 2004	4/28/2015	7,969	4/28/2022	$	16.00	7,969	—
Robert Moyer	4/28/2015	3,985	4/28/2022	$	16.00	3,985	—
Samuel H. Jones Jr.	4/28/2015	5,313	4/28/2022	$	16.00	5,313	—

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Holder	Issue Date	Warrant Shares	Expiration Date	Exercise Price		Total Vested on 12/31/2015	Total Not Vested on 12/31/2015
John and Elaine D. Cavanna JTWROS	4/29/2015	1,381	4/29/2022	$	16.00	1,381	—
Shannondoah, LLC	4/29/2015	1,275	4/29/2022	$	16.00	1,275	—
Traut Family Trust UTD 7/3/13	4/29/2015	850	4/29/2022	$	16.00	850	—
Ravi Shanker	4/29/2015	850	4/29/2022	$	16.00	850	—
David Fuhrhop and Marcia L. Furhop	4/29/2015	495	4/29/2022	$	16.00	495	—
Thomas Bombeck IV	4/29/2015	2,550	4/29/2022	$	16.00	2,550	—
Arnold Avery Allemang Revocable Trust	4/29/2015	13,281	4/29/2022	$	16.00	13,281	—
Steven & Carisa Jones 401K Plan & Trust	4/29/2015	2,656	4/29/2022	$	16.00	2,656	—
George J. and/or Beverly A. Biltz	4/29/2015	3,188	4/29/2022	$	16.00	3,188	—
Philip Rose	4/29/2015	2,656	4/29/2022	$	16.00	2,656	—
Laurie L. Bock Administrative Trust	4/29/2015	797	4/29/2022	$	16.00	797	—
Kay B. Coin	4/29/2015	1,329	4/29/2022	$	16.00	1,329	—
LMRAY, LLC	4/29/2015	399	4/29/2022	$	16.00	399	—
Spinnaker Brown, LLC	4/29/2015	1,435	4/29/2022	$	16.00	1,435	—
Who Dat Nation Trust	4/29/2015	1,496	4/29/2022	$	16.00	1,496	—
Arthur Baumann	4/29/2015	691	4/29/2022	$	16.00	691	—
N. Rich Holdings, LLC	4/29/2015	1,700	4/29/2022	$	16.00	1,700	—
M. Rich Holdings, LLC	4/29/2015	5,100	4/29/2022	$	16.00	5,100	—
David P. Stern Trust UA 12-19-2001	4/29/2015	425	4/29/2022	$	16.00	425	—
Arnold S. and Bette G. Hoffman	4/29/2015	2,656	4/29/2022	$	16.00	2,656	—
Tomas R. Manson Family Trust	4/29/2015	1,275	4/29/2022	$	16.00	1,275	—
Thomas and Carmelita B. Karacic	4/29/2015	2,656	4/29/2022	$	16.00	2,656	—
Erik J. Falconer	4/29/2015	2,550	4/29/2022	$	16.00	2,550	—
Brian G. Martindale Trust	4/29/2015	2,720	4/29/2022	$	16.00	2,720	—
OK Enterprises	4/30/2015	797	4/30/2022	$	16.00	797	—
Mary V. Murfey Family Trust #2	4/30/2015	3,400	4/30/2022	$	16.00	3,400	—
Galt Asset Management	4/30/2015	2,656	4/30/2022	$	16.00	2,656	—
Paul Anthony Radomski	4/30/2015	8,500	4/30/2022	$	16.00	8,500	—
Stevens Financial Group, LLC	4/30/2015	26,563	4/30/2022	$	16.00	26,563	—
First Trust Company of Onaga FBO James M Rajewski IRA#TW000918	4/30/2015	1,993	4/30/2022	$	16.00	1,993	—
David Ari Johnson and Gabrielle Johnson Revocable Trust 1-13-14	4/30/2015	1,329	4/30/2022	$	16.00	1,329	—
Timothy Long Living Trust (no paperwork)	4/30/2015	531	4/30/2022	$	16.00	531	—
Thomas W. Rouse	4/30/2015	1,036	4/30/2022	$	16.00	1,036	—
Morgan Duke	4/30/2015	2,656	4/30/2022	$	16.00	2,656	—
Howard Moskow	4/30/2015	1,329	4/30/2022	$	16.00	1,329	—
Hoffman Investment Company	4/30/2015	2,656	4/30/2022	$	16.00	2,656	—
Russell S. Deane Trust 1/4/2008	4/30/2015	1,063	4/30/2022	$	16.00	1,063	—
Scott Lizenby (assumed internal 53 transfer – no paperwork)	4/30/2015	340	4/30/2022	$	16.00	340	—

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Holder	Issue Date	Warrant Shares	Expiration Date	Exercise Price		Total Vested on 12/31/2015	Total Not Vested on 12/31/2015
Michael D. Bierlein Intervivos Trust	4/30/2015	2,790	4/30/2022	$	16.00	2,790	—
Lillian Elizabeth Deane Trust dated July 2, 1993	4/30/2015	531	4/30/2022	$	16.00	531	—
Jennifer Dana Dean	4/30/2015	850	4/30/2022	$	16.00	850	—
First Trust Company of Onaga FBO Robert L Hartsock	4/30/2015	1,275	4/30/2022	$	16.00	1,275	—
Robert and Carlita Gasparini	4/30/2015	1,329	4/30/2022	$	16.00	1,329	—
Colin Cronin	5/26/2015	2,125	5/26/2022	$	16.00	2,125	—
Lawrence T. Drzal	5/26/2015	510	5/26/2022	$	16.00	510	—
Rodney Boulanger	6/26/2015	1,563	6/26/2022	$	16.00	1,563	—
James R. DeVore and Joan Mobley-DeVore	6/30/2015	5,000	6/30/2022	$	16.00	5,000	—
Steven Jones	12/31/2015	9,375	12/31/2020	$	8.00	9,375
Arnold Allemang	12/31/2015	9,375	12/31/2020	$	8.00	9,375
David Pendell	12/31/2015	1,875	12/31/2020	$	8.00	1,875
		256,522				256,522	—
Warrants to Purchase Series A Preferred Stock
Hiroyuki Fukushima	3/31/2014	250	1/15/2024	$	12.00	250	—
Inwhan Do	3/31/2014	250	1/15/2024	$	12.00	250	—
Peter S. Bosanic & Lisa Kendzioski Bosanic	1/15/2014	625	1/15/2024	$	12.00	625	—
John W. Dourjalian	1/15/2014	1,041	1/15/2024	$	12.00	1,041	—
Colin D. Cronin	1/15/2014	1,767	1/15/2024	$	12.00	1,767	—
Paul Nordstrom	1/15/2014	2,121	1/15/2024	$	12.00	2,121	—
POSCO	3/31/2014	50,000	1/15/2024	$	12.00	50,000	—
XGS II, LLC	1/15/2014	83,333	1/15/2024	$	12.00	83,333	—
SVIC No. 15 (Samsung)	1/15/2014	100,000	1/15/2024	$	12.00	—	100,000
Aspen Advanced Opportunity Fund, LP	1/15/2014	833,333	1/15/2024	$	12.00	833,333	—
Total Series A Preferred Warrants		1,072,720				972,720	100,000
Grand Total Warrants		256,522				1,208,617	100,000

Stock Options

As of December 31, 2015, the Company had granted options to purchase up to 419,750 shares of common stock.

In 2007, the Company implemented a Stock Option Plan and initially reserved 75,000 shares of common stock to cover stock options that might be issued under the Stock Option Plan. As of March 31, 2014 the number of shares reserved for issuance under the plan was 600,000 shares.

As of December 31, 2013, stock options to purchase a total of 152,500 shares at prices ranging from $8.00 to $13.20 per share had been granted to Company employees and Directors, with expiration dates ranging from March 2014 to June 2021, with a weighted average purchase price of $12.13 per share.

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During 2014, additional stock options to purchase 295,000 shares were granted to employees, bringing the total stock options outstanding under the Stock Option Plan to 464,750 at the end of the year. During 2015, certain options expired and other options were granted, bringing the total stock options outstanding as of December 31, 2015 to 419,750.

The following table shows the number of stock options issued and outstanding as of December 31, 2015:

Holder	Issue Date	Total Options	Exp. Date	Exercise Price		Amount Vested 12/31/2015	Amount Non - Exercisable 12/31/2015
Philip Rose	1/6/2014	160,000	1/6/2022	$	12.00	76,663	83,337
Philip Rose	1/6/2014	40,000	1/6/2022	$	12.00	—	40,000
Philip Rose	1/6/2014	20,000	1/6/2022	$	12.00	—	20,000
Michael R. Knox	6/1/2013	50,000	6/1/2021	$	13.20	35,000	15,000
Liya Wang	6/1/2013	30,000	6/1/2021	$	12.00	20,000	10,000
Robert Privette	6/1/2013	20,000	6/1/2021	$	12.00	13,333	6,667
Scott Murray	12/1/2007	10,000	12/1/2017	$	8.00	10,000	—
Scott Murray	6/1/2013	10,000	6/1/2021	$	12.00	6,667	3,333
Corinne Lyon	6/1/2013	10,000	6/1/2021	$	12.00	6,667	3,333
Arnold Allemang	6/1/2013	3,750	6/1/2021	$	12.00	3,750	—
Steven Jones	6/1/2013	2,500	6/1/2021	$	12.00	2,500	—
Arnold Allemang	4/1/2014	1,750	3/31/2022	$	12.00	1,750	—
Arnold Allemang	4/1/2014	9,000	3/31/2022	$	12.00	2,250	6,750
Steven Jones	4/1/2014	1,750	3/31/2022	$	12.00	1,750	—
Steven Jones	4/1/2014	9,000	3/31/2022	$	12.00	2,250	6,750
Ravi Shanker	4/1/2014	12,000	3/31/2022	$	12.00	7,500	4,500
Albert Kim	10/19/2015	20,000	10/19/2023	$	12.00	—	20,000
Percy Chinoy	10/19/2015	10,000	10/19/2023	$	12.00	—	10,000
Total Options		419,750				190,080	229,670

The Company intends to continue to use stock options as one method of attracting and retaining key employees and expects that additional shares will be reserved to cover stock options that might be issued under the plan.

Secured Convertible Notes

On March 18, 2013, the Company entered into a series of agreements with Knox and AAOF. Under these agreements, Knox and AAOF agreed to provide financing to the Company in the form of secured convertible notes (also referred to herein as the “Notes”) as well as optional lease financing. The agreements provided for Knox to lend the Company a sum of $700,000, to be funded by converting advances he had made under a revolving line of credit, and for AAOF to lend the Company a minimum of $2.5 million and, at the option of AAOF, a maximum of $5 million, with a provision that up to 50% of the AAOF funding could be funded under lease financing arrangements.

On July 12, 2013, the agreements described above were amended and restated to provide for expanded financing commitments from AAOF as well as a related entity called XGS II, LLC (“XGS II”). Under the terms of these amended and restated agreements, the financing commitments from AAOF were increased to a minimum of $6 million and, at the option of AAOF, a maximum of $10 million, of which a maximum of $3 million could be provided in the form of lease financing. Also under these amended agreements, XGS II agreed to provide a minimum of $250,000 and, at the option of XGS II, a maximum of $750,000. All of the funding with the exception of the Knox financing, was scheduled according to minimum financing commitments on calendar dates ranging from the time the agreements were executed to a period of eighteen months into the future.

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With the exception of any lease financing, the financing provided by Knox, AAOF, and XGS II takes the form of purchases of Notes with the following identical key terms and provisions:

• Each Note bears interest at a rate of 12% per annum and has a maturity date of March 18, 2018;

• The Notes have provisions providing an option to the Company to accrue the interest payments on the Notes through December 31, 2014 and add the accrued interest to the principal of the Notes;

• After December 31, 2014 the holder, at their option, can choose to receive ongoing interest payments: (a) in the form of cash; (b) receive all or a portion of currently due interest in the form of shares of Series A Preferred Stock at a price per share equal to the then effective Series A Original Issue Price as defined in the Series A Designations; (c) receive all or a portion of currently due interest payments in the form of any other series of preferred stock outstanding at the time interest is due; or (d) elect to accrue such interest and add it to the balance of the Note;

• The Notes are secured by all of the assets, both tangible and intangible, of the Company;

• The Notes have provisions allowing conversion into shares of Series A Preferred Stock (or such other form of preferred stock as may be outstanding at that time) at the option of the holder, in the event that the Company chooses to repay the Notes prior to maturity; and

• The Notes contain various affirmative and negative covenants that provide for various reporting, information, notice, maintenance of business, insurance, audits and reappraisal requirements. These covenants also prohibit the Company from issuing new secured debt that would have security or liquidation provisions senior to or equivalent to the Notes, and these covenants also prohibit the issuance of dividends or stock redemptions, creation of subsidiaries, certain transactions with subsidiaries, or transfer of assets without the permission of the holder.

On December 31, 2013, a number of agreements related to financing transactions had been signed, with signature pages escrowed, pending final approval by legal representatives of Samsung Ventures. On January 15, 2014 these agreements were completed. Under these agreements:

• The Company sold $3 million of Notes to Samsung Ventures. The Notes had terms and conditions that were substantially similar to those previously issued to Knox, AAOF and XGS II. In connection with the sale of the Notes, the Company issued to Samsung Ventures a total of 100,000 warrants with a term of 4 years that are exercisable into shares of Series A Preferred Stock at a price of $12.00 per share. These warrants vest in four installments on the first, second, third and fourth anniversary of the issuance of the warrants according to the following formula: On each anniversary, the warrant vests according to the ratio of (a) total Samsung Ventures payments to the Company during the previous twelve-month period divided by (b) 250. Thus, the warrants shall vest in four annual increments, proportionately in relation to the first $25 million, or a fraction thereof, that Samsung Ventures pays, in cash, to the Company over the four years commencing on January 15, 2014. Samsung Ventures payments are defined as future total cash payments, including licensing, royalties and product purchases but not joint development or the purchase of Notes.

• We consolidated the Notes previously issued to AAOF and XGS II, together with accrued interest, into a single new Note for each lender, with terms and conditions identical to the Notes issued to Samsung Ventures and exchanged existing warrants to purchase 447,916 shares of Series A Preferred Stock for new warrants to purchase 916,666 shares of Series A Preferred Stock. Because the cash flows, including fees and other instruments issued, associated with the new instruments exceeded the cash flows of the old instruments by more than 10%, in accordance with ASC 450, the modification of the Notes has been accounted for as a debt extinguishment. Accordingly, the difference of $3,513,770 between the carrying amounts of the original Notes and the fair value of the newly issued Notes plus the fair value of the additional warrants was recorded as a loss on extinguishment.

• We transferred all of our intellectual property into a newly created, wholly owned subsidiary of the Company called XG Sciences IP, LLC, a Michigan limited liability company.

• We revised the terms and amounts related to the timing of future investments from AAOF and XGS II by increasing the XGS II optional funding level to $1 million and extending the optional financing periods for both AAOF and XGS II through the end of 2014.

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• A new provision was added granting us (as the borrower) the right to force conversion of all of the Notes into Series A Preferred Stock at any time after we raise an aggregate of $15 million in new equity.

• We revised certain provisions in our Bylaws to allow for special stockholder meetings to be called by holders of ten percent (10%) or more of the Company’s stock and to clarify certain voting provisions.

• We further amended and restated the Series A Designations to clarify the conditions relating to mandatory conversions into common stock upon a listing of the Company’s common stock on a Qualified National Exchange (as defined in the Series A Designations) and to add a provision that would exempt holders of Series A Preferred Stock from future mandatory financing participation.

Additional funding from AAOF and XGS II occurred during 2014 and, as of December 31, 2014 a total of $14,090,678.90 in principle had been funded that, together with accrued interest, brought the total balance due on the secured convertible notes to $15,604,429.36.

On April 10, 2015 all of the secured noteholders entered into a Consent and Waiver Agreement which modified the original terms of the secured convertible notes such that all previously issued Notes, together with accrued interest, shall automatically convert into shares of Series A Preferred Stock upon the earlier to occur of (1) the Company raising not less than $12,000,000 (as opposed to $15,000,000) in new funding, and (2) December 31, 2015. All Notes, together with accrued interest, converted to Series A Preferred Stock on December 31, 2015 at a rate of $12 per share.

The following table shows the total balances on the Notes that were converted on December 31, 2015 as well as the resulting number of Series A Preferred Shares issued at that time.

	Face Value of Notes		Total Interest & Principle as of 12/31/2015		No. of shares converted @ $12/share
AAOF	$	9,268,906	$	11,520,232	960,019
Knox		772,998		866,722	72,226
XGS II LLC		1,048,775		1,310,068	109,172
Samsung Ventures		3,000,000		3,776,518	314,709
Grand Total Notes	$	14,090,679	$	17,473,540	1,456,126

Non-convertible Promissory Notes

On December 31, 2015, the Company issued non-secured, non-convertible promissory notes (the December Notes) in an aggregate amount of $550,000 to existing stockholders of the Company who are also accredited investors, along with warrants to purchase 20,625 shares of common stock. The December Notes mature on June 30, 2016 and bear interest at 8% per annum.

Preemptive Rights

On July 5, 2006, the Company entered into a stock redemption agreement with Michael R. Knox, Lawrence T. Drzal, Hiroyuki Fukushima and Inhwan Do whereby, among other things, each holder of common stock of the Company was granted the first right to purchase shares of common stock that may thereafter from time to time be issued in the ratio that the number of shares of common stock they hold at the time of the issue bears to the total number of shares of common stock outstanding. The right shall be deemed waived by any holder of common stock who does not exercise the right and pay for the stock preemptive within thirty days of receipt of a notice in writing from the Company inviting them to exercise the right.

On December 1, 2010, the Company entered into a stock redemption agreement with Hanwha Chemical whereby, among other things, Hanwha Chemical was granted the first right, on equal terms with each of the other stockholders of the Company who had been granted preemptive rights pursuant to a stock redemption agreement with the Company to purchase stock of the Company as of June 8, 2011, to purchase shares of common stock that may thereafter from time to time be issued in the ratio that the number of shares of common stock they hold at the time of the issue bears to the total number of shares of common stock outstanding. The right shall be deemed waived by any holder of common stock who does not exercise the right and pay for the stock preemptive within thirty days of receipt of a notice in writing from the Company inviting them to exercise the right.

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On June 8, 2011, the Company entered into a stock redemption agreement with POSCO whereby, among other things, POSCO was granted the first right, on equal terms with each of the other stockholders of the Company who had been granted preemptive rights pursuant to a stock redemption agreement with the Company to purchase stock of the Company as of June 8, 2011, to purchase shares of common stock that may thereafter from time to time be issued in the ratio that the number of shares of common stock they hold at the time of the issue bears to the total number of shares of common stock outstanding. The right shall be deemed waived by any holder of common stock who does not exercise the right and pay for the stock preemptive within thirty days of receipt of a notice in writing from the Company inviting them to exercise the right.

As part of our overall financing agreements with AAOF, we agreed to allow conversion of previously held shares of common stock into Series A Preferred Stock for AAOF affiliates or other stockholders who exercised preemptive rights to purchase Series A Preferred Stock on or before October 31, 2013. The preemptive rights allowed the stockholders to purchase one share of Series A Preferred Stock at a price of $12.00 per share for every two shares of Series A Preferred Stock or common stock owned by the stockholder. Stockholders exercised these preemptive rights to purchase 11,107 shares of Series A Preferred Stock for $133,284. In addition, a total of 174,734 shares of common stock were cancelled on conversion into a like number of shares of Series A Preferred Stock.

On January 15, 2014, as part of our financing agreements with Samsung Ventures, AAOF and XGS II, we agreed to allow all stockholders to purchase one share of Series A Preferred Stock at a price of $12.00 per share for every two shares of Series A Preferred Stock or common stock owned by the stockholder. In addition, for every two preemptive shares purchased, the Company issued the stockholder a warrant to purchase one additional share of Series A Preferred Stock with the same terms as the warrants issued to AAOF and XGS II. The Company also agreed to issue warrants with the same terms to those stockholders who exercised preemptive rights in October 2013. These preemptive rights expired on March 31, 2014.

During the quarter ended March 31, 2014, 101,000 shares of Series A Preferred Stock were sold to existing stockholders at a price of $12.00 per share under the January 15, 2014 preemptive rights offering. In addition, Stock Warrants indexed to 56,054 shares of Series A Preferred Stock were issued in conjunction with these stock purchases, including 5,554 warrants related to the preemptive rights exercised in October 2013.

During the year ended December 31, 2015, 3,100 shares of Series B Preferred Stock were sold to existing stockholders at a price of $16.00 per share under a preemptive rights offering associated with the April 18, 2015 offering of Series B Units.

Our Shareholder Agreement grants preemptive rights to shareholders and holders of convertible notes who are parties to the Shareholder Agreement. Pursuant to the terms therein, such shareholders and note holders have the right to purchase their pro rata share of all shareholder stock that the Company may, from time to time, propose to sell, issue, or exchange after the date of the Shareholder Agreement, other than certain excluded stock which includes stock granted to employees or as merger consideration. Each shareholder’s pro rata shares shall be equal to the ratio of (i) the aggregate number of shares of the Company’s common stock on a fully diluted basis, owned by the such shareholder at the time of the delivery of a preemptive rights notice to (ii) the aggregate number of shares of Company’s common stock on a fully diluted basis owned by all of the Company’s shareholders at the time of the delivery of a preemptive rights notice. The Shareholder Agreement’s preemptive rights provision supersedes the preemptive rights granted by the stock redemption agreement.

Our Shareholder Agreement was amended on February 26, 2016, to provide that holders of Excluded Stock are not subject to the terms of the Shareholders Agreement. Excluded Stock means shares of common stock that are subject to a registration statement that has been filed with the SEC and has been declared effective. The Amendment to Shareholders Agreement takes effect when a majority of the Board of Directors and shareholders holding at least 60% of the voting power of all shares of Shareholder Stock have consented to the amendment to the Shareholders Agreement, and a registration statement registering the shares of common stock has been filed with the SEC and declared effective. The Amendment to Shareholders Agreement further clarifies that preemptive rights shall not apply to Excluded Stock. 

Michigan Anti-Takeover Law and Charter Provisions

Provisions of our Articles of Incorporation, as amended may delay or discourage transactions involving an actual or potential change in our control or change in our management. Therefore, these provisions could adversely affect the price of our common stock. Our Articles of Incorporation, as amended, permit our Board of Directors to issue up to 5,000,000 shares of blank check preferred stock in one or more series, each of such series to have such designations, powers, preferences, and relative participating, optional, or other rights, and such qualifications, limitations, or restrictions, as may be stated in a resolution or resolutions providing for the issue of such series adopted by the Board of Directors.

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Registration Rights

On December 31, 2015, the Company issued promissory notes and warrants to several existing investors in a private placement (the December Notes and December Warrants). Pursuant to the terms of the subscription agreement therein, the Company agreed to use its best efforts to register its shares of common stock on Form S-1, subject to certain extensions of the registration timeframe which the Company may make in its discretion. Pursuant to the terms of the Series B Unit offering, investors therein were granted registration rights with respect to the common stock underlying the shares of Series B Preferred Stock. The Company agreed to use its best efforts to file a registration statement on Form S-1 with the SEC to register shares of common stock within six months of the last closing of the offering of Series B Units, subject to certain extensions of the registration timeframe which the Company may make in its discretion. On December 20, 2013, the Company, AAOF, XGS II, LLC and Samsung Ventures executed the Second Amended and Restated Registration Rights Agreement whereby AAOF, XGS II, LLC and Samsung Ventures were granted demand and piggy-back registration rights with respect to any shares of common stock held by such investors or issuable upon conversion, exercise or exchange of any securities owned by the investors.

On May 24, 2010, the Company entered into an amended and restated license agreement with MSU whereby the Company, in further consideration of the license, issued 9,543 shares of common stock to MSU and granted to MSU tag-along and piggyback registration rights. The Company agreed to pay all expenses of such registrations.

Transfer Agent and Registrar

The Company does not currently have an independent stock transfer agent. The Company intends to engage an independent stock transfer agent prior to the commencement of the offering.

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PLAN OF DISTRIBUTION

Use of Non-Exclusive Sales Agents

We intend to engage the services of non-exclusive sales agents to assist us in selling the shares. If we do engage sales agents, the sales agent will not purchase or sell any securities offered by this prospectus, nor will it be required to arrange the purchase or sale of any specific number or dollar amount of securities, but must agree to use its best efforts to arrange for the sale of all of the securities offered hereby.

A sales agent may retain other brokers or dealers to act as a sub-agents or selected-dealers on its behalf in connection with the offering. Therefore, we will enter into a subscription agreement directly with investors in connection with this offering and we may not sell the entire amount of securities offered pursuant to this prospectus. We intend to pay each non-exclusive sales agent a cash fee equal to up to eight percent (8%) of the gross proceeds of this offering attributable to the efforts of such sales agent.

The following table shows the per share sales agent’s fees that we intend to pay to any sales agent in connection with the sale of the shares offered pursuant to this offering, assuming the purchase of all of the shares offered hereby:

	Maximum Selling Commissions as a % of Proceeds from Sale of Common Stock (8%)
Sale of all 3,000,000 shares of common stock at $8.00 per share (gross proceeds of $24,000,000)	$1,920,000

Our obligations to issue and sell securities to the purchasers is subject to the conditions set forth in the subscription agreement, which may be waived by us at our discretion. A purchaser’s obligation to purchase securities is subject to the conditions set forth in the subscription agreement as well, which may also be waived. We estimate that the total expenses of the offering, including registration, filing and listing fees, printing fees and legal and accounting expenses, including the sales agent fees, will be approximately $1,060,000, all of which are payable by us.

The foregoing does not purport to be a complete statement of the terms and conditions of the subscription agreement. If sales of shares offered under this prospectus are made to broker-dealers as principals, we would be required to file a post-effective amendment to the registration statement of which this prospectus is a part. In the post-effective amendment, we would be required to disclose the names of any participating broker-dealers and the compensation arrangements relating to such sales.

Once we have engaged the services of a sales agent(s), we will file a post-effective amendment to this registration statement to identify such sales agent and disclose in greater detail the terms of any compensation arrangement.

Direct Sales Efforts by Company without Sales Agents

If we determine not to engage a sales agent, certain of our officers and directors will conduct the offering on our behalf. Such officers and directors will offer the shares solely by means of this prospectus and the investor presentation materials which are attached as Exhibit 99.1 to the registration statement of which this prospectus is made a part, to friends, family members, business acquaintances and other contacts, and by direct mail to investors who have indicated an interest in us. In connection with the offering, such officers and directors will not register as a broker-dealer pursuant to Section 15 of the Exchange Act, but rather will rely upon the exemption provided by Rule 3a4-1 under the Exchange Act. Generally speaking, Rule 3a4-1 provides an exemption from the broker-dealer registration requirements of the Exchange Act for persons associated with an issuer that participate in an offering of the issuer’s securities. In order to comply with Rule 3a4-1, such officers and directors:

•may not be subject to a statutory disqualification, as that term is defined in Section 3(a)(39) of the Exchange Act, at the time of his participation in this offering;

•may not be compensated in connection with his participation in this offering by the payment of commissions or other remuneration based either directly or indirectly on transactions in our securities;

•may not be, nor have been within the past 12 months, a broker or dealer, and may not, nor have been within the past 12 months, an associated person of a broker or dealer;

•must primarily perform substantial duties for us or on our behalf otherwise than in connection with transactions in securities; and

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•may not participate in selling an offering of securities for us more than once every 12 months other than in reliance on Rule 3a4-1(a)(4)(i) or (iii).

All expenses of the registration statement including, but not limited to, legal, accounting, printing and mailing fees are and will be borne by us.

Penny Stock Regulations

You should note that once our shares are publicly traded, they will most likely be a penny stock. The SEC has adopted Rule 15g-9 which generally defines “penny stock” to be any equity security that has a market price (as defined) less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions. Our securities will at such time likely be covered by the Penny Stock Rules, which impose additional sales practice requirements on broker-dealers who sell to persons other than established customers and “accredited investors”. The term “accredited investor” refers generally to institutions with assets in excess of $5,000,000 or individuals with a net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their spouse. The Penny Stock Rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document in a form prepared by the SEC which provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction and monthly account statements showing the market value of each penny stock held in the customer’s account. The bid and offer quotations, and the broker-dealer and salesperson compensation information, must be given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writing before or with the customer’s confirmation. In addition, the Penny Stock Rules require that prior to a transaction in a penny stock not otherwise exempt from these rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for the stock that is subject to these Penny Stock Rules. Consequently, these Penny Stock Rules may affect the ability of broker-dealers to trade our securities if our common stock is publicly traded or quoted. We believe that the Penny Stock Rules discourage investor interest in and limit the marketability of our common stock.

Procedures for Subscribing

If you decide to subscribe for any shares in this offering, you must (1) execute and deliver a subscription agreement; and (2) deliver a check or certified funds to us for acceptance or rejection in accordance with the terms of the subscription agreement.

All checks for subscriptions must be made payable to “XG Sciences, Inc.” The Company will deliver stock certificates attributable to shares of common stock purchased directly to the purchasers.

Right to Reject Subscriptions

We have the right to accept or reject subscriptions in whole or in part, for any reason or for no reason. All monies from rejected subscriptions will be returned promptly by us to the subscriber, without interest or deductions.

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LEGAL MATTERS

The validity of the securities being offered by this prospectus has been passed upon for us by Foster Swift Collins & Smith PC, with an address at 313 South Washington Square, Lansing, MI 48933-2114.

EXPERTS

The 2015 and 2014 financial statements included in this prospectus have been so included in reliance on the report of Frazier & Deeter, LLC, an independent registered public accounting firm, given on the authority of said firm as experts in auditing and accounting.

No expert or counsel named in this prospectus as having prepared or certified any part of this prospectus or having given an opinion upon the validity of the securities being registered or upon other legal matters in connection with the registration or offering of the common stock was employed on a contingency basis, or had, or is to receive, in connection with the offering, a substantial interest, direct or indirect, in the registrant or any of its parents or subsidiaries. Nor was any such person connected with the registrant or any of its parents or subsidiaries as a promoter, managing or principal underwriter, voting trustee, director, officer, or employee.

WHERE YOU CAN FIND ADDITIONAL INFORMATION

We filed with the Securities and Exchange Commission a registration statement under the Securities Act for the shares of common stock in this offering. This prospectus does not contain all of the information in the registration statement and the exhibits that were filed with the registration statement. For further information with respect to us and our common stock, we refer you to the registration statement and the exhibits that were filed with the registration statement. Statements contained in this prospectus about the contents of any contract or any other document that is filed as an exhibit to the registration statement are not necessarily complete but do contain the material provisions for each such contract and other document, and we refer you to the full text of the contract or other document filed as an exhibit to the registration statement. A copy of the registration statement and the exhibits that were filed with the registration statement may be inspected without charge at the Public Reference Room maintained by the Securities and Exchange Commission at 100 F Street, N.E. Washington, DC 20549, and copies of all or any part of the registration statement may be obtained from the Securities and Exchange Commission upon payment of the prescribed fee. Information regarding the operation of the Public Reference Room may be obtained by calling the Securities and Exchange Commission at 1-800-SEC-0330. The Securities and Exchange Commission maintains a website that contains reports, proxy and information statements, and other information regarding registrants that file electronically with the SEC. The address of the website is www.sec.gov.

We will become obligated to file periodic reports upon the effectiveness of the registration statement of which this prospectus is made a part and we will file periodic reports under the Exchange Act, including annual, quarterly and special reports, and other information with the SEC. These periodic reports and other information will be available for inspection and copying at the regional offices, public reference facilities and website of the Securities and Exchange Commission referred to above.

We will also make available free of charge on or through our internet website our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission.

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DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITY

Our Articles of Incorporation, as amended, state that a Director of the Company shall not be personally liable to the Company or its stockholders for money damages for any action taken or any failure to take any action as a Director, except liability for any of the following:

(a) The amount of a financial benefit received by a Director to which the Director is not entitled;

(b) The intentional infliction of harm on the Company or its stockholders;

(c) A violation of Section 551 of the Michigan Business Corporation Act, as amended (the “Act”); or

(d) An intentional criminal act.

In the event the Act is amended, after approval by the stockholders of the appurtenant article in the Company’s Articles of Incorporation, as amended to authorize corporate action further eliminating or limiting the personal liability of Directors, then the liability of a Director of the Company shall be eliminated or limited to the fullest extent permitted by the Act, as so amended. Any repeal, modification or adoption of any provision in our Articles of Incorporation, as amended inconsistent with this Article in shall not adversely affect any right or protection of a Director of the Company existing at the time of such repeal, modification or adoption.

Our Bylaws states that each person who is or was or had agreed to become a Director or officer of the Company, or each such person who is or was serving or who had agreed to serve at the request of the Board of Directors as an employee or agent of the Company, or as a Director, officer, employee or agent of another corporation (whether for profit or not), partnership, joint venture, trust or other enterprise (including the heirs, executors, administrators or estate of such person), shall be indemnified by the Company to the full extent permitted by the Act or any other applicable laws as presently or hereafter in effect.

The right to indemnification conferred in the Bylaws shall not be exclusive of any right any person may have or acquire under any statute, provision of the Articles of Incorporation, as amended, Bylaws, agreement, vote of stockholders or disinterested Directors, or otherwise.

The Company shall have the power to purchase and maintain insurance on behalf of any person who is or was a Director, officer, employee or agent of the Company or is or was serving at the request of the Company as a Director, officer, partner, trustee, employees or agent of another foreign or domestic corporation, partnership, joint venture, trust or other enterprise, whether for profit or not, against any liability asserted against him or her and incurred by him or her in any such capacity or arising out of his or her status as such, whether or not the Company would have the power to indemnify him or her against such liability under the appurtenant provision of the Company’s Bylaws.

Under Michigan law, however, such provisions do not eliminate the personal liability of a director unless the director (i) acted in good faith; (ii) acted in a manner he or she reasonably believed to be in or not opposed to the best interests of the corporation or its shareholders; and (iii) with respect to a criminal action or proceeding, if the director had no reasonable cause to believe his or her conduct was unlawful. Furthermore, under Section 551of the Act, directors who vote for, or concur in, any of the following corporate actions are jointly and severally liable to the corporation for the benefit of its creditors or shareholders, to the extent any legally recoverable injury suffered by its creditors or shareholders as a result of the action but not to exceed the difference between the amount paid or distributed and the amount that lawfully could have been paid or distributed: (i) a declaration of a share dividend or distribution to shareholders contrary to the Act or contrary to any restriction in the articles of incorporation; (ii) distribution to shareholders during or after dissolution of the corporation without paying or providing for debts obligations and liabilities of the corporation as required by Section 855a of the Act; and (iii) making a loan to a director, officer, or employee of the corporation or of a subsidiary of the corporation contrary to the Act.

We have been advised that in the opinion of the Securities and Exchange Commission indemnification for liabilities arising under the Securities Act is against public policy as expressed in the Securities Act, and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities is asserted by one of our directors, officers, or controlling persons in connection with the securities being registered, we will, unless in the opinion of our legal counsel the matter has been settled by controlling precedent, submit the question of whether such indemnification is against public policy to a court of appropriate jurisdiction. We will then be governed by the court’s decision.

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XG SCIENCES, INC.

Consolidated Financial Statements

INDEX TO FINANCIAL STATEMENTS

TABLE OF CONTENTS

	Page
Consolidated Financial Statements as of and for the years ended December 31, 2015 and 2014
Report of Independent Registered Public Accounting Firm	F-2
Consolidated Balance Sheets	F-3
Consolidated Statements of Operations	F-4
Consolidated Statement of Changes in Stockholders’ Deficit	F-5
Consolidated Statements of Cash Flows	F-6
Notes to Consolidated Financial Statements	F-7 – F-30

F-1

2801 W. Busch Boulevard Suite 200 Tampa, Florida 33618 813.874.1280 www.frazierdeeter.com

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors of XG Sciences, Inc.

We have audited the accompanying consolidated balance sheets of XG Sciences, Inc. (the “Company”) as of December 31, 2015 and 2014, and the related consolidated statements of operations, changes in stockholders’ deficit, and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2015 and 2014, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 of the consolidated financial statements, the Company has incurred recurring losses from operations, has recurring negative cash flows from operations, has shareholder deficits and currently has ongoing requirements for additional capital investment. These factors raise doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ Frazier & Deeter, LLC

Frazier & Deeter, LLC
March 1, 2016

F-2

XG SCIENCES, INC.
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2015 AND 2014

	2015			2014
ASSETS
CURRENT ASSETS
Cash	$	1,060,224		$	2,088,866
Accounts receivable, less allowance for doubtful accounts of $10,000 in 2015 and 2014, respectively		54,413			124,983
Inventories		229,034			132,459
Incentive refunds receivable		86,000			178,430
Other current assets		108,096			18,117
Total current assets		1,537,767			2,542,855
PROPERTY, PLANT AND EQUIPMENT, NET		3,753,248			4,652,473
RESTRICTED CASH FOR LETTER OF CREDIT		195,206			190,915
INTANGIBLE ASSETS, NET		411,789			327,134
TOTAL ASSETS	$	5,898,010		$	7,713,377
LIABILITIES AND STOCKHOLDERS’ DEFICIT
CURRENT LIABILITIES
Accounts payable and other current liabilities	$	704,177		$	1,073,938
Short-term promissory notes		497,324			—
Current portion of capital lease obligations		178,487			152,593
Total current liabilities		1,379,988			1,226,531
LONG-TERM LIABILITIES
Long-term portion of capital lease obligations		354,483			532,970
Convertible notes payable, net		—			10,422,641
Derivative liability – warrants		8,235,163			5,000,752
Total long-term liabilities		8,589,646			15,956,363
TOTAL LIABILITIES		9,969,634			17,182,894
STOCKHOLDERS’ DEFICIT
Series A convertible preferred stock, 3,000,000 shares authorized, 1,800,696 and 316,010 shares issued and outstanding, liquidation value of $21,608,376 and $3,792,120 at December 31, 2015 and December 31, 2014, respectively		21,291,912			3,475,686
Series B Preferred Stock, 1,500,000 shares authorized, 269,987 and 0 shares issued and outstanding, liquidation value of $4,319,792 and $0 at December 31, 2015 and December 31, 2014, respectively		3,651,533			—
Common stock, no par value, 25,000,000 shares authorized, 836,544 and 835,144 shares issued and outstanding at December 31, 2015 and December 31, 2014, respectively		8,565,225			8,551,225
Additional paid-in capital		5,791,074			5,192,295
Accumulated deficit		(43,371,368	)		(26,688,723	)
Total stockholders’ deficit		(4,071,624	)		(9,469,517	)
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT	$	5,898,010		$	7,713,377

See notes to consolidated financial statements

F-3

XG SCIENCES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED
DECEMBER 31, 2015 AND 2014

	2015			2014
REVENUES
Product sales	$	164,153		$	874,469
Grants		378,439			660,533
Licensing revenue		100,000			100,000
Total revenues		642,592			1,635,002
COST OF GOODS SOLD
Direct costs		97,590			226,678
Unallocated manufacturing expenses		1,750,124			2,522,653
Total cost of goods sold		1,847,714			2,749,331
GROSS LOSS		(1,205,122	)		(1,114,329	)
OPERATING EXPENSES
Research and development		1,485,283			1,449,478
Sales, general and administrative		4,119,329			4,405,266
Total operating expenses		5,604,612			5,854,744
OPERATING LOSS		(6,809,734	)		(6,969,073	)
OTHER INCOME (EXPENSE)
Incentive refund and interest income		94,507			117,940
Interest expense		(7,387,256	)		(1,507,374	)
(Loss) gain from change in fair value of derivative liability – warrants		(2,513,476	)		503,186
Extinguishment loss on convertible notes payable		—			(3,513,770	)
Loss on disposal of equipment and intangible assets		(66,686	)		(54,967	)
Total other expense		(9,872,911	)		(4,454,985	)
NET LOSS		(16,682,645	)		(11,424,058	)
Deemed dividend on Series A convertible preferred stock		(2,214,856	)		(316,366	)
NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS	$	(18,897,501	)	$	(11,740,424	)
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING – Basic and diluted		836,225			834,400
NET LOSS PER SHARE – Basic and diluted	$	(22.60	)	$	(14.07	)

See notes to consolidated financial statements

F-4

XG SCIENCES, INC.

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ DEFICIT

FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014

	Preferred stock (A)				Preferred stock (B)				Common stock			Additional paid-in			Accumulated
	Shares	Amount			Shares	Amount			Shares	Amount		capital			deficit			Total
Balances, December 31, 2013	185,841	$	2,230,092		—		—		833,477	$	8,531,221	$	2,026,981		$	(15,264,665	)	$	(2,476,371	)
Stock issued for cash	101,000		895,634		—		—		1,667		20,004		—			—			915,638
Preferred stock issued – beneficial conversion feature	—		(316,366	)									316,366			—			—
Preferred stock issued – deemed dividend from beneficial conversion feature	—		316,366		—		—		—		—		(316,366	)		—			—
Preferred stock issued to pay capital lease obligations	29,169		349,960		—		—		—		—		—			—			349,960
Convertible notes issued – beneficial conversion feature	—		—		—		—		—		—		2,520,526			—			2,520,526
Employee stock option expense	—		—		—		—		—		—		644,788			—			644,788
Net loss	—		—		—		—		—		—		—			(11,424,058	)		(11,424,058	)
Balances, December 31, 2014	316,010		3,475,686		—		—		835,144		8,551,225		5,192,295			(26,688,723	)		(9,469,517	)
Stock issued for cash	—		—		269,987	$	4,319,792		1,400		14,000		—			—			4,333,792
Proceeds allocated to warrants	—		—				(668,259	)											(668,259	)
Convertible notes converted to preferred stock – Series A	1,456,126		17,473,540		—		—		—		—		—			—			17,473,540
Preferred stock issued – beneficial conversion feature	—		(2,214,856	)	—		—		—		—		2,214,856			—			—
Preferred stock issued – deemed dividend from beneficial conversion feature	—		2,214,856		—		—		—		—		(2,214,856	)		—			—
Preferred stock issued to pay capital lease obligations	28,560		342,686		—		—		—		—		—			—			342,686
Employee stock option expense	—		—		—		—		—		—		598,779			—			598,779
Net loss	—		—		—		—		—		—		—			(16,682,645	)		(16,682,645	)
Balances, December 31, 2015	1,800,696	$	21,291,912		269,987	$	3,651,533		836,544	$	8,565,225	$	5,791,074		$	(43,371,368	)	$	(4,071,624	)

See notes to consolidated financial statements

F-5

XG SCIENCES, INC.

CONSOLIDATED STATEMENT OF CASH FLOWS

DECEMBER 31, 2015 AND 2014

	2015			2014
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(16,682,645	)	$	(11,424,058	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		964,382			866,889
Amortization of intangible assets		30,261			25,096
Loss on disposal of equipment and intangible assets		66,686			54,967
Provision for (recovery of) bad debts		6,527			3,038
Stock-based compensation expense		598,779			644,788
Non-cash interest expense		7,271,151			1,501,138
Deferred compensation – phantom stock		(254,400	)		(120,000	)
Loss (gain) from change in fair value of derivative liability – warrants		2,513,476			(503,186	)
Extinguishment loss on convertible notes payable		—			3,513,770
(Increase) Decrease in:
Accounts receivable		(35,957	)		173,238
Inventories		(96,575	)		(65,299	)
Incentive refund receivable		92,430			(45,162	)
Other current assets		10,020			(106,537	)
Other assets		(4,290	)		(389	)
Increase (Decrease) in:
Accounts payable and other liabilities		(90,552	)		(468,174	)
Accrued compensation		(24,810	)		58,967
Deferred revenue		—			(600,000	)
NET CASH USED IN OPERATING ACTIVITIES		(5,635,517	)		(6,490,914	)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment		(131,842	)		(924,947	)
Purchases of intangible assets		(114,917	)		(158,249	)
NET CASH USED IN INVESTING ACTIVITIES		(246,759	)		(1,083,196	)
CASH FLOWS FROM FINANCING ACTIVITIES
Advances (repayments) on short-term notes, net		550,000			(103,447	)
Repayments of capital lease obligations		(30,158	)		(60,923	)
Proceeds of convertible notes and warrants		—			8,500,000
Proceeds from issuance of preferred stock		4,319,792			1,212,000
Proceeds from issuance of common stock		14,000			20,004
NET CASH PROVIDED BY FINANCING ACTIVITIES		4,853,634			9,567,634
NET INCREASE (DECREASE) IN CASH		(1,028,642	)		1,993,524
CASH AT BEGINNING OF PERIOD		2,088,866			95,342
CASH AT END OF PERIOD	$	1,060,224		$	2,088,866
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest	$	116,105		$	6,236
Value of preferred stock issued for AAOF capital lease obligations	$	342,686		$	349,960
Property and equipment additions under capital leases	$	—		$	390,321
Conversion of convertible notes to preferred stock – Series A	$	17,473,540		$	—

See notes to consolidated financial statements

F-6

XG SCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014

NOTE 1 — NATURE OF BUSINESS AND BASIS OF PRESENTATION

XG Sciences, Inc., a Michigan company located in Lansing, Michigan and its subsidiary XGS IP, LLC (“we”, “us”, “our”, or the “Company”) manufactures graphene nanoplatelets made from graphite, using a proprietary manufacturing process to split natural flakes of crystalline graphite into very small and thin particles. These nanoplatelets are then used in products like battery electrodes, thin sheets, films, inks and coatings that we sell to other companies. We also sell our xGnP^® graphene nanoplatelets in the form of bulk powders or dispersions to other companies for use as additives to make composite and other materials with specially engineered characteristics. Additionally, we license our technology to other companies in exchange for royalties and other fees.

Basis of Presentation

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”). All normal adjustments considered necessary for a fair presentation have been included.

The consolidated financial statements include the accounts of XG Sciences, Inc. and our wholly-owned subsidiary, XGS IP, LLC. We operate as one reportable segment. All intercompany accounts, transactions and profits have been eliminated in consolidation.

Going Concern

We have historically incurred losses from operations and we may continue to generate negative cash flows as we implement our business plan. Our consolidated financial statements are prepared using US GAAP as applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business.

We currently do not have sufficient cash or commitments for financing to sustain our operations for the next twelve months. Our plan is to develop customer relationships and increase our revenues derived from our products and IP licensing. Although we have historically incurred operating losses, we have been able to fund such losses primarily by selling common and preferred stock and convertible notes. We expect that our cash on hand at December 31, 2015 of $1,060,224 and proceeds from anticipated financings (private placements of equity securities) will sustain our operations for the next twelve months. However, there can be no assurance of our continued success in raising capital to fund our business plan.

In the event we are unable to fund our operations from existing cash on hand, operating cash flows, additional borrowings or raising equity capital, we may be forced to reduce our expenses, slow down our growth rate, or discontinue operations. Our consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should we be unable to continue as a going concern.

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates

US GAAP requires management to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, together with amounts disclosed in the related notes to the consolidated financial statements. Actual results and outcomes may differ from management’s estimates, judgments and assumptions. Significant estimates, judgments and assumptions used in these consolidated financial statements include, but are not limited to, those related to revenues, accounts receivable and related allowances, contingencies, useful lives and recovery of long-term assets, income taxes, and the fair values of stock-based compensation, warrants, and derivative financial instrument liabilities. These estimates, judgments, and assumptions are reviewed periodically and the effects of material revisions in estimates are reflected in the financial statements prospectively from the date of the change in estimate.

F-7

XG SCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)

Revenue Recognition

We recognize revenues when (a) the price is fixed or determinable, (b) persuasive evidence of a sales arrangement exists, (c) the service is performed or delivery has occurred and (d) collectability of the resulting receivable is reasonably assured.

We recognize product revenues when products are shipped to customers. At that time, product ownership and risk have transferred to the customer and we have no further obligations. We record product sales at net selling prices that are reflective of discounts and allowances. Shipping and handling costs are recorded as a component of Direct Costs, as are shipping and handling costs billed to customers.

Revenue related to licensing agreements is recorded upon substantial performance of the terms of the contract. In the case of licensing arrangements that involve ongoing royalties based on sales of products produced with our technology, royalty income is recorded when received or, in the case of minimum royalties due, in the period when due.

Grant contract revenue is recognized over the life of the contracts as the services are provided.

Amounts received in excess of revenues earned are recorded as deferred revenue.

Cost of Products Sold

We use a standard cost system to estimate the direct costs of products sold. Direct costs include estimates of raw material costs, packaging, freight charges net of those billed to customers, and an allocation for direct labor and manufacturing overhead. Because of the nature of our production processes, there is a substantial fixed manufacturing expense requirement that represents the ongoing cost of maintaining production facilities that are not directly related to products sold, so we use a “full capacity” allocation of overhead based on an estimate of what product costs would be if the manufacturing facilities were operating on a full-time basis and producing products at the designed capacity. This estimate involves estimating both the level of expenses as well as production amounts as if the manufacturing facility were operating on a continuous, three-shift, production basis.

The remaining costs of operating the Company’s manufacturing facilities are recorded as Unallocated Manufacturing Expenses. Manufacturing expense includes the costs of operating our manufacturing facilities including personnel costs, rent, utilities, indirect supplies, depreciation, and related indirect expenses. Manufacturing expenses are expensed as incurred.

Research and Development

Research and development expenses include the compensation costs of research personnel, laboratory rent and utilities, depreciation of laboratory equipment, travel and laboratory supplies and are expensed as incurred.

General and Administrative Expense

General and Administrative expenses include the compensation costs of personnel, rent, utilities, supplies, travel, depreciation of office equipment, and related expenses not included in other expense categories. General and Administrative Expense also includes non-cash compensation expenses related to the Company’s deferred compensation, management incentive bonus, and employee stock option programs.

Sales and Marketing Expense

Sales and marketing costs include compensation, travel, and business development expenses including free samples provided to customers. These costs are expensed as incurred. Product marketing allowances are recorded at the estimated out of pocket cost necessary to produce the product in the period the allowance is granted. Advertising costs are expensed at the time they are incurred and were not material for the years ended December 31, 2015 and 2014.

F-8

XG SCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)

Income Taxes

It is our policy to provide for uncertain tax positions and the related interest and penalties based upon management’s assessment of whether a tax benefit is more likely than not to be sustained upon examination by tax authorities. To the extent that the probable tax outcome of these uncertain tax position changes, such changes in estimate will impact the income tax provision in the period in which such determination is made. At December 31, 2015, we believe we have appropriately accounted for any unrecognized tax benefits. We are not aware of any uncertain tax positions. To the extent we prevail in matters for which a liability for an unrecognized tax benefit is established or we are required to pay amounts in excess of the liability, our effective tax rate in a given financial statement period may be affected.

We account for income taxes using an asset and liability approach. The difference between the financial statement and tax bases of assets and liabilities is determined annually. Deferred income tax assets and liabilities are computed for those differences that have future tax consequences using the currently enacted tax laws and rates that apply to the periods in which they are expected to affect taxable income. Income tax expense is the current tax payable or refundable for the period plus or minus the net change in the deferred tax assets and liabilities. The deferred tax effects of state and local income taxes are considered immaterial and have not been recorded. Valuation allowances are established, if necessary, to reduce deferred tax assets to the amount that is estimated to be realized. Because of the uncertainty related to future realization of deferred tax assets (see Note 14), we have established a valuation allowance equal to one hundred percent of the deferred tax assets.

Net Income (Loss) Per Common Share

We compute net income or (loss) per share in accordance with Financial Accounting Standards Board (“FASB”) Accountings Standards Codification (“ASC”) Topic 260: Earnings Per Share. Under the provisions of ASC 260, basic net income (loss) per share is computed by dividing the net income (loss) available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted net loss per share is computed using the weighted average number of shares outstanding during the applicable period, plus the effect of potentially dilutive securities. Potentially dilutive securities consist of shares potentially issuable pursuant to stock options and warrants as well as shares that would result from full conversion of all outstanding convertible securities. These potentially dilutive securities were 3,594,582 and 2,857,839 as of December 31, 2015 and 2014 and are excluded from diluted net loss per share calculations because they are anti-dilutive. As a result, for the years ended December 31, 2015 and 2014, basic and diluted net loss per share was the same.

Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable are stated at the amount management expects to collect from outstanding balances. Management provides for probable uncollectible amounts through a provision for bad debt expense and an adjustment to a valuation allowance based on their assessment of the current status of individual accounts. Balances that are still outstanding after management has used reasonable collection efforts are written off through a charge to the allowance account and a credit to accounts receivable.

Statements of Cash Flows

For the purposes of the statements of cash flows, we consider all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.

Fair Value of Financial Instruments and Concentrations of Credit Risk

Financial instruments, which potentially subject the Company to concentrations of credit risk, consist principally of cash and accounts receivable. The Company places its cash with FDIC insured financial institutions. Although such balances may exceed the federally insured limits at certain times, in the opinion of management they are subject to minimal risk.

F-9

XG SCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)

The Company has established policies for extending credit to customers based upon factors including the customers’ credit worthiness, historical trends and other information. Nonetheless the collectability of accounts receivable is affected by regional economic conditions and other factors. During 2013, the Company earned $1,400,000 of licensing revenue from one entity and also recorded $600,000 in deferred revenues from the same entity as part of a negotiated contract. At December 31, 2014, there was no outstanding balance due from this entity and the deferred revenue of $600,000 is reflected in revenues.

Inventory

Inventory consists of raw materials, work-in-process and finished goods, all of which are valued at standard cost, which approximates average cost.

Property and Equipment

Property and equipment are recorded at cost, net of accumulated depreciation and amortization. Property and equipment generally includes purchases of items with a cost greater than $3,000 and a useful life greater than one year. Depreciation and amortization are computed on the straight line basis over the estimated useful lives of the assets. Leasehold improvements are amortized over the shorter of the related lease terms or their estimated useful lives.

We periodically review the estimated useful lives of property and equipment. Changes to the estimated useful lives are recorded prospectively from the date of the change. Upon retirement or sale, the cost of the assets disposed of and the related accumulated depreciation are removed from the accounts and any resulting gain or loss is included in the statement of operations. Repairs and maintenance costs are expensed as incurred.

Recoverability and Impairment of Long-Lived Assets

We review our long-lived assets for recoverability if events or changes in circumstances indicate the assets may be impaired. This circumstance exists when the carrying amount of the asset exceeds the sum of the undiscounted cash flows expected to result from its use and eventual disposition. At December 31, 2015, we believe the carrying value of our long-lived assets is recoverable.

Intangible Assets

We have entered into a License Agreement with Michigan State University under which we have licensed certain intellectual property in the form of patents and patent applications and invention disclosures. We are responsible for managing the patent process and ongoing filings for this licensed intellectual property and for bearing the cost thereof. We capitalize all costs related to the acquisition and ongoing administration of this License Agreement and we amortize these costs over 15 years or the remaining life of the License Agreement, whichever is shorter.

In addition to the costs of managing in-licensed intellectual property, we also file for patent protection for inventions and other intellectual property generated by our employees. All patents are evaluated for filing in international markets on a case-by-case basis, and are filed in the United States and in selected international markets as considered appropriate. All external legal and filing costs related to patent applications, patent filings, ongoing registrations, overseas filings, and legal opinions related thereto are capitalized as intangible assets at cost and amortized over a period of 15 years from the date incurred, or the remaining useful life of the associated patent, whichever is shorter.

The cost of royalties or minimum payments specified under the license agreement for in-licensed technology is expensed as incurred.

We have also out-licensed certain of our intellectual property to licensees under terms and conditions of license agreements that specify the intellectual property licensed, the territory, and the type of license. In exchange for these licenses, we have recorded revenues associated with the initial granting of the license and expect to receive royalties based on sales of products produced

F-10

XG SCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)

under these licenses. License revenues are recorded to reflect our performance of requirements under these license agreements. In addition, we record royalty revenues from licensees at the time they are earned.

Our intangible assets are assessed for impairment on an annual basis. As part of this process, we take into account the cash flows which we have received from licensing certain of our intellectual property as well as our plans to continue licensing our intellectual property as part of our ongoing business model.

Incentive Refund

As of December 31, 2015 and 2014, we had $86,000 and $178,430 of incentive refunds due from the Michigan Economic Growth Authority under a five-year agreement signed on January 19, 2011. These incentive payments are awarded annually based on a pre-determined formula relating to the number of jobs created, average compensation, and total payroll and benefits for jobs created by XG Sciences in Michigan. These refunds are paid in cash during the year following the refund period. There is no requirement to have taxable income to receive these incentive payments.

Stock-Based Compensation

We recognize compensation expense in our statement of operations for all share-based option and stock awards, based on estimated grant-date fair values.

We estimate the grant-date fair value of stock-based compensation awards using the Black-Scholes option valuation model. This model is affected by the estimated value of our common stock on the date of the grant as well as assumptions regarding a number of highly complex and subjective variables. These variables include the expected term of the option, the exercise price, expected risk-free rates of return, the expected volatility of our common stock, and expected dividend yield, each of which is more fully described below. The assumptions for the estimated value of our common stock, expected term and expected volatility are the assumptions that most significantly affect the grant date fair value.

Estimated Value of our Common Stock: The estimated fair value of the Company’s common stock was based on a number of objective and subjective factors, including external market conditions affecting the Company’s industry sector, the prices at which the Company sold shares of convertible preferred stock, and the superior rights and preferences of securities senior to the Company’s common stock at the time. The Company used the option pricing method,  utilizing the back-solve method, which is a form of the market approach defined in the American Institute of Certified Public Accountants, or AICPA, Audit and Accounting Practice Aid Series: Valuation of Privately Held Company Equity Securities Issued as Compensation, used to estimate the fair value of common stock. The valuation methodology included estimates and assumptions that require the Company’s judgment.

Expected Term: Because we have limited experience related to the exercise of employee stock options, we use the simplified method permitted by SEC Staff Accounting Bulletin Topic 14 to estimate the expected term of the options. The expected term of an option is estimated to be equal to the mid-point between the vesting and expiration dates of the option.

Risk-free Interest Rate: We base the risk-free interest rate used on the implied yield at the grant date of U.S. Treasury zero-coupon issues with a term approximately equal to the expected term of the stock-based award being valued.

Expected Stock Price Volatility: Because we are a private company with very limited stock sales history, we use a blended average weekly volatility of certain publically-traded peer companies. We believe that the use of this blended average peer volatility is reflective of market conditions and a reasonable indicator of our expected future volatility.

Dividend Yield: Because we have never paid a dividend and do not expect to begin doing so in the foreseeable future, we have assumed a 0% dividend yield in valuing our stock-based awards.

The grant-date fair value of the award is recognized as expense over the requisite service period using the straight-line method.

F-11

XG SCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)

Fair Value Measurements

FASB ASC 820: “Fair Value Measurements and Disclosures” defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

Level 1: Quoted prices in active markets for identical assets or liabilities.

Level 2: Inputs other than quoted prices included within Level 1 which are either directly or indirectly observable.

Level 3: Inputs to the valuation methodology are unobservable and significant to the fair value measurement.

A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Our derivative liabilities are classified as Level 3 within the fair value hierarchy because they were valued using other unobservable inputs. The valuation technique used to measure fair value of the derivative liabilities is based on a lattice model with significant assumptions and inputs determined by the Company. A lattice model was used to estimate the fair value of the derivative liabilities because management believes it reflects all the assumptions that market participants would likely consider including early exercise of the warrants. The fair value of the derivative liabilities will be significantly influenced by the fair value of our common stock, stock price volatility and the risk free interest components of the lattice technique.

The following is a reconciliation of the beginning and ending balances for liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the years ended December 31, 2015 and 2014:

	2015		2014
Balance at January 1	$	5,000,752	$	1,190,261
Warrants issued with additional financing		—		2,676,570
Warrants issued with private placement of Series B Preferred Stock		660,378		—
Warrants issued with preferred stock sold under preemptive rights		7,881		316,366
Warrants issued with bridge financing		52,676		—
Warrants issued for debt modification		—		1,320,741
(Gain) Loss recognized in earnings		2,513,476		(503,186	)
Balance at December 31	$	8,235,163	$	5,000,752

Derivative Financial Instruments

We do not use derivative instruments to hedge exposures to cash flow, market or foreign currency risk. The terms of convertible preferred stock and convertible notes that we issue are reviewed to determine whether or not they contain embedded derivative instruments that are required by ASC 815: “Derivatives and Hedging” to be accounted for separately from the host contract, and recorded at fair value. In addition, freestanding warrants are also reviewed to determine if they achieve equity classification. Certain stock warrants that we have issued did not meet the conditions for equity classification and are classified as derivative instrument liabilities measured at fair value. The fair values of these derivative liabilities are revalued at each reporting date, with the change in fair value recognized in earnings. See Note 9 for additional information.

Beneficial Conversion Feature of Convertible Notes

If the embedded conversion option in a convertible note is not required to be separated and accounted for as a derivative instrument liability, then ASC 470: “Debt with Conversion and Other Options” requires separate recognition of any beneficial conversion feature (“BCF”) related to the convertible instrument. Accordingly, we recognized a BCF related to the Secured

F-12

XG SCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)

Convertible Notes that we issued in 2014. The BCF for the convertible instruments is recognized by allocating to additional paid-in capital a portion of the proceeds received equal to the intrinsic value of the conversion feature. Generally, the intrinsic value is calculated at the commitment date as the difference between the effective conversion price and the fair value of the common stock or other securities into which the security is convertible, multiplied by the number of shares into which the security is convertible. When certain other securities, such as warrants, are issued in conjunction with the convertible security, the proceeds are allocated among the different components. The portion of the proceeds allocated to the convertible security is divided by the contractual number of the conversion shares to determine the effective conversion price which is then used to measure the BCF. The value of the BCF recognized is limited to the amount of proceeds received that is initially allocated to the convertible security. See Note 10 for additional information related to the BCF resulting from our Secured Convertible Notes.

Beneficial Conversion Feature of Preferred Stock

Equity instruments that contain a BCF are recorded as a deemed dividend to the holders of the convertible equity instruments. The deemed dividend amount is recorded as an increase to additional paid-in capital. For the years ended December 31, 2015 and 2014, we recorded a deemed dividend of $2,214,856 and $316,366, respectively. The deemed dividend recorded in 2015 was related to the adjustment of the conversion price of the Series A Preferred Stock from $12.00 to $6.40 per share which resulted in a BCF due to the new conversion price being lower than the value of the underlying common stock. See Note 9 for additional information related to the BCF resulting from our Series A Preferred Stock.

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update No. 2014-09, Revenue From Contracts With Customers, or ASU 2014-09. Pursuant to this update, an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The amendments in this update are currently effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period, and are to be applied retrospectively, or on a modified retrospective basis. Early application is not permitted. In July 2015, the FASB approved a one year deferral of the effective date for annual reporting periods beginning after December 15, 2017 with early adoption permitted for annual periods beginning after December 15, 2016. We are currently evaluating the impact of adopting ASU 2014-09 on our consolidated financial statements.

In June 2014, the FASB issued ASU No. 2014-10, Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic 810, Consolidation, or Topic 915. The guidance set forth in Topic 915 is intended to reduce the overall cost and complexity associated with financial reporting for development stage entities without reducing the availability of relevant information. The FASB also believes the changes will simplify the consolidation accounting guidance by removing the differential accounting requirements for development stage entities. As a result of these changes, there no longer will be any accounting or reporting differences in generally accepted accounting principles, or GAAP, between development stage entities and other operating entities. For organizations defined as public business entities, the presentation and disclosure requirements in Topic 915 will no longer be required starting with the first annual period beginning after December 15, 2014, including interim periods therein. Early application is permitted for any annual reporting period or interim period for which the entity’s financial statements have not yet been issued (public business entities) or made available for issuance (other entities). This standard had no impact on our consolidated statements of financial position, results of operations or cash flows.

In August 2014, FASB issued ASU 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, or ASU 2014-15. ASU 2014-15 explicitly requires a company’s management to assess an entity’s ability to continue as a going concern, and to provide related footnote disclosures in certain circumstances. The new standard will be effective in the first annual period ending after December 15, 2016, although early application is permitted. We are currently evaluating the 

F-13

XG SCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)

potential impact of the adoption of this standard, but believe its adoption will have no impact on our consolidated statements of financial position, results of operations or cash flows.

In November 2014, the FASB issued ASU No. 2014-16, Determining Whether the Host Contract in a Hybrid Financial Instrument Issued in the Form of a Share is more akin to Debt or to Equity, or ASU 2014-16. ASU 2014-16 clarifies how current GAAP should be interpreted in evaluating the economic characteristics and risks of a host contract in a hybrid financial instrument that is issued in the form of a share. Specifically, ASU 2014-16 provides that an entity should consider all relevant terms and features, including the embedded derivative feature being evaluated for bifurcation, in evaluating the nature of the host contract. ASU 2014-16 is effective for public companies for fiscal years and interim periods within those fiscal years beginning after December 15, 2015 with early adoption permitted. We adopted this guidance for the year ended December 31, 2014 and have applied it to our hybrid financial instruments.

In April 2015, the FASB issued ASU No. 2015-03, Simplifying the Presentation of Debt Issuance Costs, or ASU 2015-03. ASU 2015-03 requires debt issuance costs to be presented in the balance sheet as a direct deduction from the carrying value of the associated debt liability, consistent with the presentation of a debt discount. The standard also aligns the GAAP presentation with International Financial Reporting Standards and will remedy the long-standing conflict with the guidance in FASB Concepts Statement No. 6, Elements of Financial Statements, which indicates that debt issuance costs do not meet the definition of an asset, because they provide no future economic benefit. ASU No. 2015-03 is effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. Early adoption is permitted for financial statements that have not been previously issued. The new guidance will be applied on a retrospective basis. The adoption of this guidance during the year ended December 31, 2015 did not have a material impact on our consolidated balance sheets.

NOTE 3 — INVENTORY

As of December 31, the following amounts were included in inventory:

	2015		2014
Raw materials	$	46,660	$	69,600
Finished goods		182,374		62,859
Total	$	229,034	$	132,459

NOTE 4 — PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment as of December 31 consist of the following:

	Depreciable life (years)	2015			2014
Plant and equipment not yet placed in service		$	49,200		$	820,861
Leasehold improvements	5-10		399,060			382,230
Lab equipment	3-7		871,512			893,068
Production and other equipment	3-7		5,835,226			5,070,344
Software	3		39,144			39,144
			7,194,142			7,205,647
Less accumulated depreciation and amortization			(3,440,894	)		(2,553,174	)
Net property, plant and equipment		$	3,753,248		$	4,652,473

Depreciation and amortization expense on property and equipment, including leased assets, for the years ended December 31, 2015 and 2014, was $964,382 and $866,889 respectively. These amounts are included as part of our Statement of Operations in Cost of Goods Sold, Research and Development, and General and Administrative Expenses - $783,153, $146,970, $34,259 and $681,983, $142,785, $42,121 respectively in 2015 and 2014.

F-14

XG SCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014

NOTE 4 — PROPERTY, PLANT AND EQUIPMENT (cont.)

Property and equipment under capital leases included above consists of the following at December 31:

	2015			2014
Lab equipment	$	160,202		$	160,202
Production and other equipment		986,230			986,230
		1,146,432			1,146,432
Less accumulated depreciation		(297,336	)		(128,220	)
Net property, plant and equipment under capital leases	$	849,096		$	1,018,212

NOTE 5 — INTANGIBLE ASSETS

Intangible assets and related accumulated amortization as of  5 and  4 are as follows:

	Carrying Amount		Less Accumulated Amortization			Net Carrying Amount
Licenses	$	137,533	$	(65,522	)	$	72,011
Patents		383,496		(47,524	)		335,972
Trademarks, other intangibles		5,698		(1,892	)		3,806
Balance, December 31, 2015	$	526,727	$	(114,938	)	$	411,789
Licenses	$	137,308	$	(55,908	)	$	81,400
Patents		268,805		(27,264	)		241,541
Trademarks, other intangibles		5,698		(1,505	)		4,193
Balance, December 31, 2014	$	411,811	$	(84,677	)	$	327,134

Amortization expense of $30,261 and $25,096 was recorded for the years ended December 31, 2015 and 2014, respectively. Amortization expense for the next five years is estimated to be approximately $30,000 annually.

NOTE 6 — ACCOUNTS PAYABLE AND OTHER CURRENT LIABILITIES

As of December 31, 2015 and 2014, our accounts payable and other current liabilities consisted of the following:

	2015		2014
Accounts Payable	$	404,146	$	324,096
Product marketing allowance		—		35,045
Accrued compensation		186,665		210,800
Accrued Expenses		12,900		195,390
401(k) employer contribution expense		100,466		54,207
Current portion of deferred compensation (see Note 8)		—		254,400
Accounts payable and other liabilities	$	704,177	$	1,073,938

NOTE 7 — DEFERRED REVENUE

During 2013, we invoiced $600,000, of which $412,500 was received and $187,500 of which was included as accounts receivable as of December 31, 2013, to a single large customer in exchange for a commitment to ship a variety of our products during the period from January 1, 2014 to June 30, 2014. The invoiced amounts were recorded as Deferred Revenue. The related services were performed, and the revenue recognized, during 2014. There was no deferred revenue on the consolidated balance sheets as of December 31, 2015 or 2014.

F-15

XG SCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014

NOTE 8 — DEFERRED COMPENSATION — PHANTOM STOCK

Certain key employees have deferred compensation through a phantom stock plan (the “plan”) established by the Company in 2009. These key employees can elect to defer up to 100% of their compensation for a specific period. Amounts deferred are allocated quarterly into phantom units of our stock and are 100% vested. The cost of each phantom unit is established annually by the plan administrator prior to the beginning of each plan year. The cost established by the plan administrator for the plan year December 31,  4 was $12 per unit. Amounts accumulated under the plan are paid out as elected by the employee and accepted by the plan administrator. The value of accumulated phantom stock units at payout for events other than a change in control of the Company is based on the average per share value of common stock sales for the previous twelve months or based on an independent appraisal if no such stock sales have occurred within a twelve month period. As of December 31, 2014, the fair value of the phantom stock units was deemed to be $12 per unit and the liability for outstanding units was adjusted based on that value. In the event of a change of control of the Company, accumulated phantom stock units are to be paid to the employee based on the per share value of common stock at that time. Provisions for payout of the value of the units also exist in the event of death, disability or separation from service as summarized in the plan.

The amount outstanding at December 31, 2014 was paid out in early 2015.

NOTE 9 — SECURED CONVERTIBLE NOTES, WARRANTS AND FINANCING AGREEMENTS

2013 AAOF, Knox and XGS II Financings

On March 18, 2013 we entered into a series of agreements with our former Chief Executive Officer, Michael R. Knox and Aspen Advance Opportunity Fund, LP (“AAOF”). Under these agreements, Mr. Knox and AAOF agreed to provide financing to the Company in the form of Secured Convertible Notes as well as optional lease financing. The agreements provided for Mr. Knox to lend the Company $700,000, to be funded by converting advances he had made under a revolving line of credit, and for AAOF to lend the Company a minimum of $2.5 million and, at the option of AAOF, a maximum of $5 million, with a provision that up to 50% of the AAOF funding could be funded under lease financing arrangements.

Subsequently, on July 12, 2013, these agreements were amended and restated to provide for expanded financing commitments from AAOF as well as a related entity, XGS II, LLC (“XGS II”). Under the terms of these amended agreements, the financing commitments from AAOF were increased to a minimum of $6 million and, at the option of AAOF, a maximum of $10 million, of which a maximum of $3 million could be provided in the form of lease financing. Also under these amended agreements, XGS II agreed to provide a minimum of $250,000 and, at the option of XGS II, a maximum of $750,000. All of the funding with the exception of the Knox financing, was scheduled according to minimum financing commitments on calendar dates ranging from the time the agreements were executed to a period of eighteen months into the future. With the exception of any lease financing, the financing provided by Knox, AAOF, and XGS II takes the form of Secured Convertible Notes with identical terms and provisions.

In conjunction with the sale of the Secured Convertible Notes to AAOF and XGS II during 2013, Stock Warrants to purchase an aggregate of 447,916 shares of Series A Convertible Preferred Stock were issued that vest as the financing occurs at a rate of one Stock Warrant for every $24.00 funded. The Stock Warrants have an exercise price of $12.00 per share and are indexed to Series A Convertible Preferred Stock which contains a feature that requires adjustment of the exercise price of the Preferred Stock if the Company issues any Common Stock or common stock equivalents for a price less than the exercise price in effect immediately before the issuance. The Stock Warrants expire on the earlier of i) March 18, 2023 or ii) the acquisition of the Company by another entity.

2014 AAOF and XGS II Financings and Warrant Amendments

On January 15, 2014, we consolidated the Secured Convertible Notes issued in 2013 to AAOF and XGS II, together with accrued interest, into a single note for each lender with terms and conditions similar to those previously issued to AAOF and XGS II. We also revised the terms and amounts related to the timing of future investments from AAOF and XGS II by increasing the XGS II optional funding level to $1 million and extending the optional financing periods for both AAOF and XGS II through the end of 2014. In connection with the amendments, we also i) transferred all of our intellectual property into

F-16

XG SCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014

NOTE 9 — SECURED CONVERTIBLE NOTES, WARRANTS AND FINANCING AGREEMENTS (cont.)

a newly-created, wholly-owned subsidiary called XGS IP, LLC, ii) revised certain terms of the Company’s By-Laws to allow for special shareholder meetings to be called by holders of ten percent or more of the Company’s stock and to clarify certain voting provisions, and iii) amended the previously issued Certificate of Designation of Series A Convertible Preferred Stock to clarify the conditions related to Mandatory Conversion into Common Stock upon listing of the Company’s stock on a Qualified National Exchange and to add a provision that would exempt holders of Series A from future mandatory financing participation.

The Secured Convertible Notes issued under these agreements bear interest at 12% per annum and have a due date of March 18, 2018. These notes had provisions providing an option to the Company, at its choice, to accrue the interest payments on the notes through December 31, 2014 and add the accrued interest to the principal of the notes. After December 31, 2014, the note holder, at its option, could choose to receive ongoing interest payments: 1) in the form of cash; 2) receive all or a portion of currently due interest in the form of Series A Convertible Preferred Stock at a price per share equal to the then effective Series A Original Issue Price as defined in the Company’s Certificate of Designation of Series A Convertible Preferred Stock ($12 per share); 3) receive all or a portion of currently due interest payments in the form of any other series of Preferred Stock outstanding at the time interest is due; or 4) elect to accrue such interest and add it to the balance of the Note. Beginning January 1, 2015, Mr. Knox chose to receive ongoing interest payments in cash, while all other note holders continue to have interest accrued and added to the balance of their Notes. These Notes are secured by all of the assets, both tangible and intangible, of the Company. Further, these notes have provisions allowing their conversion into Series A Convertible Preferred Stock (or such other form of Preferred Stock as may be outstanding at that time), at the option of the holder at a conversion price of $12 per share. In addition, these Notes contain various affirmative and negative covenants that provide for various reporting, information, notice, maintenance of business, insurance, audits and reappraisal requirements. These covenants also prohibit the Company from issuing new secured debt that would have security or liquidation provisions senior to or equivalent to the Secured Convertible Notes, and these covenants also prohibit the issuance of dividends or stock redemptions, creation of subsidiaries, certain transactions with subsidiaries, or transfer of assets without the permission of the holders.

The embedded conversion feature in the Secured Convertible Notes was analyzed under ASC 815 to determine if it achieved equity classification or required bifurcation as a derivative instrument. In order to be a derivative, one of the criteria is that the embedded component must be net settleable. The Company’s common stock is not publicly traded, there is no mechanism outside the notes that would permit the holder to achieve net settlement and the underlying shares are not readily convertible to cash. Accordingly, the embedded conversion feature does not meet the definition of a derivative, and therefore, does not require bifurcation from the host instrument. Certain default put provisions were not considered to be clearly and closely related to the host instrument but we concluded that the value of these default put provisions was de minimus. We reconsider the value of the default put provisions each reporting period to determine if the value becomes material to the financial statements.

On January 15, 2014, we also exchanged existing warrants to purchase 447,916 shares of Series A Preferred Stock for new warrants to purchase 916,666 shares of Series A Preferred Stock. In accordance with the terms of the amendment, the previously-issued Stock Warrants associated with these financings vest as the financings occur at a rate of one Stock Warrant for every $12.00 funded. As of January 15, 2014, 434,314 Stock Warrants were vested and their fair value, using a lattice model, was estimated to be $2,525,822. The fair value of the Stock Warrants immediately prior to the exchange was $1,205,081, resulting in an increase in fair value of $1,320,741.

Although the Stock Warrants did not fall within the scope of ASC 480, they required derivative liability accounting because the conversion price reset protection terms in the underlying Series A Convertible Preferred Stock was not consistent with the definition for financial instruments indexed only to a company’s own stock. As such, they are required to be marked to fair value each reporting period.

The cash flows of the newly consolidated Secured Convertible Notes plus the fair value of the additional Stock Warrants issued exceeded the cash flows of the old Secured Convertible Notes by more than 10%. Therefore, in accordance with ASC 470 “Debt”, the modification of the notes was accounted for as a debt extinguishment. Because the conversion price of the Secured Convertible Notes is the same as the estimated value of the underlying stock on the date of the modification, no beneficial conversion feature was recognized. The difference of $2,193,029 between the carrying amounts of the original Secured

F-17

XG SCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014

NOTE 9 — SECURED CONVERTIBLE NOTES, WARRANTS AND FINANCING AGREEMENTS (cont.)

Convertible Notes and the fair value of the newly consolidated Secured Convertible Notes plus the increase in fair value resulting from the issuance of additional Stock Warrants of $1,320,741 was recorded as a loss on extinguishment of $3,513,770.

2014 and 2015 AAOF and XGS II Financings and Warrants

During the year ended December 31, 2014, we issued an additional $5,500,000 in Secured Convertible Notes to AAOF and XGS II with terms similar to those issued previously. Stock Warrants indexed to 454,166 shares of Series A Preferred Stock vested as result of the 2014 financings and were recorded at fair value using a binomial lattice model. At December 31, 2015, the total funding from the AAOF and XGS II financing and lease agreements was $11,026,091. Because the lease commitments of $1,026,091 exceed the $1,000,000 initial commitment by $26,091, AAOF increased the maximum potential funding from $11,000,000 to $11,026,091 which resulted in the issuance of an additional 2,174 Stock Warrants to AAOF.

After recording the Stock Warrants at fair value, a determination was made as to whether, in accordance with ASC 470, there was a BCF associated with the Secured Convertible Notes. A BCF is a non-detachable conversion feature that is in-the-money at the commitment date. An option is in-the-money if its effective conversion price is less than the current fair value of the share. For purposes of measuring a BCF, the effective conversion price is based on the proceeds allocated to the convertible debt instrument after considering allocations to detachable warrants.

The cash proceeds from the AAOF and XGS II financings during the year ended December 31, 2014 were allocated first to the derivative liabilities resulting from the Stock Warrants, at their fair values, then to the beneficial conversion feature, with the residual allocated to the host debt contracts, as follows:

	Allocation
Derivative liabilities – warrants	$	2,520,527
Beneficial Conversion Feature		2,520,527
Secured Convertible Notes – initial carrying value		458,946
Total allocated proceeds	$	5,500,000

The amount allocated to the derivative liabilities and the BCF was recorded as a discount on the Secured Convertible Notes and was being amortized to interest expense over the remaining term of the notes using the effective interest method. The effective interest rates on the Secured Convertible Notes ranged from approximately 28% – 85%.

As mentioned in further detail below, on December 31, 2015, the AAOF and XGSII Notes were converted into Series A Preferred Stock. The remaining unamortized discount of approximately $5.1 million was recorded as interest expense. Total interest expense of $7,050,898 and $1,360,308 was recognized for the years ended December 31, 2015 and 2014.

All 833,332 Stock Warrants issued in conjunction with the Secured Convertible Notes and all 83,334 Stock Warrants issued in conjunction with the lease commitments, were vested as of December 31, 2015.

2014 Samsung Financing and Warrants

On January 15, 2014, we sold $3,000,000 of Secured Convertible Notes to SVIC No. 15 New Technology Business Investment L.L.P, a subsidiary of the Samsung Group (“Samsung”). These notes had terms and conditions that were substantially similar to those previously issued to Knox, AAOF, and XGS II. In connection with the sale of the notes, the Company issued to Samsung a total of 100,000 Stock Warrants with a term of 4 years that are exercisable into shares of Series A Convertible Preferred Stock at a price of $12.00. These Stock Warrants vest in four installments on the first, second, third and fourth anniversary of the issuance of the Stock Warrants according to the following formula: On each anniversary, the warrant vests according to the ratio of total Samsung payments to us during the previous twelve-month period divided by 250. Thus, the warrants will vest proportionately in relation to the first $25 million, or fraction thereof, that Samsung pays, in cash, to us over the four years beginning January 15, 2014. Samsung payments are defined as future total cash payments, including licensing, royalties and product purchases but not joint development or purchase of Secured Convertible Notes. As of December 31, 2015, no payments

F-18

XG SCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014

NOTE 9 — SECURED CONVERTIBLE NOTES, WARRANTS AND FINANCING AGREEMENTS (cont.)

had been made by Samsung and none of the Stock Warrants associated with the Samsung note had vested. If and when Samsung provides funding to the Company in the future, the Stock Warrants will be measured at fair value and expensed at that time.

Conversion of Secured Convertible Notes

In conjunction with the Series B Private Placement, the holders of the Secured Convertible Notes agreed to convert their notes into Series A Preferred Stock upon the earlier of i) the Company raising at least $12 million through the sale of securities or ii) December 31, 2015, contingent on the Company raising at least $2 million through the sale of securities by that date. All the Secured Convertible Note agreements converted into shares of Series A Preferred Stock on December 31, 2015 in accordance with the terms of the agreements. The following table reflects the outstanding balances of the Notes on the date of conversion:

	AAOF		XGS II		KNOX		SAMSUNG		Total
Face value of notes at issuance	$	9,000,000	$	1,000,000	$	700,000	$	3,000,000	$	13,700,000
Accrued interest on face value		2,520,232		310,068		166,721		776,519		3,773,540
Amount due – December 31, 2015		11,520,232		1,310,068		866,721		3,776,519		17,473,540
Shares of Series A Convertible Preferred Stock Issued		960,019		109,172		72,226		314,709		1,456,126

In accordance with ASC 470, the remaining unamortized discount of $5,107,512 was recognized as interest expense.  On conversion the fair value of the notes and accrued interest was credited to the capital accounts.

Private Placement

In April 2015, we commenced a private placement offering of up to $18,000,000 in units consisting of up to 1,125,000 shares of Series B Convertible Preferred Stock and Warrants to purchase Common Stock at an offering price of $16.00 per Unit. As of December 31, 2015, we had sold 266,887 shares of Series B Convertible Preferred Stock and Warrants to purchase 222,262 shares of Common Stock, for aggregate gross proceeds of $4,270,192. In addition, the private placement triggered a preemptive rights offering to existing shareholders and holders of convertible notes. As mentioned in further detail below, the preemptive rights offering resulted in the issuance of 3,100 shares of Series B Convertible Preferred Stock and Warrants to purchase 2,635 shares of Common Stock which resulted in additional proceeds of $49,600. Proceeds of $7,881 were allocated to derivative liabilities-warrants with the remaining $41,719 being allocated to the Series B Preferred Stock.

The Series B Preferred Stock has a stated value of $16.00 per share and is convertible, at the option of the holder, at a conversion price of $16.00 per share, subject to adjustments for stock dividends, splits, combinations and similar events. The Warrants have an exercise price of $16.00 per share and expire in 7 years. During the period from closing of the offering and ending on the earlier of i) December 31, 2017 and ii) the date the Company consummates the sale of new securities resulting in gross proceeds of at least $18 million, the holder has the right to exchange their Series B Preferred Stock and Warrants on a price per share basis into the new security on the relative price per share terms as the new securities were sold to the third party.

The cash proceeds from the private placement were allocated first to the derivative liabilities resulting from the Stock Warrants, at their fair values. After allocating a portion of the proceeds to the warrants it was determined there was no BCF present because the effective conversion price of the Series B Preferred Stock was greater than the current fair value of the shares. Therefore, the residual was allocated to the Series B Preferred Stock, as follows:

	Allocation
Derivative liabilities – warrants	$	660,378
Series B Preferred Stock		3,609,814
Total allocated proceeds	$	4,270,192

F-19

XG SCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014

NOTE 9 — SECURED CONVERTIBLE NOTES, WARRANTS AND FINANCING AGREEMENTS (cont.)

The Stock Warrants issued in the private placement required derivative liability accounting and are required to be marked to fair value each reporting period. The initial fair value of the Stock Warrants was estimated using a binomial lattice model with the following assumptions:

Fair value of underlying stock	$12.00
Equivalent risk free interest rate	0.91% – 1.03	%
Expected term (in years)	7.00
Equivalent stock price volatility	30.47% – 31.22	%
Expected dividend yield	—

Equivalent amounts reflect the net results of multiple modeling simulations that the lattice model applies to underlying assumptions. The expected volatility of the Company’s stock was developed using historical volatility of a peer group for a period equal to the expected term of the Stock Warrants.

Preemptive Rights

On January 15, 2014, as part of our financing agreements with Samsung, AAOF and XGS II, we agreed to allow all shareholders to purchase one share of Series A Convertible Preferred Stock at a price of $12 per share for every two shares of Series A Convertible Preferred Stock or Common Stock owned by the shareholder. In addition, for every two preemptive shares purchased, the Company issued the shareholder a warrant to purchase one additional share of Series A Convertible Preferred Stock with the same terms as the warrants issued to AAOF and XGS II. The Company also agreed to issue warrants with the same terms to those shareholders who exercised preemptive rights in October 2013. These preemptive rights expired on March 31, 2014.

During the quarter ended March 31, 2014, 101,000 shares of Series A Convertible Preferred Stock were sold to existing stockholders at a price of $12.00 per share under the January 15, 2014 preemptive rights offering. In addition, Stock Warrants indexed to 56,054 shares of Series A Convertible Preferred Stock were issued in conjunction with these stock purchases, including 5,554 warrants related to the preemptive rights exercised in October 2013.

As part of our private placement in April 2015, shareholders and holders of convertible notes were provided the right to purchase their pro rata share of any class of stock that the Company sells or issues. The sale of Series B Preferred Stock in the April 2015 offering triggered the preemptive rights. As of December 31, 2015, 3,100 shares of Series B Convertible Preferred Stock have been sold to existing stockholders at a price of $16.00 per share. In addition, Stock Warrants indexed to 2,635 shares of Series B Convertible Preferred Stock were issued in conjunction with these stock purchases.

As of December 31, 2015, the total number of Stock Warrants issued due to the preemptive rights offerings was 58,689. The proceeds from the exercise of the preemptive rights were allocated first to the derivative liabilities resulting from the Stock Warrants, at their fair values, then to the beneficial conversion feature (if applicable), with the residual allocated to the Preferred Stock, as follows:

	January 2014 Preemptive Rights		April 2015 Preemptive Rights
Derivative liabilities – warrants	$	316,366	$	7,881
Beneficial Conversion Feature		316,366		—
Series A Preferred Stock		712,552		—
Series B Preferred Stock		—		41,719
Total allocated proceeds	$	1,345,284	$	49,600

F-20

XG SCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014

NOTE 9 — SECURED CONVERTIBLE NOTES, WARRANTS AND FINANCING AGREEMENTS (cont.)

ASC 470 provides for a BCF to be accreted over the longer of the term to maturity or the period to when the holder can first convert the instrument. Because the Series A Convertible Preferred Stock has no stated maturity and is convertible on the issuance date, the BCF was accreted immediately by crediting the Series A Convertible Preferred Stock, with an offsetting charge to retained earnings or, in the absence of retained earnings, to paid-in capital.

Bridge Financings

In December 2015, the Company entered into Bridge Financings with several investors totaling $550,000. The Bridge Financings provide for a 8% annual interest rate with the loans maturing on June 30, 2016. In addition, the Bridge Financing investors receive warrant coverage of 30% for investments prior to December 31, 2015 and 20% coverage thereafter. As of December 31, 2015, the Company had issued warrants indexed to 20,625 shares of common stock with a five year term and an exercise price of $8.00 per share. During the period from closing of the offering and ending on the earlier of i) December 31, 2017 and ii) the date the Company consummates the sale of new securities resulting in gross proceeds of at least $18 million, the warrant holders have the right to exchange their Warrants on a price per share basis into the new security on the relative price per share terms as the new securities are sold to the third party. Due to the Exchange Rights, the Warrants do not meet the conditions for equity classification and require classification as liabilities at fair value. The proceeds of the financing were allocated first to the derivative liabilities resulting from the Stock Warrants, at their fair value, with the residual allocated to the debt instrument as follows:

	Allocation
Derivative liabilities – warrants	$	52,676
Bridge Financing Notes		497,324
Total allocated proceeds	$	550,000

Warrants

The Stock Warrants issued in conjunction with the convertible notes, the equipment financing leases, the 2015 private placement transaction, the preemptive rights and the 2015 bridge financing are derivative liabilities which require re-measurement at fair value each reporting period. Liability classification is required because the conversion price reset protection terms in the underlying Series A Convertible Preferred Stock, and the Series B Preferred Certificate of Designations and the Exchange Rights are not consistent with the definition for financial instruments indexed only to a company’s own stock. The initial value of the Stock Warrants issued as consideration for the equipment financing leases was recorded as a reduction of the capital lease obligation and is being amortized as part of the effective interest cost on the capital lease obligation (see Note 13).

As of December 31, 2015, all 1,218,242 Stock Warrants issued to AAOF, XGS II, holders of Series A and Series B Preferred Stock, and the bride financing promissory notes have vested.

Shares indexed to derivative liabilities as of December 31, 2015 and 2014 were as follows:

	Type of shares indexed	Exercise Price		2015	2014
Warrants issued with Secured Convertible Notes	Series A PS	$	6.40	833,333	833,333
Warrants issued with equipment financing leases	Series A PS	$	6.40	83,333	83,333
Warrants issued with preemptive rights	Series A PS	$	6.40	56,054	56,054
Warrants issued with preemptive rights	Common	$	16.00	2,635	—
Warrants issued with 2015 private placement	Common	$	16.00	222,262	—
Warrants issued with bridge financing	Common	$	8.00	20,625	—
Total shares indexed to derivative liabilities				1,218,242	972,720

F-21

XG SCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014

NOTE 9 — SECURED CONVERTIBLE NOTES, WARRANTS AND FINANCING AGREEMENTS (cont.)

The following table summarizes the fair value of the derivative liabilities as of December 31, 2015 and 2014:

	2015		2014
Warrants issued with Secured Convertible Notes	$	6,743,997	$	4,284,161
Warrants issued with equipment financing leases		674,397		428,417
Warrants issued with preemptive rights		457,265		288,174
Warrants issued with 2015 private placement		306,828		—
Warrants issued with bridge financing		52,676		—
Total derivative liabilities	$	8,235,163	$	5,000,752

The Company estimated the fair value of their warrant derivative liabilities as of December 31, 2015 and December 31, 2014, using a lattice model and the following assumptions:

	2015		2014
Fair value of underlying stock	$7.63 – $12.64		$12.00
Equivalent risk free interest rate	1.06% – 1.39	%	1.25	%
Expected term (in years)	5.01 – 8.05		9.05
Equivalent stock price volatility	38.00% – 38.61	%	34.27	%
Expected dividend yield	—		—

Equivalent amounts reflect the net results of multiple modeling simulations that the lattice model applies to underlying assumptions. Because the Company is not publically traded, there is no active market for the Company’s stock. Therefore, the expected volatility of the Company’s stock was developed using historical volatility for a peer group for a period equal to the expected term of the Stock Warrants.

The Warrants issued with Secured Convertible Notes are indexed to Series A Preferred Stock. When the Company issued Warrants in conjunction with the Bridge Financing, for a price of $8.00 per share, it triggered the anti-dilution protection in the Series A Preferred Stock (see Note 10).

Changes in the fair value of Derivative Liabilities, carried at fair value, are reported as “Change in fair value of derivative liability — warrants” in the Statement of Operations, and were as follows:

	Year ended December 31,
	2015			2014
Warrants issued with Secured Convertible Notes	$	(2,459,830	)	$	439,579
Warrants issued with equipment financing leases		(245,986	)		35,417
Warrants issued with preemptive rights		(161,211	)		28,190
Warrants issued with 2015 private placement		353,551			—
Warrants issued with bridge financing		—			—
Total Derivative Gain (Loss)	$	(2,513,476	)	$	503,186

The increase in the derivative loss during 2015 was due primarily to a reduction in the conversion price of the Series A Preferred Stock underlying the Warrants issued with Secured Convertible Notes which resulted in an increase in fair value of approximately $2,164,788. The remaining increase was due primarily to changes in the fair value of the underlying equity and changes in the stock price volatility.

F-22

XG SCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014

NOTE 10 — CONVERTIBLE PREFERRED STOCK

Series A Convertible Preferred Stock

The Company is authorized to issue up to 3,000,000 shares of Series A Convertible Preferred Stock. Each share of the Series A, which has a liquidation preference of $12 per share, is convertible at any time, at the option of the holder, into one share of Common Stock at the lower of: (a) $12.00 per share, or (b) 80% of the price at which the Company sells any equity or equity-linked securities in the future. The Series A also contains typical anti-dilution provisions that provide for adjustment of the conversion price to reflect stock splits, stock dividends, or similar events. The Series A is subject to mandatory conversion into Common Stock upon the listing of the Company’s Common Stock on a Qualified National Exchange.

When the Company issued Warrants for $8.00 per share in conjunction with the December 2015 Bridge Financing, the conversion price of the Series A Preferred Stock reduced from $12.00 to $6.40 (80% of $8.00).  The repricing of the Series A Preferred resulted in a beneficial conversion feature of approximately $2.21 million which was recorded as a deemed dividend.

Series B Convertible Preferred Stock

The Company is authorized to issue up to 1,500,000 shares of Series B Convertible Preferred Stock. Each share of the Series B, which has a liquidation preference of $16 per share, is convertible at any time, at the option of the holder, into one share of Common Stock at $16 per share. The Series B also contains typical anti-dilution provisions that provide for adjustment of the conversion price to reflect stock splits, stock dividends, or similar events. The Series B is subject to mandatory conversion into Common Stock upon the listing of the Company’s Common Stock on a Qualified National Exchange and after all outstanding Convertible Securities are also converted into Common Stock. As mentioned in Note 9, the Series B provides investors with the right to exchange their Series B and Warrants on a price per share basis into new securities on the relative price per share terms as new securities sold to a third party on the earlier of i) December 31, 2017 and ii) the date the Company consummates the sale of new securities resulting in gross proceeds of at least $18 million.

The Series A and B are not redeemable for cash and the Company concluded that they are more akin to equity-type instruments than debt-type instruments. Accordingly, the embedded conversion option in each agreement is clearly and closely related to an equity-type host and the conversion option does not require classification and measurement as a derivative financial instrument. Therefore, the securities are classified in stockholders’ equity.

NOTE 11 — INCENTIVE STOCK OPTION PLAN

We have established an incentive stock option plan (the “Plan”) under which the Company may grant key employees and directors options to purchase common stock of the Company at not less than fair market value as of the grant date. Options for up to 600,000 shares may be awarded under the Plan. Each option is exercisable into one share of common stock of the Company. The Plan expires in December 2017. The fair value of the options granted was estimated on the dates of grant using the Black Scholes option-pricing model. As of  5 4, respectively, 419,750 and 464,750 option shares have been granted. Vesting of the options ranges from immediately to 20% per year, with most options vesting on a straight-line basis over a three or four year period from the date issued. See discussion of CEO options below. Rights to exercise the options vest immediately upon a change in control of the Company or termination of the employee’s continuous service due to death or disability. The options expire at various dates through October 2023.

F-23

XG SCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014

NOTE 11 — INCENTIVE STOCK OPTION PLAN (cont.)

The following table shows the stock option activity during the years ended December 31, 2015 and 2014:

					2014
	Number Of Options		Weighted Average Exercise Price		Number Of Options		Weighted Average Exercise Price
Options outstanding at beginning of year	464,750		$	12.05	152,500		$	12.13
Changes during the year:
Granted – at market price	30,000			12.00	328,500			12.00
Exercised	—			12.00	(1,667	)		12.00
Expired	(75,000	)		12.00	(14,583	)		12.00
Options outstanding at end of year	419,750			12.00	464,750			12.04
Options exercisable at end of year	190,080			12.00	60,333			11.73
Weighted average fair value of options granted during the year			$	12.00			$	12.00

Costs incurred in respect of stock based compensation for employees and directors, for the years ended were $598,780 and $644,788, respectively. Unrecognized compensation cost as of was $837,258, which amount is expected to be recognized over approximately 44 months.

As of December 31, 2015, none of the currently exercisable stock options had intrinsic value. The intrinsic value of each option share is the difference between the fair market value of our common stock and the exercise price of such option share to the extent it is “in-the-money”. Aggregate intrinsic value represents the value that would have been received by the holders of in-the-money options had they exercised their options on the last trading day of the year and sold the underlying shares at the closing stock price on such day. The intrinsic value calculation is based on the assumed market value of our common stock on December 31, 2015 of $7.63 per share. There were no in-the-money options outstanding and exercisable as of December 31, 2015 since the exercise prices of the stock options outstanding and expected to vest were all greater than the fair value of our common stock.

The following table presents changes in the number of non-exercisable options during 2015:

Non-exercisable options	Number Issued		Average Exercise Price
Total non-exercisable options outstanding – December 31, 2014	404,417		$	12.05
Options issued	30,000		$	12.00
Options expired	—			—
Options cancelled	(75,000	)	$	12.00
Options vested	(129,747	)	$	12.01
Total non-exercisable options outstanding – December 31,2015	229,670		$	12.08

The Company hired a new Chief Executive Officer who commenced his employment on January 6, 2014. As part of his compensation, on January 6, 2014, he was awarded 220,000 stock options, with an exercise price of $12 per share. Of the total option award, 160,000 options vest over the four year period ending January 6, 2018.  The grant date fair value of these options was $987,648, which is expected to be recognized over the four year vesting period. The remaining 60,000 options are subject to certain performance targets being met.  As of December 31, 2015 and 2014, $17,070 of expense had been recognized when achievement of certain targets was deemed probable.

F-24

XG SCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014

NOTE 11 — INCENTIVE STOCK OPTION PLAN (cont.)

The total fair value of options granted during the years ended December 31, 2015 and 2014 was $44,721 and $1,662,047, respectively.

The fair value of the options granted in 2015 and 2014 was estimated on the grant date using the Black Scholes option-pricing model with the following assumptions:

	2015	2014
Fair value of underlying stock	$7.63	$12.00
Expected option life	5.00 years – 5.18 years	4.29 years – 6.00 years
Expected stock price volatility	36.12% – 36.36%	26.03% – 52.89%
Risk free interest rate	1.35%	1.63 % – 2.04%
Expected dividend yield	0.00%	0.00%

The following table presents summary information concerning the options outstanding as of 5:

Exercise prices	Number Outstanding	Number Exercisable	Weighted Average Remaining Contractual Life (Years)
$8.00	10,000	10,000	1.92
$12.00	359,750	145,080	6.06
$13.20	50,000	35,000	5.42
	419,750	190,080	5.89

NOTE 12 — STOCK WARRANTS

In addition to the warrants described in Note 9, which are accounted for as derivative liabilities, we had 42,694 Common Stock Warrants that were issued in 2012 and prior years which are accounted for as equity instruments. During the period from July 2014 to July 2015, 30,294 of these warrants expired unexercised and 1,400 of the warrants were exercised in May 2015. The remaining 11,000 warrants have exercise prices ranging from $8.00 to $12.00 and expire at various dates through 2027.

The following table summarizes the warrants outstanding at December, 2015, all of which are exercisable:

Date Issued	Expiration Date	Exercise Price	Number of Warrants
7/1/2009	7/1/2019	$8.00	6,000
10/8/2012	10/8/2027	$12.00	5,000
			11,000

NOTE 13 — CAPITAL LEASES

As of December 31, 2015, we have capital lease obligations to AAOF (see Note 9) and other lessors as follows:

	December 31, 2015			December 31, 2014
Capital lease obligations	$	682,564		$	935,174
Unamortized warrant discount		(149,594	)		(249,611	)
Net obligations		532,970			685,563
Short-term portion of obligations		(178,487	)		(152,593	)
Long-term portion of obligations	$	354,483		$	532,970

F-25

XG SCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014

NOTE 13 — CAPITAL LEASES (cont.)

In connection with the lease agreements with AAOF, we issued to them preferred stock warrants with an initial fair value of $156,043 and $147,496 in 2015 and 2014, respectively (see Note 9). The initial fair value has been accounted for as a discount on the capital lease obligation and will be amortized as part of the interest expense on the leases. As discussed in Note 9, the warrants are accounted for as derivative instrument liabilities at fair value.

Our AAOF capital lease obligations are four year leases starting on January 1, 2014 and January 1, 2015. The effective interest rates on the leases are 50% and 32% for the leases executed in 2015 and 2014, respectively. The present value of the lease payments are more than 90% of the fair value of the equipment and therefore the leases were capitalized.

Our other capital leases expire at various dates through 2016, have average effective interest rates of 8% and contain bargain purchase options that allow us to purchase the leased property for a minimal amount upon the expiration of the lease term.

Future minimum lease payments under capital lease obligations are as follows:

For the year ending December 31:
2016	$	347,033
2017		342,686
2018		130,356
Total future minimum lease payments		820,075
Less amount representing interest		(287,105	)
Present value of future minimum lease payments		532,970
Less current maturities		(178,487	)
Obligations under capital leases – long term	$	354,483

Property and equipment acquired under capital lease agreements is pledged as collateral to secure the performance of the future minimum lease payments above.

NOTE 14 — INCOME TAXES

Deferred tax assets (liabilities) consist of the following at December 31:

	2015			2014
Current:
Other temporary differences	$	10,000		$	15,000
Non-current:
Net operating loss carry forwards		9,955,000			6,085,000
Deferred compensation		—			75,000
Tax depreciation in excess of book depreciation		(220,000	)		(210,000	)
Interest expense not deductible until paid		—			410,000
Research and development credits		490,000			425,000
Net deferred tax asset	$	10,235,000		$	6,800,000
Deferred tax valuation allowance	$	(10,235,000	)	$	(6,800,000	)
Net deferred tax asset	$	—		$	—

Net operating loss carry forwards of $33,180,000 and $20,290,000 exist at December 31, 2015 and 2014, respectively. The primary difference between the net operating loss carry forwards and the accumulated deficit arises from certain stock option, warrants and other debt and equity transactions that are considered permanent differences. These losses were incurred in the

F-26

XG SCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014

NOTE 14 — INCOME TAXES (cont.)

years 2006 through 2015 and will expire between 2026 and 2035 and their utilization may be limited if we experience significant ownership changes. The research and development credits will expire between 2028 and 2035. A rate of 40% has been used to calculate the deferred tax assets and liabilities based on the expected effective tax rate, net of applicable credits, upon reversal of the differences above. A valuation allowance has been established against the entire deferred tax asset at December 31, 2015 and 2014. The valuation allowance is considered a significant estimate subject to material change in the near term.

Below is a reconciliation of the statutory federal income tax rate to our effective tax rate for the fiscal years ended December 31, 2015 and 2014:

	2015		2014
Federal tax provision	34.0	%	34.0	%
State tax provision	6.0	%	6.0	%
Valuation allowance	(40.0	)%	(40.0	)%
	0.0	%	0.0	%

We file income tax returns in the U.S. federal jurisdiction and in Michigan. Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations and require significant judgment to apply. For federal and state purposes, we have open tax years for all years in which we have filed tax returns. We are not currently subject to any ongoing income tax examinations

NOTE 15 — Customer, Supplier, country and Product Concentrations

Product Concentration

For 2015, we had concentrations of revenue from two products that were each greater than 10% of total revenues. Revenue from a grant was 59% of total revenues and revenue from one of the Company’s graphene nanoplatelets materials was 22%. For 2014, we had concentrations of revenue from two products that were each greater than 10% of total revenues. Revenue from a grant was 28% of total revenues and revenue from one of the Company’s graphene nanoplatelets materials was 26%. No other products in either year represented 10% or more of our revenue in 2015 or 2014. We attempt to minimize the risk associated with product concentrations by continuing to develop new products to add to our portfolio.

Customer Concentration

Because of the nature of the applications that our customers are developing, we anticipate that we may see a few customers that account for the majority of our revenues. For 2015 we had one customer (one of our Asian distributors) whose purchases accounted for 12% of total product revenues. In 2014 we had another customer that represented 69% of total product revenues. There were no other customers in either year that represented more than 10% of our product revenues. At December 31, 2015 there was one customer who had an accounts receivable balance greater than 10% of our outstanding receivable balance. At December 31, 2014, there were five customers.

Country Concentration

We sell our products on a worldwide basis. International revenues in 2015 and 2014 were 55% and 17% of total product revenues, respectively. All of these sales are denominated in U.S. dollars.

One country (South Korea) other than the United States accounted for approximately 12% of total product revenue in both of the years ended December 31, 2015 and 2014.

F-27

XG SCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014

NOTE 15 — Customer, Supplier, country and Product Concentrations (cont.)

Suppliers

We buy raw materials used in manufacturing from several sources. These materials are available from a large number of sources. A change in suppliers has no material effect on the Company’s operations. We did not have any purchases to one supplier that was more than 10% of total purchases in either 2015 or 2014.

NOTE 16 — RELATED PARTY TRANSACTIONS AND COMMITMENTS

We have a licensing agreement for exclusive use of patents and pending patents with Michigan State University (MSU), a stockholder via the MSU Foundation. During 5 and 4, we incurred $50,000 and $25,000, respectively, for royalties for these licenses. We have also entered into product licensing agreements with certain other stockholders. No royalty expenses have been recognized related to these agreements during 5 and 4.

A line of credit was established in 2012 from a shareholder and officer of the Company. The subsequent conversion of this line of credit in 2013 resulted in the issuance of $700,000 of Secured Convertible Notes to the same shareholder and officer of the Company. The outstanding balance of this line of credit, $103,447 as of December 31, 2013, was repaid in January 2014 and an additional $93,723 was accrued as interest on the Secured Convertible Notes in 2014.

The financing arrangements disclosed in Note 9 were provided by two private funds that were formed for the sole purpose of investing in the Company by two investors affiliated with ASC-XGS, LLC, a shareholder of the Company. Under a Voting Agreement signed by our shareholders, a principal of the private funds serves as a director of the Company. During 2013, these two funds purchased $4,503,847 of Secured Convertible Notes and also provided $635,770 in equipment lease financing. In 2014, these two funds purchased $5,500,000 and also provided $390,321 in equipment lease financing.

The Bridge Financings referred to in Note 9 above consisted of loans from entities controlled by existing shareholders. Two of these shareholders are also directors of the Company. In conjunction with these short-term borrowings, the Company issued the warrants also discussed in Note 9.

We entered into an employment agreement with our CEO during December 2013. The agreement calls for an annual salary of $275,000. In addition, this officer will receive an aggregate of 220,000 options to purchase common stock at $12 per share. The options have a life of 8 years provided the employee remains employed by the Company. The options vest as follows: 160,000 over a 48 month period with 40,000 options vesting on the first anniversary of the agreement and the balance over the remaining 36 months; 40,000 vesting over a provisional time based schedule and 20,000 vest based on certain performance requirements. The agreement has no termination date but may be terminated by either party at any time. If the Company terminates the agreement without cause it will be liable for 6 months of severance pay.

We entered into an employment agreement with our senior vice president during January 2014. The agreement is for a period of three years and has a base salary of $160,000 per annum. The Company may terminate the agreement at any time, however if it terminates the agreement without cause it will be liable for severance pay at 50% of the employees monthly salary for the remainder of the agreement.

In 2015 and 2014, POSCO, one of our shareholders, has a contractual obligation to pay us a minimum of $100,000 per year to license certain technologies we license from MSU. This obligation is due annually on February 28 of the following year. We recorded this license revenue at a rate of $25,000 per quarter for the years ended December 31, 2015 and 2014, respectively. POSCO is disputing that they are obligated to pay the royalties. This case is being arbitrated. An allowance in the amount of $100,000 has been recorded at December 31, 2015 to reflect an estimate of what portion of the 2014 and 2015 royalties may not be collectible. The accrued royalty and allowance are netted together and reflected in other current assets on the consolidated balance sheet.

F-28

XG SCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014

NOTE 17 — OPERATING LEASES

We lease our primary manufacturing facility, laboratory and administrative office under two separate operating leases expiring in December 2017 and March 2022. A second manufacturing facility is leased on a month to month basis. Total rent expense, including common area maintenance costs, was $387,159 and $351,406 during  5 4, respectively. Operating lease commitments for the next 5 years are as follows:

For the year ending December 31:
2016	$	331,380
2017	$	338,046
2018	$	226,422
2019	$	230,685
2020	$	235,023

NOTE 18 — RETIREMENT PLAN

We maintain a defined-contribution 401(k) retirement plan covering substantially all employees (as defined by our Plan Document). Employees may make voluntary contributions to the plan, subject to limitations based on IRS regulations and compensation. The plan allows for an employer match contribution. The employer match for 2015 was $93,582; there was no match expense for 2014. In 2015, $47,323 of the match was funded and $46,259 is a liability on the balance sheet at December 31, 2015. The plan was deemed to be top-heavy for 2014. A plan is top heavy when more than 60% of plan assets are in the accounts of key employees. Key employees in 401(k) plans are defined by the IRS.

For years when a plan is top heavy, the plan must make a “top heavy minimum contribution” to non-key employees.

An amount of $54,207 is accrued at December 31, 2015 and December 31, 2014 for this required contribution. This represents 3% of eligible compensation for non-key employees who were employed at December 31, 2014. The contribution has a 6 year vesting schedule and forfeitures reduce future plan expenses. The top heavy contribution is due by the close of 2015, but we have chosen to extend this for two more years.

NOTE 19 — LETTER OF CREDIT

We are required by one of our lease agreements to maintain a letter of credit of approximately $190,000 through February 2022. To support this letter of credit, we are required to maintain an equivalent cash deposit. As of December 31, 2015, there were no amounts outstanding on the letter of credit. The cash deposit is restricted and classified as a non-current asset. As of December 31, 2015 and 2014, the cash deposit for the letter of credit was $195,206 and $190,915, respectively.

NOTE 20 — SUBSEQUENT EVENTS

The Company evaluated subsequent events through the date of this report, which was the date the consolidated financial statements were available for issue.

We and our stockholders entered into a Shareholders Agreement on March 18, 2013 that contains a number of specific provisions pertaining to the Board of Directors as well as individual Directors.

Among other things, the Shareholder Agreement provides for certain voting and nomination rights to be calculated on the basis of “Full Conversion” stock ownership (under which calculation, all convertible notes, preferred shares, or other convertible equity securities are deemed converted into common stock) as follows:

• So long as AAOF or its affiliates own 10% of more of the aggregate outstanding Shareholder Stock (as defined in the Shareholder Agreement):

- the size of the Board of Directors shall be set at seven individuals.

F-29

XG SCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014

NOTE 20 — SUBSEQUENT EVENTS (cont.)

- one person nominated by AAOF shall be elected to the Board of Directors.

- two members of the Board of Directors, other than those nominated by AAOF, POSCO or Hanwha Chemical, shall qualify as independent Directors.

• So long as POSCO owns 10% of more of the aggregate outstanding Shareholder Stock, one person nominated by POSCO shall be elected to the Board of Directors.

• So long as Hanwha Chemical owns 10% of more of the aggregate outstanding Shareholder Stock, one person nominated by Hanwha Chemical shall be elected to the Board of Directors.

On February 26, 2016, the Shareholders Agreement was amended to provide that holders of Excluded Stock are not subject to the terms of the Shareholders Agreement. Excluded Stock means shares of common stock that are subject to a registration statement that has been filed with the SEC and has been declared effective. The Amendment to Shareholders Agreement takes effect when a majority of the Board of Directors and shareholders holding at least 60% of the voting power of all shares of Shareholder Stock have consented to the amendment to the Shareholders Agreement, and a registration statement registering the shares of common stock has been filed with the SEC and declared effective. The Amendment to Shareholders Agreement further clarifies that preemptive rights shall not apply to Excluded Stock, and amends the termination date of the Shareholders Agreement. Specifically, the Shareholder Agreement has been amended to provide that it continues in effect until (i) the date of the closing of a public offering of common stock pursuant to a registration statement filed with the SEC that is declared effective in which the Company receives gross proceeds of at least $10,000,000, on which date it shall terminate in its entirety, unless the Shareholder Agreement is earlier terminated in accordance with its terms, or (ii) the date on which the Company’s common stock is listed on the NASDAQ Stock Market of the New York Stock Exchange.  As a result, in the event that the Company is unable to raise at least $10,000,000 in this offering, the Shareholder Agreement will continue to remain in effect and the larger shareholders described above will be entitled to continue to exercise their rights under such Shareholders Agreement, but purchasers of shares of common stock under this registration statement, if it is made effective, will not be required to adopt the Shareholders Agreement.

F-30

YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR THAT WE HAVE REFERRED YOU TO. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT. THIS PROSPECTUS IS NOT AN OFFER TO SELL COMMON STOCK AND IS NOT SOLICITING AN OFFER TO BUY COMMON STOCK IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.

3,000,000 SHARES OF COMMON STOCK

_______________

PROSPECTUS

_______________

Until _____________, all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to a dealer’s obligation to deliver a prospectus when acting as underwriter and with respect to their unsold allotments or subscriptions.

The Date of This Prospectus is     , 2016

PART II: INFORMATION NOT REQUIRED IN THE PROSPECTUS

Item 13. Other Expenses of Issuance and Distribution.

	Amount to be Paid
Registration fee	$	2,417	*
Printing and engraving expenses	$	5,000
Legal and auditor fees and expenses	$	72,500
Sales Agent fees	$	960,000	**
Miscellaneous Fees		20,083
Total	$	1,060,000

____________

*Previously paid.

**Assumes expenses attributable to sales agent(s) based on allocating up to 50% of the shares being offered to the sales agent(s).

Item 14. Indemnification of Directors and Officers.

Our Articles of Incorporation, as amended states that a Director of the Company shall not be personally liable to the Company or its stockholders for money damages for any action taken or any failure to take any action as a Director, except liability for any of the following:

(a) The amount of a financial benefit received by a Director to which the Director is not entitled;

(b) The intentional infliction of harm on the Company or its stockholders;

(c) A violation of Section 551 of the Michigan Business Corporation Act, as amended (the “Act”); or

(d) An intentional criminal act.

In the event the Act is amended, after approval by the stockholders of the appurtenant article in the Company’s Articles of Incorporation, as amended to authorize corporate action further eliminating or limiting the personal liability of Directors, then the liability of a Director of the Company shall be eliminated or limited to the fullest extent permitted by the Act, as so amended. Any repeal, modification or adoption of any provision in our Articles of Incorporation, as amended inconsistent with this Article shall not adversely affect any right or protection of a Director of the Company existing at the time of such repeal, modification or adoption.

Our Bylaws state that each person who is or was or had agreed to become a Director or officer of the Company, or each such person who is or was serving or who had agreed to serve at the request of the Board of Directors as an employee or agent of the Company, or as a Director, officer, employee or agent of another corporation (whether for profit or not), partnership, joint venture, trust or other enterprise (including the heirs, executors, administrators or estate of such person), shall be indemnified by the Company to the full extent permitted by the Act or any other applicable laws as presently or hereafter in effect.

The right to indemnification conferred in the Bylaws shall not be exclusive of any right any person may have or acquire under any statute, provision of our Articles of Incorporation, as amended, Bylaws, agreement, vote of stockholders or disinterested Directors, or otherwise.

The Company shall have the power to purchase and maintain insurance on behalf of any person who is or was a Director, officer, employee or agent of the Company or is or was serving at the request of the Company as a Director, officer, partner, trustee, employees or agent of another foreign or domestic corporation, partnership, joint venture, trust or other enterprise, whether for profit or not, against any liability asserted against him or her and incurred by him or her in any such capacity or arising out of his or her status as such, whether or not the Company would have the power to indemnify him or her against such liability under the appurtenant provision of the Company’s Bylaws.

Under Michigan law, however, such provisions do not eliminate the personal liability of a director unless the director (i) acted in good faith; (ii) acted in a manner he or she reasonably believed to be in or not opposed to the best interests of the corporation or its shareholders; and (iii) with respect to a criminal action or proceeding, if the director had no reasonable cause to believe his or

II-1

her conduct was unlawful. Furthermore, under Section 551of the Act, directors who vote for, or concur in, any of the following corporate actions are jointly and severally liable to the corporation for the benefit of its creditors or shareholders, to the extent any legally recoverable injury suffered by its creditors or shareholders as a result of the action but not to exceed the difference between the amount paid or distributed and the amount that lawfully could have been paid or distributed: (i) a declaration of a share dividend or distribution to shareholders contrary to the Act or contrary to any restriction in the articles of incorporation; (ii) distribution to shareholders during or after dissolution of the corporation without paying or providing for debts obligations and liabilities of the corporation as required by Section 855a of the Act; and (iii) making a loan to a director, officer, or employee of the corporation or of a subsidiary of the corporation contrary to the Act.

We have been advised that in the opinion of the Securities and Exchange Commission indemnification for liabilities arising under the Securities Act is against public policy as expressed in the Securities Act, and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities is asserted by one of our directors, officers, or controlling persons in connection with the securities being registered, we will, unless in the opinion of our legal counsel the matter has been settled by controlling precedent, submit the question of whether such indemnification is against public policy to a court of appropriate jurisdiction. We will then be governed by the court’s decision.

Item 15. Recent Sales of Unregistered Securities.

During the three years preceding the filing of this registration statement, we issued and sold the following securities that were not registered under the Securities Act:

On October 8, 2012, we issued warrants to Michael R. Knox to purchase 5,000 shares of common stock at $20.00 per share, which was subsequently adjusted in August 2013 to $12.00 per share.

In March 2013, we issued a secured convertible note to AAOF in the principal amount of $603,846.58.

On April 3, 2013, we issued a secured convertible note to AAOF in the principal amount of $250,000.

On April 12, 2013, we issued a secured convertible note to AAOF in the principal amount of $250,000.

On April 26, 2013, we issued a secured convertible note to AAOF in the principal amount of $1,400,000.

In July 2013, we issued a secured convertible note to AAOF in the principal amount of $800,000 (as adjusted to $309,425 pursuant to the July 12, 2013 amended and restated purchase agreement with AAOF).

In September 2013, we issued a secured convertible note to AAOF in the principal amount of $200,000.

In October 2013, various individual stockholders exercised preemptive rights to purchase 11,107 shares of Series A Preferred Stock at a price of $12.00 per share. These purchases, along with an investment in convertible secured debt, enabled the conversion of 172,824 previously issued shares of common stock into 172,824 shares of Series A Preferred Stock.

In October 2013, we issued a secured convertible note to AAOF in the principal amount of $300,000.

In October 2013, we issued a secured convertible note to XGS II, LLC in the principal amount of $200,000.

In December 2013, we issued a secured convertible note to AAOF in the principal amount of $500,000.

On January 7, 2014, we issued a secured convertible note to AAOF in the principal amount of $100,000.

On January 15, 2014, we issued a secured convertible note to AAOF in the principal amount of $4,178,330.92 which restated and consolidated all previously issued Notes to AAOF.

On January 15, 2014, we issued a secured convertible note to XGS II, LLC in the principal amount of $739,349.83 which restated the $200,000 secured convertible Note previously issued in October 2013, and adjusted to reflect an increase in the principal pursuant to a reallocation of principal and accrued interest.

On January 15, 2014, we issued a secured convertible note to Samsung Ventures in the principal amount of $3,000,000.

II-2

On January 15, 2014, we issued warrants to AAOF, XGS II, LLC and Samsung Ventures to purchase 833,333, 83,333 and 100,000 shares of Series A Preferred Stock, respectively at an exercise price of $12.00 per share.

In February 2014, we issued a secured convertible note to AAOF in the principal amount of $1,000,000.

In March 2014, various individual shareholders exercised preemptive rights to purchase 101,000 shares of Series A Preferred Stock at a price of $12.00 per share.

On March 18, 2014, we issued a secured convertible note to AAOF in the principal amount of $1,300,000.

On March 31, 2014, we issued a secured convertible note to AAOF in the principal amount of $900,000.

In early 2014, we issued 12,722 shares of Series A Preferred Stock to AAOF as payment for lease financing obligations under the terms of a Master Leasing Agreement.

In June 2014 an individual stockholder exercised a stock option to purchase 1,667 shares of common stock at $12 per share.

In March 2015 an individual stockholder exercised a warrant to purchase 1,400 shares of common stock at a price of $10 per share.

On April 18, 2015 we commenced an offering consisting of units of Series B Preferred Stock and Warrants priced at $16 per unit. During the period April 18, 2015 through June 30, 2015 we sold 269,987 shares of Series B Preferred Stock and issued warrants to purchase an additional 224,897 shares of common stock for a total of $4,319,792.

On December 31, 2015 we issued promissory notes in an aggregate amount of $550,000 and warrants to purchase 20,625 shares of common stock of the Company to existing stockholders. The notes are non-convertible and mature on June 30, 2016. The warrants have a five year maturity date with a strike price of $8.00 per share.

No underwriters were utilized and no commissions or fees were paid with respect to any of the above transactions. These persons were the only offerees in connection with these transactions. We relied on Regulation S, Section 4(a)(2) and/or Rule 506 of Regulation D of the Securities Act for the transactions set forth above since none of the transactions involved any public offering.

Item 16. Exhibits and Financial Statement Schedules

EXHIBIT NUMBER	DESCRIPTION	LOCATION
3.1	Articles of Incorporation of XG Sciences, Inc. (formerly known as XG Nano, Inc.) dated May 23, 2006	Incorporated by reference to the Company’s Form S-1 filed with the SEC on January 26, 2016
3.2	Certificate of Amendment to Articles of Incorporation of XG Sciences, Inc. dated August 31, 2006 (name change)	Incorporated by reference to the Company’s Form S-1 filed with the SEC on January 26, 2016
3.3	Certificate of Amendment to Articles of Incorporation of XG Sciences, Inc. dated March 23, 2009 (increase of authorized common stock)	Incorporated by reference to the Company’s Form S-1 filed with the SEC on January 26, 2016
3.4	Certificate of Designations of Series A Convertible Preferred Stock, dated March 18, 2013	Incorporated by reference to the Company’s Form S-1 filed with the SEC on January 26, 2016
3.5	Certificate of Amendment to Articles of Incorporation of XG Sciences, Inc. dated June 26, 2013 (increase of authorized common stock and authorization of preferred stock)	Incorporated by reference to the Company’s Form S-1 filed with the SEC on January 26, 2016
3.6	Amended and Restated Certificate of Designations of Series A Convertible Preferred Stock, dated June 26, 2013	Incorporated by reference to the Company’s Form S-1 filed with the SEC on January 26, 2016

II-3

EXHIBIT NUMBER	DESCRIPTION	LOCATION
3.7	First Amendment to the Amended and Restated Certificate of Designations of Series A Convertible Preferred Stock, dated November 20, 2013	Incorporated by reference to the Company’s Form S-1 filed with the SEC on January 26, 2016
3.8	Restated Bylaws dated January 15, 2014	Incorporated by reference to the Company’s Form S-1 filed with the SEC on January 26, 2016
3.9	Certificate of Designations of Series B Convertible Preferred Stock, effective September 9, 2015	Incorporated by reference to the Company’s Form S-1 filed with the SEC on January 26, 2016
4.1	Warrant to Purchase 5,000 Shares of Common Stock, dated October 8, 2012, issued by XG Sciences, Inc. to Michael R. Knox, together with Notice and Certificate of Adjustment to Warrant, dated August 21, 2013	Incorporated by reference to the Company’s Form S-1 filed with the SEC on January 26, 2016
4.2	Warrant to Purchase 833,333 Shares of Series A Convertible Preferred Stock, dated January 15, 2014, issued by XG Sciences, Inc. to Aspen Advanced Opportunity Fund, LP	Incorporated by reference to the Company’s Form S-1 filed with the SEC on January 26, 2016
4.3	Warrant to Purchase 83,333 Shares of Series A Convertible Preferred Stock, dated January 15, 2014, issued by XG Sciences, Inc. to XGS II, LLC	Incorporated by reference to the Company’s Form S-1 filed with the SEC on January 26, 2016
4.4	Warrant to Purchase 100,000 Shares of Series A Convertible Preferred Stock, dated January 15, 2014, issued by XG Sciences, Inc. to SVIC No. 15 New Technology Business Investment L.L.P.	Incorporated by reference to the Company’s Form S-1 filed with the SEC on January 26, 2016
5.1	Opinion of Foster Swift Collins & Smith PC	Filed herewith
10.1	Technology Licensing Agreement between XGS and Michigan State University dated July 27, 2007 and amended on May 24, 2010 and May 27, 2011	Incorporated by reference to the Company’s Form S-1 filed with the SEC on January 26, 2016
10.2	Lease between XG Sciences, Inc. and Quality Dairy Company, dated January 3, 2008	Incorporated by reference to the Company’s Form S-1 filed with the SEC on January 26, 2016
10.3	Amendment to Technology Licensing Agreement between XGS and Michigan State University dated May 24, 2010	Incorporated by reference to the Company’s Form S-1 filed with the SEC on January 26, 2016
10.4	Amendment to Technology Licensing Agreement between XGS and Michigan State University dated May 27, 2011	Incorporated by reference to the Company’s Form S-1 filed with the SEC on January 26, 2016
10.5	Lease between XG Sciences, Inc. and Dart Container of Michigan LLC, dated September 1, 2011	Filed herewith
10.6	Amendment to Lease between XG Sciences, Inc. and Dart Container of Michigan LLC, dated August 15, 2011	Incorporated by reference to the Company’s Form S-1 filed with the SEC on January 26, 2016
10.7	Amendment to Lease between XG Sciences, Inc. and Dart Container of Michigan LLC, dated November 16, 2012	Filed herewith

II-4

EXHIBIT NUMBER	DESCRIPTION	LOCATION
10.8	$300,000 Line of Credit Note, dated March 18, 2013, issued by XG Sciences, Inc. to Michael R. Knox	Incorporated by reference to the Company’s Form S-1 filed with the SEC on January 26, 2016
10.9	Letter Agreement, dated March 18, 2013, by and between XG Sciences, Inc. and Michael R. Knox	Filed herewith
10.10	Shareholder Agreement, dated March 18, 2013, by and among XG Sciences, Inc. and the stockholder signatories thereto.	Incorporated by reference to the Company’s Form S-1 filed with the SEC on January 26, 2016
10.11	Master Lease Agreement, dated March 18, 2013, by and between XG Sciences, Inc. and Aspen Advanced Opportunity Fund, LP	Incorporated by reference to the Company’s Form S-1 filed with the SEC on January 26, 2016
10.12	Employment Agreement dated December 16, 2013, by and between Philip L. Rose and XG Sciences	Incorporated by reference to the Company’s Form S-1 filed with the SEC on January 26, 2016
10.13	Employment Agreement dated January 13, 2014 by and between Michael R. Knox and XG Sciences	Incorporated by reference to the Company’s Form S-1 filed with the SEC on January 26, 2016
10.14	$772,998.15 Secured Convertible Promissory Note, dated January 15, 2014, issued by XG Sciences, Inc. to Michael R. Knox	Incorporated by reference to the Company’s Form S-1 filed with the SEC on January 26, 2016
10.15	Second Amended & Restated Purchase Agreement, dated January 15, 2014, by and between XG Sciences, Inc. and Aspen Advanced Opportunity Fund, LP	Filed herewith
10.16	$4,178,330.92 Secured Convertible Promissory Note, dated January 15, 2014, issued by XG Sciences, Inc. and XG Sciences IP, LLC to Aspen Advanced Opportunity Fund, LP	Incorporated by reference to the Company’s Form S-1 filed with the SEC on January 26, 2016
10.17	$1,300,000 Secured Convertible Promissory Note, dated March 18, 2014, issued by XG Sciences, Inc. and XG Sciences IP, LLC to Aspen Advanced Opportunity Fund, LP	Incorporated by reference to the Company’s Form S-1 filed with the SEC on January 26, 2016
10.18	$900,000 Secured Convertible Promissory Note, dated March 31, 2014, issued by XG Sciences, Inc. and XG Sciences IP, LLC to Aspen Advanced Opportunity Fund, LP	Incorporated by reference to the Company’s Form S-1 filed with the SEC on January 26, 2016
10.19	Amended & Restated Purchase Agreement, dated January 15, 2014, by and between XG Sciences, Inc. and XGS II, LLC	Filed herewith
10.20	$739,349.83 Secured Convertible Promissory Note, dated January 15, 2014, issued by XG Sciences, Inc. and XG Sciences IP, LLC to XGS II, LLC	Incorporated by reference to the Company’s Form S-1 filed with the SEC on January 26, 2016
10.21	Purchase Agreement, dated January 15, 2014, by and between XG Sciences, Inc. and SVIC No. 15 New Technology Business Investment L.L.P.	Filed herewith

II-5

EXHIBIT NUMBER	DESCRIPTION	LOCATION
10.22	$3,000,000 Secured Convertible Promissory Note, dated January 15, 2014, issued by XG Sciences, Inc. and XG Sciences IP, LLC to SVIC No. 15 New Technology Business Investment L.L.P.	Incorporated by reference to the Company’s Form S-1 filed with the SEC on January 26, 2016
10.23	License Agreement, dated January 15, 2014, by and between XG Sciences, Inc. and XG Sciences IP, LLC	Incorporated by reference to the Company’s Form S-1 filed with the SEC on January 26, 2016
10.24	Second Amended and Restated Security Agreement, dated January 15, 2014, by and among XG Sciences, Inc., Aspen Advanced Opportunity Fund, LP, XGS II, LLC, SVIC No. 15 New Technology Business Investment L.L.P. and Michael R. Knox	Incorporated by reference to the Company’s Form S-1 filed with the SEC on January 26, 2016
10.25	Second Amended and Restated Intellectual Property Security Agreement, dated January 15, 2014, by and among XG Sciences, Inc., Aspen Capital Advisors LLC, Aspen Advanced Opportunity Fund, LP, XGS II, LLC, SVIC No. 15 New Technology Business Investment L.L.P. and Michael R. Knox	Incorporated by reference to the Company’s Form S-1 filed with the SEC on January 26, 2016
10.26	Second Amended and Restated Intercreditor Agreement, dated January 15, 2014 by and among XG Sciences, Inc., Aspen Advanced Opportunity Fund, LP, XGS II, LLC, SVIC No. 15 New Technology Business Investment L.L.P. and Michael R. Knox	Incorporated by reference to the Company’s Form S-1 filed with the SEC on January 26, 2016
10.27	Second Amended and Restated Registration Rights Agreement, dated January 15, 2014, by and among XG Sciences, Inc., Aspen Advanced Opportunity Fund, LP, XGS II, LLC and SVIC No. 15 New Technology Business Investment L.L.P.	Incorporated by reference to the Company’s Form S-1 filed with the SEC on January 26, 2016
10.28	Voting Agreement, dated January 15, 2014, by and among XG Sciences, Inc., SVIC No. 15 New Technology Business Investment L.L.P and the stockholder signatories thereto.	Incorporated by reference to the Company’s Form S-1 filed with the SEC on January 26, 2016
10.29	Assignment of Intellectual Property, dated January 15, 2014, by and between XG Sciences, Inc. and XG Sciences IP, LLC	Incorporated by reference to the Company’s Form S-1 filed with the SEC on January 26, 2016
10.30	Letter Agreement dated January 15, 2014, by and among XG Sciences, Inc., Aspen Advanced Opportunity Fund, LP, XGS II, LLC and SVIC No. 15 New Technology Business Investment L.L.P. and Michael Knox	Incorporated by reference to the Company’s Form S-1 filed with the SEC on January 26, 2016
10.31	Form of Distribution Agreement	Incorporated by reference to the Company’s Form S-1 filed with the SEC on January 26, 2016
10.32	Form of Subscription Agreement for Series B Unit Offering	Incorporated by reference to the Company’s Form S-1 filed with the SEC on January 26, 2016

II-6

EXHIBIT NUMBER	DESCRIPTION	LOCATION
10.33	Form of Warrant for Series B Unit Offering	Incorporated by reference to the Company’s Form S-1 filed with the SEC on January 26, 2016
10.34	Form of December Note for December Placement	Incorporated by reference to the Company’s Form S-1 filed with the SEC on January 26, 2016
10.35	Form of December Warrant for December Placement	Incorporated by reference to the Company’s Form S-1 filed with the SEC on January 26, 2016
10.36	Form of Subscription Agreement for December Placement	Incorporated by reference to the Company’s Form S-1 filed with the SEC on January 26, 2016
10.37	Form of Subscription Agreement for Primary Offering	Provided herewith
10.38	First Amendment to Shareholder Agreement, dated February 26, 2016	Provided herewith
14	Code of Ethics	Incorporated by reference to the Company’s Form S-1 filed with the SEC on January 26, 2016
21	Subsidiary	Filed herewith
23.1	Consent of Frazier & Deeter, LLC	Filed herewith
23.2	Consent of Foster Swift Collins & Smith PC	Incorporated by reference to Exhibit 5.1 herein
23.3	Consent of Prismark Partners, LLC	Incorporated by reference to the Company’s Form S-1 filed with the SEC on January 26, 2016
24.1	Power of Attorney (included on signature page)	Incorporated by reference to the Company’s Form S-1 filed with the SEC on January 26, 2016
24.2	Power of Attorney	Filed herewith
99.1	Investor Presentation Materials	Provided herewith

Item 17. Undertakings

The undersigned registrant hereby undertakes:

(1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:

(i) To include any prospectus required by Section 10(a)(3) of the Securities Act;

(ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of a prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20 percent change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement; and

(iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement;

(2) That, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

II-7

(3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.

(4) That, for the purpose of determining liability of the registrant under the Securities Act to any purchaser:

If the registrant is subject to Rule 430C, each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.

(5) That, for the purpose of determining liability of the registrant under the Securities Act of 1933 to any purchaser in the initial distribution of the securities:

The undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:

(i) Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424 (§ 230.424 of this chapter);

(ii) Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant;

(iii) The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and

(iv) Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.

(6) Include the following in a registration statement permitted by Rule 430A under the Securities Act of 1933 (§ 230.430A of this chapter):

The undersigned registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b) (1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

II-8

SIGNATURES

Pursuant to the requirements of the Securities Act, the registrant has duly caused this amendment to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Lansing, State of Michigan, on the 1^st day of March, 2016.

	XG SCIENCES, INC.
By:	/s/ Philip L. Rose
Name:	Philip L. Rose
Title:	Chief Executive Officer, President, Treasurer, Principal Executive Officer and Principal Financial Officer

Pursuant to the requirements of the Securities Act, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.

Name	Title(s)	Date
/s/ Philip L. Rose	Chief Executive Officer, President, Treasurer and	March 1, 2016
Philip L. Rose	Director, Principal Executive Officer and Principal Financial Officer
*	Controller	March 1, 2016
Corinne Lyon
*	Director	March 1, 2016
Arnold A. Allemang
*	Director	March 1, 2016
Wonil Kim
*	Director	March 1, 2016
Steven C. Jones
*	Director	March 1, 2016
Michael D. Pachos
*	Director	March 1, 2016
Ravi Shanker
/s/ Dave Pendell	Director	March 1, 2016
Dave Pendell

*By:
	/s/ Philip L. Rose
	Philip L. Rose, as attorney-in-fact

II-9

EX-5.1

Exhibit 5.1

Foster Swift Collins and Smith PC

313 S. Washington Square

Lansing, MI 48933

March 1, 2016

XG Sciences, Inc.

3101 Grand Oak Drive

Lansing, Michigan 48911

Ladies and Gentlemen:

We have acted as special counsel to XG Sciences, Inc., a Michigan corporation (the “Company”), with respect to this opinion letter in connection with the registration statement on Form S-1 (File Number 333-209131) that the Company filed with the Securities and Exchange Commission on January 27, 2016, and amended on the date of this letter (as amended, the “Registration Statement”), including the prospectus that is part of the Registration Statement.

The Registration Statement registers the offer and sale under the Securities Act of 1933, as amended (the “Securities Act”), of up to 3,000,000 shares of the Company’s common stock (the “Stock”) for sale by the Company to the general public.

In connection with this letter, we have examined and relied upon the following documents:

(1) the Registration Statement;

(2) the Company’s articles of incorporation as amended in the form certified by the Michigan Department of Licensing and Regulatory Affairs on February 26, 2016 (the “Articles”);

(3) the Company’s restated bylaws as amended in the form certified to us as of the date of this letter by the Company as being complete and in effect (the “Bylaws”);

(4) minutes of meetings and actions by written consent of the Company’s board of directors and shareholders at which or pursuant to which the Articles and the Bylaws were approved;

(5) minutes of meetings and actions by written consent of the Company’s board of directors and shareholders pursuant to which the sale and issuance of the Stock and related matters were adopted and approved;

(6) certain agreements and other documents pursuant to which the securities other than the Stock were issued or are issuable;

(7) the Company’s shareholder agreement dated as of March 18, 2013, as amended (“Shareholder Agreement”);

(8) the stock records certified to us by the Company as of the date of this letter;

(9) a certificate of good standing issued by the Michigan Department of Licensing and Regulatory Affairs dated February 26, 2016, which certifies that the Company was duly incorporated and in good standing under the laws of the State of Michigan as of that date; and

(10) an opinion certificate addressed to us and dated as of the date of this letter executed by the Company and certifying certain matters (the “Opinion Certificate”).

For purposes of this letter, we have assumed and express no opinion regarding: (1) the authenticity and completeness of documents submitted to us as originals, (2) the conformity to originals and completeness of documents submitted to us as copies, (3) the legal capacity of persons executing documents, (4) the absence of any undisclosed termination, modification, breach, waiver, or amendment of any document, and (5) the due authorization, execution, and delivery of any document reviewed by us where due authorization, execution, and delivery are prerequisites to its effectiveness. As to certain matters, we have relied upon the Opinion Certificate and have not sought to independently verify such matters.

We have further assumed that, and express no opinion regarding that, at or prior to the time of an offer or sale of a share of Stock: (1) the Registration Statement will have been declared effective under the Securities Act, (2) the Registration Statement will apply to the offer and sale, (3) the Registration Statement will not have been modified or rescinded, (4) there will not have occurred any change in law or fact affecting the validity of the offer or sale, and (5) any applicable requirements of the Shareholder Agreement with respect to the offer and sale, including any issuance of Stock by the Company, will have been satisfied.

Based on the assumptions and subject to the qualifications in this letter, it is our opinion that up to 3,000,000 shares of the Stock to be issued and sold by the Company, when issued, sold and delivered in the manner and for the consideration stated in the Registration Statement, will be legally issued, fully paid, and non-assessable.

We render our opinion only as of the date of this letter with respect to the Michigan Business Corporation Act and to the extent required by Item 601(b)(5) of Regulation S-K under the Securities Act. We express no opinion regarding the application or effect of any other laws, the contents of the Registration Statement, or any other matter. We assume no obligation to update our opinion.

We consent to the use of this letter as an exhibit to the Registration Statement and to references to us in the Registration Statement.

Very truly yours,

/s/ Foster Swift Collins & Smith PC

EX-10.5

Exhibit 10.5

  500 Hogsback Road, Mason, Michigan 48854
Phone (888) DART-001
Fax (517) 244-2698

August 26, 2011

Michelle A. Coulter

XG Sciences

815 Terminal Road

Lansing, Ml 48906

Re: Signed Lease and First Amendment for Oakwood Executive Park

Dear Michelle:

Please find enclosed, for your records, a signed copy of the lease for your space at 3101 Grand Oak Drive in Oakwood Executive Park.

If you have any questions, please feel free to contact me. I look forward to serving your space needs at Oakwood Executive Park.

Sincerely,

DART DEVELOPMENT GROUP

/s/ Marsha Zimmerman

Marsha Zimmerman

Marketing Manager

www.dartdevelopment.com 

1.   LEASE OF THE PREMISES	1
2.   LEASE TERM	1
3.   BASE RENT	1
4.   COMMON COSTS AS ADDITIONAL RENT	2
A.   Taxes and Assessments	2
B.   CAM Charges	2
C.   Estimated Payments	3
E.   Late Charges	3
1.   Landlord May Incur Unanticipated Costs	3
2.   Tenant Owes Late Charge	3
3.   Late Charge is Fair Estimate	3
4.   If Tenant’s Check Returned	4
5.   Charges Become ‘Additional Rent’	4
6.   Application of Money From Tenant	4
7.   Payment by Landlord on Tenant’s Behalf and Associated Charges	4
8.   Landlord May Pursue Other Remedies	4
9.   Landlord May Require Advance Quarterly Payment	4
5.   SECURITY PROVISION	4
6.   INSURANCE	5
A.   Property Insurance	5
B.   Liability Insurance	5
C.   Form, Amount and Coverage, Etc.	5
D.   Increase in Insurance Premium	5
E.   Accidents	6
F.   Payment By Landlord	6
G.  Waivers of Claims/Subrogation	6
7.   USE	6
A.   Use	6
B.   Use of Common Areas	6
C.   Management and Operation of Common Areas	6
8.   DEFAULT	6
9.   LANDLORD’S REMEDIES FOR TENANT’S DEFAULT	7
10.   MISCELLANEOUS DEFAULT PROVISIONS	8
11.   ASSIGNMENT AND SUBLETTING	9
12.   HAZARDOUS SUBSTANCES	10
13.   ALTERATIONS	11
A.   Changes, Alterations and Additional Construction	11
B.   Manner of Construction	11
C.   Title to Alterations	11
14.   SURRENDER	12
A.   Delivery of Possession	12
B.   Holding Over	12
C.   Removal of Personal Property	13
D.   Retention of Personal Property	13
15.   RIGHT TO MORTGAGE	13
16.   ESTOPPEL CERTIFICATES	13
17.   MAINTENANCE AND REPAIRS	14
A.   Utilities	14
B.   Cleaning and Upkeep	14

i

C.   Grounds Maintenance	14
D.   Snowplowing	14
E.   Landlord’s Right of Entry	14
F.   Repairs by Landlord	14
G.   Repairs by Tenant	14
H.   Liens	15
18.   DAMAGE OR DESTRUCTION	16
19.   CONDEMNATION	17
A.   Total Taking	17
B.   Award on Total Taking	17
C.   Partial Taking	17
D.   Reconstruction	17
E.   Award on Partial Taking	17
F.   Temporary Taking	17
G.   Settlement Agreement	18
H.   Abatement in Basic Rent	18
20.   LIABILITY; INDEMNIFICATION OF LANDLORD AND TENANT	18
A.   Damage in General	18
B.   Indemnification of Landlord	18
C.   Indemnification of Tenant	19
21.   MISCELLANEOUS PROVISIONS	19
A.   Governing Law	19
B.   References	19
C.   Binding Effect	19
D.   Entire Agreement	19
E.   Enforceability of Provisions	19
F.   Remedies Not Exclusive	19
G.  Landlord’s Right To Tenant’s Financial Information	20
H.   Re-Leasing	20
I.   Advertising and Signs	20
J.   Quiet Enjoyment	20
K.   Sale by Landlord	20
L.   Limitation of Liability	20
M.   Authority	20
N.   No Liability for Curtailment, Etc., of Services	20
O.   Survival	21
P.   Notices	21
Q.   Certificate of Occupancy	21
EXHIBIT A - Hazardous and Toxic Materials	1
EXHIBIT B - Rules and Regulations	1
1.   Control of Common Areas	1
2.   Observance of Rules	1
3.   No Obstruction	1
4.   Security of Premises	1
5.   Locks	1
6.   No Soliciting	1
7.   No Advertising	1
8.   Proper Use of Facilities	1
9.   Load Limits on Floors	1

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10.   Machinery and Equipment	1
11.   Moving of Equipment	2
12.   Replacement of Broken Glass	2
13.   No Hazardous Materials	2
14.   Good Houskeeping	2
15.   Landlord Not Liable	2
16.   Modifications to Rules and Regulations	2
17.   Drives and Parking Areas	2
18.   Storage and Loading Areas	2
19.   Contractors and Service Maintenance	2
20.   Lodging	2
21.   Exterior Installations	3
22.   Waivers	3
23.   Additions to Lease	3
24.   Access to Roof	3
25.   Sales From Premises	3

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LEASE

THIS LEASE is made effective as of August 1, 2011, between DART CONTAINER OF MICHIGAN LLC, a Michigan limited liability company with offices at 500 Hogsback Road, Mason, Michigan 48854 (“Landlord”); and XG SCIENCES, INC., a Michigan corporation, currently located at 5020 Northwind Drive, Suite 212, E. Lansing, Michigan 48823 (“Tenant”).

1.   LEASE OF THE PREMISES. Landlord, in consideration of the rents to be paid and the covenants and agreements to be performed by Tenant hereby leases to Tenant for the Term set forth below, the following described property (the “Premises”) located in Oakwood Executive Park (the “Park”):

Lot 29, Oakwood Executive Park, according to the Plat thereof recorded at Liber 50, Page 38 of Plats, Ingham County Records, and commonly known as 3101 Grand Oak Drive, Lansing, Michigan 48911, and also known as Tax Parcel No. 33-25-05-02-405-033.

Tenant hereby hires the Premises for the Lease Term and covenants to pay, or cause to be paid, to Landlord, at the dates and times set forth herein, the entire Rent, as specified herein.

2.   LEASE TERM. The term of this Lease shall be for a term of ten (10) years (the “Lease Term”), and shall commence on the first day of September, 2011, or as adjusted as provided in this Section 2 (“Commencement Date”). Unless terminated earlier in accordance with the terms of this Lease, this Lease shall terminate on August 31, 2021, or as adjusted as provided in this Section 2 (“Termination Date”).

Landlord requires approximately ninety (90) days for the build-out of the Premises, as described in Exhibits C, D, E, and F. The Commencement Date shall be the last to occur of (a) September 1, 2011, or (b) the date upon which Landlord notifies Tenant of the completion of Landlord’s build-out work described in Exhibits C, D, E, and F. If the Commencement Date shall be a date after September 1, 2011, then the Commencement Date, Termination Date, and rental periods shown in Section 3 shall be adjusted accordingly.

3. BASE RENT. During the Lease Term, Tenant shall pay annual Base Rent and all other rent due and owing by Tenant under this Lease (“Additional Rent”) to Landlord at such place as Landlord shall from time to time designate in writing. Annual Base Rent will be payable in equal monthly installments, as follows:

Lease Period	Monthly Installment		Annual Base Rent
09/01/11-08/31/12	$	15,833.00	$	189,996.00
09/01/12-08/31/13	$	16,150.00	$	193,800.00
09/01/13-08/31/14	$	16,473.00	$	197,676.00
09/01/14-08/31/15	$	16,803.00	$	201,636.00
09/01/15-08/31/16	$	17,139.00	$	205,668.00
09/01/16-08/31/17	$	17,481.00	$	209,772.00
09/01/17-08/31/18	$	17,831.00	$	213,972.00
09/01/18-08/31/19	$	18,188.00	$	218,256.00
09/01/19-08/31/20	$	18,551.00	$	222,612.00
09/01/20-08/31/21	$	18,922.00	$	227,064.00

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A. All monthly installments of Base Rent shall be payable to Landlord in advance on the first day of each month during the Lease Term without notice, demand, deduction or set off, except as otherwise provided herein. Tenant shall pay the first month’s installment of Base Rent on the date of Tenant’s execution of this Lease. If Tenant shall not be in default at the time of the exercise of the option or at the end of the then current Lease Term, then Tenant shall have the right and option to renew this Lease for up to two (2) additional renewal terms of five (5) years each by providing Landlord with written notice of Tenant’s exercise of such right not less than six (6) months prior to the expiration of the initial Lease Term or the renewal Lease Term then in force, whichever is applicable. Annual Base Rent shall be increased at the commencement of each renewal term, and each anniversary of said commencement date of the renewal term by two percent (2%) per annum.

B. As used in this Lease, the term “Rent” shall include all amounts payable pursuant to this Lease and all other additional charges or sums payable to Landlord hereunder. All Rent due and owing by Tenant under this Lease shall be paid by Tenant to Landlord without deduction, set off or abatement, except as otherwise provided herein.

C. Tenant’s obligation to pay Base Rent, Additional Rent, and all other charges due and owing by Tenant under this Lease shall survive the expiration or earlier termination of this Lease.

4. COMMON COSTS AS ADDITIONAL RENT.

A. Taxes and Assessments. Tenant shall be responsible for and agrees to pay directly to Landlord as Additional Rent all taxes and assessments which may be billed or assessed by any lawful authority during each calendar year during the term of this Lease against the Premises or any part thereof (hereinafter referred to as the “Taxes”). Taxes shall also include all taxes, levies and charges which may be assessed, billed or imposed in replacement of or in addition to all or any part of real property taxes as revenue sources, and which in whole or in part are measured or calculated by or based upon the Premises, the freehold estate of the Landlord in and to the Premises, the leasehold estate of the Tenant created herein, or the rent and other charges payable hereunder. In no event shall Tenant be obligated to pay any income taxes, inheritance, estate, gift, transfer taxes, penalties and interest of Landlord. Notwithstanding anything stated or implied to the contrary in this paragraph, Tenant shall be responsible only for installments of special assessments which come due during the Lease Term.

Taxes shall be computed by adding all Taxes billed pertaining to the Premises during the calendar year regardless of any tax bill’s stated period of coverage. Tenant will be billed its respective share thereof either for the entire year or its prorata share of any partial year in which Tenant occupies the Premises.

B. CAM Charges. During the Lease Term, Tenant shall pay to Landlord, as Additional Rent, Tenant’s share of all common area electrical, grounds maintenance, security services (if any) and other common area charges and expenses (the “CAM Charges”), as provided below. The term “grounds maintenance” shall include, without limitation, all landscaping, planting, lawn and grounds care, all maintenance of and improvements to the grounds and other common areas adjacent to the Premises and to all sidewalks, driveways, loading areas, parking areas, and all snow removal. For the purposes of this Lease, “common areas” or “Common Areas” shall mean those areas of the Park outside of the Premises and outside of the leased premises of any other tenant of the Park which are to be maintained by Landlord.

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C. Estimated Payments. Prior to the Commencement Date and prior to January 1 of each subsequent calendar year during the Lease Term, or as soon thereafter as possible, Landlord shall deliver to Tenant an estimate of: (1) the Property Taxes for that calendar year (the “Tax Estimate”); (2) the Insurance costs for that calendar year (the “Insurance Estimate”); and (3) the total CAM Charges for that calendar year (the “CAM Estimate”) and Tenant’s Share thereof. (The Tax Estimate, the Insurance Estimate and the CAM Estimate are sometimes referred to hereinafter collectively as the “Common Cost Estimates”.) Tenant shall thereafter during that calendar year pay to Landlord one-twelfth (1/12) of the amount of Tenant’s Share of the Common Cost Estimates at the same time its monthly installments of Base Rent hereunder are due and payable. In the event Landlord shall not have furnished the Common Cost Estimates to Tenant by January 1 of any calendar year, then until the first day of the month following the month in which the Common Cost Estimates are furnished to Tenant, Tenant shall continue to pay to Landlord on the first day of each calendar month its share of the Common Cost Estimates based on the previous year’s estimate. At such time as Landlord furnishes the Common Cost Estimates to Tenant, Landlord shall give Tenant notice stating whether the aggregate amount of the installments of Tenant’s Share of Tax Increase, Insurance Increase and CAM Charges previously paid for such calendar year is more or less than the aggregate amount of the installments due for such portion of the calendar year as computed in accordance with the Common Cost Estimates, and (1) if there shall be a deficiency, then within ten (10) days after the Tenant receives the Common Cost Estimates, Tenant shall pay the amount of such deficiency, (2) if there shall have been an overpayment, Landlord shall credit Tenant in the amount thereof toward the subsequent installments of the Common Cost Estimates, and (3) on the first day of the first month next following the month in which the Common Cost Estimates are furnished to Tenant, and monthly thereafter for the balance of such calendar year, Tenant shall pay to Landlord one-twelfth (1/12) of the amount of Tenant’s Share of the Common Cost Estimates. Tenant’s right to contest Common Cost Estimates shall be limited to six months from date of notification by Landlord.

Current monthly Common Cost Estimates, based on one hundred percent of building occupancy, are Four Thousand Two Hundred Twenty-Nine Dollars ($4,229.00).

D. Late Charges.

1. Landlord May Incur Unanticipated Costs. Tenant’s failure to pay Rent, Additional Rent, or any other Lease costs when due under this Lease may cause Landlord to incur unanticipated costs. The exact amount of such costs are impractical or extremely difficult to ascertain. Such costs may include, but are not limited to, processing and accounting charges and late charges that may be imposed on Landlord by any ground lease, mortgage, or other lien encumbering the Premises.

2. Tenant Owes Late Charge. Therefore, if Landlord does not receive the Rent, Additional Rent, or any other Lease costs in full on or before the fifth (5th) business day of the month after same is due, Tenant shall pay Landlord a late charge, which shall constitute liquidated damages, equal to Two Hundred and 00/100 Dollars ($200.00) (“Late Charge”), which shall be paid to Landlord together with such Rent, Additional Rent, or other Lease costs then in arrears.

3. Late Charge is Fair Estimate. The parties agree that such Late Charge represents a fair and reasonable estimate of the cost Landlord will incur by reason of such late payment.

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4. If Tenant’s Check Returned. For each Tenant payment check to Landlord that is returned by a bank for any reason, Tenant shall pay both a Late Charge (if applicable) and a Returned Check Charge or such amount as shall be customarily charged by Landlord’s bank at the time.

5. Charges Become “Additional Rent”. All Late Charges and any Returned Check Charge shall then become Additional Rent and shall be due and payable immediately, along with such other Rent, Additional Rent, or other Lease costs then in arrears.

6. Application of Money From Tenant. Money paid by Tenant to Landlord shall be applied to Tenant’s account in the following order: (a) to any unpaid Additional Rent, including, without limitation, Late Charges, Returned Check Charges, legal fees and/or court costs legally chargeable to Tenant, and Operating/CAM Charges; and then (b) to unpaid Base Rent.

7. Payment by Landlord on Tenant’s Behalf and Associated Charges. If Tenant fails to make any payment or expenditure required to be paid by it under the terms of the Lease and such failure continues for a period of ten (10) days after written notice of such failure is sent by Landlord to Tenant (if such notice is required in this Lease), then Landlord may, at its option, make such payment or expenditure on behalf of Tenant. In that event, the amount of any such payment or expenditure by Landlord together with interest at the rate of ten percent (10%) per annum from the date of Landlord’s payment forward, shall be immediately due and payable to Landlord as Additional Rent.

8. Landlord May Pursue Other Remedies. Nothing herein contained shall be construed so as to compel Landlord to accept any payment of Rent, Additional Rent, or other Lease costs in arrears or Late Charge or Returned Check Charge should Landlord elect to apply its rights and remedies available under this Lease or at law or equity in the event of default hereunder by Tenant. Landlord’s acceptance of Rent, Additional Rent, or other Lease costs in arrears or Late Charge or Returned Check Charge pursuant to this Clause shall not constitute a waiver of Landlord’s rights and remedies available under this Lease or at law or equity as a result of Tenant’s default.

9. Landlord May Require Advance Quarterly Payment. If Rent due hereunder shall be late for three (3) consecutive months, then Landlord shall have the option to require that the Base Rent due shall be paid quarterly, in advance.

5.    SECURITY PROVISION. By no later than Jun 15, 2011, Tenant shall provide Landlord with a clean, unconditional, irrevocable, transferable letter of credit in the amount of One Hundred Eighty-Nine Thousand Nine Hundred Ninety-Six Dollars ($189,996.00) (the “Letter of Credit”), in form and issued by a financial institution (“Issuer”) satisfactory to Landlord in its sole discretion. The Letter of Credit must permit partial draws and provide that draws will be honored on receipt by Issuer of the original or a certified copy of the Letter of Credit accompanied by a written statement signed by Landlord or its authorized agent stating that Landlord is entitled to draw on the Letter of Credit pursuant to the terms of the Lease. The Letter of Credit must have an expiration date no earlier than August 31, 2021. If Tenant fails, by June 1, 2011, Tenant has failed to provide Landlord with the Letter of Credit as specified above, then this Lease shall be deemed immediately terminated and Tenant, within ten (10) business days of its receipt of an itemized list of Landlord’s amounts incurred as of June 1, 2011, for the improvements described in Exhibits C, D, E, and F, shall reimburse Landlord in full for those amounts incurred.

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Landlord may draw the Letter of Credit in part or in full in the event of any uncured Event of Default by Tenant to the extent needed to pay for any Tenant obligations under this Lease. If Landlord so uses or applies all or any portion of the Letter of Credit, then Tenant shall restore the Letter of Credit to the full amount within twenty (20) business days after written demand therefor, and failure to do so shall be a material and immediate Event of Default of this Lease.

The Letter of Credit, if not applied toward putting the Premises in the condition required under Sec. 14(A), the payment of rent in arrears, or the payment of damages suffered by Landlord by reason of Tenant’s default under the Lease is to be returned to Tenant at the expiration of the Term of the Lease, provided Tenant has not committed an Event of Default of any provision of the Lease. In no event is the Letter of Credit to be returned until Tenant has vacated the Premises and delivered possession of same in in the condition required by this Lease.

In the event of the sale or other transfer of the Premises, Landlord shall have the right to transfer the Letter of Credit to such purchaser or Transferee, and Landlord shall thereupon be released by Tenant from all liability for return of the Letter of Credit.

In the event that Landlord repossesses the Premises because of Tenant’s Event of Default, Landlord may apply the Letter of Credit to all damages suffered to the date of repossession and may retain the Letter of Credit to apply to such damages as may be suffered or shall accrue thereafter by reason of Tenant’s Event of Default.

6. INSURANCE.

A. Property Insurance. During the term of the Lease, Landlord, on behalf of Tenant, shall keep the Premises insured with Broad Form fire and extended coverage insurance in an amount not less than the full replacement cost of the Premises as determined annually. Landlord will bill Tenant monthly, as Additional Rent, one-twelfth (1/12) of the annual insurance premium for the Premises. Tenant shall be named as an Additional Insured on said Policy, as Tenant’s interests appear, and Landlord shall provide Tenant with Evidence of Insurance form (Acord 27 revised 3/93) showing such insurance in force at all times during the term of this Lease and any renewals.

B. Liability Insurance. Tenant, at Tenant’s sole cost and expense, shall maintain comprehensive public liability insurance against any claims for bodily injury, death, or property damage, occurring on, in or about the Premises, and against contractual liability for such claims, such insurance to afford minimum protection in the amount of One Million Dollars ($1,000,000.00) or in such higher amount as Landlord may deem reasonably necessary. Landlord and any mortgagee of the Premises designated in writing by Landlord shall be named as co-insured or additional insured parties under all such policies. Tenant may provide public liability insurance under a blanket policy or policies which cover other properties in addition to the Premises. Tenant shall provide Landlord with an Evidence of Insurance form (ACORD25) or, in the alternative and at Landlord’s sole discretion, Landlord may require Tenant to provide a true copy of the actual liability insurance policy.

C. Form. Amount and Coverage, Etc. The form, amount, and coverage of each policy of insurance which Tenant is required to maintain shall be subject to Landlord’s approval, which shall not be unreasonably withheld. Tenant shall not permit any condition to exist on the Premises and shall not commit any act or omission which would wholly or partially invalidate any insurance.

D. Increase in Insurance Premiums. If anything done by Tenant, omitted to be done by Tenant, or allowed by Tenant to be kept on the Premises shall cause the rate of fire or other insurance on the Premises, or on other property of Landlord or of other Tenants in the Park, to be increased beyond the minimum rate from time to time applicable to the Premises or such other property, Tenant shall pay, as Additional Rent, the amount of any such increase upon Landlord’s demand.

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E. Accidents. Upon the occurrence of any material accident, injury, or personal property casualty in or about the Premises, Tenant shall give prompt notice thereof to Landlord, and, upon Landlord’s request, Tenant shall provide Landlord with evidence that any liability of Landlord relating thereto is covered by the insurance which Tenant is required by this Lease to carry.

F. Payment By Landlord. Tenant shall deliver copies of all required policies to Landlord. If Tenant fails to maintain the insurance coverage required under this section and such failure continues for a period of ten (10) days after written notice thereof from Landlord to Tenant, Landlord may, at its option, pay the cost of maintaining the required insurance, which shall be Additional Rent due and payable immediately upon demand.

G. Waivers of Claims/Subrogation. Landlord and Tenant hereby waive all rights of action against the other for any loss, cost, damage, or expense resulting from fire, explosion, or any other casualty or occurrence incurred by either, which loss, cost, damage, or expense is then covered in whole or in part by insurance maintained or required to be maintained pursuant to this Lease, and each party waives any right of subrogation that might otherwise exist in or accrue to any person or account thereof.

7. USE.

A. Use. The Premises shall be used only for manufacture, processing, sales, and distribution of graphite nanoplatelets and related multifunctional materials purposes, including related laboratory, product research, storage, and office uses. Tenant shall not permit any liens to attach or exist as against the Premises or the Park, nor commit any waste. The Premises shall not be used for any illegal purposes, nor in any manner shall Tenant allow, suffer, or permit any vibration, noise, odor, light or other effect that could constitute a nuisance or trespass for Landlord or any other tenant, their customers, agents, or invitees. Upon notice by Landlord to Tenant that any of the aforesaid effects are occurring, Tenant agrees to immediately remove or control the same.

B. Use of Common Areas. Landlord grants to Tenant and its agents, employees and customers a non-exclusive license to use the Common Areas in common with others during the Lease Term, subject to the exclusive control and management thereof at all times by Landlord.

C. Management and Operation of Common Areas. Landlord will operate and maintain or will cause to be operated and maintained the Common Areas in good condition and repair and in a manner deemed by Landlord to be reasonable and appropriate and in the best interests of the Park. Landlord will have the right: (1) to establish, modify, and enforce reasonable rules and regulations with respect to the Common Areas, provided same do not unreasonably restrict or interfere with Tenant’s use of the Premises for the permitted uses; (2) to enter into, modify, and terminate easements and other Common Areas; (3) to close temporarily any or all portions of the Common Areas; and (4) to do any or perform such other acts in and to said areas and improvements as, in the exercise of good business judgment, Landlord shall determine to be advisable. A copy of the current Rules and Regulations is attached as Exhibit B and made a part of this Lease.

8. DEFAULT. The following shall constitute Events of Default under this Lease.

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A. Landlord fails to receive any payment of Rent or Additional Rent or any other charges payable hereunder within ten (10) days after the written notice from Landlord to Tenant that such payment is past due.

B. Failure of Tenant to perform any of the other terms, conditions or covenants of this Lease to be observed or performed by Tenant for a period of more than thirty (30) days after written notice of such failure from Landlord to Tenant.

However, if a non-monetary failure cannot reasonably be cured within thirty (30) days, no default shall take place if Tenant begins to cure said failure within those thirty (30) days and Tenant diligently prosecutes said cure to completion.

C. Tenant filing of a voluntary petition in bankruptcy or an involuntary petition in bankruptcy being filed against Tenant, and such petition is not dismissed within thirty (30) days of such filing.

D. If Tenant makes an assignment for the benefit of creditors or enters into a similar arrangement with creditors.

E. Tenant’s abandonment or vacating of the Premises at any time during the term of this Lease.

For the purposes of the Events of Default specified in this Section, the word “Tenant” shall include, without limitation: (1) any party comprising Tenant, should more than one person or entity execute this Lease as Tenant; and (2) any person or entity now or hereafter liable, whether primarily, secondarily or contingently, for the performance of the duties and obligations of Tenant under this Lease, including without limitation any principal, maker, endorser, guarantor, or surety.

9.    LANDLORD’S REMEDIES FOR TENANT’S DEFAULT. If any Event of Default shall have occurred and shall be continuing beyond those periods of time herein granted to cure the same, then Landlord shall have all of the following rights and remedies:

A. Landlord may, by notice to Tenant, accelerate all Base Rent due hereunder and otherwise payable in installments over the remainder of the Lease Term, and, at Landlord’s option, Additional Rent, including, but not limited to, unearned brokerage commissions paid by Landlord in connection with this Lease, to the extent that Additional Rent can be determined and calculated to a fixed sum; and the amount of accelerated Rent shall be due and payable to Landlord upon Landlord’s demand reduced by the reasonable rental value of the Premises and adjusted to reflect the time value of money at the Wall Street Journal published “Prime Rate” as of the date of Tenant’s default. Additional Rent which has not been included, in whole or in part, in accelerated Rent shall be due and payable by Tenant during the remainder of the Lease Term, in the amounts and at the times otherwise provided for in this Lease.

B. Landlord may, at Landlord’s option, with judicial process, enter upon the Premises and remove Tenant and any and all other persons therefrom and take and retain possession thereof and of any and all goods, inventory, equipment, fixtures, and all other personal property of Tenant situated in the Premises without liability for trespass or conversion, and may sell all or any part thereof at public or private sale. Tenant agrees that five (5) days’ prior notice of any public or private sale shall constitute reasonable notice. The proceeds of any such sale shall be applied, first, to the payment of all costs and expenses of conducting the sale or caring for or storing said property, including all attorneys’ fees; second, toward the payment of any indebtedness, including (without limitation) indebtedness for Rent, which may be or may become due from Tenant to Landlord; third, to compensate Landlord for unearned brokerage commissions paid by Landlord in connection with this Lease; and, fourth, to pay the Tenant, on demand in writing, any surplus remaining after all indebtedness of Tenant to Landlord has been fully paid.

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C. Landlord from time to time may re-let the Premises, or any part thereof, for such term or terms and on such conditions as Landlord, in its reasonable discretion, may determine, and Tenant shall be liable to Landlord for (i) the difference between the amount of Rent and Additional Rent payable hereunder and the net proceeds of such re-letting and (ii) unearned brokerage commissions paid by Landlord in connection with this Lease. In computing the amount of such difference there shall be added thereto such reasonable expenses as Landlord may have incurred in connection with such re-letting, including without limitation, attorneys’ fees, brokerage commissions, and expenses for keeping the Premises in good order and for preparing them for reletting, including expenses of remodeling and free rent or other rent incentives provided to the new tenant.

D. Landlord may give Tenant notice of Landlord’s intention to terminate this Lease on a date specified in such notice, on which date this Lease shall terminate. If Landlord shall so elect to terminate this Lease, then Landlord shall be entitled to recover from Tenant, in addition to all accrued Rent and other sums due from Tenant as of such termination date, damages in an amount equal to: (1) the amount of Rent reserved for the balance of the Lease Term, less the fair rental value of the Premises for the balance of the Lease Term, as adjusted to reflect the time value of money at the Wall Street Journal published “Prime Rate” as of the date of such termination, (2) unearned brokerage commissions paid by Landlord in connection with this Lease, and (3) all costs and expenses reasonably incurred by Landlord in securing possession from Tenant, in restoring the Premises to the condition in which Tenant is herein obligated to surrender same to Landlord, in preparing to re-let the Premises, in maintaining and safeguarding the Premises in attempting to re-let the Premises, and in recovering said damages from Tenant, which costs and expenses shall include, without limitation, reasonable attorneys’ fees and expenses, costs of security services, costs of storing or disposing of property left upon the Premises and cleaning and restoration costs. No act or proceeding done or undertaken by Landlord with respect to an Event of Default shall constitute a termination of this Lease by Landlord unless and until Landlord shall give to Tenant the termination notice specified in the first sentence of this Subsection D.

E. If Tenant is in monetary default twice in any six (6) month period, Landlord shall have the right to demand automatic wire transfer of Rent from Tenant’s account.

Landlord’s pursuit of any one or more of the remedies provided in this Lease shall not constitute an election of remedies excluding the election of another remedy or other remedies, or a forfeiture or waiver of any rent or other amounts payable under this Lease by Tenant or of any damages or other sums accruing to Landlord by reason of Tenant’s violation of any provision of this Lease. No action taken by or on behalf of Landlord shall be construed to mean acceptance of a surrender of this Lease, unless otherwise agreed in writing by Landlord. No failure of either party to pursue or exercise any of said party’s powers, rights or remedies or to insist upon strict and exact compliance by the other party with any provision of this Lease, and no custom or practice at variance with the terms of this Lease, shall constitute a waiver by any party of the right to demand strict and exact compliance with the terms and conditions of this Lease.

10.   MISCELLANEOUS DEFAULT PROVISIONS. The right to enforce all of the provisions of this Lease may, at the option of any assignee of Landlord’s rights in this Lease, be exercised by any such assignee.

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A. Any notation or statement by a party on any draft, check, or other method of payment of any obligation hereunder, or in any writing accompanying or accomplishing such payment, which notation or statement purports to impose conditions on such payment or to invoke the doctrine of accord and satisfaction, shall be absolutely void and of no effect, and may be ignored by the other party.

B. No right or remedy herein conferred upon or reserved to a party is intended to be exclusive of any other right or remedy, and every right and remedy shall be cumulative and in addition to any other right or remedy given hereunder or now or hereafter existing at law or in equity. Either party shall be entitled to injunctive relief in case of the violation, or attempted or threatened violation, of any covenant, agreement, condition or provision of this Lease and to a decree compelling performance of any covenant, agreement, condition or provision of this Lease, or to any other remedy allowed by law or in equity.

C. No failure by a party hereto to insist upon the strict performance of any covenant, agreement, term or condition of this Lease on the part of the other party to be performed, or to exercise any permitted right or remedy consequent upon a default therein, and no acceptance of the other party’s performance or, in the case of Landlord, of Tenant’s payment of full or partial Rent after such default, shall constitute a waiver by the party not in default of such default or of such covenant, agreement, term or condition, or any right or remedy of the party not in default with respect thereto.

D. If Landlord fails to perform any covenant on Landlord’s part to be performed under this Lease within thirty (30) days after written notice is sent from Tenant to Landlord stating the precise nature of the failure, then Tenant may declare Landlord in default, provided that if nature of the failure is such that it cannot be reasonably cured within the thirty (30) day period, then Landlord shall not be deemed in default if Landlord, within the thirty (30) day period, commences the cure and thereafter diligently pursues the same to completion. If Landlord does not cure any such failure within the notice and cure period, then Tenant may elect to terminate this Lease upon written notice to Landlord, sue for specific performance, sue for injunctive relief, or sue for damages, at Tenant’s option.

If legal action is required to enforce the performance of either party’s obligations under this Lease, then the prevailing party in that legal action shall be entitled to recover its reasonable attorneys’ fees and court costs incurred in that action from the other party.

11.   ASSIGNMENT AND SUBLETTING. Tenant shall not, directly or indirectly, without the prior written consent of Landlord, sell, assign, hypothecate or otherwise transfer this Lease or any interest hereunder, or sublet the Premises or any part thereof, or permit the use of the Premises by any party other than Tenant. Consent to any assignment or sublease shall not be deemed a waiver of the right of Landlord to disapprove any further assignment or subletting. Landlord’s consent hereunder shall not be unreasonably withheld, conditioned, or delayed. Notwithstanding any permitted assignment or subletting, Tenant shall remain liable for the full and complete performance, satisfaction and compliance with each and every agreement, term, covenant, condition, requirement, provision and restriction of this Lease, as principal and not as surety or guarantor, and as if no such assignment or subletting had been made.

Landlord is expressly given the right to assign any or all of its interest in the Premises or this Lease. Landlord shall give written notification to Tenant promptly after any such assignment.

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12.   HAZARDOUS SUBSTANCES. The term “Hazardous Substances” as used in this Lease, shall mean pollutants, contaminants, toxic or hazardous wastes, or any other substances, the removal of which is required or the use of which is restricted, prohibited or penalized by any “Environmental Law”, which term shall mean any existing or future federal, state, or local law or ordinance relating to pollution or protection of the environment. Tenant hereby represents and warrants and covenants with Landlord that:

A. Tenant will obtain prior to occupancy of the Premises and shall maintain in good standing all local, state and federal government licenses necessary in order to conduct its operations at the Premises;

B. No activity shall be conducted on the Premises that will produce any Hazardous Substance, except for such activities that: (1) are part of the ordinary course of Tenant’s business activities; and (2) are conducted in accordance with all Environmental Laws (the “Permitted Activities”);

C. The Premises shall not be used in any manner for the storage of any Hazardous Substances except for the temporary storage of such materials that: (1) are used in the ordinary course of Tenant’s business; (2) are properly stored in a manner and location meeting the requirements of all Environmental Laws; or (3) which are listed on Exhibit A attached to and made a part of this Lease (the “Permitted Materials”). Landlord agrees that all items listed on Exhibit A shall be deemed Permitted Materials, provided they are handled in accordance with the requirements of the preceding sentence.

D. No portion of the Premises shall be used as a landfill or a dump;

E. Tenant shall not install any underground tanks of any type;

F. Tenant shall not allow any surface or subsurface conditions to exist or come into existence that constitute, or with the passage of time may constitute, a public or private nuisance;

G. Tenant shall not permit any Hazardous Substances to be brought onto the Premises, except for the Permitted Materials, and if so brought or found thereon, the same shall be immediately removed, with proper disposal, and all required cleanup procedures shall be diligently undertaken pursuant to all Environmental Laws at Tenant’s sole expense.

The Tenant shall defend, indemnify, and hold harmless the Landlord, its employees, agents, officers, directors, and shareholders from and against any and all claims of every kind of nature, known or unknown, contingent or otherwise, demands, criminal and civil penalties, fines, liabilities, settlements, judgments, damages, costs or expenses, including without limitation, actual reasonable attorneys’ fees, consultants’ fees, investigation and laboratory fees, court costs and all litigation expenses, arising out of or in any way related to: (1) the presence, disposal, release or threatened release of any Hazardous Materials caused by Tenant, on, over, under, from or affecting the Premises or the soil, water, vegetation, buildings, personal property, persons, or animals; (2) any personal injury (including wrongful death) or property damage (real or personal) arising out of or in any way related to the release of such Hazardous Materials on the Premises by Tenant; (3) any lawsuit brought or threatened, settlement reached, or government order relating to the release of such Hazardous Materials by Tenant with respect to the Premises; and/or (4) any violation of Governmental Regulations which are based upon or in any way related to the release of such Hazardous Materials by Tenant.

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Landlord shall have the right, at any time upon attempted notice to Tenant, to inspect the Premises for violations of this section. Landlord, at its expense, shall provide Tenant with a current Phase I environmental study of the Premises certified to both Landlord and Tenant and containing no recognized environmental conditions prior to the Commencement Date. Tenant, at its expense, shall provide Landlord with a current Phase I environmental study of the Premises certified to both Landlord and Tenant and containing no recognized environmental conditions on the Leased Premises upon its vacation of the Premises.

13. ALTERATIONS.

A. Changes, Alterations and Additional Construction. Except as otherwise provided herein, Tenant, at its expense, shall be responsible for any improvements to the Premises, including but not limited to those required for compliance with fire and building codes, the Americans with Disabilities Act (and any regulations implementing said Act), and any other applicable federal, state, or local law or regulation, provided such improvements are required on account of Tenant’s activities on the Premises. Tenant shall not construct any change, alteration, or addition in or to the Premises or the Park (any and all of the foregoing being sometimes herein collectively called an “Alteration”) unless and until, in each instance, Tenant shall have submitted to Landlord plans, specifications and other materials for such Alteration as Landlord may request and Landlord shall have approved the same in writing. Landlord’s approval of any Alteration shall not be unreasonably withheld, conditioned, or delayed.

B. Manner of Construction. All Alterations which Landlord shall have approved shall be constructed by Tenant, without expense to Landlord, in a good, and workmanlike manner, and in compliance with the Landlord-approved plans and specifications therefore and all applicable permits, laws, ordinances and regulations and order, rules and regulations of the Board of Fire Insurance Underwriters or any other body exercising similar functions, and in compliance with the terms and conditions of this Lease.

C. Title to Alterations. Except to the extent otherwise expressly provided herein, upon the completion of construction of each Alteration (but excluding Tenant’s trade fixtures, equipment, machinery, and signage), such Alteration shall automatically be deemed part of the Premises for purposes of this Lease. Notwithstanding the foregoing, upon any termination of this Lease or Tenant’s right of possession of the Premises, at Landlord’s option, (1) prior to such expiration or termination, all such Alterations, or any parts or parts thereof designated by Landlord, shall be removed from the Premises and the Premises restored substantially to their condition immediately prior to the construction thereof, all at Tenant’s expense, or (2) upon such expiration or termination, title to such Alterations, or any part of parts thereof designated by Landlord, in the condition in which Tenant is obligated to maintain the Alterations pursuant to the provisions of this Lease, shall automatically pass to, vest in, and belong to Landlord without further action on the part of either party and without cost or charge to Landlord.

D. Landlord’s Initial Improvements. Prior to the Commencement Date, Landlord shall make the following improvements to the Premises in a good and workmanlike manner, in accordance with all applicable laws, codes, and ordinances, and in accordance with the plans and specifications approved in writing by Tenant: (1) make changes to the office space as shown on Exhibit C attached hereto, (2) build out the laboratory space as shown on Exhibit D attached hereto, (3) modify the employee washrooms as shown on Exhibit E attached hereto, and (4) modify the factory as shown on Exhibit F attached hereto. Prior to commencing these improvements, Landlord shall obtain a fixed price bid for the improvements from Wieland Davco or another contractor or contractors acceptable to the parties. Tenant must first agree in writing that the bid is acceptable before Landlord proceeds with the improvements, provided that Tenant shall be deemed to have approved the bid if Tenant does not provide substantive comments on it within five (5) days after Tenant’s receipt of the bid. If no bid is reasonably acceptable to Tenant, then Tenant may terminate this Lease upon written notice to Landlord. If the bid is acceptable to Tenant, then Tenant shall confirm that fact in writing delivered to Landlord and Landlord thereafter shall complete the improvements as promptly as practical. The cost of the improvements as reflected in the approved bid, together with any additions to the bid approved in writing by Tenant and Landlord, shall be paid by Landlord. This payment by Landlord shall be amortized as Additional Rent to be paid by Tenant together with Base Rent in equal monthly installments over the Lease Term, together with interest on the unpaid balance thereof at seven percent (7.0%) per annum.

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E. Subsequent Improvements. Landlord acknowledges that Tenant is leasing the Premises with an option to require Landlord to expand the Premises at some time during the first twenty-four (24) months of the Lease Term to include (1) an addition to the Building for chemical storage of approximately 15,000 square feet, with a blast wall to separate the chemical storage area from the rest of the Building and (2) to construct a loading dock. Tenant will provide Landlord with the plans and specifications for such expansion. As promptly as practical thereafter, Landlord will obtain fixed price bids for the expansion from Wieland Davco and other contractors acceptable to Landlord and Tenant. If Tenant approves in writing a bid for this expansion, then Landlord shall complete or cause the selected contractor to complete the expansion in good and workmanlike manner, in accordance with all laws, codes, and ordinances, and in accordance with the plans and specifications provided by Tenant as promptly as practical. The cost of the expansion as reflected in the approved bid and any additions to the bid approved in writing by Tenant and Landlord shall be paid by Landlord. Landlord’s payment shall be amortized as Additional Rent to be paid by Tenant as Additional Rent together with Base Rent in equal monthly installments over the remaining Lease Term, together with the interest on the unpaid balance thereof at seven percent (7.0%) per annum, commencing upon issuance of a certificate of occupancy for the expansion space. If Landlord is unwilling or fails to complete the expansion as herein provided, then Tenant’s sole remedy therefor shall be to terminate this Lease upon ninety (90) days prior written notice to Landlord, with such notice to be effective to be provided Landlord by no later than the thirty-sixth (36^th) month of the Lease Term.

14. SURRENDER.

A. Delivery of Possession. Tenant shall, on the Expiration Date of the Lease Term, or upon any earlier termination of this Lease, or upon any termination of Tenant’s right to possess the Premises pursuant to the provisions of this Lease, surrender and deliver up the Premises into the possession and use of Landlord without fraud or delay and in the condition at the time of occupancy, normal wear and tear excepted, broom clean and free of all debris and hazardous or toxic materials not present on the Commencement Date, and free and clear of all lettings, occupancies, liens and encumbrances, created by or through Tenant.

B. Holding Over. If Tenant holds over in the Premises after the expiration of the Lease Term or any earlier termination of this Lease or of Tenant’s right to possess the Premises in violation of the Lease, then at Landlord’s option, and without limitation to any right or remedy of Landlord with respect to such holding over, such holding over shall create a tenancy from month-to-month only, subject to Tenant’s obligation to pay Rent equal to one hundred twenty-five percent (125%) of the monthly Base Rent in effect immediately prior to such expiration or termination (as well as any Additional Rent), and subject to all the provisions and conditions of this Lease, other than provisions relating to length of Lease Term, which tenancy may be terminated at any time by Landlord giving notice thereof to Tenant. Landlord’s acceptance of any such rental during the period of Tenant’s holding over shall not waive or otherwise affect any claim or right which Landlord may have with respect to such holding over.

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C. Removal of Personal Property. Any and all personal property, machinery, and equipment furnished or installed by or at the expense of Tenant which does not constitute part of the Premises shall be removed by Tenant and all damage to the Premises caused by such removal repaired by Tenant prior to the expiration or earlier termination of the Lease Term or the termination of Tenant’s right to possess the Premises.

D. Retention of Personal Property. Any personal property, machinery, or equipment of Tenant which shall remain on the Premises after the expiration of the Lease Term or earlier termination of this Lease or Tenant’s right to possess the Premises may, at the option of Landlord, be deemed to have been abandoned by Tenant and may be retained by Landlord as Landlord’s property or be disposed of, without liability to Landlord, in such manner as Landlord may see fit, or Landlord, at its option, may require Tenant to remove the same at Tenant’s expense. In case of such removal, all costs of removal and of repairing any damage to the Premises arising from such removal shall be paid by Tenant upon Landlord’s demand. Tenant shall pay to Landlord on demand (1) a reasonable fee for storing and disposing of any such personal property, and (2) all costs and expenses incurred by Landlord in storing and disposing of any such personal property (including, without limitation, counsel fees relating to claims against Landlord by any and all parties claiming interests in such personal property).

15.   RIGHT TO MORTGAGE. Landlord reserves the right to subject and subordinate the Lease to the lien of any mortgage or security interest now or hereafter placed upon Landlord’s interest in all or any part of the Premises and upon the land, buildings, and fixtures of which the Premises are a part or upon any buildings hereafter placed upon the land of which the Premises form a part. Tenant covenants and agrees to execute and deliver upon demand such further instruments subordinating this Lease to the lien of any present or future mortgage or security interest or other lien as shall be desired by Landlord. In exchange for any such subordination, and as a condition thereof, Landlord will be required to provide a customary non-disturbance agreement from any existing lienholder providing that Tenant’s rights, interests, and possession under this Lease will not be disturbed so long as Tenant is not in default of this Lease.

16.   ESTOPPEL CERTIFICATES. Tenant agrees, at any time and from time to time upon not less than fifteen (15) days’ prior written notice by Landlord, to execute, acknowledge and deliver to Landlord a statement in writing certifying to the best of Tenant’s actual knowledge after reasonable investigation: (1) that this Lease is unmodified and in full force and effect (or if there have been modifications, that the same is in full force and effect as modified and stating the modifications); (2) whether there are then existing any offsets or defenses against the enforcement of any of the terms, covenants or conditions hereof upon the part of Landlord or Tenant to be performed (and if so, specifying the same); and (3) the dates to which the Rent and other charges have been paid in advance, if any, it being intended that any such statement delivered pursuant to this Section may be relied upon by any prospective purchaser of the Premises. Should either party comply with a request by the other to provide an Estoppel Certificate on the requesting party’s behalf, such compliance shall not estop the complying party from thereafter asserting its rights and remedies regarding any default existing on or before the date on which it executes such Estoppel Certificate of which it did not have actual knowledge on the date of execution thereof.

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17. MAINTENANCE AND REPAIRS.

A. Utilities. Tenant shall promptly pay all charges for utilities and other services furnished to the Premises by Landlord or the applicable utility company, including, but not limited to, gas, water, electricity, fuel, light, heat, and dumpster service. In the event any utilities furnished to the Premises are not separately metered, Tenant shall pay to Landlord, as Additional Rent, Tenant’s pro-rata share of the utilities.

B. Cleaning and Upkeep. Tenant shall keep the Premises, including any adjoining parking areas, walkways, drives, streets, alleys or yards clean and free of rubbish. If Tenant fails to do so, Landlord’s cost to have it done will be added to Tenant’s CAM Charges.

C. Grounds Maintenance. Tenant shall be responsible for all costs and expenses related to maintaining the lawn, shrubs, and any other landscaping on the Premises up to the standard which Landlord has historically maintained. Cost will be included in Tenant’s CAM Charges.

D. Snowplowing. Tenant shall be responsible for all costs and expenses for keeping the Premises free from ice and snow at all times. Cost will be included in Tenant’s CAM Charges.

E. Landlord’s Right of Entry. Landlord shall have the right to enter upon the Premises at all reasonable hours, with reasonable prior notice, for the purpose of inspection and repairs, except in case of emergency in which case no notice shall be required.

F. Repairs bv Landlord. Except as otherwise provided herein, Tenant accepts the Premises in their condition at Lease commencement and as suited for the uses intended by Tenant. Landlord shall deliver the Premises to Tenant on the Commencement Date with all building systems, equipment, and fixtures in good working order and condition. Except as otherwise expressly provided in this Lease, Landlord shall not be required to make any repairs or improvements to the Premises, except repairs to the foundation, structural components, exterior walls or roof of the Building as necessary for safety and tenantability, all of which shall be Landlord’s responsibility to repair and maintain at Landlord’s sole cost and expense if the need for repair is not brought about by any act or neglect of Tenant, its agents, employees, contractors, invitees, licensees or assignees. Without limiting the generality of the foregoing limitation, Landlord specifically shall have no obligation to repair any interior or exterior glass or doors (including loading doors) located in or on or constituting a part of the Premises, nor shall Landlord have any obligation to maintain exterior lighting

Notwithstanding the foregoing limitations on Landlord’s repair obligations, during the first year of the initial Lease Term only, Landlord shall be obligated to promptly correct any defects in material or workmanship throughout the Premises and repair any building systems, equipment, and fixtures which were not in good working order and condition as of the Commencement Date.

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G Repairs by Tenant. Tenant shall repair, maintain, replace as necessary, and keep in good, clean, and safe repair all portions of the Premises and all equipment, fixtures, and systems therein which are not specifically set forth as the responsibility of Landlord elsewhere in this Lease, ordinary wear and tear, damage by the elements, and casualty excepted. Tenant’s repairs and replacements shall include, without limitation, all electrical, plumbing, heating and air conditioning systems, parts, components, and fixtures. In connection therewith, Tenant shall maintain in force at all times a maintenance contract for the heating, ventilation and air conditioning equipment: (1) reasonably acceptable in form and content to Landlord; (2) with a service organization reasonably acceptable to Landlord; and (3) providing for at least semi-annual maintenance of such equipment, and shall provide Landlord with a true copy of such maintenance contract. Tenant shall also promptly repair or replace all partitions and all glass and plate glass within or constituting a part of the Premises immediately when cracked or broken, unless caused by Landlord or Landlord’s employees or agents, and Tenant shall be liable for and shall hold Landlord harmless against all loss, cost, and damage (including reasonable attorneys’ fees) arising from any damage or injury to the Premises or the Park or to any person or property caused or contributed to by any act or negligence of Tenant, any invitee, agent, affiliate, customer or client of Tenant or anyone in Tenant’s control or employ. Landlord gives to Tenant exclusive control of the Premises and shall be under no obligation to inspect the Premises. Tenant shall promptly report in writing to Landlord any defective conditions on the Premises known to Tenant which Landlord is required to repair, and failure to promptly report such defects after Tenant knows of the defective conditions shall make Tenant liable to Landlord for any liability incurred by Landlord by reason of such defects, and Tenant indemnifies and holds Landlord harmless from and against all loss, costs and damage (including reasonable attorneys’ fees) arising from or related to Tenant’s failure to so report such defective conditions. In no event shall Tenant cause or allow any outside storage of trash, refuse, debris, or anything else on the Premises. All personal property of Tenant or Tenant’s employees, agents, affiliates or invitees located in or brought upon the Premises or any part of the Park shall be at risk of Tenant only, and Landlord shall not be liable to Tenant or any other party for any damage thereto or theft thereof resulting from any cause other than the willful negligence or intentional misconduct of Landlord, its officers, employees, or agents.

If Tenant does not comply with this Section, Landlord shall have the right to do or cause to be done all acts necessary to bring Tenant into compliance and bill Tenant for all costs involved.

Tenant shall obtain all necessary governmental permits before making any renovations, improvements, alterations or additions to the Premises. Landlord agrees to cooperate with Tenant in obtaining such permits. However, Landlord shall have no obligation to pay any fees or charges in connection therewith.

H. Liens. If a mechanic’s or construction lien is filed against any portion of the Premises or Park as a result of work undertaken by Tenant, then within thirty (30) days after receiving notice of any such lien, Tenant shall discharge the lien either by payment of the indebtedness due lien claimant or by filing a bond as provided by statute.

If Tenant fails to discharge any lien in accordance with the terms hereof, Landlord shall have the right to discharge the lien by filing a bond or paying the indebtedness. In this event, Tenant shall pay the cost of the bond or the amount of the lien indebtedness to Landlord as Additional Rent immediately upon demand. If Tenant does not do so within ten (10) days of demand by Landlord, then Tenant shall be in default under this Lease and Landlord shall have the same remedies as provided for in Section 9.

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18. DAMAGE OR DESTRUCTION.

A. If the Premises are rendered partially or wholly unfit for occupancy by fire, the elements, act of God, or other casualty (fire, the elements, acts of God, or other casualties hereinafter referred to as a “Casualty”), and if such damage cannot, in Landlord’s reasonable estimation, be materially restored within one hundred eighty (180) days after such Casualty, then Landlord may, at its sole option, terminate this Lease as of the date of such Casualty and the Lease Term shall end on such date as if that date had been originally fixed in this Lease for the expiration of the Lease Term. Landlord shall exercise its election to terminate provided herein by written notice to Tenant as soon as practical and in any event within sixty (60) days after such Casualty. For purposes hereof, the Premises shall be deemed “materially restored” if they are in such condition as would not prevent or materially interfere with Tenant’s use of the Premises for the purpose for which it was then being used.

B. If this Lease is not terminated pursuant to Subsection A above, then Landlord shall proceed with all due diligence to repair and restore the Premises using the proceeds of insurance which shall be made available by Tenant, as the case may be (except that Landlord may elect not to rebuild, and thus terminate this Lease, if such Casualty occurs during the last year of the Lease Term exclusive of any renewal or extension option that is unexercised at the date of such Casualty). If Landlord shall fail to complete such repairs and material restoration within one hundred eighty (180) days after the date of the Casualty, then Tenant may at its option and as its sole remedy terminate this Lease by delivering written notice to Landlord, whereupon the Lease shall end on the date of such notice as if the date of such notice were the date originally fixed in this Lease for the expiration of the Lease Term hereof; provided, however, that if construction is delayed because of changes, deletions, or additions in construction requested by Tenant, or because of strikes, lockouts, casualties, acts of God, war, material or labor shortages, governmental regulation or control, or other causes beyond the reasonable control of Landlord, then the period for restoration, repair or rebuilding shall be extended for the amount of time Landlord is so delayed. In no event shall Landlord be required to rebuild, repair or replace any part of the partitions, fixtures, additions, or other property and improvements that may have been placed in or about the Premises by Tenant, provided that Tenant shall be entitled to rebuild, repair, or replace said items using the proceeds of any insurance available therefor.

C. If this Lease shall not be terminated by Landlord pursuant to this Section 18 and if the Premises are unfit for occupancy in whole or in part following such Casualty, then the Base Rent payable during the period in which the Premises are unfit for occupancy shall abate in proportion to the percentage of the rentable area of the Premises rendered unusable by such Casualty; provided, however, that no such abatement shall be made under the provisions of this Subsection C if such Casualty shall have been caused through the negligence or willful misconduct of Tenant, its agents, employees, contractors, invitees, licensees, tenants, or assignees.

D. Notwithstanding anything herein to the contrary, if, following any Casualty, the holder of any indebtedness secured by a mortgage or deed to secure debt or similar instrument covering the Premises requires that any insurance proceeds resulting from the Casualty be paid to it rather than to Landlord for the rebuilding or restoration of the Premises, then Landlord shall have the right to terminate this Lease by delivering written notice of termination to Tenant within fifteen (15) days after such requirement is made by any such person, whereupon the Lease shall end on the date of the Casualty as if the date of such Casualty were the date originally fixed in this Lease for the expiration of the Lease Term.

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E. If any Casualty described in this subsection occurs, then Landlord shall not be liable to Tenant for any inconvenience, annoyance, loss of profits, expenses, or any other type of injury or damage resulting from the repair of any such Casualty, or from any repair, modification, arranging or rearranging of any portion of the Premises or for termination of this Lease as provided in this subsection, except to the extent of any bodily injury to persons or damage to property resulting solely from Landlord’s negligence or intentional misconduct in performing such work.

19. CONDEMNATION.

A. Total Taking. In the event that the whole of the Premises shall be taken under the exercise of the power of eminent domain or by agreement with any condemnor in lieu of such taking, including but not limited to a temporary taking of the Premises for a period in excess of six (6) months (all of the foregoing herein called a “Total Taking”), then this Lease shall terminate as of the earlier of the date when title thereto vests in the condemnor or the date when possession thereof shall be delivered to the condemnor.

B. Award on Total Taking. The entire award with respect to any Total Taking shall be paid to Landlord, except that Tenant shall be entitled to any award which the condemnor may make, and which shall be provided for by law, specifically for Tenant’s improvements, moving expenses and business dislocation damages, provided that same are not deducted from the award otherwise payable to Landlord.

C. Partial Taking. In the event that any portion or portions of the Premises shall be taken under the exercise of the power of eminent domain or by agreement with any condemnor in lieu of such taking (herein called a “Partial Taking”), then this Lease, only as to the portion or portions so taken, shall terminate as of the date possession thereof shall be delivered to the condemnor; provided, however, if as a result of such Partial Taking, it is economically unfeasible to reconstruct or operate for Tenant’s business the remaining portion of the Premises because of the insufficiency in size of the remaining portion of the Premises or Tenant’s ability to access the Premises is severely reduced, and Tenant so certifies to Landlord, then (1) this Lease shall terminate thirty (30) days from the date possession of the part taken shall be delivered to the condemnor, and (2) such Partial Taking shall be deemed to be and treated as a Total Taking.

D. Reconstruction. If during the Lease Term there shall be a Partial Taking, and if this Lease shall not be terminated on account thereof pursuant to the provisions of the immediately preceding Subsection C, then (1) Landlord shall repair and restore the remaining portion of the Premises so that they constitute architectural units with the same general character and condition to the nearest extent possible under the circumstances as the previous Premises, and (2) this Lease shall remain in full force and effect with respect to such remaining portion of the Premises. Landlord shall use its best efforts to complete the reconstruction promptly and within the period mutually agreed upon by the parties.

E. Award on Partial Taking. The entire award with respect to any Partial Taking shall be paid to Landlord, excluding however any award for Tenant’s improvements and business interruption.

F. Temporary Taking. In the event a taking or condemnation of the Premises, or any part thereof, shall be for temporary use or occupancy not exceeding a period of six (6) months, then: (1) this Lease and all Tenant’s obligations hereunder shall continue in full force and effect (except to the extent that performance by Tenant of Tenant’s covenants and agreements is prevented by such taking); (2) there shall be no reduction or abatement of Rent; (3) Tenant shall be entitled to the entire award with respect to any such taking, except that Landlord shall be entitled to any portion of such award allocable to any period of time beyond the expiration of the Term of this Lease; and (4) the rights of Landlord and Tenant shall be unaffected by the other provisions of this Article and shall be governed by applicable law or Tenant shall have the option to terminate the Lease with no further liability to Landlord.

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G. Settlement Agreement.For the purposes of this Lease, all amounts paid pursuant to an agreement with any condemnor in settlement of any condemnation or any eminent domain proceeding affecting the Premises shall be deemed to constitute an award made in such proceeding.

H. Abatement in Base Rent. In a case of a Partial Taking which does not result in a termination of this Lease, the annual Base Rent payable under this Lease, after possession of the portion so taken shall be delivered to the condemnor, shall be reduced in the same proportion as the amount of usable floor area of the Premises shall have been reduced by such Taking, but any such Partial Taking shall not relieve Tenant from Tenant’s liability to pay the full Additional Rent payable under this Lease, or from any of Tenant’s other obligations hereunder, and except as herein expressly provided.

20. LIABILITY; INDEMNIFICATION OF LANDLORD AND TENANT.

A. Damage in General. Tenant agrees that Landlord, and its officers, employees and agents and those of all affiliated legal entities shall not be liable to Tenant, and Tenant hereby releases said parties, for any loss, injury, death, or damage (including incidental or consequential damages) to persons, property, or Tenant’s business from any cause whatsoever, unless such damage, loss or injury results from the negligence or willful misconduct of Landlord, or its officers, employees or agents. Landlord and its officers, employees, and agents shall not be liable to Tenant for any such damage or loss, whether or not such damage or loss results from the negligence or willful misconduct, to the extent Tenant is compensated therefore by Tenant’s insurance.

B. Indemnification of Landlord. Tenant agrees to defend with counsel reasonably satisfactory to Landlord, indemnify and save harmless Landlord from and against any and all liabilities, claims, damages, losses, cost and expenses, including without limitation attorneys’ fees, suffered or incurred by Landlord with respect to: (1) Tenant’s conduct, operation or management of the Premises, or any work, act or thing whatsoever by Tenant done in, on or about the Premises; (2) any condition of the Premises, resulting by reason of Tenant’s failure or refusal to perform its obligations under this Lease; (3) any breach or default on the part of Tenant in the observance or performance of any of its agreements or obligations hereunder; (4) any act or omission of Tenant or any sublessee or Assignee of Tenant or any of Tenant’s or such sublessee’s or Assignee’s agents, contractors, servants, employees, business invitees, licensees, visitors or guests with respect to the Premises and/or Park; and (5) any accident, injury to or death of any person or damage to any property caused by Tenant or its officers, employees, agents, contractors or invitees in or on the Premises. Landlord shall give prompt written notice to Tenant of any claim asserted against Landlord which, if sustained, may result in liability of Tenant hereunder, but failure on the part of Landlord to give such notice shall not relieve Tenant from Tenant’s obligation to defend, indemnify and save harmless Landlord as stated, except to the extent that the failure to give such notice results in actual loss or damage to Tenant.

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C. Indemnification of Tenant.Landlord agrees to defend with counsel reasonably satisfactory to Tenant, indemnify and save harmless Tenant from and against any and all claims, damages, losses, cost and expenses, including without limitation attorneys’ fees, suffered or incurred by Tenant as the result of any accident, injury to or death of any person or damage to any property to the extent caused in or about the Premises by the negligence or willful misconduct of Landlord or Landlord’s employees, servants, licensees, or its agents. Tenant shall give prompt written notice to Landlord of any claim against Tenant which, if sustained, may result in liability of Landlord hereunder, but Tenant’s failure to give such notice shall not relieve Landlord from Landlord’s obligation to defend, indemnify and save harmless Tenant as stated, except to the extent that the failure to give such notice results in actual loss or damage to Landlord.

21. MISCELLANEOUS PROVISIONS.

A. Governing Law. This Lease shall be construed and interpreted under the laws of the State of Michigan applicable to contracts made and fully performed within the state.

B. References. All references made and pronouns used herein shall be construed in the singular or plural, and in such gender as the sense and circumstances require. All references to Section or paragraph numbers or letters shall refer to sections or paragraphs of this Lease unless otherwise indicated.

The headings inserted in this Lease are for reference purposes only and shall in no way affect the construction of this Lease or limit the generality of any of its provisions.

C. Binding Effect. The terms and conditions of this Lease shall also bind the respective heirs, successors, personal representatives and assigns of the parties.

D. Entire Agreement. Except for the documents listed below, if any, this Lease constitutes the entire agreement between the parties and shall be deemed to supersede and cancel any other agreement between the parties relating to the transaction herein contemplated. None of the prior and contemporaneous negotiations, preliminary drafts or prior versions of this Lease containing conditions not set forth herein shall be used by any of the parties to construe or affect the validity of this Agreement. Each party acknowledges that no representation, inducement or condition not set forth herein has been made or relied upon by either party.

E. Enforceability of Provisions. In case any provision of this Lease or any agreement or instrument executed in connection herewith shall be deemed invalid, illegal or unenforceable, such provision shall be enforced to the fullest extent permitted by applicable law and the validity of the remaining provisions hereof shall not in any way be affected.

This Lease shall not be construed more strictly against one party as opposed to the other, merely because it may have been prepared by counsel for one of the parties. It is recognized that both Landlord and Tenant have contributed substantially and materially to the preparation of this Lease. Except as specifically provided to the contrary in this Agreement, any approval required by the terms of this Agreeement to be provided by either party shall not be unreasonably withheld, conditioned, or delayed.

F. Remedies Not Exclusive. All of the rights, remedies and benefits provided by this Lease shall be cumulative and shall not be exclusive of any other rights, remedies, and benefits allowed by law. One or more waivers of any covenant or condition by a party shall not be construed as a waiver of a further breach of the same or any other covenant or condition.

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G. Landlord’s Right to Tenant’s Financial Information. Landlord reserves the right to require Tenant to submit annual financial information including but not limited to financial statements and other relevant records. Tenant shall supply Landlord with the requested information within ten (10) business days of receipt of the request unless otherwise agreed upon. Any financial information provided by Tenant which is not publicly available and is conspicuously marked “Confidential” by Tenant shall be kept confidential by Landlord and may be disclosed by Landlord only to Landlord’s lender or to a prospective purchaser of Landlord, the Park, or the Premises under similar conditions of confidentiality.

H. Re-Leasing. Tenant agrees that for a period commencing six (6) months prior to the termination of this Lease, upon reasonable advance notice to Tenant Landlord may show the Premises to prospective tenants. Landlord may list the Premises for lease or rent with a broker and may display in and about the Premises the usual and ordinary signs during the last six (6) months of the Lease Term.

I. Advertising and Signs. All signs and advertising displayed on and about the Premises shall only advertise the business carried on upon the Premises. Landlord shall control the character and size of all signs and no sign shall be displayed except those approved in writing by Landlord, provided that Landlord shall permit Tenant to install signage in any existing pylon or road sign, building sign, or other existing sign on the Premises.

J. Quiet Enjoyment. Landlord covenants that Tenant, upon payment of all the Rent and Additional Rent due under this Lease, and performance of the covenants and obligations under this Lease or otherwise, may peacefully and quietly occupy the Premises for the term of this Lease including any written extensions or modifications of same.

K. Sale by Landlord. In the event of any sale, conveyance, transfer, or assignment by Landlord of its interest in and to the Premises, all obligations under this Lease of the party selling, conveying, transferring, assigning or otherwise disposing shall cease and terminate and Tenant releases said party from same, and Tenant shall thereafter look only and solely to the party to whom or which the Premises were sold, conveyed, transferred, assigned or otherwise disposed of for performance of all of Landlord’s duties and obligations under this Lease from and after the date of such sale, conveyance, transfer, assignment, or disposal.

L. Limitation of Liability. Landlord’s obligation and liability to Tenant with respect to this Lease shall be limited solely to Landlord’s interest in the Premises, and neither Landlord, nor any joint venturer, partner, officer, director or shareholder of Landlord or its affiliated legal entities or any of the joint venturers of Landlord shall have any liability whatsoever with respect to this Lease.

M. Authority. Each party executing this Lease warrants that it has full power, authority and legal right to execute and deliver this Lease, and to keep and observe all of the terms and provisions of this Lease on such party’s part to be observed and performed. Each party warrants that this Lease is its valid and enforceable obligation.

N. No Liability for Curtailment Etc., of Services. Landlord shall not be liable in damages or otherwise and Tenant waives any claim for the curtailment, delay, or failure in furnishing any services hereunder from any cause whatsoever, except where such curtailment, delay or failure is caused by Landlord’s willful negligence or misconduct. In no event will Landlord have any liability for any consequential, incidental, or special damages in connection with furnishing services pursuant to this Lease, nor shall any curtailment, delay, or failure in providing services, regardless of cause, constitute an eviction of Tenant or termination of this Lease. Landlord shall use reasonable efforts to restore promptly the curtailed, delayed or failed service.

20

O. Survival. All agreements and obligations of a party hereunder which require observance or performance after the expiration or termination of this Lease, or which cannot reasonably be ascertained as having been observed or performed at the time of such expiration or termination, shall survive, and be enforceable against said parly following such expiration or termination.

P. Notices. Whenever a provision is made for notice of any kind, it shall be served by United States first class mail, or personally delivered to the party being put on notice at the addresses listed below or such other addresses as the parties may indicate for themselves by written notice delivered in like manner.

If to Landlord:	DART CONTAINER OF MICHIGAN LLC 500 Hogsback Road Treasury Department Mason, Michigan 48854-9541 ATTN:        Steve A. Mills
If to Tenant:	XG SCIENCES, INC. 3101 Grand Oak Drive Lansing, Michigan 48911 ATTN:        Michael R. Knox Title:           Chief Executive Officer

Q. Certificate of Occupancy.Upon Tenant’s written request, Landlord shall provide Tenant with a Certificate of Occupancy issued by the appropriate municipal authority.

21

This lease is signed and made effective as of the date first written above.

	LANDLORD: DART CONTAINER OF MICHIGAN LLC
Dated: _______________, 2011	BY:
		Kevin M. Fox
	ITS:	Authorized Signatory

	TENANT: XG SCIENCES, INC.
Dated: June 2, 2011	BY:	/s/ Michael R. Knox
		Michael R. Knox
	ITS:	Chief Executive Officer

22

EXHIBIT A

PERMITTED MATERIALS

Tenant’s list of hazardous and toxic materials and wastes required to be disclosed under Section 12 of the Lease.

	LANDLORD: DART CONTAINER OF MICHIGAN LLC
Dated: _____________, 2011	BY:
		Kevin M. Fox
	ITS:	Authorized Signatory

	TENANT: XG SCIENCES, INC.
Dated: _June 2, 2011	BY:	/s/ Michael R. Knox
		Michael R. Knox
	ITS:	Chief Executive Officer

A-1

EXHIBIT B

RULES AND REGULATIONS

1. Control of Common Areas. Landlord shall have the right to control and operate the Common Areas of the Park in such manner as it deems best for the benefit of the tenants generally. No tenant shall invite to the Premises, or permit the visit of persons in such numbers or under such conditions as to interfere with the use and enjoyment of the entrances, corridors, facilities, and other Common Areas of the Park by other tenants.

2. Observance of Rules.Landlord reserves the right to exclude or expel from the Park any person who, in the judgment of Landlord, is intoxicated or under the influence of liquor or drugs, or who shall in any manner do any act in violation of any of the Rules and Regulations of the Park or in violation of any law, order, ordinance, or governmental regulation.

3. No Obstruction. The entries, exits, corridors, stairways and elevators shall not be blocked, obstructed, or interfered with in any way by any tenant, or used for any other purpose than ingress or egress to and from its respective offices. Nor shall tenant block, obstruct, or interfere with in any way sprinklers, fire extinguishers, or other fire control equipment, or any electrical, mechanical or other building systems located on the Premises or on the Park. Tenant shall not bring into or keep within the Premises any animal or motor vehicle unless prior arrangements have been made with the Landlord.

4. Security of Premises. All entrance doors on the Premises shall be kept locked when the Premises are not in use.

5. Locks. No additional locks shall be placed on the doors of the Premises by Tenant nor shall any existing locks be changed unless Landlord is immediately furnished with two keys for each lock on the entrance doors when Tenant assumes possession, with the understanding that at the termination or expiration of the Lease Term the keys shall be returned.

6. No Soliciting. Canvassing, soliciting, or peddling in the Park is prohibited and each tenant shall cooperate to prevent the same.

7. No Advertising. Tenant shall not advertise the business, profession or activities of Tenant in any manner which violates the letter or spirit of any code of ethics adopted by any recognized association or organization pertaining thereto or use the name of the Park for any purpose other than that of the business address of Tenant.

8. Proper Use of Facilities. The drinking fountains, lavatories, water closets, and urinals shall not be used for any purpose other than those for which they were installed.

9. Load Limits on Floors. Tenant shall not place a load upon any floor of the Premises which exceeds the floor load per square foot which such floor was designed to carry and is allowed by law. Landlord reserves the right to prescribe the weight and position of all heavy installations which Tenant wishes to place in the Premises so as to distribute properly the weight thereof.

10. Machinery and Equipment. Machinery and equipment used by Tenant on the Premises which cause noise and/or vibration that may be transmitted to the structure of the Premises or to other portions of the Park to such a degree as to be reasonably objectionable to Landlord or other Tenants shall be placed and maintained by Tenant, at Tenant’s expense, in settings of cork, rubber, or spring-type noise and/or vibration eliminators sufficient to reduce such noise and/or vibration to reasonably unobjectionable levels.

B-1

11. Moving of Equipment. Tenant shall move all heavy equipment in and out of the Building and/or Park in compliance with all applicable governmental laws, rules or regulations and the structural design of the Building.

12. Replacement of Broken Glass.Tenant shall replace, at Tenant’s expense, any and all broken glass, including glass partitions and doors, if any, in the Premises.

13. No Hazardous Materials. Tenant’s operations shall not include the manufacture, use and/or storage of flammable or explosive materials or substances, and explosive devices, unless same are maintained, used, and stored in accordance with applicable laws and Section 12 of the Lease. Tenant shall conduct its operations so as to avoid hazards associated with flammable or explosive materials or any other toxic or hazardous material or activity, unless same are maintained, used, and stored in accordance with applicable laws and Section 12 of the Lease.

14. Good Housekeeping. Tenant shall observe good housekeeping and keep the Premises reasonably clean and neat at all times, and free of pest or vermin of any kind.

15. Landlord Not Liable. Landlord is not responsible to any tenant for the non-observance or violation of the Rules and Regulations by any other tenant.

16. Modifications to Rules and Regulations. Landlord reserves the right by written notice to Tenant to rescind, amend, alter or waive any rule or regulation at any time prescribed for the Park when, in Landlord’s judgment, it is necessary, desirable or proper for the best interest of the Park and its tenants, provided that such rescissions, amendments, alterations, or waivers may not be unreasonable when applied to Tenant or may not unreasonably restrict Tenant’s use of the Premises for the purpose described in Section 7 of the Lease.

17. Drives and Parking Areas. All parking shall be within the Premises boundaries and within marked parking spaces. At no time shall Tenant obstruct drives and loading areas intended for the use of all tenants. The drives and parking areas are for the joint and non-exclusive use of Landlord’s tenants, and their agents, customers and invitees, unless specifically marked. Landlord shall have the right to restrict Tenant, its agents, customers, and/or invitees to certain parking areas. Tenant shall not permit any fleet trucks to park overnight in the Building’s parking areas.

18. Storage and Loading Areas. Unless specifically approved by Landlord in writing, no materials, supplies or equipment shall be stored anywhere except inside the Premises. Trash receptacles may not be placed in the service area except as otherwise approved by Landlord.

19. Contractors and Service Maintenance. Tenant will refer all contractors, contractor’s representatives and installation technicians rendering any service on or to the Premises for Tenant to Landlord for its approval and supervision before performance in the Building, including, but not limited to, installation of electrical devices and attachments and installations of any nature affecting floors, walls, woodwork, trim, windows, ceilings, equipment or any other physical portion of the Building.

20. Lodging. Tenant shall not at any time occupy any part of the Building as sleeping or lodging quarters.

B-2

21. Exterior Installations. Tenant shall not install any radio or television antenna, satellite dish, loudspeaker, or any other device on the roof or exterior walls of the Building without Landlord’s prior written consent.

22. Waivers. Landlord may waive any one or more of these Rules and Regulations for the benefit of any particular tenant in the Park, but no such waiver by Landlord shall be construed as a general waiver of such Rules and Regulations or of Landlord’s right to enforce such Rules and Regulations against Tenant or any other tenant in the Park.

23. Additions to Lease. These Rules and Regulations are in addition to, and shall not be construed to in any way, modify or amend, in whole or in part, the terms, covenants, agreements, and conditions of the Lease or any other lease of premises. In the event of any conflict or inconsistencies between these Rules and Regulations and the Lease, the terms of the Lease shall control.

24. Access to Roof. Neither Tenant nor any employee, contractor or invitee of Tenant shall go upon the roof of the Building without the prior written consent of Landlord.

25. Sales From Premises. Tenant shall not allow a fire or bankruptcy sale or any auction to be held on the Premises or allow the Premises to be used for the sale at retail of merchandise to the general public.

	LANDLORD: DART CONTAINER OF MICHIGAN LLC
Dated: _______________, 2011	BY:
		Kevin M. Fox
	ITS:	Authorized Signatory

	TENANT: XG SCIENCES, INC.
Dated: June 2, 2011	BY:	/s/ Michael R. Knox
		Michael R. Knox
	ITS:	Chief Executive Officer

B-3

Exhibit C

 

 

 

 

EX-10.7

Exhibit 10.7

SECOND AMENDMENT TO LEASE AGREEMENT

This Second Amendment shall be a part of the Lease Agreement with an effective date of August 1, 2011, between DART CONTAINER OF MICHIGAN LLC, a Michigan limited liability company (“Landlord”), and XG SCIENCES, INC., a Michigan corporation (“Tenant”), covering the premises known as Lot 29, Oakwood Executive Park, more commonly known as 3101 Grand Oak Drive, Lansing, Michigan 48911. The Lease Agreement has a Commencement Date of September 1, 2011, and has a Termination Date of August 31, 2021.

Landlord and Tenant agree that, from January 1, 2013, through December 31, 2017 (the “Expansion Term”), the Premises as defined in the Lease Agreement shall be deemed to include Lot 27, Suite B, in the Oakwood Executive Park, more commonly known as 4055 English Oak Drive, Suite B, Lansing, Michigan 48911 (the “Expansion Space”), which is deemed to be comprised of 14,314 square feet and is shown on Exhibit A, attached hereto and made a part hereof.

Due to this expansion of the Premises and by mutual agreement, Landlord and Tenant agree that during the Expansion Term the Base Rent as defined in the Lease Agreement shall be increased by the following amounts:

$6,667.00 per month from January 1, 2013 through December 31, 2013.

$6,871.00 per month from January 1,2014 through December 31, 2014.

$7,074.00 per month from January 1, 2015 through December 31, 2015.

$7,288.00 per month from January 1, 2016 through December 31, 2016.

$7,503.00 per month from January 1, 2017 through December 31, 2017.

The Common Cost Estimates for the Expansion Space for the calendar year of 2013 are deemed to be $2,147.00 per month. The Common Cost Estimates shall be adjusted each subsequent year during the Expansion Term as described in Sec. 4 of the Lease Agreement.

During the Expansion Term, for the Expansion Space, Tenant’s employees and visitors shall be entitled to park in common with other tenants in any valid parking space within the Park. There will be no assigned parking unless Landlord determines that allocation of parking spaces among tenants is appropriate, except that Tenant shall be allowed up to two (2) dedicated visitor parking spaces located in front of the lab entry door of the Expansion Space. For these visitor parking spaces, Tenant, at Tenant’s expense, shall provide and install “VISITOR PARKING” signs of a kind similar to and to be installed in a manner similar to the “VISITOR PARKING” sign located outside of Lot 27, Suite A.

Provided that Tenant shall not be in default of any provision of the Lease, Tenant, beginning upon January 1, 2016, shall have the right to terminate its lease of the Expansion Space upon six (6) months’ prior written notice to Landlord.

Within 10 calendar days after its signing of this Second Amendment, Tenant shall provide Landlord with an amended version of the Letter of Credit described in Sec. 5 of the Lease Agreement which, for the duration of the Expansion Term, extends the Letter of Credit to cover both the original Premises and the Expansion Space.

Tenant accepts the Expansion Space and all equipment therein in “as is” condition. For the purposes of the preceding sentence, the word “equipment” includes all chemical fume hoods, chemical storage facilities, chemical and air handling equipment, vent and fume hood duct work, fans, controllers, sensors, and wiring, chemical benches, carts, racks, countertops, shelves, and casework. The care, maintenance, and replacement of all of this equipment is the responsibility of Tenant, although the equipment shall at all times remain the sole property of Landlord and shall remain in the Expansion Space and, upon the expiration or earlier termination of the Expansion Term, shall be returned to Landlord in the same condition as received, normal wear and tear excepted.

Tenant shall be solely responsible for all improvements to the Expansion Space, except that Landlord at its sole expense shall be responsible for the removal of the cold storage room and the removal of the benches, all as noted on Exhibit A.

Utilities for the Expansion Space are metered in common with the neighboring Suite A. Landlord will maintain all utility accounts in Landlord’s name and will pay the providers directly. Tenant shall be responsible for its portion of the utilities as billed by Landlord. Beginning upon January 1, 2013, Landlord will invoice Tenant monthly at the annual rate of $1.50 per square foot for natural gas, electric, water and sewer (14,314 square feet x $1.50 = $21,471 / 12 = $1,789.25 per month), with each such invoice to be paid within ten (10) days of Tenant’s receipt. Following the ninth full month of Tenant’s occupancy of the Expansion Space (which comprises 47% of the combined area of Suites A and B) and annually thereafter, all utility bills will be reviewed in order to estimate actual usage and adjust the allocation as necessary, including, retroactively, those months already paid by Tenant. If an adjustment is appropriate, then Landlord shall give Tenant notice stating whether the aggregate amount of the installments of Tenant’s utility payments previously paid are more or less than the aggregate amount of the installments due, and (i) if there is a deficiency, then within ten (10) days after the Tenant receives notification of the deficiency, Tenant shall pay the amount of such deficiency, (ii) if there was an overpayment, then Landlord shall credit Tenant in the amount thereof toward the subsequent installments of utilities, and (iii) on the first day of the next month and monthly thereafter, Tenant shall be invoiced at the revised monthly utility rate, with the revised rate to be based upon a reasonable allocation of estimated usage to be negotiated and agreed to by Landlord and Tenant. The new allocation will be negotiated and agreed to by Landlord and Tenant. In no event will Tenant’s total utility costs exceed $1.75 per square foot, except for and to the extent of any unit price increase of any of the utilities.

All other terms and conditions of the original Lease Agreement shall remain in effect as first written and previously amended.

The effective date of this Second Amendment shall be November 16, 2012, regardless of the date written below.

Each party executing this Amendment warrants that it has the requisite power and authority to do so.

	XG SCIENCES, INC.,
	a Michigan corporation (Tenant)
WITNESS
/s/ Corinne Lyon	/s/ Michael R. Knox
[signature]	BY: Michael R. Knox
	ITS: Chief Executive Officer
CORINNE LYON
[print name]	DATE: 11-27-2012
	DART CONTAINER OF MICHIGAN LLC,
WITNESS	a Michigan corporation (Landlord)
/s/ Diana C. Vanderwall	/s/ Kevin M. Fox
[signature]	BY: Kevin M. Fox
	ITS: Authorized Signer
Diana C. Vanderwall
[print name]	DATE: 12-5-2012

EX-10.9

Exhibit 10.9 

XG SCIENCES, INC.

3101 Grand Oak Drive

Lansing, MI 48911

March 18, 2013

Michael Knox

5337 Panda Bear Circle

East Lansing, MI 48823

Dear Mr. Knox:

We are providing you (“Knox”) with this letter agreement (this “Letter Agreement”) in connection with the Purchase Agreement, dated as of March 18, 2013 (the “Purchase Agreement”), by and between XG Sciences, Inc. (“XG”) and Aspen Advanced Opportunity Fund, LP (“Aspen”), pursuant to which Aspen agreed to provide financing to XG, up to $5,000,000 under certain conditions, for the issuance of certain securities by XG to Aspen. Capitalized terms not otherwise defined in this Letter Agreement shall have the meanings specified in the Purchase Agreement. Also, reference is hereby made to that certain existing $1,000,000 Line of Credit Note dated October 8, 2012 representing the indebtedness of XG (the “Line of Credit”) which constitutes all indebtedness owed by XG to Knox.

XG and Knox hereby agree as follows:

1.       Effective as of the date hereof (the “Effective Date”), XG and Knox hereby cancel the Line of Credit and acknowledge and agree that the Line of Credit shall be of no further force and effect and that XG shall have no further liability or obligation under any such Line of Credit, and owe no amounts of principal or interest of in connection therewith to Knox, as of the Effective Date.

2.       On the Effective Date, without further action on the part of the parties hereto: (i) all indebtedness, payment obligations and other obligations of XG to Knox under the Line of Credit and any other related credit, loan and collateral security documents that may have been issued by XG to Knox in connection with transactions evidencing the Line of Credit (collectively, the “Loan Documents”) shall be deemed paid and discharged in full; (ii) each of the Loan Documents shall automatically terminate; (iii) all security interests and other liens of every type at any time granted to or held by Knox as security for such indebtedness and other obligations shall be terminated and automatically released without further action by Knox; (v) any and all guaranties supporting the Line of Credit shall be released without further action by Knox; and (vi) all other obligations of XG under the Loan Documents shall be deemed terminated.

3.      On the Effective Date, XG shall issue to Knox, and Knox shall accept, a convertible secured note (the “Knox Note”) in the aggregate principal amount of US$700,000.00, in the form attached hereto as Exhibit A.

Letter Agreement

4.       On the Effective Date, XG shall issue to Knox, and Knox shall accept, a $300,000 line of credit note (the “New Credit Line Note”), such New Credit Line Note ranking pari passu with the Knox Note, and being in the form attached hereto as Exhibit B.

5.       On the Effective Date, Knox shall enter into an intercreditor agreement with Aspen in the form of Annex VIII attached to the Purchase Agreement.

6.       Knox authorizes XG and its agents and attorney to deliver and file Uniform Commercial Code termination statements, and agrees to execute and deliver, as requested by XG, any other lien releases, mortgage releases, re-assignments of intellectual property, discharges of security interests, and other similar discharge or release documents (and if applicable, in recordable form) as are reasonably necessary to release, as of record, any security interests, financing statements, and any and all notices of security interests and liens previously filed by Knox with respect to the Line of Credit.

7.       Knox will use commercially reasonable efforts to return to Knox any and all written instruments evidencing the Line of Credit marked “paid in full” or “cancelled”.

8.       At XG’s sole expense, Knox shall execute and deliver to or for XG such additional documents and shall provide such additional information as XG may require to carry out the terms of this Letter Agreement.

9.       The terms of this Letter Agreement shall be governed by the laws of the State of Michigan without regard to conflicts of law principles that would result in the application of the laws of a jurisdiction other than the State of Michigan. In any action or proceeding arising from or relating to this Letter Agreement, the parties acknowledge and agree that jurisdiction and venue shall be exclusively in the federal and state courts located in the Ingham County, State of Michigan.

10.     This Letter Agreement may be executed in counterparts, including by facsimile or other electronic transmission, each of which will be deemed an original agreement, but all of which together will constitute one and the same instrument.

** Remainder of Page Intentionally Blank **

Letter Agreement

- 2 -

If the foregoing correctly sets forth your understanding with respect to the subject matter hereof, please so indicate by executing and retuning to XG the enclosed copy of this Letter Agreement.

Very truly yours,
XG SCIENCES, INC.
By:	/s/ Michael R. Knox
Name:	Michael R. Knox
Title:	CEO
Date:	3/18/2013

Accepted and agreed to

As of March 18, 2013

By:	/s/ Michael Knox
Name:	Michael Knox
Date:	3/18/2013

Letter Agreement

- 3 -

EXHIBIT A

KNOX NOTE

Letter Agreement

Exhibit A

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

No. 14 $772,998.15

XG SCIENCES, INC.

Secured Convertible Promissory Note

Due March 18, 2018

This Secured Convertible Promissory Note (this “Note”) is issued this 15^th day of January 2014, jointly and severally by XG Sciences, Inc. (“XGS”), a Michigan corporation, and XG Sciences IP, LLC, a Michigan limited liability company and wholly-owned subsidiary of XGS (collectively, the “Borrower” or the“Company”), to Michael R. Knox (“Knox” or the “Holder”). This Note restates the $700,000.00 Secured Convertible Promissory Note issued on March 18, 2013 by the XGS to Knox (the “Prior Note”). The Prior Note was issued in connection with the conversion of that certain $1,000,000.00 Line of Credit Note, dated October 8, 2012, issued to the Holder by XGS, and in connection with that certain Purchase Agreement dated March 18, 2013 between Aspen Advanced Opportunity Fund, L.P. and XGS (the “Purchase Agreement”). The Prior Note is hereby cancelled and replaced in its entirely by this Note, which includes the principal (as adjusted) and all accrued interest from the original issue date of each of the Prior Note until the date of this Note. Knox shall physically surrender the Prior Note to the Company in exchange for the delivery of this Note.

FOR VALUE RECEIVED, the Borrower hereby promises to pay to the Holder or his, her or its successors and assigns the principal sum of SEVEN HUNDRED SEVENTY-TWO THOUSAND NINE HUNDRED NINRIY-EIGHT AND 15/100 DOLLARS ($772,998.15) on or before March 18, 2018 (the “Maturity Date”) and to pay interest on the principal sum outstanding from time to time in arrears at the rate of 12.0% per annum, accruing from the Original Issue Date (as defined in Section 7 hereof) until the date (each, an “Interest Payment Date”)which is the earlier of (i) the next Conversion Date (as defined below), (ii) the date which is the last day of the month that includes the Original Issue Date and the last day of every month thereafter, or (iii) the Maturity Date, as the case may be. Interest shall accrue monthly (pro-rated on a daily basis for any period longer or shorter than a month) from the later of the Original Issue Date or the previous Interest Payment Date and shall be payable in cash. If not paid in full on an Interest Payment Date, interest shall be fully cumulative and shall accrue on a daily basis, based on a 360-day year, and compound monthly on the last day of each month beginning on the last day of the month that includes the Original Issue Date, until paid.

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

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

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

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

Section 2.          Covenants.

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

(1)          Financial Reports, Notices and Other Information.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Section 3.          Events of Default.

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

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

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

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

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

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

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

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

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

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

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

Section 4.          Conversion.

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

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

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

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

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

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

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

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

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

(a)	nomore than $14,800,000 in the aggregate (as measured by the initial principal amount outstanding before adding in capitalized interest which may be part of the principal balance of this Note or any other similar notes held by the Other Secured Parties) of secured Indebtedness which is secured by the Collateral defined in the Security Agreement has been or will be issued by the Borrower to the Holder or the Other Secured Parties at any time while this Note is outstanding; and
(b)	no other secured Indebtedness matures prior to the Maturity Date of this Note, except for the Indebtedness described on paragraph 4 of Exhibit B, without the prior written consent of the Holder; and
(c)	no other secured Indebtedness has any more favorable economic terms than the Note; and
(d)	no other secured Indebtedness is issued in a manner that would result in such Indebtedness being senior to this Note; and

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(e)	no other secured Indebtedness will be issued to any Other Secured Parties until such Other Secured Parties have agreed to be bound by the terms of the Intercreditor Agreement, the Security Agreement, and the IP Security Agreement and have executed copies of such documents; and
(f)	all other secured Indebtedness issued by the Borrower pursuant to this exception is issued in exchange for cash consideration or as a replacement to the form of note previously issued in exchange for cash consideration.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

“Default Rate” shallhave the meaning set forth Section 3(b).

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

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

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

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

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

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

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

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

“Investment Property” shallmean “investment property” as defined in Section 9-102 of the UCC.

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

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

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

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

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

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

“Original Issue Date” shall mean the date of the first issuance of this Note regardless of the number of transfers and regardless of the number of instruments, which may be issued to evidence such Note. For the purposes of this Note, the Original Issue Date shall be deemed to be March 18, 2013.

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

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

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

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

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

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

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

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

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

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

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

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

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“Transaction Documents” means the Purchase Agreement and any other agreement delivered in connection with the Purchase Agreement, including, without limitation, this Note, the Security Agreement and the IP Security Agreement.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

If to the Borrower, to:	XG Science, Inc.
	3101 Grand Oak Drive
	Lansing, MI 48911
	Attn: Chief Executive Officer
	Telephone:	(517) 703-1110, ext. 5445
	Facsimile:	(517) 703-1113
With a copy to:	Matt G. Hrebec
	Attorney
	Foster Swift Collins & Smith PC
	313 South Washington Square
	Lansing, MI 48933-2193
	Telephone: 517.371.8256
	Facsimile: 517.367.7356
If to the Holder:	Michael Knox
	5337 Panda Bear Circle
	East Lansing, MI 48823
	Telephone: 517.351.4813
	Facsimile: 517.703.1113

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

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

[The Remainder of this Page Intentionally Left Blank.]

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

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

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

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

/s/ Michael R. Knox

Michael R. Knox, Individually

EXHIBIT “A”

NOTICE OF CONVERSION

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

To:

XG Sciences, Inc.

3101 Grand Oak Drive

Lansing, MI 48911

Attn: Chief Executive Officer

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

Conversion Date:
Applicable Note Conversion Price:
Signature:
Name:
Address:
Amount to be converted:	$
Amount of Note unconverted:	$
Note Conversion Price per share:	$
Number of shares of Common Stock to be issued:
Please issue the shares of Common Stock in the following name and to the following address:
Issue to:
Authorized Signature:
Name:
Title:
Phone Number:

EXHIBIT “B”

EXISTING INDEBTEDNESS OF BORROWER WHICH RANKS PARI PASSU TO THE NOTE

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

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

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

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

EXHIBIT “C”

PERMITTED PAYMENTS TO HOLDERS OF EXISTING INDEBTEDNESS

1) TRADE ACCOUNT PAYABLES

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

2) ACCRUED LIABILITIES

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

3) SECURED NOTES PAYABLE DESCRIBED ON EXHIBIT B

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

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

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

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

4) UNSECURED NOTES PAYABLE

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

EXHIBIT “D”

EXISTING INDEBTEDNESS

UNSECURED NOTES PAYABLE

None

SCHEDULES

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

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

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

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

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

(Headquarters)

3101 Grand Oak Drive

Lansing, MI 48911

(R&D Facility)

4055 English Oak

Suite B

Lansing, MI 48911

(Pilot Plant)

2100 S. Washington Ave.

Lansing, MI 48910

Schedule 2(b)(4) – Securities

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

Schedule 2(b)(6) – Transactions with Affiliates

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

2. $772,998.15 Amended and Restated Secured Convertible Promissory Note issued on January 15, 2014 by the Borrower XGS II, LLC.

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

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

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

EXHIBIT B

NEW CREDIT LINE NOTE

Letter Agreement

Exhibit B

XG SCIENCES, INC.

Line of Credit Note

$300,000.00	March 18, 2013
	Lansing, Michigan

1.         LINE OF CREDIT. XG Sciences, Inc., a Michigan corporation (“Borrower”), promises to pay to the order of Michael R. Knox (together with his successors and assigns, the “Lender”) the sum of Three Hundred Thousand and 00/100 Dollars ($300,000.00), or so much of that amount that is disbursed to or for the benefit of the Borrower (the “Borrowing”) under this Line of Credit Note (this “Note”), plus interest as provided in this Note, less the amounts that have been repaid in accordance with this Note. The amount of the Principal that has been disbursed to or for the benefit of the Borrower under this Note will be set forth on a supplemental addendum to this Note, such that the Borrowing is not necessarily the face amount of this Note.

Pursuant to this Note, Lender extends to Borrower a line of credit facility pursuant to which Lender will make loans under this Note to Borrower, on a revolving basis and upon Borrower's request from time to time (each, a "Revolving Loan"), provided that: (a) the aggregate principal amount borrowed under this Note at any time may not exceed Three Hundred Thousand and 00/100 Dollars ($300,000.00), and (b) no Event of Default exists or would be caused by the Revolving Loan. Borrower may borrow, prepay, in whole or in part, and re-borrow pursuant to the terms of this Note.

Borrower may request a Revolving Loan by written notice to Lender, via facsimile transmission, electronic mail or otherwise, in such reasonable form as Lender may require. Lender will make each Revolving Loan by disbursing the amount requested and approved to Borrower as soon as practicable in such manner as requested by Borrower.

2.           INTEREST. The principal sum outstanding under this Note from time to time will bear interest at the rate of eight percent (8%) per annum (the "Interest Rate”). Interest will be calculated based on a 360-day year and charged on the principal sum outstanding from time to time for the actual number of days elapsed. Notwithstanding any provision to the contrary in this Note, in no event will the Interest Rate charged on the Borrowing exceed the maximum rate of interest permitted under applicable state and/or federal usury law. Any payment of interest that would be deemed unlawful under applicable law for any reason will be deemed received on account of, and will automatically be applied to reduce, the principal sum outstanding and any other sums (other than interest) due and payable to Lender under this Note, and the provisions of this Note will be deemed amended to provide for the highest rate of interest permitted under applicable law.

3. REPAYMENT.

(a)           Maturity of the Note. The entire outstanding principal balance of the Borrowing, together with all accrued and unpaid interest and any other charges, advances and fees if any, outstanding under this Note, is due and payable in full to the order of Lender upon the demand of Lender after the earlier of the Maturity Date or the acceleration of this Note. This Note may be prepaid without penalty. The “Maturity Date” of this Note is March 18, 2018.

(b)           Principal Payment Schedule. Upon the demand of the Lender, the Borrower shall deliver payments on the outstanding principal amount of this Note to the order of the Lender upon the occurrence of each of the events listed and in the amounts set forth in the following schedule (the “Payment Schedule”), provided that, in each case, the Borrower’s obligation to deliver such payment shall only exist to the extent that the Lender has delivered written notice of such demand to the Borrower (each such notice, a “Demand Notice”):

(i)           $100,000 within sixty (60) calendar days after receipt of a Demand Notice following the date upon which Aspen Advanced Opportunity Fund, L.P., a Delaware limited partnership (“Aspen”), and/or its Affiliates (as defined in the Purchase Agreement described below) have provided, as confirmed via written notice from the Borrower, at least $2,000,000 of aggregate funding to the Borrower pursuant to that certain Purchase Agreement dated March 18, 2013 by and between the Borrower and Aspen (the “Purchase Agreement”); and

(ii)           $100,000 within sixty (60) calendar days after receipt of a Demand Notice following the date upon which Aspen and/or its Affiliates (as defined in the Purchase Agreement) have provided, as confirmed via written notice from the Borrower, at least $3,000,000 of aggregate funding to the Borrower pursuant to the Purchase Agreement; and

(iii)           $100,000 within sixty (60) calendar days after receipt of a Demand Notice following the date upon which Aspen and/or its Affiliates (as defined in the Purchase Agreement) have provided, as confirmed via written notice from the Borrower, at least $4,000,000 of aggregate funding to the Borrower pursuant to the Purchase Agreement.

All other payments under this Note not set forth in the Payment Schedule will be applied in the following order: accrued interest, fees, charges and advanced costs, and principal.

4.           SECURITY. Borrower grants to Lender a security interest to secure the repayment of the Borrowing, including all Revolving Loans and other future advances, in all of Borrower’s real and personal property, whether now owned or later acquired, including without limitation all inventory, equipment, fixtures, accounts, instruments, documents, chattel paper, investment property, letters of credit, deposit accounts, commercial tort claims, general intangibles, and accessions, and all proceeds of the foregoing (the “Collateral”).

5.           USE OF PROCEEDS. Borrower certifies that the proceeds of each Revolving Loan are to be used for its general business purposes.

6.           COVENANTS. Borrower will, until the Borrowing is paid in full, comply with the following covenants:

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(a)           Access to Business Information. Borrower will furnish to Lender information regarding its business affairs and financial condition within a reasonable time after Lender’s request. Borrower will maintain adequate, accurate, and complete books and records in accordance with past practices and give representatives of Lender access at all reasonable times.

(b)           Collateral. Borrower will give Lender reasonable access to the Collateral for the purpose of performing examinations and to verify its condition or existence, and will not dispose of Collateral other than in the ordinary course of business without Lender’s consent.

(c)           Financial Statements. Borrower will maintain a standard and modern system for accounting and will furnish to Lender copies of its financial statements within a reasonable period of time following their completion.

(d)           Payment of Taxes and Claims. Borrower will pay all taxes, assessments and other governmental charges imposed upon its property or assets or in respect of its business before any penalty or interest accrues, and all claims for sums that have become due and payable, provided that (unless any material item of property would be lost, forfeited or materially damaged as a result) no charge or claim need be paid if the amount, applicability or validity of the claim is contested in good faith. Upon request of Lender, Borrower will provide copies of all federal, state, and local income tax returns and such other information as Lender may reasonably request.

(e)           Compliance with Laws. Borrower will comply with all laws, regulations and orders applicable to Borrower or its assets, and will immediately notify Lender of any violation of any law, regulation or order.

(f)           Notices of Certain Events. The Borrower will promptly give notice to the

Lender of:

(i)           Any Event of Default under this Note;

(ii)           Any (a) default or event of default under any contractual obligation of the Borrower that would have a material adverse effect on the Borrower, or (b) litigation, investigation, or proceeding which may be threatened or exist at any time involving the Borrower, which, if adversely determined would have a material adverse effect on the business, operations, affairs or condition (financial or otherwise) of the Borrower, or would impair the ability of the Borrower to perform its obligations under this Note; or

(iii)         A material adverse change in the business, operations, affairs or condition (financial or otherwise) of the Borrower.

(g)           Performance of Contracts. Borrower will perform and comply in all material respects with all material provisions of all material contracts to which Borrower is a party.

3

(h)          Costs. Borrower will reimburse Lender for any and all fees, costs and expenses including, without limitation, reasonable attorneys’ fees, court costs, litigation and other expenses, incurred or paid by Lender in connection with the enforcement of this Note.

(i)           Further Assurances. Borrower will execute and deliver, or cause to be executed and delivered, all documents, and take or cause to be taken all actions, that are reasonably necessary from time to time to give full effect to Lender’s rights under this Note.

(j)            Other Amounts Deemed Loans. If Borrower fails to pay any tax, assessment, governmental charge or levy, or to comply with any other covenant in this Note, Lender may pay, satisfy, discharge or bond the same for the account of Borrower, and to the extent permitted by law and at the option of Lender, all monies so paid by Lender on behalf of Borrower will be deemed additional indebtedness owed by Borrower to Lender under this Note.

(k)          Existence. Borrower will maintain its good standing existence as a Michigan corporation.

(l)           Debt Instrument. Borrower will not, without the written consent of Lender, create, or authorize the creation of, or issue any debt instrument having rights, preferences or privileges senior to this Note.

7.           EVENTS OF DEFAULT. Upon the occurrence of any of the following events (each, an “Event of Default”), Lender may without any demand or notice whatsoever, cease making advances and declare this Note to be fully due and payable, together with accrued interest and all fees and charges applicable thereto:

(a)          Any failure to make any payment when due of principal or accrued interest on this Note;

(b)          Borrower’s material breach of any covenant set forth in this Note;

(c)          The dissolution of Borrower; or

(d)          A commencement by Borrower of a voluntary case under any applicable bankruptcy, insolvency or other similar law; or the entry of a decree or order for relief in respect of the Borrower in a case under any such law or appointing a receiver, liquidator, assignee, custodian, trustee, sequestrator (or other similar official) of Borrower, or for any substantial part of the property of Borrower, or ordering the wind-up or liquidation of the affairs of Borrower; or the filing and pendency for 30 days without dismissal of a petition initiating an involuntary case under any such bankruptcy, insolvency or similar law; or the making by Borrower of any general assignment for the benefit of creditors; or the failure of the Borrower to pay its debts as such debts become due; or the material taking of action by the Borrower in furtherance of any of the foregoing.

4

8.           REMEDIES. After the occurrence of an Event of Default, Lender may, at its option, cease making disbursements and declare this Note to be fully due and payable, together with accrued interest and all fees and charges, and may exercise all other remedies available under applicable law. Borrower will pay all costs of collection incurred by Lender, including his reasonable attorney’s fees, whether or not payment is obtained before entry of judgment. Lender’s rights and remedies are cumulative. No delay on the part of Lender in the exercise of any such right or remedy shall operate as a waiver. No single or partial exercise by Lender of any right or remedy shall preclude any other further exercise of it or the exercise of any other right or remedy.

9.           ENTIRE AGREEMENT. Borrower agrees that there are no conditions or understandings which are not expressed in this Note.

10.         SEVERABILITY. The declaration of invalidity of any provision of this Note will not affect any part of the remaining provisions.

11.         ASSIGNMENT. No party will assign any of its rights, remedies or obligations described in this Note without the prior written consent of the other party. This Note is NONNEGOTIABLE.

12.         MODIFICATION: WAIVER OF LENDER. The modification or waiver of any of Borrower’s obligations or Lender’s rights under this Note must be contained in a writing signed by Lender. A waiver on one occasion will not constitute a waiver on another occasion.

13.         WAIVER OF BORROWER. Demand, presentment, protest and notice of dishonor, notice of protest and notice of default are waived by Borrower.

14.         GOVERNING LAW: CONSENT TO JURISDICTION. This Note is delivered in, is intended to be performed in, and will be construed and enforceable in accordance with and governed by the internal laws of the State of Michigan, without regard to principles of conflicts of law.

BORROWER:
XG SCIENCES, INC., a Michigan corporation
By:	/s/ illegible
Its:	CEO

5

EX-10.15

Exhibit 10.15

XG SCIENCES, INC.

SECOND AMENDED & RESTATED PURCHASE AGREEMENT

THIS AMENDED & RESTATED PURCHASE AGREEMENT (this “Agreement”), dated as of January 15, 2014 (the “Effective Date”), is entered into by and between XG SCIENCES, INC., a Michigan corporation, with headquarters located at 3101 Grand Oak Drive, Lansing, Michigan 48911 (the “Company”), and Aspen Advanced Opportunity Fund, LP, a Delaware limited partnership, whose principal address is as set forth in Section 13 herein (the “Buyer”, and together with the Company, the “Parties”). This Agreement amends and restates the original Purchase Agreement between the Parties (the “Original Agreement”), dated March 18, 2013 (the “Original Effective Date”), which was amended and restated for the first time (the “First Amendment Agreement”) on July 12, 2013 (the “First Amendment Date”).

WITNESSETH:

WHEREAS, pursuant to the Original Agreement, the Buyer agreed to provide up to an aggregate of $5,000,000 million of financing to the Company in exchange for (i) the form of a secured convertible promissory note attached as Annex I to the Original Agreement (the “Original Note(s)”) or (ii) an equipment financing arrangement provided pursuant to the form of master lease agreement (the “Master Lease Agreement”) attached as Annex V hereto; and

WHEREAS, pursuant to the First Amendment Agreement, the Buyer agreed to provide up to an aggregate of $10,000,000 million of financing to the Company in exchange for (i) the form of a secured convertible note attached as Annex I to the First Amendment Agreement (the “First Amendment Notes”) or (ii) an equipment financing provided pursuant to the Master Lease Agreement; and

WHEREAS, pursuant to the Original Agreement and the First Amendment Agreement, the Buyer purchased the Original Notes and First Amendment Notes in an aggregate principal amount of $4,403,846.58 before the adjustments contemplated in Section 1(b) hereof (collectively, the “Existing Notes”) from the Company prior to the Effective Date hereof; and

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

WHEREAS, pursuant to that certain purchase agreement, dated July 12, 2013 between the Company and XGS II, LLC, a Florida limited liability company (“XGS II”), the Company agreed to issue and sell up to $750,000 (the “XGS II Max Investment Amount”) of secured convertible notes in substantially the same form as the First Amendment Notes, and as of the Effective Date hereof has issued $200,000 of secured convertible notes to XGS II before the adjustments contemplated in Section 1(b) hereof (the “Existing XGS II Notes”); and

WHEREAS, prior to the Effective Date, the only secured indebtedness of the Company outstanding was the Existing XGS II Notes, the Knox Debt and the Existing Notes, and each of Knox, XGS II and the Buyer have entered into that certain Amended and Restated Intercreditor Agreement effective as of the First Amendment Date and attached as Annex VIII to the First Amendment Agreement; and

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

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

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

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

WHEREAS, in connection with the Original Agreement, the Company issued to the Buyer warrants (the “Original Warrants”) to purchase 208,333 shares of the Company’s Series A Convertible Preferred Stock (the “Series A Stock”), in the form attached as Annex II to the Original Agreement, and in connection with the First Amendment Agreement, the Company issued to the Buyer additional warrants to purchase an additional 208,333 shares of the Series A Stock in the form attached as Annex XII of the First Amendment Agreement (the “Additional Warrants” and together with the Original Warrants, the “Existing Warrants”); and

WHEREAS, in connection with this Agreement, the parties have agreed to exchange and cancel the Existing Warrants for the issuance of a new warrant to the Buyer to purchase 833,333 shares of Series A Stock in the form attached as Annex II hereto (the “Replacement Warrants” or the “Warrants”) and to clarify certain ambiguities that were contained in the Existing Warrants; and

WHEREAS, the Company granted to XGS II, Knox, and the Buyer security interests in the Company’s assets as set forth in that certain Amended and Restated Security Agreement effective as of the First Amendment Date and attached as Annex III to the First Amendment Agreement and that certain Amended and Restated Intellectual Property Security Agreement effective as of the First Amendment Date and attached as Annex IV to the First Amendment Agreement, each of which are by and among, the Company, a collateral agent, Knox, XGS II and the Buyer; and

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

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

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

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

1.            GENERAL AGREEMENTS.

a.              (i)          The Buyer hereby agrees to purchase from the Company, and the Company hereby agrees to sell to the Buyer, Note(s) and the Buyer hereby agrees to purchase certain equipment on behalf of the Company which will be leased to the Company pursuant to the Master Lease Agreement, and the Company hereby agrees to enter into such leasing agreements with the Buyer, upon and subject to the terms and conditions set forth herein. Together, the Notes and the equipment provided to the Company under the leasing agreement will have an aggregate principal amount of at least $6,000,000 (the “Min Investment Amount”) and up to $10,000,000 (the “Max Investment Amount”). The calculation of the Min Investment Amount and the Max Investment Amount shall include the principal amount of the Existing Notes, as adjusted pursuant to Section 1(b) hereof. The Buyer agrees to use its best efforts to fund, either through itself or in conjunction with XGS II, at least $6,000,000 by the date which is the later of (a) April 25, 2014 or (b) the date which is ninety (90) days from the date on which the Buyer receives a mutually agreed upon “Financing Case” projection model which has been approved for use with investors by the Company’s management, including the new CEO who is projected to start employment with the Company on or around January 20, 2014. The Buyer will not be required to purchase more than the Min Investment Amount of Purchased Securities (as defined below) in the aggregate pursuant to this Agreement (the amount funded at any given time, hereafter, the “Purchased Amount”). The Company will be required to sell up to the Max Investment Amount of the Purchased Securities to the Buyer on terms and conditions set forth herein until December 31, 2014 (the “Option End Date”) if requested to do so by the Buyer. For the avoidance of doubt, the Company shall have no obligation to sell additional Purchased Securities to Buyer after the expiration of the Option End Date.

(ii)         The Buyer, at its option, may provide up to $3,000,000 (the “Max Lease Amount”) of the Purchased Amount through the purchase of qualified capital equipment on the terms and conditions set forth in the Master Lease Agreement (such amount of the Purchased Amount as may be funded pursuant to equipment purchases provided to the Company through the Master Lease Agreement, hereafter the “Lease Investment Amount”).

(iii)        A portion of the Max Investment Amount will also be deemed to have been funded through the issuance of the Existing Notes, as adjusted pursuant to Section 1(b) hereof.

(iv)        The undersigned Buyer hereby agrees to purchase from the Company Notes in at least the aggregate principal amount of the Min Investment Amount less the Lease Investment Amount, upon the terms and conditions outlined herein.

(v)         On the Effective Date, all of the Existing Notes shall be exchanged (and cancelled) for the issuance of a new Note with a principal amount of $4,178,330.92, which principal amount will be deemed to include:

(1)         initial principal of all previous convertible secured notes issued to the Buyer of $4,400,000, less the principal adjustments of $490,575 specified in Section 1(b) hereof, such that the total amount of initial principal of secured convertible notes advanced to the Company in the Existing Notes was $3,909,425, plus

(2)         previously capitalized interest of $3,846.58 from certain bridge notes that were amended and restated on the Original Effective Date, plus

(3)         $265,059.34 of capitalized interest from the original issue date of each of the Existing Notes until the Effective Date, after taking into consideration the accrued interest adjustments specified in Section 1(b) hereof.

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

(vii)       On the Effective Date, the Company shall cancel the Existing Warrants and in exchange thereof deliver the Replacement Warrants to purchase 833,333 shares of Series A Stock to the Buyer, as provided in Section l(c) hereof. For the sake of clarity with respect to the Existing Warrants, the Buyer and the Company have agreed to the following clarifications:

(1)         Paragraph 4(a) of the Additional Warrant, dated 7/12/2013, contained a scrivener’s error that failed to make the distinction that such additional warrants only related to funding by Aspen over and above the first $5,000,000 of funding provided by Aspen, and thus the parties have agreed that paragraph 4(a) of the Additional Warrant should have been drafted as follows as of the original issue date:

“For every $24 of new capital advanced to the Company in cash by Aspen on or after May 31, 2013, over and above $5,000,000, under any of the transaction documents referenced in the Purchase Agreement (such documents collectively the “Transaction Documents”), one Share as described in Section 1 shall be deemed to be vested.”

(2)         Paragraph 4(a) of both the Original Warrant and the Existing Warrant failed to clearly articulate what constituted an “advance” of funds to the Company pursuant to the Master Lease Agreement. Thus the parties have agreed that the following clarifying sentence is deemed to have been added to the end of Paragraph 4(a) in both the Original Warrant and the Additional Warrant as of the original issue date of each such warrant:

“For the purposes of this Warrant, any funds advanced to vendors of the Company by Aspen pursuant to the Master Lease Agreement between the parties, dated March 18, 2013, shall not be deemed to have been advanced to the Company until the earlier to occur of (i) the date on which a completed lease schedule is executed between the parties covering the funds advanced to vendors of the Company on the Company’s behalf; or (ii) the date which is six months from the date on which any advance is made by Aspen to a vendor of the Company pursuant to a signed certificate of understanding between Aspen and the Company.”

(viii)      The Replacement Warrants shall specify that for every $12 of funding provided pursuant to the Original Agreement, the First Amendment Agreement, and this Agreement, that portion of the Replacement Warrants entitling the Buyer to purchase one (1) share of Series A Stock shall be deemed to be vested. Such Replacement Warrant will also specify that 378,766 of the Shares are deemed vested as of the Effective Date.

(ix)         The loans to be made by the Buyer through the Notes and the equipment to be provided by the Buyer through the leases and the issuance of the Notes, the Master Lease Agreement and the Warrants (the “Purchased Securities”) to the Buyer are sometimes referred to herein and in the other Transaction Agreements as the purchase and sale of the Purchased Securities.

(x)          The Company grants to the Buyer, the right and first option to provide equipment financing up to the Max Lease Amount through one or more lease schedules to the Master Lease Agreement for all capital equipment which it may purchase until the Option End Date. If the Buyer declines to provide lease financing for any capital equipment within fifteen (15) days of the date on which the Company notifies the Buyer in writing of its need for such equipment financing with such notice including the specifications for the equipment to be purchased and the vendor quotes for such equipment, then the Company shall be entitled to purchase such equipment from the proceeds of Notes previously issued and sold to the Buyer or to seek such equipment financing from any other sources it deems to be appropriate. Notwithstanding anything herein to the contrary, the Company agrees that the Buyer may aggregate equipment lease schedules into amounts of at least $100,000 and that the Company will pay interim rent on any such equipment financed until a lease schedule is executed.

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

[Chart on next page.]

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

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

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

c.           Delivery of Transaction Agreements. Upon the Effective Date, the Company will deliver executed copies of this Agreement, an amended and restated Note in the principal amount of $4,178,330.92, an Officer’s Certificate, the Replacement Warrants, the Intercreditor Agreement, the Security Agreement, the IP Security Agreement, and the Registration Rights Agreement to the Buyer. Upon any Subsequent Closing Date, the Company will deliver an Officer’s Certificate, and any additional Notes and/or schedules pursuant to the Master Lease Agreement which correspond to the types of funding provided in such subsequent closings under this Agreement.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

“Last Audited Date” means December 31, 2012.

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

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

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

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

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

“Purchased Securities” means the Notes, the Master Lease Agreement and all schedules thereto, and the Warrants.

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

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

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

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

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

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

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

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

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

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

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

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

“State of Incorporation” means Michigan.

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

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

“Transaction Agreements” means this Agreement, the Original Agreement, the First Amendment Agreement, the Letter Agreement, each Note issued to the Buyer, the Registration Rights Agreement, the Security Agreement, the IP Security Agreement, the Master Lease Agreement, the Landlord’s Consent, the Warrants, the Shareholder Agreement, the Certificate of Designations Amendment, the Intercreditor Agreement, the Voting Rights Agreement, the Side Letter, all agreements entered into between the Parties on March 18, 2013 in connection with the Original Agreement (as amended and/or restated as of the Effective Date), all agreements entered into between the Parties on July 12, 2013 (as amended and/or restated as of the Effective Date), and the Disclosure Annex and includes all ancillary documents referred to in those agreements (as amended and/or restated as of the Effective Date), and each of those agreements as may be amended.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

c.           Authorized Shares.

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

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

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

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

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

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

f.            Securities Law Matters; Approvals.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

4.            CERTAIN COVENANTS AND ACKNOWLEDGMENTS.

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

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

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

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

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

e.            Available Shares.

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

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

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

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

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

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

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

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

l.            Expenses. The Company agrees that it will reimburse the Buyer for all fees and expenses in connection with these transactions, promptly upon submission of proof of such expenses, but in no case later than fifteen (15) business days after such submission. Such fees and expenses will include all accounting, consulting, legal and other syndication and formation fees and expense, documentary stamp taxes, UCC filing fees and such other out of pocket expenses incurred by the Buyer in its sole discretion; provided, however, that such reimbursements will not exceed $150,000 in the aggregate.

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

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

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

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

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

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

s.          Independent Director Nomination Rights. Section 2.2(a)(i) of the Shareholder Agreement permits the Buyer, for so long as the Buyer owns 10% or more of the aggregate outstanding Shareholder Stock (assuming Full Conversion), to nominate a director to the Company’s Board of Directors, and requires that the Company’s shareholders elect that person to the Company’s Board of Directors. Section 2.2(a)(ii) of the Shareholder Agreement requires that at least two members of the Company’s Board of Directors, other than the directors nominated by Aspen, POSCO, or Hanwha pursuant to Section 2.2 of the Shareholder Agreement, qualify as “Independent Directors” within the meaning of the Shareholder Agreement, for so long as the Buyer owns 10% or more of the aggregate outstanding Shareholder Stock (assuming Full Conversion). The Company agrees that at any point in time in which the Buyer and its Affiliates own twenty-five percent (25%) or more of the aggregate outstanding Shareholder Stock (assuming Full Conversion), the Buyer will have the right (in addition to the Buyer’s right in Section 2.2(a)(i) of the Shareholder Agreement) to nominate one of the two mutually acceptable “Independent Directors” that are referenced in Section 2.2(a)(ii) of the Shareholder Agreement for election to the Company’s Board of Directors, provided that the Board of Directors shall have discretion whether to accept such nomination and present the nomination to the shareholders for vote based on a majority vote of the then currently- elected “disinterested directors”. For the purposes of this provision, a “disinterested director” shall be a director whose Board seat is not the subject of the nomination for director being voted upon. The Company further agrees that at any point in time in which the Buyer and its Affiliates own forty percent (40%) or more of the aggregate outstanding Shareholder Stock (assuming Full Conversion), the Buyer will have the right (in addition to the Buyer’s right in Section 2.2(a)(i) of the Shareholder Agreement but instead of the Buyer’s right in the prior sentence) to nominate both of the mutually acceptable “Independent Directors” that are referenced in Section 2.2(a)(ii) of the Shareholder Agreement for election to the Company’s Board of Directors, provided that the Board of Directors shall have discretion whether to accept such nominations and present the nominations to the shareholders for vote based on a majority vote of the then currently-elected disinterested directors. The Buyer agrees that if it nominates a person who is not reasonably acceptable to a majority of the then currently-elected disinterested directors of the Company, it will withdraw the nomination and consult with the other directors of the Company to select a new nominee who is reasonably acceptable to a majority of the currently-elected disinterested directors. Once a majority of the currently-elected disinterested directors have agreed to the independent directors nominated by Aspen, the Company will include such directors in the slate of directors recommended by the Board of Directors to shareholders for election as the Company’s recommended slate of directors. The shareholders of the Company shall have no obligation to vote for any persons nominated by the Buyer or the Company’s Board of Directors, except as otherwise expressly required by the Shareholder Agreement.

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

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

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

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

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

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

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

5.           CLOSING DATE.

a.           The initial Closing Date (the “Initial Closing Date”) occurred on March 18, 2013.

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

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

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

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

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

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

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

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

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

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

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

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

b.           The issuance of a restated Secured Convertible Promissory Note to XGS II by the Company that replaces the note dated October 15, 2013, and adjusted the principal included in such note pursuant to Section 1(b) on or before the Samsung Closing Date.

c.           The issuance, pursuant to the Existing Creditor Term Sheet, of a new warrant to XGS II for the purchase of up to 83,333 shares of Series A Stock on or before the Samsung Closing Date.

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

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

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

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

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

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

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

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

8.           CLOSING ACTIONS.

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

b.           Company’s Closing Actions on each Subsequent Closing Date. At each Subsequent Closing Date, the Company shall execute and deliver to the Buyer: (i) an Officer’s Certificate, and (ii) a Note in exchange for any funds newly advanced to the Company, if any, as of such Closing Date, and (iii) a lease schedule pursuant to the Master Lease Agreement in exchange for any funds newly advanced to vendors of the Company, if any, by the Buyer for the purchase of capital equipment on behalf of the Company pursuant to such Master Lease Agreement.

9.           INDEMNIFICATION AND REIMBURSEMENT.

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

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

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

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

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

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

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

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

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

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

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

12.         GOVERNING LAW: MISCELLANEOUS.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

with a copy to;	Matt G. Hrebec Foster Swift Collins & Smith PC 313 South Washington Square Lansing, MI 48933-2193
	Telephone: Facsimile:	517.371.8256 517.367.7356
BUYER:	Aspen Advanced Opportunity Fund, LP Attn: Steven C. Jones 1740 Persimmon Drive, Suite 100 Naples, FL 34109
	Telephone:	239.325.2001
	Facsimile:	239.325.2004
with a copy to:	K&L Gates LLP Attn: Clayton E. Parker 200 S. Biscayne Blvd. Miami, FL 33131
	Telephone:	305.539-3306
	Facsimile:	305.358.7095

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

**BALANCE OF PAGE INTENTIONALLY LEFT BLANK**

SECOND AMENDED & RESTATED PURCHASE AGREEMENT

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

BUYER:
ASPEN ADVANCED OPPORTUNITY FUND, LP
By:	AA XGS, LLC
Its:	General Partner
By:	/s/ Steven C. Jones
Name:	Steven C. Jones
Title:	Managing Member
COMPANY:
XG SCIENCES, INC.
By:	/s/ Michael R. Knox
Name:	Michael R. Knox
Title:	Chief Executive Officer

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

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

No. 13 3,000,000.00

XG SCIENCES, INC.

Secured Convertible Promissory Note

Due March 18, 2018

This Secured Convertible Promissory Note (this “Note”) is issued this 15th day of January 2014, jointly and severally by XG Sciences, Inc. (“XGS”),a Michigan corporation, and XG Sciences IP, LLC, a Michigan limited liability company (collectively the “Borrower” or the “Company”),to SVIC No. _15 New Technology Business Investment L.L.P. (“Samsung”) (“Samsung” or the “Holder”), pursuant to that certain Purchase Agreement, dated January 15, 2014, between the parties and any amendments thereto (the “Purchase Agreement”).

FOR VALUE RECEIVED, the Borrower hereby promises to pay to the Holder or his, her or its successors and assigns the principal sum of THREE MILLION AND xx/100 DOLLARS ($3,000,000.00) on or before March 18, 2018 (the “Maturity Date”) and to pay interest on the principal sum outstanding from time to time in arrears at the rate of 12.0% per annum, accruing from the Original Issue Date (as defined in Section 7 hereof) until the date (each, an“Interest Payment Date”) which is the earlier of (i) the next Conversion Date (as defined below), (ii) the date which is the last day of the month of the first month after the Original Issue Date and the last day of every month thereafter, or (iii) the Maturity Date, as the case may be. Interest shall accrue monthly (pro-rated on a daily basis for any period longer or shorter than a month) from the later of the Original Issue Date or the previous Interest Payment Date and shall be payable in cash. If not paid in full on an Interest Payment Date, interest shall be fully cumulative and shall accrue on a daily basis, based on a 360-day year, and compound monthly on the last day of each month beginning on the last day of the first full month after the Original Issue Date, until paid.

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

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

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

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

Section 2.         Covenants.

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

(1)         Financial Reports, Notices and Other Information.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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Section 3.          Events of Default.

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

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

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

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

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

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

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

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

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

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

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

Section 4.          Conversion.

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

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

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

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

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

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

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

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

Section 6.        Security Agreement. This Note is secured by a Security Agreement of even date herewith (the “Security Agreement”) and an Intellectual Property Security Agreement of even date herewith (the “IP Security Agreement”) between the Borrower, the Holder, XGS II, LLC, a Florida limited liability company (“XGS II”), Mr. Michael R. Knox (“Knox”), Aspen Advanced Opportunity Fund, L.P., a Delaware limited partnership (“Aspen” and together with XGS II and Knox, the “Other Secured Parties”), and the Agent specified in such Security Agreement and IP Security Agreement. The Holder understands and acknowledges that the Borrower has issued secured indebtedness to Knox secured by the Collateral (as defined in the Security Agreement) as more fully described on Exhibit B and intends to issue either simultaneously with this Note or at a subsequent time, additional Notes or other similar securities to the Holder and Other Secured Parties and consents to such additional secured indebtedness so long as all of the following conditions are met:

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

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

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

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

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

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

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

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

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

“Aspen Transaction Documents” means the purchase agreements between the Company and Aspen, on the one hand, and the Company and XGS II, on the other hand, as amended and restated, and any other agreements delivered in connection with such agreements.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

“Transaction Documents” means the Purchase Agreement and any other agreement delivered in connection with the Purchase Agreement, including, without limitation, this Note, the Security Agreement and the IP Security Agreement.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

If to the Borrower, to:	XG Sciences, Inc.
	3101 Grand Oak Drive
	Lansing, MI 48911
	Attn: Chief Executive Officer
	Telephone:	(517) 703-1110, ext. 5445
	Facsimile:	(517) 703-1113
With a copy to:	Matt G. Hrebec
	Attorney
	Foster Swift Collins & Smith PC
	313 South Washington Square
	Lansing, MI 48933-2193
	Telephone: 517.371.8256
	Facsimile: 517.367.7356
If to the Holder:	SVIC No.15 New Technology Business Investment L.L.P.
	29th Fl., Samsung Electronics Bldg.
	1320-10, Seocho2-dong, Seocho-gu
	Seoul, Korea 137-857
	Fax: 82.2.2255.0288

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

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

[The Remainder of this Page Intentionally Left Blank.]

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

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

EXHIBIT “A”

NOTICE OF CONVERSION

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

To:

XG Sciences, Inc.

3101 Grand Oak Drive

Lansing, MI 48911

Attn: Chief Executive Officer

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

Conversion Date:
Applicable Note Conversion Price:
Signature:
Name:
Address:
Amount to be converted:	$
Amount of Note unconverted:	$
Note Conversion Price per share:	$
Number of shares of Common Stock to be issued:
Please issue the shares of Common Stock in the following name and to the following address:
Issue to:
Authorized Signature:
Name:
Title:
Phone Number:

EXHIBIT “B”

EXISTING INDEBTEDNESS OF BORROWER WHICH RANKS PARI PASSU TO THE NOTE

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

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

3. $739,349.83 Amended and Restated Secured Convertible Promissory Note issued on January 15, 2014 by the Borrower to XGS II, LLC.

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

EXHIBIT “C”

PERMITTED PAYMENTS TO HOLDERS OF EXISTING INDEBTEDNESS

1) TRADE ACCOUNT PAYABLES

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

2) ACCRUED LIABILITIES

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

3) SECURED NOTES PAYABLE DESCRIBED ON EXHIBIT B

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

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

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

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

4) UNSECURED NOTES PAYABLE

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

EXHIBIT “D”

EXISTING INDEBTEDNESS

UNSECURED NOTES PAYABLE

None

SCHEDULES

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

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

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

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

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

(Headquarters)

3101 Grand Oak Drive

Lansing, MI 48911

(R&D Facility)

4055 English Oak

Suite B

Lansing, MI 48911

(Pilot Plant)

2100 S. Washington Ave.

Lansing, MI 48910

Schedule 2(b)(4) – Securities

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

Schedule 2(b)(6) – Transactions with Affiliates

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

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

3. $739,349.83 Amended and Restated Secured Convertible Promissory Note issued on January 15, 2014 by the Borrower to XGS II, LLC.

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

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

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

WARRANT TO PURCHASE SHARES OF SERIES A CONVERTIBLE PREFERRED STOCK

of

XG SCIENCES, INC.

Dated as of January 15, 2014

Void after the date specified in Section 9

Warrant to Purchase

833,333 Shares of

Series A Convertible Preferred Stock

(subject to adjustment)

THIS CERTIFIES THAT, for value received, Aspen Advanced Opportunity Fund, LP, a Delaware limited partnership (“Aspen”), or its registered assigns (Aspen or its assigns generally referred to herein as the “Holder”), is entitled, subject to the provisions and upon the terms and conditions set forth herein, to purchase from XG Sciences, Inc., a Michigan corporation (the “Company”), shares of the Company’s Series A Convertible Preferred Stock (the “Preferred Stock”) (the “Shares”) in the amounts, at such times and at the price per share set forth in Section 1. The term “Warrant” as used herein shall include this Warrant and any warrants delivered in substitution or exchange therefor as provided herein. This Warrant is issued in connection with the sale of certain securities pursuant to the Amended & Restated Purchase Agreement, dated January 15, 2014, by and between the Holder and the Company (the “Purchase Agreement”). This Warrant restates and consolidates the warrants issued by the Company to Aspen on March 18, 2013 and July 12, 2013, each for 208,333 shares, respectively (the “Prior Warrants”). The Prior Warrants are hereby cancelled, and Aspen shall physically deliver the Prior Warrants to the Company upon the execution of this Warrant.

The following is a statement of the rights of the Holder and the conditions to which this Warrant is subject, and to which the Holder, by acceptance of this Warrant, agrees:

1. Number and Price of Shares; Exercise Period.

(a)          Number of Shares. Subject to any previous exercise of this Warrant and the vesting provisions outlined in Section 4 hereof, the Holder shall have the right to purchase up to 833,333 Shares, as may be adjusted pursuant hereto, prior to (or in connection with) the expiration of this Warrant as provided in Section 9.

(b)          Exercise Price. The exercise price per Share shall initially be equal to $12.00, subject to adjustment as provided in Section 7 (the “Exercise Price”).

(c)          Exercise Period. This Warrant shall be exercisable on or after the date of grant and prior to (or in connection with) the expiration of this Warrant as set forth in Section 9.

2.            Exercise of the Warrant.

(a)           Exercise. Subject to the vesting provisions outlined in Section 4 hereof, the purchase rights represented by this Warrant may be exercised at the election of the Holder, in whole or in part, but not for less than one hundred (100) Shares at a time (or such lesser number of shares which may then constitute the maximum number purchasable pursuant to Section 1) (such number being subject to adjustment as provided in Section 7, in accordance with Section 1), by:

(i)          the tender to the Company at its principal office (or such other office or agency as the Company may designate) of a notice of exercise in the form of Exhibit A (the “Notice of Exercise”), duly completed and executed by or on behalf of the Holder, together with the surrender of this Warrant; and

(ii)         the payment to the Company of an amount equal to (x) the Exercise Price multiplied by (y) the number of Shares being purchased, by wire transfer or certified, cashier’s or other check acceptable to the Company and payable to the order of the Company; and

(iii)        with respect to the first exercise by the Holder of this Warrant, in whole or in part, delivery of counterpart signature pages to that certain Shareholder Agreement, dated March 18, 2013, by and among the parties thereto and attached as Exhibit B hereto (the “Shareholder Agreement”), and any subsequent amendments thereto, such that as a condition to the first exercise by the Holder of this Warrant, in whole or in part, the Holder shall become a party to, and bound by, the Shareholder Agreement as a “Stockholder” thereunder; provided, however, that Holder will not be required to be bound to any provision of any such amendment to the Shareholder Agreement that creates a material financial obligation for the Holder; it being understood that the Shareholder Agreement as currently in effect does not create any such financial obligations.

(b)           Net Issue Exercise. In lieu of exercising this Warrant pursuant to Section 2(a)(ii), if the fair market value of one Share is greater than the Exercise Price (at the date of calculation as set forth below), the Holder may elect to receive a number of Shares equal to the value of this Warrant (or of any portion of this Warrant being canceled) by surrender of this Warrant at the principal office of the Company (or such other office or agency as the Company may designate) together with a properly completed and executed Notice of Exercise reflecting such election, in which event the Company shall issue to the Holder that number of Shares computed using the following formula:

X	=	Y (A – B)
		A

Where:

X	=	The number of Shares to be issued to the Holder
Y	=	The number of Shares purchasable under this Warrant or, if only a portion of the Warrant is being exercised, the portion of the Warrant being exercised (at the date of such calculation)

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A	=	The fair market value of one Share (at the date of such calculation)
B	=	The Exercise Price (as adjusted to the date of such calculation)

For purposes of the calculation above, the fair market value of one Share shall be determined by the Board of Directors of the Company, acting in good faith; provided, however; that:

(i)          where a public market exists for the Common Stock at the time of such exercise, the fair market value per Share shall be based on the average of the closing ask prices of the Common Stock underlying such Shares or the closing price quoted on the national securities exchange on which the Common Stock is listed as published in the Wall Street Journal, as applicable, for the ten (10) trading day period ending five (5) trading days prior to the date of determination of fair market value; and

(ii)         if the Warrant is exercised in connection with the Company’s initial public offering of the Common Stock, the fair market value per Share shall be based on the offering price per share of Common Stock to the public of the Company’s initial public offering.

(c)           Automatic Exercise. If any portion of this Warrant remains unexercised as of the Expiration Date of this Warrant as set forth in Section 9 and the fair market value per share of the Shares as of the Expiration Date is greater than the applicable Exercise Price as of the Expiration Date, then, without further action by the Holder, this Warrant shall be deemed to have been exercised automatically on the date (the “Automatic Exercise Date”) which is the day immediately prior to the close of business on the Expiration Date (or, in the event that the Expiration Date is not a Business Day, the immediately preceding Business Day) as if the Holder had duly given a Notice of Exercise for a Net Issue Exercise as contemplated by Section 2(b) hereof, and the Holder (or such other person or persons as directed by the Holder) shall be treated for all purposes as the holder of record of such Shares as of the close of business on such Automatic Exercise Date. This Warrant shall be deemed to be surrendered to the Company on the Automatic Exercise Date by virtue of this Section 2(c) without any action by the Holder

(d)           Stock Certificates. The rights under this Warrant shall be deemed to have been exercised and the Shares issuable upon such exercise shall be deemed to have been issued immediately prior to the close of business on the date this Warrant is exercised in accordance with its terms, and the person entitled to receive the Shares issuable upon such exercise shall be treated for all purposes as the holder of record of such Shares as of the close of business on such date. As promptly as reasonably practicable on or after such date, and in any event within thirty (30) days thereafter, the Company shall issue and deliver to the person or persons entitled to receive the same a certificate or certificates for that number of shares issuable upon such exercise. In the event that the rights under this Warrant are exercised in part and have not expired, the Company shall execute and deliver a new Warrant reflecting the number of Shares that remain subject to this Warrant.

(e)           No Fractional Shares or Scrip. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of the rights under this Warrant. In lieu of such fractional share to which the Holder would otherwise be entitled, the Company shall make a cash payment equal to the Exercise Price multiplied by such fraction.

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(f)           Reservation of Stock. The Company agrees during the term the rights under this Warrant are exercisable to take all reasonable action to reserve and keep available from its authorized and unissued shares of Preferred Stock, and the Common Stock into which such shares of Preferred Stock are convertible, for the purpose of effecting the exercise of this Warrant such number of shares as shall from time to time be sufficient to effect the exercise of the rights under this Warrant; and if at any time the number of authorized but unissued shares of Preferred Stock, and the Common Stock into which such shares of Preferred Stock are convertible, shall not be sufficient for purposes of the exercise of this Warrant in accordance with its terms, without limitation of such other remedies as may be available to the Holder, the Company will use all reasonable efforts to take such corporate action as may, in the opinion of counsel, be necessary to increase its authorized and unissued shares of its Preferred Stock, and the Common Stock into which shares of Preferred Stock are convertible, to a number of shares as shall be sufficient for such purposes. The Company represents and warrants that all shares that may be issued upon the exercise of this Warrant will, when issued in accordance with the terms hereof, be validly issued, fully paid and nonassessable.

3.          Replacement of the Warrant. Subject to the receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of loss, theft or destruction, on delivery of an indemnity agreement reasonably satisfactory in form and substance to the Company or, in the case of mutilation, on surrender and cancellation of this Warrant, the Company at the expense of the Holder shall execute and deliver, in lieu of this Warrant, a new warrant of like tenor and amount.

4.          Vesting of the Warrant. The Shares subject to this Warrant shall vest according to the following schedule:

(a)           378,766 Shares, as described in Section 1, shall be deemed to have vested as of January 15, 2014 in consideration for Aspen having advanced on or before such date (i) $3,909,425.00 of initial principal of Convertible Secured Notes pursuant to the transaction documents referenced in the Purchase Agreement (such documents collectively the “Transaction Documents”), and (ii) $635,769.73 of funding to certain vendors of the Company pursuant to Lease Schedules #1 and #2 of that certain Master Lease Agreement between the Aspen and the Company, dated March 18, 2013 (the “Master Lease”).

(b)           454,567 warrants shall vest according to the following schedule. For every $12 of new capital advanced to the Company in cash by Aspen over and above the amounts referenced in Section 4(a) above under any of the Transaction Documents after January 15, 2014, one Share, as described in Section 1, shall be deemed to be vested. For the purposes of this Warrant, any funds advanced to vendors of the Company by Aspen pursuant to the Master Lease Agreement between the parties, dated March 18, 2013, shall not be deemed to have been advanced to the Company until the earlier to occur of (i) the date on which a completed lease schedule is executed between the parties covering the funds advanced to vendors of the Company on the Company’s behalf; or (ii) the date which is six months from the date on which any advance is made by Aspen to a vendor of the Company pursuant to a signed certificate of understanding between Aspen and the Company.

(c)           In the event there is a Default or Event of Default (as such terms are defined in the Transaction Documents) by the Company under any of the Transaction Documents and such Default or Event of Default continues uncured for a period of thirty (30) days after the Company’s receipt of written notice of the Event of Default, then all remaining unvested Shares subject to this Warrant will be deemed to have immediately vested.

(d)           In the event there is a Change of Control of the Company as provided in Section 9 hereof, all remaining unvested Shares subject to this Warrant will be deemed to have immediately vested on the Business Day prior to such Change of Control.

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5. Transfer of the Warrant.

(a)           Warrant Register. The Company shall maintain a register (the “Warrant Register”)containing the name and address of the Holder or Holders. Until this Warrant is transferred on the Warrant Register in accordance herewith, the Company may treat the Holder as shown on the Warrant Register as the absolute owner of this Warrant for all purposes, notwithstanding any notice to the contrary. Any Holder of this Warrant (or of any portion of this Warrant) may change its address as shown on the Warrant Register by written notice to the Company requesting a change.

(b)           Warrant Agent. The Company may appoint an agent for the purpose of maintaining the Warrant Register referred to in Section 5(a), issuing the Shares or other securities then issuable upon the exercise of the rights under this Warrant, exchanging this Warrant, replacing this Warrant or conducting related activities.

(c)           Transferability of the Warrant. Subject to the provisions of this Warrant with respect to compliance with the Securities Act of 1933, as amended (the “Securities Act”) and limitations on assignments and transfers, including without limitation compliance with the restrictions on transfer set forth in Section 6, title to this Warrant may be transferred by endorsement (by the transferor and the transferee executing the assignment form attached as Exhibit C (the “Assignment Form”) and delivery in the same manner as a negotiable instrument transferable by endorsement and delivery.

(d)           Exchange of the Warrant upon a Transfer. On surrender of this Warrant (and a properly endorsed Assignment Form) for exchange, subject to the provisions of this Warrant with respect to compliance with the Securities Act and limitations on assignments and transfers, the Company shall issue to or on the order of the Holder a new warrant or warrants of like tenor, in the name of the Holder or as the Holder (on payment by the Holder of any applicable transfer taxes) may direct for the number of shares issuable upon exercise hereof, and the Company shall register any such transfer upon the Warrant Register. This Warrant (and the securities issuable upon exercise of the rights under this Warrant) must be surrendered to the Company or its warrant or transfer agent, as applicable, as a condition precedent to the sale, pledge, hypothecation or other transfer of any interest in any of the securities represented hereby.

(e)           Minimum Transfer. This Warrant may not be transferred in part unless such transfer is to a transferee who, pursuant to such transfer, receives the right to purchase at least one hundred (100) Shares hereunder (as adjusted from time to time in accordance with Section 7).

(f)           Taxes. In no event shall the Company be required to pay any tax which may be payable in respect of any transfer involved in the issue and delivery of any certificate in a name other than that of the Holder, and the Company shall not be required to issue or deliver any such certificate unless and until the person or persons requesting the issue thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid or is not payable.

6.           Restrictions on Transfer of the Warrant and Shares; Compliance with Securities Laws. By acceptance of this Warrant, the Holder agrees to comply with the following:

(a)           Restrictions on Transfers. Any transfer of the Shares or the Common Stock issuable upon conversion of the Shares (collectively the “Securities”) must be in compliance with all applicable federal and state securities laws. The Holder agrees not to make any sale, assignment, transfer, pledge or other disposition of all or any portion of the Securities, or any beneficial interest therein, unless and until the transferee thereof has agreed in writing for the benefit of the Company to take and hold such Securities subject to, and to be bound by, the terms and conditions set forth in this Warrant to the same extent as if the transferee were the original Holder hereunder, and

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(i)          there is then in effect a registration statement under the Securities Act covering such proposed disposition and such disposition is made in accordance with such registration statement, or

(ii)         (A) such Holder shall have given prior written notice to the Company of such Holder’s intention to make such disposition and shall have furnished the Company with a detailed description of the manner and circumstances of the proposed disposition, (B) the transferee shall have confirmed to the satisfaction of the Company in writing, substantially in the form of Exhibit A-1, that the Securities are being acquired (i) solely for the transferee’s own account and not as a nominee for any other party, (ii) for investment and (iii) not with a view toward distribution or resale, and shall have confirmed such other matters related thereto as may be reasonably requested by the Company, and (C) such Holder shall have furnished the Company, at the Holder’s expense, with (i) an opinion of counsel, reasonably satisfactory to the Company, to the effect that such disposition will not require registration of such Securities under the Securities Act or (ii) a “no action” letter from the Securities and Exchange Commission to the effect that the transfer of such Securities without registration will not result in a recommendation by the staff of the Securities and Exchange Commission that action be taken with respect thereto, whereupon such Holder shall be entitled to transfer such Securities in accordance with the terms of the notice delivered by the Holder to the Company; provided, that the requirements of Section 6(a)(ii)(C) shall not apply in the case of permitted transfers under Section 6(b).

(b)           Permitted Transfers. Permitted transfers include (i) a transfer not involving a change in beneficial ownership, or (ii) transactions involving the distribution without consideration of Securities by any Holder to a parent or majority owned subsidiary of the Holder that is a corporation; provided, in each case, that the Holder shall give written notice to the Company of the Holder’s intention to effect such disposition and shall have furnished the Company with a detailed description of the manner and circumstances of the proposed disposition.

(c)           Securities Law Legend. The Securities shall (unless otherwise permitted by the provisions of this Warrant) be stamped or imprinted with a legend substantially similar to the following (in addition to any legend required by state securities laws):

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

(d)           Shareholder Agreement Legend. The Shares issued upon exercise hereof shall also be stamped or imprinted with any and all legends described in the Company’s Shareholder Agreement.

(e)           Instructions Regarding Transfer Restrictions. The Holder consents to the Company making a notation on its records and giving instructions to any transfer agent in order to implement the restrictions on transfer established in Sections 5 and 6. The Company will not be required to (i) transfer on its books or in its Warrant Register any Securities that have been transferred in violation of any provisions of this Warrant or (ii) to treat as owner of such Securities, or accord the right to vote or pay dividends to any purchaser, donee or other transferee to whom such Securities may have been so transferred.

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(f)           Removal of Legend. The legend referring to federal and state securities laws identified in Section 6(d) stamped on a certificate evidencing the Shares and the stock transfer instructions and record notations with respect to such securities shall be removed and the Company shall issue a certificate without such legend to the holder of such securities if (i) such securities are registered under the Securities Act, or (ii) such holder provides the Company with an opinion of counsel reasonably acceptable to the Company to the effect that a sale or transfer of such securities may be made without registration or qualification.

7.          Adjustments. Subject to the expiration of this Warrant pursuant to Section 9, the number and kind of shares purchasable hereunder and the Exercise Price therefor are subject to adjustment from time to time after the date first stated herein, as follows:

(a)           Merger or Reorganization. If at any time there shall be any reorganization, recapitalization, merger or consolidation (a “Reorganization”) involving the Company (other than as otherwise provided for herein or as would cause the expiration of this Warrant under Section 9) in which the Preferred Stock are converted into or exchanged for securities, cash or other property, then, as a part of such Reorganization, lawful provision shall be made so that the Holder shall thereafter be entitled to receive upon exercise of this Warrant, the kind and amount of securities, cash or other property of the successor corporation resulting from such Reorganization, equivalent in value to that which a holder of the Shares deliverable upon exercise of this Warrant would have been entitled in such Reorganization if the right to purchase the Shares hereunder had been exercised immediately prior to such Reorganization. In any such case, appropriate adjustment (as determined in good faith by the Board of Directors of the successor corporation) shall be made in the application of the provisions of this Warrant with respect to the rights and interests of the Holder after such Reorganization to the end that the provisions of this Warrant shall be applicable after the event, as near as reasonably may be, in relation to any shares or other securities deliverable after that event upon the exercise of this Warrant.

(b)           Reclassification of Shares. If the securities issuable upon exercise of this Warrant are changed into the same or a different number of securities of any other class or classes by reclassification, capital reorganization or otherwise (other than as otherwise provided for herein) (a “Reclassification”), then, in any such event, in lieu of the number of Shares which the Holder would otherwise have been entitled to receive, the Holder shall have the right thereafter to exercise this Warrant for a number of shares of such other class or classes of stock that a holder of the number of securities deliverable upon exercise of this Warrant immediately before that change would have been entitled to receive in such Reclassification, all subject to further adjustment as provided herein with respect to such other shares.

(c)           Subdivisions and Combinations. In the event that the outstanding shares of the Preferred Stock are subdivided (by stock split, by payment of a stock dividend or otherwise) into a greater number of shares of such securities, the number of Shares issuable upon exercise of the rights under this Warrant immediately prior to such subdivision shall, concurrently with the effectiveness of such subdivision, be proportionately increased, and the Exercise Price shall be proportionately decreased, and in the event that the outstanding shares of the Preferred Stock are combined (by reclassification or otherwise) into a lesser number of shares of such securities, the number of Shares issuable upon exercise of the rights under this Warrant immediately prior to such combination shall, concurrently with the effectiveness of such combination, be proportionately decreased, and the Exercise Price shall be proportionately increased.

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(d)           Notice of Adjustments. Upon any adjustment in accordance with this Section 7, the Company shall give notice thereof to the Holder, which notice shall state the event giving rise to the adjustment, the Exercise Price as adjusted and the number of securities or other property purchasable upon the exercise of the rights under this Warrant, setting forth in reasonable detail the method of calculation of each. The Company shall, upon the written request of any Holder, furnish or cause to be furnished to such Holder a certificate setting forth (i) such adjustments, (ii) the Exercise Price at the time in effect and (iii) the number of securities and the amount, if any, of other property that at the time would be received upon exercise of this Warrant

8.           Notification of Certain Events. Prior to the expiration of this Warrant pursuant to Section 9, in the event that the Company shall authorize:

(a)           the voluntary liquidation, dissolution or winding up of the Company;

(b)           any transaction resulting in the expiration of this Warrant pursuant to Section 9(b); or

(c)           any cash dividend, stock dividend, property dividend or any other distribution of the Company;

the Company shall send to the Holder of this Warrant at least fifteen (15) days prior written notice of the date on which a record shall be taken for any such action, dividend or distribution specified in clause (a) or (c) or the expected effective date of any such other event specified in clause (b) or (c), as applicable. The notice provisions set forth in this section may be shortened or waived prospectively or retrospectively by the consent of the Holder of this Warrant.

9.           Expiration of the Warrant. This Warrant shall expire and shall no longer be exercisable as of the earlier of (such date, the “Expiration Date”):

(a)           5:00 p.m., Eastern time, on January 15, 2024;

(b)           (i) the acquisition of the Company by another entity by means of any transaction or series of related transactions to which the Company is a party (including, without limitation, any stock acquisition, reorganization, merger or consolidation, but excluding any sale of stock for capital raising purposes and any transaction effected primarily for purposes of changing the Company’s jurisdiction of incorporation) other than a transaction or series of related transactions in which the holders of the voting securities of the Company outstanding immediately prior to such transaction or series of related transactions retain, immediately after such transaction or series of transactions, as a result of shares in the Company held by such holders prior to such transaction or series of transactions, at least a majority of the total voting power represented by the outstanding voting securities of the Company or such other surviving or resulting entity (or if the Company or such other surviving or resulting entity is a wholly-owned subsidiary immediately following such acquisition, its parent), or (ii) a sale, lease or other disposition of all or substantially all of the assets of the Company and its subsidiaries taken as a whole by means of any transaction or series of related transactions, except where such sale, lease or other disposition is to a wholly-owned subsidiary of the Company (any of the foregoing events specified in this Section 9(b), referred to generally as a “Change of Control”).

10.          No Rights as a Stockholder. Nothing contained herein shall entitle the Holder to any rights as a stockholder of the Company or to be deemed the holder of any securities that may at any time be issuable on the exercise of the rights hereunder for any purpose nor shall anything contained herein be construed to confer upon the Holder, as such, any right to vote for the election of directors or upon any matter submitted to stockholders at any meeting thereof, or to give or withhold consent to any corporate action (whether upon any recapitalization, issuance of stock, reclassification of stock, change of par value or change of stock to no par value, consolidation, merger, conveyance or otherwise) or to receive notice of meetings, or to receive dividends or subscription rights or any other rights of a stockholder of the Company until the rights under the Warrant shall have been exercised and the Shares purchasable upon exercise of the rights hereunder shall have become deliverable as provided herein.

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11.         Representations and Warranties of the Holder. By acceptance of this Warrant, the Holder represents and warrants to the Company as follows:

(a)           No Registration. The Holder understands that the Securities have not been, and will not be, registered under the Securities Act by reason of a specific exemption from the registration provisions of the Securities Act, the availability of which depends upon, among other things, the bona fide nature of the investment intent and the accuracy of the Holder’s representations as expressed herein or otherwise made pursuant hereto.

(b)           Investment Intent. The Holder is acquiring the Securities for investment for its own account, not as a nominee or agent, and not with a view to, or for resale in connection with, any distribution thereof. The Holder has no present intention of selling, granting any participation in, or otherwise distributing the Securities, nor does it have any contract, undertaking, agreement or arrangement for the same.

(c)           Investment Experience. The Holder has substantial experience in evaluating and investing in private placement transactions of securities in companies similar to the Company, and has such knowledge and experience in financial or business matters so that it is capable of evaluating the merits and risks of its investment in the Company and protecting its own interests.

(d)           Speculative Nature of Investment. The Holder understands and acknowledges that the Company has a limited financial and operating history and that its investment in the Company is highly speculative and involves substantial risks. The Holder can bear the economic risk of its investment and is able, without impairing its financial condition, to hold the Securities for an indefinite period of time and to suffer a complete loss of its investment.

(e)           Access to Data. The Holder has had an opportunity to ask questions of officers of the Company, which questions were answered to its satisfaction. The Holder believes that it has received all the information that it considers necessary or appropriate for deciding whether to acquire the Securities. The Holder understands that any such discussions, as well as any information issued by the Company, were intended to describe certain aspects of the Company’s business and prospects, but were not necessarily a thorough or exhaustive description. The Holder acknowledges that any business plans prepared by the Company have been, and continue to be, subject to change and that any projections included in such business plans or otherwise are necessarily speculative in nature, and it can be expected that some or all of the assumptions underlying the projections will not materialize or will vary significantly from actual results.

(f)           Accredited Investor. The Holder is an “accredited investor” within the meaning of Regulation D, Rule 501(a), promulgated by the Securities and Exchange Commission and agrees to submit to the Company such further assurances of such status as may be reasonably requested by the Company.

(g)           Residency. The residency of the Holder (or, in the case of a partnership or corporation, such entity’s principal place of business) is correctly set forth on the signature page hereto.

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(h)           Restrictions on Resales. The Holder acknowledges that the Securities must be held indefinitely unless subsequently registered under the Securities Act or an exemption from such registration is available. The Holder is aware of the provisions of Rule 144 promulgated under the Securities Act, which permit resale of shares purchased in a private placement subject to the satisfaction of certain conditions, which may include, among other things, the availability of certain current public information about the Company; the resale occurring not less than a specified period after a party has purchased and paid for the security to be sold; the number of shares being sold during any three-month period not exceeding specified limitations; the sale being effected through a “broker’s transaction,” a transaction directly with a “market maker” or a “riskless principal transaction” (as those terms are defined in the Securities Act or the Exchange Act, as amended, and the rules and regulations promulgated thereunder); and the filing of a Form 144 notice, if applicable. The Holder acknowledges and understands that the Company may not be satisfying the current public information requirement of Rule 144 at the time the Holder wishes to sell the Securities and that, in such event, the Holder may be precluded from selling the Securities under Rule 144 even if the other applicable requirements of Rule 144 have been satisfied. The Holder acknowledges that, in the event the applicable requirements of Rule 144 are not met, registration under the Securities Act or an exemption from registration will be required for any disposition of the Securities. The Holder understands that, although Rule 144 is not exclusive, the Securities and Exchange Commission has expressed its opinion that persons proposing to sell restricted securities received in a private offering other than in a registered offering or pursuant to Rule 144 will have a substantial burden of proof in establishing that an exemption from registration is available for such offers or sales and that such persons and the brokers who participate in the transactions do so at their own risk.

(i)           No Public Market. The Holder understands and acknowledges that no public market now exists for any of the securities issued by the Company and that the Company has made no assurances that a public market will ever exist for the Company’s securities.

(j)           Brokers and Finders. The Holder has not engaged any brokers, finders or agents in connection with the Securities, and the Company has not incurred nor will incur, directly or indirectly, as a result of any action taken by the Holder, any liability for brokerage or finders’ fees or agents’ commissions or any similar charges in connection with the Securities.

(k)          Legal Counsel. The Holder has had the opportunity to review this Warrant, the exhibits and schedules attached hereto and the transactions contemplated by this Warrant with its own legal counsel. The Holder is not relying on any statements or representations of the Company or its agents for legal advice with respect to this investment or the transactions contemplated by this Warrant.

(l)          Tax Advisors. The Holder has reviewed with its own tax advisors the U.S. federal, state and local and non-U.S. tax consequences of this investment and the transactions contemplated by this Warrant. With respect to such matters, the Holder relies solely on any such advisors and not on any statements or representations of the Company or any of its agents, written or oral. The Holder understands that it (and not the Company) shall be responsible for its own tax liability that may arise as a result of this investment and the transactions contemplated by this Warrant.

12.         Miscellaneous.

(a)           Amendments. Except as expressly provided herein, neither this Warrant nor any term hereof may be amended, waived, discharged or terminated other than by a written instrument referencing this Warrant and signed by the Company and the Holder. Any amendment, waiver, discharge or termination effected in accordance with this Section 12(a) shall be binding upon the Holder, each future holder of such Warrants and the Company.

(b)           Waivers. No waiver of any single breach or default shall be deemed a waiver of any other breach or default theretofore or thereafter occurring.

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(c)           Notices. All notices and other communications required or permitted hereunder shall be in writing and shall be mailed by registered or certified mail, postage prepaid, sent by facsimile or electronic mail (if to the Holder) or otherwise delivered by hand, messenger or courier service addressed:

(i)          if to the Holder, to the Holder at the Holder’s address, facsimile number or electronic mail address as shown in the Company’s records, as may be updated in accordance with the provisions hereof, or until any such Holder so furnishes an address, facsimile number or electronic mail address to the Company, then to and at the address, facsimile number or electronic mail address of the last holder of this Warrant for which the Company has contact information in its records; or

(ii)         if to the Company, to the attention of the Chief Executive Officer of the Company at the Company’s address as shown on the signature page hereto, or at such other address as the Company shall have furnished to the Holder.

Each such notice or other communication shall for all purposes of this Warrant be treated as effective or having been given (i) if delivered by hand, messenger or courier service, when delivered, or (ii) if sent by mail, at the earlier of its receipt or 72 hours after the same has been deposited in a regularly maintained receptacle for the deposit of the United States mail, addressed and mailed as aforesaid, or (iii) if sent by facsimile, upon confirmation of facsimile transfer or, if sent by electronic mail, upon confirmation of delivery when directed to the relevant electronic mail address. In the event of any conflict between the Company’s books and records and this Warrant or any notice delivered hereunder, the Company’s books and records will control absent fraud or error.

(d)           Governing Law. This Warrant and all actions arising out of or in connection with this Warrant shall be governed by and construed in accordance with the laws of the State of Michigan, without regard to the conflicts of law provisions of any other state.

(e)           Jurisdiction and Venue. Each of the Holder and the Company irrevocably consents to the exclusive jurisdiction and venue of any court within the Ingham County, State of Michigan, in connection with any matter based upon or arising out of this Warrant or the matters contemplated herein, and agrees that process may be served upon them in any manner authorized by the laws of the State of Florida for such persons.

(f)           Titles and Subtitles. The titles and subtitles used in this Warrant are used for convenience only and are not to be considered in construing or interpreting this Warrant. All references in this Warrant to sections, paragraphs and exhibits shall, unless otherwise provided, refer to sections and paragraphs hereof and exhibits attached hereto.

(g)           Severability. If any provision of this Warrant becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, portions of such provision, or such provision in its entirety, to the extent necessary, shall be severed from this Warrant, and such illegal, unenforceable or void provision shall be replaced with a valid and enforceable provision that will achieve, to the extent possible, the same economic, business and other purposes of the illegal, unenforceable or void provision. The balance of this Warrant shall be enforceable in accordance with its terms.

(h)           Waiver of Jury Trial. EACH OF THE HOLDER AND THE COMPANY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATED TO THIS WARRANT. If the waiver of jury trial set forth in this paragraph is not enforceable, then any claim or cause of action arising out of or relating to this Warrant shall be settled by judicial reference pursuant to the laws of the State of Michigan before a referee sitting without a jury, such referee to be mutually acceptable to the parties or, if no agreement is reached, by a referee appointed by the state courts of Michigan. This paragraph shall not restrict the Holder or the Company from exercising remedies under the Uniform Commercial Code or from exercising pre- judgment remedies under applicable law.

 11

(i)            Saturdays, Sundays and Holidays. If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall be a Saturday, Sunday or U.S. federal holiday, then such action may be taken or such right may be exercised on the next succeeding day that is not a Saturday, Sunday or U.S. federal holiday (such day a “Business Day”).

(j)           Rights and Obligations Survive Exercise of the Warrant. Except as otherwise provided herein, the rights and obligations of the Company and the Holder under this Warrant shall survive exercise of this Warrant.

(k)          Entire Agreement. Except as expressly set forth herein, this Warrant (including the exhibits attached hereto) constitutes the entire agreement and understanding of the Company and the Holder with respect to the subject matter hereof and supersedes all prior agreements and understandings relating to the subject matter hereof, including the Prior Warrants.

(Signature Page Follows)

 12

The Company and the Holder sign this Warrant as of the date stated on the first page.

XG SCIENCES, INC.
a Michigan corporation
By:	/s/ Michael R. Knox
Name:	Michael R. Knox
Title:	Chief Executive Officer
Address:
3101 Grand Oak Drive
Lansing, MI 48911
Telephone:      517.703.1110
Facsimile:       517.703.1113

AGREED AND ACKNOWLEDGED:
ASPEN ADVANCED OPPORTUNITY FUND, LP,
a Delaware limited partnership
By:	AA XGS, LLC
Its:	General Partner
By:	/s/  Steven C. Jones
Name:	Steven C. Jones
Title:	Managing Member
Address:
1740 Persimmon Drive, Suite 100
Naples, FL 34109
Telephone:     239.325.2001
Facsimile:      239.325.2004

EXHIBIT A

NOTICE OF EXERCISE

TO: XG Sciences, Inc. (the “Company”)

Attention: Chief Executive Officer

(1) Exercise. The undersigned elects to purchase the following pursuant to the terms of the attached warrant:

Number of shares:

Type of security:

(2) Method of Exercise. The undersigned elects to exercise the attached warrant pursuant to:

¨ A cash payment, and tenders herewith payment of the purchase price for such shares in full, together with all applicable transfer taxes, if any.

¨ The net issue exercise provisions of Section 2(b) of the attached warrant.

(3) Stock Certificate. Please issue a certificate or certificates representing the shares in the name of:

¨ The undersigned

¨	Other—Name:
	Address:

(4) Unexercised Portion of the Warrant. Please issue a new warrant for the unexercised portion of the attached warrant in the name of:

¨	The undersigned
¨	Other—Name:
	Address:
¨	Not applicable

(5) Investment Intent. The undersigned represents and warrants that the aforesaid shares are being acquired for investment for its own account, not as a nominee or agent, and not with a view to, or for resale in connection with, the distribution thereof, and that the undersigned has no present intention of selling, granting any participation in, or otherwise distributing the shares, nor does it have any contract, undertaking, agreement or arrangement for the same, and all representations and warranties of the undersigned set forth in Section 11 of the attached warrant are true and correct as of the date hereof.

(Signature page to the Notice of Exercise)

 A-1

(6) Investment Representation Statement. The undersigned has executed, and delivers herewith, an Investment Representation Statement in a form substantially similar to the form attached to the warrant as Exhibit A-1.

(Print name of the warrant holder)

(Signature)

(Name and title of signatory, if applicable)

(Date)

(Fax number)

(Email address)

(Signature page to the Notice of Exercise)

 A-2

EXHIBIT A-1

INVESTMENT REPRESENTATION STATEMENT

INVESTOR:
COMPANY:	XG Sciences, Inc., a Michigan corporation
SECURITIES:	THE WARRANT ISSUED ON JANUARY 15, 2014 (THE “WARRANT”) AND THE SECURITIES ISSUED OR ISSUABLE UPON EXERCISE THEREOF
DATE:

In connection with the purchase or acquisition of the above-listed Securities, the undersigned Investor represents and warrants to, and agrees with, the Company as follows:

1.          No Registration. The Investor understands that the Securities have not been, and will not be, registered under the Securities Act of 1933, as amended (the “Securities Act”), by reason of a specific exemption from the registration provisions of the Securities Act, the availability of which depends upon, among other things, the bona fide nature of the investment intent and the accuracy of the Investor’s representations as expressed herein or otherwise made pursuant hereto.

2.          Investment Intent. The Investor is acquiring the Securities for investment for its own account, not as a nominee or agent, and not with a view to, or for resale in connection with, any distribution thereof. The Investor has no present intention of selling, granting any participation in, or otherwise distributing the Securities, nor does it have any contract, undertaking, agreement or arrangement for the same.

3.          Investment Experience. The Investor has substantial experience in evaluating and investing in private placement transactions of securities in companies similar to the Company, and has such knowledge and experience in financial or business matters so that it is capable of evaluating the merits and risks of its investment in the Company and protecting its own interests.

4.          Speculative Nature of Investment. The Investor understands and acknowledges that its investment in the Company is highly speculative and involves substantial risks. The Investor can bear the economic risk of its investment and is able, without impairing its financial condition, to hold the Securities for an indefinite period of time and to suffer a complete loss of its investment.

5.          Access to Data. The Investor has had an opportunity to ask questions of officers of the Company, which questions were answered to its satisfaction. The Investor understands that any such discussions, as well as any information issued by the Company, were intended to describe certain aspects of the Company’s business and prospects, but were not necessarily a thorough or exhaustive description. The Investor acknowledges that any business plans prepared by the Company have been, and continue to be, subject to change and that any projections included in such business plans or otherwise are necessarily speculative in nature, and it can be expected that some or all of the assumptions underlying the projections will not materialize or will vary significantly from actual results.

6.          Accredited Investor. The Investor is an “accredited investor” within the meaning of Regulation D, Rule 501(a), promulgated by the Securities and Exchange Commission and agrees to submit to the Company such further assurances of such status as may be reasonably requested by the Company.

 A-1-1

7.          Residency. The residency of the Investor (or, in the case of a partnership or corporation, such entity’s principal place of business) is correctly set forth on the signature page hereto.

8.          Restrictions on Resales. The Investor acknowledges that the Securities must be held indefinitely unless subsequently registered under the Securities Act or an exemption from such registration is available. The Investor is aware of the provisions of Rule 144 promulgated under the Securities Act, which permit resale of shares purchased in a private placement subject to the satisfaction of certain conditions, which may include, among other things, the availability of certain current public information about the Company; the resale occurring not less than a specified period after a party has purchased and paid for the security to be sold; the number of shares being sold during any three-month period not exceeding specified limitations; the sale being effected through a “broker’s transaction,” a transaction directly with a “market maker” or a “riskless principal transaction” (as those terms are defined in the Securities Act or the Exchange Act (as defined below), as amended, and the rules and regulations promulgated thereunder); and the filing of a Form 144 notice, if applicable. The Investor acknowledges and understands that the Company may not be satisfying the current public information requirement of Rule 144 at the time the Investor wishes to sell the Securities and that, in such event, the Investor may be precluded from selling the Securities under Rule 144 even if the other applicable requirements of Rule 144 have been satisfied. The Investor understands and acknowledges that, in the event the applicable requirements of Rule 144 are not met, registration under the Securities Act or an exemption from registration will be required for any disposition of the Securities. The Investor understands that, although Rule 144 is not exclusive, the Securities and Exchange Commission has expressed its opinion that persons proposing to sell restricted securities received in a private offering other than in a registered offering or pursuant to Rule 144 will have a substantial burden of proof in establishing that an exemption from registration is available for those offers or sales and that those persons and the brokers who participate in the transactions do so at their own risk.

9.          No Public Market. The Investor understands and acknowledges that no public market now exists for any of the securities issued by the Company and that the Company has made no assurances that a public market will ever exist for the Company’s securities.

10.        Brokers and Finders. The Investor has not engaged any brokers, finders or agents in connection with the Securities, and the Company has not incurred nor will incur, directly or indirectly, as a result of any action taken by the Investor, any liability for brokerage or finders’ fees or agents’ commissions or any similar charges in connection with the Securities.

11.        Legal Counsel. The Investor has had the opportunity to review the Warrant, the exhibits and schedules attached thereto and the transactions contemplated by the Warrant with its own legal counsel. The Investor is not relying on any statements or representations of the Company or its agents for legal advice with respect to this investment or the transactions contemplated by the Warrant.

12.        Tax Advisors. The Investor has reviewed with its own tax advisors the U.S. federal, state and local and non-U.S. tax consequences of this investment and the transactions contemplated by the Warrant. With respect to such matters, the Investor relies solely on such advisors and not on any statements or representations of the Company or any of its agents, written or oral. The Investor understands that it (and not the Company) shall be responsible for its own tax liability that may arise as a result of this investment or the transactions contemplated by the Warrant.

 A-1-2

The Investor is signing this Investment Representation Statement on the date first written above.

INVESTOR

[_________________]

(Print name of the investor)

(Signature)

(Name and title of signatory, if applicable)

(Street address)

(City, state and ZIP)

 A-1-3

EXHIBIT B

[Shareholder Agreement]

 B-1

EXHIBIT C

ASSIGNMENT FORM

ASSIGNOR:
COMPANY:	XG SCIENCES, INC.
WARRANT:	THE WARRANT TO PURCHASE SHARES. OF SERIES A CONVERTIBLE PREFERRED STOCK ISSUED ON JANUARY 15, 2014 (THE “WARRANT”)
DATE:

(1) Assignment. The undersigned registered holder of the Warrant (“Assignor”) assigns and transfers to the assignee named below (“Assignee”) all of the rights of Assignor under the Warrant, with respect to the number of shares set forth below:

Name of Assignee:

Address of Assignee:

Number of Shares Assigned:

and does irrevocably constitute and appoint ____________________ as attorney to make such transfer on the books of XG Sciences, Inc., maintained for the purpose, with full power of substitution in the premises.

(2) Obligations of Assignee. Assignee agrees to take and hold the Warrant and any shares of stock to be issued upon exercise of the rights thereunder (the “Securities”) subject to, and to be bound by, the terms and conditions set forth in the Warrant to the same extent as if Assignee were the original holder thereof.

(3) Investment Intent. Assignee represents and warrants that the Securities are being acquired for investment for its own account, not as a nominee or agent, and not with a view to, or for resale in connection with, the distribution thereof, and that Assignee has no present intention of selling, granting any participation in, or otherwise distributing the shares, nor does it have any contract, undertaking, agreement or arrangement for the same, and all representations and warranties set forth in Section 11 of the Warrant are true and correct as to Assignee as of the date hereof.

(4) Investment Representation Statement. Assignee has executed, and delivers herewith, an Investment Representation Statement in a form substantially similar to the form attached to the Warrant as Exhibit A-1.

 C-1

Assignor and Assignee are signing this Assignment Form on the date first set forth above.

ASSIGNOR	ASSIGNEE
(Print name of Assignor)	(Print name of Assignee)
(Signature of Assignor)	(Signature of Assignee)
(Print name of signatory, if applicable)	(Print name of signatory, if applicable)
(Print title of signatory, if applicable)	(Print title of signatory, if applicable)
Address:	Address:

 C-2

SECOND AMENDED AND RESTATED SECURITY AGREEMENT

This Second Amended and Restated Security Agreement, dated as of January 15, 2014 (the “Agreement”) is made by and among XG Sciences, Inc., a corporation duly organized and validly existing under the laws of Michigan (the “Company”), Aspen Advanced Opportunity Fund, LP, a Delaware limited partnership (“AAOF”), XGS II, LLC, a Florida limited liability company (“XGS II”), SVIC No. 15 New Technology Business Investment L.L.P. (“Samsung”), Michael R. Knox (“Knox”), and any other party who may sign a Secured Party signature page attached hereto (each, a “Secured Party,” and collectively, the “Secured Parties”), and Aspen Capital Advisors, LLC, a Florida limited liability corporation, as agent for the Secured Parties (in such capacity, together with its successors in such capacity, the “Agent”).

WHEREAS, the Company and AAOF entered into a Second Amended & Restated Purchase Agreement, dated January 15, 2014 (the “Purchase Agreement”), which includes the terms and conditions pursuant to which AAOF would provide up to $10.0 million of funding to the Company in exchange for certain securities of the Company; and

WHEREAS, the Company executed and delivered to AAOF, Knox and XGS II certain convertible secured promissory notes, of various dates from March 18, 2013 to January 7, 2014, which have been restated and consolidated into a new convertible secured promissory note dated January 15, 2014 (the “Existing Notes”) that grant a first priority security interest in all assets of the Company to AAOF and XGS II; and

WHEREAS, the Company has and contemplates issuing additional secured promissory notes, in substantially the form attached hereto as Exhibit A to Samsung pursuant to a purchase agreement between the Company and Samsung (the “Samsung Purchase Agreement”), the Secured Parties and potentially to other third parties in the future as part of the transactions contemplated by the Purchase Agreement (the “Notes”).

NOW THEREFORE, in order to induce AAOF, XGS II, Samsung, Knox, and potential other Secured Parties to enter into the Existing Notes and the Notes, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company has agreed to pledge and grant a continuing security interest in the Collateral (as hereinafter defined) as security for the Secured Obligations (as hereinafter defined). Accordingly, the parties hereto agree as follows:

Section 1.         Definitions. Each capitalized term used herein and not otherwise defined shall have the meaning assigned to such term in the Existing Notes, the Notes or the Purchase Agreement. In addition, as used herein:

“Accounts” shall have the meaning ascribed thereto in Section 3(b) hereof.

“Agent” shall mean Aspen Capital Advisors, LLC, a Florida limited liability corporation and its successors who succeed to its duties hereunder as agent for the Secured Parties, with respect to the rights of the Secured Parties hereunder.

“Business” shall mean the businesses from time to time, now or hereafter, conducted by the Company and its Subsidiaries, when formed.

“Collateral” shall have the meaning ascribed thereto in Section 3 hereof.

“Copyright Collateral” shall mean all Copyrights, whether now owned or hereafter acquired by the Company that are associated with the Business.

1 

“Copyrights” shall mean all copyrights, copyright registrations, and applications for copyright registrations, including, without limitation, all renewals and extensions thereof, the right to recover for all past, present and future infringements thereof, and all other rights of any kind whatsoever accruing thereunder or pertaining thereto.

“Documents” shall have the meaning ascribed thereto in Section 3(h) hereof.

“Equipment” shall have the meaning ascribed thereto in Section 3(f) hereof.

“Event of Default” shall have the meaning ascribed thereto in Section 3 of the AAOF Note and the Notes.

“Excluded Collateral” shall mean the assets of the Company which secure the Permitted Indebtedness and the assets listed on Annex 1 hereto.

“Instruments” shall have the meaning ascribed thereto in Section 3(c) hereof.

“Intellectual Property” shall mean, collectively, all Copyright Collateral, all Patent Collateral and all Trademark Collateral, together with (a) all inventions, processes, production methods, proprietary information, know-how and trade secrets used or useful in the Business; (b) all licenses or user or other agreements granted to the Company with respect to any of the foregoing, in each case whether now or hereafter owned or used including, without limitation, the licenses or other agreements with respect to the Copyright Collateral, the Patent Collateral or the Trademark Collateral; (c) all customer lists, identification of suppliers, data, plans, blueprints, specifications, designs, drawings, recorded knowledge, surveys, manuals, materials standards, processing standards, catalogs, computer and automatic machinery software and programs, and the like pertaining to the operation by the Company of the Business; (d) all sales data and other information relating to sales now or hereafter collected and/or maintained by the Company that pertain to the Business; (e) all accounting information which pertains to the Business and all media in which or on which any of the information or knowledge or data or records which pertain to the Business may be recorded or stored and all computer programs used for the compilation or printout of such information, knowledge, records or data; (f) all licenses, consents, permits, variances, certifications and approvals of governmental agencies now or hereafter held by the Company pertaining to the operation by the Company and its Subsidiaries of the Business; and (g) all causes of action, claims and warranties now or hereafter owned or acquired by the Company in respect of any of the items listed above. Notwithstanding anything contained herein to the contrary, the Intellectual Property does not and shall not include any Patent Rights within the meaning of that certain Restated and Amended Exclusive License Agreement (the “MSU License”) between Michigan State University (“Licensor”) and the Company; provided, however, that the Company agrees to use commercially reasonable best efforts to obtain the consent of Licensor to permit inclusion of the MSU License as Intellectual Property Collateral hereunder.

“Inventory” shall have the meaning ascribed thereto in Section 3(d) hereof.

“Patent Collateral” shall mean all Patents and pending Patents, whether now owned or hereafter acquired by the Company that are associated with the Business. Notwithstanding the foregoing, Patent Collateral does not and shall not include any Patent Rights within the meaning of that certain MSU License.

“Patents” shall mean all patents and patent applications, including, without limitation, the inventions and improvements described and claimed therein together with the reissues, divisions, continuations, renewals, extensions and continuations-in-part thereof, all income, royalties, damages and payments now or hereafter due or payable under and with respect thereto, including, without limitation, damages and payments for past or future infringements thereof, the right to sue for past, present and future infringements thereof, and all rights corresponding thereto throughout the world.

2 

mandatory provisions of law, any or all of the attachment, perfection, priority, or remedies with respect to Agent’s and the Secured Parties’ lien on any Collateral is governed by the Uniform Commercial Code as enacted and in effect in a jurisdiction other than the State of Michigan, the term “Uniform Commercial Code” shall mean the Uniform Commercial Code as enacted and in effect in such other jurisdiction solely for purposes of the provisions thereof relating to such attachment, perfection, priority, or remedies.

Section 2.         Representations and Warranties of the Company.The Company represents and warrants to each of the Secured Parties that:

a. the Company is the sole beneficial owner of the Collateral and no lien exists or will exist upon any Collateral at any time, except for Permitted Liens and the pledge and security interest in favor of each of the Secured Parties created or provided for herein, which pledge and security interest constitutes a first priority perfected pledge and security interest in and to all of the Collateral;

b. Except as set forth on Annex 2, the Company or XG Sciences IP, LLC owns and possesses the right to use, and has done nothing to authorize or enable any other person to use, all of their respective Copyrights, Patents and Trademarks, and all registrations of its material Copyrights, Patents and Trademarks are valid and in full force and effect. Except as may be set forth in Annex 2 and except for Permitted Liens, the Company or XG Sciences IP, LLC owns and possesses the right to use all material Copyrights, Patents and Trademarks, necessary for the operation of the Business;

c. to the Company’s knowledge, (i) except as set forth in Annex 2 hereto, there is no violation by others of any right of the Company with respect to any material Copyrights, Patents or Trademarks, respectively, and (ii) the Company is not, in connection with the Business, infringing in any respect upon any Copyrights, Patents or Trademarks of any other person; and no proceedings have been instituted or are pending against the Company or, to the Company’s knowledge, threatened, and no claim against the Company has been received by the Company, alleging any such violation, except as may be set forth in said Annex 2, and except, in each case for matters which singly or in the aggregate could not reasonably be expected to have a material adverse effect upon the Company or the Collateral in the aggregate;

d. Neither the Company nor any of its subsidiaries owns any material Trademarks registered in the United States of America to which the second sentence of the definition of Trademark Collateral applies;

e. Neither the Company nor any of its subsidiaries has or will issue any indebtedness which is secured by the Collateral to any third parties other than AAOF, XGS II, Samsung and Knox; and

f. The Company is the sole holder and beneficial owner of all of the equity ownership securities of its wholly-owned subsidiary XG Sciences IP, LLC (the “Pledged Interests”), which owns and possesses the Copyrights, Know-How, Patents, Patent Licenses, Trademarks, and other intellectual property and other assets set forth on Annex 6 hereto, (i) All of the Pledged Interests are duly authorized, validly issued, fully paid and non-assessable, (ii) Company has the right and requisite authority to pledge the Pledged Interests as provided herein, and (iii) all actions necessary or desirable to perfect and establish the first priority of, or otherwise protect, Agent’s and Secured Parties’ liens in the Pledged Interests, and the proceeds thereof, have been duly taken, upon (A) the execution and delivery of this Agreement; and (B) the filing of a financing statements in the applicable jurisdiction for the Company. None of the Pledged Interests owned or held by the Company has been issued or transferred in violation of any securities registration, securities disclosure, or similar laws of any jurisdiction to which such issuance or transfer may be subject. The Pledged Interests (A) are not dealt in or traded on securities exchanges or in securities markets, (B) do not constitute investment company securities, and (C) are not held by the Company in a securities account.

3 

Section 3.         Collateral. As collateral security for the prompt payment in full when due (whether at stated maturity, by acceleration or otherwise) of the Secured Obligations, the Company hereby acknowledges, agrees and confirms that (i) Agent, on behalf of the Secured Parties as hereinafter provided, shall continue to have a security interest in and lien upon and, (ii) to the extent not otherwise previously granted to Agent, Company hereby pledges, grants, assigns, hypothecates and transfers to the Agent, on behalf of the Secured Parties as hereinafter provided, a first priority security interest in and lien upon all of the Company’s personal property and fixture property and other assets, whether now owned or hereafter acquired by or arising in favor of the Company, and all of the Company’s right, title and interest therein, whether now existing or hereafter coming into existence, and regardless of where located, except for the Excluded Collateral (all of the foregoing except the Excluded Collateral being collectively referred to herein as “Collateral”), including but not limited to the following types and items of property:

a. all goods;

b. all accounts, general intangibles and payment intangibles (each as defined in the Uniform Commercial Code), including (but not limited to) all moneys due and to become due to the Company in respect of any loans or advances for the purchase price of Inventory or Equipment or other goods sold or leased or for services rendered, all moneys due and to become due to the Company under any guarantee (including a letter of credit) of the purchase price of Inventory or Equipment sold by the Company and all tax refunds (such accounts, general intangibles and moneys due and to become due being herein called collectively “Accounts”);

c. all instruments, all chattel paper, and all letters of credit (each as defined in the Uniform Commercial Code), including but not limited to those evidencing, representing, arising from or existing in respect of, relating to, securing or otherwise supporting the payment of, any of the Accounts, and including (but not limited to) promissory notes, drafts, bills of exchange and trade acceptances (herein collectively called “Instruments”);

d. all inventory (as defined in the Uniform Commercial Code) and all goods obtained by the Company in exchange for such inventory (herein collectively called “Inventory”);

e. all Intellectual Property and all other accounts or general intangibles of the Company not constituting Intellectual Property or Accounts;

f. all equipment (as defined in the Uniform Commercial Code) (herein collectively called “Equipment”);

g. each contract and other agreement of the Company relating to the sale or other disposition of Inventory or Equipment;

4 

h. all documents of title (as defined in the Uniform Commercial Code) and other receipts of the Company covering, evidencing or representing Inventory or Equipment (herein collectively called “Documents”);

i. All deposit accounts;

j. All securities and other investment property, including but not limited to the Pledged Interests;

k. all rights, claims and benefits of the Company against any person arising out of, relating to or in connection with Inventory or Equipment purchased by the Company, including, without limitation, any such rights, claims or benefits against any person storing or transporting such Inventory or Equipment; and

l. all other tangible or intangible property of the Company, including, without limitation, all proceeds, products and accessions of and to any of the property of the Company described in Clauses (a) through (k) above in this Section 3 (including, without limitation, any proceeds of insurance thereon), and, to the extent related to any property described in said Clauses or such proceeds, products and accessions, all books, correspondence, credit files, records, invoices and other papers, including without limitation all tapes, cards, computer runs and other papers and documents in the possession or under the control of the Company or any computer bureau or service company from time to time acting for the Company.

Section 4.         Further Assurances; Remedies. In furtherance of the grant of the pledge and security interest pursuant to Section 3 hereof, the Company hereby agrees with the Agent and each of the Secured Parties as follows:

4.01         Delivery and Other Perfection. The Company or XG Sciences IP, LLC shall:

a. give, execute, deliver, file and record any financing statement, notice, instrument, document, agreement or other papers that may be necessary (in the reasonable judgment of the Agent) to create, preserve, maintain, perfect or validate any security interest previously granted or granted pursuant hereto or to enable the Agent to exercise and enforce its rights hereunder with respect to such security interest, including, without limitation, causing any or all of the stock collateral to be transferred of record into the name of the Agent or its nominee provided that notices to account debtors in respect of any Accounts or Instruments shall be subject to the provisions of Section 4.08 below;

b. keep accurate books and records relating to the Collateral, and stamp or otherwise mark such books and records in such manner as the Agent may reasonably require in order to reflect the security interests granted by this Agreement;

c. furnish to the Agent from time to time (no more frequently than annually, unless an Event of Default shall have occurred and shall be continuing,) statements and schedules further identifying and describing the Copyright Collateral, the Patent Collateral and the Trademark Collateral, respectively, and such other reports in connection with the Copyright Collateral, the Patent Collateral and the Trademark Collateral, as the Agent may reasonably request, all in reasonable detail;

5 

d. permit representatives of the Agent, upon reasonable notice, at any time during normal business hours to inspect and make abstracts from its books and records pertaining to the Collateral, and permit representatives of the Agent to be present at the Company’s place of business to receive copies of all communications and remittances relating to the Collateral, and forward copies of any notices or communications by the Company with respect to the Collateral, all in such manner as the Agent may reasonably require; and

e. upon the occurrence and during the continuance of any Event of Default, upon request of the Agent, promptly notify each account debtor in respect of any Accounts or Instruments that such Collateral has been assigned to the Agent hereunder, and that any payments due or to become due in respect of such Collateral are to be made directly to the Agent.

4.02         Other Financing Statements and Liens. Except with respect to Permitted Indebtedness, Permitted Liens or as otherwise permitted under the Existing Notes, the Notes or the Subscription Agreements, without the prior written consent of the Agent, the Company shall not file or suffer to be on file, or authorize or permit to be filed or to be on file, in any jurisdiction, any financing statement or like instrument with respect to the Collateral in which the Agent is not named as the sole secured party for the benefit of each of the Secured Parties.

4.03         Special Provisions Relating to Certain Collateral.

a. Intellectual Property.

(1) For the purpose of enabling the Agent to exercise rights and remedies under Section 4.04 hereof at such time as the Agent shall be lawfully entitled to exercise such rights and remedies, and for no other purpose, the Company hereby grants to the Agent, to the extent assignable, an irrevocable, non-exclusive license (exercisable without payment of royalty or other compensation to the Company) to use, assign, license or sublicense any of the Intellectual Property (other than the Trademark Collateral or goodwill associated therewith) now owned or hereafter acquired by the Company, wherever the same may be located, including in such license reasonable access to all media in which any of the licensed items may be recorded or stored and to all computer programs used for the compilation or printout thereof.

(2) Notwithstanding anything contained herein to the contrary, so long as no Event of Default shall have occurred and shall be continuing, the Company and XG Sciences IP, LLC will be permitted to exploit, use, enjoy, protect, license, sublicense, assign, sell, dispose of or take other actions with respect to the Intellectual Property in the ordinary course of the business of the Company. In furtherance of the foregoing, unless an Event of Default shall have occurred and is continuing, the Agent shall from time to time, upon the request of the Company, execute and deliver any instruments, certificates or other documents, in the form so requested, which the Company shall have certified are appropriate (in its judgment) to allow it to take any action permitted above (including relinquishment of the license provided pursuant to Clause (1) immediately above as to any specific Intellectual Property). Further, upon the payment in full of all of the Secured Obligations or earlier expiration of this Agreement or release of the Collateral, the Agent shall grant back to the Company the license granted pursuant to Clause (1) immediately above. The exercise of rights and remedies under Section 4.04 hereof by the Agent shall not terminate the rights of the holders of any licenses or sublicenses theretofore granted by the Company in accordance with the first sentence of this Clause (2).

6 

b. Pledged Interests.

(1) If the Company shall acquire, obtain, receive or become entitled to receive any Pledged Interests after the date hereof, it shall promptly (and in any event within two (2) Business Days of acquiring or obtaining such Collateral) deliver to Agent a duly executed addendum to this Agreement, in form and substance satisfactory to Agent, identifying such Pledged Interests.

(2) The Company shall not make or consent to any amendment or other modification or waiver with respect to any Pledged Interests, the operating agreement of XG Sciences IP, LLC, or enter into any agreement or permit to exist any restriction with respect to any Pledged Interests if the same is prohibited pursuant to this Agreement or any other Transaction Agreement.

(3) The Company hereby covenants that the Pledged Interests (A) are not and shall not be dealt in or traded on securities exchanges or in securities markets, (B) do not and will not constitute investment company securities, and (C) are not and will not be held by the Company in a securities account. In addition, none of the operating agreement of XG Sciences IP, LLC or any other agreements governing any of the Pledged Interests provide or shall provide that such Pledged Interests are securities governed by Article 8 of the Uniform Commercial Code as in effect in any relevant jurisdiction.

(4) For so long as the Company shall have the right to vote the Pledged Interests owned by it, the Company covenants and agrees that it will not, without the prior written consent of the Secured Parties, vote or take any consensual action with respect to such Pledged Interests which would materially adversely affect the rights of the Secured Parties or the value of the Pledged Interests.

4.04         Events of Default, etc. During the period during which an Event of Default shall have occurred and be continuing:

a. the Company shall, at the request of the Agent, assemble the Collateral owned by it at such place or places, reasonably convenient to both the Agent and the Company, designated in its request;

b. the Agent may make any reasonable compromise or settlement deemed desirable with respect to any of the Collateral and may extend the time of payment, arrange for payment in installments, or otherwise modify the terms of, any of the Collateral;

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c. the Agent shall have all of the rights and remedies with respect to the Collateral of a secured party under the Uniform Commercial Code (whether or not said Code is in effect in the jurisdiction where the rights and remedies are asserted) and such additional rights and remedies to which a secured party is entitled under the laws in effect in any jurisdiction where any rights and remedies hereunder may be asserted, including, without limitation, the right, to the maximum extent permitted by law, to exercise all voting, consensual and other powers of ownership pertaining to the Collateral as if the Agent were the sole and absolute owner thereof (and the Company agrees to take all such action as may be appropriate to give effect to such right);

d. the Agent in its discretion may, in its name or in the name of the Company or otherwise, demand, sue for, collect or receive any money or property at any time payable or receivable on account of or in exchange for any of the Collateral, but shall be under no obligation to do so; and

e. the Agent may, upon ten (10) Business Days’ prior written notice to the Company of the time and place, with respect to the Collateral or any part thereof which shall then be or shall thereafter come into the possession, custody or control of the Agent, or any of its respective agents, sell, lease, assign or otherwise dispose of all or any of such Collateral, at such place or places as the Agent deems best, and for cash or on credit or for future delivery (without thereby assuming any credit risk), at public or private sale, without demand of performance or notice of intention to effect any such disposition or of time or place thereof (except such notice as is required above or by applicable statute and cannot be waived) and the Agent or anyone else may be the purchaser, lessee, assignee or recipient of any or all of the Collateral so disposed of at any public sale (or, to the extent permitted by law, at any private sale), and thereafter hold the same absolutely, free from any claim or right of whatsoever kind, including any right or equity of redemption (statutory or otherwise), of the Company, any such demand, notice or right and equity being hereby expressly waived and released. In the event of any sale, assignment, or other disposition of any of the Trademark Collateral, the goodwill of the Business connected with and symbolized by the Trademark Collateral subject to such disposition shall be included, and the Company shall supply to the Agent or its designee, for inclusion in such sale, assignment or other disposition, all Intellectual Property relating to such Trademark Collateral. The Agent may, without notice or publication, adjourn any public or private sale or cause the same to be adjourned from time to time by announcement at the time and place fixed for the sale, and such sale may be made at any time or place to which the same may be so adjourned.

The proceeds of each collection, sale or other disposition under this Section 4.04, including by virtue of the exercise of the license granted to the Agent in Section 4.03(a)(1) hereof, shall be applied in accordance with Section 4.07 hereof.

4.05         Deficiency. If the proceeds of sale, collection or other realization of or upon the Collateral pursuant to Section 4.04 hereof are insufficient to cover the costs and expenses of such realization and the payment in full of the Secured Obligations, the Company shall remain liable for any deficiency.

4.06         Removals, etc. Without at least thirty (30) days’ prior written notice to the Agent or unless otherwise required by law, the Company shall not (i) maintain any of its books or records with respect to the Collateral at any office or maintain its chief executive office or its principal place of business at any place, or permit any Inventory or Equipment to be located anywhere other than at one of the locations identified in Annex 3 hereto or in transit from one of such locations to another; or (ii) change its corporate name, or the name under which it does business, from the name shown on the signature page hereto.

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4.07         Application of Proceeds. Except as otherwise herein expressly provided, the proceeds of any collection, sale or other realization of all or any part of the Collateral pursuant hereto, and any other cash at the time held by the Agent under this Section 4, shall be applied by the Agent:

First, to the payment of the costs and expenses of such collection, sale or other realization, including reasonable out-of-pocket costs and expenses of the Agent and the fees and expenses of its agents and counsel, and all expenses, and advances made or incurred by the Agent in connection therewith;

Next, to the payment in full of the Secured Obligations in each case equally and ratably in accordance with the respective amounts thereof then due and owing to each of the Secured Parties; and

Finally, to the payment to the Company, or its successors or assigns, or as a court of competent jurisdiction may direct, of any surplus then remaining.

As used in this Section 4, “proceeds” of Collateral shall mean cash, securities and other property realized in respect of, and distributions in kind of, Collateral, including any thereof received under any reorganization, liquidation or adjustment of debt of the Company or any issuer of or obligor on any of the Collateral.

4.08         Attorney-in-Fact. Without limiting any rights or powers granted by this Agreement to the Agent while no Event of Default has occurred and is continuing, upon the occurrence and during the continuance of any Event of Default, the Agent is hereby appointed the attorney-in-fact of the Company for the purpose of carrying out the provisions of this Section 4 and taking any action and executing any instruments which the Agent may deem necessary or advisable to accomplish the purposes hereof, which appointment as attorney-in-fact is irrevocable and coupled with an interest. Without limiting the generality of the foregoing, so long as the Secured Parties shall be entitled under this Section 4 to make collections in respect of the Collateral, the Agent shall have the right and power to receive, endorse and collect all checks made payable to the order of the Company representing any dividend, payment, or other distribution in respect of the Collateral or any part thereof and to give full discharge for the same.

4.09         Perfection. Prior to or concurrently with the execution and delivery of this Agreement, the Company shall file such financing statements and other documents in such offices as the Agent may request to perfect or maintain the security interests granted by Section 3 of this Agreement; and without limiting the Company’s obligations with respect to perfection of the security interests, the Company hereby authorizes the Agent to file all such financing statements and other documents and, at Agent’s option, to describe the Collateral in any such financing statement as “all personal property.”

4.10         Termination, When all Secured Obligations shall have been paid in full under the Subscription Agreements, this Agreement shall terminate, and the Agent shall forthwith cause to be assigned, transferred and delivered, against receipt but without any recourse, warranty or representation whatsoever, any remaining Collateral and money received in respect thereof, to or on the order of the Company and to be released and cancelled all licenses and rights referred to in Section 4.03(a)(1) hereof. The Agent shall also execute and deliver to the Company upon such termination such Uniform Commercial Code termination statements and such other documentation as shall be reasonably requested by the Company to effect the termination and release of the liens on the Collateral.

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4.11         Expenses. The Company agrees to pay to the Agent all out-of-pocket expenses (including reasonable expenses for legal services of every kind) of, or incident to, the enforcement of any of the provisions of this Section 4, or performance by the Agent of any obligations of the Company in respect of the Collateral which the Company has failed or refused to perform upon reasonable notice, or any actual or attempted sale, or any exchange, enforcement, collection, compromise or settlement in respect of any of the Collateral, and for the care of the Collateral and defending or asserting rights and claims of the Agent in respect thereof, by litigation or otherwise, including expenses of insurance, and all such expenses shall be Secured Obligations to the Agent secured under Section 3 hereof. Each Secured Party agrees to advance to the Agent his/her/its pro rata share of any funds requested by the Agent to carry out the intent and purposes of this Agreement according to each Secured Party’s pro rata share of the total aggregate principal amount outstanding under the Notes at the time such request for advance is made. Any such advances will be refunded to the Secured Parties to the extent the Company reimburses the Agent for its expenses or the Agent makes recoveries from the disposition of the Company’s assets.

4.12         Further Assurances. The Company agrees that, from time to time upon the written request of the Agent, the Company will execute and deliver such further documents and do such other acts and things as the Agent may reasonably request in order fully to effect the purposes of this Agreement.

Section 5.         Miscellaneous.

5.01         No Waiver. No failure on the part of the Agent or any of its agents to exercise, and no course of dealing with respect to, and no delay in exercising, any right, power or remedy hereunder shall operate as a waiver thereof; nor shall any single or partial exercise by the Agent or any of its agents of any right, power or remedy hereunder preclude any other or further exercise thereof or the exercise of any other right, power or remedy. The remedies herein are cumulative and are not exclusive of any remedies provided by law.

5.02         Governing Law. This Agreement shall be governed by, and construed in accordance with, the law of the State of Michigan.

5.03         Notices. All notices, demands, requests, consents, approvals, and other communications required or permitted hereunder shall be in writing and, unless otherwise specified herein, shall be (a) personally served, (b) deposited in the mail, registered or certified, return receipt requested, postage prepaid, (c) delivered by reputable air courier service with charges prepaid, or (d) transmitted by hand delivery, telegram, or facsimile, addressed as set forth below or to such other address as such party shall have specified most recently by written notice given in accordance herewith. Any notice or other communication required or permitted to be given hereunder shall be deemed effective (i) upon hand delivery or delivery by facsimile, with accurate confirmation generated by the transmitting facsimile machine, at the address or number designated below (if delivered on a business day during normal business hours where such notice is to be received), or the first business day following such delivery (if delivered other than on a business day during normal business hours where such notice is to be received) or (ii) on the second business day following the date of mailing by express courier service or on the fifth business day after deposited in the mail, in each case, fully prepaid, addressed to such address, or upon actual receipt of such mailing, whichever shall first occur. The addresses for such communications shall be for (i) the Company at 3101 Grand Oak Drive, Lansing, MI 48911 (Telephone: (517) 703-1110, Fax: (517) 703-1113), (ii) the Agent at 1740 Persimmon Drive, Suite 100, Naples, FL 34109 (Telephone: (239) 325-2001, Fax: (239) 325-2001) and (iii) for each Secured Party as provided on the signature page hereto. Any party hereto may from time to time change its address or facsimile number for notices under this Section by written notice to the other parties.

5.04         Waivers, etc. The terms of this Agreement may be waived, altered or amended only by an instrument in writing duly executed by the Company and the Agent. Any such amendment or waiver shall be binding upon each of the Secured Parties and the Company.

5.05         Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the respective successors and assigns of the Company and each of the Secured Parties (provided, however, that the Company shall not assign or transfer its rights hereunder without the prior written consent of the Agent).

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5.06         Counterparts; Additional Secured Parties. This Agreement may be executed in any number of counterparts, ail of which together shall constitute one and the same instrument and any of the parties hereto may execute this Agreement by signing any such counterpart. In the event additional Secured Parties become holders of the Notes, such Secured Parties may become a party to this Agreement by signing a counterpart to this Agreement, all of which together shall be considered one and the same instrument. The Company shall provide a copy of each Security Agreement executed by a Secured Party to the Agent.

5.07         Appointment of Agent. Each Secured Party agrees to appoint Aspen Capital Advisors, LLC as its Agent for purposes of this Agreement. Each of Secured Party hereby authorizes the Agent to take such action and to exercise such powers hereunder as provided herein or as requested to or consented by the Secured Parties (acting together), together with such powers as are reasonably incidental thereto. Subject to the provisions of this Agreement, the Agent will not take any action contrary to the express written instructions of the Secured Parties (acting together) and will take any lawful action prescribed in express written instructions of the Secured Parties (acting together). The Agent may decline to take any action except upon the express written instructions of the Secured Parties (acting together) and the Agent may request a written ratification by the Secured Parties (acting together) of any action taken by it under this Agreement, which ratification shall not be unreasonably withheld, conditioned or delayed. The Agent shall not be obligated to take any action, or engage in any course of conduct, if the Secured Parties are not in agreement as to such action or course of conduct. The Agent may employ agents and attorneys-in-fact in connection herewith and shall not be responsible for the negligence or misconduct of any such agents or attorneys-in-fact selected by it in good faith.

5.08         Powers and Duties. Subject to and upon the other terms and conditions contained herein that limit the obligations or duties of the Agent, the duties and obligations of the Agent under this Agreement shall be those of a “collateral agent” and shall consist of and be limited to: (i) acquiring, holding and enforcing the security interest granted by the Company in the Collateral under this Agreement; (ii) selling, releasing, surrendering, realizing upon or otherwise dealing with, in any manner and in any order, all or any portion of the Collateral, (iii) exercising (or refraining from exercising) any rights, remedies or powers of the Agent under this Agreement, the [the Transaction Documents], or under applicable law in respect of all or any portion of the Collateral, (iv) making any demands or giving any notices hereunder or under the other transaction documents, and (v) effecting amendments to or granting waivers or consents hereunder or under the other transaction documents.

5.09         Resignation and Removal. The Agent shall be entitled to resign at any time upon written notice to the Secured Parties and the Agent may be removed at any time for cause by the vote of the Secured Parties holding a majority of the principal amounts of the secured indebtedness which is secured by a pledge of the Collateral hereunder. Except as provided above, upon any such resignation or removal, the Secured Parties shall have the right to appoint a successor Agent by the vote of the Secured Parties holding a majority of the principal amounts of the secured indebtedness which is secured by a pledge of the Collateral hereunder. If no successor Agent shall have been so appointed by such Secured Parties, and shall have accepted such appointment, within thirty (30) days after the retiring Agent’s giving of notice of resignation or the Secured Parties’ removal of the retiring Agent, then the retiring Agent may, on behalf of the Secured Parties, appoint a successor Agent. Upon the acceptance of any appointment as the Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations as the Agent under this Agreement. After any retiring or the Agent’s resignation or removal hereunder as the Agent, the provisions of Sections 5.07 through 5.10 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was the Agent under this Agreement..

11 

5.10         Indemnity of Agent. Each of the Secured Parties hereby covenants and agrees to reimburse, indemnify and hold the Agent harmless from and against any and all claims, actions, judgments, damages, losses, liabilities, costs, transfer or other taxes, and expenses (including, without limitation, reasonable attorneys’ fees and expenses) incurred or suffered without any bad faith, gross negligence or willful misconduct by the Agent, arising out of or incident to Agent’s actions or inactions as Agent with regard to its duties under or administration of this Agreement. Each Secured Party further agrees that any reimbursements or indemnity payments to the Agent shall be made according to each Secured Party’s pro rata share of the total aggregate principal amount outstanding under the Notes at the time of the event that gave rise to such reimbursement or indemnity claim by the Agent.

5.11         Severability. If any provision hereof is invalid and unenforceable in any jurisdiction, then, to the fullest extent permitted by law, (i) the other provisions hereof shall remain in full force and effect in such jurisdiction and shall be liberally construed in favor of the Secured Parties in order to carry out the intentions of the parties hereto as nearly as may be possible and (ii) the invalidity or unenforceability of any provision hereof in any jurisdiction shall not affect the validity or enforceability of such provision in any other jurisdiction.

5.12         Entire Agreement. This Agreement (together which each Annex hereto) contains the entire agreement and understanding by and between the parties hereto with respect to the subject matter hereof and their resulting obligations to each other, as herein described; and it amends, restates and supersedes all prior agreements and understandings between the parties to this Agreement relating to the subject matter hereof. No change or modification of this Agreement shall be valid or binding unless the same is in writing and signed by the party intended to be so bound. No waiver of any provision of this Agreement shall be valid unless the same is in writing and signed by the party against whom such waiver is sought to be enforced. Moreover, no valid waiver of any provision of this Agreement, at any time, shall be deemed to be a waiver of any other provision of this Agreement at such time, or shall be deemed to be a valid waiver of such provision at any other time.

[The remainder of this page intentionally left blank.]

12 

IN WITNESS WHEREOF, the parties hereto have caused this Second Amended and Restated Security Agreement to be duly executed as of the day and year first above written.

The “Company”:		The “Agent”:
XG Sciences, Inc.		Aspen Capital Advisors, LLC
By:	/s/ Michael R. Knox	By:	/s/ Steven C. Jones
Name: Michael R. Knox		Name: Steven C. Jones
Title:   Chief Executive Officer		Title:   Managing Member

SECOND AMENDED AND RESTATED SECURITY AGREEMENT

SECURED PARTY SIGNATURE PAGE 

IN WITNESS WHEREOF, the undersigned Secured Party agrees to the terms and conditions of the above Second Amended and Restated Security Agreement and hereby agrees that the execution of this Secured Party Signature Page is intended and shall be deemed to constitute the execution of such Second Amended and Restated Security Agreement by the undersigned.

NAME OF SECURED PARTY (type or print):

Aspen Advanced Opportunity Fund, LP

By:	/s/ Steven C. Jones	Date:	1/15/14
Name:	Steven C. Jones
Title:	Managing Member, AA XGS, LLC

Address for Notices:

Aspen Advanced Opportunity Fund, LP

Attn: General Partner

1740 Persimmon Drive. Suite 100

Naples. FL 34109

Phone:	(239) 325-2001
Fax:	(239) 325-2004

Principal Amount of Secured Obligations as of the date this Signature Page is signed: _________

Michael R. Knox

/s/ Michael R. Knox	Date:
Michael R. Knox

Address for Notices:

5337 Panda Bear Circle

East Lansing. MI 48823

Phone:	(517) 351-4813
Fax:	(517) 705-1113

Principal Amount of Secured Obligations as of the date this Signature Page is signed: _______

XGS II, LLC

By:	/s/ David G. Pendell	Date:	1-15-2014
Name:	David G. Pendell
Title:	Managing Member

Address for Notices:

XGS II, LLC

5500 Lake Grove Trail

Petoskey. MI 49770

Phone:	(239) 450-5097
Fax:

Amount of Secured Obligations as of the date this Signature Page is signed: _______

** signature pages continued on next page **

SVIC No. 15 New Technology Business Investment L.L.P.

By:	/s/ Seonjong Lee	Date:
Name:	SEONJONG LEE
Title:	C.E.O

Address for Notices:

29th Samsung ElectronicsBldg.

11, Seoch- dearo 74 gil, Seocho-gu,

Seoul, Korea 137-857

Phone:

Fax:

Amount of Secured Obligations as of the date this Signature Page is signed: _______

SECOND AMENDED AND RESTATED SECURITY AGREEMENT

ANNEX 1 - EXCLUDED COLLATERAL

The Patent Rights within the meaning of that certain Restated and Amended Exclusive License Agreement between Michigan State University and the Company.

SECOND AMENDED AND RESTATED SECURITY AGREEMENT

ANNEX 2 - EXCEPTIONS FOR COPYRIGHTS, PATENTS AND TRADEMARKS

The Company has distribution agreements with sales agents and other companies that allow the use of the Company’s trademarks n the normal course of business.

The Company has licensed the below listed production and manufacturing technology to the following licensees:

Cabot Corporation – production technology for the production of graphene nanoplatelets as more fully defined in the LICENSE AGREEMENT BETWEEN CABOT CORPORATION AND XG SCIENCES INC. dated November 1, 2011 and amended on January 23, 2013

POSCO – production technology for the production of graphene nanoplatelets as more fully defined in the LICENSE AGREEMENT between XG Sciences, Inc. and POSCO dated June 8, 2011

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

SECOND AMENDED AND RESTATED SECURITY AGREEMENT

ANNEX 3 - LIST OF LOCATIONS

3101 Grand Oak Drive

Lansing, MI 48911

4055 English Oak, Suite B

Lansing, MI 48911

2100 S. Washington Avenue

Lansing, MI 48910

SECOND AMENDED AND RESTATED SECURITY AGREEMENT

ANNEX 4 - EXISTING SECURED INDEBTEDNESS

1.	Aspen Advanced Opportunity Fund, LP (1)	$	4,178,330.92
2.	SVIC No. 15 New Technology Business Investment L.L.P.	$	3,000,000.00
3.	Michael Knox	$	872,998.15
4.	XGS II, LLC	$	739,349.83
	Total	$	8,790,678.90

(1) Aspen Amounts exclude certain funds advanced to the Company pursuant to a Master Lease Agreement for the purchase of equipment, the liens on which are permitted liens under this Agreement.

SECOND AMENDED AND RESTATED SECURITY AGREEMENT

ANNEX 5 - EXISTING LIENS

Secured Party	Assets Covered
Michael R. Knox	All tangible and intangible assets of the Company
Aspen Advanced Opportunity Fund, L.P.	All tangible and intangible assets of the Company
XGS II, LLC	All tangible and intangible assets of the Company
SVIC No. 15 New Technology Business Investment L.L.P.	All tangible and intangible assets of the Company

SECOND AMENDED AND RESTATED SECURITY AGREEMENT

ANNEX 6 - XG SCIENCES IP, LLC ASSETS

All “Intellectual Property” as defined in the Assignment of Intellectual Property dated effective as of January 15, 2014 between the Company and XG Sciences IP, LLC, including without limitation the following:

Patents:

Patent Application Number	Application Date	Description
13/474,860	5/18/2012	Process of Dry Milling Particulate Materials Milled Graphene/Metal Nano Composites
61/786,735	3/15/2013	Graphene Carbon Compositions
13/686,961	11/28/2012	Single Mode Microwave Device for Producing Exfoliated Graphite
13/610,934	9/12/2012	Cloud Mixer and Method of Minimizing Agglomeration of Particulates
13/435,260	3/30/2012	Mechanical Exfoliation Apparatus
61/786,745	3/15/2013	Electrodes for Capacitors from Mixed Carbon Compositions
14079057	11/13/2013	Silicon-Graphene Nanocomposites for Electrochemical Applications

Trademarks:

XG Sciences (Design Plus Words)

xGnP

XG Sciences The Material Difference (Design Plus Words)

XG Leaf (Application Pending)

SECOND AMENDED AND RESTATED SECURITY AGREEMENT

EXHIBIT A

Form of Secured Convertible Promissory Note

SECOND AMENDED AND RESTATED INTELLECTUAL PROPERTY SECURITY AGREEMENT

This Second Amended and Restated Intellectual Property Security Agreement (this “IP Security Agreement”) is made as of January 15, 2014 by and between XG Sciences, Inc., a Michigan corporation (“Pledgor”), Aspen Capital Advisors, LLC, a Florida limited liability corporation, as Agent (the “Agent”) for the undersigned lenders (‘‘Lenders”) from time to time holding secured convertible notes issued by the Pledgor, and the Lenders listed on the signature page hereto.

RECITALS

A.         Pledgor and Lenders are parties to those certain Secured Convertible Promissory Notes issued pursuant to those certain purchase agreements between the Pledgor and the Lenders as the same notes have been and may be modified, amended, supplemented, restated or superseded from time to time (the “Secured Notes”). Capitalized terms used but not defined herein shall have the meanings given to them in the Secured Notes or the Purchase Agreement (as defined below), as applicable.

B.          Pledgor entered into that certain Second Amended and Restated Purchase Agreement, dated January 15, 2014, with Aspen Advanced Opportunity Fund, LP (the “Purchase Agreement”).

C.          Pledgor and SVIC No. 15 New Technology Business Investment L.L.P. (“Samsung”) entered into that certain Purchase Agreement, dated January 15, 2014 (the “Samsung Purchase Agreement”, and together with the Purchase, Agreement, Secured Notes and the IP Security Agreement, the “Loan Documents”).

D.          Pledgor is the owner of the intellectual property collateral described herein.

E.          It is a condition to the Lenders’ entering into the Purchase Agreement and purchasing the Secured Notes that the Pledgor grants to the Agent a lien on and security interest in the collateral described herein.

NOW, THEREFORE, in consideration of the mutual promises and covenants set forth herein and other good and valuable consideration, the receipt and sufficiency of which is hereby conclusively acknowledged, the parties hereto agree as follows:

AGREEMENT

1.           Collateral Assignment, Patent Mortgage, and Grant of Security Interest. As collateral security for the prompt and complete payment and performance of: (i) all obligations of the Pledgor under the Secured Notes, (ii) all obligations of Pledgor hereunder and under any other documents related to and including the Purchase Agreement to which it is a party and (iii) all obligations of Pledgor under any other documents related to and including the Samsung Purchase Agreement (collectively, the “Secured Obligations”), Pledgor (i) hereby acknowledges, agrees and confirms that Agent shall continue to have a security interest in and, (ii) to the extent not otherwise granted to Agent, hereby grants a first priority security interest and mortgage to Agent for the benefit of the Lenders, as collateral security, in and to Pledgor’s entire right, title and interest in, to and under the following, now or hereafter existing, created, acquired, held or controlled by Pledgor (all of which shall collectively be called the “Intellectual Property Collateral”):

(a)          Any and all copyright rights, copyright applications, copyright registrations, copyright recordings and like protections in each work of authorship and derivative work thereof, whether registered or unregistered or published or unpublished and whether or not the same also constitutes a trade secret, held pursuant to the laws of the United States, any State thereof or of any other country or political subdivision thereof (collectively, the “Copyrights”);

(b)          any and all know-how including any and all information not covered by a patent or patent application, including but not limited to materials, trade secrets, information, experience and data, formulae, procedures, results and specifications, regulatory filings, clinical and pre-clinical data, in written or electronic form, including, without limitation, those set forth on Exhibit A attached hereto and incorporated herein by this reference (collectively, the “Know-How”);

(c)          any and all design rights which may be available to Pledgor;

(d)          any and all (i) letters patent, including, without limitation, utility patents, design patents, industrial designs and utility model registrations, of the United States or any other country, or any political subdivision thereof, and all reissues and extensions thereof, (ii) applications (including but not limited to provisional applications) for letters patent of the United States or any other country, or any political subdivision thereof, and all divisions, continuations, continuations-in-part, and continuing applications thereof, and (iii) rights to obtain any reissues, reexaminations or extensions thereof (collectively, the “Patents”) and any and all agreements, whether written or oral, providing for the grant by or to the Pledgor of any right to make, use, sell, offer to sell, or import any invention covered in whole or in part by one or more of the Patents and all renewals and extensions thereof (collectively, the “Patent Licenses”), including, without limitation, the Patents and Patent Licenses set forth on Exhibit A attached hereto and incorporated herein by this reference;

(e)          any and all trademarks, trade names, corporate names, company names, business names, trade styles, service marks, logos, other source or business identifiers, prints and labels on which any of the foregoing have appeared or appear, designs and general intangibles of like nature, all registrations and recordings thereof, and any applications in connection therewith, including, without limitation, registrations, recordings and applications in the United States Patent and Trademark Office or in any similar office or agency of the United States, any State thereof or any other country or any political subdivision thereof, and the entire goodwill of the business of Borrower connected with and symbolized by all such trademarks, including, without limitation, those set forth on Exhibit A attached hereto and incorporated herein by this reference (collectively, the “Trademarks”);

(f)          any and all income, royalties, damages, claims, and payments now and hereafter due and payable, including, without limitation, all claims for damages and payments by way of past, present and future infringement, misappropriation, or dilution of any of the rights included above, with the right, but not the obligation, to sue for and collect such damages for said use or infringement of the intellectual property rights identified above;

(g)          all licenses or other rights to use any of the Copyrights, Patents, Know-How, or Trademarks (collectively, the “Intellectual Property”) and all license fees and royalties arising from such use to the extent permitted by such license or rights and not prohibited by applicable law;

Second Amended and Restated Intellectual Property Security Agreement

(h)          all amendments, continuations, renewals, and extensions of any of the Intellectual Property;

(i)          all proceeds and products of the foregoing, including, without limitation, all payments under insurance or any indemnity or warranty payable in respect of any of the foregoing; and

(j)          all membership and any and all other equity ownership interests held by the Pledgor in and to XG Sciences IP, LLC.

Notwithstanding any of the foregoing, the term “Intellectual Property Collateral” shall not include any general intangibles of Pledgor (whether owned or held as licensee or lessee, or otherwise), to the extent that: (i) such general intangibles are not assignable or capable of being encumbered as a matter of law or under the terms of the license, lease or other agreement applicable thereto (but solely to the extent that any such restriction shall be enforceable under applicable law), without the consent of the licensor or lessor thereof or other applicable party thereto; and (ii) such consent has not been obtained; provided, however, that the grant of security interest herein shall extend to, and the term “Intellectual Property Collateral” shall include, (A) any and all proceeds of any general intangibles (“Proceeds”) which are otherwise excluded to the extent that the assignment or encumbrance of such Proceeds is not so restricted, (B) upon obtaining the consent of any such licensor, lessor or other applicable party’s consent with respect to any such otherwise excluded general intangibles, such general intangibles as well as any and all Proceeds thereof that might theretofore have been excluded from such a grant of a security interest and the term “Intellectual Property Collateral” and (C) any general intangible which is an account receivable or proceed of or otherwise related to the enforcement or collection of any account receivable or goods which are the subject of any account receivable. Notwithstanding anything contained herein to the contrary, the term “Intellectual Property Collateral” does not and shall not include any Patent Rights within the meaning of that certain Restated and Amended Exclusive License Agreement (the “MSU License”) between Michigan State University (“Licensor”) and Pledgor; provided, however, that the Pledgor agrees to use commercially reasonable best efforts to obtain the consent of Licensor to permit inclusion of the MSU License as Intellectual Property Collateral hereunder.

2.           Authorization and Request. Pledgor authorizes and requests that the Register of Copyrights and the Commissioner of Patents and Trademarks record this conditional assignment.

3.           Covenants and Warranties. Pledgor represents, warrants, covenants, and agrees as follows:

(a)          Pledgor or XG Sciences IP, LLC is now the sole owner of the Intellectual Property Collateral;

(b)          all of the Patents and Trademarks owned by Pledgor or XG Sciences IP, LLC or in which Pledgor or XG Sciences IP, LLC has any right, title, or interest are described on Exhibit A;

(c)          performance of this IP Security Agreement does not conflict with or result in a breach of any agreement to which Pledgor is a party or by which Pledgor is bound;

Second Amended and Restated Intellectual Property Security Agreement

(d)          during the term of this IP Security Agreement, Pledgor will not sell, transfer, assign, or otherwise encumber any interest in the Intellectual Property Collateral, except for (i) licenses granted by Pledgor in the ordinary course of its business as now conducted or as set forth in this IP Security Agreement or that do not, in the aggregate, impair the Intellectual Property Collateral or result in a Material Adverse Effect; and (ii) subject to Pledgor’s execution of appropriate documents, in form acceptable to Agent, to perfect or continue the perfection of Agent’s interest in the Intellectual Property Collateral, transfers to affiliates of Pledgor;

(e)          Except as disclosed on Exhibit A, to its knowledge; (i) each of the Patents (that is not listed as abandoned) is valid and enforceable, and there is no Intellectual Property (that is not listed as abandoned or pending) which has been judged invalid or unenforceable, in whole or in part; and (ii) no claim has been made that any part of the Intellectual Property Collateral (that is not listed as abandoned or pending) violates the rights of any third party;

(f)          Pledgor shall promptly advise Agent of any material changes in the composition of the Intellectual Property Collateral, including but not limited to any subsequent ownership right of Pledgor in or to any Intellectual Property not specified in this IP Security Agreement;

(g)          Pledgor shall: (i) protect, defend, and maintain the validity and enforceability of the Intellectual Property (other than property listed as abandoned), except where the failure to so protect, defend, and maintain would not, in the aggregate, result in a Material Adverse Effect; (ii) use all commercially reasonable efforts to detect infringements of the Intellectual Property (other than property listed as abandoned) and promptly advise Agent in writing of infringements detected and (iii) not allow any of its Intellectual Property (other than property listed as abandoned) to be abandoned, forfeited, or dedicated to the public without the written consent of Agent which shall not be unreasonably withheld;

(h)          Pledgor shall, from time to time, execute and file such instruments, and take such further actions as Agent may request from time to time to perfect or continue the perfection of Agent’s interest in the Intellectual Property Collateral;

(i)          Except for the MSU License, Pledgor is not party, nor will it, without the prior written consent of Agent, become party in the future, to any license or contract included in the Intellectual Property Collateral which, pursuant to its terms is not assignable (except in the case of Pledgor’s customer contracts) or capable of being encumbered;

(j)          this IP Security Agreement creates, and in the case of after acquired Intellectual Property Collateral, will create at the time Pledgor first has rights in such after acquired Intellectual Property Collateral, in favor of Agent a valid and (upon taking appropriate actions) perfected first priority security interest in the Intellectual Property Collateral in the United States securing the payment and performance of all present or future Secured Obligations;

(k)          to its knowledge, except for, and upon, the filings with, as applicable, (1) the United States Patent and Trademark Office, (2) the Register of Copyrights, and (3) the UCC Division of the applicable office of the Secretary of State, necessary to perfect the security interests and assignment created hereunder, and except as has been already made or obtained, no authorization, approval or other action by, and no notice to or filing with, any United States governmental authority or United States regulatory body is required either, (a) for the grant by Pledgor or maintenance of the security interest granted hereby or for the execution, delivery, or performance of this IP Security Agreement by Pledgor in the United States, or (b) for the perfection in the United States or the exercise by Agent of its rights and remedies hereunder;

Second Amended and Restated Intellectual Property Security Agreement

(l)           all information heretofore, herein, or hereafter supplied to Agent by or on behalf of Pledgor with respect to the Intellectual Property Collateral is accurate and complete in all material respects;

(m)          Pledgor shall not enter into any agreement that would impair or conflict with Pledgor’s obligations hereunder. For purposes of this subsection, Pledgor’s entering into license agreements in the ordinary course of business shall not be deemed to impair or conflict with Pledgor’s obligations hereunder. Pledgor shall not, without the prior written consent of Agent, permit the inclusion in any contract to which it becomes a party of any provisions that could or might in any way prevent the creation of a security interest in Pledgor’s rights and interests in any property included within the definition of the Intellectual Property Collateral acquired under such contracts, except that certain contracts may contain anti-assignment provisions that could in effect prohibit the creation of a security interest in such contracts; and

(n)          upon any executive officer of Pledgor’s obtaining actual knowledge thereof, Pledgor will promptly notify Agent in writing of any event that materially adversely affects the value of any Intellectual Property Collateral, the ability of Pledgor to dispose of any Intellectual Property Collateral or the rights and remedies of Agent in relation thereto, including the levy of any legal process against any of the Intellectual Property Collateral.

(o)          Pledgor is the sole holder of all equity securities of XG Sciences IP, LLC.

(p)          Prior to or contemporaneously with entering into any definitive purchase agreement with Samsung regarding the issuance of any Secured Notes, Pledgor shall have formed XG Sciences IP, LLC and shall have assigned all of intellectual property that is set forth on Exhibit B to XG Sciences IP, LLC, and such assignment of and manner of holding such intellectual property shall be deemed to be in compliance with this Agreement.

(q)          Pledgor and/or XG Sciences IP, LLC shall maintain a list of their material identifiable trade secrets, which list shall include information regarding the location of documentation for each trade secret and which employees have access to the trade secret (the “Trade Secret List”). Pledgor shall provide a copy of the Trade Secret List to its primary legal counsel from time to time to be held in escrow by such legal counsel. Pledgor shall direct such legal counsel to disclose the Trade Secret List to the Agent upon the Agent’s request following the delivery of a “foreclosure notice” in accordance with the Second Amended and Restated Intercreditor Agreement among the Lenders dated as of January 15, 2014.

4.            Agent’s Rights.

(a)          Agent shall have the right, but not the obligation, to take, at Pledgor’s sole expense, any actions that Pledgor is required under this IP Security Agreement to take but which Pledgor fails to take, after ten (10) calendar days’ written notice to Pledgor. Pledgor shall reimburse and indemnify Agent and Lenders for all costs and expenses incurred in the exercise of its rights under this Section 4.

Second Amended and Restated Intellectual Property Security Agreement

(b)          Each Lender agrees to appoint Aspen Capital Advisors, LLC as its Agent for purposes of this IP Security Agreement. Each Lender hereby authorizes the Agent to take such action and to exercise such powers hereunder as provided herein or as requested to or consented by the Lenders (acting together), together with such powers as are reasonably incidental thereto. Subject to the provisions of this Agreement, the Agent will not take any action contrary to the express written instructions of the Lenders (acting together) and will take any lawful action prescribed in express written instructions of the Lenders (acting together). The Agent may decline to take any action except upon the express written instructions of the Lenders (acting together) and the Agent may request a written ratification by the Lenders (acting together) of any action taken by it under this Agreement, which ratification shall not be unreasonably withheld, conditioned or delayed. The Agent shall not be obligated to take any action, or engage in any course of conduct, if the Lenders are not in agreement as to such action or course of conduct. The Agent may employ agents and attorneys-in-fact in connection herewith and shall not be responsible for the negligence or misconduct of any such agents or attorneys-in-fact selected by it in good faith.

(c)          The Agent shall be entitled to resign at any time upon written notice to the Lenders and the Agent may be removed at any time for cause a vote of the Lenders holding a majority of the principal amounts of the secured indebtedness which is secured by a pledge of the Intellectual Property Collateral hereunder. Except as provided above, upon any such resignation or removal, the Lenders shall have the right to appoint a successor Agent by the vote of the Lenders holding a majority of the principal amounts of the secured indebtedness which is secured by a pledge of the Intellectual Property Collateral hereunder. If no successor Agent shall have been so appointed by such Lenders, and shall have accepted such appointment, within thirty (30) days after the retiring Agent’s giving of notice of resignation or the Lenders’ removal of the retiring Agent, then the retiring Agent may, on behalf of the Lenders, appoint a successor Agent. Upon the acceptance of any appointment as the Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations as the Agent under this Agreement. After any retiring or the Agent’s resignation or removal hereunder as the Agent, the provisions of this Section 4 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was the Agent under this Agreement.

(d)          Subject to and upon the other terms and conditions contained herein that limit the obligations or duties of the Agent, the duties and obligations of the Agent under this Agreement shall be those of a “collateral agent” and shall consist of and be limited to: (i) acquiring, holding and enforcing the security interest granted by the Pledgor in the Collateral under this Agreement; (ii) selling, releasing, surrendering, realizing upon or otherwise dealing with, in any manner and in any order, all or any portion of the Collateral, (iii) exercising (or refraining from exercising) any rights, remedies or powers of the Agent under this Agreement, the Loan Documents and other agreements contemplated therein, or under applicable law in respect of all or any portion of the Collateral, (iv) making any demands or giving any notices hereunder or under the other transaction documents, and (v) effecting amendments to or granting waivers or consents hereunder or under the other transaction documents.

(e)          Each of the Lenders hereby covenants and agrees to reimburse, indemnify and hold the Agent harmless from and against any and all claims, actions, judgments, damages, losses, liabilities, costs, transfer or other taxes, and expenses (including, without limitation, reasonable attorneys’ fees and expenses) incurred or suffered without any bad faith, gross negligence or willful misconduct by the Agent, arising out of or incident to Agent’s actions or inactions as Agent with regard to its duties under or administration of this IP Security Agreement. Each Lender further agrees that any reimbursements or indemnity payments to the Agent shall be made according to each Lender’s pro rata share of the total aggregate principal amount outstanding under the Secured Notes at the time of the event that gave rise to such reimbursement or indemnity claim by the Agent.

Second Amended and Restated Intellectual Property Security Agreement

5.            Further Assurances: Attorney in Fact.

(a)          Pledgor agrees to deliver to Agent, upon the request of Agent, a report, in form acceptable to Agent and certified by an officer of Pledgor, which lists all material Intellectual Property owned by Pledgor, including, without limitation, all titles, names or marks together with all relevant registration and/or application numbers and registration and/or filing dates.

(b)          On a continuing basis for the purpose of perfecting and maintaining the perfection and priority of Agent’s security interest in all Intellectual Property, Pledgor will make, execute, acknowledge and deliver, and file and record in the proper filing and recording places in the United States, all such instruments, including appropriate financing and continuation statements and collateral agreements and filings with the United States Patent and Trademark Office and the Register of Copyrights, and take all such action as may be necessary or advisable, or as requested by Agent, and otherwise to carry out the intent and purposes of this IP Security Agreement, or for assuring and confirming to Agent the grant, priority, or perfection of a security interest in all Intellectual Property Collateral.

(c)          Pledgor hereby irrevocably appoints Agent as Pledgor’s attorney-in-fact, with full authority in the place and stead of Pledgor and in the name of Pledgor, from time to time in Agent’s discretion, to take any action and to execute any instrument which Agent may deem necessary or advisable to accomplish the purposes of this IP Security Agreement, including (i) to modify, in its discretion, this IP Security Agreement without first obtaining Pledgor’s approval of or signature to such modification by amending Exhibit A to include reference to any right, title or interest in or to any Intellectual Property acquired by Pledgor after the execution hereof or to delete any reference to any right, title or interest in or to any Intellectual Property in which Pledgor no longer has or claims any right, title or interest, (ii) to file, in its discretion, one or more financing or continuation statements and amendments thereto, relative to any of the Intellectual Property Collateral without the signature of Pledgor where permitted by law and (iii) to transfer the Intellectual Property Collateral into the name of Agent or a third party to the extent permitted under the UCC provided that Agent agrees that it shall not exercise its powers as attorney-in-fact under this Section 5 except upon the occurrence and during the continuation of a IP Security Agreement Event of Default (as hereinafter defined).

6.            Consent and Waiver: Obligations Not Impaired.

(a)          Pledgor waives: (i) promptness, diligence, and notice of acceptance of this IP Security Agreement and notice of the incurring of any obligation, indebtedness, or liability to which this IP Security Agreement applies or may apply and waives presentment for payment, notice of nonpayment, protest, demand, notice of protest, notice of intent to accelerate, notice of acceleration, notice of dishonor, diligence in enforcement and indulgences of every kind; and (ii) the taking of any other action by Agent or any Lender, including without limitation giving any notice of default or any other notice to, or making any demand on, the Pledgor, any guarantor of all or any part of the Secured Obligations or any other party, provided, that Pledgor does not waive any notices that Agent has expressly agreed to give to it in the Second Amended and Restated Security Agreement, dated as of January 15, 2014, by and among the Pledgor, the Lenders and the Agent (the “Security Agreement”).

Second Amended and Restated Intellectual Property Security Agreement

(b)          Agent and any Lender may at any time and from time to time, without the consent of or notice to Pledgor, without incurring responsibility to Pledgor and without impairing, releasing or reducing the obligations of Pledgor hereunder: (i) change the place of payment of all or any part of the Secured Obligations; (ii) release, surrender, or subordinate any collateral for all or any part of the Secured Obligations or this IP Security Agreement; (iii) neglect, delay, omit, fail or refuse to take or prosecute any action for the collection of all or any part of the Secured Obligations or this IP Security Agreement or to take or prosecute any action in connection with the Loan Documents; (iv) exercise or refrain from exercising any rights against the Pledgor or others, or otherwise act or refrain from acting; (v) settle or compromise all or any part of the Secured Obligations and subordinate the payment of all or any part of the Secured Obligations to the payment of any obligations, indebtedness or liabilities which may be due or become due by Pledgor to Agent, any Lender or others; (vi) apply any deposit balance, fund, payment, collections through process of law or otherwise or other collateral of Pledgor to the satisfaction and liquidation of the indebtedness or obligations of the Pledgor to Agent and Lenders not secured under this IP Security Agreement, if any, subject to the terms of the applicable agreements; and (vii) apply any sums paid to Agent or Lenders by Pledgor to the Secured Obligations in such order and manner as Agent, in its sole discretion, may determine.

(c)          Should Agent seek to enforce the obligations of Pledgor hereunder by action in any court or otherwise, Pledgor waives any requirement, substantive or procedural, that (i) Agent first enforce any rights or remedies against any other person or entity liable to Agent or any Lender for all or any part of the Secured Obligations, including without limitation that a judgment first be rendered against any other person or entity, or that any other person or entity should be joined in such cause, or (ii) Agent first enforce rights against any collateral which shall ever have been given to secure all or any part of the Secured Obligations or this IP Security Agreement. Such waiver shall be without prejudice to Agent’s right, at its option, to proceed against any other person or entity, whether by separate action or by joinder.

(d)          In addition to any other waivers, agreements, and covenants of Pledgor set forth herein, Pledgor hereby further waives and releases all claims, causes of action, defenses, and offsets for any act or omission of Agent and any Lender, and such Person’s directors, officers, employees, representatives, or agents in connection with Agent’s and such Lender’s administration of the Secured Obligations, except for Agent’s or such Lender’s willful misconduct and gross negligence.

(e)          Pledgor agrees that its obligations hereunder shall not be released, diminished, impaired, or reduced by the occurrence of any one or more of the following events: (i) the lack of corporate power of Pledgor, or any other guarantor of all or any part of the Secured Obligations, (ii) any receivership, insolvency, bankruptcy, or other proceedings affecting Pledgor, or any other guarantor of all or any part of the Secured Obligations, or any of their respective property; (iii) the partial or total release or discharge of any guarantor of all or any part of the Secured Obligations, or any other person or entity from the performance of any obligation contained in any instrument or agreement evidencing, governing or securing all or any part of the Secured Obligations, whether occurring by reason of taw or otherwise; (iv) the taking or accepting of any collateral for all or any part of the Secured Obligations or this IP Security Agreement; (v) the taking or accepting of any other guaranty for all or any part of the Secured Obligations; (vi) any failure by Agent to acquire, perfect, or continue any lien or security interest on collateral securing all or any part of the Secured Obligations or this IP Security Agreement; (vii) the impairment of any collateral securing all or any part of the Secured Obligations or this IP Security Agreement (including without limitation the negligent impairment); (viii) any failure by Agent to sell any collateral securing all or any part of the Secured Obligations or this IP Security Agreement in a commercially reasonable manner or as otherwise required by law; (ix) any invalidity or unenforceability of or defect or deficiency in the Loan Documents; or (x) any other act or circumstance which might otherwise constitute a defense available to, or discharge of, Pledgor, or any other guarantor of all or any part of the Secured Obligations,

Second Amended and Restated Intellectual Property Security Agreement

(f)          This IP Security Agreement shall continue to be effective or be reinstated, as the case may be, if at any time any payment of all or any part of the Secured Obligations is rescinded or must otherwise be returned by Agent or any Lender upon the insolvency, bankruptcy, or reorganization of Pledgor, any other guarantor of all or any part of the Secured Obligations, or otherwise, all as though such payment had not been made.

(g)          None of the following shall affect Pledgor’s liability hereunder: (i) the unenforceability of all or any part of the Secured Obligations against Pledgor by reason of the fact that the Secured Obligations exceed the amount permitted by law; (ii) the act of creating all or any part of the Secured Obligations is ultra vires; or (iii) the individual or individuals creating all or any part of the Secured Obligations acted in excess of their authority.

7.            IP Security Agreement Events of Default. The occurrence of any of the following shall constitute a “IP Security Agreement Event of Default” under this IP Security Agreement:

(a)          An Event of Default occurs under the Loan Documents; or

(b)          Pledgor breaches any warranty or agreement made by Pledgor in this IP Security Agreement.

8.            Remedies. Upon the occurrence and during the continuance of a IP Security Agreement Event of Default, Agent shall have the right to exercise all the remedies of a secured party under the UCC, including, without limitation, the right to require Pledgor to assemble the Intellectual Property Collateral and any tangible property in which Agent has a security interest and to make it available to Agent at a place designated by Agent. Agent shall have a nonexclusive, royalty free license or other right, solely pursuant to the provisions of this Section 8, to use, without charge, the Intellectual Property and any property of a similar nature as it pertains to the Intellectual Property Collateral, to the extent necessary to permit Agent to exercise its rights and remedies pursuant to this Section 8, including, without limitation, the completion of production, advertising for sale and the sale of any Intellectual Property Collateral and, in connection with Agent’s exercise of its rights hereunder, Pledgor’s rights under all licenses and all franchise agreements which constitute Intellectual Property Collateral shall inure to the benefit of Agent. Pledgor will pay any expenses (including reasonable attorneys’ fees) incurred by Agent or any Lender in connection with the exercise of any of Agent’s rights hereunder, including, without limitation, any expense incurred in disposing of the Intellectual Property Collateral. All of Agent’s rights and remedies with respect to the Intellectual Property Collateral shall be cumulative.

Second Amended and Restated Intellectual Property Security Agreement

9.          Indemnity. Pledgor agrees to defend, indemnify and hold harmless Agent and Lenders and their respective directors, officers, employees, attorneys and agents against (a) all obligations, demands, claims, and liabilities claimed or asserted by any other party in connection with the transactions contemplated by this IP Security Agreement and (b) all losses or expenses in any way suffered, incurred, or paid by Agent or any Lender as a result of or in any way arising out of, following or consequential to transactions between or among Agent, any Lender, and Pledgor, whether under this IP Security Agreement or otherwise (including, without limitation, reasonable attorneys’ fees and reasonable expenses), except for losses arising from or out of Agent’s gross negligence or willful misconduct. If Agent obtains recovery of any of the amounts that Pledgor has paid to it pursuant to the indemnity set forth in the section, then Agent shall promptly pay to Pledgor the amount of such recovery. PLEDGOR AND AGENT EXPRESSLY INTEND THAT THE FOREGOING INDEMNITY SHALL COVER, AND THAT PLEDGOR SHALL INDEMNIFY AND HOLD THE INDEMNIFIED PARTIES HARMLESS FROM AND AGAINST, COSTS, EXPENSES AND LOSSES SUFFERED AS A RESULT OF THE NEGLIGENCE OF ANY INDEMNIFIED PARTY.

10.         Successors and Assigns, This IP Security Agreement and all obligations of Pledgor hereunder shall be binding upon the successors and assigns of Pledgor, and shall, together with the rights and remedies of Agent hereunder, inure to the benefit of Agent, Lenders, and their respective successors and assigns. No sales of participations, other sales, assignments, transfers or other dispositions of any agreement governing or instrument evidencing the indebtedness secured hereby or any portion thereof or interest therein shall in any manner affect the security interest created herein and granted to Agent hereunder.

11.         Reassignment. At such time as Pledgor shall completely satisfy all of the Secured Obligations and no commitment on the part of any Lender to make loans to Pledgor is continuing, Agent shall execute and deliver to Pledgor all deeds, assignments, and other instruments as may be necessary or proper to revest in Pledgor full title to the property assigned hereunder, subject to any disposition thereof which may have been made by Agent pursuant hereto.

12.         No Failure or Delay. No failure or delay on the part of Agent in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise thereof.

13.         Costs and Expenses. Pledgor will upon demand pay to Agent the amount of any and all costs and expenses (including without limitation, reasonable attorneys’ fees and expenses), which Agent may incur in connection with (i) the perfection and preservation of the security interests granted under the Loan Documents, (ii) the administration of the Loan Documents, (iii) the custody, preservation, use or operation of, or the sale of, collection from, or other realization upon, the Intellectual Property Collateral, (iv) the exercise or enforcement of any of the rights of Agent hereunder, or (vi) the failure by Pledgor to perform or observe any of the provisions hereof.

14.         Amendments. Except as otherwise provided herein, this IP Security Agreement may be amended only by a written instrument signed by both parties hereto.

15.         Counterparts. This IP Security Agreement may be executed in any number of counterparts, each of which when so delivered shall be deemed an original, but all such counterparts shall constitute but one and the same instrument.

Second Amended and Restated Intellectual Property Security Agreement

16.         Governing Law; Jurisdiction. THIS IP SECURITY AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF MICHIGAN, WITHOUT REFERENCE TO THE RULES THEREOF RELATING TO CONFLICT OF LAWS. PLEDGOR HEREBY IRREVOCABLY SUBMITS ITSELF TO THE JURISDICTION OF THE STATE AND FEDERAL COURTS LOCATED IN INGHAM COUNTY, MICHIGAN, AND AGREES AND CONSENTS THAT SERVICE OF PROCESS MAY BE MADE UPON IT IN ANY LEGAL PROCEEDING RELATING TO THIS IP SECURITY AGREEMENT OR ANY OTHER RELATIONSHIP BETWEEN OR AMONG AGENT, ANY LENDER, AND PLEDGOR BY ANY MEANS ALLOWED UNDER STATE OR FEDERAL LAW. ANY LEGAL PROCEEDING ARISING OUT OF OR IN ANY WAY RELATED TO THIS IP SECURITY AGREEMENT OR ANY OTHER RELATIONSHIP BETWEEN OR AMONG AGENT, ANY LENDER, AND PLEDGOR SHALL BE BROUGHT AND LITIGATED EXCLUSIVELY IN ANY ONE OF THE STATE OR FEDERAL COURTS LOCATED IN INGHAM COUNTY, MICHIGAN, HAVING JURISDICTION UNLESS AGENT SHALL ELECT OTHERWISE. THE PARTIES HERETO HEREBY WAIVE AND AGREE NOT TO ASSERT, BY WAY OF MOTION, AS A DEFENSE OR OTHERWISE, THAT ANY SUCH PROCEEDING BROUGHT IN INGHAM COUNTY, MICHIGAN IS BROUGHT IN AN INCONVENIENT FORUM OR THAT THE VENUE THEREOF IS IMPROPER.

17.         Jury Trial Waiver. PLEDGOR AND AGENT HEREBY (A) IRREVOCABLY WAIVE, TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY AT ANY TIME ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS IP SECURITY AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY OR ASSOCIATED HEREWITH; (B) IRREVOCABLY WAIVE, TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW, ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY SUCH LITIGATION ANY SPECIAL, EXEMPLARY, PUNITIVE, OR CONSEQUENTIAL DAMAGES, OR DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES; (C) CERTIFY THAT NO PARTY HERETO NOR ANY REPRESENTATIVE OR AGENT OR COUNSEL FOR ANY PARTY HERETO HAS REPRESENTED, EXPRESSLY OR OTHERWISE, OR IMPLIED THAT SUCH PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVERS; AND (D) ACKNOWLEDGE THAT IT HAS BEEN INDUCED TO ENTER INTO THIS IP SECURITY AGREEMENT AND THE TRANSACTIONS CONTEMPLATED HEREBY BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS CONTAINED IN THIS PARAGRAPH.

18.         Conflict. In the event of a conflict between any term and/or provision contained in this IP Security Agreement with any term and/or provision contained in the Loan Documents, the term and/or provision of this IP Security Agreement shall govern.

19.         Termination. This IP Security Agreement and Pledgor’s obligations hereunder shall terminate upon the date that the Secured Obligations are paid in full, provided, that this IP Security Agreement shall continue to be effective or be reinstated, as the case may be, if at any time any payment of any of the Secured Obligations is rescinded or otherwise must be returned by Agent or any Lender, as though such payment has not been made.

20.         Entire Agreement. This IP Security Agreement (together which each Annex hereto) and the Security Agreement contain the entire agreement and understanding by and between the parties hereto with respect to the subject matter hereof and their resulting obligations to each other, as herein described; and it supersedes all prior agreements and understandings between the parties to this IP Security Agreement relating to the subject matter hereof. No change or modification of this IPSecurity Agreement shall be valid or binding unless the same is in writing and signed by the party intended to be so bound. No waiver of any provision of this IP Security Agreement shall be valid unless the same is in writing and signed by the party against whom such waiver is sought to be enforced. Moreover, no valid waiver of any provision of this IP Security Agreement, at any time, shall be deemed to be a waiver of any other provision of this IP Security Agreement at such time, or shall be deemed to be valid waiver of such provision at any other time.

[Signature page follows.]

Second Amended and Restated Intellectual Property Security Agreement

IN WITNESS WHEREOF, the undersigned party hereto has executed this Second Amended and Restated IP Security Agreement on the day and year first above written.

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

Notarization:

STATE OF MICHIGAN	)
	)  ss:
COUNTY OF Ingham	)

The foregoing instrument was sworn to, subscribed and acknowledged before me this 10^th day of January, 2014, by Michael R. Knox, in his/her capacity as the Chief Executive Officer of XG Sciences, Inc., who is [    ] personally known to me or [ ü ] who has produced Michigan Driverse License (type of identification) as identification.

IMAGE OMITTED [tannex-ivpg13.jpg]	/s/ Kelly A. LaGrave
	NOTARY PUBLIC, STATE OF MICHIGAN
	Kelly A. LaGrave
	(Print, Type or Stamp Commissioned Name of Notary Public)

Second Amended and Restated Intellectual Property Security Agreement

IN WITNESS WHEREOF, the undersigned party hereto has executed this Second Amended and Restated IP Security Agreement on the day and year first above written.

AGENT:
ASPEN CAPITAL ADVISORS, LLC
By:	/s/ Steven C. Jones
Name:	Steven C. Jones
Title:	Managing Member

Notarization:
STATE OF FLORIDA	)
	)  ss:
COUNTY OF Miami Dade	)

The foregoing instrument was sworn to, subscribed and acknowledged before me this 15^th day of January, 2014, by Steven C. Jones, in his/her capacity as the Managing Member of Aspen Capital Advisors, LLC, who is [ ü ] personally known to me or [    ] who has produced _____________ (type of identification) as identification.

IMAGE OMITTED [tannex-ivpg14.jpg]	/s/ Charles Gamble
	NOTARY PUBLIC, STATE OF FLORIDA
	Charles Gamble
	(Print, Type or Stamp Commissioned Name of Notary Public)

Second Amended and Restated Intellectual Property Security Agreement

IN WITNESS WHEREOF, the undersigned party hereto has executed this Second Amended and Restated IP Security Agreement on the day and year first above written.

LENDER:
ASPEN ADVANCED OPPORTUNITY FUND, LP
By:	AA XGS, LLC
Its:	General Partner
By:	/s/ Steven C. Jones
Name:	Steven C. Jones
Title:	Managing Member

Notarization:
STATE OF FLORIDA	)
	) ss:
COUNTY OF Miami - Dade	)

The foregoing instrument was sworn to, subscribed and acknowledged before me this 15^th day of January, 2014, by Steven C. Jones, in his/her capacity as the Managing Member of Aspen Advanced Opportunity Fund, LP, who is [ ü ] personally known to me or [    ] who has produced ________________ (type of identification) as identification.

IMAGE OMITTED [tannex-ivpg15.jpg]	/s/ Charles Gamble
	NOTARY PUBLIC, STATE OF FLORIDA
	Charles Gamble
	(Print, Type or Stamp Commissioned Name of Notary Public)

Second Amended and Restated Intellectual Property Security Agreement

IN WITNESS WHEREOF, the undersigned party hereto has executed this Second Amended and Restated IP Security Agreement on the day and year first above written.

LENDER:
MICHAEL R. KNOX
By:	/s/ Michael R. Knox
Name:	Michael R. Knox

Notarization:
STATE OF MICHIGAN	)
	) ss:
COUNTY OF Ingham	)

The foregoing instrument was sworn to, subscribed and acknowledged before me this 10^th day of January, 2014, by Michael R. Knox, who is [   ] personally known to me or [ ü ] who has produced Michigan Driverse License (type of identification) as identification.

IMAGE OMITTED [tannex-ivpg16.jpg]	/s/ Kelly A. LaGrave
	NOTARY PUBLIC, STATE OF MICHIGAN
	Kelly A. LaGrave
	(Print, Type or Stamp Commissioned Name of Notary Public)

Second Amended and Restated Intellectual Property Security Agreement

IN WITNESS WHEREOF, the undersigned party hereto has executed this Second Amended and Restated IP Security Agreement on the day and year first above written.

LENDER:
XGS II, LLC
By:	/s/ David G. Pendell
Name:	David G. Pendell
Title:	Managing Member

Notarization:
STATE OF FLORIDA	)
	) ss:
COUNTY OF COLLIER	)

The foregoing instrument was sworn to, subscribed and acknowledged before me this 24 day of January, 2014, by David G. Pendell, in his/her capacity as the Managing Member of XGS II, LLC, who is [    ] personally known to me or [ ü ] who has produced FLDL (type of identification) as identification.

/s/ Ryan Sommerville

NOTARY PUBLIC, STATE OF FLORIDA

(Print, Type or Stamp Commissioned Name of Notary Public)

IMAGE OMITTED [tannex-ivpg17.jpg]

Second Amended and Restated Intellectual Property Security Agreement

IN WITNESS WHEREOF, the undersigned party hereto has executed this Second Amended and Restated IP Security Agreement on the day and year first above written.

LENDER:

SVIC NO. 15 NEW TECHNOLOGY BUSINESS INVESTMENT L.L.P.

By: Samsung Venture Investment Corporation, its Partner

By:	/s/ Seonjong Lee
Name:	SEONJONG LEE
Title:	C.E.O

Notarization:
STATE OF ________________	)
	) ss:
COUNTY OF _________________	)

The foregoing instrument was sworn to, subscribed and acknowledged before me this _____ day of__________, 2013, by_______________, in his/her capacity as the ___________________ of No. 15 New Technology Business Investment L.L.P, who is [    ] personally known to me or [    ] who has produced ___________ (type of identification) as identification.

NOTARY PUBLIC, STATE OF                                  

(Print, Type or Stamp Commissioned Name of Notary Public)

Second Amended and Restated Intellectual Property Security Agreement

EXHIBIT A

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

1) Patents and Patent Licenses

See attached.

2) Trademarks

XG Sciences (Design Plus Words)

xGnP

XG Sciences The Material Difference (Design Plus Words)

XG Leaf (Application Pending)

Second Amended and Restated Intellectual Property Security Agreement

EXHIBIT B

All “Intellectual Property” as defined in the Assignment of Intellectual Property dated effective as of January 15, 2014 between the Company and XG Sciences IP, LLC, including without limitation the following:

Patents:

Patent Application Number	Application Date	Description
13/474,860	5/18/2012	Process of Dry Milling Particulate Materials Milled Graphene/Metal Nano Composites
61/786,735	3/15/2013	Graphene Carbon Compositions
13/686,961	11/28/2012	Single Mode Microwave Device for Producing Exfoliated Graphite
13/610,934	9/12/2012	Cloud Mixer and Method of Minimizing Agglomeration of Particulates
13/435,260	3/30/2012	Mechanical Exfoliation Apparatus
61/786,745	3/15/2013	Electrodes for Capacitors from Mixed Carbon Compositions
14079057	11/13/2013	Silicon-Graphene Nanocomposites for Electrochemical Applications

Trademarks:

XG Sciences (Design Plus Words)

xGnP

XG Sciences The Material Difference (Design Plus Words)

XG Leaf (Application Pending)

Second Amended and Restated Intellectual Property Security Agreement

Exhibit 10.5

  500 Hogsback Road, Mason, Michigan 48854
Phone (888) DART-001
Fax (517) 244-2698

August 26, 2011

Michelle A. Coulter

XG Sciences

815 Terminal Road

Lansing, Ml 48906

Re: Signed Lease and First Amendment for Oakwood Executive Park

Dear Michelle:

Please find enclosed, for your records, a signed copy of the lease for your space at 3101 Grand Oak Drive in Oakwood Executive Park.

If you have any questions, please feel free to contact me. I look forward to serving your space needs at Oakwood Executive Park.

Sincerely,

DART DEVELOPMENT GROUP

/s/ Marsha Zimmerman

Marsha Zimmerman

Marketing Manager

www.dartdevelopment.com 

1.   LEASE OF THE PREMISES	1
2.   LEASE TERM	1
3.   BASE RENT	1
4.   COMMON COSTS AS ADDITIONAL RENT	2
A.   Taxes and Assessments	2
B.   CAM Charges	2
C.   Estimated Payments	3
E.   Late Charges	3
1.   Landlord May Incur Unanticipated Costs	3
2.   Tenant Owes Late Charge	3
3.   Late Charge is Fair Estimate	3
4.   If Tenant’s Check Returned	4
5.   Charges Become ‘Additional Rent’	4
6.   Application of Money From Tenant	4
7.   Payment by Landlord on Tenant’s Behalf and Associated Charges	4
8.   Landlord May Pursue Other Remedies	4
9.   Landlord May Require Advance Quarterly Payment	4
5.   SECURITY PROVISION	4
6.   INSURANCE	5
A.   Property Insurance	5
B.   Liability Insurance	5
C.   Form, Amount and Coverage, Etc.	5
D.   Increase in Insurance Premium	5
E.   Accidents	6
F.   Payment By Landlord	6
G.  Waivers of Claims/Subrogation	6
7.   USE	6
A.   Use	6
B.   Use of Common Areas	6
C.   Management and Operation of Common Areas	6
8.   DEFAULT	6
9.   LANDLORD’S REMEDIES FOR TENANT’S DEFAULT	7
10.   MISCELLANEOUS DEFAULT PROVISIONS	8
11.   ASSIGNMENT AND SUBLETTING	9
12.   HAZARDOUS SUBSTANCES	10
13.   ALTERATIONS	11
A.   Changes, Alterations and Additional Construction	11
B.   Manner of Construction	11
C.   Title to Alterations	11
14.   SURRENDER	12
A.   Delivery of Possession	12
B.   Holding Over	12
C.   Removal of Personal Property	13
D.   Retention of Personal Property	13
15.   RIGHT TO MORTGAGE	13
16.   ESTOPPEL CERTIFICATES	13
17.   MAINTENANCE AND REPAIRS	14
A.   Utilities	14
B.   Cleaning and Upkeep	14

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C.   Grounds Maintenance	14
D.   Snowplowing	14
E.   Landlord’s Right of Entry	14
F.   Repairs by Landlord	14
G.   Repairs by Tenant	14
H.   Liens	15
18.   DAMAGE OR DESTRUCTION	16
19.   CONDEMNATION	17
A.   Total Taking	17
B.   Award on Total Taking	17
C.   Partial Taking	17
D.   Reconstruction	17
E.   Award on Partial Taking	17
F.   Temporary Taking	17
G.   Settlement Agreement	18
H.   Abatement in Basic Rent	18
20.   LIABILITY; INDEMNIFICATION OF LANDLORD AND TENANT	18
A.   Damage in General	18
B.   Indemnification of Landlord	18
C.   Indemnification of Tenant	19
21.   MISCELLANEOUS PROVISIONS	19
A.   Governing Law	19
B.   References	19
C.   Binding Effect	19
D.   Entire Agreement	19
E.   Enforceability of Provisions	19
F.   Remedies Not Exclusive	19
G.  Landlord’s Right To Tenant’s Financial Information	20
H.   Re-Leasing	20
I.   Advertising and Signs	20
J.   Quiet Enjoyment	20
K.   Sale by Landlord	20
L.   Limitation of Liability	20
M.   Authority	20
N.   No Liability for Curtailment, Etc., of Services	20
O.   Survival	21
P.   Notices	21
Q.   Certificate of Occupancy	21
EXHIBIT A - Hazardous and Toxic Materials	1
EXHIBIT B - Rules and Regulations	1
1.   Control of Common Areas	1
2.   Observance of Rules	1
3.   No Obstruction	1
4.   Security of Premises	1
5.   Locks	1
6.   No Soliciting	1
7.   No Advertising	1
8.   Proper Use of Facilities	1
9.   Load Limits on Floors	1

ii

10.   Machinery and Equipment	1
11.   Moving of Equipment	2
12.   Replacement of Broken Glass	2
13.   No Hazardous Materials	2
14.   Good Houskeeping	2
15.   Landlord Not Liable	2
16.   Modifications to Rules and Regulations	2
17.   Drives and Parking Areas	2
18.   Storage and Loading Areas	2
19.   Contractors and Service Maintenance	2
20.   Lodging	2
21.   Exterior Installations	3
22.   Waivers	3
23.   Additions to Lease	3
24.   Access to Roof	3
25.   Sales From Premises	3

iii

LEASE

THIS LEASE is made effective as of August 1, 2011, between DART CONTAINER OF MICHIGAN LLC, a Michigan limited liability company with offices at 500 Hogsback Road, Mason, Michigan 48854 (“Landlord”); and XG SCIENCES, INC., a Michigan corporation, currently located at 5020 Northwind Drive, Suite 212, E. Lansing, Michigan 48823 (“Tenant”).

1.   LEASE OF THE PREMISES. Landlord, in consideration of the rents to be paid and the covenants and agreements to be performed by Tenant hereby leases to Tenant for the Term set forth below, the following described property (the “Premises”) located in Oakwood Executive Park (the “Park”):

Lot 29, Oakwood Executive Park, according to the Plat thereof recorded at Liber 50, Page 38 of Plats, Ingham County Records, and commonly known as 3101 Grand Oak Drive, Lansing, Michigan 48911, and also known as Tax Parcel No. 33-25-05-02-405-033.

Tenant hereby hires the Premises for the Lease Term and covenants to pay, or cause to be paid, to Landlord, at the dates and times set forth herein, the entire Rent, as specified herein.

2.   LEASE TERM. The term of this Lease shall be for a term of ten (10) years (the “Lease Term”), and shall commence on the first day of September, 2011, or as adjusted as provided in this Section 2 (“Commencement Date”). Unless terminated earlier in accordance with the terms of this Lease, this Lease shall terminate on August 31, 2021, or as adjusted as provided in this Section 2 (“Termination Date”).

Landlord requires approximately ninety (90) days for the build-out of the Premises, as described in Exhibits C, D, E, and F. The Commencement Date shall be the last to occur of (a) September 1, 2011, or (b) the date upon which Landlord notifies Tenant of the completion of Landlord’s build-out work described in Exhibits C, D, E, and F. If the Commencement Date shall be a date after September 1, 2011, then the Commencement Date, Termination Date, and rental periods shown in Section 3 shall be adjusted accordingly.

3. BASE RENT. During the Lease Term, Tenant shall pay annual Base Rent and all other rent due and owing by Tenant under this Lease (“Additional Rent”) to Landlord at such place as Landlord shall from time to time designate in writing. Annual Base Rent will be payable in equal monthly installments, as follows:

Lease Period	Monthly Installment		Annual Base Rent
09/01/11-08/31/12	$	15,833.00	$	189,996.00
09/01/12-08/31/13	$	16,150.00	$	193,800.00
09/01/13-08/31/14	$	16,473.00	$	197,676.00
09/01/14-08/31/15	$	16,803.00	$	201,636.00
09/01/15-08/31/16	$	17,139.00	$	205,668.00
09/01/16-08/31/17	$	17,481.00	$	209,772.00
09/01/17-08/31/18	$	17,831.00	$	213,972.00
09/01/18-08/31/19	$	18,188.00	$	218,256.00
09/01/19-08/31/20	$	18,551.00	$	222,612.00
09/01/20-08/31/21	$	18,922.00	$	227,064.00

1

A. All monthly installments of Base Rent shall be payable to Landlord in advance on the first day of each month during the Lease Term without notice, demand, deduction or set off, except as otherwise provided herein. Tenant shall pay the first month’s installment of Base Rent on the date of Tenant’s execution of this Lease. If Tenant shall not be in default at the time of the exercise of the option or at the end of the then current Lease Term, then Tenant shall have the right and option to renew this Lease for up to two (2) additional renewal terms of five (5) years each by providing Landlord with written notice of Tenant’s exercise of such right not less than six (6) months prior to the expiration of the initial Lease Term or the renewal Lease Term then in force, whichever is applicable. Annual Base Rent shall be increased at the commencement of each renewal term, and each anniversary of said commencement date of the renewal term by two percent (2%) per annum.

B. As used in this Lease, the term “Rent” shall include all amounts payable pursuant to this Lease and all other additional charges or sums payable to Landlord hereunder. All Rent due and owing by Tenant under this Lease shall be paid by Tenant to Landlord without deduction, set off or abatement, except as otherwise provided herein.

C. Tenant’s obligation to pay Base Rent, Additional Rent, and all other charges due and owing by Tenant under this Lease shall survive the expiration or earlier termination of this Lease.

4. COMMON COSTS AS ADDITIONAL RENT.

A. Taxes and Assessments. Tenant shall be responsible for and agrees to pay directly to Landlord as Additional Rent all taxes and assessments which may be billed or assessed by any lawful authority during each calendar year during the term of this Lease against the Premises or any part thereof (hereinafter referred to as the “Taxes”). Taxes shall also include all taxes, levies and charges which may be assessed, billed or imposed in replacement of or in addition to all or any part of real property taxes as revenue sources, and which in whole or in part are measured or calculated by or based upon the Premises, the freehold estate of the Landlord in and to the Premises, the leasehold estate of the Tenant created herein, or the rent and other charges payable hereunder. In no event shall Tenant be obligated to pay any income taxes, inheritance, estate, gift, transfer taxes, penalties and interest of Landlord. Notwithstanding anything stated or implied to the contrary in this paragraph, Tenant shall be responsible only for installments of special assessments which come due during the Lease Term.

Taxes shall be computed by adding all Taxes billed pertaining to the Premises during the calendar year regardless of any tax bill’s stated period of coverage. Tenant will be billed its respective share thereof either for the entire year or its prorata share of any partial year in which Tenant occupies the Premises.

B. CAM Charges. During the Lease Term, Tenant shall pay to Landlord, as Additional Rent, Tenant’s share of all common area electrical, grounds maintenance, security services (if any) and other common area charges and expenses (the “CAM Charges”), as provided below. The term “grounds maintenance” shall include, without limitation, all landscaping, planting, lawn and grounds care, all maintenance of and improvements to the grounds and other common areas adjacent to the Premises and to all sidewalks, driveways, loading areas, parking areas, and all snow removal. For the purposes of this Lease, “common areas” or “Common Areas” shall mean those areas of the Park outside of the Premises and outside of the leased premises of any other tenant of the Park which are to be maintained by Landlord.

2

C. Estimated Payments. Prior to the Commencement Date and prior to January 1 of each subsequent calendar year during the Lease Term, or as soon thereafter as possible, Landlord shall deliver to Tenant an estimate of: (1) the Property Taxes for that calendar year (the “Tax Estimate”); (2) the Insurance costs for that calendar year (the “Insurance Estimate”); and (3) the total CAM Charges for that calendar year (the “CAM Estimate”) and Tenant’s Share thereof. (The Tax Estimate, the Insurance Estimate and the CAM Estimate are sometimes referred to hereinafter collectively as the “Common Cost Estimates”.) Tenant shall thereafter during that calendar year pay to Landlord one-twelfth (1/12) of the amount of Tenant’s Share of the Common Cost Estimates at the same time its monthly installments of Base Rent hereunder are due and payable. In the event Landlord shall not have furnished the Common Cost Estimates to Tenant by January 1 of any calendar year, then until the first day of the month following the month in which the Common Cost Estimates are furnished to Tenant, Tenant shall continue to pay to Landlord on the first day of each calendar month its share of the Common Cost Estimates based on the previous year’s estimate. At such time as Landlord furnishes the Common Cost Estimates to Tenant, Landlord shall give Tenant notice stating whether the aggregate amount of the installments of Tenant’s Share of Tax Increase, Insurance Increase and CAM Charges previously paid for such calendar year is more or less than the aggregate amount of the installments due for such portion of the calendar year as computed in accordance with the Common Cost Estimates, and (1) if there shall be a deficiency, then within ten (10) days after the Tenant receives the Common Cost Estimates, Tenant shall pay the amount of such deficiency, (2) if there shall have been an overpayment, Landlord shall credit Tenant in the amount thereof toward the subsequent installments of the Common Cost Estimates, and (3) on the first day of the first month next following the month in which the Common Cost Estimates are furnished to Tenant, and monthly thereafter for the balance of such calendar year, Tenant shall pay to Landlord one-twelfth (1/12) of the amount of Tenant’s Share of the Common Cost Estimates. Tenant’s right to contest Common Cost Estimates shall be limited to six months from date of notification by Landlord.

Current monthly Common Cost Estimates, based on one hundred percent of building occupancy, are Four Thousand Two Hundred Twenty-Nine Dollars ($4,229.00).

D. Late Charges.

1. Landlord May Incur Unanticipated Costs. Tenant’s failure to pay Rent, Additional Rent, or any other Lease costs when due under this Lease may cause Landlord to incur unanticipated costs. The exact amount of such costs are impractical or extremely difficult to ascertain. Such costs may include, but are not limited to, processing and accounting charges and late charges that may be imposed on Landlord by any ground lease, mortgage, or other lien encumbering the Premises.

2. Tenant Owes Late Charge. Therefore, if Landlord does not receive the Rent, Additional Rent, or any other Lease costs in full on or before the fifth (5th) business day of the month after same is due, Tenant shall pay Landlord a late charge, which shall constitute liquidated damages, equal to Two Hundred and 00/100 Dollars ($200.00) (“Late Charge”), which shall be paid to Landlord together with such Rent, Additional Rent, or other Lease costs then in arrears.

3. Late Charge is Fair Estimate. The parties agree that such Late Charge represents a fair and reasonable estimate of the cost Landlord will incur by reason of such late payment.

3

4. If Tenant’s Check Returned. For each Tenant payment check to Landlord that is returned by a bank for any reason, Tenant shall pay both a Late Charge (if applicable) and a Returned Check Charge or such amount as shall be customarily charged by Landlord’s bank at the time.

5. Charges Become “Additional Rent”. All Late Charges and any Returned Check Charge shall then become Additional Rent and shall be due and payable immediately, along with such other Rent, Additional Rent, or other Lease costs then in arrears.

6. Application of Money From Tenant. Money paid by Tenant to Landlord shall be applied to Tenant’s account in the following order: (a) to any unpaid Additional Rent, including, without limitation, Late Charges, Returned Check Charges, legal fees and/or court costs legally chargeable to Tenant, and Operating/CAM Charges; and then (b) to unpaid Base Rent.

7. Payment by Landlord on Tenant’s Behalf and Associated Charges. If Tenant fails to make any payment or expenditure required to be paid by it under the terms of the Lease and such failure continues for a period of ten (10) days after written notice of such failure is sent by Landlord to Tenant (if such notice is required in this Lease), then Landlord may, at its option, make such payment or expenditure on behalf of Tenant. In that event, the amount of any such payment or expenditure by Landlord together with interest at the rate of ten percent (10%) per annum from the date of Landlord’s payment forward, shall be immediately due and payable to Landlord as Additional Rent.

8. Landlord May Pursue Other Remedies. Nothing herein contained shall be construed so as to compel Landlord to accept any payment of Rent, Additional Rent, or other Lease costs in arrears or Late Charge or Returned Check Charge should Landlord elect to apply its rights and remedies available under this Lease or at law or equity in the event of default hereunder by Tenant. Landlord’s acceptance of Rent, Additional Rent, or other Lease costs in arrears or Late Charge or Returned Check Charge pursuant to this Clause shall not constitute a waiver of Landlord’s rights and remedies available under this Lease or at law or equity as a result of Tenant’s default.

9. Landlord May Require Advance Quarterly Payment. If Rent due hereunder shall be late for three (3) consecutive months, then Landlord shall have the option to require that the Base Rent due shall be paid quarterly, in advance.

5.    SECURITY PROVISION. By no later than Jun 15, 2011, Tenant shall provide Landlord with a clean, unconditional, irrevocable, transferable letter of credit in the amount of One Hundred Eighty-Nine Thousand Nine Hundred Ninety-Six Dollars ($189,996.00) (the “Letter of Credit”), in form and issued by a financial institution (“Issuer”) satisfactory to Landlord in its sole discretion. The Letter of Credit must permit partial draws and provide that draws will be honored on receipt by Issuer of the original or a certified copy of the Letter of Credit accompanied by a written statement signed by Landlord or its authorized agent stating that Landlord is entitled to draw on the Letter of Credit pursuant to the terms of the Lease. The Letter of Credit must have an expiration date no earlier than August 31, 2021. If Tenant fails, by June 1, 2011, Tenant has failed to provide Landlord with the Letter of Credit as specified above, then this Lease shall be deemed immediately terminated and Tenant, within ten (10) business days of its receipt of an itemized list of Landlord’s amounts incurred as of June 1, 2011, for the improvements described in Exhibits C, D, E, and F, shall reimburse Landlord in full for those amounts incurred.

4

Landlord may draw the Letter of Credit in part or in full in the event of any uncured Event of Default by Tenant to the extent needed to pay for any Tenant obligations under this Lease. If Landlord so uses or applies all or any portion of the Letter of Credit, then Tenant shall restore the Letter of Credit to the full amount within twenty (20) business days after written demand therefor, and failure to do so shall be a material and immediate Event of Default of this Lease.

The Letter of Credit, if not applied toward putting the Premises in the condition required under Sec. 14(A), the payment of rent in arrears, or the payment of damages suffered by Landlord by reason of Tenant’s default under the Lease is to be returned to Tenant at the expiration of the Term of the Lease, provided Tenant has not committed an Event of Default of any provision of the Lease. In no event is the Letter of Credit to be returned until Tenant has vacated the Premises and delivered possession of same in in the condition required by this Lease.

In the event of the sale or other transfer of the Premises, Landlord shall have the right to transfer the Letter of Credit to such purchaser or Transferee, and Landlord shall thereupon be released by Tenant from all liability for return of the Letter of Credit.

In the event that Landlord repossesses the Premises because of Tenant’s Event of Default, Landlord may apply the Letter of Credit to all damages suffered to the date of repossession and may retain the Letter of Credit to apply to such damages as may be suffered or shall accrue thereafter by reason of Tenant’s Event of Default.

6. INSURANCE.

A. Property Insurance. During the term of the Lease, Landlord, on behalf of Tenant, shall keep the Premises insured with Broad Form fire and extended coverage insurance in an amount not less than the full replacement cost of the Premises as determined annually. Landlord will bill Tenant monthly, as Additional Rent, one-twelfth (1/12) of the annual insurance premium for the Premises. Tenant shall be named as an Additional Insured on said Policy, as Tenant’s interests appear, and Landlord shall provide Tenant with Evidence of Insurance form (Acord 27 revised 3/93) showing such insurance in force at all times during the term of this Lease and any renewals.

B. Liability Insurance. Tenant, at Tenant’s sole cost and expense, shall maintain comprehensive public liability insurance against any claims for bodily injury, death, or property damage, occurring on, in or about the Premises, and against contractual liability for such claims, such insurance to afford minimum protection in the amount of One Million Dollars ($1,000,000.00) or in such higher amount as Landlord may deem reasonably necessary. Landlord and any mortgagee of the Premises designated in writing by Landlord shall be named as co-insured or additional insured parties under all such policies. Tenant may provide public liability insurance under a blanket policy or policies which cover other properties in addition to the Premises. Tenant shall provide Landlord with an Evidence of Insurance form (ACORD25) or, in the alternative and at Landlord’s sole discretion, Landlord may require Tenant to provide a true copy of the actual liability insurance policy.

C. Form. Amount and Coverage, Etc. The form, amount, and coverage of each policy of insurance which Tenant is required to maintain shall be subject to Landlord’s approval, which shall not be unreasonably withheld. Tenant shall not permit any condition to exist on the Premises and shall not commit any act or omission which would wholly or partially invalidate any insurance.

D. Increase in Insurance Premiums. If anything done by Tenant, omitted to be done by Tenant, or allowed by Tenant to be kept on the Premises shall cause the rate of fire or other insurance on the Premises, or on other property of Landlord or of other Tenants in the Park, to be increased beyond the minimum rate from time to time applicable to the Premises or such other property, Tenant shall pay, as Additional Rent, the amount of any such increase upon Landlord’s demand.

5

E. Accidents. Upon the occurrence of any material accident, injury, or personal property casualty in or about the Premises, Tenant shall give prompt notice thereof to Landlord, and, upon Landlord’s request, Tenant shall provide Landlord with evidence that any liability of Landlord relating thereto is covered by the insurance which Tenant is required by this Lease to carry.

F. Payment By Landlord. Tenant shall deliver copies of all required policies to Landlord. If Tenant fails to maintain the insurance coverage required under this section and such failure continues for a period of ten (10) days after written notice thereof from Landlord to Tenant, Landlord may, at its option, pay the cost of maintaining the required insurance, which shall be Additional Rent due and payable immediately upon demand.

G. Waivers of Claims/Subrogation. Landlord and Tenant hereby waive all rights of action against the other for any loss, cost, damage, or expense resulting from fire, explosion, or any other casualty or occurrence incurred by either, which loss, cost, damage, or expense is then covered in whole or in part by insurance maintained or required to be maintained pursuant to this Lease, and each party waives any right of subrogation that might otherwise exist in or accrue to any person or account thereof.

7. USE.

A. Use. The Premises shall be used only for manufacture, processing, sales, and distribution of graphite nanoplatelets and related multifunctional materials purposes, including related laboratory, product research, storage, and office uses. Tenant shall not permit any liens to attach or exist as against the Premises or the Park, nor commit any waste. The Premises shall not be used for any illegal purposes, nor in any manner shall Tenant allow, suffer, or permit any vibration, noise, odor, light or other effect that could constitute a nuisance or trespass for Landlord or any other tenant, their customers, agents, or invitees. Upon notice by Landlord to Tenant that any of the aforesaid effects are occurring, Tenant agrees to immediately remove or control the same.

B. Use of Common Areas. Landlord grants to Tenant and its agents, employees and customers a non-exclusive license to use the Common Areas in common with others during the Lease Term, subject to the exclusive control and management thereof at all times by Landlord.

C. Management and Operation of Common Areas. Landlord will operate and maintain or will cause to be operated and maintained the Common Areas in good condition and repair and in a manner deemed by Landlord to be reasonable and appropriate and in the best interests of the Park. Landlord will have the right: (1) to establish, modify, and enforce reasonable rules and regulations with respect to the Common Areas, provided same do not unreasonably restrict or interfere with Tenant’s use of the Premises for the permitted uses; (2) to enter into, modify, and terminate easements and other Common Areas; (3) to close temporarily any or all portions of the Common Areas; and (4) to do any or perform such other acts in and to said areas and improvements as, in the exercise of good business judgment, Landlord shall determine to be advisable. A copy of the current Rules and Regulations is attached as Exhibit B and made a part of this Lease.

8. DEFAULT. The following shall constitute Events of Default under this Lease.

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A. Landlord fails to receive any payment of Rent or Additional Rent or any other charges payable hereunder within ten (10) days after the written notice from Landlord to Tenant that such payment is past due.

B. Failure of Tenant to perform any of the other terms, conditions or covenants of this Lease to be observed or performed by Tenant for a period of more than thirty (30) days after written notice of such failure from Landlord to Tenant.

However, if a non-monetary failure cannot reasonably be cured within thirty (30) days, no default shall take place if Tenant begins to cure said failure within those thirty (30) days and Tenant diligently prosecutes said cure to completion.

C. Tenant filing of a voluntary petition in bankruptcy or an involuntary petition in bankruptcy being filed against Tenant, and such petition is not dismissed within thirty (30) days of such filing.

D. If Tenant makes an assignment for the benefit of creditors or enters into a similar arrangement with creditors.

E. Tenant’s abandonment or vacating of the Premises at any time during the term of this Lease.

For the purposes of the Events of Default specified in this Section, the word “Tenant” shall include, without limitation: (1) any party comprising Tenant, should more than one person or entity execute this Lease as Tenant; and (2) any person or entity now or hereafter liable, whether primarily, secondarily or contingently, for the performance of the duties and obligations of Tenant under this Lease, including without limitation any principal, maker, endorser, guarantor, or surety.

9.    LANDLORD’S REMEDIES FOR TENANT’S DEFAULT. If any Event of Default shall have occurred and shall be continuing beyond those periods of time herein granted to cure the same, then Landlord shall have all of the following rights and remedies:

A. Landlord may, by notice to Tenant, accelerate all Base Rent due hereunder and otherwise payable in installments over the remainder of the Lease Term, and, at Landlord’s option, Additional Rent, including, but not limited to, unearned brokerage commissions paid by Landlord in connection with this Lease, to the extent that Additional Rent can be determined and calculated to a fixed sum; and the amount of accelerated Rent shall be due and payable to Landlord upon Landlord’s demand reduced by the reasonable rental value of the Premises and adjusted to reflect the time value of money at the Wall Street Journal published “Prime Rate” as of the date of Tenant’s default. Additional Rent which has not been included, in whole or in part, in accelerated Rent shall be due and payable by Tenant during the remainder of the Lease Term, in the amounts and at the times otherwise provided for in this Lease.

B. Landlord may, at Landlord’s option, with judicial process, enter upon the Premises and remove Tenant and any and all other persons therefrom and take and retain possession thereof and of any and all goods, inventory, equipment, fixtures, and all other personal property of Tenant situated in the Premises without liability for trespass or conversion, and may sell all or any part thereof at public or private sale. Tenant agrees that five (5) days’ prior notice of any public or private sale shall constitute reasonable notice. The proceeds of any such sale shall be applied, first, to the payment of all costs and expenses of conducting the sale or caring for or storing said property, including all attorneys’ fees; second, toward the payment of any indebtedness, including (without limitation) indebtedness for Rent, which may be or may become due from Tenant to Landlord; third, to compensate Landlord for unearned brokerage commissions paid by Landlord in connection with this Lease; and, fourth, to pay the Tenant, on demand in writing, any surplus remaining after all indebtedness of Tenant to Landlord has been fully paid.

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C. Landlord from time to time may re-let the Premises, or any part thereof, for such term or terms and on such conditions as Landlord, in its reasonable discretion, may determine, and Tenant shall be liable to Landlord for (i) the difference between the amount of Rent and Additional Rent payable hereunder and the net proceeds of such re-letting and (ii) unearned brokerage commissions paid by Landlord in connection with this Lease. In computing the amount of such difference there shall be added thereto such reasonable expenses as Landlord may have incurred in connection with such re-letting, including without limitation, attorneys’ fees, brokerage commissions, and expenses for keeping the Premises in good order and for preparing them for reletting, including expenses of remodeling and free rent or other rent incentives provided to the new tenant.

D. Landlord may give Tenant notice of Landlord’s intention to terminate this Lease on a date specified in such notice, on which date this Lease shall terminate. If Landlord shall so elect to terminate this Lease, then Landlord shall be entitled to recover from Tenant, in addition to all accrued Rent and other sums due from Tenant as of such termination date, damages in an amount equal to: (1) the amount of Rent reserved for the balance of the Lease Term, less the fair rental value of the Premises for the balance of the Lease Term, as adjusted to reflect the time value of money at the Wall Street Journal published “Prime Rate” as of the date of such termination, (2) unearned brokerage commissions paid by Landlord in connection with this Lease, and (3) all costs and expenses reasonably incurred by Landlord in securing possession from Tenant, in restoring the Premises to the condition in which Tenant is herein obligated to surrender same to Landlord, in preparing to re-let the Premises, in maintaining and safeguarding the Premises in attempting to re-let the Premises, and in recovering said damages from Tenant, which costs and expenses shall include, without limitation, reasonable attorneys’ fees and expenses, costs of security services, costs of storing or disposing of property left upon the Premises and cleaning and restoration costs. No act or proceeding done or undertaken by Landlord with respect to an Event of Default shall constitute a termination of this Lease by Landlord unless and until Landlord shall give to Tenant the termination notice specified in the first sentence of this Subsection D.

E. If Tenant is in monetary default twice in any six (6) month period, Landlord shall have the right to demand automatic wire transfer of Rent from Tenant’s account.

Landlord’s pursuit of any one or more of the remedies provided in this Lease shall not constitute an election of remedies excluding the election of another remedy or other remedies, or a forfeiture or waiver of any rent or other amounts payable under this Lease by Tenant or of any damages or other sums accruing to Landlord by reason of Tenant’s violation of any provision of this Lease. No action taken by or on behalf of Landlord shall be construed to mean acceptance of a surrender of this Lease, unless otherwise agreed in writing by Landlord. No failure of either party to pursue or exercise any of said party’s powers, rights or remedies or to insist upon strict and exact compliance by the other party with any provision of this Lease, and no custom or practice at variance with the terms of this Lease, shall constitute a waiver by any party of the right to demand strict and exact compliance with the terms and conditions of this Lease.

10.   MISCELLANEOUS DEFAULT PROVISIONS. The right to enforce all of the provisions of this Lease may, at the option of any assignee of Landlord’s rights in this Lease, be exercised by any such assignee.

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A. Any notation or statement by a party on any draft, check, or other method of payment of any obligation hereunder, or in any writing accompanying or accomplishing such payment, which notation or statement purports to impose conditions on such payment or to invoke the doctrine of accord and satisfaction, shall be absolutely void and of no effect, and may be ignored by the other party.

B. No right or remedy herein conferred upon or reserved to a party is intended to be exclusive of any other right or remedy, and every right and remedy shall be cumulative and in addition to any other right or remedy given hereunder or now or hereafter existing at law or in equity. Either party shall be entitled to injunctive relief in case of the violation, or attempted or threatened violation, of any covenant, agreement, condition or provision of this Lease and to a decree compelling performance of any covenant, agreement, condition or provision of this Lease, or to any other remedy allowed by law or in equity.

C. No failure by a party hereto to insist upon the strict performance of any covenant, agreement, term or condition of this Lease on the part of the other party to be performed, or to exercise any permitted right or remedy consequent upon a default therein, and no acceptance of the other party’s performance or, in the case of Landlord, of Tenant’s payment of full or partial Rent after such default, shall constitute a waiver by the party not in default of such default or of such covenant, agreement, term or condition, or any right or remedy of the party not in default with respect thereto.

D. If Landlord fails to perform any covenant on Landlord’s part to be performed under this Lease within thirty (30) days after written notice is sent from Tenant to Landlord stating the precise nature of the failure, then Tenant may declare Landlord in default, provided that if nature of the failure is such that it cannot be reasonably cured within the thirty (30) day period, then Landlord shall not be deemed in default if Landlord, within the thirty (30) day period, commences the cure and thereafter diligently pursues the same to completion. If Landlord does not cure any such failure within the notice and cure period, then Tenant may elect to terminate this Lease upon written notice to Landlord, sue for specific performance, sue for injunctive relief, or sue for damages, at Tenant’s option.

If legal action is required to enforce the performance of either party’s obligations under this Lease, then the prevailing party in that legal action shall be entitled to recover its reasonable attorneys’ fees and court costs incurred in that action from the other party.

11.   ASSIGNMENT AND SUBLETTING. Tenant shall not, directly or indirectly, without the prior written consent of Landlord, sell, assign, hypothecate or otherwise transfer this Lease or any interest hereunder, or sublet the Premises or any part thereof, or permit the use of the Premises by any party other than Tenant. Consent to any assignment or sublease shall not be deemed a waiver of the right of Landlord to disapprove any further assignment or subletting. Landlord’s consent hereunder shall not be unreasonably withheld, conditioned, or delayed. Notwithstanding any permitted assignment or subletting, Tenant shall remain liable for the full and complete performance, satisfaction and compliance with each and every agreement, term, covenant, condition, requirement, provision and restriction of this Lease, as principal and not as surety or guarantor, and as if no such assignment or subletting had been made.

Landlord is expressly given the right to assign any or all of its interest in the Premises or this Lease. Landlord shall give written notification to Tenant promptly after any such assignment.

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12.   HAZARDOUS SUBSTANCES. The term “Hazardous Substances” as used in this Lease, shall mean pollutants, contaminants, toxic or hazardous wastes, or any other substances, the removal of which is required or the use of which is restricted, prohibited or penalized by any “Environmental Law”, which term shall mean any existing or future federal, state, or local law or ordinance relating to pollution or protection of the environment. Tenant hereby represents and warrants and covenants with Landlord that:

A. Tenant will obtain prior to occupancy of the Premises and shall maintain in good standing all local, state and federal government licenses necessary in order to conduct its operations at the Premises;

B. No activity shall be conducted on the Premises that will produce any Hazardous Substance, except for such activities that: (1) are part of the ordinary course of Tenant’s business activities; and (2) are conducted in accordance with all Environmental Laws (the “Permitted Activities”);

C. The Premises shall not be used in any manner for the storage of any Hazardous Substances except for the temporary storage of such materials that: (1) are used in the ordinary course of Tenant’s business; (2) are properly stored in a manner and location meeting the requirements of all Environmental Laws; or (3) which are listed on Exhibit A attached to and made a part of this Lease (the “Permitted Materials”). Landlord agrees that all items listed on Exhibit A shall be deemed Permitted Materials, provided they are handled in accordance with the requirements of the preceding sentence.

D. No portion of the Premises shall be used as a landfill or a dump;

E. Tenant shall not install any underground tanks of any type;

F. Tenant shall not allow any surface or subsurface conditions to exist or come into existence that constitute, or with the passage of time may constitute, a public or private nuisance;

G. Tenant shall not permit any Hazardous Substances to be brought onto the Premises, except for the Permitted Materials, and if so brought or found thereon, the same shall be immediately removed, with proper disposal, and all required cleanup procedures shall be diligently undertaken pursuant to all Environmental Laws at Tenant’s sole expense.

The Tenant shall defend, indemnify, and hold harmless the Landlord, its employees, agents, officers, directors, and shareholders from and against any and all claims of every kind of nature, known or unknown, contingent or otherwise, demands, criminal and civil penalties, fines, liabilities, settlements, judgments, damages, costs or expenses, including without limitation, actual reasonable attorneys’ fees, consultants’ fees, investigation and laboratory fees, court costs and all litigation expenses, arising out of or in any way related to: (1) the presence, disposal, release or threatened release of any Hazardous Materials caused by Tenant, on, over, under, from or affecting the Premises or the soil, water, vegetation, buildings, personal property, persons, or animals; (2) any personal injury (including wrongful death) or property damage (real or personal) arising out of or in any way related to the release of such Hazardous Materials on the Premises by Tenant; (3) any lawsuit brought or threatened, settlement reached, or government order relating to the release of such Hazardous Materials by Tenant with respect to the Premises; and/or (4) any violation of Governmental Regulations which are based upon or in any way related to the release of such Hazardous Materials by Tenant.

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Landlord shall have the right, at any time upon attempted notice to Tenant, to inspect the Premises for violations of this section. Landlord, at its expense, shall provide Tenant with a current Phase I environmental study of the Premises certified to both Landlord and Tenant and containing no recognized environmental conditions prior to the Commencement Date. Tenant, at its expense, shall provide Landlord with a current Phase I environmental study of the Premises certified to both Landlord and Tenant and containing no recognized environmental conditions on the Leased Premises upon its vacation of the Premises.

13. ALTERATIONS.

A. Changes, Alterations and Additional Construction. Except as otherwise provided herein, Tenant, at its expense, shall be responsible for any improvements to the Premises, including but not limited to those required for compliance with fire and building codes, the Americans with Disabilities Act (and any regulations implementing said Act), and any other applicable federal, state, or local law or regulation, provided such improvements are required on account of Tenant’s activities on the Premises. Tenant shall not construct any change, alteration, or addition in or to the Premises or the Park (any and all of the foregoing being sometimes herein collectively called an “Alteration”) unless and until, in each instance, Tenant shall have submitted to Landlord plans, specifications and other materials for such Alteration as Landlord may request and Landlord shall have approved the same in writing. Landlord’s approval of any Alteration shall not be unreasonably withheld, conditioned, or delayed.

B. Manner of Construction. All Alterations which Landlord shall have approved shall be constructed by Tenant, without expense to Landlord, in a good, and workmanlike manner, and in compliance with the Landlord-approved plans and specifications therefore and all applicable permits, laws, ordinances and regulations and order, rules and regulations of the Board of Fire Insurance Underwriters or any other body exercising similar functions, and in compliance with the terms and conditions of this Lease.

C. Title to Alterations. Except to the extent otherwise expressly provided herein, upon the completion of construction of each Alteration (but excluding Tenant’s trade fixtures, equipment, machinery, and signage), such Alteration shall automatically be deemed part of the Premises for purposes of this Lease. Notwithstanding the foregoing, upon any termination of this Lease or Tenant’s right of possession of the Premises, at Landlord’s option, (1) prior to such expiration or termination, all such Alterations, or any parts or parts thereof designated by Landlord, shall be removed from the Premises and the Premises restored substantially to their condition immediately prior to the construction thereof, all at Tenant’s expense, or (2) upon such expiration or termination, title to such Alterations, or any part of parts thereof designated by Landlord, in the condition in which Tenant is obligated to maintain the Alterations pursuant to the provisions of this Lease, shall automatically pass to, vest in, and belong to Landlord without further action on the part of either party and without cost or charge to Landlord.

D. Landlord’s Initial Improvements. Prior to the Commencement Date, Landlord shall make the following improvements to the Premises in a good and workmanlike manner, in accordance with all applicable laws, codes, and ordinances, and in accordance with the plans and specifications approved in writing by Tenant: (1) make changes to the office space as shown on Exhibit C attached hereto, (2) build out the laboratory space as shown on Exhibit D attached hereto, (3) modify the employee washrooms as shown on Exhibit E attached hereto, and (4) modify the factory as shown on Exhibit F attached hereto. Prior to commencing these improvements, Landlord shall obtain a fixed price bid for the improvements from Wieland Davco or another contractor or contractors acceptable to the parties. Tenant must first agree in writing that the bid is acceptable before Landlord proceeds with the improvements, provided that Tenant shall be deemed to have approved the bid if Tenant does not provide substantive comments on it within five (5) days after Tenant’s receipt of the bid. If no bid is reasonably acceptable to Tenant, then Tenant may terminate this Lease upon written notice to Landlord. If the bid is acceptable to Tenant, then Tenant shall confirm that fact in writing delivered to Landlord and Landlord thereafter shall complete the improvements as promptly as practical. The cost of the improvements as reflected in the approved bid, together with any additions to the bid approved in writing by Tenant and Landlord, shall be paid by Landlord. This payment by Landlord shall be amortized as Additional Rent to be paid by Tenant together with Base Rent in equal monthly installments over the Lease Term, together with interest on the unpaid balance thereof at seven percent (7.0%) per annum.

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E. Subsequent Improvements. Landlord acknowledges that Tenant is leasing the Premises with an option to require Landlord to expand the Premises at some time during the first twenty-four (24) months of the Lease Term to include (1) an addition to the Building for chemical storage of approximately 15,000 square feet, with a blast wall to separate the chemical storage area from the rest of the Building and (2) to construct a loading dock. Tenant will provide Landlord with the plans and specifications for such expansion. As promptly as practical thereafter, Landlord will obtain fixed price bids for the expansion from Wieland Davco and other contractors acceptable to Landlord and Tenant. If Tenant approves in writing a bid for this expansion, then Landlord shall complete or cause the selected contractor to complete the expansion in good and workmanlike manner, in accordance with all laws, codes, and ordinances, and in accordance with the plans and specifications provided by Tenant as promptly as practical. The cost of the expansion as reflected in the approved bid and any additions to the bid approved in writing by Tenant and Landlord shall be paid by Landlord. Landlord’s payment shall be amortized as Additional Rent to be paid by Tenant as Additional Rent together with Base Rent in equal monthly installments over the remaining Lease Term, together with the interest on the unpaid balance thereof at seven percent (7.0%) per annum, commencing upon issuance of a certificate of occupancy for the expansion space. If Landlord is unwilling or fails to complete the expansion as herein provided, then Tenant’s sole remedy therefor shall be to terminate this Lease upon ninety (90) days prior written notice to Landlord, with such notice to be effective to be provided Landlord by no later than the thirty-sixth (36^th) month of the Lease Term.

14. SURRENDER.

A. Delivery of Possession. Tenant shall, on the Expiration Date of the Lease Term, or upon any earlier termination of this Lease, or upon any termination of Tenant’s right to possess the Premises pursuant to the provisions of this Lease, surrender and deliver up the Premises into the possession and use of Landlord without fraud or delay and in the condition at the time of occupancy, normal wear and tear excepted, broom clean and free of all debris and hazardous or toxic materials not present on the Commencement Date, and free and clear of all lettings, occupancies, liens and encumbrances, created by or through Tenant.

B. Holding Over. If Tenant holds over in the Premises after the expiration of the Lease Term or any earlier termination of this Lease or of Tenant’s right to possess the Premises in violation of the Lease, then at Landlord’s option, and without limitation to any right or remedy of Landlord with respect to such holding over, such holding over shall create a tenancy from month-to-month only, subject to Tenant’s obligation to pay Rent equal to one hundred twenty-five percent (125%) of the monthly Base Rent in effect immediately prior to such expiration or termination (as well as any Additional Rent), and subject to all the provisions and conditions of this Lease, other than provisions relating to length of Lease Term, which tenancy may be terminated at any time by Landlord giving notice thereof to Tenant. Landlord’s acceptance of any such rental during the period of Tenant’s holding over shall not waive or otherwise affect any claim or right which Landlord may have with respect to such holding over.

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C. Removal of Personal Property. Any and all personal property, machinery, and equipment furnished or installed by or at the expense of Tenant which does not constitute part of the Premises shall be removed by Tenant and all damage to the Premises caused by such removal repaired by Tenant prior to the expiration or earlier termination of the Lease Term or the termination of Tenant’s right to possess the Premises.

D. Retention of Personal Property. Any personal property, machinery, or equipment of Tenant which shall remain on the Premises after the expiration of the Lease Term or earlier termination of this Lease or Tenant’s right to possess the Premises may, at the option of Landlord, be deemed to have been abandoned by Tenant and may be retained by Landlord as Landlord’s property or be disposed of, without liability to Landlord, in such manner as Landlord may see fit, or Landlord, at its option, may require Tenant to remove the same at Tenant’s expense. In case of such removal, all costs of removal and of repairing any damage to the Premises arising from such removal shall be paid by Tenant upon Landlord’s demand. Tenant shall pay to Landlord on demand (1) a reasonable fee for storing and disposing of any such personal property, and (2) all costs and expenses incurred by Landlord in storing and disposing of any such personal property (including, without limitation, counsel fees relating to claims against Landlord by any and all parties claiming interests in such personal property).

15.   RIGHT TO MORTGAGE. Landlord reserves the right to subject and subordinate the Lease to the lien of any mortgage or security interest now or hereafter placed upon Landlord’s interest in all or any part of the Premises and upon the land, buildings, and fixtures of which the Premises are a part or upon any buildings hereafter placed upon the land of which the Premises form a part. Tenant covenants and agrees to execute and deliver upon demand such further instruments subordinating this Lease to the lien of any present or future mortgage or security interest or other lien as shall be desired by Landlord. In exchange for any such subordination, and as a condition thereof, Landlord will be required to provide a customary non-disturbance agreement from any existing lienholder providing that Tenant’s rights, interests, and possession under this Lease will not be disturbed so long as Tenant is not in default of this Lease.

16.   ESTOPPEL CERTIFICATES. Tenant agrees, at any time and from time to time upon not less than fifteen (15) days’ prior written notice by Landlord, to execute, acknowledge and deliver to Landlord a statement in writing certifying to the best of Tenant’s actual knowledge after reasonable investigation: (1) that this Lease is unmodified and in full force and effect (or if there have been modifications, that the same is in full force and effect as modified and stating the modifications); (2) whether there are then existing any offsets or defenses against the enforcement of any of the terms, covenants or conditions hereof upon the part of Landlord or Tenant to be performed (and if so, specifying the same); and (3) the dates to which the Rent and other charges have been paid in advance, if any, it being intended that any such statement delivered pursuant to this Section may be relied upon by any prospective purchaser of the Premises. Should either party comply with a request by the other to provide an Estoppel Certificate on the requesting party’s behalf, such compliance shall not estop the complying party from thereafter asserting its rights and remedies regarding any default existing on or before the date on which it executes such Estoppel Certificate of which it did not have actual knowledge on the date of execution thereof.

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17. MAINTENANCE AND REPAIRS.

A. Utilities. Tenant shall promptly pay all charges for utilities and other services furnished to the Premises by Landlord or the applicable utility company, including, but not limited to, gas, water, electricity, fuel, light, heat, and dumpster service. In the event any utilities furnished to the Premises are not separately metered, Tenant shall pay to Landlord, as Additional Rent, Tenant’s pro-rata share of the utilities.

B. Cleaning and Upkeep. Tenant shall keep the Premises, including any adjoining parking areas, walkways, drives, streets, alleys or yards clean and free of rubbish. If Tenant fails to do so, Landlord’s cost to have it done will be added to Tenant’s CAM Charges.

C. Grounds Maintenance. Tenant shall be responsible for all costs and expenses related to maintaining the lawn, shrubs, and any other landscaping on the Premises up to the standard which Landlord has historically maintained. Cost will be included in Tenant’s CAM Charges.

D. Snowplowing. Tenant shall be responsible for all costs and expenses for keeping the Premises free from ice and snow at all times. Cost will be included in Tenant’s CAM Charges.

E. Landlord’s Right of Entry. Landlord shall have the right to enter upon the Premises at all reasonable hours, with reasonable prior notice, for the purpose of inspection and repairs, except in case of emergency in which case no notice shall be required.

F. Repairs bv Landlord. Except as otherwise provided herein, Tenant accepts the Premises in their condition at Lease commencement and as suited for the uses intended by Tenant. Landlord shall deliver the Premises to Tenant on the Commencement Date with all building systems, equipment, and fixtures in good working order and condition. Except as otherwise expressly provided in this Lease, Landlord shall not be required to make any repairs or improvements to the Premises, except repairs to the foundation, structural components, exterior walls or roof of the Building as necessary for safety and tenantability, all of which shall be Landlord’s responsibility to repair and maintain at Landlord’s sole cost and expense if the need for repair is not brought about by any act or neglect of Tenant, its agents, employees, contractors, invitees, licensees or assignees. Without limiting the generality of the foregoing limitation, Landlord specifically shall have no obligation to repair any interior or exterior glass or doors (including loading doors) located in or on or constituting a part of the Premises, nor shall Landlord have any obligation to maintain exterior lighting

Notwithstanding the foregoing limitations on Landlord’s repair obligations, during the first year of the initial Lease Term only, Landlord shall be obligated to promptly correct any defects in material or workmanship throughout the Premises and repair any building systems, equipment, and fixtures which were not in good working order and condition as of the Commencement Date.

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G Repairs by Tenant. Tenant shall repair, maintain, replace as necessary, and keep in good, clean, and safe repair all portions of the Premises and all equipment, fixtures, and systems therein which are not specifically set forth as the responsibility of Landlord elsewhere in this Lease, ordinary wear and tear, damage by the elements, and casualty excepted. Tenant’s repairs and replacements shall include, without limitation, all electrical, plumbing, heating and air conditioning systems, parts, components, and fixtures. In connection therewith, Tenant shall maintain in force at all times a maintenance contract for the heating, ventilation and air conditioning equipment: (1) reasonably acceptable in form and content to Landlord; (2) with a service organization reasonably acceptable to Landlord; and (3) providing for at least semi-annual maintenance of such equipment, and shall provide Landlord with a true copy of such maintenance contract. Tenant shall also promptly repair or replace all partitions and all glass and plate glass within or constituting a part of the Premises immediately when cracked or broken, unless caused by Landlord or Landlord’s employees or agents, and Tenant shall be liable for and shall hold Landlord harmless against all loss, cost, and damage (including reasonable attorneys’ fees) arising from any damage or injury to the Premises or the Park or to any person or property caused or contributed to by any act or negligence of Tenant, any invitee, agent, affiliate, customer or client of Tenant or anyone in Tenant’s control or employ. Landlord gives to Tenant exclusive control of the Premises and shall be under no obligation to inspect the Premises. Tenant shall promptly report in writing to Landlord any defective conditions on the Premises known to Tenant which Landlord is required to repair, and failure to promptly report such defects after Tenant knows of the defective conditions shall make Tenant liable to Landlord for any liability incurred by Landlord by reason of such defects, and Tenant indemnifies and holds Landlord harmless from and against all loss, costs and damage (including reasonable attorneys’ fees) arising from or related to Tenant’s failure to so report such defective conditions. In no event shall Tenant cause or allow any outside storage of trash, refuse, debris, or anything else on the Premises. All personal property of Tenant or Tenant’s employees, agents, affiliates or invitees located in or brought upon the Premises or any part of the Park shall be at risk of Tenant only, and Landlord shall not be liable to Tenant or any other party for any damage thereto or theft thereof resulting from any cause other than the willful negligence or intentional misconduct of Landlord, its officers, employees, or agents.

If Tenant does not comply with this Section, Landlord shall have the right to do or cause to be done all acts necessary to bring Tenant into compliance and bill Tenant for all costs involved.

Tenant shall obtain all necessary governmental permits before making any renovations, improvements, alterations or additions to the Premises. Landlord agrees to cooperate with Tenant in obtaining such permits. However, Landlord shall have no obligation to pay any fees or charges in connection therewith.

H. Liens. If a mechanic’s or construction lien is filed against any portion of the Premises or Park as a result of work undertaken by Tenant, then within thirty (30) days after receiving notice of any such lien, Tenant shall discharge the lien either by payment of the indebtedness due lien claimant or by filing a bond as provided by statute.

If Tenant fails to discharge any lien in accordance with the terms hereof, Landlord shall have the right to discharge the lien by filing a bond or paying the indebtedness. In this event, Tenant shall pay the cost of the bond or the amount of the lien indebtedness to Landlord as Additional Rent immediately upon demand. If Tenant does not do so within ten (10) days of demand by Landlord, then Tenant shall be in default under this Lease and Landlord shall have the same remedies as provided for in Section 9.

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18. DAMAGE OR DESTRUCTION.

A. If the Premises are rendered partially or wholly unfit for occupancy by fire, the elements, act of God, or other casualty (fire, the elements, acts of God, or other casualties hereinafter referred to as a “Casualty”), and if such damage cannot, in Landlord’s reasonable estimation, be materially restored within one hundred eighty (180) days after such Casualty, then Landlord may, at its sole option, terminate this Lease as of the date of such Casualty and the Lease Term shall end on such date as if that date had been originally fixed in this Lease for the expiration of the Lease Term. Landlord shall exercise its election to terminate provided herein by written notice to Tenant as soon as practical and in any event within sixty (60) days after such Casualty. For purposes hereof, the Premises shall be deemed “materially restored” if they are in such condition as would not prevent or materially interfere with Tenant’s use of the Premises for the purpose for which it was then being used.

B. If this Lease is not terminated pursuant to Subsection A above, then Landlord shall proceed with all due diligence to repair and restore the Premises using the proceeds of insurance which shall be made available by Tenant, as the case may be (except that Landlord may elect not to rebuild, and thus terminate this Lease, if such Casualty occurs during the last year of the Lease Term exclusive of any renewal or extension option that is unexercised at the date of such Casualty). If Landlord shall fail to complete such repairs and material restoration within one hundred eighty (180) days after the date of the Casualty, then Tenant may at its option and as its sole remedy terminate this Lease by delivering written notice to Landlord, whereupon the Lease shall end on the date of such notice as if the date of such notice were the date originally fixed in this Lease for the expiration of the Lease Term hereof; provided, however, that if construction is delayed because of changes, deletions, or additions in construction requested by Tenant, or because of strikes, lockouts, casualties, acts of God, war, material or labor shortages, governmental regulation or control, or other causes beyond the reasonable control of Landlord, then the period for restoration, repair or rebuilding shall be extended for the amount of time Landlord is so delayed. In no event shall Landlord be required to rebuild, repair or replace any part of the partitions, fixtures, additions, or other property and improvements that may have been placed in or about the Premises by Tenant, provided that Tenant shall be entitled to rebuild, repair, or replace said items using the proceeds of any insurance available therefor.

C. If this Lease shall not be terminated by Landlord pursuant to this Section 18 and if the Premises are unfit for occupancy in whole or in part following such Casualty, then the Base Rent payable during the period in which the Premises are unfit for occupancy shall abate in proportion to the percentage of the rentable area of the Premises rendered unusable by such Casualty; provided, however, that no such abatement shall be made under the provisions of this Subsection C if such Casualty shall have been caused through the negligence or willful misconduct of Tenant, its agents, employees, contractors, invitees, licensees, tenants, or assignees.

D. Notwithstanding anything herein to the contrary, if, following any Casualty, the holder of any indebtedness secured by a mortgage or deed to secure debt or similar instrument covering the Premises requires that any insurance proceeds resulting from the Casualty be paid to it rather than to Landlord for the rebuilding or restoration of the Premises, then Landlord shall have the right to terminate this Lease by delivering written notice of termination to Tenant within fifteen (15) days after such requirement is made by any such person, whereupon the Lease shall end on the date of the Casualty as if the date of such Casualty were the date originally fixed in this Lease for the expiration of the Lease Term.

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E. If any Casualty described in this subsection occurs, then Landlord shall not be liable to Tenant for any inconvenience, annoyance, loss of profits, expenses, or any other type of injury or damage resulting from the repair of any such Casualty, or from any repair, modification, arranging or rearranging of any portion of the Premises or for termination of this Lease as provided in this subsection, except to the extent of any bodily injury to persons or damage to property resulting solely from Landlord’s negligence or intentional misconduct in performing such work.

19. CONDEMNATION.

A. Total Taking. In the event that the whole of the Premises shall be taken under the exercise of the power of eminent domain or by agreement with any condemnor in lieu of such taking, including but not limited to a temporary taking of the Premises for a period in excess of six (6) months (all of the foregoing herein called a “Total Taking”), then this Lease shall terminate as of the earlier of the date when title thereto vests in the condemnor or the date when possession thereof shall be delivered to the condemnor.

B. Award on Total Taking. The entire award with respect to any Total Taking shall be paid to Landlord, except that Tenant shall be entitled to any award which the condemnor may make, and which shall be provided for by law, specifically for Tenant’s improvements, moving expenses and business dislocation damages, provided that same are not deducted from the award otherwise payable to Landlord.

C. Partial Taking. In the event that any portion or portions of the Premises shall be taken under the exercise of the power of eminent domain or by agreement with any condemnor in lieu of such taking (herein called a “Partial Taking”), then this Lease, only as to the portion or portions so taken, shall terminate as of the date possession thereof shall be delivered to the condemnor; provided, however, if as a result of such Partial Taking, it is economically unfeasible to reconstruct or operate for Tenant’s business the remaining portion of the Premises because of the insufficiency in size of the remaining portion of the Premises or Tenant’s ability to access the Premises is severely reduced, and Tenant so certifies to Landlord, then (1) this Lease shall terminate thirty (30) days from the date possession of the part taken shall be delivered to the condemnor, and (2) such Partial Taking shall be deemed to be and treated as a Total Taking.

D. Reconstruction. If during the Lease Term there shall be a Partial Taking, and if this Lease shall not be terminated on account thereof pursuant to the provisions of the immediately preceding Subsection C, then (1) Landlord shall repair and restore the remaining portion of the Premises so that they constitute architectural units with the same general character and condition to the nearest extent possible under the circumstances as the previous Premises, and (2) this Lease shall remain in full force and effect with respect to such remaining portion of the Premises. Landlord shall use its best efforts to complete the reconstruction promptly and within the period mutually agreed upon by the parties.

E. Award on Partial Taking. The entire award with respect to any Partial Taking shall be paid to Landlord, excluding however any award for Tenant’s improvements and business interruption.

F. Temporary Taking. In the event a taking or condemnation of the Premises, or any part thereof, shall be for temporary use or occupancy not exceeding a period of six (6) months, then: (1) this Lease and all Tenant’s obligations hereunder shall continue in full force and effect (except to the extent that performance by Tenant of Tenant’s covenants and agreements is prevented by such taking); (2) there shall be no reduction or abatement of Rent; (3) Tenant shall be entitled to the entire award with respect to any such taking, except that Landlord shall be entitled to any portion of such award allocable to any period of time beyond the expiration of the Term of this Lease; and (4) the rights of Landlord and Tenant shall be unaffected by the other provisions of this Article and shall be governed by applicable law or Tenant shall have the option to terminate the Lease with no further liability to Landlord.

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G. Settlement Agreement. For the purposes of this Lease, all amounts paid pursuant to an agreement with any condemnor in settlement of any condemnation or any eminent domain proceeding affecting the Premises shall be deemed to constitute an award made in such proceeding.

H. Abatement in Base Rent. In a case of a Partial Taking which does not result in a termination of this Lease, the annual Base Rent payable under this Lease, after possession of the portion so taken shall be delivered to the condemnor, shall be reduced in the same proportion as the amount of usable floor area of the Premises shall have been reduced by such Taking, but any such Partial Taking shall not relieve Tenant from Tenant’s liability to pay the full Additional Rent payable under this Lease, or from any of Tenant’s other obligations hereunder, and except as herein expressly provided.

20. LIABILITY; INDEMNIFICATION OF LANDLORD AND TENANT.

A. Damage in General. Tenant agrees that Landlord, and its officers, employees and agents and those of all affiliated legal entities shall not be liable to Tenant, and Tenant hereby releases said parties, for any loss, injury, death, or damage (including incidental or consequential damages) to persons, property, or Tenant’s business from any cause whatsoever, unless such damage, loss or injury results from the negligence or willful misconduct of Landlord, or its officers, employees or agents. Landlord and its officers, employees, and agents shall not be liable to Tenant for any such damage or loss, whether or not such damage or loss results from the negligence or willful misconduct, to the extent Tenant is compensated therefore by Tenant’s insurance.

B. Indemnification of Landlord. Tenant agrees to defend with counsel reasonably satisfactory to Landlord, indemnify and save harmless Landlord from and against any and all liabilities, claims, damages, losses, cost and expenses, including without limitation attorneys’ fees, suffered or incurred by Landlord with respect to: (1) Tenant’s conduct, operation or management of the Premises, or any work, act or thing whatsoever by Tenant done in, on or about the Premises; (2) any condition of the Premises, resulting by reason of Tenant’s failure or refusal to perform its obligations under this Lease; (3) any breach or default on the part of Tenant in the observance or performance of any of its agreements or obligations hereunder; (4) any act or omission of Tenant or any sublessee or Assignee of Tenant or any of Tenant’s or such sublessee’s or Assignee’s agents, contractors, servants, employees, business invitees, licensees, visitors or guests with respect to the Premises and/or Park; and (5) any accident, injury to or death of any person or damage to any property caused by Tenant or its officers, employees, agents, contractors or invitees in or on the Premises. Landlord shall give prompt written notice to Tenant of any claim asserted against Landlord which, if sustained, may result in liability of Tenant hereunder, but failure on the part of Landlord to give such notice shall not relieve Tenant from Tenant’s obligation to defend, indemnify and save harmless Landlord as stated, except to the extent that the failure to give such notice results in actual loss or damage to Tenant.

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C. Indemnification of Tenant. Landlord agrees to defend with counsel reasonably satisfactory to Tenant, indemnify and save harmless Tenant from and against any and all claims, damages, losses, cost and expenses, including without limitation attorneys’ fees, suffered or incurred by Tenant as the result of any accident, injury to or death of any person or damage to any property to the extent caused in or about the Premises by the negligence or willful misconduct of Landlord or Landlord’s employees, servants, licensees, or its agents. Tenant shall give prompt written notice to Landlord of any claim against Tenant which, if sustained, may result in liability of Landlord hereunder, but Tenant’s failure to give such notice shall not relieve Landlord from Landlord’s obligation to defend, indemnify and save harmless Tenant as stated, except to the extent that the failure to give such notice results in actual loss or damage to Landlord.

21. MISCELLANEOUS PROVISIONS.

A. Governing Law. This Lease shall be construed and interpreted under the laws of the State of Michigan applicable to contracts made and fully performed within the state.

B. References. All references made and pronouns used herein shall be construed in the singular or plural, and in such gender as the sense and circumstances require. All references to Section or paragraph numbers or letters shall refer to sections or paragraphs of this Lease unless otherwise indicated.

The headings inserted in this Lease are for reference purposes only and shall in no way affect the construction of this Lease or limit the generality of any of its provisions.

C. Binding Effect. The terms and conditions of this Lease shall also bind the respective heirs, successors, personal representatives and assigns of the parties.

D. Entire Agreement. Except for the documents listed below, if any, this Lease constitutes the entire agreement between the parties and shall be deemed to supersede and cancel any other agreement between the parties relating to the transaction herein contemplated. None of the prior and contemporaneous negotiations, preliminary drafts or prior versions of this Lease containing conditions not set forth herein shall be used by any of the parties to construe or affect the validity of this Agreement. Each party acknowledges that no representation, inducement or condition not set forth herein has been made or relied upon by either party.

E. Enforceability of Provisions. In case any provision of this Lease or any agreement or instrument executed in connection herewith shall be deemed invalid, illegal or unenforceable, such provision shall be enforced to the fullest extent permitted by applicable law and the validity of the remaining provisions hereof shall not in any way be affected.

This Lease shall not be construed more strictly against one party as opposed to the other, merely because it may have been prepared by counsel for one of the parties. It is recognized that both Landlord and Tenant have contributed substantially and materially to the preparation of this Lease. Except as specifically provided to the contrary in this Agreement, any approval required by the terms of this Agreeement to be provided by either party shall not be unreasonably withheld, conditioned, or delayed.

F. Remedies Not Exclusive. All of the rights, remedies and benefits provided by this Lease shall be cumulative and shall not be exclusive of any other rights, remedies, and benefits allowed by law. One or more waivers of any covenant or condition by a party shall not be construed as a waiver of a further breach of the same or any other covenant or condition.

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G. Landlord’s Right to Tenant’s Financial Information. Landlord reserves the right to require Tenant to submit annual financial information including but not limited to financial statements and other relevant records. Tenant shall supply Landlord with the requested information within ten (10) business days of receipt of the request unless otherwise agreed upon. Any financial information provided by Tenant which is not publicly available and is conspicuously marked “Confidential” by Tenant shall be kept confidential by Landlord and may be disclosed by Landlord only to Landlord’s lender or to a prospective purchaser of Landlord, the Park, or the Premises under similar conditions of confidentiality.

H. Re-Leasing. Tenant agrees that for a period commencing six (6) months prior to the termination of this Lease, upon reasonable advance notice to Tenant Landlord may show the Premises to prospective tenants. Landlord may list the Premises for lease or rent with a broker and may display in and about the Premises the usual and ordinary signs during the last six (6) months of the Lease Term.

I. Advertising and Signs. All signs and advertising displayed on and about the Premises shall only advertise the business carried on upon the Premises. Landlord shall control the character and size of all signs and no sign shall be displayed except those approved in writing by Landlord, provided that Landlord shall permit Tenant to install signage in any existing pylon or road sign, building sign, or other existing sign on the Premises.

J. Quiet Enjoyment. Landlord covenants that Tenant, upon payment of all the Rent and Additional Rent due under this Lease, and performance of the covenants and obligations under this Lease or otherwise, may peacefully and quietly occupy the Premises for the term of this Lease including any written extensions or modifications of same.

K. Sale by Landlord. In the event of any sale, conveyance, transfer, or assignment by Landlord of its interest in and to the Premises, all obligations under this Lease of the party selling, conveying, transferring, assigning or otherwise disposing shall cease and terminate and Tenant releases said party from same, and Tenant shall thereafter look only and solely to the party to whom or which the Premises were sold, conveyed, transferred, assigned or otherwise disposed of for performance of all of Landlord’s duties and obligations under this Lease from and after the date of such sale, conveyance, transfer, assignment, or disposal.

L. Limitation of Liability. Landlord’s obligation and liability to Tenant with respect to this Lease shall be limited solely to Landlord’s interest in the Premises, and neither Landlord, nor any joint venturer, partner, officer, director or shareholder of Landlord or its affiliated legal entities or any of the joint venturers of Landlord shall have any liability whatsoever with respect to this Lease.

M. Authority. Each party executing this Lease warrants that it has full power, authority and legal right to execute and deliver this Lease, and to keep and observe all of the terms and provisions of this Lease on such party’s part to be observed and performed. Each party warrants that this Lease is its valid and enforceable obligation.

N. No Liability for Curtailment Etc., of Services. Landlord shall not be liable in damages or otherwise and Tenant waives any claim for the curtailment, delay, or failure in furnishing any services hereunder from any cause whatsoever, except where such curtailment, delay or failure is caused by Landlord’s willful negligence or misconduct. In no event will Landlord have any liability for any consequential, incidental, or special damages in connection with furnishing services pursuant to this Lease, nor shall any curtailment, delay, or failure in providing services, regardless of cause, constitute an eviction of Tenant or termination of this Lease. Landlord shall use reasonable efforts to restore promptly the curtailed, delayed or failed service.

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O. Survival. All agreements and obligations of a party hereunder which require observance or performance after the expiration or termination of this Lease, or which cannot reasonably be ascertained as having been observed or performed at the time of such expiration or termination, shall survive, and be enforceable against said parly following such expiration or termination.

P. Notices. Whenever a provision is made for notice of any kind, it shall be served by United States first class mail, or personally delivered to the party being put on notice at the addresses listed below or such other addresses as the parties may indicate for themselves by written notice delivered in like manner.

If to Landlord:	DART CONTAINER OF MICHIGAN LLC 500 Hogsback Road Treasury Department Mason, Michigan 48854-9541 ATTN:        Steve A. Mills
If to Tenant:	XG SCIENCES, INC. 3101 Grand Oak Drive Lansing, Michigan 48911 ATTN:        Michael R. Knox Title:           Chief Executive Officer

Q. Certificate of Occupancy. Upon Tenant’s written request, Landlord shall provide Tenant with a Certificate of Occupancy issued by the appropriate municipal authority.

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This lease is signed and made effective as of the date first written above.

	LANDLORD: DART CONTAINER OF MICHIGAN LLC
Dated: _______________, 2011	BY:
		Kevin M. Fox
	ITS:	Authorized Signatory

	TENANT: XG SCIENCES, INC.
Dated: June 2, 2011	BY:	/s/ Michael R. Knox
		Michael R. Knox
	ITS:	Chief Executive Officer

22

EXHIBIT A

PERMITTED MATERIALS

Tenant’s list of hazardous and toxic materials and wastes required to be disclosed under Section 12 of the Lease.

	LANDLORD: DART CONTAINER OF MICHIGAN LLC
Dated: _____________, 2011	BY:
		Kevin M. Fox
	ITS:	Authorized Signatory

	TENANT: XG SCIENCES, INC.
Dated: _June 2, 2011	BY:	/s/ Michael R. Knox
		Michael R. Knox
	ITS:	Chief Executive Officer

A-1

EXHIBIT B

RULES AND REGULATIONS

1. Control of Common Areas. Landlord shall have the right to control and operate the Common Areas of the Park in such manner as it deems best for the benefit of the tenants generally. No tenant shall invite to the Premises, or permit the visit of persons in such numbers or under such conditions as to interfere with the use and enjoyment of the entrances, corridors, facilities, and other Common Areas of the Park by other tenants.

2. Observance of Rules. Landlord reserves the right to exclude or expel from the Park any person who, in the judgment of Landlord, is intoxicated or under the influence of liquor or drugs, or who shall in any manner do any act in violation of any of the Rules and Regulations of the Park or in violation of any law, order, ordinance, or governmental regulation.

3. No Obstruction. The entries, exits, corridors, stairways and elevators shall not be blocked, obstructed, or interfered with in any way by any tenant, or used for any other purpose than ingress or egress to and from its respective offices. Nor shall tenant block, obstruct, or interfere with in any way sprinklers, fire extinguishers, or other fire control equipment, or any electrical, mechanical or other building systems located on the Premises or on the Park. Tenant shall not bring into or keep within the Premises any animal or motor vehicle unless prior arrangements have been made with the Landlord.

4. Security of Premises. All entrance doors on the Premises shall be kept locked when the Premises are not in use.

5. Locks. No additional locks shall be placed on the doors of the Premises by Tenant nor shall any existing locks be changed unless Landlord is immediately furnished with two keys for each lock on the entrance doors when Tenant assumes possession, with the understanding that at the termination or expiration of the Lease Term the keys shall be returned.

6. No Soliciting. Canvassing, soliciting, or peddling in the Park is prohibited and each tenant shall cooperate to prevent the same.

7. No Advertising. Tenant shall not advertise the business, profession or activities of Tenant in any manner which violates the letter or spirit of any code of ethics adopted by any recognized association or organization pertaining thereto or use the name of the Park for any purpose other than that of the business address of Tenant.

8. Proper Use of Facilities. The drinking fountains, lavatories, water closets, and urinals shall not be used for any purpose other than those for which they were installed.

9. Load Limits on Floors. Tenant shall not place a load upon any floor of the Premises which exceeds the floor load per square foot which such floor was designed to carry and is allowed by law. Landlord reserves the right to prescribe the weight and position of all heavy installations which Tenant wishes to place in the Premises so as to distribute properly the weight thereof.

10. Machinery and Equipment. Machinery and equipment used by Tenant on the Premises which cause noise and/or vibration that may be transmitted to the structure of the Premises or to other portions of the Park to such a degree as to be reasonably objectionable to Landlord or other Tenants shall be placed and maintained by Tenant, at Tenant’s expense, in settings of cork, rubber, or spring-type noise and/or vibration eliminators sufficient to reduce such noise and/or vibration to reasonably unobjectionable levels.

B-1

11. Moving of Equipment. Tenant shall move all heavy equipment in and out of the Building and/or Park in compliance with all applicable governmental laws, rules or regulations and the structural design of the Building.

12. Replacement of Broken Glass. Tenant shall replace, at Tenant’s expense, any and all broken glass, including glass partitions and doors, if any, in the Premises.

13. No Hazardous Materials. Tenant’s operations shall not include the manufacture, use and/or storage of flammable or explosive materials or substances, and explosive devices, unless same are maintained, used, and stored in accordance with applicable laws and Section 12 of the Lease. Tenant shall conduct its operations so as to avoid hazards associated with flammable or explosive materials or any other toxic or hazardous material or activity, unless same are maintained, used, and stored in accordance with applicable laws and Section 12 of the Lease.

14. Good Housekeeping. Tenant shall observe good housekeeping and keep the Premises reasonably clean and neat at all times, and free of pest or vermin of any kind.

15. Landlord Not Liable. Landlord is not responsible to any tenant for the non-observance or violation of the Rules and Regulations by any other tenant.

16. Modifications to Rules and Regulations. Landlord reserves the right by written notice to Tenant to rescind, amend, alter or waive any rule or regulation at any time prescribed for the Park when, in Landlord’s judgment, it is necessary, desirable or proper for the best interest of the Park and its tenants, provided that such rescissions, amendments, alterations, or waivers may not be unreasonable when applied to Tenant or may not unreasonably restrict Tenant’s use of the Premises for the purpose described in Section 7 of the Lease.

17. Drives and Parking Areas. All parking shall be within the Premises boundaries and within marked parking spaces. At no time shall Tenant obstruct drives and loading areas intended for the use of all tenants. The drives and parking areas are for the joint and non-exclusive use of Landlord’s tenants, and their agents, customers and invitees, unless specifically marked. Landlord shall have the right to restrict Tenant, its agents, customers, and/or invitees to certain parking areas. Tenant shall not permit any fleet trucks to park overnight in the Building’s parking areas.

18. Storage and Loading Areas. Unless specifically approved by Landlord in writing, no materials, supplies or equipment shall be stored anywhere except inside the Premises. Trash receptacles may not be placed in the service area except as otherwise approved by Landlord.

19. Contractors and Service Maintenance. Tenant will refer all contractors, contractor’s representatives and installation technicians rendering any service on or to the Premises for Tenant to Landlord for its approval and supervision before performance in the Building, including, but not limited to, installation of electrical devices and attachments and installations of any nature affecting floors, walls, woodwork, trim, windows, ceilings, equipment or any other physical portion of the Building.

20. Lodging. Tenant shall not at any time occupy any part of the Building as sleeping or lodging quarters.

B-2

21. Exterior Installations. Tenant shall not install any radio or television antenna, satellite dish, loudspeaker, or any other device on the roof or exterior walls of the Building without Landlord’s prior written consent.

22. Waivers. Landlord may waive any one or more of these Rules and Regulations for the benefit of any particular tenant in the Park, but no such waiver by Landlord shall be construed as a general waiver of such Rules and Regulations or of Landlord’s right to enforce such Rules and Regulations against Tenant or any other tenant in the Park.

23. Additions to Lease. These Rules and Regulations are in addition to, and shall not be construed to in any way, modify or amend, in whole or in part, the terms, covenants, agreements, and conditions of the Lease or any other lease of premises. In the event of any conflict or inconsistencies between these Rules and Regulations and the Lease, the terms of the Lease shall control.

24. Access to Roof. Neither Tenant nor any employee, contractor or invitee of Tenant shall go upon the roof of the Building without the prior written consent of Landlord.

25. Sales From Premises. Tenant shall not allow a fire or bankruptcy sale or any auction to be held on the Premises or allow the Premises to be used for the sale at retail of merchandise to the general public.

	LANDLORD: DART CONTAINER OF MICHIGAN LLC
Dated: _______________, 2011	BY:
		Kevin M. Fox
	ITS:	Authorized Signatory

	TENANT: XG SCIENCES, INC.
Dated: June 2, 2011	BY:	/s/ Michael R. Knox
		Michael R. Knox
	ITS:	Chief Executive Officer

B-3

Exhibit C

 

 

 

 

Michigan Department of Licensing and Regulatory Affairs

Filing Endorsement

This is to Certify that the CERTIFICATE OF AMENDMENT - CORPORATION

for

XG SCIENCES, INC.

ID NUMBER: 23029E

received by facsimile transmission on July 9, 2013 is hereby endorsed

Filed on July 10, 2013 by the Administrator.

The document is effective on the date filed, unless a subsequent effective date within 90 days after received date is stated in the document.

	In testimony whereof, I have hereunto set my hand and affixed the Seal of the Department, in the City of Lansing, this 10TH day of July, 2013.
[Graphics]	/s/ Alan J. Schefke
	Director
Sent by Facsimile Transmission 13191	Bureau of Commercial Services

BCS/CD-515 (Rev. 11/11)

MICHIGAN DEPARTMENT OF LICENSING AND REGULATORY AFFAIRS BUREAU OF COMMERCIAL SERVICES
Date Received
		This document is effective on the date filed, unless a subsequent effective date within 90 days after received date is stated in the document.
Name
Matt G. Hrebec, Esq.; Foster, Swift, Collins & Smith, P.C.
Address
313 S. Washington Square
City		State	ZIP Code
Lansing		MI	48933		EFFECTIVE DATE:
[Graphics]	Document will be returned to the name and address you enter above. If left blank, document will be returned to the registered office.			[Graphics]

 CERTIFICATE OF AMENDMENT TO THE ARTICLES OF INCORPORATION

For use by Domestic Profit and Nonprofit Corporations

(Please read information and instructions on the last page)

Pursuant to the provisions of Act 284, Public Acts of 1972, (profit corporations), or Act 162, Public Acts of 1982 (nonprofit corporations), the undersigned corporation executes the following Certificate:

1.	The present name of the corporation is:
	XG Sciences, Inc.
2.	The identification number assigned by the Bureau is:	23029E

3.	Article IIIof the Articles of Incorporation is hereby amended to read as follows:
	ARTICLE III
	The total authorized shares:
	1.	Common shares: 25,000,000
		Preferred shares: 8,000,000
	2.	A statement of all or any of the relative rights, preferences and limitations of the shares of each class is as follows:
	A.    Provisions Applicable to Common Shares: None
	B.   Provisions Applicable to Preferred Shares: The authorized shares of Preferred Stock may be issued from time to time in one or more series, each of such series to have such designations, powers, preferences, and relative participating, optional, or other rights, and such qualifications, limitations, or restrictions, as may be stated in a resolution or resolutions providing for the Issue of such series adopted by the Board of Directors.

COMPLETE ONLY ONE OF THE FOLLOWING:

4.	Profit or Nonprofit Corporations: For amendments adopted by unanimous consent of incorporators before the first meeting of the board of directors or trustees.
	The foregoing amendment to the Articles of Incorporation was duly adopted on the ________ day of __________________, _________, in accordance with the provisions of the Act by the unanimous consent of the incorporator(s) before the first meeting of the Board of Directors or Trustees.
	Signed this ________ day of ____________________________ , ___________
	(Signature)	(Signature)
	(Type or Print Name)	(Type or Print Name)
	(Signature)	(Signature)
	(Type or Print Name)	(Type or Print Name)

5.	Profit Corporation Only: Shareholder or Board Approval
	The foregoing amendment to the Articles of incorporation proposed by the board was duly adopted on the 26th day of June, 2013, by the: (check one of the following)
	þ	shareholders at a meeting in accordance with Section 611(3) of the Act.
	¨	written consent of the shareholders having not less than the minimum number of votes required by statute in accordance with Section 407(1) of the Act. Written notice to shareholders who have not consented in writing has been given. (Note: Written consent by less than all of the shareholders is permitted only if such provision appears in the Articles of Incorporation.)
	¨	written consent of all the shareholders entitled to vote in accordance with Section 407(2) of the Act.
	¨	board of a profit corporation pursuant to section 611(2) of the Act.
			Profit Corporations and Professional Service Corporations
			Signed this 8 day of July, 2013
			By	/s/ Michael R. Knox
				(Signature of an authorized officer or agent)
			Michael R. Knox, CEO
			(Type or Print Name)

XG SCIENCES, INC.

MICHIGAN CID 23029E

AMENDED AND RESTATED CERTIFICATE OF DESIGNATIONS

OF

SERIES A CONVERTIBLE PREFERRED STOCK

(Pursuant to Section 450.1302 of the

Michigan Business Corporation Act)

The undersigned, a duly authorized officer of XG Sciences, Inc., a Michigan corporation (the “Corporation”),DOES HEREBY CERTIFY that the following resolution was duly adopted bythe Board of Directors of the Corporation (the “Board of Directors”)pursuant to Section 450.1302 of the Michigan Business Corporation Act on June 26, 2013:

RESOLVED, that the Board of Directors of the Corporation pursuant to authority vested in it by the provisions of the Articles of Incorporation of the Corporation, hereby amends and restates its previous authorization of the issuance of a series of preferred stock designated as the Series A Convertible Preferred Stock of the Corporation and hereby fixes the designation, number of shares, powers, preferences, rights, qualifications, limitations and restrictions thereof (in addition to any provisions set forth in the Articles of Incorporation of the Corporation which are applicable to the Corporation’s preferred stock of all classes and series) as follows:

SERIES A CONVERTIBLE PREFERRED STOCK

1.Designation and Amount. There is hereby designated a series of the Corporation’s Preferred Stock (as defined below) as Series A Convertible Preferred Stock (the “Series A Preferred Stock”),and the number of shares so designated shall be three million (3,000,000).

2.           Definitions. In addition to the terms defined elsewhere in this Certificate of Designations the following terms have the meanings indicated:

(a)          “Common Stock”shall mean the Corporation’s common stock.

(b)          “Conversion Price”shall mean twelve dollars ($12.00) for the Series A Preferred Stock (subject to adjustment from time to time for Recapitalizations and as otherwise set forth elsewhere herein).

(c)          “Conversion Rate”shall have the meaning set forth in Section 5(a).

(d)          “Convertible Securities”shall mean any evidences of indebtedness, shares orother securities convertible into or exchangeable for Common Stock or Preferred Stock.

(e)          “Corporation”shall mean XG Sciences, Inc., a Michigan corporation.

(f)          “Junior Securities”shall mean the Common Stock and all other equity or equity equivalent securities of the Corporation other than those securities which are explicitly senior or pari passu in rights and liquidation preference to the Series A Preferred Stock.

(g)          “Liquidation Preference”shall mean twelve dollars ($12.00) per share for the Series A Preferred Stock (subject to adjustment from time to time for Recapitalizations as set forth elsewhere herein).

(h)          “Options”shall mean rights, options or warrants to subscribe for, purchase or otherwise acquire Common Stock or Convertible Securities.

(i)          “Original Issue Date”shall mean the date on which the first share of Series A Preferred Stock was issued.

(j)          “Preferred Stock”means the Corporation’s preferred stock.

(k)          “Qualified National Exchange”means a securities exchange registered with the U.S. Securities and Exchange Commission under Section 6(a) of the Securities Exchange Act of 1934, as amended, as well as the over the counter markets administered by the OTCQX® and the OTCQB®, and their successor-entities. The OTC Pink®, OTCBB and their successor-equivalent entities shall not be deemed a “Qualified National Exchange.”

(l)          “Recapitalization”shall mean any stock dividend, stock split, combination of shares, reorganization, recapitalization, reclassification or other similar event.

(m)          “Senior Securities”shall mean the Series A Preferred Stock and all other series of Preferred Stock of the Corporation that are explicitly senior or pari passu in rights and liquidation preference to the Series A Preferred Stock.

(n)          “Series A Original Issue Price”shall mean twelve dollars ($12.00) per share (subject to adjustment from time to time for Recapitalizations and as set forth in Section 5 herein).

3. Liquidation Rights.

(a)          Liquidation Preference.In the event of any liquidation, dissolution or winding up of the Corporation, either voluntary or involuntary, the holders of the Series A Preferred Stock shall be entitled to receive, prior and in preference to any distribution of any of the assets of the Corporation to the holders of the Common Stock by reason of their ownership of such stock, an amount per share for each share of Series A Preferred Stock held by them equal to (i) the Liquidation Preference specified for such share of Series A Preferred Stock less (ii) all dividends (if any) paid on such share of Series A Preferred Stock. If upon the liquidation, dissolution or winding up of the Corporation, the assets of the Corporation legally available for distribution to the holders of the Series A Preferred Stock are insufficient to permit the payment to such holders of the full amounts specified in this Section 4(a), then the entire assets of the Corporation legally available for distribution shall be distributed with equal priority and pro-rata among the holders of the Series A Preferred Stock in proportion to the full amounts they would otherwise be entitled to receive pursuant to this Section 3(a).

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(b)          Remaining Assets.After the payment to the holders of the Series A Preferred Stock of the full preferential amounts specified above, the entire remaining assets of the Corporation legally available for distribution by the Corporation shall be distributed with equal priority and pro-rata among the holders of the Series A Preferred Stock and Common Stock in proportion to the number of shares of Common Stock held by them, with the shares of Series A Preferred Stock being treated for this purpose as if they had been converted to shares of Common Stock at the then applicable Conversion Rate (as defined below).

(c)          Shares not Treated as Both Series A Preferred Stock and Common Stock in any Distribution.Shares of Series A Preferred Stock shall not be entitled to be converted into shares of Common Stock in order to participate in any distribution, or series of distributions, as shares of Common Stock, without first foregoing participation in the distribution, or series of distributions, as shares of Series A Preferred Stock.

(d)          Reorganization. For purposes of this Section 3, a liquidation, dissolution or winding up of the Corporation shall be deemed to be occasioned by, or to include: (a) the acquisition of the Corporation by another entity by means of any transaction or series of related transactions to which the Corporation is party (including, without limitation, any stock acquisition, reorganization, merger or consolidation but excluding any sale of stock for capital raising purposes) other than a transaction or series of transactions in which the holders of the voting securities of the Corporation outstanding immediately prior to such transaction continue to retain (either by such voting securities remaining outstanding or by such voting securities being converted into voting securities of the surviving entity), at least fifty percent (50%) of the total voting power represented by the voting securities of the Corporation or such surviving entity outstanding immediately after such transaction or series of transactions; (b) a sale, lease, transfer, exclusive license or other disposition, in a single transaction or series of related transactions, by the Corporation of all or substantially all the assets of the Corporation and its subsidiaries taken as a whole, except where such sale, lease, transfer, exclusive license or other disposition is to a wholly owned subsidiary of the Corporation; or (c) any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary.

(e)          Valuation of Non-Cash Consideration. If any assets of the Corporation distributed to stockholders in connection with any liquidation, dissolution, or winding up of the Corporation are other than cash, then the value of such assets shall be their fair market value as determined in good faith by the Board of Directors, except that any securities to be distributed to stockholders in a liquidation, dissolution, or winding up of the Corporation shall be valued as follows:

(i)          If the securities are then traded on a Qualified National Exchange, then the value of the securities shall be deemed to be the average of the closing prices of the securities on such exchange over the ten (10) trading day period ending five (5) trading days prior to the distribution;

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(ii)         if the securities are actively quoted on the OTC Pink®, then the value of the securities shall be deemed to be the average of the closing bid prices of the securities over the ten (10) trading day period ending five (5) trading days prior to the distribution; and

(iii)        if the securities are not traded on a Qualified National Exchange or actively quoted on the OTC Pink®, the value shall be the fair market value thereof, as determined in good faith by the Board of Directors of the Corporation.

In the event of a merger or other acquisition of the Corporation by another entity, the distribution date shall be deemed to be the date such transaction closes.

4.           Conversion Rights.The holders of the Series A Preferred Stock shall have conversion rights as follows (the “Conversion Rights”):

(a)          Right to Convert.Each share of Series A Preferred Stock shall be convertible, at the option of the holder thereof, at any time after the date of issuance of such share at the office of the Corporation or any transfer agent for the Series A Preferred Stock, into that number of fully-paid, nonassessable shares of Common Stock determined by dividing the Series A Original Issue Price by the Conversion Price. The number of shares of Common Stock into which each share of Series A Preferred Stock may be converted is hereinafter referred to as the “Conversion Rate”.Upon any decrease or increase in the Conversion Price, as described in this Section 4,the Conversion Rate shall be appropriately increased or decreased.

(b)          Mandatory Conversion.The Corporation shall have the right to effect the conversion of each share of Series A Preferred Stock then currently outstanding into fully-paid, non-assessable shares of Common Stock at the then effective Conversion Rate for such share upon the listing by the Corporation of the class of Common Stock on a Qualified National Exchange (such an event, a “Mandatory Conversion Event”).So long as the Common Stock remains listed on a Qualified National Exchange, any shares of Series A Preferred Stock issued following a Mandatory Conversion Event will be automatically converted into Common Stock pursuant to this Section 4(b) at the then effective Conversion Rate on such date of issuance of the Series A Preferred Stock.

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(c)          Mechanics of Conversion.No fractional shares of Common Stock shall be issued upon conversion of Series A Preferred Stock. In lieu of any fractional shares to which the holder would otherwise be entitled, the Corporation shall pay cash equal to such fraction multiplied by the then fair market value of a share of Common Stock as determined by the Board of Directors. For such purpose, all shares of Series A Preferred Stock held by each holder of Series A Preferred Stock shall be aggregated, and any resulting fractional share of Common Stock shall be paid in cash. Before any holder of Series A Preferred Stock shall be entitled to convert the same into full shares of Common Stock, and to receive certificates therefor, such holder shall either (A) surrender the certificate or certificates therefor, duly endorsed, at the office of the Corporation or of any transfer agent for the Series A Preferred Stock or (B)notify the Corporation or its transfer agent that such certificates have been lost, stolen or destroyed and execute an agreement satisfactory to the Corporation to indemnify the Corporation from any loss incurred by it in connection with such certificates, and shall give written notice to the Corporation at such office that he elects to convert the same; provided, however,that on the date of a Mandatory Conversion Event, the outstanding shares of Series A Preferred Stock shall be converted without any further action by the holders of such shares and whether or not the certificates representing such shares are surrendered to the Corporation or its transfer agent; provided further,however, that the Corporation shall not be obligated to issue certificates evidencing the shares of Common Stock issuable upon such Mandatory Conversion Event unless either the certificates evidencing such shares of Series A Preferred Stock are delivered to the Corporation or its transfer agent as provided above, or the holder notifies the Corporation or its transfer agent that such certificates have been lost, stolen or destroyed and executes an agreement satisfactory to the Corporation to indemnify the Corporation from any loss incurred by it in connection with such certificates. On the date of the occurrence of a Mandatory Conversion Event, each holder of record of shares of Series A Preferred Stock shall be deemed to be the holder of record of the Common Stock issuable upon such conversion, notwithstanding that the certificates representing such shares of Series A Preferred Stock shall not have been surrendered at the office of the Corporation, that notice from the Corporation shall not have been received by any holder of record of shares of Series A Preferred Stock, or that the certificates evidencing such shares of Common Stock shall not then be actually delivered to such holder.

(d)          Adjustments for Subdivisions or Combinations of Common Stock.In the event the outstanding shares of Common Stock shall be subdivided (by stock split, by payment of a stock dividend or otherwise), into a greater number of shares of Common Stock, the Conversion Price in effect immediately prior to such subdivision shall, concurrently with the effectiveness of such subdivision, be proportionately decreased. In the event the outstanding shares of Common Stock shall be combined (by reclassification or otherwise) into a lesser number of shares of Common Stock, the Conversion Price in effect immediately prior to such combination shall, concurrently with the effectiveness of such combination, be proportionately increased.

(e)          Adjustments for Subdivisions or Combinations of Series A Preferred Stock. In the event the outstanding shares of Series A Preferred Stock shall be subdivided (by stock split, by payment of a stock dividend or otherwise), into a greater number of shares of Series A Preferred Stock, the Series A Original Issue Price and Liquidation Preference of the Series A Preferred Stock in effect immediately prior to such subdivision shall, concurrently with the effectiveness of such subdivision, be proportionately decreased. In the event the outstanding shares of Series A Preferred Stock shall be combined (by reclassification or otherwise) into a lesser number of shares of Series A Preferred Stock, the Series A Original Issue Price and Liquidation Preference of the Series A Preferred Stock in effect immediately prior to such combination shall, concurrently with the effectiveness of such combination, be proportionately increased.

(f)          Adjustments for Reclassification, Exchange and Substitution.Subject to Section 4 above, if the Common Stock issuable upon conversion of the Series A Preferred Stock shall be changed into the same or a different number of shares of any other class or classes of stock, whether by capital reorganization, reclassification or otherwise (other than a subdivision or combination of shares provided for above), then, in any such event, in lieu of the number of shares of Common Stock which the holders would otherwise have been entitled to receive each holder of such Series A Preferred Stock shall have the right thereafter to convert such shares of Series A Preferred Stock into a number of shares of such other class or classes of stock which a holder of the number of shares of Common Stock deliverable upon conversion of such Series A Preferred Stock immediately before that change would have been entitled to receive in such reorganization or reclassification, all subject to further adjustment as provided herein with respect to such other shares.

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(g)          Adjustment of Series A Preferred Stock Conversion Price upon Issuance of Certain Securities. If and whenever on or after the Original Issue Date, the Corporation issues or sells, or is deemed to have issued or sold, any shares of Common Stock or securities convertible or exchangeable into Common Stock other than Excluded Securities (as defined below) for a consideration per share or an implied consideration per share of Common Stock less than a price (the “Applicable Price”)equal to the Conversion Price in effect immediately prior to such issuance or sale (such issuance a “Triggering New Issue”),then immediately after such issue or sale, the Conversion Price then in effect shall be deemed to be automatically reduced to an amount equal to eighty percent (80%) of the Applicable Price for such Triggering New Issue. After such adjustment of the Conversion Price hereunder, all subsequent conversions of the Series A Preferred Stock into Common Stock shall be effected using the new Conversion Price in the Conversion Rate. For the purposes of this Agreement, “Excluded Securities” are (i) those options and warrants of the Corporation issued prior to, and outstanding on, the Original Issue Date, (ii) the shares of Common Stock issuable on exercise of such options and warrants in subparagraph (i), provided such options and warrants are not amended after the Original Issue Date, and (iii) any options or warrants, or the shares of Common Stock into which such options and warrants are exercisable, which are issued to any employee, officer or director of the Corporation for services provided to the Corporation which have been approved by the compensation committee or the majority of the independent members of the Board of Directors.

(h)          Effect on Conversion Price of Certain Events. For purposes of determining the adjusted Conversion Price under Section 4(g) above, the following shall be applicable:

(i)          Issuance of Options or Warrants.If, after the Original Issue Date, the Corporation in any manner grants any options or warrants other than Excluded Securities and the lowest price per share for which a share of Common Stock is issuable upon the exercise of any such option or warrant is less than the Conversion Price in effect immediately prior to such grant, then such grant of options or warrants shall be deemed to have been a Triggering New Issue and the Conversion Price shall be deemed to be automatically reset pursuant to Section 4(g) above. No further adjustment of the Conversion Price shall be made upon the actual issuance of any shares of Common Stock upon the exercise of any such options or warrants.

(ii)         Issuance of Convertible Securities.If, after the Original Issue Date, the Corporation in any manner issues or sells any Convertible Securities and the lowest price per share of Common Stock at which such Convertible Security is convertible or exchangeable into Common Stock is less than the Conversion Price in effect immediately prior to such issuance or sale, then such issuance or sale shall be deemed to have been a Triggering New Issue and the Conversion Price shall be deemed to be automatically reset pursuant to Section 4(g) above. No further adjustment of the Conversion Price shall be made upon the actual issuance of any shares of Common Stock upon the conversion or exchange of such Convertible Security into shares of Common Stock.

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(iii)        Change in Option or Warrant Price or Rate of Conversion.If, after the Original Issue Date, the exercise, conversion, exchange, or other price payable provided for in any option, warrant or Convertible Security other than Excluded Securities, upon the exercise, conversion or exchange of any such securities is amended or altered at any time for any reason (any of the foregoing hereinafter referred to as an “Exercise/Conversion Change”),and any such Exercise/Conversion Change results in any of the foregoing securities being exercisable, convertible, or exchangeable at a price per share of Common Stock lower than the Conversion Price in effect immediately prior to such Exercise/Conversion Change, then such Exercise/Conversion Change shall be deemed to have been a Triggering New Issue and the Conversion Price shall be deemed to be automatically reset pursuant to Section 4(g) above.

(iv)        No adjustment pursuant to this Section 4(h) shall be made if such adjustment would result in an increase of the Conversion Price above the level that it was immediately prior to the occurrence of any of the foregoing events described in 4(h)(i)-(iii) that would give rise to an adjustment in the Conversion Price.

(i)          Waiver of Adjustment of Conversion Price.Notwithstanding anything herein to the contrary, any downward adjustment of the Conversion Price may be waived, either prospectively or retroactively and either generally or in a particular instance, by the consent or vote of the holders of the majority of the outstanding shares of Series A Preferred Stock. Any such waiver shall bind all future holders of shares of Series A Preferred Stock.

5.           Voting.On any matter presented to the stockholders of the Corporation for their action or consideration at any meeting of stockholders of the Corporation (or by written consent of stockholders in lieu of meeting), each holder of outstanding shares of Series A Preferred Stock shall be entitled to cast the number of votes equal to the number of whole shares of Common Stock into which the shares of Series A Preferred Stock held by such holder are convertible as of the record date for determining stockholders entitled to vote on such matter. Except as provided by law or by the other provisions of the Certificate of Incorporation, holders of Series A Preferred Stock shall vote together with the holders of Common Stock as a single class.

6.           Miscellaneous.

(a)          The headings herein are for convenience only, do not constitute a part of this Certificate of Designations and shall not be deemed to limit or affect any of the provisions hereof.

(b)          Any notice required or permitted by the provisions of this Certificate of Designations to be given to a holder of shares of Series A Preferred Stock shall be mailed, postage prepaid, to the post office address last shown on the records of the Corporation, or given by electronic communication in compliance with the provisions of the Michigan Business Corporation Act, and shall be deemed sent upon such mailing or electronic transmission.

(c)          No provision of this Certificate of Designations may be amended, except in a written instrument signed by the Corporation and holders of at least a majority of the shares of Series A Preferred Stock then outstanding. Any of the rights of the holders of the Series A Preferred Stock set forth herein may be waived by the affirmative vote of holders of at least a majority of the shares of Series A Preferred Stock then outstanding, except that each holder may waive its own rights as provided in this Certificate of Designations.

** Signature page follows **

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IN WITNESS WHEREOF, the undersigned has caused this Amended and Restated Certificate of Designation to be duly executed as of the 8 day of July, 2013.

XG SCIENCES, INC.
BY:	/s/ Michael R. Knox
	MICHAEL R. KNOX, CEO

SECOND AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT

This Second Amended and Restated Registration Rights Agreement (this “Agreement”), is made and entered into as of January 15, 2014 (the “Effective Date”), by and among XG Sciences, Inc., a Michigan corporation (the “Company”). Aspen Advanced Opportunity Fund, LP, a Delaware limited partnership (“Aspen”), XGS II, LLC, a Florida limited liability company (“XGS II”), SVIC No. 15 New Technology Business Investment L.L.P. (“Samsung”), and any Persons to whom Aspen, XGS II or Samsung may transfer any Registrable Securities hereunder or subsequent transferee Persons of such Aspen, XGS II, or Samsung transferees, each of whom shall be listed on Schedule A hereto which shall be deemed to have been automatically amended upon the transfer of any Registrable Securities hereunder (collectively, the “Investors”, and each individually, an “Investor”, and all together with the Company, the “Parties” and each, a “Party”).

RECITALS

WHEREAS, the Company and Aspen are parties to that certain Purchase Agreement, dated as of March 18, 2013, as amended and restated on July 12, 2013 and as amended and restated a second time on January 15, 2014 (the “Purchase Agreement”), pursuant to which Aspen purchased Securities (as defined below) of the Company; and

WHEREAS, in connection with the consummation of the transactions contemplated by the Purchase Agreement, and pursuant to the terms of the Purchase Agreement, Aspen, XGS II and the Company, on July 12, 2013, amended and restated the original Registration Rights Agreement between the Parties that was dated March 18, 2013 (such agreement as previously amended, the “Original Registration Rights Agreement”); and

WHEREAS, the Company and Samsung entered into a purchase agreement dated January 15, 2014 (the “Samsung Agreement”), pursuant to which Samsung purchased Securities and in connection therewith, the Parties have agreed to further amend and restate the Original Restated Registration Rights Agreement, in order to grant certain registration rights to each of the Investors as set forth herein below.

NOW, THEREFORE, in consideration of the foregoing and the mutual and dependent covenants hereinafter set forth, the Parties agree as follows:

AGREEMENT

1.          Defined Terms. As used in this Agreement, the following terms shall have the following meanings:

“Affiliate” of a Person means any other Person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, such Person. The term “control” (including the terms “controlled by” and “under common control with”) means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise.

“Agreement” has the meaning set forth in the preamble.

“Board” means the board of directors of the Company (and any successor governing body of the Company or any successor of the Company).

“Commission” means the Securities and Exchange Commission or any other federal agency administering the Securities Act and the Exchange Act at the time.

“Common Stock” means the common stock of the Company and any other common equity securities issued by the Company, and any other shares of stock issued or issuable with respect thereto (whether by way of a stock dividend or stock split or in exchange for or upon conversion of such shares or otherwise in connection with a combination of shares, distribution, recapitalization, merger, consolidation or other corporate reorganization).

“Company” has the meaning set forth in the preamble and includes the Company’s successors by merger, acquisition, reorganization or otherwise.

“Demand Registration” has the meaning set forth in Section 2(b).

“Exchange Act” means the Securities Exchange Act of 1934, as amended, or any successor federal statute, and the rules and regulations thereunder, which shall be in effect from time to time.

“Governmental Authority” means any federal, state, local or foreign government or political subdivision thereof, or any agency or instrumentality of such government or political subdivision, or any self-regulated organization or other non-governmental regulatory authority or quasi-govemmental authority (to the extent that the rules, regulations or orders of such organization or authority have the force of law), or any arbitrator, court or tribunal of competent jurisdiction.

“Investor” and “Investors” have the meanings set forth in the preamble.

“IPO” means (i) an initial underwritten public offering of the Common Stock pursuant to an effective Registration Statement filed under the Securities Act, other than pursuant to a Registration Statement on Form S-4, Form S-8 or any similar or successor form; or (ii) the reverse merger of the Company into any corporation that is subject to the reporting requirements of Section 13 or Section 15(d) of the Exchange Act.

“Long-Form Registration” has the meaning set forth in Section2(b).

“Parties” and “Party” have the meaning set forth in the preamble.

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

“Piggyback Registration” has the meaning set forth in Section 3(a).

“Prospectus” means the prospectus or prospectuses included in any Registration Statement, as amended or supplemented by any prospectus supplement with respect to the terms of the offering of any portion of the Registrable Securities covered by such Registration Statement and by all other amendments and supplements to the prospectus, including post-effective amendments and all material incorporated by reference in such prospectus or prospectuses.

“Purchase Agreement” has the meaning set forth in the Recitals.

“Registrable Securities” means (a) any shares of Common Stock held by the Investors or issuable upon conversion, exercise or exchange of any securities, including the Securities, owned by the Investors at any time, and (b) any shares of Common Stock issued or issuable with respect to any shares described in subsection (a) above by way of a stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization (it being understood that for purposes of this Agreement, a Person shall be deemed to be a holder of Registrable Securities whenever such Person has the right to then acquire or obtain from the Company any Registrable Securities, whether or not such acquisition has actually been effected).

“Registration Statement” means any registration statement of the Company which covers any of the Registrable Securities pursuant to the provisions of this Agreement, including the Prospectus, amendments and supplements to such Registration Statement, including post-effective amendments, all exhibits and all materials incorporated by reference in such Registration Statement.

“Rule 144” means Rule 144 promulgated under the Securities Act or any successor rule thereto or any complementary rule thereto (such as Rule 144A).

“Securities” means the secured notes, shares of Series A Convertible Preferred Stock, warrants and/or any other securities purchased by the Investors under the Purchase Agreement and the Samsung Agreement.

“Securities Act” means the Securities Act of 1933, as amended, or any successor federal statute, and the rules and regulations thereunder, which shall be in effect from time to time.

“Selling Expenses” means all underwriting discounts, selling commissions and stock transfer taxes applicable to the sale of Registrable Securities, and fees and disbursements of counsel for any holder of Registrable Securities, except for the reasonable fees and disbursements of counsel for the holders of Registrable Securities required to be paid by the Company pursuant to Section 6.

“Short-Form Registration” has the meaning set forth in Section 2(b).

2.          Demand Registration.

(a)          At any time after sixty (60) days after an IPO, holders of a majority of the Registrable Securities then outstanding may request registration under the Securities Act of all or any portion of their Registrable Securities on Form S-1 or any successor form thereto (each a “Long- Form Registration”). Each request for a Long-Form Registration shall specify the approximate number of Registrable Securities required to be registered. Upon receipt of such request, the Company shall promptly (but in no event later than ten (10) calendar days following receipt thereof) deliver notice of such request to all other holders of Registrable Securities who shall then have ten (10) calendar days from the date such notice is given to notify the Company in writing of their desire to be included in such registration. The Company shall cause a Registration Statement on Form S-1 (or any successor form) to be filed within sixty (60) days after the date on which the initial request is given and shall use its best efforts to cause such Registration Statement to be declared effective by the Commission as soon as practicable thereafter. The Company shall not be required to effect a Long-Form Registration more than four (4) times for the holders of Registrable Securities as a group; provided, that a Registration Statement shall not count as a Long-Form Registration requested under Section (a). unless and until it has become effective and the holders requesting such registration are able to register and sell at least all (100%) of the Registrable Securities requested to be included in such registration.

(b)          After an IPO, the Company shall use its best efforts to qualify and remain qualified to register securities under the Securities Act pursuant to a Registration Statement on Form S-3 or any successor form thereto. At such time as the Company shall have qualified for the use of a Registration Statement on Form S-3, the holders of Registrable Securities shall have the right to request four (4) registrations of their Registrable Securities on Form S-3 or any similar short-form registration (each a “Short-Form Registration” and, together with each Long-Form Registration, a “Demand Registration”). Each request for a Short-Form Registration shall specify the approximate number of Registrable Securities requested to be registered. Upon receipt of any such request, the Company shall promptly (but in no event later than ten (10) calendar days following receipt thereof) deliver notice of such request to all other holders of Registrable Securities who shall then have ten (10) calendar days from the date such notice is given to notify the Company in writing of their desire to be included in such registration. The Company shall cause a Registration Statement on Form S-3 (or any successor form) to be filed within thirty (30) days after the date on which the initial request is given and shall use its reasonable best efforts to cause such Registration Statement to be declared effective by the Commission as soon as practicable thereafter.

(c)          If the holders of the Registrable Securities initially requesting a Demand Registration elect to distribute the Registrable Securities covered by their request in an underwritten offering, they shall so advise the Company as a part of their request made pursuant to Section (a) or Section (b), and the Company shall include such information in its notice to the other holders of Registrable Securities. The holders of a majority of the Registrable Securities initially requesting the Demand Registration shall select the investment banking firm or firms to act as the managing underwriter or underwriters in connection with such offering.

(d)          The Company shall not include in any Demand Registration any securities which are not Registrable Securities without the prior written consent of the holders of a majority of the Registrable Securities included in such registration, which consent shall not be unreasonably withheld or delayed. If a Demand Registration involves an underwritten offering and the managing underwriter of the requested Demand Registration advises the Company and the holders of Registrable Securities in writing that in its opinion the number of shares of Common Stock proposed to be included in the Demand Registration, including all Registrable Securities and all other shares of Common Stock proposed to be included in such underwritten offering, exceeds the number of shares of Common Stock which can be sold in such underwritten offering and/or the number of shares of Common Stock proposed to be included in such registration would adversely affect the price per share of the Registrable Securities proposed to be sold in such underwritten offering, the Company shall include in such Demand Registration: (i) first, the number of shares of Common Stock that the holders of Registrable Securities propose to sell; and (ii) second, the number of shares of Common Stock proposed to be included therein by any other Persons (including shares of Common Stock to be sold for the account of the Company and/or other holders of Common Stock) allocated among such Persons in such manner as they may agree. If the managing underwriter determines that less than all of the Registrable Securities proposed to be sold can be included in such offering, then the Registrable Securities that are included in such offering shall be allocated pro-rata among the respective holders thereof on the basis of the number of Registrable Securities owned by each such holder.

3.          Piggyback Registration.

(a)          Whenever the Company proposes to register any shares of its Common Stock under the Securities Act (other than a registration effected solely to implement an employee benefit plan or a transaction to which Rule 145 of the Securities Act is applicable, or a Registration Statement on Form S-4, S-8 or any successor form thereto or another form not available for registering the Registrable Securities for sale to the public), whether for its own account or for the account of one or more shareholders of the Company and the form of Registration Statement to be used may be used for any registration of Registrable Securities (a “Piggyback Registration”), the Company shall give prompt written notice to the holders of Registrable Securities of its intention to effect such a registration and, subject to Section (b) and Section (c), shall include in such registration all Registrable Securities with respect to which the Company has received written requests for inclusion from the holders of Registrable Securities within twenty business (20) days after the Company’s notice has been given to each such holder. A Piggyback Registration shall not be deemed a Demand Registration for purposes of Section 2 of this Agreement.

(b)          If a Piggyback Registration is initiated as a primary underwritten offering on behalf of the Company and the managing underwriter advises the Company and the holders of Registrable Securities (if any holders of Registrable Securities have elected to include Registrable Securities in such Piggyback Registration) in writing that in its opinion the number of shares of Common Stock proposed to be included in such registration, including all Registrable Securities and all other shares of Common Stock proposed to be included in such underwritten offering, exceeds the number of shares of Common Stock which can be sold in such offering and/or that the number of shares of Common Stock proposed to be included in any such registration would adversely affect the price per share of the Common Stock to be sold in such offering, the Company shall include in such registration: (i) first, the number of shares of Common Stock that the Company proposes to sell; (ii) second, the number of shares of Common Stock requested to be included therein by holders of Registrable Securities, allocated pro-rata among all such holders on the basis of the number of Registrable Securities owned by each such holder or in such manner as they may otherwise agree; and (iii) third, the number of shares of Common Stock requested to be included therein by holders of Common Stock (other than holders of Registrable Securities), allocated among such holders in such manner as they may agree.

(c)          If a Piggyback Registration is initiated as an underwritten offering on behalf of a holder of Common Stock other than Registrable Securities, and the managing underwriter advises the Company in writing that in its opinion the number of shares of Common Stock proposed to be included in such registration, including all Registrable Securities and all other shares of Common Stock proposed to be included in such underwritten offering, exceeds the number of shares of Common Stock which can be sold in such offering and/or that the number of shares of Common Stock proposed to be included in any such registration would adversely affect the price per share of the Common Stock to be sold in such offering, the Company shall include in such registration: (i) first, the number of shares of Common Stock requested to be included therein by the holder(s) requesting such registration and by the holders of Registrable Securities, allocated pro-rata among such holders on the basis of the number of shares of Common Stock (on a fully diluted, as converted basis) and the number of Registrable Securities, as applicable, owned by all such holders or in such manner as they may otherwise agree; and (ii) second, the number of shares of Common Stock requested to be included therein by other holders of Common Stock, allocated among such holders in such manner as they may agree.

(d)          If any Piggyback Registration is initiated as a primary underwritten offering on behalf of the Company, the Company shall select (subject to the Investors’ written consent) the investment banking firm or firms to act as the managing underwriter or underwriters in connection with such offering.

4.          Lock-up Agreement. Each holder of outstanding Registrable Securities agrees that in connection with an IPO, and upon the request of the managing underwriter in such offering, such holder shall not, without the prior written consent of such managing underwriter, during the period commencing on the effective date of such registration and ending on the date specified by such managing underwriter (such period not to exceed one hundred eighty (180) days), (a) offer, pledge, sell, contract to sell, grant any option or contract to purchase, purchase any option or contract to sell, hedge the beneficial ownership of or otherwise dispose of, directly or indirectly, any shares of Common Stock or any securities convertible into, exercisable for or exchangeable for shares of Common Stock held immediately before the effectiveness of the registration statement for such offering, or (b) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of such securities, whether any such transaction described in clause (a) or (b) above is to be settled by delivery of Common Stock or such other securities, in cash or otherwise. The foregoing provisions of this Section 4 shall not apply to sales of Registrable Securities to be included in such offering pursuant to Section 2(a), Section 2(b), Section 3(a), and shall be applicable to the holders of Registrable Securities only if all officers and directors of the Company and all shareholders owning more than ten percent (10%) of the Company’s outstanding Common Stock are subject to the same restrictions. Each holder of Registrable Securities agrees to execute and deliver such other agreements as may be reasonably requested by the Company or the managing underwriter which are consistent with the foregoing or which are necessary to give further effect thereto. Notwithstanding anything to the contrary contained in this Section 4, each holder of Registrable Securities shall be released, pro-rata, from any lock-up agreement entered into pursuant to this Section 4 in the event and to the extent that the managing underwriter or the Company permit any discretionary waiver or termination of the restrictions of any lock-up agreement pertaining to any officer, director or holder of greater than ten percent (10%) of the outstanding Common Stock.

5.          Registration Procedures. If and whenever the holders of Registrable Securities request that any Registrable Securities be registered pursuant to the provisions of this Agreement, the Company shall use its best efforts to effect the registration and the sale of such Registrable Securities in accordance with the intended method of disposition thereof, and pursuant thereto the Company shall as soon as practicable:

(a)          subject to Section 2(a) and Section 2(b), prepare and file with the Commission a Registration Statement with respect to such Registrable Securities and use its best efforts to cause such Registration Statement to become effective;

(b)          prepare and file with the Commission such amendments, post-effective amendments and supplements to such Registration Statement and the Prospectus used in connection therewith as may be necessary to keep such Registration Statement effective for a period until all of such Registrable Securities have been disposed of and to comply with the provisions of the Securities Act with respect to the disposition of such Registrable Securities in accordance with the intended methods of disposition set forth in such Registration Statement;

(c)          at least ten (10) business days before filing such Registration Statement, Prospectus or amendments or supplements thereto, furnish to one counsel selected by holders of a majority of such Registrable Securities copies of such documents proposed to be filed, which documents shall be subject to the review, comment and approval of such counsel;

(d)          notify each selling holder of Registrable Securities, promptly after the Company receives notice thereof, of the time when such Registration Statement has been declared effective or a supplement to any Prospectus forming a part of such Registration Statement has been filed;

(e)          furnish to each selling holder of Registrable Securities such number of copies of the Prospectus included in such Registration Statement (including each preliminary Prospectus) and any supplement thereto (in each case including all exhibits and documents incorporated by reference therein) and such other documents as such seller may request in order to facilitate the disposition of the Registrable Securities owned by such seller;

(f)          use its best efforts to register or qualify such Registrable Securities under such other securities or “blue sky” laws of such jurisdictions as any selling holder reasonably requests and do any and all other acts and things which may be reasonably necessary or advisable to enable such holders to consummate the disposition in such jurisdictions of the Registrable Securities owned by such holders;

(g)          notify each selling holder of such Registrable Securities, at any time when a Prospectus relating thereto is required to be delivered under the Securities Act, of the happening of any event as a result of which the Prospectus included in such Registration Statement contains an untrue statement of a material fact or omits any fact necessary to make the statements therein not misleading, and, at the request of any such holder, the Company shall prepare a supplement or amendment to such Prospectus so that, as thereafter delivered to the purchasers of such Registrable Securities, such Prospectus shall not contain an untrue statement of a material fact or omit to state any fact necessary to make the statements therein not misleading;

(h)          make available for inspection by any selling holder of Registrable Securities, any underwriter participating in any disposition pursuant to such Registration Statement and any attorney, accountant or other agent retained by any such holder or underwriter (collectively, the “Inspectors”), all financial and other records, pertinent corporate documents and properties of the Company (collectively, the “Records”), and cause the Company’s officers, directors and employees to supply all information reasonably requested by any such Inspector in connection with such Registration Statement;

(i)          provide a transfer agent and registrar (which may be the same entity) for all such Registrable Securities not later than the effective date of such registration;

(j) use its best efforts to cause such Registrable Securities to be listed on each securities exchange on which the Common Stock is then listed or, if the Common Stock is not then listed, on a national securities exchange selected by the holders of a majority of such Registrable Securities;

(k)           in connection with an underwritten offering, enter into such customary agreements (including underwriting and lock-up agreements in customary form) and take all such other customary actions as the holders of such Registrable Securities or the managing underwriter of such offering request in order to expedite or facilitate the disposition of such Registrable Securities (including, without limitation, making appropriate officers of the Company available to participate in “road show” and other customary marketing activities (including one-on-one meetings with prospective purchasers of the Registrable Securities);

(1)           otherwise use its best efforts to comply with all applicable rules and regulations of the Commission and make available to its stockholders an earnings statement (in a form that satisfies the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder) no later than thirty (30) days after the end of the 12-month period beginning with the first day of the Company’s first full fiscal quarter after the effective date of such Registration Statement, which earnings statement shall cover said 12-month period, and which requirement will be deemed to be satisfied if the Company timely files complete and accurate information on Forms 10-Q, 10-K and 8- K under the Exchange Act and otherwise complies with Rule 158 under the Securities Act;

(m)           furnish to each selling holder of Registrable Securities and each underwriter, if any, with: (i) a legal opinion of the Company’s outside counsel, dated the effective date of such Registration Statement (and, if such registration includes an underwritten public offering, dated the date of the closing under the underwriting agreement), in form and substance as is customarily given in opinions of the Company’s counsel to underwriters in underwritten public offerings; and (ii) a “comfort” letter signed by the Company’s independent certified public accountants in form and substance as is customarily given in accountants’ letters to underwriters in underwritten public offerings;

(n)          without limiting Section (f) above, use its best efforts to cause such Registrable Securities to be registered with or approved by such other governmental agencies or authorities as may be necessary by virtue of the business and operations of the Company to enable the holders of such Registrable Securities to consummate the disposition of such Registrable Securities in accordance with their intended method of distribution thereof;

(o)           notify the holders of Registrable Securities promptly of any request by the Commission for the amending or supplementing of such Registration Statement or Prospectus or for additional information;

(p)          advise the holders of Registrable Securities, with one (1) business day after it shall receive notice or obtain knowledge thereof, of the issuance of any stop order by the Commission suspending the effectiveness of such Registration Statement or the initiation or threatening of any proceeding for such purpose and promptly use its best efforts to prevent the issuance of any stop order or to obtain its withdrawal at the earliest possible moment if such stop order should be issued;

(q)          otherwise use its best efforts to take all other steps necessary to effect the registration of such Registrable Securities contemplated hereby.

6.         Expenses. All expenses (other than Selling Expenses) incurred by the Company in complying with its obligations pursuant to this Agreement and in connection with the registration and disposition of Registrable Securities, including, without limitation, all registration and filing fees, underwriting expenses (other than fees, commissions or discounts), expenses of any audits incident to or required by any such registration, fees and expenses of complying with securities and “blue sky” laws, printing expenses, fees and expenses of the Company’s counsel and accountants and reasonable fees and expenses of one counsel for the holders of Registrable Securities participating in such registration as a group (selected by, in the case of a registration under Section 2(a), the holders of a majority of the Registrable Securities initially requesting such registration, and, in the case of all other registrations hereunder, the holders of a majority of the Registrable Securities included in the registration), shall be paid by the Company. All Selling Expenses relating to Registrable Securities registered pursuant to this Agreement shall be borne and paid by the holders of such Registrable Securities, in proportion to the number of Registrable Securities registered for each such holder.

7.         Indemnification.

(a)          The Company shall indemnify and hold harmless, to the fullest extent permitted by law, each holder of Registrable Securities, such holder's officers, directors, managers, members, partners, shareholders and Affiliates, each underwriter, broker or any other Person acting on behalf of such holder of Registrable Securities and each other Person, if any, who controls any of the foregoing Persons within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, against all losses, claims, actions, damages, liabilities and expenses, joint or several, to which any of the foregoing Persons may become subject under the Securities Act or otherwise, insofar as such losses, claims, actions, damages, liabilities or expenses arise out of or are based upon any untrue or alleged untrue statement of a material fact contained in any Registration Statement, Prospectus, preliminary Prospectus, free writing prospectus (as defined in Rule 405 promulgated under the Securities Act) or any amendment thereof or supplement thereto or any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein not misleading, or any violation or alleged violation by the Company of the Securities Act or any other similar federal or state securities laws or any rule or regulation promulgated thereunder applicable to the Company and relating to action or inaction required of the Company in connection with any such registration, qualification or compliance; and shall reimburse such Persons for any legal or other expenses reasonably incurred by any of them in connection with investigating or defending any such loss, claim, action, damage or liability, except insofar as the same are caused by or contained in any information furnished in writing to the Company by such holder expressly for use therein or by such holder’s failure to deliver a copy of the Registration Statement, Prospectus, free- writing prospectus (as defined in Rule 405 promulgated under the Securities Act) or any amendments or supplements thereto (if the same was required by applicable law to be so delivered) after the Company has furnished such holder with a sufficient number of copies of the same prior to any written confirmation of the sale of Registrable Securities.

(b)          In connection with any registration in which a holder of Registrable Securities is participating, each such holder shall furnish to the Company in writing such information and affidavits as the Company reasonably requests for use in connection with any such Registration Statement or Prospectus and, to the extent permitted by law, shall indemnify and hold harmless, the Company, each director of the Company, each officer of the Company who shall sign such Registration Statement, each underwriter, broker or other Person acting on behalf of the holders of Registrable Securities and each Person who controls any of the foregoing Persons within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act against any losses, claims, actions, damages, liabilities or expenses resulting from any untrue or alleged untrue statement of material fact contained in the Registration Statement, Prospectus, preliminary Prospectus, free writing prospectus (as defined in Rule 405 promulgated under the Securities Act) or any amendment thereof or supplement thereto or any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein not misleading, but only to the extent that such untrue statement or omission is contained in any information or affidavit so furnished in writing by such holder; provided, that the obligation to indemnify shall be several, not joint and several, for each holder and shall be limited to the net proceeds (after underwriting fees, commissions or discounts) actually received by such holder from the sale of Registrable Securities pursuant to such Registration Statement.

(c)          Promptly after receipt by an indemnified Party of notice of the commencement of any action involving a claim referred to in this Section 7, such indemnified Party shall, if a claim in respect thereof is made against an indemnifying Party, give written notice to the latter of the commencement of such action. The failure of any indemnified Party to notify an indemnifying Party of any such action shall not (unless such failure shall have a material adverse effect on the indemnifying Party) relieve the indemnifying Party from any liability in respect of such action that it may have to such indemnified Party hereunder. In case any such action is brought against an indemnified Party, the indemnifying Party shall be entitled to participate in and to assume the defense of the claims in any such action that are subject or potentially subject to indemnification hereunder, jointly with any other indemnifying Party similarly notified to the extent that it may wish, with counsel reasonably satisfactory to such indemnified Party, and after written notice from the indemnifying Party to such indemnified Party of its election so to assume the defense thereof, the indemnifying Party shall not be responsible for any legal or other expenses subsequently incurred by the indemnified Party in connection with the defense thereof; provided, that if (i) any indemnified Party shall have reasonably concluded that there may be one or more legal or equitable defenses available to such indemnified Party which are additional to or conflict with those available to the indemnifying Party, or that such claim or litigation involves or could have an effect upon matters beyond the scope of the indemnity provided hereunder, or (ii) such action seeks an injunction or equitable relief against any indemnified Party or involves actual or alleged criminal activity, the indemnifying Party shall not have the right to assume the defense of such action on behalf of such indemnified Party without such indemnified Party’s prior written consent (but, without such consent, shall have the right to participate therein with counsel of its choice) and such indemnifying Party shall reimburse such indemnified Party and any Person controlling such indemnified Party for that portion of the fees and expenses of any counsel retained by the indemnified Party which is reasonably related to the matters covered by the indemnity provided hereunder. If the indemnifying Party is not entitled to, or elects not to, assume the defense of a claim, it shall not be obligated to pay the fees and expenses of more than one counsel for all Parties indemnified by such indemnifying Party with respect to such claim, unless in the reasonable judgment of any indemnified Party a conflict of interest may exist between such indemnified Party and any other of such indemnified Parties with respect to such claim. In such instance, the conflicting indemnified Parties shall have a right to retain one separate counsel, chosen by the holders of a majority of the Registrable Securities included in the registration, at the expense of the indemnifying Party.

(d)          If the indemnification provided for hereunder is held by a court of competent jurisdiction to be unavailable to an indemnified Party with respect to any loss, claim, damage, liability or action referred to herein, then the indemnifying Party, in lieu of indemnifying such indemnified Party hereunder, shall contribute to the amounts paid or payable by such indemnified Party as a result of such loss, claim, damage, liability or action 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 which resulted in such loss, claim, damage, liability or action as well as any other relevant equitable considerations; provided, that the maximum amount of liability in respect of such contribution shall be limited, in the case of each holder of Registrable Securities, to an amount equal to the net proceeds (after underwriting fees, commissions or discounts) actually received by such seller from the sale of Registrable Securities effected pursuant to such registration. 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 or the omission or alleged omission to state 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. The Parties agree that it would not be just and equitable if contribution pursuant hereto were determined by pro rata allocation or by any other method or allocation which does not take account of the equitable considerations referred to herein. No Person guilty or liable of fraudulent misrepresentation shall be entitled to contribution from any Person.

8.         Participation in Underwritten Registrations. No Person may participate in any registration hereunder which is underwritten unless such Person: (a) agrees to sell such Person’s securities on the basis provided in any underwriting arrangements approved by the Person or Persons entitled hereunder to approve such arrangements; and (b) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents required under the terms of such underwriting arrangements; provided, that no holder of Registrable Securities included in any underwritten registration shall be required to make any representations or warranties to the Company or the underwriters (other than representations and warranties regarding such holder, such holder’s ownership of its shares of Common Stock to be sold in the offering and such holder’s intended method of distribution) or to undertake any indemnification obligations to the Company or the underwriters with respect thereto, except as otherwise provided in Section 7 herein.

9.         Rule 144 Compliance. With a view to making available to the holders of Registrable Securities the benefits of Rule 144 under the Securities Act and any other rule or regulation of the Commission that may at any time permit a holder to sell securities of the Company to the public without registration or pursuant to a registration on Form S-3 (or any successor form), the Company shall, at all times after an IPO:

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

(b)          use best efforts to 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, at any time after the Company has become subject to such reporting requirements; and

(c)          furnish to any holder so long as the holder owns Registrable Securities, promptly upon request, a written statement by the Company as to its compliance with the reporting requirements of Rule 144 under the Securities Act and of the Securities Act and the Exchange Act, a copy of the most recent annual or quarterly report of the Company, and such other reports and documents so filed or furnished by the Company as such holder may reasonably request in connection with the sale of Registrable Securities without registration.

10.         Preservation of Rights. The Company shall not: (a) grant any registration rights to third-parties which are more favorable than or inconsistent with the rights granted hereunder, or (b) enter into any agreement, take any action, or permit any change to occur, with respect to its securities that violates or subordinates the rights expressly granted to the holders of Registrable Securities in this Agreement.

11.         Termination. This Agreement shall terminate and be of no further force or effect when there shall no longer be any Registrable Securities outstanding; provided, that the provisions of Section 6 and Section 7 shall survive any such termination.

12.         Notices. AH notices, requests, consents, claims, demands, waivers and other communications hereunder shall be in writing and shall be deemed to have been given (a) when delivered by hand (with written confirmation of receipt); (b) when received by the addressee if sent by a nationally recognized overnight courier (receipt requested); (c) on the date sent by facsimile or e-mail of a PDF document (with confirmation of transmission) if sent during normal business hours of the recipient, and on the next business day if sent after normal business hours of the recipient or (d) on the third day after the date mailed, by certified or registered mail, return receipt requested, postage prepaid. Such communications must be sent to the respective Parties at the addresses indicated below (or at such other address for a Party as shall be specified in a notice given in accordance with this Section 12).

If to the Company:	XG Sciences, Inc.
	3101 Grand Oak Drive
	Lansing, MI 48911
	Facsimile: 517.703.1110
	E-mail:
	Attention: Chief Executive Officer
with a copy to:	Matt G. Hrebec
	Foster Swift Collins & Smith P.C.
	313 S. Washington Square
	Lansing, MI 48933
	Facsimile; 517.371.8200
	E-mail: mhrebec@fosterswift.com

If to any Investor, to such Investor’s address as set forth on the signature page hereto.

13.         Entire Agreement. This Agreement, together with the Purchase Agreement, the Samsung Agreement and any related exhibits and schedules thereto, constitutes the sole and entire agreement of the Parties with respect to the subject matter contained herein, and supersedes all prior and contemporaneous understandings and agreements, both written and oral, with respect to such subject matter. Notwithstanding the foregoing, in the event of any conflict between the terms and provisions of this Agreement and those of the Purchase Agreement or the Samsung Agreement, the terms and conditions of this Agreement shall control.

14.         Successor and Assigns. This Agreement shall be binding upon and shall inure to the benefit of the Parties hereto and their respective successors and permitted assigns. Each Investor may assign its rights hereunder to any purchaser or transferee of Registrable Securities; provided, that such purchaser or transferee shall, as a condition to the effectiveness of such assignment, be required to execute a counterpart to this Agreement agreeing to be treated as an Investor whereupon such purchaser or transferee shall have the benefits of, and shall be subject to the restrictions contained in, this Agreement as if such purchaser or transferee was originally included in the definition of an Investor herein and had originally been a Party hereto.

15.         No Third-Party Beneficiaries. This Agreement is for the sole benefit of the Parties hereto and their respective successors and permitted assigns and nothing herein, express or implied, is intended to or shall confer upon any other Person any legal or equitable right, benefit or remedy of any nature whatsoever, under or by reason of this Agreement.

16.         Headings. The headings in this Agreement are for reference only and shall not affect the interpretation of this Agreement.

17.         Amendment, Modification and Waiver. Except as otherwise provided herein, the provisions of this Agreement may only be amended, modified, supplemented or waived with the prior written consent of the Company and the holders of at least seventy-five percent (75%) of the Registrable Securities. No waiver by any Party or Parties shall operate or be construed as a waiver in respect of any failure, breach or default not expressly identified by such written waiver, whether of a similar or different character, and whether occurring before or after that waiver. Except as otherwise set forth in this Agreement, no failure to exercise, or delay in exercising, any right, remedy, power or privilege arising from this Agreement shall operate or be construed as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege.

18.         Severability. If any term or provision of this Agreement is invalid, illegal or unenforceable in any jurisdiction, such invalidity, illegality or unenforceability shall not affect any other term or provision of this Agreement or invalidate or render unenforceable such term or provision in any other jurisdiction. Upon such determination that any term or other provision is invalid, illegal or unenforceable, the Parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the Parties as closely as possible in a mutually acceptable manner in order that the transactions contemplated hereby be consummated as originally contemplated to the greatest extent possible.

19.         Remedies. Each holder of Registrable Securities, in addition to being entitled to exercise all rights granted by law, including recovery of damages, shall be entitled to specific performance of its rights under this Agreement. The Company acknowledges that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Agreement and the Company hereby agrees to waive the defense in any action for specific performance that a remedy at law would be adequate.

20.         Governing Law; Submission to Jurisdiction. This Agreement shall be governed by and construed in accordance with the internal laws of the State of Michigan without giving effect to any choice or conflict of law provision or rule (whether of the State of Michigan or any other jurisdiction) that would cause the application of laws of any jurisdiction other than those of the State of Michigan. Any legal suit, action or proceeding arising out of or based upon this Agreement or the transactions contemplated hereby may be instituted in the federal courts of the United States or the courts of the State of Michigan in each case located in Ingham County, Michigan, and each Party irrevocably submits to the exclusive jurisdiction of such courts in any such suit, action or proceeding. Service of process, summons, notice or other document by mail to such Party’s address set forth herein shall be effective service of process for any suit, action or other proceeding brought in any such court. The Parties irrevocably and unconditionally waive any objection to the laying of venue of any suit, action or any proceeding in such courts and irrevocably waive and agree not to plead or claim in any such court that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum.

21.         Waiver of Jury Trial. Each Party acknowledges and agrees that any controversy which may arise under this Agreement is likely to involve complicated and difficult issues and, therefore, each such Party irrevocably and unconditionally waives any right it may have to a trial by jury in respect of any legal action arising out of or relating to this Agreement or the transactions contemplated hereby. Each Party to this Agreement certifies and acknowledges that (a) no representative of any other Party has represented, expressly or otherwise, that such other Party would not seek to enforce the foregoing waiver in the event of a legal action, (b) such Party has considered the implications of this waiver, (c) such Party makes this waiver voluntarily, and (d) such Party has been induced to enter into this Agreement by, among other things, the mutual waivers and certifications in this Section 21.

22.         Recitals. The Parties acknowledge that the above Recitals are true and correct and are incorporated into this Agreement by this reference.

23.         Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall be deemed to be one and the same agreement. A signed copy of this Agreement delivered by facsimile, e-mail or other means of electronic transmission shall be deemed to have the same legal effect as delivery of an original signed copy of this Agreement.

** SIGNATURE PAGE FOLLOWS **

IN WITNESS WHEREOF, the Parties hereto have executed this Second Amended and Restated Registration Rights Agreement on the Effective Date.

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

ASPEN ADVANCED OPPORTUNITY FUND, LP
By:	/s/ Steven C. Jones
Name:	Steven C. Jones
Title:	Managing Member
	AA XGS, LLC
	The General Partner
Address for Notices:
1740 Persimmon Drive, Suite 100
Naples, FL 34109

XGS II, LLC
By:	/s/ David G. Pendell
Name:	David G. Pendell
Title:	Managing Member
Address for Notices:
XGS II, LLC
5500 Lake Grove Trail
Petoskey, MI 49770

SVIC NO. 15 NEW TECHNOLOGY BUSINESS INVESTMENT L.L.P.
By:	/s/ Seonjong Lee
Name:	SEONJONG LEE
Title:	C.E.O
Address for Notices:
29th Fl., Samsung Electronics Bldg. 1320-10, Seocho2-dong, Seocho-gu Seoul, Korea 137-857

SCHEDULE A

Investors

Aspen Advanced Opportunity Fund, LP

XGS II, LLC 

SVIC No. 15 New Technology Business Investment L.L.P.

SECOND AMENDED AND RESTATED INTERCREDITOR AGREEMENT

THIS SECOND AMENDED AND RESTATED INTERCREDITOR AGREEMENT (the “Agreement”) is entered into as of this 15th day of January, 2014 by and among XG Sciences, Inc., a Michigan corporation (“XG” or “Borrower”). Aspen Advanced Opportunity Fund, I,P, a Delaware limited partnership (“Aspen”), XGS II, LLC, a Florida limited liability company (“XGS II”), SVIC No. 15 New Technology Business Investment L.L.P., a limited liability partnership under the Republic of Korea Amended Commercial Code (“Samsung”), and Michael Knox, an individual (“Knox,” with Knox, Samsung, XGS II and Aspen, each hereinafter referred to individually as a “Creditor,” and collectively as the “Creditors”). This Agreement amends and restates, in its entirety, the Amended and Restated Intercreditor Agreement, dated as of July 12, 2013, among XG, Aspen, and Knox.

RECITALS:

WHEREAS, as of the date hereof, each of the Creditors has entered into secured convertible note transactions and other agreements with the Borrower in the amounts set forth on Exhibit A of this Agreement pursuant to certain purchase agreements, security agreements and related loan documentation (collectively the “Creditor Agreements”); and

WHEREAS, pursuant to the Second Amended and Restated Security Agreement between the Creditors and the Borrower, of even date herewith (the “General Security Agreement”) and the Second Amended and Restated Intellectual Property Security Agreement, of even date herewith (the “IP Security Agreement” and, together with the General Security Agreement, the “Security Agreements”), the Borrower has granted or will grant a first priority lien in all of its assets, subject to certain permitted liens (the “Collateral”), to the Agent specified in such Security Agreements, on behalf of each specific Creditor; provided, however, that each of the Creditor Agreements stipulates that each such Creditor will share such first priority lien in the Collateral with each other Creditor on a pari passu basis; and

WHEREAS, as of the date hereof, the Borrower has entered into lease financing arrangements with Aspen in the amount of $635,769.73 (the “Current Lease Amount”) for certain equipment purchased by the Borrower under various lease schedules to that certain Master Lease Agreement between Aspen and Borrower, dated March 18, 2013; and Aspen may provide up to an additional $2,364,230.27 of lease financing to the Company pursuant to the Aspen Creditor Agreements (the total amount lease funding provided by Aspen to the Borrower at any time, hereafter, the “Total Lease Amount”); and

WHEREAS, under the Creditor Agreements, the Company is authorized to grant permitted liens on all purchased money indebtedness for new equipment purchases, which includes any lease financing provided by Aspen and other lessors, and thus none of the equipment acquired by the Company under lease financing arrangements is included in the Collateral; and

WHEREAS, as of the date hereof, the Borrower issued secured convertible notes to the Creditors with initial principal, excluding any accrued interest that may have been capitalized into the balance of such notes, totaling $8,300,000 in the aggregate (the “Current Note Amount”) and there is currently $100,000 of principal of other short term secured indebtedness outstanding to Knox (the “Knox Short Term Debt” and together with the Current Note Amount, the “Current Secured Amount”): and

WHEREAS, pursuant to the Creditor Agreements, the Borrower has reserved the right to issue up to an aggregate of $14,800,000 of principal amount of secured indebtedness, exclusive of any capitalized interest which may become part of any such secured indebtedness, consisting of up to $14,700,000 of initial principal of secured convertible notes (the “Notes”) to the Creditors with such amount being reduced by the Total Lease Amount outstanding at any time and up to $100,000 of principal of Knox Short Term Debt; and

WHEREAS, it is presently contemplated that the Knox Short Term Debt will be paid off within the next few months and the Creditors have all agreed that their respective Notes will all mature on the same day, which shall be March 18, 2018 (the “Maturity Date”); and

WHEREAS, the Creditors desire to clarify and stipulate the agreements between them with respect to any principal payments or foreclosure on the Collateral as a result of any uncured Events of Default (as such term may be defined in the Creditor Agreements) that may exist hereafter in any of the Creditor Agreements with respect to the Borrower.

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

AGREEMENT:

1.          Incorporation of Recitals. The Recitals portion of this Agreement is hereby incorporated by this reference as though it were fully set forth and rewritten herein, and the affirmative statements therein contained shall be deemed to be representations of the Borrower and the Creditors which are hereby confirmed.

2.          Acknowledgement of Creditors With Respect to Potential Future Secured Financings. The Creditors acknowledge and agree that as of the date of this Agreement, the Borrower may in the future obtain up to $5,764,230.27 of additional financing through the issuance of additional Notes, with such amount of additional Notes being reduced by any additional lease financing provided by Aspen, provided that such additional financing does not carry a maturity date prior to the Maturity Date (the “Remaining Secured Amount”). The Creditors also agree that the Borrower may grant a first priority security interest in the Collateral as part of any future secured convertible note transactions with the Creditors up to the Remaining Secured Amount (hereinafter referred to as “Future Secured Financings”), provided that such first priority security interest is granted on a pari passu basis with the security interests in the Collateral of the Creditors.

3.          Acknowledgement of Borrower With Respect to Potential Future Secured Financings. Except as otherwise set forth herein, the Borrower acknowledges and agrees that it will not enter into any Future Secured Financings with any of the Creditors or any new lenders to the Company on such terms that are more favorable than those contained in each of the Creditor Agreements, and in the event that any such Future Secured Financings contain any terms that are more favorable than those contained in the Creditor Agreements, the Borrower will promptly amend each such Creditor Agreement to grant the Creditors such more favorable terms as well. The Borrower further agrees that as a condition precedent to the execution of any agreements for Future Secured Financings, it will require that any such future lenders, who have not already become a party to this agreement, will enter into and be made a part of this Agreement. The Borrower further agrees that any granting of a security interest in the Collateral to any future lenders as part of any Future Secured Financings will be on terms no more favorable than a pari passu security interest in the Collateral with the security interests of the Creditors.

4.          Priorities. The Creditors agree that regardless of the date that each such Creditor advanced funds to the Borrower or entered into its Creditor Agreement with the Borrower, each such Creditor’s respective security interests in the Borrower’s Collateral shall be pari passu with the security interests of all the Creditors.

5.          Rights of Recovery on Principal Payments. The Creditors agree that to the extent that any Creditors elect not to convert the principal amount of their Notes on or before the Maturity Date, and require the Company to repay such principal in cash (the aggregate amount of all such required cash principal payments by all Creditors hereinafter referred to as the “Required Cash Payments”), then each such Creditor who has elected such a cash payment shall be entitled to recover no more than an amount equal to its pro rata share of the Required Cash Payments (as measured by each creditor’s total indebtedness that is secured by the Collateral held at such time including all principal and accrued, but unpaid interest due at such time (such amount, a Creditor’s “Total Secured Amount”) to the Total Secured Amount held by all Creditors entitled to a Required Cash Payment) from the amount of cash available for repayment with the Borrower retaining sufficient cash for working capital needs. The Borrower specifically acknowledges the existence of this provision and agrees to use its best efforts to ensure that any payments of the Required Cash Payments that might for any reason be made in amounts that are less than the total Required Cash Payments, will be made in such a way as to ensure that all of the Creditors electing such cash payments, will be paid an amount of cash equal to their pro rata percentage of the Required Cash Payments multiplied by the total cash available for such purposes from the Company at such time.

6.          Notices of Default. Each Creditor agrees that in the event that it declares an Event of Default under any of the Creditor Agreements, it will provide a copy of any written notices that it sends to the Borrower to all of the other Creditors at the same time such notice is provided to the Borrower.

7.          Standby Provisions Prior to Exercising Foreclosure Rights and Formation of Creditors Committee. The Creditors agree that in the event there is any uncured Event of Default in any of the Creditor Agreements and any Creditor becomes eligible to foreclose on the Collateral under the Creditor Agreements, then such Creditor desiring to exercise its foreclosure rights will so notify all other Creditors of such intention and provide no less than fifteen (15) business days of notice (the “Foreclosure Notice”) prior to exercising any rights of foreclosure (the “Standby Period”) with the Borrower. At any time during the Standby Period, any other Creditor may also serve a Foreclosure Notice (all Creditors who serve a timely Foreclosure Notice shall be referred to as “Foreclosing Creditors”). Prior to the expiration of the Standby Period, the Foreclosing Creditors agree that they will use their best efforts to form a committee (the “Foreclosing Creditors Committee”) for the purpose of coordinating the foreclosure of the Collateral. The Creditors agree that they will not take any actions against the Borrower or the Collateral independent of the Foreclosing Creditors Committee, and that the Foreclosing Creditors Committee shall be comprised of at least one representative of each Creditor. The Foreclosing Creditors agree that the Agent shall, in its discretion and according to its business judgment, have the power and authority to exercise the rights and powers set forth in the Security Agreements. The Agent shall consult with the Foreclosing Creditors Committee, and shall act in accordance with the wishes of the Foreclosing Creditors as determined by a majority vote of the then-voting members of the Foreclosing Creditors Committee, with each members’ vote being weighted by their pro rata percentage of the Total Secured Amount held by all then-voting members of the Foreclosing Creditors Committee. No votes of the Foreclosing Creditors Committee may take place unless a quorum of at least half the Total Secured Amount held by the Foreclosing Creditors is present and participates in the voting (whether by acceptance, rejection, or abstention). The Foreclosing Creditors further agree that the Agent will be entitled to retain counsel or other professionals on behalf of the Agent and or incur fees and expenses on behalf of the Agent acting for the Creditors (collectively, the “Creditor Expenses”), and that each Creditor who serves a Foreclosure Notice will fund a pro rata percentage of the Creditor Expenses based on their percentage of the Total Secured Amount held by all such Foreclosing Creditors at the time the Agent requests funding for such Creditor Expenses or such other amounts which may be mutually agreed upon. Any Creditor who does not serve a Foreclosure Notice within the Standby Period shall forbear and refrain from taking any action against the Borrower or the Collateral without the express prior written consent of both the Agent and the Foreclosing Creditors Committee. The Creditors agree that the provisions set forth in this Section shall be their sole recourse and method for enforcing their claims against the Borrower and the Collateral.

8.          Rights of Recovery Upon any Foreclosure of the Collateral: Credit Bidding. The Creditors agree that in the event of any foreclosure of the Collateral and resultant sale of such Collateral (the dollar value of any such cash recovered from the sale of Collateral hereinafter referred to as a “Cash Recovery”), each Foreclosing Creditor will only be entitled to receive its pro rata percentage of such Cash Recovery after deducting any reasonable unpaid Creditor Expenses, based on their percentage of the Total Secured Amount held by them at the time the Foreclosing Creditors Committee is formed. The Borrower agrees that to the extent it is in any way involved in such foreclosure and sales of assets and the resultant distribution of any Cash Recovery, it will make payments to the Foreclosing Creditors in accordance with the procedures outlined in the previous sentence, and prior to such due distribution, shall hold any and all Cash Recovery in trust for the benefit of Foreclosing Creditors. If the Foreclosing Creditors have any right to credit bid at any foreclosure or other sale of the Collateral, then any Foreclosing Creditor may do so up to the amount of the total indebtedness due to it; provided, however, that in the event such Foreclosing Creditor makes a winning bid, it must pay the other Foreclosing Creditors the same percentage of the total indebtedness due to the other Foreclosing Creditors as the total indebtedness due to it represented by the winning bid (the “True-Up Payment”). For purposes of illustration, if a Foreclosing Creditor has a total indebtedness from the Borrower of $2,000,000.00, and submits a winning bid of $1,000,000.00, that Foreclosing Creditor must make a True-Up Payment to each Foreclosing Creditor in the amount of 50% of the total indebtedness due to each non-winning Foreclosing Creditor. Each Creditor further agrees that no auction shall be final until any required True-Up Payment is made, that all True-up Payments must be made no later than two (2) days after any auction, that in the event the True-Up Payment is not timely made the auction will be reopened but that a Foreclosing Creditor who fails to make a True-Up Payment shall not be eligible to bid in any subsequent auction.

9.          Amendments to Documents. Each Creditor may at any time or times, in its discretion, (i) renew or extend the time of payment of any obligations or indebtedness owing to it by Borrower; (ii) waive or release any collateral or guaranties which may be held therefor, or (iii) modify or amend the documents evidencing its financing arrangement with Borrower (its “Documents”) in any manner, in each case without further consent from the other Creditors or any other person, and without impairing or affecting this Agreement or any of its rights hereunder. The Borrower agrees that in the event that it and any Creditor so modify such Creditor’s Documents in any way that is more favorable to the Creditor than the terms and provisions contained in the Creditor Agreements, each of the Creditors’ Creditor Agreements shall be simultaneously modified in a similar fashion.

10.         Representations Concerning Borrower: Liability of Creditors. No Creditor, nor any of its respective directors, officers, agents or employees, shall be responsible to any other Creditor or to any other person for (i) Borrower’s solvency, financial condition or ability to repay its obligations or indebtedness to any Creditor; (ii) any oral or written statements of Borrower or (iii) the validity, sufficiency or enforceability of such indebtedness, any of its Creditor Agreements or Documents or the security interest and liens granted by Borrower. Each Creditor has entered into its financing arrangements with Borrower based upon its own independent investigation, and makes no warranty or representation to any other Creditor, nor does it rely on any warranty or representation of any other Creditor with respect to the matters referred to in this Section 10.

11.         Licensing Rights Restrictions. In the event that any of the Creditors, or their respective affiliates, obtains ownership, possession or control over any of the Intellectual Property Collateral (as such term is defined in the IP Security Agreement) prior to a sale or transfer of such Collateral in accordance with the terms of this Agreement, such Creditor shall have no rights or license to use any such Intellectual Property Collateral in any commercial activities other than as may be specifically provided for in the contemplated Joint Development Agreement between the Company and an affiliate of Samsung which such parties intend to enter into by June 30, 2014 that is expected to provide for joint ownership by the Borrower and such Samsung affiliate of certain jointly developed intellectual property related to advanced battery materials.

12.         Specific Performance. Each of the parties hereto acknowledges and agrees that each of the other parties would be irreparably damaged if any provision of this Agreement is not performed in accordance with its specific terms and that any breach of such provisions by a party could not be adequately compensated in all cases by monetary damages alone. Accordingly, in addition to any other right or remedy to which each party may be entitled, at law or in equity, it shall be entitled to enforce any provision of this Agreement by a decree of specific performance and to temporary, preliminary and permanent injunctive relief to prevent breaches or threatened breaches of any of the provisions of this Agreement by any other party, without posting any bond or other undertaking.

13.         Miscellaneous

(a)          The validity of this Agreement, its construction, interpretation and enforcement, and the rights of the parties hereunder shall be determined under, governed by, and construed in accordance with the laws of the State of Michigan.

(b)          Any notice, declaration, demand, request or other communication which by any provision of this Agreement is required or permitted to be given to or served on any party hereto shall be given in writing and shall be deemed to have been sufficiently given or served for all purposes when (i) delivered personally; (ii) sent by overnight mail; (iii) sent by registered or certified mail, return receipt requested, postage prepaid, or (iv) sent by facsimile, to the address or facsimile number set forth for such party below, or at such other address as one party may indicate from time to time in writing to the other:

If to Borrower:	XG Sciences, Inc.
	3101 Grand Oak Drive
	Lansing, MI 48911
	Attention:	President
	Telephone:	(517) 703-1110
	Facsimile:	(517) 703-1113

If to Aspen:	Aspen Advanced Opportunity Fund, LP
	1740 Persimmon Drive, Suite 100
	Naples, FL 34109
	Attention:	Steven C. Jones
	Telephone:	(239) 598-0964
	Facsimile:	(239) 594-5964

If to XGS II:	XGS II, LLC
	5500 Lake Grove Trail
	Petoskey, MI 49770
	Attention:	David G. Pendell
	Telephone:	(239) 450-5097
	Facsimile:

If to Samsung:	SVIC No. 15 New Technology Business Investment L.L.P.
	c/o Samsung Venture Investment Corporation 29th Fl., Samsung Electronics Bldg.

1320-10, Seocho2-dong, Seocho-gu

Seoul, Korea 137-857

Fax: 82.2.2255.0288

Attention:

Telephone:

If to Knox:	Mr. Michael Knox
	5337 Panda Bear Circle
	East Lansing, MI 48823
	Telephone:	(517) 351-4813
	Facsimile:	(517) 703-1113

Notices sent in accordance with the foregoing shall be deemed effective when so delivered personally; the next business day if sent by overnight mail; when confirmed in writing by the sender’s facsimile device if sent by facsimile, or, if mailed, five (5) days after being sent by United States mail.

(c)          Each of the Creditors represents and warrants to the other Creditors that it has not assigned its security interests in the Borrower’s Collateral. Any assignment entered into after the date of this Agreement shall be made expressly subject to the terms of this Agreement, and the party so assigning shall give written notice to the other parties to this Agreement at least ten (10) business days prior to such an assignment, provided that failure to give such notice shall not affect the validity of such assignment, and further provided that notice shall be required for the assignment by any party to an affiliate of such party, but the notice need not be given ten (10) business days prior to the assignment.

(d)          This Agreement constitutes the entire agreement between the parties and supersedes all prior agreements and understandings between the parties relating to the subject matter hereof. This Agreement may not be changed orally, but only by an agreement in writing and signed by the party against whom enforcement of any waiver, change, modification or discharge is sought.

(e)          The headings of the various sections of this Agreement have been inserted for convenience only and shall not be deemed to be part of this Agreement.

(f)          This Agreement shall be binding upon and inure to the benefit of each of the Creditors and their respective successors, permitted assigns and affiliates. This Agreement shall remain in full force and effect and enforceable pursuant to its terms in accordance with Section 510(a) of the United States Bankruptcy Code, and all references herein to the Borrower shall be deemed to apply to the Borrower as debtor in possession and to any trustee in bankruptcy for the estate of the Borrower.

(g)          If any term, restriction or covenant of this Agreement is deemed illegal or unenforceable, all other terms, restrictions and covenants, and the application thereof to all persons and circumstances subject thereto, shall remain unaffected to the extent permitted by law; and if any application of any term, restriction or covenant to any person or circumstance is deemed illegal, the application of such term, restriction or covenant to the persons and circumstances shall remain unaffected to the extent permitted by law.

(h)          The knowledge by any Creditor of any breach or other non-observance by any other Creditor of the terms of this Agreement shall not constitute a waiver thereof or of any obligations to be performed by such breaching or non-observing Creditor hereunder.

(i)          Except as provided herein, the agreements and priorities set forth hereinabove shall remain in full force and effect regardless of whether any party hereto in the future seeks to rescind, amend or terminate or reform by litigation or otherwise, its respective agreements with the Borrower until such time as any and all obligations due to the Creditors have been paid in full and the Creditor Agreements and any related Documents have been terminated or until the Borrower and the Creditors or their respective heirs or assigns shall have agreed to a written termination hereof.

(j)          Nothing contained in the provisions of this Agreement is intended to or shall impair, as between the Borrower and each of the Creditors, the obligations of the Borrower to each such Creditor, which are absolute and unconditional, to pay to the Creditors when due the amounts due pursuant to the Creditor Agreements and any related Documents, or is intended to or shall affect the relative rights of the Creditors of the Borrower.

(k)          This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but which when taken together shall constitute one and the same instrument. Facsimile signatures shall have the same force and effect as original signatures.

** SIGNATURES ON FOLLOWING PAGE **

IN WITNESS WHEREOF, the Creditors have signed this Second Amended and Restated Intercreditor Agreement as of the date first set forth above.

Aspen Advanced Opportunity Fund, LP, a Delaware limited partnership
By:	AA XGS, LLC
Its:	General Partner
By:	/s/ Steven C. Jones
Name:	Steven C. Jones
Title:	Managing Member
XGS II, LLC, a Florida limited liability company
By:	/s/ David G. Pendell
Name:	David G. Pendell
Title:	Managing Member
SVIC NO. 15 NEW TECHNOLOGY BUSINESS INVESTMENT L.L.P.
By: Samsung Venture Investment Corporation, its Partner
By:	/s/ Seonjong Lee
Name:	SEONJONG LEE
Its:	C.E.O
Michael R. Knox, an individual
By:	/s/ Michael R. Knox

CONSENT

Borrower hereby consents to all of the terms and conditions of the foregoing Second Amended and Restated Intercreditor Agreement, and agrees to be bound in all respects thereof:

BORROWER:
XG Sciences, Inc., a Michigan corporation
By:	/s/ Michael R. Knox
Name:	Michael R. Knox
Title:	Chief Executive Officer

STATE OF MICHIGAN	)
	) SS:
COUNTY OF INGHAM	)

The foregoing instrument was acknowledged before me this 10^th day of January, 2014 by Michael R. Knox, as President of XG Sciences, Inc. a Michigan corporation, on behalf of XG Sciences, Inc. He has produced a driver’s license as identification.

IMAGE OMITTED [tennex-viiipg13.jpg]	/s/ Kelly A. LaGrave
	Notary Public, State of Michigan
	Print Name: Kelly A. LaGrave
	My Commission Expires: 4-15-2018
	[NOTARIAL SEAL]

EXHIBIT A

Principal Amounts Outstanding of Secured Indebtedness that is Secured by the Collateral As of January 15, 2014

Aspen Advanced Opportunity Fund, LP(1)	$	3,909,425.00
Samsung Venture Investment Company	$	3,000,000.00
Michael Knox (2)	$	800,000.00
XGS II(3)	$	690.575.00
Total	$	8,400,000.00

(1)  Aspen amount excludes $268,905.92 of accrued interest which has been capitalized into the balance of the Aspen Notes as of January 15, 2014.

(2)  Knox amounts include $700,000 of initial principal of secured convertible notes and $100,000 of remaining principal on the Knox Short Term Debt. Secured Convertible Note balance excludes $72,998.15 of accrued interest which has been capitalized into the balance of the Knox Notes as of January 15, 2014.

(3)  XGS II amount excludes $48,774.83 of accrued interest which has been capitalized into the balance of the XGS II Notes as of January 15, 2014.

Second Amended and Restated Intercreditor Agreement

A-1 

Michigan Department of Licensing and Regulatory Affairs

Filing Endorsement

This is to Certify that the CERTIFICATE OF AMENDMENT - CORPORATION

for

XG SCIENCES, INC.

ID NUMBER: 23029E

received by facsimile transmission on July 9, 2013 is hereby endorsed

Filed on July 10, 2013 by the Administrator.

The document is effective on the date filed, unless a subsequent effective date within 90 days after received date is stated in the document.

	In testimony whereof, I have hereunto set my hand and affixed the Seal of the Department, in the City of Lansing, this 10TH day of July, 2013.
[Graphics]	/s/ Alan J. Schefke
	Director
Sent by Facsimile Transmission 13191	Bureau of Commercial Services

BCS/CD-515 (Rev. 11/11)

MICHIGAN DEPARTMENT OF LICENSING AND REGULATORY AFFAIRS BUREAU OF COMMERCIAL SERVICES
Date Received
		This document is effective on the date filed, unless a subsequent effective date within 90 days after received date is stated in the document.
Name
Matt G. Hrebec, Esq.; Foster, Swift, Collins & Smith, P.C.
Address
313 S. Washington Square
City		State	ZIP Code
Lansing		MI	48933		EFFECTIVE DATE:
[Graphics]	Document will be returned to the name and address you enter above. If left blank, document will be returned to the registered office.			[Graphics]

 CERTIFICATE OF AMENDMENT TO THE ARTICLES OF INCORPORATION

For use by Domestic Profit and Nonprofit Corporations

(Please read information and instructions on the last page)

Pursuant to the provisions of Act 284, Public Acts of 1972, (profit corporations), or Act 162, Public Acts of 1982 (nonprofit corporations), the undersigned corporation executes the following Certificate:

1.	The present name of the corporation is:
	XG Sciences, Inc.
2.	The identification number assigned by the Bureau is:	23029E

3.	Article IIIof the Articles of Incorporation is hereby amended to read as follows:
	ARTICLE III
	The total authorized shares:
	1.	Common shares: 25,000,000
		Preferred shares: 8,000,000
	2.	A statement of all or any of the relative rights, preferences and limitations of the shares of each class is as follows:
	A.    Provisions Applicable to Common Shares: None
	B.   Provisions Applicable to Preferred Shares: The authorized shares of Preferred Stock may be issued from time to time in one or more series, each of such series to have such designations, powers, preferences, and relative participating, optional, or other rights, and such qualifications, limitations, or restrictions, as may be stated in a resolution or resolutions providing for the Issue of such series adopted by the Board of Directors.

COMPLETE ONLY ONE OF THE FOLLOWING:

4.	Profit or Nonprofit Corporations: For amendments adopted by unanimous consent of incorporators before the first meeting of the board of directors or trustees.
	The foregoing amendment to the Articles of Incorporation was duly adopted on the ________ day of __________________, _________, in accordance with the provisions of the Act by the unanimous consent of the incorporator(s) before the first meeting of the Board of Directors or Trustees.
	Signed this ________ day of ____________________________ , ___________
	(Signature)	(Signature)
	(Type or Print Name)	(Type or Print Name)
	(Signature)	(Signature)
	(Type or Print Name)	(Type or Print Name)

5.	Profit Corporation Only: Shareholder or Board Approval
	The foregoing amendment to the Articles of incorporation proposed by the board was duly adopted on the 26th day of June, 2013, by the: (check one of the following)
	þ	shareholders at a meeting in accordance with Section 611(3) of the Act.
	¨	written consent of the shareholders having not less than the minimum number of votes required by statute in accordance with Section 407(1) of the Act. Written notice to shareholders who have not consented in writing has been given. (Note: Written consent by less than all of the shareholders is permitted only if such provision appears in the Articles of Incorporation.)
	¨	written consent of all the shareholders entitled to vote in accordance with Section 407(2) of the Act.
	¨	board of a profit corporation pursuant to section 611(2) of the Act.
			Profit Corporations and Professional Service Corporations
			Signed this 8 day of July, 2013
			By	/s/ Michael R. Knox
				(Signature of an authorized officer or agent)
			Michael R. Knox, CEO
			(Type or Print Name)

XG SCIENCES, INC.

MICHIGAN CID 23029E

AMENDED AND RESTATED CERTIFICATE OF DESIGNATIONS

OF

SERIES A CONVERTIBLE PREFERRED STOCK

(Pursuant to Section 450.1302 of the

Michigan Business Corporation Act)

The undersigned, a duly authorized officer of XG Sciences, Inc., a Michigan corporation (the “Corporation”),DOES HEREBY CERTIFY that the following resolution was duly adopted bythe Board of Directors of the Corporation (the “Board of Directors”)pursuant to Section 450.1302 of the Michigan Business Corporation Act on June 26, 2013:

RESOLVED, that the Board of Directors of the Corporation pursuant to authority vested in it by the provisions of the Articles of Incorporation of the Corporation, hereby amends and restates its previous authorization of the issuance of a series of preferred stock designated as the Series A Convertible Preferred Stock of the Corporation and hereby fixes the designation, number of shares, powers, preferences, rights, qualifications, limitations and restrictions thereof (in addition to any provisions set forth in the Articles of Incorporation of the Corporation which are applicable to the Corporation’s preferred stock of all classes and series) as follows:

SERIES A CONVERTIBLE PREFERRED STOCK

1.Designation and Amount. There is hereby designated a series of the Corporation’s Preferred Stock (as defined below) as Series A Convertible Preferred Stock (the “Series A Preferred Stock”),and the number of shares so designated shall be three million (3,000,000).

2.           Definitions. In addition to the terms defined elsewhere in this Certificate of Designations the following terms have the meanings indicated:

(a)          “Common Stock”shall mean the Corporation’s common stock.

(b)          “Conversion Price”shall mean twelve dollars ($12.00) for the Series A Preferred Stock (subject to adjustment from time to time for Recapitalizations and as otherwise set forth elsewhere herein).

(c)          “Conversion Rate”shall have the meaning set forth in Section 5(a).

(d)          “Convertible Securities”shall mean any evidences of indebtedness, shares orother securities convertible into or exchangeable for Common Stock or Preferred Stock.

(e)          “Corporation”shall mean XG Sciences, Inc., a Michigan corporation.

(f)          “Junior Securities”shall mean the Common Stock and all other equity or equity equivalent securities of the Corporation other than those securities which are explicitly senior or pari passu in rights and liquidation preference to the Series A Preferred Stock.

(g)          “Liquidation Preference”shall mean twelve dollars ($12.00) per share for the Series A Preferred Stock (subject to adjustment from time to time for Recapitalizations as set forth elsewhere herein).

(h)          “Options”shall mean rights, options or warrants to subscribe for, purchase or otherwise acquire Common Stock or Convertible Securities.

(i)          “Original Issue Date”shall mean the date on which the first share of Series A Preferred Stock was issued.

(j)          “Preferred Stock”means the Corporation’s preferred stock.

(k)          “Qualified National Exchange”means a securities exchange registered with the U.S. Securities and Exchange Commission under Section 6(a) of the Securities Exchange Act of 1934, as amended, as well as the over the counter markets administered by the OTCQX® and the OTCQB®, and their successor-entities. The OTC Pink®, OTCBB and their successor-equivalent entities shall not be deemed a “Qualified National Exchange.”

(l)          “Recapitalization”shall mean any stock dividend, stock split, combination of shares, reorganization, recapitalization, reclassification or other similar event.

(m)          “Senior Securities”shall mean the Series A Preferred Stock and all other series of Preferred Stock of the Corporation that are explicitly senior or pari passu in rights and liquidation preference to the Series A Preferred Stock.

(n)          “Series A Original Issue Price”shall mean twelve dollars ($12.00) per share (subject to adjustment from time to time for Recapitalizations and as set forth in Section 5 herein).

3. Liquidation Rights.

(a)          Liquidation Preference.In the event of any liquidation, dissolution or winding up of the Corporation, either voluntary or involuntary, the holders of the Series A Preferred Stock shall be entitled to receive, prior and in preference to any distribution of any of the assets of the Corporation to the holders of the Common Stock by reason of their ownership of such stock, an amount per share for each share of Series A Preferred Stock held by them equal to (i) the Liquidation Preference specified for such share of Series A Preferred Stock less (ii) all dividends (if any) paid on such share of Series A Preferred Stock. If upon the liquidation, dissolution or winding up of the Corporation, the assets of the Corporation legally available for distribution to the holders of the Series A Preferred Stock are insufficient to permit the payment to such holders of the full amounts specified in this Section 4(a), then the entire assets of the Corporation legally available for distribution shall be distributed with equal priority and pro-rata among the holders of the Series A Preferred Stock in proportion to the full amounts they would otherwise be entitled to receive pursuant to this Section 3(a).

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(b)          Remaining Assets.After the payment to the holders of the Series A Preferred Stock of the full preferential amounts specified above, the entire remaining assets of the Corporation legally available for distribution by the Corporation shall be distributed with equal priority and pro-rata among the holders of the Series A Preferred Stock and Common Stock in proportion to the number of shares of Common Stock held by them, with the shares of Series A Preferred Stock being treated for this purpose as if they had been converted to shares of Common Stock at the then applicable Conversion Rate (as defined below).

(c)          Shares not Treated as Both Series A Preferred Stock and Common Stock in any Distribution.Shares of Series A Preferred Stock shall not be entitled to be converted into shares of Common Stock in order to participate in any distribution, or series of distributions, as shares of Common Stock, without first foregoing participation in the distribution, or series of distributions, as shares of Series A Preferred Stock.

(d)          Reorganization. For purposes of this Section 3, a liquidation, dissolution or winding up of the Corporation shall be deemed to be occasioned by, or to include: (a) the acquisition of the Corporation by another entity by means of any transaction or series of related transactions to which the Corporation is party (including, without limitation, any stock acquisition, reorganization, merger or consolidation but excluding any sale of stock for capital raising purposes) other than a transaction or series of transactions in which the holders of the voting securities of the Corporation outstanding immediately prior to such transaction continue to retain (either by such voting securities remaining outstanding or by such voting securities being converted into voting securities of the surviving entity), at least fifty percent (50%) of the total voting power represented by the voting securities of the Corporation or such surviving entity outstanding immediately after such transaction or series of transactions; (b) a sale, lease, transfer, exclusive license or other disposition, in a single transaction or series of related transactions, by the Corporation of all or substantially all the assets of the Corporation and its subsidiaries taken as a whole, except where such sale, lease, transfer, exclusive license or other disposition is to a wholly owned subsidiary of the Corporation; or (c) any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary.

(e)          Valuation of Non-Cash Consideration. If any assets of the Corporation distributed to stockholders in connection with any liquidation, dissolution, or winding up of the Corporation are other than cash, then the value of such assets shall be their fair market value as determined in good faith by the Board of Directors, except that any securities to be distributed to stockholders in a liquidation, dissolution, or winding up of the Corporation shall be valued as follows:

(i)          If the securities are then traded on a Qualified National Exchange, then the value of the securities shall be deemed to be the average of the closing prices of the securities on such exchange over the ten (10) trading day period ending five (5) trading days prior to the distribution;

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(ii)         if the securities are actively quoted on the OTC Pink®, then the value of the securities shall be deemed to be the average of the closing bid prices of the securities over the ten (10) trading day period ending five (5) trading days prior to the distribution; and

(iii)        if the securities are not traded on a Qualified National Exchange or actively quoted on the OTC Pink®, the value shall be the fair market value thereof, as determined in good faith by the Board of Directors of the Corporation.

In the event of a merger or other acquisition of the Corporation by another entity, the distribution date shall be deemed to be the date such transaction closes.

4.           Conversion Rights.The holders of the Series A Preferred Stock shall have conversion rights as follows (the “Conversion Rights”):

(a)          Right to Convert.Each share of Series A Preferred Stock shall be convertible, at the option of the holder thereof, at any time after the date of issuance of such share at the office of the Corporation or any transfer agent for the Series A Preferred Stock, into that number of fully-paid, nonassessable shares of Common Stock determined by dividing the Series A Original Issue Price by the Conversion Price. The number of shares of Common Stock into which each share of Series A Preferred Stock may be converted is hereinafter referred to as the “Conversion Rate”.Upon any decrease or increase in the Conversion Price, as described in this Section 4,the Conversion Rate shall be appropriately increased or decreased.

(b)          Mandatory Conversion.The Corporation shall have the right to effect the conversion of each share of Series A Preferred Stock then currently outstanding into fully-paid, non-assessable shares of Common Stock at the then effective Conversion Rate for such share upon the listing by the Corporation of the class of Common Stock on a Qualified National Exchange (such an event, a “Mandatory Conversion Event”).So long as the Common Stock remains listed on a Qualified National Exchange, any shares of Series A Preferred Stock issued following a Mandatory Conversion Event will be automatically converted into Common Stock pursuant to this Section 4(b) at the then effective Conversion Rate on such date of issuance of the Series A Preferred Stock.

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(c)          Mechanics of Conversion.No fractional shares of Common Stock shall be issued upon conversion of Series A Preferred Stock. In lieu of any fractional shares to which the holder would otherwise be entitled, the Corporation shall pay cash equal to such fraction multiplied by the then fair market value of a share of Common Stock as determined by the Board of Directors. For such purpose, all shares of Series A Preferred Stock held by each holder of Series A Preferred Stock shall be aggregated, and any resulting fractional share of Common Stock shall be paid in cash. Before any holder of Series A Preferred Stock shall be entitled to convert the same into full shares of Common Stock, and to receive certificates therefor, such holder shall either (A) surrender the certificate or certificates therefor, duly endorsed, at the office of the Corporation or of any transfer agent for the Series A Preferred Stock or (B)notify the Corporation or its transfer agent that such certificates have been lost, stolen or destroyed and execute an agreement satisfactory to the Corporation to indemnify the Corporation from any loss incurred by it in connection with such certificates, and shall give written notice to the Corporation at such office that he elects to convert the same; provided, however,that on the date of a Mandatory Conversion Event, the outstanding shares of Series A Preferred Stock shall be converted without any further action by the holders of such shares and whether or not the certificates representing such shares are surrendered to the Corporation or its transfer agent; provided further,however, that the Corporation shall not be obligated to issue certificates evidencing the shares of Common Stock issuable upon such Mandatory Conversion Event unless either the certificates evidencing such shares of Series A Preferred Stock are delivered to the Corporation or its transfer agent as provided above, or the holder notifies the Corporation or its transfer agent that such certificates have been lost, stolen or destroyed and executes an agreement satisfactory to the Corporation to indemnify the Corporation from any loss incurred by it in connection with such certificates. On the date of the occurrence of a Mandatory Conversion Event, each holder of record of shares of Series A Preferred Stock shall be deemed to be the holder of record of the Common Stock issuable upon such conversion, notwithstanding that the certificates representing such shares of Series A Preferred Stock shall not have been surrendered at the office of the Corporation, that notice from the Corporation shall not have been received by any holder of record of shares of Series A Preferred Stock, or that the certificates evidencing such shares of Common Stock shall not then be actually delivered to such holder.

(d)          Adjustments for Subdivisions or Combinations of Common Stock.In the event the outstanding shares of Common Stock shall be subdivided (by stock split, by payment of a stock dividend or otherwise), into a greater number of shares of Common Stock, the Conversion Price in effect immediately prior to such subdivision shall, concurrently with the effectiveness of such subdivision, be proportionately decreased. In the event the outstanding shares of Common Stock shall be combined (by reclassification or otherwise) into a lesser number of shares of Common Stock, the Conversion Price in effect immediately prior to such combination shall, concurrently with the effectiveness of such combination, be proportionately increased.

(e)          Adjustments for Subdivisions or Combinations of Series A Preferred Stock. In the event the outstanding shares of Series A Preferred Stock shall be subdivided (by stock split, by payment of a stock dividend or otherwise), into a greater number of shares of Series A Preferred Stock, the Series A Original Issue Price and Liquidation Preference of the Series A Preferred Stock in effect immediately prior to such subdivision shall, concurrently with the effectiveness of such subdivision, be proportionately decreased. In the event the outstanding shares of Series A Preferred Stock shall be combined (by reclassification or otherwise) into a lesser number of shares of Series A Preferred Stock, the Series A Original Issue Price and Liquidation Preference of the Series A Preferred Stock in effect immediately prior to such combination shall, concurrently with the effectiveness of such combination, be proportionately increased.

(f)          Adjustments for Reclassification, Exchange and Substitution.Subject to Section 4 above, if the Common Stock issuable upon conversion of the Series A Preferred Stock shall be changed into the same or a different number of shares of any other class or classes of stock, whether by capital reorganization, reclassification or otherwise (other than a subdivision or combination of shares provided for above), then, in any such event, in lieu of the number of shares of Common Stock which the holders would otherwise have been entitled to receive each holder of such Series A Preferred Stock shall have the right thereafter to convert such shares of Series A Preferred Stock into a number of shares of such other class or classes of stock which a holder of the number of shares of Common Stock deliverable upon conversion of such Series A Preferred Stock immediately before that change would have been entitled to receive in such reorganization or reclassification, all subject to further adjustment as provided herein with respect to such other shares.

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(g)          Adjustment of Series A Preferred Stock Conversion Price upon Issuance of Certain Securities. If and whenever on or after the Original Issue Date, the Corporation issues or sells, or is deemed to have issued or sold, any shares of Common Stock or securities convertible or exchangeable into Common Stock other than Excluded Securities (as defined below) for a consideration per share or an implied consideration per share of Common Stock less than a price (the “Applicable Price”)equal to the Conversion Price in effect immediately prior to such issuance or sale (such issuance a “Triggering New Issue”),then immediately after such issue or sale, the Conversion Price then in effect shall be deemed to be automatically reduced to an amount equal to eighty percent (80%) of the Applicable Price for such Triggering New Issue. After such adjustment of the Conversion Price hereunder, all subsequent conversions of the Series A Preferred Stock into Common Stock shall be effected using the new Conversion Price in the Conversion Rate. For the purposes of this Agreement, “Excluded Securities” are (i) those options and warrants of the Corporation issued prior to, and outstanding on, the Original Issue Date, (ii) the shares of Common Stock issuable on exercise of such options and warrants in subparagraph (i), provided such options and warrants are not amended after the Original Issue Date, and (iii) any options or warrants, or the shares of Common Stock into which such options and warrants are exercisable, which are issued to any employee, officer or director of the Corporation for services provided to the Corporation which have been approved by the compensation committee or the majority of the independent members of the Board of Directors.

(h)          Effect on Conversion Price of Certain Events. For purposes of determining the adjusted Conversion Price under Section 4(g) above, the following shall be applicable:

(i)          Issuance of Options or Warrants.If, after the Original Issue Date, the Corporation in any manner grants any options or warrants other than Excluded Securities and the lowest price per share for which a share of Common Stock is issuable upon the exercise of any such option or warrant is less than the Conversion Price in effect immediately prior to such grant, then such grant of options or warrants shall be deemed to have been a Triggering New Issue and the Conversion Price shall be deemed to be automatically reset pursuant to Section 4(g) above. No further adjustment of the Conversion Price shall be made upon the actual issuance of any shares of Common Stock upon the exercise of any such options or warrants.

(ii)         Issuance of Convertible Securities.If, after the Original Issue Date, the Corporation in any manner issues or sells any Convertible Securities and the lowest price per share of Common Stock at which such Convertible Security is convertible or exchangeable into Common Stock is less than the Conversion Price in effect immediately prior to such issuance or sale, then such issuance or sale shall be deemed to have been a Triggering New Issue and the Conversion Price shall be deemed to be automatically reset pursuant to Section 4(g) above. No further adjustment of the Conversion Price shall be made upon the actual issuance of any shares of Common Stock upon the conversion or exchange of such Convertible Security into shares of Common Stock.

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(iii)        Change in Option or Warrant Price or Rate of Conversion.If, after the Original Issue Date, the exercise, conversion, exchange, or other price payable provided for in any option, warrant or Convertible Security other than Excluded Securities, upon the exercise, conversion or exchange of any such securities is amended or altered at any time for any reason (any of the foregoing hereinafter referred to as an “Exercise/Conversion Change”),and any such Exercise/Conversion Change results in any of the foregoing securities being exercisable, convertible, or exchangeable at a price per share of Common Stock lower than the Conversion Price in effect immediately prior to such Exercise/Conversion Change, then such Exercise/Conversion Change shall be deemed to have been a Triggering New Issue and the Conversion Price shall be deemed to be automatically reset pursuant to Section 4(g) above.

(iv)        No adjustment pursuant to this Section 4(h) shall be made if such adjustment would result in an increase of the Conversion Price above the level that it was immediately prior to the occurrence of any of the foregoing events described in 4(h)(i)-(iii) that would give rise to an adjustment in the Conversion Price.

(i)          Waiver of Adjustment of Conversion Price.Notwithstanding anything herein to the contrary, any downward adjustment of the Conversion Price may be waived, either prospectively or retroactively and either generally or in a particular instance, by the consent or vote of the holders of the majority of the outstanding shares of Series A Preferred Stock. Any such waiver shall bind all future holders of shares of Series A Preferred Stock.

5.           Voting.On any matter presented to the stockholders of the Corporation for their action or consideration at any meeting of stockholders of the Corporation (or by written consent of stockholders in lieu of meeting), each holder of outstanding shares of Series A Preferred Stock shall be entitled to cast the number of votes equal to the number of whole shares of Common Stock into which the shares of Series A Preferred Stock held by such holder are convertible as of the record date for determining stockholders entitled to vote on such matter. Except as provided by law or by the other provisions of the Certificate of Incorporation, holders of Series A Preferred Stock shall vote together with the holders of Common Stock as a single class.

6.           Miscellaneous.

(a)          The headings herein are for convenience only, do not constitute a part of this Certificate of Designations and shall not be deemed to limit or affect any of the provisions hereof.

(b)          Any notice required or permitted by the provisions of this Certificate of Designations to be given to a holder of shares of Series A Preferred Stock shall be mailed, postage prepaid, to the post office address last shown on the records of the Corporation, or given by electronic communication in compliance with the provisions of the Michigan Business Corporation Act, and shall be deemed sent upon such mailing or electronic transmission.

(c)          No provision of this Certificate of Designations may be amended, except in a written instrument signed by the Corporation and holders of at least a majority of the shares of Series A Preferred Stock then outstanding. Any of the rights of the holders of the Series A Preferred Stock set forth herein may be waived by the affirmative vote of holders of at least a majority of the shares of Series A Preferred Stock then outstanding, except that each holder may waive its own rights as provided in this Certificate of Designations.

** Signature page follows **

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IN WITNESS WHEREOF, the undersigned has caused this Amended and Restated Certificate of Designation to be duly executed as of the 8 day of July, 2013.

XG SCIENCES, INC.
BY:	/s/ Michael R. Knox
	MICHAEL R. KNOX, CEO

XG SCIENCES, INC.

SHAREHOLDER AGREEMENT

This Shareholder Agreement (this “Agreement”)is made and entered into effective as of March ___, 2013, by and among XG SCIENCES, INC., a Michigan corporation (the “Company”), and each of the individual and entity shareholders of the Company that are listed on Exhibit A and each of the individual and entity shareholders of the Company that execute an adoption agreement generally in the form of Exhibit B (collectively, the “Shareholders” and collectively with the Company, the “Parties”).

Recitals

Whereas, the Shareholders who are listed on Exhibit A are the beneficial owners of an aggregate of One Million Eight Thousand Two Hundred Eleven (1,008,211) shares of the Common Stock of the Company;

Whereas, certain of the Shareholders and other persons are the beneficial owners of options and warrants that entitle them to purchase Ninety-Eight Thousand Eight Hundred Ninety-Four (98,894) shares of the Common Stock of the Company (the “Shareholder Options and Warrants”);

Whereas, Aspen Advanced Opportunity Fund, LP (“Aspen”)is purchasing senior secured convertible notes (the “Convertible Notes”)from the Company pursuant to a securities purchase agreement (the “Purchase Agreement”)of the same date as this Agreement (the “Financing”);

Whereas, the Convertible Notes are convertible into Series A convertible preferred stock to be issued by the Company (the “Series A Stock”),and when issued the Series A Stock will be convertible into Common Stock of the Company;

Whereas, the obligations in the Purchase Agreement are conditioned upon the execution and delivery of this Agreement; and

Whereas, in connection with the consummation of the Financing, the Company and the Shareholders have agreed to the provisions of this Agreement.

Agreement

Now, Therefore, in consideration of the recitals and for other good and valuable consideration, the receipt and sufficiency of which are acknowledged, the Parties agree as follows:

1. Definitions.

Capitalized terms that are used in this Agreement but that are not otherwise defined have the following meanings:

1.1           “Shareholder Stock”and “Shareholder’s Stock”mean the shares of Common Stock, Series A Stock, and other capital stock of the Company that are now owned or are subsequently acquired by a Shareholder by gift; conversion of the Convertible Notes, Series A Stock, or other convertible debt or convertible equity securities of the Company; purchase; dividend; exercise of the Shareholder Options and Warrants or any other options, warrants or other security or right of any kind convertible into or exchangeable for Common Stock issued by the Company; or any other means whether or not such securities are only registered in a Shareholder’s name or beneficially or are legally owned by such Shareholder, including any interest of a spouse in any Shareholder Stock, whether that interest is asserted pursuant to marital property laws or otherwise. The number of shares of Shareholder Stock owned by each of the Shareholders as of the date of this Agreement is set forth on Exhibit A, which exhibit may be amended from time to time by the Company to reflect changes in the number of shares of Shareholder Stock owned by the Shareholders, but the failure to so amend shall have noeffect on any Shareholder Stock being subject to this Agreement.

1.2           “Common Stock”means shares of the Company’s common stock and shares of common stock issued or issuable upon conversion of the Convertible Notes, Series A Stock, or other convertible debt or convertible equity securities of the Company or the exercise of the Shareholder Options and Warrants or any other options, warrants or other security or right of any kind convertible into or exchangeable for Common Stock issued by the Company.

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

1.4           “Independent Director”meansa director who is not an executive officer or employee of the Company and who does not have a relationship that, in the reasonable opinion of the Company’s board of directors, would interfere with the person’s exercise of independent judgment in carrying out his or her responsibilities as a director. A director nominated by Aspen, POSCO, or Hanwha pursuant to Section 2 is not an Independent Director.

1.5           “Transfer” meansany sale, assignment, conveyance in trust, gift, transfer by request, devise or descent, or other transfer or disposition of any kind, including transfers to receivers, levying creditors, trustees or receivers in bankruptcy proceedings or general assignees for the benefit of creditors, whether voluntary or by operation of law, directly or indirectly, of any Shareholder Stock.

1.6           “Affiliate” and “Affiliated”means, with respect to a Shareholder, any person or entity that, directly or indirectly, controls, is controlled by or is under common control with such Shareholder, including any general partner, member, officer or director of such Shareholder and any venture capital fund now or hereafter existing which is controlled by one or more general partners of, or shares the same management company as, such Shareholder.

2. BOARD OF DIRECTORS.

2.1           Size of the Board. For so long as Aspen or its Affiliates owns 10% or more of the aggregate outstanding Shareholder Stock (assuming Full Conversion), each Shareholder agrees to vote all of the Shareholder’s Stock from time to time in whatever manner is necessary to ensure that the size of the Company’s board of directors is set and remains at seven (7) directors; provided, however, that the number of directors on the board of directors may be increased or decreased with the prior written consent of (a) Aspen and (b) Shareholders (including Aspen) who in the aggregate then own Shareholder Stock representing a majority of the then issued and outstanding voting stock of the Company.

2.2           Composition of Board. Each Shareholder agrees to vote all of the Shareholder’s Stock in the Company from time to time in whatever manner is necessary to ensure that at each annual or special meeting of Shareholders at which an election of directors is held or pursuant to any written consent of the Shareholders of the Company:

(a)          for so long as Aspen owns 10% or more of the aggregate outstanding Shareholder Stock (assuming Full Conversion):

(i)          one person nominated by Aspen is elected to the Company’s board of directors as a director; and

(ii)         two of the members of the board of directors, other than a director who is nominated by Aspen, POSCO, or Hanwha pursuant to this Section 2.2, qualify as Independent Directors;

(b)          for so long as POSCO, a South Korean corporation (“POSCO”)or its Affiliates, owns 10% or more of the aggregate outstanding Shareholder Stock (assuming Full Conversion), one person nominated by POSCO is elected to the Company’s board of directors; and

(c)          for so long as Hanwha Chemical Company, a South Korean corporation (“Hanwha”)or its Affiliates, owns 10% or more of the aggregate outstanding Shareholder Stock (assuming Full Conversion), one person nominated by Hanwha is elected to the Company’s board of directors.

Each of the persons nominated or appointed by one of the foregoing Shareholders shall be reasonably acceptable to the other directors of the Company. If such a Shareholder nominates or appoints a person who is not reasonably acceptable to the other directors of the Company, such Shareholder shall withdraw the nomination or appointment and consult with the other directors of the Company to select a new nominee or appointee who is reasonably acceptable to the remaining directors.

2.3           Removal of Board Members; Vacancies. Each Shareholder agrees to vote all of the Shareholder’s Stock from time to time in whatever manner is necessary to ensure that:

(a)          no director who is elected pursuant to Section 2.2 is removed from office without the consent of the nominating Shareholder, but only for so long as the nominating Shareholder or its Affiliates owns 10% or more of the aggregate outstanding Shareholder Stock (assuming Full Conversion) (the “Minimum Ownership Requirements”);and

(b)          any vacancies created by the resignation, removal, or death of a director who is elected pursuant to Section 2.2 is filled pursuant to the provisions of Section 2.2, subject to the Minimum Ownership Requirements.

2.4           Observer. For so long as Aspen or its Affiliates owns 10% or more of the aggregate outstanding Shareholder Stock (assuming Full Conversion), Aspen, as an intended third party beneficiary of this Agreement, shall have the right to appoint one person to act as a non-voting observer (the “Observer”) at all regular and special meetings of the Company’s board of directors. The Observer will receive all the information a director of the Corporation receives for any regular and special meetings of the Company’s board of directors or in connection with any written consent to be executed by such directors.

2.5           Written Consents. Each of the Shareholders agrees to execute and deliver any written consent that is required to effectuate its obligations under this Section 2, and the Company agrees that at the request of Aspen, POSCO, or Hanwha the Company will call a special meeting of Shareholders for the purpose of electing directors, subject to the Minimum Ownership Requirements.

2.6           Contracts with Affiliated Persons. With the approval of a majority of the Independent Directors in each case, the Company may enter into one or more agreements, leases, contracts or other arrangements for the furnishing to or by the Company of goods, services or space with any officer or director of the Company, any Shareholder or their Affiliates, and may pay compensation thereunder for such goods, services or space, provided in each case the amounts payable thereunder are reasonably comparable to those which would be payable to unaffiliated persons under similar agreements, and if the determination of such amounts is made in good faith it shall be conclusive absent manifest error.

2.7           Certain Approvals. The following actions of the Company shall require the written approval of Aspen (for so long as Aspen or its Affiliates owns 10% or more of the aggregate outstanding Shareholder Stock (assuming Full Conversion)):

(i) Create, obligate itself to create, authorize or issue (by reclassification or otherwise) any new class or classes of securities which has a preference over or being on a parity with the Series A Stock in any respect;

(ii) Sell any material portion of the tangible or intangible assets of the Company that secure the indebtedness to Aspen;

(iii) Incur additional secured indebtedness.

2.8           Incentive Grants. The Shareholders and the Company agree that 15% of the Shareholder Stock as of the date hereof (assuming Full Conversion) shall be reserved for issuance of incentive equity awards as determined by the Independent Directors or the compensation committee of the Company, if it exists.

3. Voluntary Transfer by a Shareholder.

3.1           Notice of Transfer. If a Shareholder (the “Transferring Shareholder”)proposes to voluntarily Transfer any shares of Shareholder Stock (the “Transferring Shareholder’s Stock”) (including pursuant to the provisions of Section 3.5), then the Transferring Shareholder shall promptly give written notice (the “Transfer Notice”)simultaneously to the Company and to each of the other Shareholders and holders of Convertible Notes (collectively, the “Non-Transferring Parties”)at least sixty (60) days prior to the closing of such Transfer. The Transfer Notice shall describe in reasonable detail the proposed Transfer, including the number of shares of the Transferring Shareholder’s Stock to be transferred, the nature of the Transfer, the consideration to be paid, and the name and address of each prospective purchaser or transferee. In the event that the Transfer is being made pursuant to the provisions of Section 3.5, the Notice shall describe in reasonable detail the basis for the claimed exemption from Article 3.

3.2           Company Right of First Refusal.

(a)          Subject to Section 3.5, the Company shall have the right to purchase all or any part of the Transferring Shareholder’s Stock from the Transferring Shareholder for the consideration per share and the terms and conditions specified in the Transfer Notice. The Company may exercise such right by written notice to the Transferring Shareholder delivered no later than fourteen (14) days after receipt of the Transfer Notice.

(b)          In the event that the Company does not exercise its right within such fourteen-day period with respect to all of the Transferring Shareholder’s Stock, the Company shall, by the last day of such fourteen-day period, give written notice of that fact to the Transferring Shareholder and the Non-Transferring Parties (the “Shareholder Transfer Notice”). The Shareholder Transfer Notice shall specify the number of shares of the Transferring Shareholder’s Stock not to be purchased by the Company (the “Remaining Transferring Shareholder’s Stock”).

(c)          In the event that the Company timely exercises its right to purchase all or part of the Transferring Shareholder’s Stock, the closing of such purchase shall take place at the offices of the Company by the date that is twenty-eight (28) days after the expiration of such fourteen-day period. At the closing, the Transferring Shareholder shall deliver to the Company the certificate(s) representing the Transferring Shareholder’s Stock to be purchased by the Company, each certificate to be properly endorsed for transfer.

3.3           Shareholder Right of First Refusal.

(a)          In the event that the Company does not exercise its right pursuant to Section 3.2 with respect to all of the Transferring Shareholder’s Stock within the time period set forth in Section 3.2, each Non-Transferring Party shall, subject to Section 3.5, have the right, exercisable by written notice to the Transferring Shareholder with a copy to the Company delivered no later than fourteen (14) days after receipt of the Shareholder Transfer Notice, to purchase its pro rata share of the Remaining Transferring Shareholder’s Stock on the same terms and conditions specified in the Transfer Notice. Each Non-Transferring Parties’ pro rata share shall be equal to the product obtained by multiplying: (i) the aggregate number of shares of the Remaining Transferring Shareholder’s Stock, by (ii) a fraction, the numerator of which is the number of shares of Common Stock (assuming Full Conversion) owned by the Non-Transferring Party on the date on which the Shareholder Transfer Notice is delivered and the denominator of which is the total number of shares of Common Stock (assuming Full Conversion) owned by all of the Non-Transferring Parties on the date on which the Shareholder Transfer Notice is delivered. Except as set forth in Section 3.3(b), the Non-Transferring Parties who timely exercise their rights (the “Participating Parties”)and the Transferring Shareholder shall effect the purchase of the Remaining Transferring Shareholder’s Stock being purchased by the Participating Parties, including payment of the purchase price, not more than fourteen (14) days after expiration of the fourteen-day period referenced above in this Section 3.3(a), and at such time the Transferring Shareholder shall deliver to the Participating Parties the certificate(s) representing the Remaining Transferring Shareholder’s Stock to be purchased by the Participating Parties, each certificate to be properly endorsed for transfer.

(b)          In the event that not all of the Non-Transferring Parties elect to purchase their respective pro rata shares of the Remaining Transferring Shareholder’s Stock pursuant to their rights under Section 3.3(a) within the time period set forth in Section 3.3(a), the Transferring Shareholder shall, by the last day of such 14-day period, give written notice to each of the Participating Parties, which shall set forth the number of shares of the Remaining Transferring Shareholder’s Stock not subscribed to by the other Non-Transferring Parties, and shall offer such Participating Parties the right to purchase such unsubscribed shares (the “Second Shareholder Notice”).Each Participating Party shall have fourteen (14) days after receipt of the Second Notice to deliver a written notice to the Transferring Shareholder with a copy to the Company of its election to purchase its pro rata share of the unsubscribed shares on the same terms and conditions as set forth in the Transfer Notice. Each Participating Parties’ pro rata share shall be equal to the product obtained by multiplying: (i) the aggregate number of shares of the Remaining Transferring Shareholder’s Stock not subscribed to by the other Non-Transferring Parties, by (ii) a fraction, the numerator of which is the number of shares of Common Stock (assuming Full Conversion) owned by the Participating Party on the date on which the Second Shareholder Notice is delivered and the denominator of which is the total number of shares of Common Stock (assuming Full Conversion) owned by all of the Participating Parties on the date on which the Second Shareholder Notice is delivered. The Participating Parties and the Transferring Shareholder shall then effect the purchase of the Remaining Transferring Shareholder’s Stock to be purchased by such Participating Parties pursuant to this Section 3.3(b), including payment of the purchase price, not more than fourteen (14) days after expiration of the fourteen-day period referenced above in this Section 3.3(b), and at such time, the Transferring Shareholder shall deliver to the Participating Parties the certificates representing the Remaining Transferring Shareholder’s Stock to be purchased by such Participating Parties pursuant to this Section 3.3(b), each certificate to be properly endorsed for transfer. In the event that not all of the Participating Parties elect to purchase their respective pro rata shares of the Remaining Transferring Shareholder’s Stock pursuant to their rights under this Section 3.3(b) within the time period set forth in this Section 3.3(b), the foregoing process shall be repeated with respect to the Participating Parties who did elect to purchase their respective pro rata shares of the Remaining Transferring Shareholder’s Stock pursuant to this Section 3.3(b) until either all of the Remaining Transferring Shareholder’s Stock is subscribed to pursuant to this Section 3.3(b) or no Participating Party desires to subscribe to additional shares of the Remaining Transferring Shareholder’s Stock.

3.4           Right of Co-Sale.

(a)          In the event that the Non-Transferring Parties fail to exercise their respective rights to purchase all of the Remaining Transferring Shareholder’s Stock pursuant to Section 3.3, and that following the exercise or expiration of the rights of purchase set forth in Section 3.3 the Transferring Shareholder proposes to sell shares of Shareholder Stock on the terms and conditions set forth in the Transfer Notice that represent more than five percent (5%) of the shares of Shareholder Stock then outstanding (assuming Full Conversion), then the Transferring Shareholder shall deliver to the Company and to each Non-Transferring Party that is not a Participating Party (a “Co-Sale Right Holder”)written notice (the “Co-Sale Notice”)that each Co-Sale Right Holder shall have the right, exercisable by written notice to the Transferring Shareholder with a copy to the Company (the “Sale Participation Notice”)delivered no later than fourteen (14) days after receipt of the Co-Sale Notice (such fourteen-day period, the “Exercise Period”),to sell shares of the Co-Sale Right Holder’s Shareholder Stock on the same terms and conditions specified in the Transfer Notice (provided that the price set forth in the Transfer Notice with respect to shares of Shareholder Stock shall be appropriately adjusted, if necessary, based on the conversion ratio of any Series A Stock or other preferred stock to be sold). The Sale Participation Notice shall indicate the number of shares of Shareholder Stock such Co-Sale Right Holder wishes to sell (which number shall not exceed the total number of shares of Transferring Shareholder Stock, specified in the Transfer Notice). The Transferring Shareholder shall use commercially reasonable efforts to interest the prospective purchaser of the Transferring Shareholder’s Stock (the “Offeror”)in purchasing, in addition to the Transferring Shareholder’s Stock, the Shareholder Stock that the Co-Sale Right Holders wish to sell.

(b)          If the Offeror does not wish to purchase the Transferring Shareholder’s Stock and allof the Shareholder Stock made available for purchase by the participating Co-Sale Right Holders (the “Co-Sale Participants”),then the Transferring Shareholder shall promptly notify each of the Co-Sale Participants of such fact (the “Proration Notice”),and each of the Co-Sale Participant and the Transferring Shareholder shall be entitled to sell, at the price and on the terms and conditions set forth in the Transfer Notice (provided that the price set forth in the Transfer Notice with respect to shares of Shareholder Stock shall be appropriately adjusted, if necessary, based on the conversion ratio of any Series A Stock or other preferred stock to be sold), a portion of the relevant Shareholder’s Stock being offered for sale to the Offeror, in the same proportion as such Transferring Shareholder’s or Co-Sale Participant’s (as the case may be) ownership of shares of Common Stock (assuming Full Conversion) on the date on which the Proration Notice is delivered bears to the aggregate number of shares of Common Stock (assuming Full Conversion) owned in the aggregate by the Transferring Shareholder and the Co-Sale Participants on the date on which the Proration Notice is delivered. The Proration Notice shall indicate the total number of shares of Shareholder Stock the Offeror is willing to purchase. Each Co-Sale Participant exercise its prorate co-sale rights by delivering written notice to the Transferring Shareholder no later than fourteen (14) days after receipt of the Proration Notice.

(c)          Each Co-Sale Participant shall effect its participation in the Transfer by timely delivering to the Transferring Shareholder, for transfer to the Offeror, one or more certificates, properly endorsed for transfer, which represent:

(i)          the number of shares of Common Stock which such Co-Sale Participant elects to sell; or

(ii)         that number of shares of Series A Stock and other preferred stock which is at such time convertible into the number of shares of Common Stock which such Co-Sale Participant elects to sell; provided, however, that if the Offeror objects to the delivery of preferred stock in lieu of Common Stock, such Co-Sale Participant shall convert such preferred stock into Common Stock pursuant to the relevant provisions of the Company’s Articles of Incorporation and such preferred stock, and deliver Common Stock as provided in Section 3.4(c)(i) above. The Company agrees to make any such conversion concurrent with and contingent upon the actual transfer of such Shareholder Stock to the Offeror.

(d)          The stock certificate or certificates that the Co-Sale Participant delivers to such Transferring Shareholder pursuant to Section 3.4(c) shall be transferred to the Offeror in consummation of the sale of the Common Stock pursuant to the terms and conditions specified in the Co-Sale Notice, and the Transferring Shareholder shall concurrently remit to the Co-Sale Participant that portion of the sale proceeds to which such Co-Sale Participant is entitled by reason of its participation in the sale. To the extent that the Offeror refuses to purchase shares or other securities from a Co-Sale Participant that the Co-Sale Participant has elected to sell pursuant to this Section 3.4, the Transferring Sharehorder shall not sell to the prospective purchaser or purchasers any Shareholder Stock unless and until, simultaneously with the sale, the Transferring Shareholder purchases such shares or other securities from such Co-Sale Participant on the same terms and conditions as are specified in the Co-Sale Notice, subject to the proration required by Section 3.4(b).

(e)          The exercise or non-exercise of the rights of any Co-Sale Right Holder to participate in one or more Transfers of Shareholder Stock made by a Transferring Shareholder will not adversely affect its right to participate in subsequent Transfers of Shareholder Stock pursuant to Article 3, provided that the Shareholder then otherwise meets the requirements of Article 3.

(f)          The transactions contemplated by the Transfer Notice, including the exercise of any right of first refusal and/or co-sale under this Article 3, shall be consummated in any event not later than ninety (90) days after the expiration of the Exercise Period and only on the terms of the Transfer Notice and in compliance with Article 3. Any Transfer after the expiration of such ninety-day period, any proposed Transfer on terms and conditions more favorable than those described in the Transfer Notice, and any subsequent or additional proposed Transfer of any Shareholder Stock by a Transferring Shareholder, shall again be subject to the first refusal and co-sale rights of the Non-Transferring Parties and shall require compliance by the Transferring Shareholder with the procedures described in this Article 3.

3.5           Exempt Transfers.

(a)          Exempt Transfers. Notwithstanding anything to the contrary in this Agreement, the first refusal and co-sale rights of the Shareholders set forth above in this Article 3 shall not apply to any Transfer by a Shareholder that is: (a) a partnership Transferring to its partners or to any other individual or entity that is an Affiliate of such Shareholder or to any beneficial owners of any Affiliates; (b) a corporation Transferring to any Affiliate; (c) a limited liability company Transferring to its members or to any other individual or entity that is an Affiliate of such beneficial owners of any Affiliate; or (d) an individual Transferring to a revocable trust for the benefit of the individual Shareholder or his or her spouse or children; provided that in each case the transferee will agree in writing to be subject to the terms of this Agreement to the same extent as if it were an original Shareholder under this Agreement, and all transferred Shareholder Stock shall remain “Shareholder Stock” under this Agreement, and such transferee shall be treated as a “Shareholder” for purposes of this Agreement.

(b)          Registration Exemption. Notwithstanding anything to the contrary in this Agreement, the provisions of this Article shall not apply to the sale of any Shareholder Stock to the public pursuant to a registration statement filed with, and declared effective by, the Securities and Exchange Commission under the Securities Act of 1933, as amended.

4. Death of a Shareholder.

4.1           Company Right of First Refusal.

(a)          Upon the death of an individual Shareholder (the “Deceased Shareholder”),the Company shall have the right to purchase all or any part of the Shareholder Stock of the Deceased Shareholder (the “Deceased Shareholder Stock”or the “Deceased Shareholder’s Stock”) from the estate (or trust) of the Deceased Shareholder for the purchase price and on the other terms set forth in this Article 4. The Company may exercise such right by written notice to the Deceased Shareholder’s personal representative (or successor trustee) no later than ninety (90) days after the date on which the Company receives notice of the Deceased Shareholder’s death.

(b)          In the event the Company does not exercise its right within such ninety-day period with respect to all of the Deceased Shareholder’s Stock, the Company shall, by the last day of such ninety-day period, give written notice of that fact to the Deceased Shareholder’s personal representative (or successor trustee) and to the Shareholders other than the Deceased Shareholder (the “Decedent Notice”).The Decedent Notice shall specify the number of shares of the deceased Shareholder’s Stock not purchased by the Company (the “Remaining Deceased Shareholder’s Stock”).

(c)          In the event that the Company timely exercises its right to purchase allor part of the Deceased Shareholder’s Stock, the Deceased Shareholder’s personal representative (or successor trustee) will sell such Deceased Shareholder’s Stock to the Company for the purchase price and on the other terms set forth in this Article 4.

4.2           Shareholder Right of First Refusal.

(a)          In the event that the Company does not exercise its right pursuant to Section 4.1 with respect to all of the Deceased Shareholder’s Stock within the time period set forth in Section 4.1, each Shareholder other than the Deceased Shareholder and each holder of Convertible Notes (the “Offeree Parties”) shall have the right, exercisable by written notice to the Deceased Shareholder’s personal representative (or successor trustee) with a copy to the Company delivered no later than thirty (30) days after receipt of the Decedent Notice, to purchase its pro rata share of the Remaining Deceased Shareholder’s Stock, for the purchase price and on the other terms set forth in this Article 4. Each Offeree Party’s pro rata share shall be equal to the product obtained by multiplying: (i) the aggregate number of shares of the Remaining Deceased Shareholder’s Stock, and (ii) a fraction, the numerator of which is the number of shares of Common Stock (assuming Full Conversion) owned by the Offeree Party on the date on which the Decedent Notice is delivered and the denominator of which is the total number of shares of Common Stock (assuming Full Conversion) owned by all of the Offeree Parties on the date on which the Decedent Notice is delivered.

(b)          In the event that not all of the Offeree Parties elect to purchase their respective pro rata shares of the Remaining Deceased Shareholder’s Stock pursuant to their rights under Section 4.2(a) within the time period set forth in Section 4.2(a), the Company shall give written notice to each of the Offeree Parties who did elect to purchase its respective pro rata share of the shares of the Remaining Deceased Shareholder’s Stock (the “Participating Offeree Parties”), which shall set forth the number of Remaining Deceased Shareholder’s Stock not subscribed to by the other Offeree Parties, and shall offer such Participating Offeree Parties the right to purchase such unsubscribed shares (the “Second Decedent Notice”). Each Participating Offeree Party shall have fourteen (14) days after receipt of the Second Decedent Notice to deliver a written notice to the Deceased Shareholder’s personal representative (or successor trustee) with a copy to the Company of its election to purchase its pro rata share of the unsubscribed shares, for the purchase price and on the other terms set forth in this Article 4. Each Participating Offeree Party’s pro rata share shall be equal to the product obtained by multiplying: (i) the aggregate number of shares of the Remaining Deceased Shareholder’s Stock not subscribed to by the other Offeree Parties, by (ii) a fraction, the numerator of which is the number of shares of Common Stock (assuming Full Conversion) owned by the Participating Offeree Party on the date on which the Second Decedent Notice is delivered and the denominator of which is the total number of shares of Common Stock (assuming Full Conversion) owned by all of the Participating Offeree Parties on the date on which the Second Decedent Notice is delivered. In the event that not all of the Participating Offeree Parties elect to purchase their respective pro rata shares of the Remaining Deceased Shareholder’s Stock pursuant to their rights under this Section 4.2(b) within the time period set forth in this Section 4.2(b), the foregoing process shall be repeated with respect to the Participating Offeree Parties who did elect to purchase their respective pro rata shares of the Remaining Deceased Shareholder’s Stock pursuant to this Section 4.2(b) until either all of the Remaining Deceased Shareholder’s Stock is subscribed to pursuant to this Section 4.2(b) or no Participating Offeree Party desires to subscribe to additional shares of the Remaining Deceased Shareholder’s Stock.

4.3           Deceased Shareholder’s Shareholder Stock. For purposes of this Agreement, “Deceased Shareholder’s Stock” means Shareholder Stock owned at the time of the Deceased Shareholder’s death by: (i) the Deceased Shareholder; or (ii) the trustee of a trust settled by the Deceased Shareholder.

4.4           Purchase Price for Deceased Shareholder’s Stock. The purchase price for the Deceased Shareholder’s Stock shall be its fair market value as of the last day of the month that immediately precedes the month in which the Deceased Shareholder died, as determined by the mutual agreement of the purchasing parties (the Company and/or the Participating Offeree Parties) and the Deceased Shareholder’s personal representative (or successor trustee). If the purchasing parties and the Deceased Shareholder’s personal representative (or successor trustee) cannot agree on the fair market value of the Deceased Shareholder’s Stock within sixty (60) days after the earlier of the expiration of the last time period referenced above and the date on which all of the Deceased Shareholder’s Stock has been subscribed to by the Company and/or the Offeree Parties, then the fair market value of the Deceased Shareholder’s Stock shall be determined by appraisal performed by a professional appraiser or certified public accountant qualified by experience and ability to appraise the shares of stock of a closely held company similar to the Company (a “Qualified Appraiser”)who is acceptable to all of the purchasing parties and the Deceased Shareholder’s personal representative (or successor trustee). If all of the purchasing parties and the Deceased Shareholder’s personal representative (or successor trustee) cannot agree on a Qualified Appraiser, then the purchasing parties shall by majority vote (each purchasing party is allowed one vote) select a Qualified Appraiser, and the Deceased Shareholder’s personal representative (or successor trustee) shall select a Qualified Appraiser. If only the purchasing parties, on the one hand, or only the Deceased Shareholder’s personal representative (or successor trustee), on the other hand, select a Qualified Appraiser, that appraiser’s written opinion on the fair market value of the Deceased Shareholder’s Stock shall be conclusive and binding on all of the purchasing parties and the Deceased Shareholder’s personal representative (or successor trustee). If the purchasing parties, on the one hand, and the Deceased Shareholder’s personal representative (or successor trustee), on the other hand, both select a Qualified Appraiser and the two (2) Qualified Appraisers agree on the fair market value of the Deceased Shareholder’s Stock, their written opinion shall be conclusive and binding on all of the purchasing parties and the Deceased Shareholder’s personal representative (or successor trustee). If the two Qualified Appraisers disagree on the fair market value of the Deceased Shareholder’s Stock, they shall appoint a third Qualified Appraiser mutually acceptable to them, and the written opinion of the third Qualified Appraiser shall be conclusive and binding as to the fair market value of the Deceased Shareholder’s Shares on all of the purchasing parties and the Deceased Shareholder’s personal representative (or successor trustee).

4.5           Settlement Date. The settlement date for a purchase under this Article 4 will he such date as may be mutually agreed upon by the parties to the purchase, but in no event later than 270 days after the Deceased Shareholder’s date of death.

4.6           Insurance. The Company may apply for and own policies of insurance on the lives of any or all Shareholders, with the Company named as beneficiary, to provide for part or all of the funds necessary for the Company to discharge its rights under this Agreement. The Company will pay all premiums on any such policies.

4.7           Payment When Insurance Proceeds Equal or Exceed the Purchase Price. Upon the death of a Shareholder, the Company will promptly take all necessary steps to collect any proceeds of insurance on the Deceased Shareholder’s life. If said insurance proceeds equal or exceed the purchase price and the Company exercises its option pursuant to Section 4.1, then the Company will pay the entire purchase price to the Deceased Shareholder’s estate or trust, as the case may be, as soon as possible after the value of the Deceased Shareholder’s Stock has been determined and the insurance proceeds have been collected by the Company.

4.8           Payment When Purchase Price Is In Excess of Insurance, or When There Is No Insurance. If the Company does not hold insurance on the Deceased Shareholder’s life for purposes of buying the Deceased Shareholder’s Stock, if the purchase price for the Deceased Shareholder’s Stock exceeds the proceeds of any insurance on the life of the Deceased Shareholder, or to the extent that the Offeree Parties are purchasing the Deceased Shareholder’s Stock, the following procedure will be used:

(a)          Notice. Within ten (10) days of receiving notice from the Company or the Offeree Parties that one of the conditions in the introduction to this Section 4.8 exists, the legal representative of the Deceased Shareholder (hereinafter called the “Decedent Seller”)will deposit any Deceased Shareholder Stock to be purchased with the Company, and each of the purchasing parties (the Company and/or the Participating Offeree Parties) will pay the down payment to and issue a promissory note to the Seller pursuant to Section 4.8(b) below.

(b)          Payment of Purchase Price. Simultaneously with the deposit of the Deceased Shareholder’s Stock by the Seller with the Company, each purchasing party (the Company and/or the Participating Offeree Parties): (i) will pay to the Seller a down payment equal to ten percent (10%) of the purchase price for the Deceased Shareholder’s Stock being purchased by that purchaser; and (ii) will deposit with the Decedent Seller a promissory note in the amount of the unpaid balance of the purchase price for the Deceased Shareholder’s Stock being purchased by that purchaser. The promissory note will be executed by the purchasing party and delivered to the Decedent Seller, and will provide that the face amount of the promissory note evidencing the unpaid balance of the purchase price will be payable in ten (10) annual installments of principal and interest beginning on the first anniversary of the first day of the month first following the date of the down payment referred to above. The per annum interest rate on the unpaid balance of each of the promissory notes will be 1% plus the “prime rate” as reported in The Wall Street Journal (United States edition) last published before the date on which the note is deposited with the Seller, or if The Wall Street Journal (United States edition) no longer publishes a “prime rate,” the last “prime rate” announced before the date on which the note is deposited with the Seller by the financial institution with which the Company maintains its primary banking relationship. When a promissory note is paid, the Seller will cancel the note so paid and return it to the Company.

4.9           Delivery of Stock. Upon full payment of the purchase price or upon the payment of the down payment and delivery of the proper promissory note(s) for the Deceased Shareholder’s Stock being purchased by a purchaser, the certificate or certificates for the Deceased Shareholder’s Stock being purchased by a purchaser will be duly assigned, transferred and delivered by the holder or holders thereof to the purchaser, together with any and all other documents required to effectuate the transfer of such stock to the purchaser.

4.10         Transfer to Estate or Trust. If, at the end of the option periods described in Sections 4.1 and 4.2, the Company and the Offeree Parties have not purchased all of the Deceased Shareholder’s Stock, then the Deceased Shareholder’s Stock not to be sold to the Company or to the Offeree Parties will transfer to the Shareholder’s heirs or trust, as the case may be; provided that any Shareholder Stock transferred as described above will remain subject to all of the terms of this Agreement.

5. Involuntary Transfers.

5.1           Involuntary Transfer. If any Shareholder Stock becomes subject to a Transfer by operation of law (an “Involuntary Transfer”). such Shareholder (the “Debtor Shareholder”)and the creditor shall give written notice of the Involuntary Transfer (the “Involuntary Transfer Notice”)simultaneously to the Company and to each of the other Shareholders and holders of Convertible Notes (collectively, the “Non-Debtor Parties”) prior to or within ten (10) days after the date on which the Shareholder Stock of the Debtor Shareholder (the “Debtor Shareholder’s Stock”)becomes subject to Involuntary Transfer. An Involuntary Transfer includes, without limitation, any of the following:

(a)          a sale or other disposition of any Shareholder Stock by a trustee or debtor in possession appointed or retained in a bankruptcy case of a Shareholder;

(b)          a sale of any Shareholder Stock at any creditors’ or judicial sale;

(c)          a transfer of any Shareholder Stock arising out of any pledge or security agreement; or

(d)          a transfer or other disposition of any Shareholder Stock in connection with a divorce or separation proceeding (including any property settlement agreement in contemplation of any divorce or separation proceeding).

5.2           Option of the Company.

(a)          Transmittal to the Company of the Involuntary Transfer Notice, which is enforceable by specific performance, will constitute an offer by the Debtor Shareholder and the creditor to sell to the Company all of the Debtor Shareholder’s Stock that is the subject of the Involuntary Transfer at a purchase price per Share and on the other terms of purchase determined pursuant to Article 4as if the Debtor Shareholder had died. The Company may accept such offer as to all or any part of the Debtor Shareholder’s Stock by written notice to the Debtor Shareholder or the creditor, as the case may be, delivered no later than ninety (90) days after receipt of the Involuntary Transfer Notice.

(b)          In the event that the Company does not exercise its right within such ninety-day period with respect to all of the Debtor Shareholder’s Stock that is the subject of the Involuntary Transfer, the Company shall, by the last day of such ninety-day period, give written notice of that fact to the Debtor Shareholder or the creditor, as the case may be, and the Non-Debtor Parties (the “Shareholder Involuntary Transfer Notice”).The Shareholder Involuntary Transfer Notice shall specify the number of shares of the Debtor Shareholder’s Stock that is the subject of the Involuntary Transfer but is not to be purchased by the Company (the “Remaining Debtor Shareholder’s Stock”).

5.3           Options of Non-Debtor Parties.

(a)          If the Company does not exercise its option with respect to all of the Debtor Shareholder’s Stock that is the subject of the Involuntary Transfer in accordance with Section 5.2, then the Debtor Shareholder or the creditor, as the case may be, will be deemed to have offered to sell the Remaining Debtor Shareholder’s Stock to each of the Non-Debtor Parties at the price and upon the terms set forth in Section 5.2. Each Non-Debtor Party shall have the right, exercisable by written notice to the Debtor Shareholder or the creditor, as the case may be, with a copy to the Company delivered no later than thirty (30) days after receipt of the Shareholder Involuntary Transfer Notice, to purchase its pro rata share of the Remaining Debtor Shareholder’s Stock subject to the Shareholder Involuntary Transfer Notice, at a purchase price per Share and on the other terms of purchase determined pursuant to Article 4 as if the Debtor Shareholder had died. Each Non-Debtor Party’s pro rata share shall be equal to the product obtained by multiplying: (i) the aggregate number of shares of the Remaining Debtor Shareholder’s Stock, and (ii) a fraction, the numerator of which is the number of shares of Common Stock (assuming Full Conversion) owned by the Non-Debtor Party on the date on which the Shareholder Involuntary Transfer Notice is delivered and the denominator of which is the total number of shares of Common Stock (assuming Full Conversion) owned by all of the Non-Debtor Parties on the date on which the Shareholder Involuntary Transfer Notice is delivered.

(b)          In the event that not all of the Non-Debtor Parties elect to purchase their respective pro rata shares of the Remaining Debtor Shareholder’s Stock pursuant to their rights under Section 5.3(a) within the time period set forth in Section 5.3(a), the Company shall give written notice to each of the Non-Debtor Parties who did elect to purchase its respective pro rata share of the Remaining Debtor Shareholder’s Stock (the “Participating Non-Debtor Parties”), which shall set forth the number of Remaining Debtor Shareholder’s Stock not subscribed to by the other Non-Debtor Parties, and shall offer such Participating Non-Debtor Parties the right to purchase such unsubscribed shares (the “Second Shareholder Involuntary Transfer Notice”). Each Participating Non-Debtor Party shall have the right, exercisable by written notice to the Debtor Shareholder or the creditor, as the case may be, with a copy to the Company delivered no later than thirty (30) days after receipt of the Second Shareholder Involuntary Transfer Notice, to purchase its pro rata share of the unsubscribed shares, at a purchase price per Share and on the other terms of purchase determined pursuant to Article 4 as if the Debtor Shareholder had died. Each Participating Non-Debtor Party’s pro rata share shall be equal to the product obtained by multiplying: (i) the aggregate number of shares of the Remaining Debtor Shareholder’s Stock not subscribed to by the other Non-Debtor Parties, by (ii) a fraction, the numerator of which is the number of shares of Common Stock (assuming Full Conversion) owned by the Participating Non-Debtor Party on the date on which the Second Shareholder Involuntary Transfer Notice is delivered and the denominator of which is the total number of shares of Common Stock (assuming Full Conversion) owned by all of the Participating Non-Debtor Parties on the date on which the Second Shareholder Involuntary Transfer Notice is delivered. In the event that not all of the Participating Non-Debtor Parties elect to purchase their respective pro rata shares of the Remaining Debtor’s Shareholder’s Stock pursuant to their rights under this Section 5.3(b) within the time period set forth in this Section 5.3(b), the foregoing process shall be repeated with respect to the Participating Non-Debtor Parties who did elect to purchase their respective pro rata shares of the Remaining Debtor Shareholder’s Stock pursuant to this Section 5.3(b) until either all of the Remaining Debtor Shareholder’s Stock is subscribed to pursuant to this Section 5.3(b) or no Participating Non-Debtor Party desires to subscribe to additional shares of the Remaining Deceased Shareholder’s Stock.

5.4           Transfer to Creditor. If, at the end of the option periods described in Sections 5.2 and 5.3, the Company and the Non-Debtor Parties have not purchased all of the Debtor Shareholder’s Stock that is the subject of the Involuntary Transfer, then the Debtor Shareholder’s Stock that is the subject of the Involuntary Transfer and not to be sold to the Company or to the Non-Debtor Parties will transfer to the creditor by operation of law or remain the property of the creditor, as the case may be; provided that any Shareholder Stock transferred as described above will remain subject to all of the terms of this Shareholder Agreement.

6. Prohibited Transfers.

6.1           General Prohibition. Shareholder Stock may not be transferred except as expressly permitted or required by this Agreement.

6.2           Call Option.

(a)          In the event of a Transfer in violation of Section 3.2 and 3.3 (a “Prohibited Transfer”), the Shareholders other than the Shareholder whose Shareholder Stock (the “Breaching Shareholder”) is subject to the Prohibited Transfer and the holders of Convertible Notes (collectively, the “Non-Breaching Parties”) shall have the option to purchase from the purchaser or transferee of the Shareholder Stock transferred in violation of this Agreement, the number of shares that the Non-Breaching Parties would have been entitled to purchase had such Prohibited Transfer been effected in accordance with this Agreement, on the following terms and conditions:

(i)          The price per share at which the shares are to be purchased by the Non-Breaching Parties shall be equal to the lower of the price per share paid to such Breaching Shareholder by the third party purchaser or purchasers of such Shareholder Stock that is subject to the Prohibited Transfer, or a purchase price per Share determined pursuant to Article 4 as if the Breaching Shareholder had died; and

(ii)         The Breaching Shareholder effecting such Prohibited Transfer shall reimburse the Non-Breaching Parties for any expenses, including legal fees and expenses, incurred in effecting such purchase.

6.3           Put Option.

(a)          In the event that a Transferring Shareholder should sell any Shareholder Stock in contravention of the co-sale rights of each Non-Transferring Party under Section 3.4 of this Agreement (a “Prohibited Sale”),each Non-Transferring Party, in addition to such other remedies as may be available at law, in equity or under this Agreement, shall have the put option provided for below, and such Transferring Shareholder shall be bound by the applicable provisions of such option.

(b)          In the event of a Prohibited Sale, each Non-Transferring Party shall have the right to sell to such Transferring Shareholder the type and number of shares of Common Stock that is equal to the number of shares each Non-Transferring Party would have been entitled to Transfer to the purchaser under Section 3.4 had the Prohibited Sale been effected pursuant to and in compliance with the terms of this Agreement. Such sale shall be made on the following terms and conditions:

(i)          The price per share at which the shares are to be sold to the Transferring Shareholder shall be equal to the price per share paid by the purchaser to such Transferring Shareholder in such Prohibited Sale. The Transferring Shareholder shall also reimburse each Non-Transferring Party for any and all fees and expenses, including legal fees and expenses, incurred in connection with the exercise or the attempted exercise of such Non-Transferring Party’s rights under Section 3.4 and this Section 6.3.

(ii)         Within sixty (60) days after the date on which a Non-Transferring Party received notice of the Prohibited Sale or otherwise became aware of the Prohibited Sale, such Non-Transferring Party shall, if exercising the option provided for in this Section 6.3, tender to the Transferring Shareholder the certificate or certificates representing the shares to be sold, each certificate to be properly endorsed for transfer.

(iii)       The Transferring Shareholder shall, upon tender of the certificate or certificates for the shares to be sold by a Non-Transferring Party, pursuant to this Section 6.3, pay the aggregate purchase price and the amount of reimbursable fees and expenses, as specified in Section 6.3(b)(i), in cash or by other means acceptable to the Non-Transferring Party.

7.          Bring-Along Rights

7.1           Bring-Along Transfer. If one or more Shareholders (the “Bring-Along Sellers”)propose to Transfer (in a Transfer consummated in a single Transfer or a series of related Transfers to a single purchaser or a group of purchasers as part of a single transaction or group of related transactions) to a non-Shareholder third Party offeror(s) (a “Third Party”)Shareholder Stock that represents more than fifty percent (50%) of the then-outstanding shares of Common Stock (assuming Full Conversion) (a “Bring Along Transfer”),then the Bring-Along Sellers will have the right (the “Bring Along Right”), but not the obligation, to cause each of the Shareholders who are not Bring-Along Sellers to tender to the Third Party for purchase, at the same price per share and on the same terms of payment and conditions as apply to the Bring-Along Sellers, a number of shares of each class of Shareholder Stock held by the Shareholder that is equal to the product obtained by multiplying: (i) the aggregate number of shares of such class of Shareholder Stock held by the Shareholder, and (ii) a fraction, the numerator of which is the aggregate number of Common Stock (assuming Full Conversion) that the Bring-Along Sellers propose to Transfer to the Third Party and the denominator of which is the aggregate number of shares of Common Stock (assuming Full Conversion) owned by the Bring-Along Sellers. If the Bring-Along Sellers exercise the Bring-Along Right provided for in this Section 7.1, then Article 3 shall not apply to the Transfers by the Bring-Along Sellers or pursuant to the exercise of the Bring-Along Right, and such Transfers shall not be a Prohibited Transfer or a Prohibited Sale.

7.2           Bring-Along Notice. Ifthe Bring-Along Sellers elect to exercise the Bring-Along Right provided for in Section 7.1, then the Bring-Along Sellers shall provide written notice (the “Bring Along Notice”)to the Company and to the other Shareholders and holders of Convertible Notes. Each Bring-Along Notice will set forth (i) the name and address of the Third Party to which the Bring-Along Sellers proposes to transfer Shareholder Stock and the number of shares of each class of Shareholder Stock proposed to be transferred. (ii) the nature of the proposed Transfer, (iii) the proposed amount and form of consideration and terms and conditions of payment offered by the Third Party and any other material terms pertaining to the Transfer (the “Third Party Terms”),and (iv) that the Third Party has been informed of the rights provided for in this Article 7 and has agreed to purchase Shareholder Stock in accordance with the terms of this Article 7. The Bring-Along Notice will be given at least thirty (30) days before settlement of the proposed Transfer.

7.3           Consummation. Upon the giving of a Bring-Along Notice, each Shareholder will be entitled and obligated to sell the number of shares of Shareholder Stock described above to the Third Party on the Third Party Terms; neither the Bring-Along Sellers nor any other Shareholder will be obligated to consummate the sale of any shares of Shareholder Stock pursuant to this Article 7 if the Third Party does not purchase all shares of Shareholder Stock that the Shareholders are entitled and required to sell pursuant to this Article 7.

7.4           Settlement. At the settlement of any transaction completed pursuant to this Article 7, the Third Party will remit to each Shareholder the consideration for the total sales price of the shares of Shareholder Stock such Shareholder sold pursuant to this Article 7, upon delivery by the Shareholder of the certificate(s) representing the Shareholder Stock to be purchased by the Third Party, each certificate to be properly endorsed for transfer.

8.          Preemptive Rights.

8.1           Subsequent Offerings. Subject to applicable securities laws, each Shareholder and holder of Convertible Notes shall have the right to purchase its pro rata share of all Shareholder Stock that the Company may, from time to time, propose to sell, issue, or exchange after the date of this Agreement, other than the Shareholder Stock excluded by Section 8.4. Each Shareholder’s pro rata share shall be equal to the ratio of (i) the aggregate number of shares of the Company's Common Stock (assuming Full Conversion) owned by the Shareholder at the time of the delivery of the Preemptive Rights Notice to (ii) the aggregate number of shares of Common Stock (assuming Full Conversion) owned by all of the Shareholders at the time of the delivery of the Preemptive Rights Notice.

8.2           Exercise of Rights. Ifthe Company proposes to issue, sell or exchange any Shareholder Stock, it shall give each Shareholder and holder of Convertible Notes a written notice (the “Preemptive Rights Notice”)that shall (i) identify and describe the Shareholder Stock being issued, sold or exchanged, (ii) describe the price and other terms upon which it is to be issued, sold or exchanged, and the number or amount of the shares of Shareholder Stock to be issued, sold or exchanged, (iii) identify the persons or entities (if known) to which or with whichthe Shareholder Stock are to be offered, issued, sold or exchanged, and (iv) offer to issue and sell to or exchange with such Shareholder its pro rata share of such Shareholder Stock. Each Shareholder and holder of Convertible Notes shall have thirty (30) days from the giving of the Preemptive Rights Notice to agree to purchase its pro rata share of the Shareholder Stock for the price and upon the terms and conditions specified in the Preemptive Rights Notice by giving written notice to the Company and stating therein the number of shares of Shareholder Stock to be purchased.

8.3           Closing. The parties exercising their preemptive rights and the Company shall effect the purchase of the Shareholder Stock to be issued to such exercising parties pursuant to this Article, including payment of the purchase price, not more than twenty-one (21) days after the expiration of the foregoing option periods, and at such time, the Company shall deliver to the parties exercising their preemptive rights the certificates representing the Shareholder Stock to be purchased by such parties exercising their preemptive rights pursuant to this Article 8. If the Company complies with this Article 8, the Company may issue, sell or exchange on the terms set forth in the Preemptive Rights Notice an amount of Shareholder Stock that was offered to the Shareholders and holders of Convertible Notes free of any additional preemptive rights established by this Article 8.

8.4           Excluded Securities. The preemptive rights established by this Article 8 shall have no application to any of the following Shareholder Stock:

(a)          Shares of Shareholder Stock and/or options, warrants or other Shareholder Stock purchase rights issued to, and the Shareholder Stock issued pursuant to such options, warrants or other purchase rights, employees, officers or directors of, or consultants or advisors to, the Company or any subsidiary, pursuant to stock purchase or stock option plans or other arrangements that are approved by the Company’s board of directors;

(b)          Shareholder Stock issued or issuable pursuant to any rights or agreements, options, warrants, or convertible securities outstanding as of the date of this Agreement, including Shareholder Stock issued upon the conversion of the Convertible Notes or the Series A Stock;

(c)          Shareholder Stock issued pursuant to any convertible securities granted after the date of this Agreement to the extent that the rights of first refusal established by this Article 8 were complied with or were inapplicable pursuant to any provision of this Article 8 with respect to the initial sale, issuance, or exchange by the Company of such convertible securities;

(d)          Any Shareholder Stock issued for consideration other than cash pursuant to a merger, consolidation, acquisition, or similar business combination approved by the board of directors and by a majority of the outstanding shares of Common Stock then held by Shareholders;

(e)          shares of Common Stock issued in connection with any stock split, stock dividendor subdivision by the Company that is approved by the board of directors;

(f)          up to Three Hundred Thousand (300,000) (orsuch greater amount as may be approved by a majority of the outstanding shares of Common Stock then held by Shareholders) shares of any Shareholder Stock issued pursuant to any equipment loan or leasing arrangement, real property leasing arrangement, or debt financing from a bank or similar financial or lending institution approved by the board of directors; and

(g)          any Shareholder Stock issued in connection with strategic transactions involving the Company and other entities, including (i) joint ventures, strategic alliances, manufacturing, marketing or distribution arrangements, and (ii) technology transfer or development arrangements; provided that, in each case, the issuance of shares therein has been approved by the board of directors and a majority of the outstanding shares of Common Stock thenheld by Shareholders.

9.          Covenant Not To Compete; Nonsolicitation.

9.1           Restrictions While a Shareholder. While a Shareholder who is a natural person is a Shareholder of the Company (and while a trust, for the benefit of the natural person or his or her spouse or children, is a Shareholder of the Company), the natural person agrees that he or she will not, directly or indirectly, either alone or in association with others, in any other capacity: (i) conduct, become engaged in, or interested in, any business that competes, directly or indirectly, with the business of the Company or any of its Affiliates worldwide; (ii) solicit, divert or take away or attempt to solicit, divert or take away, directly or indirectly, any of the Company’s or its Affiliates current, prior, or prospective customers; or (iii) solicit or attempt to solicit any person who is employed or engaged to perform services by the Company or its Affiliates to leave his or her employment or engagement with Company or its Affiliates. Notwithstanding anything to the contrary herein, this Section 9.1 shall not be violated, however, by the passive ownership by the natural person of up to 2% of a class of outstanding publicly traded shares of a corporation that is listed or quoted on a national securities exchange, including any such corporation that competes with the business of the Company.

9.2           Restrictions After Disposition of Shareholder Stock. Any natural person who is a Shareholder of the Company and who sells or otherwise transfers or surrenders all of his or her Shareholder Stock (including any natural person who settled a trust, for the benefit of the natural person or his or her spouse or children, that is a Shareholder of the Company and that sells or otherwise transfers or surrenders all of its Shareholder Stock), either to the Company, another Shareholder, or to a third party, agrees that he or she will not, for a period of three (3) years from the date of sale, directly or indirectly, either alone or in association with others, for himself or herself or in any other capacity: (i) conduct, become engaged in, or interested in, any business that competes, directly or indirectly, with the business of the Company or any of its Affiliates worldwide; (ii) solicit, divert or take away or attempt to solicit, divert or take away, directly or indirectly, any of the Company’s or its affiliates current, prior, or prospective customers; or (iii) solicit or attempt to solicit any person who is employed or engaged to perform services by the Company or its affiliates to leave his or her employment or engagement with Company or its Affiliates. Notwithstanding anything to the contrary herein, this Section 9.2 shall not be violated, however, by the passive ownership by the natural person of up to 2% of a class of outstanding publicly traded shares of a corporation that is listed or quoted on a national securities exchange, including any such corporation that competes with the business of the Company.

9.3           Judicial Determination. The Company and the Shareholders agree that the restrictions set forth in this Article 9 are reasonable in light of the nature of the Parties’ business. However, should any court of competent jurisdiction determine that these restrictions are unreasonable, then the Parties agree that the restrictions shall, without further acts of the Parties, be modified or amended to conform to the judgment of the court as to what would be reasonable, with the restrictions of this Article 9 to be limited in accordance with such judgment.

9.4           Remedies. In the event of any breach of this Article 9 by a Shareholder, the Company shall be entitled to the remedies set forth in this Agreement, as well as injunctive relief and damages, together with any reasonable attorneys’ fees or costs incurred as a result of such breach, and awarded by the court. Shareholders shall not have standing to enforce this Article 9.

9.5           Entity Shareholders. Each Shareholder who is not a natural person (and is not a trust for the benefit of a natural person or his or her spouse or children) will enter a nondisclosure agreement on terms that are reasonably acceptable to the Company.

10.        Confidentiality.

10.1         General Restriction. While a Shareholder is a shareholder of the Company and following the transfer or surrender of all of its Shareholder Stock, the Shareholder agrees to keep all information relating to the Company, its Affiliates, and their businesses, however obtained, confidential and not to disclose such information to any person or use such information for his benefit or the benefit of any other person or entity. A Shareholder’s obligations with respect to such information will not include any information that (i) is or becomes part of the public domain without violation of this Agreement, (ii) has been rightfully received by the Shareholder from a third person not under obligation of confidentiality to the Company and without breach of this Agreement, or (iii) is independently developed by the Shareholder without use or access to any such information.

10.2        Judicial Determination. The Company and Shareholders agree that the restrictions set forth in this Article 10 are reasonable in light of the nature of the Parties’ business. However, should any court of competent jurisdiction determine that these restrictions are unreasonable, then the Parties agree that the restrictions shall, without further acts of the Parties, be modified or amended to conform to the judgment of the court as to what would be reasonable, with the restrictions of this Article 10 to be limited in accordance with such judgment.

10.4        Remedies. In the event of any breach of this Article 10 by a Shareholder, the Company shall be entitled to the remedies set forth in this Agreement, as well as injunctive relief and damages, together with any reasonable attorneys’ fees or costs incurred as a result of such breach, and awarded by the court. Shareholders shall not have standing to enforce this Article 10.

11.       Power of Attorney.

11.1        The officers of the Company are hereby appointed as attorney-in-fact to effectuate Transfers of Shareholder Stock that are required by and consummated in compliance with the requirements of this Agreement by entering the required Transfer on the books of the Company. The Parties agree that the officers may exercise their power of attorney to enter such a Transfer of Shareholder Stock on the books of the Company to effectuate Transfers of Shareholder Stock that are required by and consummated incompliance with the requirements of this Agreement regardless of whether a Shareholder tenders its Shareholder Stock to the Company for Transfer.

12.       LEGEND.

12.1        Each certificate representing shares of Shareholder Stock now or hereafter owned by any Shareholder shall be endorsed with the following legend:

THE SALE, OR OTHER TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO THE TERMS AND CONDITIONS OF A CERTAIN SHAREHOLDER AGREEMENT BY AND BETWEEN THE SHAREHOLDER, THE COMPANY AND CERTAIN HOLDERS OF STOCK OF THE COMPANY. COPIES OF SUCH AGREEMENT MAY BE OBTAINED UPON WRITTEN REQUEST TO THE SECRETARY OF THE COMPANY.

12.2       The Shareholders agree that the Company may instruct its transfer agent to impose transfer restrictions on the shares represented by certificates bearing the legend referred to in Section 12.1 above to enforce the provisions of this Agreement and the Company agrees to promptly do so. The legend shall be removed at the request of any Shareholder following termination of this Agreement.

13.       MISCELLANEOUS.

13.1         Conditions to Exercise of Rights. Exercise of the Shareholders' rights under this Agreement shall be subject to and conditioned upon compliance with applicable laws.

13.2         Governing Law. This Agreement shall be governed by and construed under the laws of the State of Michigan, excluding the principles of conflicts of law.

13.3         Amendment and Waiver. This Agreement may be amended or terminated and the observance of any term of this Agreement may be waived with respect to any Party to this Agreement (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of (i) a majority of the Company's board of directors, and (ii) persons holding, in the aggregate, shares of Shareholder Stock representing at least sixty percent (60%) of the voting power of all shares of Shareholder Stock then held by Shareholders and their permitted assignees; provided that Article 2 may not be so amended without the consent of Aspen, POSCO, and Hanwha, subject to the Minimum Ownership Requirements, and provided further that for so long as Aspen owns 10% or more of the aggregate outstanding Shareholder Stock (assuming Full Conversion) no provision of this Agreement may be amended in a manner that would have a material adverse impact on Aspen, in its capacity as a holder of Convertible Notes or a Shareholder, without the written consent of Aspen. The Company shall give prompt written notice of any amendment or termination hereof or waiver hereunder to any Party hereto that did not consent in writing to such amendment, termination or waiver. Any amendment, termination or waiver effected in accordance with this Section 13.3 shall be binding on all Parties hereto, even if they do not execute such consent. No waivers of or exceptions to any term, condition or provision of this Agreement, in any one or more instances, shall be deemed to be, or construed as, a further or continuing waiver of any such term, condition or provision.

13.4         Third Party Beneficiaries. The holders of Convertible Notes are each intendedthird party beneficiaries of the provisions of this Agreement that grant rights to them only, and each holder of Convertible Notes may enforce the provisions of this Agreement that grant rights to it to the extent that such holder complies with the requirements of the provision to be enforced. Pursuant to Section 13.12, the holders of Convertible Notes shall become a party to and shall be bound by this Agreement as a Shareholder party to it upon the conversion of the Convertible Notes into Shareholder Stock. Aspen, in addition to any other rights that it may have under this Agreement, is an intended third party beneficiary of Section 2.4, and may enforce the provisions of Section 2.4, subject to its Minimum Ownership Requirement.

13.5         Successors and Assigns. The provisions of this Agreement shall inure to the benefit of, and be binding upon, the Parties and their respective successors, assigns, heirs, executors and administrators and other legal representatives.

13.6         Term. This Agreement shall continue in full force and effect from the date hereof through the earliest of the following dates, on which date it shall terminate in its entirety:

(a)          the date of the closing of a public offering of the Common Stock pursuant to a registration statement filed with the Securities and Exchange Commission, and declared effective under the Securities Act of 1933, as amended in which the Company receives gross proceeds of at least $10,000,000; or

(b)          the date on which this Agreement is terminated pursuant to Section 13.3.

13.7         Ownership. The Shareholders represent and warrant that each is the sole legal and beneficial owner of those shares of Shareholder Stock set forth opposite such Shareholder's name on Exhibit A, and that no other person has any interest (other than a community property interest) in such shares.

13.8         Notices. All notices required or permitted hereunder shall be in writing and shall be deemed effectively given: (a) upon personal delivery to the Party to be notified, (b) three (3) days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (c) one (1) day after deposit with a nationally recognized overnight courier, specifying next day delivery, with written verification of receipt. All communications shall be sent to the Party to be notified at the address as set forth on the signature page or Exhibits hereof or at such other address as such Party may designate by ten (10) days advance written notice to the other Party hereto.

13.9         Severability. In the event one or more of the provisions of this Agreement should, for any reason, be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality, or unenforceability shall not affect any other provisions of this Agreement, and this Agreement shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein.

13.10       Attorneys' Fees. In the event that any suit or action is instituted under or in relation to this Agreement, including without limitation to enforce any provision in this Agreement, the prevailing Party in such dispute shall be entitled to recover from the losing Party all fees, costs and expenses of enforcing any right of such prevailing Party under or with respect to this Agreement, including without limitation, such reasonable fees and expenses of attorneys and accountants, which shall include, without limitation, all fees, costs and expenses of appeals.

13.11       Termination of Prior Agreements. The following agreements are hereby expressly terminated by the execution of this Agreement by the parties to such agreements: (1) the Stock Redemption Agreement between the Company and Hanwha dated as of December 1, 2010; (2) the Voting Agreement between the Company and Hanwha dated as of December 1, 2010; (3) the Stock Redemption Agreement between the Company and POSCO dated as of June 8, 2011; (4) the Voting Agreement between the Company and POSCO dated as of June 8, 2011; (5) the Stock Redemption Agreement between the Company and certain Shareholders dated as of July 15, 2006; and (6) the Amended and Restated Voting Agreement between the Company and certain Shareholders dated as of January 14, 2009.

13.12       Shares Covered by this Agreement. This Agreement applies to all Shareholder Stock that is now or hereafter registered in the Company's records in a Shareholder's name or beneficiary or are legally owned by such Shareholder, including Shareholder Stock that is subsequently acquired by a Shareholder by gift; conversion of the Convertible Notes, Series A Stock, or other convertible debt or convertible equity securities of the Company; purchase; dividend; exercise of the Shareholder Options and Warrants or any other options, warrants or other security or right of any kind convertible into or exchangeable for Common Stock issued by the Company; or any other means, including through reorganization, recapitalization, stock split-up, combinations of shares, merger, or consolidation. Any individual or entity who is not a Shareholder but who acquires Shareholder Stock in the Company shall be become a party to and shall be bound by this Agreement as a Shareholder party to it, including the holders of Convertible Notes upon the conversion of the Convertible Notes into Shareholder Stock, and the Company shall not issue such Shareholder Stock unless and until such individual or entity executes an adoption agreement generally in the form of Exhibit B.

13.13       Entire Agreement. This Agreement and the exhibits attached to it, along with the Purchase Agreement and the other documents delivered pursuant to the Financing, constitute the full and entire understanding and agreement between the Parties with regard to the subjects hereof and thereof and no Party shall be liable or bound to any other in any manner by any oral or written representations, warranties, covenants and agreements except as specifically set forth herein and therein. Each Party expressly represents and warrants that it is not relying on any oral or written representations, warranties, covenants or agreements outside of this Agreement, the Purchase Agreement and the other Related Agreements (as defined in the Purchase Agreement).

13.14     Construction. References in this Agreement to any gender shall be construed to refer to all genders, and use of a plural or singular form shall be construed to refer to the other.

13.15     Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

[EXHIBITS AND COUNTERPART SIGNATURE PAGES FOLLOW.]

XG SCIENCES, INC.

SHAREHOLDER AGREEMENT

COUNTERPART SIGNATURE PAGE

The foregoing XG SCIENCES, INC. SHAREHOLDER AGREEMENT is hereby executed by the undersigned.

COMPANY:
XG SCIENCES, INC.
Signature:
	Michael R. Knox
	Chief Executive Officer

Date:___________________________________________

XG SCIENCES, INC.

SHAREHOLDER AGREEMENT

COUNTERPART SIGNATURE PAGE

The foregoing XG SCIENCES, INC. SHAREHOLDER AGREEMENT is hereby executed by the undersigned.

COMPANY:
XG SCIENCES, INC.
Signature:	/s/ Michael R. Knox
	Michael R. Knox
	Chief Executive Officer

Date:                            3-18-2013                                   

XG SCIENCES, INC.

SHAREHOLDER AGREEMENT

COUNTERPART SIGNATURE PAGE

The foregoing XG SCIENCES, INC. SHAREHOLDER AGREEMENT is hereby executed by the undersigned.

ENTITY SHAREHOLDER:

Entity Name:

Signature:

Print Name:

Title:

Date:

XG SCIENCES, INC.

SHAREHOLDER AGREEMENT

COUNTERPART SIGNATURE PAGE

The foregoing XG SCIENCES, INC. SHAREHOLDER AGREEMENT is hereby executed by the undersigned.

INDIVIDUAL SHAREHOLDER or

JOINT INDIVIDUAL SHAREHOLDERS:

Signature #1:

Print Name:

Date:

Signature #2:

Print Name:

Date:

Exhibit A

LIST OF SHAREHOLDERS

Name of Shareholder	No. of Shares Owned		Percentage Ownership
Michael R. Knox		121,667		12.068	%
Linnea Van Dyne		5,380		0.534	%
Lawrence T. Drzal Revocable Trust		50,550		5.014	%
Hiroyuki Fukushima		50,000		4.959	%
Inhwan Do		50,000		4.959	%
Michigan State University Foundation		9,543		0.947	%
Mark S. Kerrins and Rosemary Kerrins. JTWROS		32,500		3.224	%
Peter Bosanic and Lisa Kendzioski-Bosanic, JTWROS		2,550		0.253	%
Paul Nordstrom		5,758		0.571	%
Edward J. Demmer		30,000		2.976	%
Kevin B. Miller		2,400		0.238	%
David J. Donovan		16,257		1.612	%
Jeffery A. Wesley		9,005		0.893	%
Stephen J. Linder Trust No. 1		5,251		0.521	%
Mark E. Hooper Revocable Living Trust		3,625		0.360	%
W.D. Hamilton and S.M. Heathfield		7,251		0.719	%
Marjorie E. Frisch		2,087,5		0.207	%
Matthew H. Frisch		2,087,5		0.207	%
Colin D. Cronin		4,570		0.453	%
Ann Arbor SPARK		36,257		3.596	%
Robert Skandalaris		34,977		3.469	%
John W. Dourjalian		2,690		0.267	%
William G. Lutz		1,653		0.164	%
David and Vicky Pendell (JTWROS)		3,157		0.313	%
Reed Shick		880		0.087	%
Gary Griffin		1,500		0.149	%
Robert L. McKellar		592		0.059	%
ASC-XGS, LLC		166,023		16.467	%
Hanwha Chemical Corporation		150,000		14.878	%
POSCO, a South Korean corporation		200,000		19.837	%
TOTALS		1,008,211		100.000	%

Exhibit B

ADOPTION AGREEMENT

This ADOPTION AGREEMENT (this “Adoption Agreement”) is entered into effective as of ___________________ among XG Sciences, Inc., a Michigan corporation (the “Company”);and ___________________ (the “Adopting Shareholder”) pursuant to the terms of the Shareholder Agreement dated as of __________, 2013 among the Company and certain Shareholders of the Company (the “Shareholder Agreement”). Capitalized terms used but not defined in this Adoption Agreement shall have the meanings given to them in the Shareholder Agreement.

1.          Acknowledgement. The Adopting Shareholder acknowledges that the Adopting Shareholder is acquiring the following equity securities of the Company (the “Shares”):_________________________________________________, which Shares are subject to the terms and conditions of the Shareholder Agreement.

2.          Agreement. The Adopting Shareholder (i) agrees that the Shares acquired by the Adopting Shareholder are bound by and subject to the terms of the Shareholder Agreement, (ii) that the Adopting Shareholder hereby agrees to become a party to the Shareholder Agreement as a Shareholder and as such shall be, and the Shares shall be, bound by and subject to the terms of the Shareholder Agreement, and (iii) hereby adopts the Shareholder Agreement with the same force and effect as if Adopting Shareholder were originally a Shareholder party thereto.

ADOPTING SHAREHOLDER:
COMPANY:
	XG Sciences, INC.
	By:
		______________________, President

OFFICER’S CERTIFICATE

The undersigned, Michael R. Knox, certifies that he is the Chief Executive Officer of XG SCIENCES, INC., a Michigan Corporation (the “Company”), and makes this certificate in connection with and pursuant to Section 6.j. of that certain Purchase Agreement dated January 15, 2014 (the “Purchase Agreement”) by and between the Company and SVIC No. 15 New Technology Business Investment L.L.P. (“Buyer”), and certifies to Buyer as follows:

All conditions and provisions of Section 6 of the Purchase Agreement are fully satisfied, including receipt by Buyer of all required deliveries thereunder, and the Company has delivered to Buyer all securities owed and issuable to Buyer on or prior to the date hereof under the Transaction Agreements. In furtherance of and without limiting the foregoing, as of the date hereof, (A) the Transaction Agreements, other documents required pursuant thereto, and security interests and liens created thereby, are in full force and effect, (B) each representation and warranty of the Company in the Transaction Agreements is true and correct as if made on and as of the date hereof (except where such representation or warranty is otherwise expressly made as of and limited to a particular date, in which case it is, was or will be true and correct on and as of such other date), before and after giving effect to the consummation of the transactions to be consummated on the date hereof, and as of or since the Initial Closing Date, (C) the Company is in compliance with all, and not in violation, breach or default of any, covenants, agreements and/or other provisions of any of the Transaction Agreements, (D) no breach of, or default or event of default under any of the Transaction Agreements has occurred and is continuing or exists on the date hereof, or would exist after giving effect to the consummation of the transactions to be consummated on the date hereof, or has occurred as of or since the Initial Closing Date, (E) the Company is in compliance with the provisions and covenants of Section 4 of the Purchase Agreement, (F) no Material Adverse Effect has occurred and there are no liabilities or obligations with respect to the Company of any nature whatsoever (whether absolute, accrued, contingent or otherwise and whether or not due) which, individually or in the aggregate, could constitute a Material Adverse Effect, (G) the Company has delivered to Buyer unaudited monthly financial statements for all months ending at least sixty (60) days prior to the date hereof and any other more recent months which have been closed by the Company’s accounting staff, (H) the Company has discussed any material deviations from the last financial projections of the Company furnished to Buyer pursuant to Section 7(a) of the Purchase Agreement and has updated such financial projections as may be required and provided such revised projections to the Buyer, and (I) no event(s), fact(s), condition(s) or circumstance(s) has occurred which, individually or in the aggregate, make it improbable that the Company will be able to observe or perform in all material respects any of its obligations under the Transaction Agreements.

Capitalized terms used, but not defined herein, shall have the meanings given such terms in the Purchase Agreement.

IN WITNESS WHEREOF, the undersigned has caused this Officer's Certificate to be executed as of the date first written above.

XG SCIENCES, INC.
By:	/s/ Michael R. Knox
	Michael R. Knox, Chief Executive Officer

OFFICER’S CERTIFICATE

The undersigned, Michael R. Knox, certifies that he is the Chief Executive Officer of XG SCIENCES, INC., a Michigan Corporation (the “Company”), and makes this certificate in connection with and pursuant to Section 7.i. of that certain Purchase Agreement dated January 15, 2014 (the “Purchase Agreement”) by and between the Company and XGS II, LLC (“Buyer”), and certifies to Buyer as follows:

All conditions and provisions of Section 7 of the Purchase Agreement are fully satisfied, including receipt by Buyer of all required deliveries thereunder, and the Company has delivered to Buyer all securities owed and issuable to Buyer on or prior to the date hereof under the Transaction Agreements. In furtherance of and without limiting the foregoing, as of the date hereof, (A) the Transaction Agreements, other documents required pursuant thereto, and security interests and liens created thereby, are in full force and effect, (B) each representation and warranty of the Company in the Transaction Agreements is true and correct as if made on and as of the date hereof (except where such representation or warranty is otherwise expressly made as of and limited to a particular date, in which case it is, was or will be true and correct on and as of such other date), before and after giving effect to the consummation of the transactions to be consummated on the date hereof, and as of or since the Initial Closing Date, (C) the Company is in compliance with all, and not in violation, breach or default of any, covenants, agreements and/or other provisions of any of the Transaction Agreements, (D) no breach of, or default or event of default under any of the Transaction Agreements has occurred and is continuing or exists on the date hereof, or would exist after giving effect to the consummation of the transactions to be consummated on the date hereof, or has occurred as of or since the Initial Closing Date, (E) the Company is in compliance with the provisions and covenants of Section 4 of the Purchase Agreement, (F) no Material Adverse Effect has occurred and there are no liabilities or obligations with respect to the Company of any nature whatsoever (whether absolute, accrued, contingent or otherwise and whether or not due) which, individually or in the aggregate, could constitute a Material Adverse Effect, (G) the Company has delivered to Buyer unaudited monthly financial statements for all months ending at least sixty (60) days prior to the date hereof and any other more recent months which have been closed by the Company’s accounting staff, (H) the Company has discussed any material deviations from the last financial projections of the Company furnished to Buyer pursuant to the Purchase Agreement and has updated such financial projections as may be required and provided such revised projections to the Buyer, and (I) no event(s), fact(s), condition(s) or circumstance(s) has occurred which, individually or in the aggregate, make it improbable that the Company will be able to observe or perform in all material respects any of its obligations under the Transaction Agreements.

Capitalized terms used, but not defined herein, shall have the meanings given such terms in the Purchase Agreement.

IN WITNESS WHEREOF, the undersigned has caused this Officer's Certificate to be executed as of the date first written above.

XG SCIENCES, INC.
By:	/s/ Michael R. Knox
	Michael R. Knox, Chief Executive Officer

OFFICER’S CERTIFICATE

The undersigned, Michael R. Knox, certifies that he is the Chief Executive Officer of XG SCIENCES, INC., a Michigan Corporation (the “Company”), and makes this certificate in connection with and pursuant to Section 6.j. of that certain Purchase Agreement dated January 15, 2014 (the “Purchase Agreement”) by and between the Company and SVIC No. 15 New Technology Business Investment L.L.P. (“Buyer”), and certifies to Buyer as follows:

All conditions and provisions of Section 6 of the Purchase Agreement are fully satisfied, including receipt by Buyer of all required deliveries thereunder, and the Company has delivered to Buyer all securities owed and issuable to Buyer on or prior to the date hereof under the Transaction Agreements. In furtherance of and without limiting the foregoing, as of the date hereof, (A) the Transaction Agreements, other documents required pursuant thereto, and security interests and liens created thereby, are in full force and effect, (B) each representation and warranty of the Company in the Transaction Agreements is true and correct as if made on and as of the date hereof (except where such representation or warranty is otherwise expressly made as of and limited to a particular date, in which case it is, was or will be true and correct on and as of such other date), before and after giving effect to the consummation of the transactions to be consummated on the date hereof, and as of or since the Initial Closing Date, (C) the Company is in compliance with all, and not in violation, breach or default of any, covenants, agreements and/or other provisions of any of the Transaction Agreements, (D) no breach of, or default or event of default under any of the Transaction Agreements has occurred and is continuing or exists on the date hereof, or would exist after giving effect to the consummation of the transactions to be consummated on the date hereof, or has occurred as of or since the Initial Closing Date, (E) the Company is in compliance with the provisions and covenants of Section 4 of the Purchase Agreement, (F) no Material Adverse Effect has occurred and there are no liabilities or obligations with respect to the Company of any nature whatsoever (whether absolute, accrued, contingent or otherwise and whether or not due) which, individually or in the aggregate, could constitute a Material Adverse Effect, (G) the Company has delivered to Buyer unaudited monthly financial statements for all months ending at least sixty (60) days prior to the date hereof and any other more recent months which have been closed by the Company’s accounting staff, (H) the Company has discussed any material deviations from the last financial projections of the Company furnished to Buyer pursuant to the Purchase Agreement and has updated such financial projections as may be required and provided such revised projections to the Buyer, and (I) no event(s), fact(s), condition(s) or circumstance(s) has occurred which, individually or in the aggregate, make it improbable that the Company will be able to observe or perform in all material respects any of its obligations under the Transaction Agreements.

Capitalized terms used, but not defined herein, shall have the meanings given such terms in the Purchase Agreement.

IN WITNESS WHEREOF, the undersigned has caused this Officer's Certificate to be executed as of the date first written above.

XG SCIENCES, INC.
By:	/s/ Michael R. Knox
	Michael R. Knox, Chief Executive Officer

VOTING AGREEMENT

THIS VOTING AGREEMENT (“Agreement”) is made and entered into effective as of January 15, 2014 (the “Effective Date”), by and among XG Sciences, Inc., a Michigan corporation (the “Company”), certain holders of the Company’s outstanding stock (the “Shareholders”), and SVIC No. 15 New Technology Business Investment L.L.P. (“Samsung”). The Company, the Shareholders, and Samsung are individually referred to as a “Party,” and are collectively referred to as the “Parties.”

RECITALS

WHEREAS, The Company and the Shareholders entered into that certain Shareholder Agreement dated March 18, 2013 (the “Shareholder Agreement”), which among other things provides for the designation of certain directors to the board of directors of the Company (the “Board”);

WHEREAS, concurrently with the execution of this Agreement, the Company and Samsung are entering into a transaction whereby Samsung is purchasing a secured convertible promissory note from the Company.

WHEREAS, notwithstanding anything in the Shareholder Agreement, the purchase agreement that memorializes that transaction requires that the Company use its best efforts to cause Shareholders owning a majority of the Company’s voting securities to enter into this Agreement, pursuant to which Samsung is provided a right to designate a member of the Board.

AGREEMENT

NOW, THEREFORE, in consideration of the recitals and the mutual promises contained in this Agreement, the Parties agree as follows:

1.           Definitions. Capitalized terms that are used in this Agreement but that are not otherwise defined have the following meanings:

1.1           “Common Stock” means shares of the Company’s common stock and shares of common stock issued or issuable upon conversion of the Series A Stock, convertible debt of the Company, or convertible equity securities of the Company or the exercise of warrants, options, or other securities or rights of any kind convertible into or exchangeable for Common Stock issued by the Company.

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

1.3           “Series A Stock” means the Series A Convertible Preferred Stock issued by the Company.

2. Voting Agreement.

2.1           Samsung Director. For so long as Samsung owns 10% or more of the aggregate outstanding Common Stock (assuming Full Conversion, but excluding any shares of Common Stock issuable upon exercise of any warrants held by Samsung) (the “Minimum Ownership Requirement”), each Shareholder agrees to vote all of the Shareholder’s voting securities in the Company (including Common Stock and Series A Stock), whether now owned or hereafter acquired (together the “Shares”), from time to time in whatever manner is necessary to ensure that at each annual or special meeting of the shareholders of the Company at which an election of directors is held or pursuant to any written consent of the shareholders of the Company, one person nominated by Samsung is elected to the Company’s Board as a director (the “Samsung Director”). The Samsung Director shall be reasonably acceptable to the other directors of the Company. If Samsung nominates a person who is not reasonably acceptable to the other directors of the Company, then Samsung shall withdraw the nomination or appoint and consult with the other directors of the Company to select a new nominee or appointee who is reasonably acceptable to the remaining directors. As a condition to election to the Board, the Samsung Director shall sign a non-competition and non-disclosure agreement in such form as is reasonably acceptable to the Company. The Samsung Director shall be automatically recused from discussions by the Company’s Board that relate to customers or potential customers of the Company that are in competition with Samsung or any projects relating to such competitive customers.

2.2           Removal of Board Members; Vacancies. For so long as the Minimum Ownership Requirement is met, each Shareholder agrees to vote all of such Shareholder’s Shares from time to time and at all times in whatever manner as shall be necessary to ensure that: (i) the Samsung Director may not be removed from office without the consent of Samsung; and (ii) any vacancy created by the resignation, removal, or death of the Samsung Director is filled pursuant to the provisions of Section 2.1.

2.3           Written Consents. Each of the Shareholders agrees to execute and deliver any written consent that is required to effectuate its obligations under this Section 2.

3.           Term. The rights granted to Samsung under this Agreement are effective from the Effective Date until, and will terminate upon, the first to occur of: (i) the date on which the Minimum Ownership Requirement is no longer satisfied, (ii) the date on which the Shareholder Agreement is terminated for any reason, or (iii) the date that Samsung agrees in writing to terminate this Agreement.

4.           Specific Enforcement. Each Party acknowledges and agrees that it will be irreparably damaged if any of the provisions of this Agreement are not performed by the Parties in accordance with their specific terms. Accordingly, it is agreed that each of the Company, Samsung, and the Shareholders shall be entitled to specific enforcement of this Agreement in any action instituted in any court of the United States or any state having subject matter jurisdiction, in addition to any other remedy to which the Parties may be entitled at law or in equity.

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5.           Miscellaneous.

5.1 Transfers, Successors and Assigns.

(a)           Samsung and its assignees may not assign their benefits under this Agreement without the written consent of the Company; provided that Samsung may assign its benefits under this Agreement to an affiliate. The terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and permitted assigns of the Parties. Nothing in this Agreement, express or implied, is intended to confer upon any party other than the Parties or their respective successors and permitted assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement.

(b)           Each transferee or assignee of the Shares subject to this Agreement shall continue to be subject to the terms hereof, and, as a condition to the Company’s recognizing such transfer, each transferee or assignee shall agree in writing to be subject to each of the terms of this Agreement by executing and delivering an Adoption Agreement substantially in the form attached hereto as Appendix 1. Upon the execution and delivery of an Adoption Agreement by any transferee, the transferee shall be deemed to be a Party hereto as if the transferee’s signature appeared on the signature page of this Agreement. The Company shall not permit the transfer of the Shares subject to this Agreement on its books or issue a new certificate representing any such Shares unless and until the transferee has complied with the terms of this Section 5.1. Each certificate representing the Shares subject to this Agreement if issued on or after the date of this Agreement shall be endorsed by the Company with the legend set forth in Section 5.8.

5.2           Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the state of Michigan, without regard to its principles of conflicts of laws.

5.3           Counterparts, Signatures. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. A facsimile signature or signature by electronic transmission shall bind the signatory in the same way that an original signature would bind the signatory.

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

5.5           Notices. All notices and other communications given or made pursuant to this Agreement shall be in writing and shall be deemed effectively given: (a) upon personal delivery to the Party to be notified; (b) when sent by confirmed electronic mail or facsimile if sent during normal business hours of the recipient, and if not so confirmed, then on the next business day; (c) five business days after having been sent by registered or certified mail, return receipt requested, postage prepaid; or (d) one business day after deposit with a nationally recognized overnight courier, specifying next day delivery, with written verification of receipt. All communications shall be sent to the respective Parties at their address on file with the Company or to such email address, facsimile number or address as subsequently modified by written notice given in accordance with this Section 5.5.

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5.6           Amendment. This Agreement may be amended or modified only by a written instrument executed the Parties.

5.7           Severability. The invalidity or unenforceability of any provision hereof shall in no way affect the validity or enforceability of any other provision.

5.8           Legend on Share Certificates. Each certificate representing any Shares shall be endorsed by the Company with a legend reading substantially as follows:

THE SHARES EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO A VOTING AGREEMENT (A COPY OF WHICH MAY BE OBTAINED UPON WRITTEN REQUEST FROM THE COMPANY) AND BY ACCEPTING ANY INTEREST IN SUCH SHARES THE PERSON ACCEPTING SUCH INTEREST SHALL BE DEEMED TO AGREE TO AND SHALL BECOME BOUND BY ALL THE PROVISIONS OF THAT VOTING AGREEMENT.

5.9           Execution by the Company. The Company and the Shareholders agree that they will cause the certificates evidencing the Shares to bear the legend required by Section 5.8 of this Agreement, and it shall supply, free of charge, a copy of this Agreement to any holder of a certificate evidencing Shares. The Parties to this Agreement do hereby agree that the failure to cause the certificates evidencing the Shares to bear the legend required by Section 5.8 herein and the failure of the Company to supply, free of charge, a copy of this Agreement as provided under this Section 5.9 shall not affect the validity or enforcement of this Agreement.

5.10         Stock Splits, Stock Dividends, Etc. In the event of any issuance of Shares of the Company’s voting securities hereafter to any of the Shareholders (including, without limitation, in connection with any stock split, stock dividend, recapitalization, reorganization, or the like), such Shares shall become subject to this Agreement and shall be endorsed with the legend set forth in Section 5.8.

5.11         Manner of Voting; Grant of Proxy. The voting of Shares pursuant to this Agreement may be effected in person, by proxy, by written consent or in any other manner permitted by applicable law. Each Shareholder agrees to vote his Shares as may be necessary or appropriate to effectuate this Agreement and to the extent a Shareholder fails to vote his Shares as required by this Agreement he shall be deemed to have voted his Shares as so required.

5.12         Interpretation. When permitted by the context, each pronoun used in this Agreement shall include the same pronoun in other numbers or another gender, and each noun used in this Agreement includes the same noun in other numbers. As used in this Agreement, the words “include” and “including” and their variants shall not be deemed to be terms of limitation but shall instead be deemed to be followed by the words “without limitation.” Except as otherwise indicated in the context, all references in this Agreement to “Sections”, “Schedules” and “Exhibits” are intended to refer to Sections, Schedules and Exhibits of this Agreement.

[Remainder of this page intentionally left blank.]

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[Signature Page to Voting Agreement]

IN WITNESS WHEREOF, the Parties have executed this Voting Agreement effective as of the Effective Date.

COMPANY:
XG SCIENCES, INC.
By:
	Michael R. Knox, President
SAMSUNG:
SVIC NO. 15 NEW TECHNOLOGY BUSINESS
INVESTMENT L.L.P.
By:	Samsung Venture Investment Corporation, its Partner
By:
Name:
Title:
SHAREHOLDERS:
SEE ATTACHED SIGNATURE PAGES

[Shareholder Signature Page to Voting Agreement]

IN WITNESS WHEREOF, the Shareholder below has executed this Voting Agreement effective as of the Effective Date.

SHAREHOLDER:

Name of Shareholder:

Name and Title of Authorized Signatory:

Signature:

APPENDIX 1

ADOPTION AGREEMENT

This ADOPTION AGREEMENT (this “Adoption Agreement”) is entered into effective as of___________________________ among XG Sciences, Inc., a Michigan corporation (the “Company”); and ____________________ (the “Adopting Shareholder”) pursuant to the terms of the Voting Agreement dated as of January 15, 2014 among the Company, SVIC No. 15 New Technology Business Investment L.L.P. and certain Shareholders of the Company (the “Voting Agreement”). Capitalized terms used but not defined in this Adoption Agreement shall have the meanings given to them in the Voting Agreement.

1.          Acknowledgement. The Adopting Shareholder acknowledges that the Adopting Shareholder is acquiring the following equity securities of the Company (the “Shares”): _________________________________________________, which Shares are subject to the terms and conditions of the Voting Agreement.

2.          Agreement. The Adopting Shareholder (i) agrees that the Shares acquired by the Adopting Shareholder are bound by and subject to the terms of the Voting Agreement, (ii) that the Adopting Shareholder hereby agrees to become a party to the Voting Agreement as a Shareholder and as such shall be, and the Shares shall be, bound by and subject to the terms of the Voting Agreement, and (iii) hereby adopts the Voting Agreement with the same force and effect as if Adopting Shareholder were originally a Shareholder party thereto.

ADOPTING SHAREHOLDER:
COMPANY:
	XG Sciences, INC.
	By:
		_________________, Chief
		Executive Officer

Michigan Department of Licensing and Regulatory Affairs

Filing Endorsement

This is to Certify that the CERTIFICATE OF AMENDMENT - CORPORATION

for

XG SCIENCES, INC.

ID NUMBER: 23029E

received by facsimile transmission on July 9, 2013 is hereby endorsed

Filed on July 10, 2013 by the Administrator.

The document is effective on the date filed, unless a subsequent effective date within 90 days after received date is stated in the document.

	In testimony whereof, I have hereunto set my hand and affixed the Seal of the Department, in the City of Lansing, this 10TH day of July, 2013.
[Graphics]	/s/ Alan J. Schefke
	Director
Sent by Facsimile Transmission 13191	Bureau of Commercial Services

BCS/CD-515 (Rev. 11/11)

MICHIGAN DEPARTMENT OF LICENSING AND REGULATORY AFFAIRS BUREAU OF COMMERCIAL SERVICES
Date Received
		This document is effective on the date filed, unless a subsequent effective date within 90 days after received date is stated in the document.
Name
Matt G. Hrebec, Esq.; Foster, Swift, Collins & Smith, P.C.
Address
313 S. Washington Square
City		State	ZIP Code
Lansing		MI	48933		EFFECTIVE DATE:
[Graphics]	Document will be returned to the name and address you enter above. If left blank, document will be returned to the registered office.			[Graphics]

 CERTIFICATE OF AMENDMENT TO THE ARTICLES OF INCORPORATION

For use by Domestic Profit and Nonprofit Corporations

(Please read information and instructions on the last page)

Pursuant to the provisions of Act 284, Public Acts of 1972, (profit corporations), or Act 162, Public Acts of 1982 (nonprofit corporations), the undersigned corporation executes the following Certificate:

1.	The present name of the corporation is:
	XG Sciences, Inc.
2.	The identification number assigned by the Bureau is:	23029E

3.	Article IIIof the Articles of Incorporation is hereby amended to read as follows:
	ARTICLE III
	The total authorized shares:
	1.	Common shares: 25,000,000
		Preferred shares: 8,000,000
	2.	A statement of all or any of the relative rights, preferences and limitations of the shares of each class is as follows:
	A.    Provisions Applicable to Common Shares: None
	B.   Provisions Applicable to Preferred Shares: The authorized shares of Preferred Stock may be issued from time to time in one or more series, each of such series to have such designations, powers, preferences, and relative participating, optional, or other rights, and such qualifications, limitations, or restrictions, as may be stated in a resolution or resolutions providing for the Issue of such series adopted by the Board of Directors.

COMPLETE ONLY ONE OF THE FOLLOWING:

4.	Profit or Nonprofit Corporations: For amendments adopted by unanimous consent of incorporators before the first meeting of the board of directors or trustees.
	The foregoing amendment to the Articles of Incorporation was duly adopted on the ________ day of __________________, _________, in accordance with the provisions of the Act by the unanimous consent of the incorporator(s) before the first meeting of the Board of Directors or Trustees.
	Signed this ________ day of ____________________________ , ___________
	(Signature)	(Signature)
	(Type or Print Name)	(Type or Print Name)
	(Signature)	(Signature)
	(Type or Print Name)	(Type or Print Name)

5.	Profit Corporation Only: Shareholder or Board Approval
	The foregoing amendment to the Articles of incorporation proposed by the board was duly adopted on the 26th day of June, 2013, by the: (check one of the following)
	þ	shareholders at a meeting in accordance with Section 611(3) of the Act.
	¨	written consent of the shareholders having not less than the minimum number of votes required by statute in accordance with Section 407(1) of the Act. Written notice to shareholders who have not consented in writing has been given. (Note: Written consent by less than all of the shareholders is permitted only if such provision appears in the Articles of Incorporation.)
	¨	written consent of all the shareholders entitled to vote in accordance with Section 407(2) of the Act.
	¨	board of a profit corporation pursuant to section 611(2) of the Act.
			Profit Corporations and Professional Service Corporations
			Signed this 8 day of July, 2013
			By	/s/ Michael R. Knox
				(Signature of an authorized officer or agent)
			Michael R. Knox, CEO
			(Type or Print Name)

XG SCIENCES, INC.

MICHIGAN CID 23029E

AMENDED AND RESTATED CERTIFICATE OF DESIGNATIONS

OF

SERIES A CONVERTIBLE PREFERRED STOCK

(Pursuant to Section 450.1302 of the

Michigan Business Corporation Act)

The undersigned, a duly authorized officer of XG Sciences, Inc., a Michigan corporation (the “Corporation”),DOES HEREBY CERTIFY that the following resolution was duly adopted bythe Board of Directors of the Corporation (the “Board of Directors”)pursuant to Section 450.1302 of the Michigan Business Corporation Act on June 26, 2013:

RESOLVED, that the Board of Directors of the Corporation pursuant to authority vested in it by the provisions of the Articles of Incorporation of the Corporation, hereby amends and restates its previous authorization of the issuance of a series of preferred stock designated as the Series A Convertible Preferred Stock of the Corporation and hereby fixes the designation, number of shares, powers, preferences, rights, qualifications, limitations and restrictions thereof (in addition to any provisions set forth in the Articles of Incorporation of the Corporation which are applicable to the Corporation’s preferred stock of all classes and series) as follows:

SERIES A CONVERTIBLE PREFERRED STOCK

1.Designation and Amount. There is hereby designated a series of the Corporation’s Preferred Stock (as defined below) as Series A Convertible Preferred Stock (the “Series A Preferred Stock”),and the number of shares so designated shall be three million (3,000,000).

2.           Definitions. In addition to the terms defined elsewhere in this Certificate of Designations the following terms have the meanings indicated:

(a)          “Common Stock”shall mean the Corporation’s common stock.

(b)          “Conversion Price”shall mean twelve dollars ($12.00) for the Series A Preferred Stock (subject to adjustment from time to time for Recapitalizations and as otherwise set forth elsewhere herein).

(c)          “Conversion Rate”shall have the meaning set forth in Section 5(a).

(d)          “Convertible Securities”shall mean any evidences of indebtedness, shares orother securities convertible into or exchangeable for Common Stock or Preferred Stock.

(e)          “Corporation”shall mean XG Sciences, Inc., a Michigan corporation.

(f)          “Junior Securities”shall mean the Common Stock and all other equity or equity equivalent securities of the Corporation other than those securities which are explicitly senior or pari passu in rights and liquidation preference to the Series A Preferred Stock.

(g)          “Liquidation Preference”shall mean twelve dollars ($12.00) per share for the Series A Preferred Stock (subject to adjustment from time to time for Recapitalizations as set forth elsewhere herein).

(h)          “Options”shall mean rights, options or warrants to subscribe for, purchase or otherwise acquire Common Stock or Convertible Securities.

(i)          “Original Issue Date”shall mean the date on which the first share of Series A Preferred Stock was issued.

(j)          “Preferred Stock”means the Corporation’s preferred stock.

(k)          “Qualified National Exchange”means a securities exchange registered with the U.S. Securities and Exchange Commission under Section 6(a) of the Securities Exchange Act of 1934, as amended, as well as the over the counter markets administered by the OTCQX® and the OTCQB®, and their successor-entities. The OTC Pink®, OTCBB and their successor-equivalent entities shall not be deemed a “Qualified National Exchange.”

(l)          “Recapitalization”shall mean any stock dividend, stock split, combination of shares, reorganization, recapitalization, reclassification or other similar event.

(m)          “Senior Securities”shall mean the Series A Preferred Stock and all other series of Preferred Stock of the Corporation that are explicitly senior or pari passu in rights and liquidation preference to the Series A Preferred Stock.

(n)          “Series A Original Issue Price”shall mean twelve dollars ($12.00) per share (subject to adjustment from time to time for Recapitalizations and as set forth in Section 5 herein).

3. Liquidation Rights.

(a)          Liquidation Preference.In the event of any liquidation, dissolution or winding up of the Corporation, either voluntary or involuntary, the holders of the Series A Preferred Stock shall be entitled to receive, prior and in preference to any distribution of any of the assets of the Corporation to the holders of the Common Stock by reason of their ownership of such stock, an amount per share for each share of Series A Preferred Stock held by them equal to (i) the Liquidation Preference specified for such share of Series A Preferred Stock less (ii) all dividends (if any) paid on such share of Series A Preferred Stock. If upon the liquidation, dissolution or winding up of the Corporation, the assets of the Corporation legally available for distribution to the holders of the Series A Preferred Stock are insufficient to permit the payment to such holders of the full amounts specified in this Section 4(a), then the entire assets of the Corporation legally available for distribution shall be distributed with equal priority and pro-rata among the holders of the Series A Preferred Stock in proportion to the full amounts they would otherwise be entitled to receive pursuant to this Section 3(a).

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(b)          Remaining Assets.After the payment to the holders of the Series A Preferred Stock of the full preferential amounts specified above, the entire remaining assets of the Corporation legally available for distribution by the Corporation shall be distributed with equal priority and pro-rata among the holders of the Series A Preferred Stock and Common Stock in proportion to the number of shares of Common Stock held by them, with the shares of Series A Preferred Stock being treated for this purpose as if they had been converted to shares of Common Stock at the then applicable Conversion Rate (as defined below).

(c)          Shares not Treated as Both Series A Preferred Stock and Common Stock in any Distribution.Shares of Series A Preferred Stock shall not be entitled to be converted into shares of Common Stock in order to participate in any distribution, or series of distributions, as shares of Common Stock, without first foregoing participation in the distribution, or series of distributions, as shares of Series A Preferred Stock.

(d)          Reorganization. For purposes of this Section 3, a liquidation, dissolution or winding up of the Corporation shall be deemed to be occasioned by, or to include: (a) the acquisition of the Corporation by another entity by means of any transaction or series of related transactions to which the Corporation is party (including, without limitation, any stock acquisition, reorganization, merger or consolidation but excluding any sale of stock for capital raising purposes) other than a transaction or series of transactions in which the holders of the voting securities of the Corporation outstanding immediately prior to such transaction continue to retain (either by such voting securities remaining outstanding or by such voting securities being converted into voting securities of the surviving entity), at least fifty percent (50%) of the total voting power represented by the voting securities of the Corporation or such surviving entity outstanding immediately after such transaction or series of transactions; (b) a sale, lease, transfer, exclusive license or other disposition, in a single transaction or series of related transactions, by the Corporation of all or substantially all the assets of the Corporation and its subsidiaries taken as a whole, except where such sale, lease, transfer, exclusive license or other disposition is to a wholly owned subsidiary of the Corporation; or (c) any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary.

(e)          Valuation of Non-Cash Consideration. If any assets of the Corporation distributed to stockholders in connection with any liquidation, dissolution, or winding up of the Corporation are other than cash, then the value of such assets shall be their fair market value as determined in good faith by the Board of Directors, except that any securities to be distributed to stockholders in a liquidation, dissolution, or winding up of the Corporation shall be valued as follows:

(i)          If the securities are then traded on a Qualified National Exchange, then the value of the securities shall be deemed to be the average of the closing prices of the securities on such exchange over the ten (10) trading day period ending five (5) trading days prior to the distribution;

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(ii)         if the securities are actively quoted on the OTC Pink®, then the value of the securities shall be deemed to be the average of the closing bid prices of the securities over the ten (10) trading day period ending five (5) trading days prior to the distribution; and

(iii)        if the securities are not traded on a Qualified National Exchange or actively quoted on the OTC Pink®, the value shall be the fair market value thereof, as determined in good faith by the Board of Directors of the Corporation.

In the event of a merger or other acquisition of the Corporation by another entity, the distribution date shall be deemed to be the date such transaction closes.

4.           Conversion Rights.The holders of the Series A Preferred Stock shall have conversion rights as follows (the “Conversion Rights”):

(a)          Right to Convert.Each share of Series A Preferred Stock shall be convertible, at the option of the holder thereof, at any time after the date of issuance of such share at the office of the Corporation or any transfer agent for the Series A Preferred Stock, into that number of fully-paid, nonassessable shares of Common Stock determined by dividing the Series A Original Issue Price by the Conversion Price. The number of shares of Common Stock into which each share of Series A Preferred Stock may be converted is hereinafter referred to as the “Conversion Rate”.Upon any decrease or increase in the Conversion Price, as described in this Section 4,the Conversion Rate shall be appropriately increased or decreased.

(b)          Mandatory Conversion.The Corporation shall have the right to effect the conversion of each share of Series A Preferred Stock then currently outstanding into fully-paid, non-assessable shares of Common Stock at the then effective Conversion Rate for such share upon the listing by the Corporation of the class of Common Stock on a Qualified National Exchange (such an event, a “Mandatory Conversion Event”).So long as the Common Stock remains listed on a Qualified National Exchange, any shares of Series A Preferred Stock issued following a Mandatory Conversion Event will be automatically converted into Common Stock pursuant to this Section 4(b) at the then effective Conversion Rate on such date of issuance of the Series A Preferred Stock.

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(c)          Mechanics of Conversion.No fractional shares of Common Stock shall be issued upon conversion of Series A Preferred Stock. In lieu of any fractional shares to which the holder would otherwise be entitled, the Corporation shall pay cash equal to such fraction multiplied by the then fair market value of a share of Common Stock as determined by the Board of Directors. For such purpose, all shares of Series A Preferred Stock held by each holder of Series A Preferred Stock shall be aggregated, and any resulting fractional share of Common Stock shall be paid in cash. Before any holder of Series A Preferred Stock shall be entitled to convert the same into full shares of Common Stock, and to receive certificates therefor, such holder shall either (A) surrender the certificate or certificates therefor, duly endorsed, at the office of the Corporation or of any transfer agent for the Series A Preferred Stock or (B)notify the Corporation or its transfer agent that such certificates have been lost, stolen or destroyed and execute an agreement satisfactory to the Corporation to indemnify the Corporation from any loss incurred by it in connection with such certificates, and shall give written notice to the Corporation at such office that he elects to convert the same; provided, however,that on the date of a Mandatory Conversion Event, the outstanding shares of Series A Preferred Stock shall be converted without any further action by the holders of such shares and whether or not the certificates representing such shares are surrendered to the Corporation or its transfer agent; provided further,however, that the Corporation shall not be obligated to issue certificates evidencing the shares of Common Stock issuable upon such Mandatory Conversion Event unless either the certificates evidencing such shares of Series A Preferred Stock are delivered to the Corporation or its transfer agent as provided above, or the holder notifies the Corporation or its transfer agent that such certificates have been lost, stolen or destroyed and executes an agreement satisfactory to the Corporation to indemnify the Corporation from any loss incurred by it in connection with such certificates. On the date of the occurrence of a Mandatory Conversion Event, each holder of record of shares of Series A Preferred Stock shall be deemed to be the holder of record of the Common Stock issuable upon such conversion, notwithstanding that the certificates representing such shares of Series A Preferred Stock shall not have been surrendered at the office of the Corporation, that notice from the Corporation shall not have been received by any holder of record of shares of Series A Preferred Stock, or that the certificates evidencing such shares of Common Stock shall not then be actually delivered to such holder.

(d)          Adjustments for Subdivisions or Combinations of Common Stock.In the event the outstanding shares of Common Stock shall be subdivided (by stock split, by payment of a stock dividend or otherwise), into a greater number of shares of Common Stock, the Conversion Price in effect immediately prior to such subdivision shall, concurrently with the effectiveness of such subdivision, be proportionately decreased. In the event the outstanding shares of Common Stock shall be combined (by reclassification or otherwise) into a lesser number of shares of Common Stock, the Conversion Price in effect immediately prior to such combination shall, concurrently with the effectiveness of such combination, be proportionately increased.

(e)          Adjustments for Subdivisions or Combinations of Series A Preferred Stock. In the event the outstanding shares of Series A Preferred Stock shall be subdivided (by stock split, by payment of a stock dividend or otherwise), into a greater number of shares of Series A Preferred Stock, the Series A Original Issue Price and Liquidation Preference of the Series A Preferred Stock in effect immediately prior to such subdivision shall, concurrently with the effectiveness of such subdivision, be proportionately decreased. In the event the outstanding shares of Series A Preferred Stock shall be combined (by reclassification or otherwise) into a lesser number of shares of Series A Preferred Stock, the Series A Original Issue Price and Liquidation Preference of the Series A Preferred Stock in effect immediately prior to such combination shall, concurrently with the effectiveness of such combination, be proportionately increased.

(f)          Adjustments for Reclassification, Exchange and Substitution.Subject to Section 4 above, if the Common Stock issuable upon conversion of the Series A Preferred Stock shall be changed into the same or a different number of shares of any other class or classes of stock, whether by capital reorganization, reclassification or otherwise (other than a subdivision or combination of shares provided for above), then, in any such event, in lieu of the number of shares of Common Stock which the holders would otherwise have been entitled to receive each holder of such Series A Preferred Stock shall have the right thereafter to convert such shares of Series A Preferred Stock into a number of shares of such other class or classes of stock which a holder of the number of shares of Common Stock deliverable upon conversion of such Series A Preferred Stock immediately before that change would have been entitled to receive in such reorganization or reclassification, all subject to further adjustment as provided herein with respect to such other shares.

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(g)          Adjustment of Series A Preferred Stock Conversion Price upon Issuance of Certain Securities. If and whenever on or after the Original Issue Date, the Corporation issues or sells, or is deemed to have issued or sold, any shares of Common Stock or securities convertible or exchangeable into Common Stock other than Excluded Securities (as defined below) for a consideration per share or an implied consideration per share of Common Stock less than a price (the “Applicable Price”)equal to the Conversion Price in effect immediately prior to such issuance or sale (such issuance a “Triggering New Issue”),then immediately after such issue or sale, the Conversion Price then in effect shall be deemed to be automatically reduced to an amount equal to eighty percent (80%) of the Applicable Price for such Triggering New Issue. After such adjustment of the Conversion Price hereunder, all subsequent conversions of the Series A Preferred Stock into Common Stock shall be effected using the new Conversion Price in the Conversion Rate. For the purposes of this Agreement, “Excluded Securities” are (i) those options and warrants of the Corporation issued prior to, and outstanding on, the Original Issue Date, (ii) the shares of Common Stock issuable on exercise of such options and warrants in subparagraph (i), provided such options and warrants are not amended after the Original Issue Date, and (iii) any options or warrants, or the shares of Common Stock into which such options and warrants are exercisable, which are issued to any employee, officer or director of the Corporation for services provided to the Corporation which have been approved by the compensation committee or the majority of the independent members of the Board of Directors.

(h)          Effect on Conversion Price of Certain Events. For purposes of determining the adjusted Conversion Price under Section 4(g) above, the following shall be applicable:

(i)          Issuance of Options or Warrants.If, after the Original Issue Date, the Corporation in any manner grants any options or warrants other than Excluded Securities and the lowest price per share for which a share of Common Stock is issuable upon the exercise of any such option or warrant is less than the Conversion Price in effect immediately prior to such grant, then such grant of options or warrants shall be deemed to have been a Triggering New Issue and the Conversion Price shall be deemed to be automatically reset pursuant to Section 4(g) above. No further adjustment of the Conversion Price shall be made upon the actual issuance of any shares of Common Stock upon the exercise of any such options or warrants.

(ii)         Issuance of Convertible Securities.If, after the Original Issue Date, the Corporation in any manner issues or sells any Convertible Securities and the lowest price per share of Common Stock at which such Convertible Security is convertible or exchangeable into Common Stock is less than the Conversion Price in effect immediately prior to such issuance or sale, then such issuance or sale shall be deemed to have been a Triggering New Issue and the Conversion Price shall be deemed to be automatically reset pursuant to Section 4(g) above. No further adjustment of the Conversion Price shall be made upon the actual issuance of any shares of Common Stock upon the conversion or exchange of such Convertible Security into shares of Common Stock.

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(iii)        Change in Option or Warrant Price or Rate of Conversion.If, after the Original Issue Date, the exercise, conversion, exchange, or other price payable provided for in any option, warrant or Convertible Security other than Excluded Securities, upon the exercise, conversion or exchange of any such securities is amended or altered at any time for any reason (any of the foregoing hereinafter referred to as an “Exercise/Conversion Change”),and any such Exercise/Conversion Change results in any of the foregoing securities being exercisable, convertible, or exchangeable at a price per share of Common Stock lower than the Conversion Price in effect immediately prior to such Exercise/Conversion Change, then such Exercise/Conversion Change shall be deemed to have been a Triggering New Issue and the Conversion Price shall be deemed to be automatically reset pursuant to Section 4(g) above.

(iv)        No adjustment pursuant to this Section 4(h) shall be made if such adjustment would result in an increase of the Conversion Price above the level that it was immediately prior to the occurrence of any of the foregoing events described in 4(h)(i)-(iii) that would give rise to an adjustment in the Conversion Price.

(i)          Waiver of Adjustment of Conversion Price.Notwithstanding anything herein to the contrary, any downward adjustment of the Conversion Price may be waived, either prospectively or retroactively and either generally or in a particular instance, by the consent or vote of the holders of the majority of the outstanding shares of Series A Preferred Stock. Any such waiver shall bind all future holders of shares of Series A Preferred Stock.

5.           Voting.On any matter presented to the stockholders of the Corporation for their action or consideration at any meeting of stockholders of the Corporation (or by written consent of stockholders in lieu of meeting), each holder of outstanding shares of Series A Preferred Stock shall be entitled to cast the number of votes equal to the number of whole shares of Common Stock into which the shares of Series A Preferred Stock held by such holder are convertible as of the record date for determining stockholders entitled to vote on such matter. Except as provided by law or by the other provisions of the Certificate of Incorporation, holders of Series A Preferred Stock shall vote together with the holders of Common Stock as a single class.

6.           Miscellaneous.

(a)          The headings herein are for convenience only, do not constitute a part of this Certificate of Designations and shall not be deemed to limit or affect any of the provisions hereof.

(b)          Any notice required or permitted by the provisions of this Certificate of Designations to be given to a holder of shares of Series A Preferred Stock shall be mailed, postage prepaid, to the post office address last shown on the records of the Corporation, or given by electronic communication in compliance with the provisions of the Michigan Business Corporation Act, and shall be deemed sent upon such mailing or electronic transmission.

(c)          No provision of this Certificate of Designations may be amended, except in a written instrument signed by the Corporation and holders of at least a majority of the shares of Series A Preferred Stock then outstanding. Any of the rights of the holders of the Series A Preferred Stock set forth herein may be waived by the affirmative vote of holders of at least a majority of the shares of Series A Preferred Stock then outstanding, except that each holder may waive its own rights as provided in this Certificate of Designations.

** Signature page follows **

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IN WITNESS WHEREOF, the undersigned has caused this Amended and Restated Certificate of Designation to be duly executed as of the 8 day of July, 2013.

XG SCIENCES, INC.
BY:	/s/ Michael R. Knox
	MICHAEL R. KNOX, CEO

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

WARRANT TO PURCHASE SHARES OF SERIES A CONVERTIBLE PREFERRED STOCK

of

XG SCIENCES, INC.

Dated as of                 

Void after the date specified in Section 9

Warrant to Purchase

                Shares of

Series A Convertible Preferred Stock

(subject to adjustment)

THIS CERTIFIES THAT, for value received,                   , a                    (“       ”), or its registered assigns (          or its assigns generally referred to herein as the “Holder”), is entitled, subject to the provisions and upon the terms and conditions set forth herein, to purchase from XG Sciences, Inc., a Michigan corporation (the “Company”), shares of the Company’s Series A Convertible Preferred Stock (the “Preferred Stock”) (the “Shares”) in the amounts, at such times and at the price per share set forth in Section 1. The term “Warrant” as used herein shall include this Warrant and any warrants delivered in substitution or exchange therefor as provided herein.

The following is a statement of the rights of the Holder and the conditions to which this Warrant is subject, and to which the Holder, by acceptance of this Warrant, agrees:

1. Number and Price of Shares; Exercise Period.

(a)          Number of Shares. Subject to any previous exercise of this Warrant, the Holder shall have the right to purchase up to              Shares, as may be adjusted pursuant hereto, prior to (or in connection with) the expiration of this Warrant as provided in Section 9.

(b)          Exercise Price. The exercise price per Share shall initially be equal to $ 12.00, subject to adjustment as provided in Section 7 (the “Exercise Price”).

(c)          Exercise Period. This Warrant shall be exercisable on or after the date of grant and prior to (or in connection with) the expiration of this Warrant as set forth in Section 9.

2.          Exercise of the Warrant.

(a)          Exercise. The purchase rights represented by this Warrant may be exercised at the election of the Holder, in whole or in part, but not for less than one hundred (100) Shares at a time (or such lesser number of shares which may then constitute the maximum number purchasable pursuant to Section 1) (such number being subject to adjustment as provided in Section 7, in accordance with Section 1) by:

(i)          the tender to the Company at its principal office (or such other office or agency as the Company may designate) of a notice of exercise in the form of Exhibit A (the “Notice of Exercise”), duly completed and executed by or on behalf of the Holder, together with the surrender of this Warrant; and

(ii)         the payment to the Company of an amount equal to (x) the Exercise Price multiplied by (y) the number of Shares being purchased, by wire transfer or certified, cashier’s or other check acceptable to the Company and payable to the order of the Company; and

(iii)        with respect to the first exercise by the Holder of this Warrant, in whole or in part, delivery of counterpart signature pages to that certain Shareholder Agreement, dated March 18, 2013, by and among the parties thereto and attached as Exhibit B hereto (the “Shareholder Agreement”), and any subsequent amendments thereto, such that as a condition to the first exercise by the Holder of this Warrant, in whole or in part, the Holder shall become a party to, and bound by, the Shareholder Agreement as a “Stockholder” thereunder; provided, however, that Holder will not be required to be bound to any provision of any such amendment to the Shareholder Agreement that creates a material financial obligation for the Holder; it being understood that the Shareholder Agreement as currently in effect does not create any such financial obligations.

(b)          Net Issue Exercise. In lieu of exercising this Warrant pursuant to Section 2(a)(ii), if the fair market value of one Share is greater than the Exercise Price (at the date of calculation as set forth below), the Holder may elect to receive a number of Shares equal to the value of this Warrant (or of any portion of this Warrant being canceled) by surrender of this Warrant at the principal office of the Company (or such other office or agency as the Company may designate) together with a properly completed and executed Notice of Exercise reflecting such election, in which event the Company shall issue to the Holder that number of Shares computed using the following formula:

IMAGE OMITTED [tan-14_pg2.jpg]

Where:

X	=	The number of Shares to be issued to the Holder
Y	=	The number of Shares purchasable under this Warrant or, if only a portion of the Warrant is being exercised, the portion of the Warrant being exercised (at the date of such calculation)
A	=	The fair market value of one Share (at the date of such calculation)
B	=	The Exercise Price (as adjusted to the date of such calculation)

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For purposes of the calculation above, the fair market value of one Share shall be determined by the Board of Directors of the Company, acting in good faith; provided, however, that;

(i)          where a public market exists for the Common Stock at the time of such exercise, the fair market value per Share shall be based on the average of the closing ask prices of the Common Stock underlying such Shares or the closing price quoted on the national securities exchange on which the Common Stock is listed as published in the Wall Street Journal, as applicable, for the ten (10) trading day period ending five (5) trading days prior to the date of determination of fair market value; and

(ii)         if the Warrant is exercised in connection with the Company’s initial public offering of the Common Stock, the fair market value per Share shall be based on the offering price per share of Common Stock to the public of the Company’s initial public offering.

(c)          Automatic Exercise. If any portion of this Warrant remains unexercised as of the Expiration Date of this Warrant as set forth in Section 9 and the fair market value per share of the Shares as of the Expiration Date is greater than the applicable Exercise Price as of the Expiration Date, then, without further action by the Holder, this Warrant shall be deemed to have been exercised automatically on the date (the “Automatic Exercise Date”) which is the day immediately prior to the close of business on the Expiration Date (or, in the event that the Expiration Date is not a Business Day, the immediately preceding Business Day) as if the Holder had duly given a Notice of Exercise for a Net Issue Exercise as contemplated by Section 2(b) hereof, and the Holder (or such other person or persons as directed by the Holder) shall be treated for all purposes as the holder of record of such Shares as of the close of business on such Automatic Exercise Date. This Warrant shall be deemed to be surrendered to the Company on the Automatic Exercise Date by virtue of this Section 2(c) without any action by the Holder

(d)          Stock Certificates. The rights under this Warrant shall be deemed to have been exercised and the Shares issuable upon such exercise shall be deemed to have been issued immediately prior to the close of business on the date this Warrant is exercised in accordance with its terms, and the person entitled to receive the Shares issuable upon such exercise shall be treated for all purposes as the holder of record of such Shares as of the close of business on such date. As promptly as reasonably practicable on or after such date, and in any event within thirty (30) days thereafter, the Company shall issue and deliver to the person or persons entitled to receive the same a certificate or certificates for that number of shares issuable upon such exercise. In the event that the rights under this Warrant are exercised in part and have not expired, the Company shall execute and deliver a new Warrant reflecting the number of Shares that remain subject to this Warrant.

(e)          No Fractional Shares or Scrip. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of the rights under this Warrant, In lieu of such fractional share to which the Holder would otherwise be entitled, the Company shall make a cash payment equal to the Exercise Price multiplied by such fraction.

(f)          Reservation of Stock. The Company agrees during the term the rights under this Warrant are exercisable to take all reasonable action to reserve and keep available from its authorized and unissued shares of Preferred Stock, and the Common Stock into which such shares of Preferred Stock are convertible, for the purpose of effecting the exercise of this Warrant such number of shares as shall from time to time be sufficient to effect the exercise of the rights under this Warrant; and if at any time the number of authorized but unissued shares of Preferred Stock, and the Common Stock into which such shares of Preferred Stock are convertible, shall not be sufficient for purposes of the exercise of this Warrant in accordance with its terms, without limitation of such other remedies as may be available to the Holder, the Company will use all reasonable efforts to take such corporate action as may, in the opinion of counsel, be necessary to increase its authorized and unissued shares of its Preferred Stock, and the Common Stock into which shares of Preferred Stock are convertible, to a number of shares as shall be sufficient for such purposes. The Company represents and warrants that all shares that may be issued upon the exercise of this Warrant will, when issued in accordance with the terms hereof, be validly issued, fully paid and nonassessable.

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3.          Replacement of the Warrant. Subject to the receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of loss, theft or destruction, on delivery of an indemnity agreement reasonably satisfactory in form and substance to the Company or, in the case of mutilation, on surrender and cancellation of this Warrant, the Company at the expense of the Holder shall execute and deliver, in lieu of this Warrant, a new warrant of like tenor and amount.

4.          Vesting of the Warrant. The Shares subject to this Warrant shall vest immediately.

5.          Transfer of the Warrant.

(a)          Warrant Register. The Company shall maintain a register (the “Warrant Register”) containing the name and address of the Holder or Holders. Until this Warrant is transferred on the Warrant Register in accordance herewith, the Company may treat the Holder as shown on the Warrant Register as the absolute owner of this Warrant for all purposes, notwithstanding any notice to the contrary. Any Holder of this Warrant (or of any portion of this Warrant) may change its address as shown on the Warrant Register by written notice to the Company requesting a change.

(b)           Warrant Agent. The Company may appoint an agent for the purpose of maintaining the Warrant Register referred to in Section 5(a), issuing the Shares or other securities then issuable upon the exercise of the rights under this Warrant, exchanging this Warrant, replacing this Warrant or conducting related activities.

(c)          Transferability of the Warrant. Subject to the provisions of this Warrant with respect to compliance with the Securities Act of 1933, as amended (the “Securities Act”) and limitations on assignments and transfers, including without limitation compliance with the restrictions on transfer set forth in Section 6, title to this Warrant may be transferred by endorsement (by the transferor and the transferee executing the assignment form attached as Exhibit C (the “Assignment Form”) and delivery in the same manner as a negotiable instrument transferable by endorsement and delivery.

(d)          Exchange of the Warrant upon a Transfer. On surrender of this Warrant (and a properly endorsed Assignment Form) for exchange, subject to the provisions of this Warrant with respect to compliance with the Securities Act and limitations on assignments and transfers, the Company shall issue to or on the order of the Holder a new warrant or warrants of like tenor, in the name of the Holder or as the Holder (on payment by the Holder of any applicable transfer taxes) may direct, for the number of shares issuable upon exercise hereof, and the Company shall register any such transfer upon the Warrant Register. This Warrant (and the securities issuable upon exercise of the rights under this Warrant) must be surrendered to the Company or its warrant or transfer agent, as applicable, as a condition precedent to the sale, pledge, hypothecation or other transfer of any interest in any of the securities represented hereby.

(e)          Minimum Transfer. This Warrant may not be transferred in part unless such transfer is to a transferee who, pursuant to such transfer, receives the right to purchase at least one hundred (100) Shares hereunder (as adjusted from time to time in accordance with Section 7).

(f)          Taxes. In no event shall the Company be required to pay any tax which may be payable in respect of any transfer involved in the issue and delivery of any certificate in a name other than that of the Holder, and the Company shall not be required to issue or deliver any such certificate unless and until the person or persons requesting the issue thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid or is not payable.

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6.         Restrictions on Transfer of the Warrant and Shares; Compliance with Securities Laws. By acceptance of this Warrant, the Holder agrees to comply with the following:

(a)          Restrictions on Transfers. Any transfer of the Shares or the Common Stock issuable upon conversion of the Shares (collectively the “Securities”) must be in compliance with all applicable federal and state securities laws. The Holder agrees not to make any sale, assignment, transfer, pledge or other disposition of all or any portion of the Securities, or any beneficial interest therein, unless and until the transferee thereof has agreed in writing for the benefit of the Company to take and hold such Securities subject to, and to be bound by, the terms and conditions set forth in this Warrant to the same extent as if the transferee were the original Holder hereunder, and

(i)          there is then in effect a registration statement under the Securities Act covering such proposed disposition and such disposition is made in accordance with such registration statement, or

(ii)        (A) such Holder shall have given prior written notice to the Company of such Holder’s intention to make such disposition and shall have furnished the Company with a detailed description of the manner and circumstances of the proposed disposition, (B) the transferee shall have confirmed to the satisfaction of the Company in writing, substantially in the form of Exhibit A-1. that the Securities are being acquired (i) solely for the transferee’s own account and not as a nominee for any other party, (ii) for investment and (iii) not with a view toward distribution or resale, and shall have confirmed such other matters related thereto as may be reasonably requested by the Company, and (C) such Holder shall have furnished the Company, at the Holder’s expense, with (i) an opinion of counsel, reasonably satisfactory to the Company, to the effect that such disposition will not require registration of such Securities under the Securities Act or (ii) a “no action” letter from the Securities and Exchange Commission to the effect that the transfer of such Securities without registration will not result in a recommendation by the staff of the Securities and Exchange Commission that action be taken with respect thereto, whereupon such Holder shall be entitled to transfer such Securities in accordance with the terms of the notice delivered by the Holder to the Company; provided, that the requirements of Section 6(a)(ii)(C) hall not apply in the case of permitted transfers under Section 6(b).

(b)          Permitted Transfers. Permitted transfers include (i) a transfer not involving a change in beneficial ownership, or (ii) transactions involving the distribution without consideration of Securities by any Holder to a parent or majority owned subsidiary of the Holder that is a corporation; provided, in each case, that the Holder shall give written notice to the Company of the Holder’s intention to effect such disposition and shall have furnished the Company with a detailed description of the manner and circumstances of the proposed disposition.

(c)          Securities Law Legend. The Securities shall (unless otherwise permitted by the provisions of this Warrant) be stamped or imprinted with a legend substantially similar to the following (in addition to any legend required by state securities laws):

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

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(d)          Shareholder Agreement Legend. The Shares issued upon exercise hereof shall also be stamped or imprinted with any and all legends described in the Company’s Shareholder Agreement.

(e)          Instructions Regarding Transfer Restrictions. The Holder consents to the Company making a notation on its records and giving instructions to any transfer agent in order to implement the restrictions on transfer established in Sections 5 and 6. The Company will not be required to (i) transfer on its books or in its Warrant Register any Securities that have been transferred in violation of any provisions of this Warrant or (ii) to treat as owner of such Securities, or accord the right to vote or pay dividends to any purchaser, donee or other transferee to whom such Securities may have been so transferred.

(f)          Removal of Legend. The legend referring to federal and state securities laws identified in Section 6(d) stamped on a certificate evidencing the Shares and the stock transfer instructions and record notations with respect to such securities shall be removed and the Company shall issue a certificate without such legend to the holder of such securities if (i) such securities are registered under the Securities Act, or (ii) such holder provides the Company with an opinion of counsel reasonably acceptable to the Company to the effect that a sale or transfer of such securities may be made without registration or qualification.

7.         Adjustments. Subject to the expiration of this Warrant pursuant to Section 9, the number and kind of shares purchasable hereunder and the Exercise Price therefor are subject to adjustment from time to time after the date first stated herein, as follows;

(a)          Merger or Reorganization. If at any time there shall be any reorganization, recapitalization, merger or consolidation (a “Reorganization”) involving the Company (other than as otherwise provided for herein or as would cause the expiration of this Warrant under Section 9) in which the Preferred Stock are converted into or exchanged for securities, cash or other property, then, as a part of such Reorganization, lawful provision shall be made so that the Holder shall thereafter be entitled to receive upon exercise of this Warrant, the kind and amount of securities, cash or other property of the successor corporation resulting from such Reorganization, equivalent in value to that which a holder of the Shares deliverable upon exercise of this Warrant would have been entitled in such Reorganization if the right to purchase the Shares hereunder had been exercised immediately prior to such Reorganization. In any such case, appropriate adjustment (as determined in good faith by the Board of Directors of the successor corporation) shall be made in the application of the provisions of this Warrant with respect to the rights and interests of the Holder after such Reorganization to the end that the provisions of this Warrant shall be applicable after the event, as near as reasonably may be, in relation to any shares or other securities deliverable after that event upon the exercise of this Warrant.

(b)          Reclassification of Shares. If the securities issuable upon exercise of this Warrant are changed into the same or a different number of securities of any other class or classes by reclassification, capital reorganization or otherwise (other than as otherwise provided for herein) (a “Reclassification”), then, in any such event, in lieu of the number of Shares which the Holder would otherwise have been entitled to receive, the Holder shall have the right thereafter to exercise this Warrant for a number of shares of such other class or classes of stock that a holder of the number of securities deliverable upon exercise of this Warrant immediately before that change would have been entitled to receive in such Reclassification, all subject to further adjustment as provided herein with respect to such other shares.

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(c)          Subdivisions and Combinations. In the event that the outstanding shares of the Preferred Stock are subdivided (by stock split, by payment of a stock dividend or otherwise) into a greater number of shares of such securities, the number of Shares issuable upon exercise of the rights under this Warrant immediately prior to such subdivision shall, concurrently with the effectiveness of such subdivision, be proportionately increased, and the Exercise Price shall be proportionately decreased, and in the event that the outstanding shares of the Preferred Stock are combined (by reclassification or otherwise) into a lesser number of shares of such securities, the number of Shares issuable upon exercise of the rights under this Warrant immediately prior to such combination shall, concurrently with the effectiveness of such combination, be proportionately decreased, and the Exercise Price shall be proportionately increased.

(d)          Notice of Adjustments. Upon any adjustment in accordance with this Section 7, the Company shall give notice thereof to the Holder, which notice shall state the event giving rise to the adjustment, the Exercise Price as adjusted and the number of securities or other property purchasable upon the exercise of the rights under this Warrant, setting forth in reasonable detail the method of calculation of each. The Company shall, upon the written request of any Holder, furnish or cause to be furnished to such Holder a certificate setting forth (i) such adjustments, (ii) the Exercise Price at the time in effect and (iii) the number of securities and the amount, if any, of other property that at the time would be received upon exercise of this Warrant.

8.         Notification of Certain Events. Prior to the expiration of this Warrant pursuant to Section 9, in the event that the Company shall authorize:

(a)          the voluntary liquidation, dissolution or winding up of the Company;

(b)          any transaction resulting in the expiration of this Warrant pursuant to Section 9(b); or

(c)          any cash dividend, stock dividend, property dividend or any other distribution of the Company;

the Company shall send to the Holder of this Warrant at least fifteen (15) days prior written notice of the date on which a record shall be taken for any such action, dividend or distribution specified in clause (a) or (c) or the expected effective date of any such other event specified in clause (b) or (c), as applicable. The notice provisions set forth in this section may be shortened or waived prospectively or retrospectively by the consent of the Holder of this Warrant.

9.         Expiration of the Warrant. This Warrant shall expire and shall no longer be exercisable as of the earlier of (such date, the “Expiration Date”):

(a)          5:00 p.m., Eastern time, on January 15, 2024; or

7

(b)          (i) the acquisition of the Company by another entity by means of any transaction or series of related transactions to which the Company is a party (including, without limitation, any stock acquisition, reorganization, merger or consolidation, but excluding any sale of stock for capital raising purposes and any transaction effected primarily for purposes of changing the Company’s jurisdiction of incorporation) other than a transaction or series of related transactions in which the holders of the voting securities of the Company outstanding immediately prior to such transaction or series of related transactions retain, immediately after such transaction or series of transactions, as a result of shares in the Company held by such holders prior to such transaction or series of transactions, at least a majority of the total voting power represented by the outstanding voting securities of the Company or such other surviving or resulting entity (or if the Company or such other surviving or resulting entity is a wholly-owned subsidiary immediately following such acquisition, its parent), or (ii) a sale, lease or other disposition of all or substantially all of the assets of the Company and its subsidiaries taken as a whole by means of any transaction or series of related transactions, except where such sale, lease or other disposition is to a wholly-owned subsidiary of the Company (any of the foregoing events specified in this Section 9(b), referred to generally as a “Change of Control”).

10.         No Rights as a Stockholder. Nothing contained herein shall entitle the Holder to any rights as a stockholder of the Company or to be deemed the holder of any securities that may at any time be issuable on the exercise of the rights hereunder for any purpose nor shall anything contained herein be construed to confer upon the Holder, as such, any right to vote for the election of directors or upon any matter submitted to stockholders at any meeting thereof, or to give or withhold consent to any corporate action (whether upon any recapitalization, issuance of stock, reclassification of stock, change of par value or change of stock to no par value, consolidation, merger, conveyance or otherwise) or to receive notice of meetings, or to receive dividends or subscription rights or any other rights of a stockholder of the Company until the rights under the Warrant shall have been exercised and the Shares purchasable upon exercise of the rights hereunder shall have become deliverable as provided herein.

11.         Representations and Warranties of the Holder. By acceptance of this Warrant, the Holder represents and warrants to the Company as follows:

(a)          No Registration. The Holder understands that the Securities have not been, and will not be, registered under the Securities Act by reason of a specific exemption from the registration provisions of the Securities Act, the availability of which depends upon, among other things, the bona fide nature of the investment intent and the accuracy of the Holder’s representations as expressed herein or otherwise made pursuant hereto.

(b)          Investment Intent. The Holder is acquiring the Securities for investment for its own account, not as a nominee or agent, and not with a view to, or for resale in connection with, any distribution thereof. The Holder has no present intention of selling, granting any participation in, or otherwise distributing the Securities, nor does it have any contract, undertaking, agreement or arrangement for the same.

(c)          Investment Experience. The Holder has substantial experience in evaluating and investing in private placement transactions of securities in companies similar to the Company, and has such knowledge and experience in financial or business matters so that it is capable of evaluating the merits and risks of its investment in the Company and protecting its own interests.

(d)          Speculative Nature of Investment. The Holder understands and acknowledges that the Company has a limited financial and operating history and that its investment in the Company is highly speculative and involves substantial risks. The Holder can bear the economic risk of its investment and is able, without impairing its financial condition, to hold the Securities for an indefinite period of time and to suffer a complete loss of its investment.

(e)          Access to Data. The Holder has had an opportunity to ask questions of officers of the Company, which questions were answered to its satisfaction. The Holder believes that it has received all the information that it considers necessary or appropriate for deciding whether to acquire the Securities. The Holder understands that any such discussions, as well as any information issued by the Company, were intended to describe certain aspects of the Company’s business and prospects, but were not necessarily a thorough or exhaustive description. The Holder acknowledges that any business plans prepared by the Company have been, and continue to be, subject to change and that any projections included in such business plans or otherwise are necessarily speculative in nature, and it can be expected that some or all of the assumptions underlying the projections will not materialize or will vary significantly from actual results.

8

(f)          Accredited Investor. The Holder is an “accredited investor” within the meaning of Regulation D, Rule 501(a), promulgated by the Securities and Exchange Commission and agrees to submit to the Company such further assurances of such status as may be reasonably requested by the Company.

(g)          Residency. The residency of the Holder (or, in the case of a partnership or corporation, such entity’s principal place of business) is correctly set forth on the signature page hereto.

(h)          Restrictions on Resales. The Holder acknowledges that the Securities must be held indefinitely unless subsequently registered under the Securities Act or an exemption from such registration is available. The Holder is aware of the provisions of Rule 144 promulgated under the Securities Act, which permit resale of shares purchased in a private placement subject to the satisfaction of certain conditions, which may include, among other things, the availability of certain current public information about the Company; the resale occurring not less than a specified period after a party has purchased and paid for the security to be sold; the number of shares being sold during any three-month period not exceeding specified limitations; the sale being effected through a “broker’s transaction,” a transaction directly with a “market maker” or a “riskless principal transaction” (as those terms are defined in the Securities Act or the Exchange Act, as amended, and the rules and regulations promulgated thereunder); and the filing of a Form 144 notice, if applicable. The Holder acknowledges and understands that the Company may not be satisfying the current public information requirement of Rule 144 at the time the Holder wishes to sell the Securities and that, in such event, the Holder may be precluded from selling the Securities under Rule 144 even if the other applicable requirements of Rule 144 have been satisfied. The Holder acknowledges that, in the event the applicable requirements of Rule 144 are not met, registration under the Securities Act or an exemption from registration will be required for any disposition of the Securities. The Holder understands that, although Rule 144 is not exclusive, the Securities and Exchange Commission has expressed its opinion that persons proposing to sell restricted securities received in a private offering other than in a registered offering or pursuant to Rule 144 will have a substantial burden of proof in establishing that an exemption from registration is available for such offers or sales and that such persons and the brokers who participate in the transactions do so at their own risk.

(i)          No Public Market. The Holder understands and acknowledges that no public market now exists for any of the securities issued by the Company and that the Company has made no assurances that a public market will ever exist for the Company’s securities.

(j)          Brokers and Finders. The Holder has not engaged any brokers, finders or agents in connection with the Securities, and the Company has not incurred nor will incur, directly or indirectly, as a result of any action taken by the Holder, any liability for brokerage or finders’ fees or agents’ commissions or any similar charges in connection with the Securities.

(k)          Legal Counsel. The Holder has had the opportunity to review this Warrant, the exhibits and schedules attached hereto and the transactions contemplated by this Warrant with its own legal counsel. The Holder is not relying on any statements or representations of the Company or its agents for legal advice with respect to this investment or the transactions contemplated by this Warrant.

(l)          Tax Advisors. The Holder has reviewed with its own tax advisors the U.S. federal, state and local and non-U.S. tax consequences of this investment and the transactions contemplated by this Warrant. With respect to such matters, the Holder relies solely on any such advisors and not on any statements or representations of the Company or any of its agents, written or oral. The Holder understands that it (and not the Company) shall be responsible for its own tax liability that may arise as a result of this investment and the transactions contemplated by this Warrant.

9

12. Miscellaneous.

(a)          Amendments. Except as expressly provided herein, neither this Warrant nor any term hereof may be amended, waived, discharged or terminated other than by a written instrument referencing this Warrant and signed by the Company and the Holder. Any amendment, waiver, discharge or termination effected in accordance with this Section 12(a) shall be binding upon the Holder, each future holder of such Warrants and the Company.

(b)          Waivers. No waiver of any single breach or default shall be deemed a waiver of any other breach or default theretofore or thereafter occurring.

(c)          Notices. All notices and other communications required or permitted hereunder shall be in writing and shall be mailed by registered or certified mail, postage prepaid, sent by facsimile or electronic mail (if to the Holder) or otherwise delivered by hand, messenger or courier service addressed:

(i)          if to the Holder, to the Holder at the Holder’s address, facsimile number or electronic mail address as shown in the Company’s records, as may be updated in accordance with the provisions hereof, or until any such Holder so furnishes an address, facsimile number or electronic mail address to the Company, then to and at the address, facsimile number or electronic mail address of the last holder of this Warrant for which the Company has contact information in its records; or

(ii)        if to the Company, to the attention of the Chief Executive Officer of the Company at the Company’s address as shown on the signature page hereto, or at such other address as the Company shall have furnished to the Holder.

Each such notice or other communication shall for all purposes of this Warrant be treated as effective or having been given (i) if delivered by hand, messenger or courier service, when delivered, or (ii) if sent by mail, at the earlier of its receipt or 72 hours after the same has been deposited in a regularly maintained receptacle for the deposit of the United States mail, addressed and mailed as aforesaid, or (iii) if sent by facsimile, upon confirmation of facsimile transfer or, if sent by electronic mail, upon confirmation of delivery when directed to the relevant electronic mail address. In the event of any conflict between the Company’s books and records and this Warrant or any notice delivered hereunder, the Company’s books and records will control absent fraud or error.

(d)          Governing Law. This Warrant and all actions arising out of or in connection with this Warrant shall be governed by and construed in accordance with the laws of the State of Michigan, without regard to the conflicts of law provisions of any other state.

(e)          Jurisdiction and Venue. Each of the Holder and the Company irrevocably consents to the exclusive jurisdiction and venue of any court within the Ingham County, State of Michigan, in connection with any matter based upon or arising out of this Warrant or the matters contemplated herein, and agrees that process may be served upon them in any manner authorized by the laws of the State of Florida for such persons.

(f)          Titles and Subtitles. The titles and subtitles used in this Warrant are used for convenience only and are not to be considered in construing or interpreting this Warrant. All references in this Warrant to sections, paragraphs and exhibits shall, unless otherwise provided, refer to sections and paragraphs hereof and exhibits attached hereto.

10

(g)          Severability. If any provision of this Warrant becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, portions of such provision, or such provision in its entirety, to the extent necessary, shall be severed from this Warrant, and such illegal, unenforceable or void provision shall be replaced with a valid and enforceable provision that will achieve, to the extent possible, the same economic, business and other purposes of the illegal, unenforceable or void provision. The balance of this Warrant shall be enforceable in accordance with its terms.

(h)          Waiver of Jury Trial. EACH OF THE HOLDER AND THE COMPANY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATED TO THIS WARRANT. If the waiver of jury trial set forth in this paragraph is not enforceable, then any claim or cause of action arising out of or relating to this Warrant shall be settled by judicial reference pursuant to the laws of the State of Michigan before a referee sitting without a jury, such referee to be mutually acceptable to the parties or, if no agreement is reached, by a referee appointed by the state courts of Michigan. This paragraph shall not restrict the Holder or the Company from exercising remedies under the Uniform Commercial Code or from exercising pre- judgment remedies under applicable law.

(i)          Saturdays, Sundays and Holidays. If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall be a Saturday, Sunday or U.S. federal holiday, then such action may be taken or such right may be exercised on the next succeeding day that is not a Saturday, Sunday or U.S. federal holiday (such day a “Business Day”).

(j)Rights and Obligations Survive Exercise of the Warrant. Except as otherwise provided herein, the rights and obligations of the Company and the Holder under this Warrant shall survive exercise of this Warrant.

(k)Entire Agreement. Except as expressly set forth herein, this Warrant (including the exhibits attached hereto) constitutes the entire agreement and understanding of the Company and the Holder with respect to the subject matter hereof and supersedes all prior agreements and understandings relating to the subject matter hereof.

(Signature Page Follows)

11

The Company and the Holder sign this Warrant as of the date stated on the first page.

XG SCIENCES, INC.

a Michigan corporation

By:
Name:	Michael R. Knox
Title:	Chief Executive Officer

Address:
3101 Grand Oak Drive Lansing, MI 48911
Telephone:	517.703.1110
Facsimile:	517.703.1113

AGREED AND ACKNOWLEDGED:

By:

Name:

Title:

Address:

Telephone:

Facsimile:

EXHIBIT A

NOTICE OF EXERCISE

TO:	XG Sciences, Inc. (the “Company”)
Attention:	Chief Executive Officer

(1) Exercise. The undersigned elects to purchase the following pursuant to the terms of the attached warrant:

Number of shares:

Type of security:

(2) Method of Exercise. The undersigned elects to exercise the attached warrant pursuant to:

¨ A cash payment, and tenders herewith payment of the purchase price for such shares in full, together with all applicable transfer taxes, if any.

¨ The net issue exercise provisions of Section 2(b) of the attached warrant.

(3) Stock Certificate. Please issue a certificate or certificates representing the shares in the name of:

¨ The undersigned

¨	Other—Name:
	Address:

(4) Unexercised Portion of the Warrant. Please issue a new warrant for the unexercised portion of the attached warrant in the name of:

¨	The undersigned
¨	Other—Name:
	Address:
¨	Not applicable

(5) Investment Intent. The undersigned represents and warrants that the aforesaid shares are being acquired for investment for its own account, not as a nominee or agent, and not with a view to, or for resale in connection with, the distribution thereof, and that the undersigned has no present intention of selling, granting any participation in, or otherwise distributing the shares, nor does it have any contract, undertaking, agreement or arrangement for the same, and all representations and warranties of the undersigned set forth in Section 11 of the attached warrant are true and correct as of the date hereof.

(Signature page to the Notice of Exercise)

A-1

(6) Investment Representation Statement. The undersigned has executed, and delivers herewith, an Investment Representation Statement in a form substantially similar to the form attached to the warrant as Exhibit A-1.

(Print name of the warrant holder)

(Signature)

(Name and title of signatory, if applicable)

(Date)

(Fax number)

(Email address)

(Signature page to the Notice of Exercise)

A-2

EXHIBIT A-l

INVESTMENT REPRESENTATION STATEMENT

INVESTOR:

COMPANY:	XG Sciences, Inc., a Michigan corporation
SECURITIES:	THE WARRANT ISSUED ON                 (THE “WARRANT”) AND THE SECURITIES ISSUED OR ISSUABLE UPON EXERCISE THEREOF

DATE:

In connection with the purchase or acquisition of the above-listed Securities, the undersigned Investor represents and warrants to, and agrees with, the Company as follows:

1.          No Registration. The Investor understands that the Securities have not been, and will not be, registered under the Securities Act of 1933, as amended (the “Securities Act’), by reason of a specific exemption from the registration provisions of the Securities Act, the availability of which depends upon, among other things, the bona fide nature of the investment intent and the accuracy of the Investor’s representations as expressed herein or otherwise made pursuant hereto.

2.          Investment Intent. The Investor is acquiring the Securities for investment for its own account, not as a nominee or agent, and not with a view to, or for resale in connection with, any distribution thereof. The Investor has no present intention of selling, granting any participation in, or otherwise distributing the Securities, nor does it have any contract, undertaking, agreement or arrangement for the same.

3.          Investment Experience. The Investor has substantial experience in evaluating and investing in private placement transactions of securities in companies similar to the Company, and has such knowledge and experience in financial or business matters so that it is capable of evaluating the merits and risks of its investment in the Company and protecting its own interests.

4.          Speculative Nature of Investment. The Investor understands and acknowledges that its investment in the Company is highly speculative and involves substantial risks. The Investor can bear the economic risk of its investment and is able, without impairing its financial condition, to hold the Securities for an indefinite period of time and to suffer a complete loss of its investment.

5.          Access to Data. The Investor has had an opportunity to ask questions of officers of the Company, which questions were answered to its satisfaction. The Investor understands that any such discussions, as well as any information issued by the Company, were intended to describe certain aspects of the Company’s business and prospects, but were not necessarily a thorough or exhaustive description. The Investor acknowledges that any business plans prepared by the Company have been, and continue to be, subject to change and that any projections included in such business plans or otherwise are necessarily speculative in nature, and it can be expected that some or all of the assumptions underlying the projections will not materialize or will vary significantly from actual results.

6.         Accredited Investor. The Investor is an “accredited investor” within the meaning of Regulation D, Rule 501(a), promulgated by the Securities and Exchange Commission and agrees to submit to the Company such further assurances of such status as may be reasonably requested by the Company.

A-1-1

7.         Residency. The residency of the Investor (or, in the case of a partnership or corporation, such entity’s principal place of business) is correctly set forth on the signature page hereto.

8.         Restrictions on Resales. The Investor acknowledges that the Securities must be held indefinitely unless subsequently registered under the Securities Act or an exemption from such registration is available. The Investor is aware of the provisions of Rule 144 promulgated under the Securities Act, which permit resale of shares purchased in a private placement subject to the satisfaction of certain conditions, which may include, among other things, the availability of certain current public information about the Company; the resale occurring not less than a specified period after a party has purchased and paid for the security to be sold; the number of shares being sold during any three-month period not exceeding specified limitations; the sale being effected through a “broker’s transaction,” a transaction directly with a “market maker” or a “riskless principal transaction” (as those terms are defined in the Securities Act or the Exchange Act (as defined below), as amended, and the rules and regulations promulgated thereunder); and the filing of a Form 144 notice, if applicable. The Investor acknowledges and understands that the Company may not be satisfying the current public information requirement of Rule 144 at the time the Investor wishes to sell the Securities and that, in such event, the Investor may be precluded from selling the Securities under Rule 144 even if the other applicable requirements of Rule 144 have been satisfied. The Investor understands and acknowledges that, in the event the applicable requirements of Rule 144 are not met, registration under the Securities Act or an exemption from registration will be required for any disposition of the Securities. The Investor understands that, although Rule 144 is not exclusive, the Securities and Exchange Commission has expressed its opinion that persons proposing to sell restricted securities received in a private offering other than in a registered offering or pursuant to Rule 144 will have a substantial burden of proof in establishing that an exemption from registration is available for those offers or sales and that those persons and the brokers who participate in the transactions do so at their own risk.

9.         No Public Market. The Investor understands and acknowledges that no public market now exists for any of the securities issued by the Company and that the Company has made no assurances that a public market will ever exist for the Company’s securities.

10.         Brokers and Finders. The Investor has not engaged any brokers, finders or agents in connection with the Securities, and the Company has not incurred nor will incur, directly or indirectly, as a result of any action taken by the Investor, any liability for brokerage or finders’ fees or agents’ commissions or any similar charges in connection with the Securities.

11.         Legal Counsel. The Investor has had the opportunity to review the Warrant, the exhibits and schedules attached thereto and the transactions contemplated by the Warrant with its own legal counsel. The Investor is not relying on any statements or representations of the Company or its agents for legal advice with respect to this investment or the transactions contemplated by the Warrant.

12.         Tax Advisors. The Investor has reviewed with its own tax advisors the U.S. federal, state and local and non-U.S. tax consequences of this investment and the transactions contemplated by the Warrant. With respect to such matters, the Investor relies solely on such advisors and not on any statements or representations of the Company or any of its agents, written or oral. The Investor understands that it (and not the Company) shall be responsible for its own tax liability that may arise as a result of this investment or the transactions contemplated by the Warrant.

A-1-2

The Investor is signing this Investment Representation Statement on the date First written above.

INVESTOR

[                                   ]

(Print name of the investor)

(Signature)

(Name and title of signatory, if applicable)

(Street address)

(City, state and ZIP)

A-1-3

EXHIBIT B

[Shareholder Agreement]

B-1

EXHIBIT C

ASSIGNMENT FORM

ASSIGNOR:
COMPANY:	XG SCIENCES, INC.
WARRANT:	THE WARRANT TO PURCHASE SHARES OF SERIES A CONVERTIBLE PREFERRED STOCK ISSUED ON                 , 2013 (THE “WARRANT”)
DATE:

(1) Assignment. The undersigned registered holder of the Warrant (“Assignor”) assigns and transfers to the assignee named below (“Assignee”) all of the rights of Assignor under the Warrant, with respect to the number of shares set forth below:

Name of Assignee:

Address of Assignee:

Number of Shares Assigned:

and does irrevocably constitute and appoint                                        as attorney to make such transfer on the books of XG Sciences, Inc., maintained for the purpose, with full power of substitution in the premises.

(2) Obligations of Assignee. Assignee agrees to take and hold the Warrant and any shares of stock to be issued upon exercise of the rights thereunder (the “Securities”) subject to, and to be bound by, the terms and conditions set forth in the Warrant to the same extent as if Assignee were the original holder thereof.

(3) Investment Intent. Assignee represents and warrants that the Securities are being acquired for investment for its own account, not as a nominee or agent, and not with a view to, or for resale in connection with, the distribution thereof, and that Assignee has no present intention of selling, granting any participation in, or otherwise distributing the shares, nor does it have any contract, undertaking, agreement or arrangement for the same, and all representations and warranties set forth in Section 11 of the Warrant are true and correct as to Assignee as of the date hereof.

(4) Investment Representation Statement. Assignee has executed, and delivers herewith, an Investment Representation Statement in a form substantially similar to the form attached to the Warrant as Exhibit A-l.

C-2

Assignor and Assignee are signing this Assignment Form on the date first set forth above.

ASSIGNOR	ASSIGNEE
(Print name of Assignor)	(Print name of Assignee)
(Signature of Assignor)	(Signature of Assignee)
(Print name of signatory, if applicable)	(Print name of signatory, if applicable)
(Print title of signatory, if applicable)	(Print title of signatory, if applicable)
Address:	Address:

C-3

DATED: JANUARY 15, 2014

RESTATED BYLAWS

OF

XG SCIENCES, INC.

ARTICLE I

Shares of Capital Stock

1.1           Certificate of Shares. The certificates of shares of capital stock of the Corporation shall be in such form as shall be approved by the Board of Directors and as shall be required by law. The certificates of shares of capital stock shall be signed by the Chairman of the Board, Vice-Chairman of the Board, President or a Vice-President and may also be signed by another officer of the Corporation. The certificates may be sealed with the seal of the Corporation or a facsimile thereof. In these Bylaws, the term “capital stock” means the Company’s outstanding: (i) common stock, and (ii) convertible preferred stock of any series.

1.2           Transfer of Shares. Shares of capital stock of the Corporation shall be transferred by endorsement of the certificates representing said shares of capital stock by the registered holder thereof, or by his legal representative, who shall furnish proper evidence of authority to transfer, or by his attorney who shall be authorized by a Power of Attorney which is duly executed and filed with the Secretary of the Corporation, and by the surrender of the shares of capital stock to the Secretary for cancellation. The person whose name is listed on the books of the Corporation as the owner of the shares of capital stock shall be deemed by the Corporation to be the owner thereof for all purposes.

1.3           Lost Certificates. In the event of loss of stock certificates, new certificates shall be issued only upon proof of loss by affidavit by the registered holder and approval by the Board of Directors, who may require a Bond of Indemnity in a form satisfactory to them as a condition thereof.

1.4           Fixing of Record Date. For the purpose of determining shareholders entitled to notice of and to vote at a meeting of shareholders or an adjournment of a meeting, the Board may fix a record date which shall not precede the date on which the resolution fixing the record date is adopted by the Board. The date shall be not more than sixty (60) nor less than ten (10) days before the date of the meeting. If a record date is not fixed, the record date for determination of shareholders entitled to notice of or to vote at a meeting of shareholders shall be the close of business on the day next preceding the day on which notice is given, or if no notice is given, the day next preceding the day on which the meeting is held. When a determination of shareholders of record entitled to notice of or to vote at a meeting of shareholders has been made as provided in this section, the determination applies to any adjournment of the meeting, unless the Board fixes a new record date under this section for the adjourned meeting.

For the purpose of determining shareholders entitled to express consent to or to dissent from a proposal without a meeting, the Board may fix a record date which shall not precede the date on which the resolution fixing the record date is adopted by the Board and shall not be more than ten (10) days after the Board resolution. If a record date is not fixed and prior action by the Board is required with respect to the corporate action to be taken without a meeting, the record date shall be the close of business on the day on which the resolution of the Board is adopted. If a record date is not fixed and prior action by the Board is not required, the record date shall be the first date on which a signed written consent is delivered to the Corporation pursuant to Section 407 of the Michigan Business Corporation Act, as amended, or any successor provision.

For the purpose of determining shareholders entitled to receive payment of a share dividend or distribution, or allotment of a right, or for the purpose of any other action, the Board may fix a record date which shall not precede the date on which the resolution fixing the record date is adopted by the Board. The date shall not be more than sixty (60) days before the payment of the share dividend or distribution or allotment of a right or other action. If a record date is not fixed, the record date shall be the close of business on the day on which the resolution of the Board relating to the corporate action is adopted.

1.5           Dividends. The Board of Directors may, from time to time, declare and the Corporation may pay dividends on its outstanding shares of capital stock in the manner and upon the terms and conditions provided by law and its Articles of Incorporation.

ARTICLE II

Shareholders

2.1           Annual Meeting. The annual meeting of the shareholders shall be held at a time and place designated by the Board of Directors. The purpose of the annual meeting shall be to elect Directors, and to transact such other business as may come before the meeting.

2.2           Special Meeting. Special meetings of the shareholders may be called by the President or Secretary and shall be called by either of them on the request in writing of the Board of Directors or by vote of shareholders of record owning 10% or more of the issued and outstanding shares of capital stock of the Corporation, but a quorum as defined in Section 2.4 is required for the shareholders to do business at a special meeting.

2.3           Notice of Meeting. Notice of the time, place if any, and purpose of any shareholders’ meeting shall be given to each shareholder, either personally, by mail, or by electronic transmission, not less than ten (10) days nor more than sixty (60) days before the meeting. If mailed, notice shall be deemed given by depositing the same in a post office box, postage prepaid, and addressed to the last-known address of such shareholder. If notice is given by electronic transmission, the notice is given when electronically transmitted to the shareholder entitled to the notice in a manner authorized by the shareholder. If a Shareholder or proxy holder may be present and vote at the meeting by electronic transmission shall be as defined in the Michigan Business Corporation Act, as amended.

 2

2.4           Quorum of Shareholders. Except as hereinafter provided and as otherwise provided by law, at any meeting of the shareholders, a majority in interest of all the capital stock issued and outstanding, represented by shareholders of record in person or by proxy, shall constitute a quorum. The shareholders present in person or by proxy at such meeting may continue to do business until adjournment, notwithstanding the withdrawal of enough shareholders to leave less than a quorum. Less interest than a quorum may adjourn any meeting.

2.5           Voting. Each outstanding share of capital stock is entitled to one vote on each matter submitted to a vote, unless otherwise provided in the Articles of Incorporation. A vote may be cast either orally or in writing. When an action, other than the election of Directors, is to be taken by vote of the shareholders, it shall be authorized by a majority of the votes cast by the holders of shares of capital stock entitled to vote thereon, unless a greater plurality is required by the Articles of Incorporation or by law. Except as otherwise provided by the Articles of Incorporation, the Directors shall be elected by a plurality of the votes cast at an election of Directors.

2.6         Proxies.

(a)          A shareholder entitled to vote at a meeting of shareholders or to express consent or dissent without a meeting may authorize other persons to act for him or her by proxy.

(b)          A proxy is not valid after the expiration of three years from its date unless otherwise provided in the proxy.

(c)          Without limiting the manner in which a shareholder may authorize another person or persons to act for him or her as proxy pursuant to Subsection (a) of this section, the following methods constitute a valid means by which a shareholder may grant authority to another person to act as proxy:

(1)         The execution of a writing authorizing another person or persons to act for the shareholder as proxy. Execution may be accomplished by the shareholder or by an authorized officer, director, employee, or agent signing the writing or causing his or her signature to be affixed to the writing by any reasonable means including, but not limited to, facsimile signature.

(2)         Transmitting or authorizing the transmission of a telegram, cablegram, or other means of electronic transmission to the person who will hold the proxy or to a proxy solicitation firm, proxy support service organization, or similar agent fully authorized by the person who will hold the proxy to receive that transmission. Any telegram, cablegram, or other means of electronic transmission must either set forth or be submitted with information from which it can be determined that the telegram, cablegram, or other electronic transmission was authorized by the shareholder. If a telegram, cablegram, or other electronic transmission is determined to be valid, the inspectors, or, if there are no inspectors, the persons making the determination shall specify the information upon which they relied.

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(d)          A copy, facsimile telecommunication, or other reliable reproduction of the writing or transmission created pursuant to Subsection (c) of this section may be substituted or used in lieu of the original writing or transmission for any purpose for which the original writing or transmission could be used, if the copy, facsimile telecommunication, or other reproduction is a complete reproduction of the entire original writing or transmission.

2.7           Waiver of Notice. Attendance of a person at a meeting of shareholders, in person or by proxy, constitutes a waiver of notice of the meeting, except when the shareholder attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened.

2.8           Consent in Writing. Any action required or permitted to be taken at an annual or special meeting of shareholders may be taken without a meeting, without prior notice, and without a vote, if consents in writing, setting forth the action so taken, are signed by the holders of outstanding shares of capital stock having not less than the minimum number of votes that would be necessary to authorize or take the action at a meeting at which all shares of capital stock entitled to vote on the action were present and voted. The written consents shall bear the date of signature of each shareholder who signs the consent. No written consents shall be effective to take corporate action referred to unless, within 60 days after the record date for determining shareholders entitled to express consent to or to dissent from a proposal without a meeting, written consents dated not more than 10 days before the record date and signed by a sufficient number of shareholders to take the action are delivered to the Corporation. Delivery shall be to the Corporation’s registered office, its principal place of business, or an officer or agent of the Corporation having custody of the minutes of the proceedings of its shareholders. Delivery made to the Corporation’s registered office shall be by hand or by certified or registered mail, return receipt requested. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to shareholders who would have been entitled to notice of the shareholder meeting if the action had been taken at a meeting and who have not consented to the action in writing. An electronic transmission consenting to an action must comply with Section 407(3) of the Michigan Business Corporation Act.

2.9           Electronic Meetings. The shareholders may participate in a meeting of the shareholders by means of conference telephone or similar communications equipment by means, of which all persons participating in the meeting can communicate with each other. All participants shall be advised of the communications equipment and the names of the participants in the conference shall be divulged to all participants. Participation in a meeting pursuant to this Section shall constitute presence in person at the meeting. Unless otherwise restricted by the Articles of Incorporation or these Bylaws, the Board of Directors may hold a meeting of shareholders conducted solely by means of remote communication.

2.10         Conduct of Meetings. At each meeting of shareholders, a chair shall preside. In the absence of a specific selection by the Board of Directors, the chair shall be the chairperson of the Board. The chair shall determine the order of business and shall have the authority to establish rules for the conduct of the meeting that are fair to shareholders. The chair of the meeting shall announce at the meeting when the polls close for each matter voted on. If no announcement is made, the polls shall be deemed to have closed on the meeting's final adjournment. After the polls close, no ballots, proxies, or votes, nor any revocations or changes to them, may be accepted.

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ARTICLE III

Board of Directors

3.1           Number, Term, and Qualifications. The business and affairs of the Corporation shall be managed by its Board of Directors. The number of Directors on the Board of Directors shall be seven (7). The number of Directors on the Board of Directors may be changed from time to time, as determined by the Board of Directors or shareholders of the Corporation, subject to the requirements of any shareholder agreement or voting agreement then in effect. A Director need not be a shareholder. Each Director shall hold office for the term for which he is elected and until his successor shall have been elected and qualified or until his resignation or removal.

3.2           Meetings. Regular meetings of the Board of Directors shall be held either with or without notice, at such times and such places as any of the Directors may by resolution from time to time determine. Special meetings of the Board of Directors shall be held whenever called by the President; or when the President shall be required to call a special meeting upon the written request, either in writing or by electronic transmission, by any Director. Due notice of any special meeting, which may be waived, shall be given by the Secretary, either personally, by electronic transmission, or in writing, not later than the day preceding the meeting. A Director’s attendance at, or participation in, a meeting constitutes a waiver of notice of the meeting, except where, at the beginning of the meeting or upon his arrival, the Director objects to the meeting or the transacting of business at the meeting and does not thereafter vote for or assent to any action taken at the meeting. A Director may participate in a regular or special meeting by means of conference telephone or other means of remote communication, which participation constitutes presence in person, through which all persons participating in the meeting can communicate with other participants.

3.3           Quorum. A majority of the members of the Board then in office, or of the members of a committee thereof, constitutes a quorum for the transaction of business.

3.4           Voting. The vote of the majority of members present at a meeting in person or by Director Proxy, at which a quorum is present, constitutes the action of the Board or of the committee.

3.5           Vacancies. Vacancies in the Board of Directors, including a vacancy resulting from an increase in the number of Directors, may be filled by either the shareholders or the Directors. If the Directors remaining in office constitute fewer than a quorum of the Board, they may fill the vacancy by the affirmative vote of a majority of all Directors remaining in office.

3.6           Action Without a Meeting. Action may be taken by the Board of Directors or a committee thereof without a meeting if, before or after the action, all members of the Board then in office or of the committee consent thereto in writing. The written consent shall be filed with the minutes of the proceedings of the Board or committee.

3.7           Removal of Directors. A Director or the entire Board may be removed, with or without cause, by vote of the holders of a majority of the shares of capital stock entitled to vote at an election of Directors, subject to the requirements of any shareholder agreement or voting agreement then in effect with respect to the removal of Directors.

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3.8           Electronic Meetings. The Board of Directors or any committee designated by the Board of Directors may participate in a meeting of such Board, or committee, by means of conference telephone or similar communications equipment by means, of which all persons participating in the meeting can communicate with each other. Participation in a meeting pursuant to this Section shall constitute presence in person at the meeting.

3.9           Director Proxies.

(a)          The Board of Directors may, from time to time, in its sole discretion, authorize a “corporate director” that is entitled to vote at a meeting of the Board of Directors (an “Authorized Director”) to appoint another person to act for him or her by proxy or power of attorney (collectively, a "Director Proxy").

(b)          A Director Proxy shall be valid for such period of time or for such meeting or meetings, as designated by the Board of Directors in its authorizing resolution.

(c)          The following methods constitute valid means by which an Authorized Director may grant authority to another person to act as proxy or power of attorney:

(1)         The execution and delivery of a writing authorizing another person to act for an Authorized Director as proxy or power of attorney. Execution may be accomplished by an Authorized Director signing the writing or causing his or her signature to be affixed to the writing by any reasonable means including, but not limited to, facsimile signature or an electronic signature.

(2)         Transmitting or authorizing the transmission of the written Director Proxy by a telegram, cablegram, facsimile, email or other means of electronic transmission to the person who will hold the Director Proxy. Any telegram, cablegram, facsimile, email or other means of electronic transmission must either set forth or be submitted with information from which it can be determined that the telegram, cablegram, facsimile, email or other electronic transmission was authorized by the Authorized Director.

(d)          A copy, facsimile telecommunication, PDF or other reliable reproduction of the writing or transmission created pursuant to Subsection (c) of this section may be substituted or used in lieu of the original writing or transmission for any purpose for which the original writing or transmission could be used, if the copy, facsimile telecommunication, PDF, or other reproduction is a complete reproduction of the entire original writing or transmission.

(e)          A Director Proxy shall be submitted to the Secretary of the Corporation, with a carbon copy to the Chairman of the Board, a reasonable time prior to the meeting of the Board of Directors at which it will be used, for a determination by the Board of Directors of its validity and effect.

(f)          For purposes of this Section 3.9, a "corporate director" shall mean a director who is appointed as representative of a specific Corporation shareholder or group of shareholders as reflected in a voting agreement entered into by the Corporation and the shareholders.

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ARTICLE IV

Officers

4.1           Officers. The officers of this Corporation shall consist of a President, a Secretary, a Treasurer, and if desired, a Chairman of the Board and one or more Vice Presidents, who shall be elected by the Board of Directors at the annual meeting held immediately after the adjournment of the regular annual meeting of the shareholders. The Board of Directors may also appoint such other officers and agents as they shall deem necessary for the transaction of business of the Corporation. An officer shall hold office for the term for which he is elected or appointed and until his successor is elected or appointed and qualified, or until his resignation or removal. Two or more offices may be held by the same person, but an officer shall not execute, acknowledge or verify an instrument in more than one capacity, if the instrument is required by law, or the Articles of Incorporation, or these Bylaws, to be executed and acknowledged or verified by two or more officers.

4.2           Duties of Officers. The officers of the Corporation shall be charged with such duties and authority as usually appertains to such offices in a Corporation, except that said duties may be varied or added to by the Board of Directors.

4.3           Removal of Officers and Agents. Any officer or agent may be removed by the Board of Directors whenever in its judgment the business interests of the Corporation will be served thereby.

ARTICLE V

Fiscal Year

5.1           Fiscal Year. The Corporation's fiscal year shall be as determined from time to time by the Board of Directors.

ARTICLE VI

Indemnification

6.1           Right of Indemnification. Each person who is or was or had agreed to become a director or officer of the Corporation, or each such person who is or was serving or who had agreed to serve at the request of the Board of Directors as an employee or agent of the Corporation, or as a director, officer, employee or agent of another corporation (whether for profit or not), partnership, joint venture, trust or other enterprise (including the heirs, executors, administrators or estate of such person), shall be indemnified by the Corporation to the full extent permitted by the Michigan Business Corporation Act or any other applicable laws as presently or hereafter in effect.

6.2           Non-Exclusivitv of Rights. The right to indemnification conferred in this article shall not be exclusive of any right that any person may have or acquire under any statute, provision of the articles of incorporation, bylaw, agreement, vote of shareholders or disinterested directors, or otherwise.

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6.3           Insurance. The Corporation shall have the power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation or is or was serving at the request of the Corporation as a director, officer, partner, trustee, employee or agent of another foreign or domestic corporation, partnership, joint venture, trust or other enterprise, whether for profit or not, against any liability asserted against him or her and incurred by him or her in any such capacity or arising out of his or her status as such, whether or not the Corporation would have the power to indemnify him or her against such liability under the provisions of this Article.

6.4           Amendment. If the Corporation repeals, amends or modifies this Article VI, it shall not affect any right or protection existing at the time of such repeal, amendment or modification.

ARTICLE VII

Amendments

7.1           Amendments. These Bylaws may be altered or amended by the shareholders or the Board of Directors. Amendment of the Bylaws by the Board requires the vote of not less than a majority of the members of the Board then in office.

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XG SCIENCES, INC.

PURCHASE AGREEMENT

BETWEEN

XG SCIENCES, INC.

AND

ASPEN ADVANCED OPPORTUNITY FUND, LP

ANNEX XI

DISCLOSURE ANNEX

January 15, 2014

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

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

Section 3.a.

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

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

Section 3.c.(i).

Outstanding Common Stock
Name of Holder of Common Stock	Shares of Common Stock
Michael R. Knox (and Linn Van Dyne)		127,047.0
Lawrence T. Drzal, Trustee of Drzal Revocable Trust		50,550.0
Hiroyuki Fukushima		50,000.0
Inhwan Do		50,000.0
Ann Arbor SPARK		36,257.0
Robert Skandalaris		34,977.0
Edward J. Demmer		30,000.0
Mark S. Kerrins & Rosemary Kerrins (JTWROS)		32,500.0
David J. Donovan		16,257.0
Michigan State University Foundation		9,543.0
W. D. Hamilton and S.M Heathfield		7,251.0
Paul Nordstrom		3,637 .0
Colin D. Cronin		2,803.0
Stephen J. Linder trust No 1		5,251.0
Matthew H. Frisch		2,087.5
Jeffery A. Wesley		9,005.0
Mark E. Hooper Revocable Living Trust		3,625.0
Peter S. Bosanic & Lisa Kendzioski Bosanic (JTWROS)		1,925.0
Kevin B. Miller		2,400.0
William G. Lutz		1,653.0
John W. Dourjalian		1,649.0
Reed Shick		880.0
Gary Griffin		1,500.0
Robert L. McKellar		592.0
Hanwha Chemical		150,000.0
POSCO		200,000.0
Marjorie E. Frisch		2,087.5
Total Common Stock Issued and Outstanding		833,477.0

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

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

Outstanding Warrants and Options
Holder	Issue Date	Shares Subject to Warrant*			Shares Subject to Option		Expiration Date	Exercise Price
Scott Murray	12/1/2007		0			10,000	12/1/2017	$	8.00
William Lutz	7/31/2009		1,650			0	7/31/2014	$	15.00
Michael R. Knox	3/15/2009		0			12,500	3/15/2014	$	12.00
Michael R. Knox	7/1/2009		6,000			0	7/1/2019	$	8.00
William Lutz	4/1/2010		5,000			0	4/1/2015	$	10.00
ASC-XGS LLC	7/16/2010		21,044			0	7/16/2014	$	10.00
Jihyun Chung	7/12/2011		4,000			0	7/31/2015	$	20.00
Michael R. Knox	10/8/2012		5,000			0	10/8/2027	$	12.00
Aspen Advanced Opportunity Fund, LP	3/18/2013		208,333			0	3/18/2023	$	12.00
Arnold Allemang	6/1/2013		0			3,750	6/1/2021	$	12.00
Iris Linder	6/1/2013		0			3,750	6/1/2021	$	12.00
Steven Jones	6/1/2013		0			2,500	6/1/2021	$	12.00
Scott Murray	6/1/2013		0			10,000	6/1/2021	$	12.00
Robert Privette	6/1/2013		0			20,000	6/1/2021	$	12.00
Liya Wang	6/1/2013		0			30,000	6/1/2021	$	12.00
Michael R. Knox	6/1/2013		0			50,000	6/1/2021	$	13.20
Corinne Lyon	6/1/2013		0			10,000	6/1/2021	$	12.00
Aspen Advanced Opportunity Fund, LP	7/12/2013		208,333	*		0	7/12/2023	$	12.00
XGS II, LLC	7/12/2013		31,250	*		0	7/12/2023	$	12.00
			490,610	*		152,500

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

Section 3.c.(ii).

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Section 3.g.(i).

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

Section 3.g.(vii).

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

Section 3.h.

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

Section 3.i.

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

Section 3.o.

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

The Company is obligated to pay the Buyer’s and XGS II, LLC’s transaction fees, up to $150,000 and $25,000, respectively, in connection with the transactions contemplated by the Agreement.

Section 3.s.

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

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

EX-10.19

Exhibit 10.19

XG SCIENCES, INC

AMENDED & RESTATED PURCHASE AGREEMENT

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

WITNESSETH:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

1. GENERAL AGREEMENTS.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

“Last Audited Date” means December 31, 2012.

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

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

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

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

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

“Purchased Securities” means the Notes and the Warrants.

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

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

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

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

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

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

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

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

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

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

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

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

“State of Incorporation” means Michigan.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

c.          Authorized Shares.

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

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

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

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

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

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

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f.           Securities Law Matters; Approvals.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

4.           CERTAIN COVENANTS AND ACKNOWLEDGMENTS.

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

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

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

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

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

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e.           Available Shares.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

5. CLOSING DATE.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

8. CLOSING ACTIONS.

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

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

9. INDEMNIFICATION AND REIMBURSEMENT.

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

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

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

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

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

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

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

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

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

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

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

12. GOVERNING LAW: MISCELLANEOUS.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

**BALANCE OF PAGE INTENTIONALLY LEFT BLANK**

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AMENDED & RESTATED PURCHASE AGREEMENT

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

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

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

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

No. 13 3,000,000.00

XG SCIENCES, INC.

Secured Convertible Promissory Note

Due March 18, 2018

This Secured Convertible Promissory Note (this “Note”) is issued this 15th day of January 2014, jointly and severally by XG Sciences, Inc. (“XGS”),a Michigan corporation, and XG Sciences IP, LLC, a Michigan limited liability company (collectively the “Borrower” or the “Company”),to SVIC No. _15 New Technology Business Investment L.L.P. (“Samsung”) (“Samsung” or the “Holder”), pursuant to that certain Purchase Agreement, dated January 15, 2014, between the parties and any amendments thereto (the “Purchase Agreement”).

FOR VALUE RECEIVED, the Borrower hereby promises to pay to the Holder or his, her or its successors and assigns the principal sum of THREE MILLION AND xx/100 DOLLARS ($3,000,000.00) on or before March 18, 2018 (the “Maturity Date”) and to pay interest on the principal sum outstanding from time to time in arrears at the rate of 12.0% per annum, accruing from the Original Issue Date (as defined in Section 7 hereof) until the date (each, an“Interest Payment Date”) which is the earlier of (i) the next Conversion Date (as defined below), (ii) the date which is the last day of the month of the first month after the Original Issue Date and the last day of every month thereafter, or (iii) the Maturity Date, as the case may be. Interest shall accrue monthly (pro-rated on a daily basis for any period longer or shorter than a month) from the later of the Original Issue Date or the previous Interest Payment Date and shall be payable in cash. If not paid in full on an Interest Payment Date, interest shall be fully cumulative and shall accrue on a daily basis, based on a 360-day year, and compound monthly on the last day of each month beginning on the last day of the first full month after the Original Issue Date, until paid.

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

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

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

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

Section 2.         Covenants.

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

(1)         Financial Reports, Notices and Other Information.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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Section 3.          Events of Default.

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

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

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

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

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

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

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

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

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

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

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

Section 4.          Conversion.

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

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

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

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

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

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

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

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

Section 6.        Security Agreement. This Note is secured by a Security Agreement of even date herewith (the “Security Agreement”) and an Intellectual Property Security Agreement of even date herewith (the “IP Security Agreement”) between the Borrower, the Holder, XGS II, LLC, a Florida limited liability company (“XGS II”), Mr. Michael R. Knox (“Knox”), Aspen Advanced Opportunity Fund, L.P., a Delaware limited partnership (“Aspen” and together with XGS II and Knox, the “Other Secured Parties”), and the Agent specified in such Security Agreement and IP Security Agreement. The Holder understands and acknowledges that the Borrower has issued secured indebtedness to Knox secured by the Collateral (as defined in the Security Agreement) as more fully described on Exhibit B and intends to issue either simultaneously with this Note or at a subsequent time, additional Notes or other similar securities to the Holder and Other Secured Parties and consents to such additional secured indebtedness so long as all of the following conditions are met:

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

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

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

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

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

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

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

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

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

“Aspen Transaction Documents” means the purchase agreements between the Company and Aspen, on the one hand, and the Company and XGS II, on the other hand, as amended and restated, and any other agreements delivered in connection with such agreements.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

“Subsidiary” shall mean, (i) as to Borrower, any Person in which more than fifty percent (50%) of all equity, membership, partnership or other ownership interests is owned directly or indirectly by such Borrower or one or more of its Subsidiaries, and (ii) as to any other Person, any Person in which more than fifty percent (50%) of all equity, membership, partnership or other ownership interests is owned directly or indirectly by such Person or by one or more of such Person’s Subsidiaries.

“Transaction Documents” means the Purchase Agreement and any other agreement delivered in connection with the Purchase Agreement, including, without limitation, this Note, the Security Agreement and the IP Security Agreement.

“Transfer Agent” means any stock transfer agent that the Borrower may appoint from time to time or if no such transfer agent has been appointed, then the Borrower.

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“UCC” shall mean the Uniform Commercial Code as in effect in the State of Michigan from time to time.

Section 8.           No Stockholder Rights. Except to the extent provided for in the Transaction Documents, this Note shall not entitle the Holder to any of the rights of a stockholder of the Borrower, including without limitation, the right to vote, to receive dividends and other distributions, or to receive any notice of, or to attend, meetings of stockholders or any other proceedings of the Borrower, unless and to the extent converted into shares of Preferred Stock in accordance with the terms hereof.

Section 9.           Spin-offs. If, at any time while any portion of this Note remains outstanding, the Borrower spins off or otherwise divests itself of a part of its business or operations or disposes of all or of a part of its assets in a transaction (the “Spin Off”) in which the Borrower, in addition to or in lieu of any other compensation received and retained by the Borrower for such business, operations or assets, causes securities of another entity (the “Spin Off Securities”) to be issued to security holders of the Borrower, the Borrower shall cause (i) to be reserved Spin Off Securities equal to the number thereof which would have been issued to the Holder had all of the Holder’s Notes outstanding on the record date (the “Record Date”) for determining the amount and number of Spin Off Securities to be issued to security holders of the Borrower (the “Outstanding Notes”) been converted as of the close of business on the Business Day immediately before the Record Date (the “Reserved Spin Off Shares”), and (ii) to be issued to the Holder on the conversion of all or any of the Outstanding Notes, such amount of the Reserved Spin Off Shares equal to (x) the Reserved Spin Off Shares multiplied by (y) a fraction, of which (I) the numerator is the principal amount of the Outstanding Notes then being converted, and (II) the denominator is the principal amount of the Outstanding Notes.

Section 10.            Ranking; Seniority. This Note is a direct obligation of the Borrower. This Note ranks pari passu with all other Indebtedness listed on Exhibit B hereto issued by the Borrower prior to or simultaneously with the Notes on the Original Issue Date and senior to all other indebtedness of the Borrower issued after the Original Issue Date. No Indebtedness of the Borrower, either now or hereafter while this Note is outstanding, is or will be senior to this Note in right of payment, whether with respect to interest; damages or upon liquidation or dissolution or otherwise, with respect to the assets of the Borrower. Without the Holder’s consent, the Borrower shall not and shall not permit any of its Subsidiaries to, directly or indirectly, enter into, create, incur, assume or suffer to exist any indebtedness of any kind, on or with respect to any of its property or assets now owned or hereafter acquired or any interest therein or any income or profits therefrom that is senior in any respect to the obligations of the Borrower under this Note.

Section 11.            Transferability. This Note has been issued subject to investment representations of the original Holder hereof and may be transferred to a) any entity controlled by the Holder, b) any investors in the Holder or their direct assignees or c) any other accredited investors or exchanged only in compliance with the Securities Act of 1933, as amended (the “Act”), and other applicable state and foreign securities laws. In the event of any proposed transfer of this Note, the Borrower may require, prior to issuance of a new Note in the name of such other person, that it receive reasonable transfer documentation that is sufficient to evidence that such proposed transfer complies with the Act and other applicable state and foreign securities laws. Prior to due presentment for transfer of this Note, the Borrower and any agent of the Borrower may treat the person in whose name this Note is duly registered on the Borrower’s Note register as the owner hereof for the purpose of receiving payment as herein provided and for all other purposes, whether or not this Note be overdue, and neither the Borrower nor any such agent shall be affected by notice to the contrary. Subject to the foregoing, this Note may be transferred or assigned, in whole or in part, by the Holder at any time. The Notes will initially be issued in denominations determined by the Borrower, but are exchangeable for an equal aggregate principal amount of Notes of different denominations, as requested by the Holder surrendering the same. No service charge will be made for such registration or transfer or exchange.

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Section 12.        Replacement. If this Note is mutilated, lost, stolen or destroyed, the Borrower shall execute and deliver, in exchange and substitution for and upon cancellation of the mutilated Note, or in lieu of or in substitution for a lost, stolen or destroyed Note, a new Note for the principal amount of this Note so mutilated, lost, stolen or destroyed but only upon receipt of evidence of such loss, theft or destruction of such Note, and of the ownership hereof, and an agreement to indemnify Borrower for any resulting claims, all reasonably satisfactory to the Borrower.

Section 13.        Enforcement Expenses. If the Borrower fails to strictly comply with the terms of this Note, then the Borrower shall reimburse the Holder promptly for all reasonable fees, costs and expenses, including, without limitation, reasonable attorneys’ fees and expenses of the Holder in any action in connection with this Note that are incurred: (a) during any workout, attempted workout, and in connection with the rendering of legal advice as to the Holder’s rights, remedies and obligations; (b) collecting any sums which become due to the Holder, (c) defending or prosecuting any proceeding or any counterclaim to any proceeding or appeal; or (d) the protection, preservation or enforcement of any rights or remedies of the Holder under this Note or any of the Transaction Documents.

Section 14.        Waiver. Any waiver by the Holder of a breach of any provision of this Note shall not operate as or be construed to be a waiver of any other breach of such provision or of any breach of any other provision of this Note. The failure of the Holder to insist upon strict adherence to any term of this Note on one or more occasions shall not be considered a waiver or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Note. Any waiver must be in writing.

Section 15.         Severability. If any provision of this Note is invalid, illegal or unenforceable, the balance of this Note shall remain in effect, and if any provision is inapplicable to any person or circumstance, it shall nevertheless remain applicable to all other persons and circumstances. If it shall be found that any interest or other amount deemed interest due hereunder shall violate applicable laws governing usury, the applicable rate of interest due hereunder shall automatically be lowered to equal the maximum permitted rate of interest. The Borrower covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law or other law which would prohibit or forgive the Borrower from paying all or any portion of the principal of or interest on this Note as contemplated herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants or the performance of this Note.

Section 16.         Payment Dates; Payment Order of Priority. Whenever any payment or other obligation hereunder shall be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day. All payments received shall be applied in the following order of priority: (i) first to any amounts due to the Holder for the reimbursement of any expenses or fees under any provision of this Note or the Transaction Documents, all of which shall be provided to the Borrower in writing in sufficient detail prior the application of any payments for this purpose; and (ii) then amounts due to the Holder for accrued but unpaid interest on this Note; and (iii) then, to principal of this Note.

Section 17.        WAIVER OF TRIAL BY JURY. THE PARTIES HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT ANY OF THEM MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY TRANSACTION DOCUMENT OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF ANY PARTY. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE PARTIES’ ACCEPTANCE OF THIS AGREEMENT.

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Section 18.         Governing Law. This Note shall be governed by and construed in accordance with the laws of the State of Michigan, without giving effect to conflicts of laws thereof. Each of the parties consents to the jurisdiction of the state courts of the State of Michigan sitting in Ingham County, Michigan and the U.S. District Court for the Western District of Michigan in connection with any dispute arising under this Note and hereby waives, to the maximum extent permitted by law, any objection, including any objection based on forum non conveniens to the bringing of any such proceeding in such jurisdictions.

Section 19.         Notices. Any notices, consents, waivers or other communications required or permitted to be given under the terms hereof must be in writing and will be deemed to have been delivered: (a) upon receipt, when delivered personally; (b) upon receipt, when sent by facsimile (provided confirmation of transmission is mechanically or electronically generated and kept on file by the sending party); (c) on the next Business Day following deposit of such notice with a nationally recognized overnight delivery service; and (d) on the third Business Day following deposit of such notice with the U.S. Postal Service in an envelope mailed Certified Mail. The address and facsimile numbers for such communications shall be:

If to the Borrower, to:	XG Sciences, Inc.
	3101 Grand Oak Drive
	Lansing, MI 48911
	Attn: Chief Executive Officer
	Telephone:	(517) 703-1110, ext. 5445
	Facsimile:	(517) 703-1113
With a copy to:	Matt G. Hrebec
	Attorney
	Foster Swift Collins & Smith PC
	313 South Washington Square
	Lansing, MI 48933-2193
	Telephone: 517.371.8256
	Facsimile: 517.367.7356
If to the Holder:	SVIC No.15 New Technology Business Investment L.L.P.
	29th Fl., Samsung Electronics Bldg.
	1320-10, Seocho2-dong, Seocho-gu
	Seoul, Korea 137-857
	Fax: 82.2.2255.0288

Such address and facsimile number and persons to receive notice may be changed from time to time by either party providing written notice to the other party three (3) Business Days prior to the effectiveness of such change. Written confirmation of receipt (i) given by the recipient of such notice, consent, waiver or other communication, (ii) mechanically or electronically generated by the sender’s facsimile machine containing the time, date, recipient facsimile number and an image of the first page of such transmission, (iii) provided by a nationally recognized overnight delivery service, and (iv) the Certified Mail records of the U.S. Postal Service shall constitute rebuttable evidence of personal receipt in accordance with this Section 19.

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Section 20.        Entire Agreement. This Note constitutes and contains the entire agreement of the Borrower and the Holder with respect to the matters addressed herein and supersedes any and all prior negotiations, correspondence, understandings and agreements between the Borrower and Holder respecting the subject matter hereof.

[The Remainder of this Page Intentionally Left Blank.]

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IN WITNESS WHEREOF, the Borrower has caused this Note to be duly executed by a duly authorized officer as of the date set forth above.

XG SCIENCES, INC.
By:	/s/ Michael R. Knox
Name:   Michael R. Knox
Title:    Chief Executive Officer
XG SCIENCES IP, LLC
By:	/s/ Michael R. Knox
Name:  Michael R. Knox
Title:    Manager

EXHIBIT “A”

NOTICE OF CONVERSION

(To be executed by the Holder in order to convert this Note)

To:

XG Sciences, Inc.

3101 Grand Oak Drive

Lansing, MI 48911

Attn: Chief Executive Officer

The undersigned hereby irrevocably elects to convert $______________________ of the outstanding principal and/or accrued interest of the above Note into shares of Series A Convertible Preferred Stock of XG Sciences, Inc., according to the conditions stated therein, as of the Conversion Date written below.

Conversion Date:
Applicable Note Conversion Price:
Signature:
Name:
Address:
Amount to be converted:	$
Amount of Note unconverted:	$
Note Conversion Price per share:	$
Number of shares of Common Stock to be issued:
Please issue the shares of Common Stock in the following name and to the following address:
Issue to:
Authorized Signature:
Name:
Title:
Phone Number:

EXHIBIT “B”

EXISTING INDEBTEDNESS OF BORROWER WHICH RANKS PARI PASSU TO THE NOTE

1. $4,178,330.92 Amended and Restated Secured Convertible Promissory Note issued on January 15, 2014 by the Borrower to Aspen Advanced Opportunity Fund.

2. $772,998.15 Amended and Restated Secured Convertible Promissory Note issued on January 15, 2014 by the Borrower to Michael R. Knox.

3. $739,349.83 Amended and Restated Secured Convertible Promissory Note issued on January 15, 2014 by the Borrower to XGS II, LLC.

4. $300,000.00 Line of Credit Note, dated March 18, 2013, by and between XG Sciences, Inc. as the “Borrower” and Michael R. Knox as the “Lender” thereunder, of which $100,000 of principal remained outstanding as of January 15, 2014.

EXHIBIT “C”

PERMITTED PAYMENTS TO HOLDERS OF EXISTING INDEBTEDNESS

1) TRADE ACCOUNT PAYABLES

a) 100% of trade payables incurred in the ordinary course of business including unpaid employee compensation and authorized compensation payable to Affiliates

2) ACCRUED LIABILITIES

a) 100% of accrued liabilities incurred in the ordinary course of business including payroll, tax, and other liabilities.

3) SECURED NOTES PAYABLE DESCRIBED ON EXHIBIT B

a) All interest payments relating to the Indebtedness listed on Exhibit B hereof to the extent such interest payments are paid in cash.

b) Principal payments relating to that Indebtedness listed on Exhibit B, #4, provided, that such principal payments will only be made in the amounts and after the dates indicated below:

- $100,000 after the date on which Aspen and its Affiliates have provided $4.0. million of aggregate funding to the Company pursuant to the Transaction Documents

c) Principal payments relating to that Existing Indebtedness listed on Exhibit B, #1, #2, and #3, pursuant to the terms thereof, and subject to the terms of the Transaction Documents or the Aspen Transaction Documents, provided that such principal payments are made pro rata to the holders thereof in proportion to the aggregate principal amount of all such notes that may be outstanding as of the date of any such principal payments.

4) UNSECURED NOTES PAYABLE

a) Interest on the unsecured notes payable listed on Exhibit D hereof or any other amounts of Permitted Indebtedness subject to any limitations established in the definition of Permitted Indebtedness.

EXHIBIT “D”

EXISTING INDEBTEDNESS

UNSECURED NOTES PAYABLE

None

SCHEDULES

Schedule 2(a)(6) – Post Closing Obligations

Borrower shall direct the Collateral Agent specified in the Security Agreement to file a UCC-1 Statement evidencing Holder’s security interest in the Collateral within ten (10) days after the Closing Date.

Schedule 2(a)(7) – Subsidiaries of Borrower

XG Sciences IP, LLC (wholly owned subsidiary of XG Sciences, Inc.)

Schedule 2(b)(4) – Location of Collateral

(Headquarters)

3101 Grand Oak Drive

Lansing, MI 48911

(R&D Facility)

4055 English Oak

Suite B

Lansing, MI 48911

(Pilot Plant)

2100 S. Washington Ave.

Lansing, MI 48910

Schedule 2(b)(4) – Securities

100% of the membership interests of XG Sciences IP, LLC is owned by XG Sciences, Inc.

Schedule 2(b)(6) – Transactions with Affiliates

1. $4,178,330.92 Amended and Restated Secured Convertible Promissory Note issued on January 15, 2014 by the Borrower to Aspen Advanced Opportunity Fund.

2. $772,998.15 Amended and Restated Secured Convertible Promissory Note issued on January 15, 2014 by the Borrower to Michael R. Knox.

3. $739,349.83 Amended and Restated Secured Convertible Promissory Note issued on January 15, 2014 by the Borrower to XGS II, LLC.

4. $300,000.00 Line of Credit Note, dated March 18, 2013, by and between XG Sciences, Inc. as the “Borrower” and Michael R. Knox as the “Lender” thereunder, of which $100,000 of principal remained outstanding as of January 15, 2014.

5. One or more joint development agreements with Samsung or any of its affiliates as contemplated in the Transaction Documents.

THIS WARRANT AND THE UNDERLYING SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR UNDER THE SECURITIES LAWS OF ANY STATE. THESE SECURITIES MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED EXCEPT AS PERMITTED UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS IN ACCORDANCE WITH APPLICABLE REGISTRATION REQUIREMENTS OR AN EXEMPTION THEREFROM. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE ISSUER THAT SUCH OFFER, SALE, TRANSFER, PLEDGE OR HYPOTHECATION OTHERWISE COMPLIES WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS. THIS WARRANT MUST BE SURRENDERED TO THE COMPANY OR ITS TRANSFER AGENT AS A CONDITION PRECEDENT TO THE SALE, TRANSFER, PLEDGE OR HYPOTHECATION OF ANY INTEREST IN ANY OF THE SECURITIES REPRESENTED HEREBY.

WARRANT TO PURCHASE SHARES OF SERIES A CONVERTIBLE PREFERRED STOCK

of

XG SCIENCES, INC.

Dated as of January 15, 2014

Void after the date specified in Section 9

Warrant to Purchase

833,333 Shares of

Series A Convertible Preferred Stock

(subject to adjustment)

THIS CERTIFIES THAT, for value received, Aspen Advanced Opportunity Fund, LP, a Delaware limited partnership (“Aspen”), or its registered assigns (Aspen or its assigns generally referred to herein as the “Holder”), is entitled, subject to the provisions and upon the terms and conditions set forth herein, to purchase from XG Sciences, Inc., a Michigan corporation (the “Company”), shares of the Company’s Series A Convertible Preferred Stock (the “Preferred Stock”) (the “Shares”) in the amounts, at such times and at the price per share set forth in Section 1. The term “Warrant” as used herein shall include this Warrant and any warrants delivered in substitution or exchange therefor as provided herein. This Warrant is issued in connection with the sale of certain securities pursuant to the Amended & Restated Purchase Agreement, dated January 15, 2014, by and between the Holder and the Company (the “Purchase Agreement”). This Warrant restates and consolidates the warrants issued by the Company to Aspen on March 18, 2013 and July 12, 2013, each for 208,333 shares, respectively (the “Prior Warrants”). The Prior Warrants are hereby cancelled, and Aspen shall physically deliver the Prior Warrants to the Company upon the execution of this Warrant.

The following is a statement of the rights of the Holder and the conditions to which this Warrant is subject, and to which the Holder, by acceptance of this Warrant, agrees:

1. Number and Price of Shares; Exercise Period.

(a)          Number of Shares. Subject to any previous exercise of this Warrant and the vesting provisions outlined in Section 4 hereof, the Holder shall have the right to purchase up to 833,333 Shares, as may be adjusted pursuant hereto, prior to (or in connection with) the expiration of this Warrant as provided in Section 9.

(b)          Exercise Price. The exercise price per Share shall initially be equal to $12.00, subject to adjustment as provided in Section 7 (the “Exercise Price”).

(c)          Exercise Period. This Warrant shall be exercisable on or after the date of grant and prior to (or in connection with) the expiration of this Warrant as set forth in Section 9.

2.            Exercise of the Warrant.

(a)           Exercise. Subject to the vesting provisions outlined in Section 4 hereof, the purchase rights represented by this Warrant may be exercised at the election of the Holder, in whole or in part, but not for less than one hundred (100) Shares at a time (or such lesser number of shares which may then constitute the maximum number purchasable pursuant to Section 1) (such number being subject to adjustment as provided in Section 7, in accordance with Section 1), by:

(i)          the tender to the Company at its principal office (or such other office or agency as the Company may designate) of a notice of exercise in the form of Exhibit A (the “Notice of Exercise”), duly completed and executed by or on behalf of the Holder, together with the surrender of this Warrant; and

(ii)         the payment to the Company of an amount equal to (x) the Exercise Price multiplied by (y) the number of Shares being purchased, by wire transfer or certified, cashier’s or other check acceptable to the Company and payable to the order of the Company; and

(iii)        with respect to the first exercise by the Holder of this Warrant, in whole or in part, delivery of counterpart signature pages to that certain Shareholder Agreement, dated March 18, 2013, by and among the parties thereto and attached as Exhibit B hereto (the “Shareholder Agreement”), and any subsequent amendments thereto, such that as a condition to the first exercise by the Holder of this Warrant, in whole or in part, the Holder shall become a party to, and bound by, the Shareholder Agreement as a “Stockholder” thereunder; provided, however, that Holder will not be required to be bound to any provision of any such amendment to the Shareholder Agreement that creates a material financial obligation for the Holder; it being understood that the Shareholder Agreement as currently in effect does not create any such financial obligations.

(b)           Net Issue Exercise. In lieu of exercising this Warrant pursuant to Section 2(a)(ii), if the fair market value of one Share is greater than the Exercise Price (at the date of calculation as set forth below), the Holder may elect to receive a number of Shares equal to the value of this Warrant (or of any portion of this Warrant being canceled) by surrender of this Warrant at the principal office of the Company (or such other office or agency as the Company may designate) together with a properly completed and executed Notice of Exercise reflecting such election, in which event the Company shall issue to the Holder that number of Shares computed using the following formula:

X	=	Y (A – B)
		A

Where:

X	=	The number of Shares to be issued to the Holder
Y	=	The number of Shares purchasable under this Warrant or, if only a portion of the Warrant is being exercised, the portion of the Warrant being exercised (at the date of such calculation)

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A	=	The fair market value of one Share (at the date of such calculation)
B	=	The Exercise Price (as adjusted to the date of such calculation)

For purposes of the calculation above, the fair market value of one Share shall be determined by the Board of Directors of the Company, acting in good faith; provided, however; that:

(i)          where a public market exists for the Common Stock at the time of such exercise, the fair market value per Share shall be based on the average of the closing ask prices of the Common Stock underlying such Shares or the closing price quoted on the national securities exchange on which the Common Stock is listed as published in the Wall Street Journal, as applicable, for the ten (10) trading day period ending five (5) trading days prior to the date of determination of fair market value; and

(ii)         if the Warrant is exercised in connection with the Company’s initial public offering of the Common Stock, the fair market value per Share shall be based on the offering price per share of Common Stock to the public of the Company’s initial public offering.

(c)           Automatic Exercise. If any portion of this Warrant remains unexercised as of the Expiration Date of this Warrant as set forth in Section 9 and the fair market value per share of the Shares as of the Expiration Date is greater than the applicable Exercise Price as of the Expiration Date, then, without further action by the Holder, this Warrant shall be deemed to have been exercised automatically on the date (the “Automatic Exercise Date”) which is the day immediately prior to the close of business on the Expiration Date (or, in the event that the Expiration Date is not a Business Day, the immediately preceding Business Day) as if the Holder had duly given a Notice of Exercise for a Net Issue Exercise as contemplated by Section 2(b) hereof, and the Holder (or such other person or persons as directed by the Holder) shall be treated for all purposes as the holder of record of such Shares as of the close of business on such Automatic Exercise Date. This Warrant shall be deemed to be surrendered to the Company on the Automatic Exercise Date by virtue of this Section 2(c) without any action by the Holder

(d)           Stock Certificates. The rights under this Warrant shall be deemed to have been exercised and the Shares issuable upon such exercise shall be deemed to have been issued immediately prior to the close of business on the date this Warrant is exercised in accordance with its terms, and the person entitled to receive the Shares issuable upon such exercise shall be treated for all purposes as the holder of record of such Shares as of the close of business on such date. As promptly as reasonably practicable on or after such date, and in any event within thirty (30) days thereafter, the Company shall issue and deliver to the person or persons entitled to receive the same a certificate or certificates for that number of shares issuable upon such exercise. In the event that the rights under this Warrant are exercised in part and have not expired, the Company shall execute and deliver a new Warrant reflecting the number of Shares that remain subject to this Warrant.

(e)           No Fractional Shares or Scrip. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of the rights under this Warrant. In lieu of such fractional share to which the Holder would otherwise be entitled, the Company shall make a cash payment equal to the Exercise Price multiplied by such fraction.

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(f)           Reservation of Stock. The Company agrees during the term the rights under this Warrant are exercisable to take all reasonable action to reserve and keep available from its authorized and unissued shares of Preferred Stock, and the Common Stock into which such shares of Preferred Stock are convertible, for the purpose of effecting the exercise of this Warrant such number of shares as shall from time to time be sufficient to effect the exercise of the rights under this Warrant; and if at any time the number of authorized but unissued shares of Preferred Stock, and the Common Stock into which such shares of Preferred Stock are convertible, shall not be sufficient for purposes of the exercise of this Warrant in accordance with its terms, without limitation of such other remedies as may be available to the Holder, the Company will use all reasonable efforts to take such corporate action as may, in the opinion of counsel, be necessary to increase its authorized and unissued shares of its Preferred Stock, and the Common Stock into which shares of Preferred Stock are convertible, to a number of shares as shall be sufficient for such purposes. The Company represents and warrants that all shares that may be issued upon the exercise of this Warrant will, when issued in accordance with the terms hereof, be validly issued, fully paid and nonassessable.

3.          Replacement of the Warrant. Subject to the receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of loss, theft or destruction, on delivery of an indemnity agreement reasonably satisfactory in form and substance to the Company or, in the case of mutilation, on surrender and cancellation of this Warrant, the Company at the expense of the Holder shall execute and deliver, in lieu of this Warrant, a new warrant of like tenor and amount.

4.          Vesting of the Warrant. The Shares subject to this Warrant shall vest according to the following schedule:

(a)           378,766 Shares, as described in Section 1, shall be deemed to have vested as of January 15, 2014 in consideration for Aspen having advanced on or before such date (i) $3,909,425.00 of initial principal of Convertible Secured Notes pursuant to the transaction documents referenced in the Purchase Agreement (such documents collectively the “Transaction Documents”), and (ii) $635,769.73 of funding to certain vendors of the Company pursuant to Lease Schedules #1 and #2 of that certain Master Lease Agreement between the Aspen and the Company, dated March 18, 2013 (the “Master Lease”).

(b)           454,567 warrants shall vest according to the following schedule. For every $12 of new capital advanced to the Company in cash by Aspen over and above the amounts referenced in Section 4(a) above under any of the Transaction Documents after January 15, 2014, one Share, as described in Section 1, shall be deemed to be vested. For the purposes of this Warrant, any funds advanced to vendors of the Company by Aspen pursuant to the Master Lease Agreement between the parties, dated March 18, 2013, shall not be deemed to have been advanced to the Company until the earlier to occur of (i) the date on which a completed lease schedule is executed between the parties covering the funds advanced to vendors of the Company on the Company’s behalf; or (ii) the date which is six months from the date on which any advance is made by Aspen to a vendor of the Company pursuant to a signed certificate of understanding between Aspen and the Company.

(c)           In the event there is a Default or Event of Default (as such terms are defined in the Transaction Documents) by the Company under any of the Transaction Documents and such Default or Event of Default continues uncured for a period of thirty (30) days after the Company’s receipt of written notice of the Event of Default, then all remaining unvested Shares subject to this Warrant will be deemed to have immediately vested.

(d)           In the event there is a Change of Control of the Company as provided in Section 9 hereof, all remaining unvested Shares subject to this Warrant will be deemed to have immediately vested on the Business Day prior to such Change of Control.

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5. Transfer of the Warrant.

(a)           Warrant Register. The Company shall maintain a register (the “Warrant Register”)containing the name and address of the Holder or Holders. Until this Warrant is transferred on the Warrant Register in accordance herewith, the Company may treat the Holder as shown on the Warrant Register as the absolute owner of this Warrant for all purposes, notwithstanding any notice to the contrary. Any Holder of this Warrant (or of any portion of this Warrant) may change its address as shown on the Warrant Register by written notice to the Company requesting a change.

(b)           Warrant Agent. The Company may appoint an agent for the purpose of maintaining the Warrant Register referred to in Section 5(a), issuing the Shares or other securities then issuable upon the exercise of the rights under this Warrant, exchanging this Warrant, replacing this Warrant or conducting related activities.

(c)           Transferability of the Warrant. Subject to the provisions of this Warrant with respect to compliance with the Securities Act of 1933, as amended (the “Securities Act”) and limitations on assignments and transfers, including without limitation compliance with the restrictions on transfer set forth in Section 6, title to this Warrant may be transferred by endorsement (by the transferor and the transferee executing the assignment form attached as Exhibit C (the “Assignment Form”) and delivery in the same manner as a negotiable instrument transferable by endorsement and delivery.

(d)           Exchange of the Warrant upon a Transfer. On surrender of this Warrant (and a properly endorsed Assignment Form) for exchange, subject to the provisions of this Warrant with respect to compliance with the Securities Act and limitations on assignments and transfers, the Company shall issue to or on the order of the Holder a new warrant or warrants of like tenor, in the name of the Holder or as the Holder (on payment by the Holder of any applicable transfer taxes) may direct for the number of shares issuable upon exercise hereof, and the Company shall register any such transfer upon the Warrant Register. This Warrant (and the securities issuable upon exercise of the rights under this Warrant) must be surrendered to the Company or its warrant or transfer agent, as applicable, as a condition precedent to the sale, pledge, hypothecation or other transfer of any interest in any of the securities represented hereby.

(e)           Minimum Transfer. This Warrant may not be transferred in part unless such transfer is to a transferee who, pursuant to such transfer, receives the right to purchase at least one hundred (100) Shares hereunder (as adjusted from time to time in accordance with Section 7).

(f)           Taxes. In no event shall the Company be required to pay any tax which may be payable in respect of any transfer involved in the issue and delivery of any certificate in a name other than that of the Holder, and the Company shall not be required to issue or deliver any such certificate unless and until the person or persons requesting the issue thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid or is not payable.

6.           Restrictions on Transfer of the Warrant and Shares; Compliance with Securities Laws. By acceptance of this Warrant, the Holder agrees to comply with the following:

(a)           Restrictions on Transfers. Any transfer of the Shares or the Common Stock issuable upon conversion of the Shares (collectively the “Securities”) must be in compliance with all applicable federal and state securities laws. The Holder agrees not to make any sale, assignment, transfer, pledge or other disposition of all or any portion of the Securities, or any beneficial interest therein, unless and until the transferee thereof has agreed in writing for the benefit of the Company to take and hold such Securities subject to, and to be bound by, the terms and conditions set forth in this Warrant to the same extent as if the transferee were the original Holder hereunder, and

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(i)          there is then in effect a registration statement under the Securities Act covering such proposed disposition and such disposition is made in accordance with such registration statement, or

(ii)         (A) such Holder shall have given prior written notice to the Company of such Holder’s intention to make such disposition and shall have furnished the Company with a detailed description of the manner and circumstances of the proposed disposition, (B) the transferee shall have confirmed to the satisfaction of the Company in writing, substantially in the form of Exhibit A-1, that the Securities are being acquired (i) solely for the transferee’s own account and not as a nominee for any other party, (ii) for investment and (iii) not with a view toward distribution or resale, and shall have confirmed such other matters related thereto as may be reasonably requested by the Company, and (C) such Holder shall have furnished the Company, at the Holder’s expense, with (i) an opinion of counsel, reasonably satisfactory to the Company, to the effect that such disposition will not require registration of such Securities under the Securities Act or (ii) a “no action” letter from the Securities and Exchange Commission to the effect that the transfer of such Securities without registration will not result in a recommendation by the staff of the Securities and Exchange Commission that action be taken with respect thereto, whereupon such Holder shall be entitled to transfer such Securities in accordance with the terms of the notice delivered by the Holder to the Company; provided, that the requirements of Section 6(a)(ii)(C) shall not apply in the case of permitted transfers under Section 6(b).

(b)           Permitted Transfers. Permitted transfers include (i) a transfer not involving a change in beneficial ownership, or (ii) transactions involving the distribution without consideration of Securities by any Holder to a parent or majority owned subsidiary of the Holder that is a corporation; provided, in each case, that the Holder shall give written notice to the Company of the Holder’s intention to effect such disposition and shall have furnished the Company with a detailed description of the manner and circumstances of the proposed disposition.

(c)           Securities Law Legend. The Securities shall (unless otherwise permitted by the provisions of this Warrant) be stamped or imprinted with a legend substantially similar to the following (in addition to any legend required by state securities laws):

THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR UNDER THE SECURITIES LAWS OF CERTAIN STATES. THESE SECURITIES MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED EXCEPT AS PERMITTED UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS IN ACCORDANCE WITH APPLICABLE REGISTRATION REQUIREMENTS OR AN EXEMPTION THEREFROM. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE ISSUER THAT SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION OTHERWISE COMPLIES WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS. THIS CERTIFICATE MUST BE SURRENDERED TO THE COMPANY OR ITS TRANSFER AGENT AS A CONDITION PRECEDENT TO THE SALE, TRANSFER, PLEDGE OR HYPOTHECATION OF ANY INTEREST IN ANY OF THE SECURITIES REPRESENTED HEREBY.

(d)           Shareholder Agreement Legend. The Shares issued upon exercise hereof shall also be stamped or imprinted with any and all legends described in the Company’s Shareholder Agreement.

(e)           Instructions Regarding Transfer Restrictions. The Holder consents to the Company making a notation on its records and giving instructions to any transfer agent in order to implement the restrictions on transfer established in Sections 5 and 6. The Company will not be required to (i) transfer on its books or in its Warrant Register any Securities that have been transferred in violation of any provisions of this Warrant or (ii) to treat as owner of such Securities, or accord the right to vote or pay dividends to any purchaser, donee or other transferee to whom such Securities may have been so transferred.

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(f)           Removal of Legend. The legend referring to federal and state securities laws identified in Section 6(d) stamped on a certificate evidencing the Shares and the stock transfer instructions and record notations with respect to such securities shall be removed and the Company shall issue a certificate without such legend to the holder of such securities if (i) such securities are registered under the Securities Act, or (ii) such holder provides the Company with an opinion of counsel reasonably acceptable to the Company to the effect that a sale or transfer of such securities may be made without registration or qualification.

7.          Adjustments. Subject to the expiration of this Warrant pursuant to Section 9, the number and kind of shares purchasable hereunder and the Exercise Price therefor are subject to adjustment from time to time after the date first stated herein, as follows:

(a)           Merger or Reorganization. If at any time there shall be any reorganization, recapitalization, merger or consolidation (a “Reorganization”) involving the Company (other than as otherwise provided for herein or as would cause the expiration of this Warrant under Section 9) in which the Preferred Stock are converted into or exchanged for securities, cash or other property, then, as a part of such Reorganization, lawful provision shall be made so that the Holder shall thereafter be entitled to receive upon exercise of this Warrant, the kind and amount of securities, cash or other property of the successor corporation resulting from such Reorganization, equivalent in value to that which a holder of the Shares deliverable upon exercise of this Warrant would have been entitled in such Reorganization if the right to purchase the Shares hereunder had been exercised immediately prior to such Reorganization. In any such case, appropriate adjustment (as determined in good faith by the Board of Directors of the successor corporation) shall be made in the application of the provisions of this Warrant with respect to the rights and interests of the Holder after such Reorganization to the end that the provisions of this Warrant shall be applicable after the event, as near as reasonably may be, in relation to any shares or other securities deliverable after that event upon the exercise of this Warrant.

(b)           Reclassification of Shares. If the securities issuable upon exercise of this Warrant are changed into the same or a different number of securities of any other class or classes by reclassification, capital reorganization or otherwise (other than as otherwise provided for herein) (a “Reclassification”), then, in any such event, in lieu of the number of Shares which the Holder would otherwise have been entitled to receive, the Holder shall have the right thereafter to exercise this Warrant for a number of shares of such other class or classes of stock that a holder of the number of securities deliverable upon exercise of this Warrant immediately before that change would have been entitled to receive in such Reclassification, all subject to further adjustment as provided herein with respect to such other shares.

(c)           Subdivisions and Combinations. In the event that the outstanding shares of the Preferred Stock are subdivided (by stock split, by payment of a stock dividend or otherwise) into a greater number of shares of such securities, the number of Shares issuable upon exercise of the rights under this Warrant immediately prior to such subdivision shall, concurrently with the effectiveness of such subdivision, be proportionately increased, and the Exercise Price shall be proportionately decreased, and in the event that the outstanding shares of the Preferred Stock are combined (by reclassification or otherwise) into a lesser number of shares of such securities, the number of Shares issuable upon exercise of the rights under this Warrant immediately prior to such combination shall, concurrently with the effectiveness of such combination, be proportionately decreased, and the Exercise Price shall be proportionately increased.

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(d)           Notice of Adjustments. Upon any adjustment in accordance with this Section 7, the Company shall give notice thereof to the Holder, which notice shall state the event giving rise to the adjustment, the Exercise Price as adjusted and the number of securities or other property purchasable upon the exercise of the rights under this Warrant, setting forth in reasonable detail the method of calculation of each. The Company shall, upon the written request of any Holder, furnish or cause to be furnished to such Holder a certificate setting forth (i) such adjustments, (ii) the Exercise Price at the time in effect and (iii) the number of securities and the amount, if any, of other property that at the time would be received upon exercise of this Warrant

8.           Notification of Certain Events. Prior to the expiration of this Warrant pursuant to Section 9, in the event that the Company shall authorize:

(a)           the voluntary liquidation, dissolution or winding up of the Company;

(b)           any transaction resulting in the expiration of this Warrant pursuant to Section 9(b); or

(c)           any cash dividend, stock dividend, property dividend or any other distribution of the Company;

the Company shall send to the Holder of this Warrant at least fifteen (15) days prior written notice of the date on which a record shall be taken for any such action, dividend or distribution specified in clause (a) or (c) or the expected effective date of any such other event specified in clause (b) or (c), as applicable. The notice provisions set forth in this section may be shortened or waived prospectively or retrospectively by the consent of the Holder of this Warrant.

9.           Expiration of the Warrant. This Warrant shall expire and shall no longer be exercisable as of the earlier of (such date, the “Expiration Date”):

(a)           5:00 p.m., Eastern time, on January 15, 2024;

(b)           (i) the acquisition of the Company by another entity by means of any transaction or series of related transactions to which the Company is a party (including, without limitation, any stock acquisition, reorganization, merger or consolidation, but excluding any sale of stock for capital raising purposes and any transaction effected primarily for purposes of changing the Company’s jurisdiction of incorporation) other than a transaction or series of related transactions in which the holders of the voting securities of the Company outstanding immediately prior to such transaction or series of related transactions retain, immediately after such transaction or series of transactions, as a result of shares in the Company held by such holders prior to such transaction or series of transactions, at least a majority of the total voting power represented by the outstanding voting securities of the Company or such other surviving or resulting entity (or if the Company or such other surviving or resulting entity is a wholly-owned subsidiary immediately following such acquisition, its parent), or (ii) a sale, lease or other disposition of all or substantially all of the assets of the Company and its subsidiaries taken as a whole by means of any transaction or series of related transactions, except where such sale, lease or other disposition is to a wholly-owned subsidiary of the Company (any of the foregoing events specified in this Section 9(b), referred to generally as a “Change of Control”).

10.          No Rights as a Stockholder. Nothing contained herein shall entitle the Holder to any rights as a stockholder of the Company or to be deemed the holder of any securities that may at any time be issuable on the exercise of the rights hereunder for any purpose nor shall anything contained herein be construed to confer upon the Holder, as such, any right to vote for the election of directors or upon any matter submitted to stockholders at any meeting thereof, or to give or withhold consent to any corporate action (whether upon any recapitalization, issuance of stock, reclassification of stock, change of par value or change of stock to no par value, consolidation, merger, conveyance or otherwise) or to receive notice of meetings, or to receive dividends or subscription rights or any other rights of a stockholder of the Company until the rights under the Warrant shall have been exercised and the Shares purchasable upon exercise of the rights hereunder shall have become deliverable as provided herein.

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11.         Representations and Warranties of the Holder. By acceptance of this Warrant, the Holder represents and warrants to the Company as follows:

(a)           No Registration. The Holder understands that the Securities have not been, and will not be, registered under the Securities Act by reason of a specific exemption from the registration provisions of the Securities Act, the availability of which depends upon, among other things, the bona fide nature of the investment intent and the accuracy of the Holder’s representations as expressed herein or otherwise made pursuant hereto.

(b)           Investment Intent. The Holder is acquiring the Securities for investment for its own account, not as a nominee or agent, and not with a view to, or for resale in connection with, any distribution thereof. The Holder has no present intention of selling, granting any participation in, or otherwise distributing the Securities, nor does it have any contract, undertaking, agreement or arrangement for the same.

(c)           Investment Experience. The Holder has substantial experience in evaluating and investing in private placement transactions of securities in companies similar to the Company, and has such knowledge and experience in financial or business matters so that it is capable of evaluating the merits and risks of its investment in the Company and protecting its own interests.

(d)           Speculative Nature of Investment. The Holder understands and acknowledges that the Company has a limited financial and operating history and that its investment in the Company is highly speculative and involves substantial risks. The Holder can bear the economic risk of its investment and is able, without impairing its financial condition, to hold the Securities for an indefinite period of time and to suffer a complete loss of its investment.

(e)           Access to Data. The Holder has had an opportunity to ask questions of officers of the Company, which questions were answered to its satisfaction. The Holder believes that it has received all the information that it considers necessary or appropriate for deciding whether to acquire the Securities. The Holder understands that any such discussions, as well as any information issued by the Company, were intended to describe certain aspects of the Company’s business and prospects, but were not necessarily a thorough or exhaustive description. The Holder acknowledges that any business plans prepared by the Company have been, and continue to be, subject to change and that any projections included in such business plans or otherwise are necessarily speculative in nature, and it can be expected that some or all of the assumptions underlying the projections will not materialize or will vary significantly from actual results.

(f)           Accredited Investor. The Holder is an “accredited investor” within the meaning of Regulation D, Rule 501(a), promulgated by the Securities and Exchange Commission and agrees to submit to the Company such further assurances of such status as may be reasonably requested by the Company.

(g)           Residency. The residency of the Holder (or, in the case of a partnership or corporation, such entity’s principal place of business) is correctly set forth on the signature page hereto.

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(h)           Restrictions on Resales. The Holder acknowledges that the Securities must be held indefinitely unless subsequently registered under the Securities Act or an exemption from such registration is available. The Holder is aware of the provisions of Rule 144 promulgated under the Securities Act, which permit resale of shares purchased in a private placement subject to the satisfaction of certain conditions, which may include, among other things, the availability of certain current public information about the Company; the resale occurring not less than a specified period after a party has purchased and paid for the security to be sold; the number of shares being sold during any three-month period not exceeding specified limitations; the sale being effected through a “broker’s transaction,” a transaction directly with a “market maker” or a “riskless principal transaction” (as those terms are defined in the Securities Act or the Exchange Act, as amended, and the rules and regulations promulgated thereunder); and the filing of a Form 144 notice, if applicable. The Holder acknowledges and understands that the Company may not be satisfying the current public information requirement of Rule 144 at the time the Holder wishes to sell the Securities and that, in such event, the Holder may be precluded from selling the Securities under Rule 144 even if the other applicable requirements of Rule 144 have been satisfied. The Holder acknowledges that, in the event the applicable requirements of Rule 144 are not met, registration under the Securities Act or an exemption from registration will be required for any disposition of the Securities. The Holder understands that, although Rule 144 is not exclusive, the Securities and Exchange Commission has expressed its opinion that persons proposing to sell restricted securities received in a private offering other than in a registered offering or pursuant to Rule 144 will have a substantial burden of proof in establishing that an exemption from registration is available for such offers or sales and that such persons and the brokers who participate in the transactions do so at their own risk.

(i)           No Public Market. The Holder understands and acknowledges that no public market now exists for any of the securities issued by the Company and that the Company has made no assurances that a public market will ever exist for the Company’s securities.

(j)           Brokers and Finders. The Holder has not engaged any brokers, finders or agents in connection with the Securities, and the Company has not incurred nor will incur, directly or indirectly, as a result of any action taken by the Holder, any liability for brokerage or finders’ fees or agents’ commissions or any similar charges in connection with the Securities.

(k)          Legal Counsel. The Holder has had the opportunity to review this Warrant, the exhibits and schedules attached hereto and the transactions contemplated by this Warrant with its own legal counsel. The Holder is not relying on any statements or representations of the Company or its agents for legal advice with respect to this investment or the transactions contemplated by this Warrant.

(l)          Tax Advisors. The Holder has reviewed with its own tax advisors the U.S. federal, state and local and non-U.S. tax consequences of this investment and the transactions contemplated by this Warrant. With respect to such matters, the Holder relies solely on any such advisors and not on any statements or representations of the Company or any of its agents, written or oral. The Holder understands that it (and not the Company) shall be responsible for its own tax liability that may arise as a result of this investment and the transactions contemplated by this Warrant.

12.         Miscellaneous.

(a)           Amendments. Except as expressly provided herein, neither this Warrant nor any term hereof may be amended, waived, discharged or terminated other than by a written instrument referencing this Warrant and signed by the Company and the Holder. Any amendment, waiver, discharge or termination effected in accordance with this Section 12(a) shall be binding upon the Holder, each future holder of such Warrants and the Company.

(b)           Waivers. No waiver of any single breach or default shall be deemed a waiver of any other breach or default theretofore or thereafter occurring.

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(c)           Notices. All notices and other communications required or permitted hereunder shall be in writing and shall be mailed by registered or certified mail, postage prepaid, sent by facsimile or electronic mail (if to the Holder) or otherwise delivered by hand, messenger or courier service addressed:

(i)          if to the Holder, to the Holder at the Holder’s address, facsimile number or electronic mail address as shown in the Company’s records, as may be updated in accordance with the provisions hereof, or until any such Holder so furnishes an address, facsimile number or electronic mail address to the Company, then to and at the address, facsimile number or electronic mail address of the last holder of this Warrant for which the Company has contact information in its records; or

(ii)         if to the Company, to the attention of the Chief Executive Officer of the Company at the Company’s address as shown on the signature page hereto, or at such other address as the Company shall have furnished to the Holder.

Each such notice or other communication shall for all purposes of this Warrant be treated as effective or having been given (i) if delivered by hand, messenger or courier service, when delivered, or (ii) if sent by mail, at the earlier of its receipt or 72 hours after the same has been deposited in a regularly maintained receptacle for the deposit of the United States mail, addressed and mailed as aforesaid, or (iii) if sent by facsimile, upon confirmation of facsimile transfer or, if sent by electronic mail, upon confirmation of delivery when directed to the relevant electronic mail address. In the event of any conflict between the Company’s books and records and this Warrant or any notice delivered hereunder, the Company’s books and records will control absent fraud or error.

(d)           Governing Law. This Warrant and all actions arising out of or in connection with this Warrant shall be governed by and construed in accordance with the laws of the State of Michigan, without regard to the conflicts of law provisions of any other state.

(e)           Jurisdiction and Venue. Each of the Holder and the Company irrevocably consents to the exclusive jurisdiction and venue of any court within the Ingham County, State of Michigan, in connection with any matter based upon or arising out of this Warrant or the matters contemplated herein, and agrees that process may be served upon them in any manner authorized by the laws of the State of Florida for such persons.

(f)           Titles and Subtitles. The titles and subtitles used in this Warrant are used for convenience only and are not to be considered in construing or interpreting this Warrant. All references in this Warrant to sections, paragraphs and exhibits shall, unless otherwise provided, refer to sections and paragraphs hereof and exhibits attached hereto.

(g)           Severability. If any provision of this Warrant becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, portions of such provision, or such provision in its entirety, to the extent necessary, shall be severed from this Warrant, and such illegal, unenforceable or void provision shall be replaced with a valid and enforceable provision that will achieve, to the extent possible, the same economic, business and other purposes of the illegal, unenforceable or void provision. The balance of this Warrant shall be enforceable in accordance with its terms.

(h)           Waiver of Jury Trial. EACH OF THE HOLDER AND THE COMPANY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATED TO THIS WARRANT. If the waiver of jury trial set forth in this paragraph is not enforceable, then any claim or cause of action arising out of or relating to this Warrant shall be settled by judicial reference pursuant to the laws of the State of Michigan before a referee sitting without a jury, such referee to be mutually acceptable to the parties or, if no agreement is reached, by a referee appointed by the state courts of Michigan. This paragraph shall not restrict the Holder or the Company from exercising remedies under the Uniform Commercial Code or from exercising pre- judgment remedies under applicable law.

 11

(i)            Saturdays, Sundays and Holidays. If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall be a Saturday, Sunday or U.S. federal holiday, then such action may be taken or such right may be exercised on the next succeeding day that is not a Saturday, Sunday or U.S. federal holiday (such day a “Business Day”).

(j)           Rights and Obligations Survive Exercise of the Warrant. Except as otherwise provided herein, the rights and obligations of the Company and the Holder under this Warrant shall survive exercise of this Warrant.

(k)          Entire Agreement. Except as expressly set forth herein, this Warrant (including the exhibits attached hereto) constitutes the entire agreement and understanding of the Company and the Holder with respect to the subject matter hereof and supersedes all prior agreements and understandings relating to the subject matter hereof, including the Prior Warrants.

(Signature Page Follows)

 12

The Company and the Holder sign this Warrant as of the date stated on the first page.

XG SCIENCES, INC.
a Michigan corporation
By:	/s/ Michael R. Knox
Name:	Michael R. Knox
Title:	Chief Executive Officer
Address:
3101 Grand Oak Drive
Lansing, MI 48911
Telephone:      517.703.1110
Facsimile:       517.703.1113

AGREED AND ACKNOWLEDGED:
ASPEN ADVANCED OPPORTUNITY FUND, LP,
a Delaware limited partnership
By:	AA XGS, LLC
Its:	General Partner
By:	/s/  Steven C. Jones
Name:	Steven C. Jones
Title:	Managing Member
Address:
1740 Persimmon Drive, Suite 100
Naples, FL 34109
Telephone:     239.325.2001
Facsimile:      239.325.2004

EXHIBIT A

NOTICE OF EXERCISE

TO: XG Sciences, Inc. (the “Company”)

Attention: Chief Executive Officer

(1) Exercise. The undersigned elects to purchase the following pursuant to the terms of the attached warrant:

Number of shares:

Type of security:

(2) Method of Exercise. The undersigned elects to exercise the attached warrant pursuant to:

¨ A cash payment, and tenders herewith payment of the purchase price for such shares in full, together with all applicable transfer taxes, if any.

¨ The net issue exercise provisions of Section 2(b) of the attached warrant.

(3) Stock Certificate. Please issue a certificate or certificates representing the shares in the name of:

¨ The undersigned

¨	Other—Name:
	Address:

(4) Unexercised Portion of the Warrant. Please issue a new warrant for the unexercised portion of the attached warrant in the name of:

¨	The undersigned
¨	Other—Name:
	Address:
¨	Not applicable

(5) Investment Intent. The undersigned represents and warrants that the aforesaid shares are being acquired for investment for its own account, not as a nominee or agent, and not with a view to, or for resale in connection with, the distribution thereof, and that the undersigned has no present intention of selling, granting any participation in, or otherwise distributing the shares, nor does it have any contract, undertaking, agreement or arrangement for the same, and all representations and warranties of the undersigned set forth in Section 11 of the attached warrant are true and correct as of the date hereof.

(Signature page to the Notice of Exercise)

 A-1

(6) Investment Representation Statement. The undersigned has executed, and delivers herewith, an Investment Representation Statement in a form substantially similar to the form attached to the warrant as Exhibit A-1.

(Print name of the warrant holder)

(Signature)

(Name and title of signatory, if applicable)

(Date)

(Fax number)

(Email address)

(Signature page to the Notice of Exercise)

 A-2

EXHIBIT A-1

INVESTMENT REPRESENTATION STATEMENT

INVESTOR:
COMPANY:	XG Sciences, Inc., a Michigan corporation
SECURITIES:	THE WARRANT ISSUED ON JANUARY 15, 2014 (THE “WARRANT”) AND THE SECURITIES ISSUED OR ISSUABLE UPON EXERCISE THEREOF
DATE:

In connection with the purchase or acquisition of the above-listed Securities, the undersigned Investor represents and warrants to, and agrees with, the Company as follows:

1.          No Registration. The Investor understands that the Securities have not been, and will not be, registered under the Securities Act of 1933, as amended (the “Securities Act”), by reason of a specific exemption from the registration provisions of the Securities Act, the availability of which depends upon, among other things, the bona fide nature of the investment intent and the accuracy of the Investor’s representations as expressed herein or otherwise made pursuant hereto.

2.          Investment Intent. The Investor is acquiring the Securities for investment for its own account, not as a nominee or agent, and not with a view to, or for resale in connection with, any distribution thereof. The Investor has no present intention of selling, granting any participation in, or otherwise distributing the Securities, nor does it have any contract, undertaking, agreement or arrangement for the same.

3.          Investment Experience. The Investor has substantial experience in evaluating and investing in private placement transactions of securities in companies similar to the Company, and has such knowledge and experience in financial or business matters so that it is capable of evaluating the merits and risks of its investment in the Company and protecting its own interests.

4.          Speculative Nature of Investment. The Investor understands and acknowledges that its investment in the Company is highly speculative and involves substantial risks. The Investor can bear the economic risk of its investment and is able, without impairing its financial condition, to hold the Securities for an indefinite period of time and to suffer a complete loss of its investment.

5.          Access to Data. The Investor has had an opportunity to ask questions of officers of the Company, which questions were answered to its satisfaction. The Investor understands that any such discussions, as well as any information issued by the Company, were intended to describe certain aspects of the Company’s business and prospects, but were not necessarily a thorough or exhaustive description. The Investor acknowledges that any business plans prepared by the Company have been, and continue to be, subject to change and that any projections included in such business plans or otherwise are necessarily speculative in nature, and it can be expected that some or all of the assumptions underlying the projections will not materialize or will vary significantly from actual results.

6.          Accredited Investor. The Investor is an “accredited investor” within the meaning of Regulation D, Rule 501(a), promulgated by the Securities and Exchange Commission and agrees to submit to the Company such further assurances of such status as may be reasonably requested by the Company.

 A-1-1

7.          Residency. The residency of the Investor (or, in the case of a partnership or corporation, such entity’s principal place of business) is correctly set forth on the signature page hereto.

8.          Restrictions on Resales. The Investor acknowledges that the Securities must be held indefinitely unless subsequently registered under the Securities Act or an exemption from such registration is available. The Investor is aware of the provisions of Rule 144 promulgated under the Securities Act, which permit resale of shares purchased in a private placement subject to the satisfaction of certain conditions, which may include, among other things, the availability of certain current public information about the Company; the resale occurring not less than a specified period after a party has purchased and paid for the security to be sold; the number of shares being sold during any three-month period not exceeding specified limitations; the sale being effected through a “broker’s transaction,” a transaction directly with a “market maker” or a “riskless principal transaction” (as those terms are defined in the Securities Act or the Exchange Act (as defined below), as amended, and the rules and regulations promulgated thereunder); and the filing of a Form 144 notice, if applicable. The Investor acknowledges and understands that the Company may not be satisfying the current public information requirement of Rule 144 at the time the Investor wishes to sell the Securities and that, in such event, the Investor may be precluded from selling the Securities under Rule 144 even if the other applicable requirements of Rule 144 have been satisfied. The Investor understands and acknowledges that, in the event the applicable requirements of Rule 144 are not met, registration under the Securities Act or an exemption from registration will be required for any disposition of the Securities. The Investor understands that, although Rule 144 is not exclusive, the Securities and Exchange Commission has expressed its opinion that persons proposing to sell restricted securities received in a private offering other than in a registered offering or pursuant to Rule 144 will have a substantial burden of proof in establishing that an exemption from registration is available for those offers or sales and that those persons and the brokers who participate in the transactions do so at their own risk.

9.          No Public Market. The Investor understands and acknowledges that no public market now exists for any of the securities issued by the Company and that the Company has made no assurances that a public market will ever exist for the Company’s securities.

10.        Brokers and Finders. The Investor has not engaged any brokers, finders or agents in connection with the Securities, and the Company has not incurred nor will incur, directly or indirectly, as a result of any action taken by the Investor, any liability for brokerage or finders’ fees or agents’ commissions or any similar charges in connection with the Securities.

11.        Legal Counsel. The Investor has had the opportunity to review the Warrant, the exhibits and schedules attached thereto and the transactions contemplated by the Warrant with its own legal counsel. The Investor is not relying on any statements or representations of the Company or its agents for legal advice with respect to this investment or the transactions contemplated by the Warrant.

12.        Tax Advisors. The Investor has reviewed with its own tax advisors the U.S. federal, state and local and non-U.S. tax consequences of this investment and the transactions contemplated by the Warrant. With respect to such matters, the Investor relies solely on such advisors and not on any statements or representations of the Company or any of its agents, written or oral. The Investor understands that it (and not the Company) shall be responsible for its own tax liability that may arise as a result of this investment or the transactions contemplated by the Warrant.

 A-1-2

The Investor is signing this Investment Representation Statement on the date first written above.

INVESTOR

[_________________]

(Print name of the investor)

(Signature)

(Name and title of signatory, if applicable)

(Street address)

(City, state and ZIP)

 A-1-3

EXHIBIT B

[Shareholder Agreement]

 B-1

EXHIBIT C

ASSIGNMENT FORM

ASSIGNOR:
COMPANY:	XG SCIENCES, INC.
WARRANT:	THE WARRANT TO PURCHASE SHARES. OF SERIES A CONVERTIBLE PREFERRED STOCK ISSUED ON JANUARY 15, 2014 (THE “WARRANT”)
DATE:

(1) Assignment. The undersigned registered holder of the Warrant (“Assignor”) assigns and transfers to the assignee named below (“Assignee”) all of the rights of Assignor under the Warrant, with respect to the number of shares set forth below:

Name of Assignee:

Address of Assignee:

Number of Shares Assigned:

and does irrevocably constitute and appoint ____________________ as attorney to make such transfer on the books of XG Sciences, Inc., maintained for the purpose, with full power of substitution in the premises.

(2) Obligations of Assignee. Assignee agrees to take and hold the Warrant and any shares of stock to be issued upon exercise of the rights thereunder (the “Securities”) subject to, and to be bound by, the terms and conditions set forth in the Warrant to the same extent as if Assignee were the original holder thereof.

(3) Investment Intent. Assignee represents and warrants that the Securities are being acquired for investment for its own account, not as a nominee or agent, and not with a view to, or for resale in connection with, the distribution thereof, and that Assignee has no present intention of selling, granting any participation in, or otherwise distributing the shares, nor does it have any contract, undertaking, agreement or arrangement for the same, and all representations and warranties set forth in Section 11 of the Warrant are true and correct as to Assignee as of the date hereof.

(4) Investment Representation Statement. Assignee has executed, and delivers herewith, an Investment Representation Statement in a form substantially similar to the form attached to the Warrant as Exhibit A-1.

 C-1

Assignor and Assignee are signing this Assignment Form on the date first set forth above.

ASSIGNOR	ASSIGNEE
(Print name of Assignor)	(Print name of Assignee)
(Signature of Assignor)	(Signature of Assignee)
(Print name of signatory, if applicable)	(Print name of signatory, if applicable)
(Print title of signatory, if applicable)	(Print title of signatory, if applicable)
Address:	Address:

 C-2

SECOND AMENDED AND RESTATED SECURITY AGREEMENT

This Second Amended and Restated Security Agreement, dated as of January 15, 2014 (the “Agreement”) is made by and among XG Sciences, Inc., a corporation duly organized and validly existing under the laws of Michigan (the “Company”), Aspen Advanced Opportunity Fund, LP, a Delaware limited partnership (“AAOF”), XGS II, LLC, a Florida limited liability company (“XGS II”), SVIC No. 15 New Technology Business Investment L.L.P. (“Samsung”), Michael R. Knox (“Knox”), and any other party who may sign a Secured Party signature page attached hereto (each, a “Secured Party,” and collectively, the “Secured Parties”), and Aspen Capital Advisors, LLC, a Florida limited liability corporation, as agent for the Secured Parties (in such capacity, together with its successors in such capacity, the “Agent”).

WHEREAS, the Company and AAOF entered into a Second Amended & Restated Purchase Agreement, dated January 15, 2014 (the “Purchase Agreement”), which includes the terms and conditions pursuant to which AAOF would provide up to $10.0 million of funding to the Company in exchange for certain securities of the Company; and

WHEREAS, the Company executed and delivered to AAOF, Knox and XGS II certain convertible secured promissory notes, of various dates from March 18, 2013 to January 7, 2014, which have been restated and consolidated into a new convertible secured promissory note dated January 15, 2014 (the “Existing Notes”) that grant a first priority security interest in all assets of the Company to AAOF and XGS II; and

WHEREAS, the Company has and contemplates issuing additional secured promissory notes, in substantially the form attached hereto as Exhibit A to Samsung pursuant to a purchase agreement between the Company and Samsung (the “Samsung Purchase Agreement”), the Secured Parties and potentially to other third parties in the future as part of the transactions contemplated by the Purchase Agreement (the “Notes”).

NOW THEREFORE, in order to induce AAOF, XGS II, Samsung, Knox, and potential other Secured Parties to enter into the Existing Notes and the Notes, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company has agreed to pledge and grant a continuing security interest in the Collateral (as hereinafter defined) as security for the Secured Obligations (as hereinafter defined). Accordingly, the parties hereto agree as follows:

Section 1.         Definitions. Each capitalized term used herein and not otherwise defined shall have the meaning assigned to such term in the Existing Notes, the Notes or the Purchase Agreement. In addition, as used herein:

“Accounts” shall have the meaning ascribed thereto in Section 3(b) hereof.

“Agent” shall mean Aspen Capital Advisors, LLC, a Florida limited liability corporation and its successors who succeed to its duties hereunder as agent for the Secured Parties, with respect to the rights of the Secured Parties hereunder.

“Business” shall mean the businesses from time to time, now or hereafter, conducted by the Company and its Subsidiaries, when formed.

“Collateral” shall have the meaning ascribed thereto in Section 3 hereof.

“Copyright Collateral” shall mean all Copyrights, whether now owned or hereafter acquired by the Company that are associated with the Business.

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“Copyrights” shall mean all copyrights, copyright registrations, and applications for copyright registrations, including, without limitation, all renewals and extensions thereof, the right to recover for all past, present and future infringements thereof, and all other rights of any kind whatsoever accruing thereunder or pertaining thereto.

“Documents” shall have the meaning ascribed thereto in Section 3(h) hereof.

“Equipment” shall have the meaning ascribed thereto in Section 3(f) hereof.

“Event of Default” shall have the meaning ascribed thereto in Section 3 of the AAOF Note and the Notes.

“Excluded Collateral” shall mean the assets of the Company which secure the Permitted Indebtedness and the assets listed on Annex 1 hereto.

“Instruments” shall have the meaning ascribed thereto in Section 3(c) hereof.

“Intellectual Property” shall mean, collectively, all Copyright Collateral, all Patent Collateral and all Trademark Collateral, together with (a) all inventions, processes, production methods, proprietary information, know-how and trade secrets used or useful in the Business; (b) all licenses or user or other agreements granted to the Company with respect to any of the foregoing, in each case whether now or hereafter owned or used including, without limitation, the licenses or other agreements with respect to the Copyright Collateral, the Patent Collateral or the Trademark Collateral; (c) all customer lists, identification of suppliers, data, plans, blueprints, specifications, designs, drawings, recorded knowledge, surveys, manuals, materials standards, processing standards, catalogs, computer and automatic machinery software and programs, and the like pertaining to the operation by the Company of the Business; (d) all sales data and other information relating to sales now or hereafter collected and/or maintained by the Company that pertain to the Business; (e) all accounting information which pertains to the Business and all media in which or on which any of the information or knowledge or data or records which pertain to the Business may be recorded or stored and all computer programs used for the compilation or printout of such information, knowledge, records or data; (f) all licenses, consents, permits, variances, certifications and approvals of governmental agencies now or hereafter held by the Company pertaining to the operation by the Company and its Subsidiaries of the Business; and (g) all causes of action, claims and warranties now or hereafter owned or acquired by the Company in respect of any of the items listed above. Notwithstanding anything contained herein to the contrary, the Intellectual Property does not and shall not include any Patent Rights within the meaning of that certain Restated and Amended Exclusive License Agreement (the “MSU License”) between Michigan State University (“Licensor”) and the Company; provided, however, that the Company agrees to use commercially reasonable best efforts to obtain the consent of Licensor to permit inclusion of the MSU License as Intellectual Property Collateral hereunder.

“Inventory” shall have the meaning ascribed thereto in Section 3(d) hereof.

“Patent Collateral” shall mean all Patents and pending Patents, whether now owned or hereafter acquired by the Company that are associated with the Business. Notwithstanding the foregoing, Patent Collateral does not and shall not include any Patent Rights within the meaning of that certain MSU License.

“Patents” shall mean all patents and patent applications, including, without limitation, the inventions and improvements described and claimed therein together with the reissues, divisions, continuations, renewals, extensions and continuations-in-part thereof, all income, royalties, damages and payments now or hereafter due or payable under and with respect thereto, including, without limitation, damages and payments for past or future infringements thereof, the right to sue for past, present and future infringements thereof, and all rights corresponding thereto throughout the world.

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mandatory provisions of law, any or all of the attachment, perfection, priority, or remedies with respect to Agent’s and the Secured Parties’ lien on any Collateral is governed by the Uniform Commercial Code as enacted and in effect in a jurisdiction other than the State of Michigan, the term “Uniform Commercial Code” shall mean the Uniform Commercial Code as enacted and in effect in such other jurisdiction solely for purposes of the provisions thereof relating to such attachment, perfection, priority, or remedies.

Section 2.         Representations and Warranties of the Company.The Company represents and warrants to each of the Secured Parties that:

a. the Company is the sole beneficial owner of the Collateral and no lien exists or will exist upon any Collateral at any time, except for Permitted Liens and the pledge and security interest in favor of each of the Secured Parties created or provided for herein, which pledge and security interest constitutes a first priority perfected pledge and security interest in and to all of the Collateral;

b. Except as set forth on Annex 2, the Company or XG Sciences IP, LLC owns and possesses the right to use, and has done nothing to authorize or enable any other person to use, all of their respective Copyrights, Patents and Trademarks, and all registrations of its material Copyrights, Patents and Trademarks are valid and in full force and effect. Except as may be set forth in Annex 2 and except for Permitted Liens, the Company or XG Sciences IP, LLC owns and possesses the right to use all material Copyrights, Patents and Trademarks, necessary for the operation of the Business;

c. to the Company’s knowledge, (i) except as set forth in Annex 2 hereto, there is no violation by others of any right of the Company with respect to any material Copyrights, Patents or Trademarks, respectively, and (ii) the Company is not, in connection with the Business, infringing in any respect upon any Copyrights, Patents or Trademarks of any other person; and no proceedings have been instituted or are pending against the Company or, to the Company’s knowledge, threatened, and no claim against the Company has been received by the Company, alleging any such violation, except as may be set forth in said Annex 2, and except, in each case for matters which singly or in the aggregate could not reasonably be expected to have a material adverse effect upon the Company or the Collateral in the aggregate;

d. Neither the Company nor any of its subsidiaries owns any material Trademarks registered in the United States of America to which the second sentence of the definition of Trademark Collateral applies;

e. Neither the Company nor any of its subsidiaries has or will issue any indebtedness which is secured by the Collateral to any third parties other than AAOF, XGS II, Samsung and Knox; and

f. The Company is the sole holder and beneficial owner of all of the equity ownership securities of its wholly-owned subsidiary XG Sciences IP, LLC (the “Pledged Interests”), which owns and possesses the Copyrights, Know-How, Patents, Patent Licenses, Trademarks, and other intellectual property and other assets set forth on Annex 6 hereto, (i) All of the Pledged Interests are duly authorized, validly issued, fully paid and non-assessable, (ii) Company has the right and requisite authority to pledge the Pledged Interests as provided herein, and (iii) all actions necessary or desirable to perfect and establish the first priority of, or otherwise protect, Agent’s and Secured Parties’ liens in the Pledged Interests, and the proceeds thereof, have been duly taken, upon (A) the execution and delivery of this Agreement; and (B) the filing of a financing statements in the applicable jurisdiction for the Company. None of the Pledged Interests owned or held by the Company has been issued or transferred in violation of any securities registration, securities disclosure, or similar laws of any jurisdiction to which such issuance or transfer may be subject. The Pledged Interests (A) are not dealt in or traded on securities exchanges or in securities markets, (B) do not constitute investment company securities, and (C) are not held by the Company in a securities account.

3 

Section 3.         Collateral. As collateral security for the prompt payment in full when due (whether at stated maturity, by acceleration or otherwise) of the Secured Obligations, the Company hereby acknowledges, agrees and confirms that (i) Agent, on behalf of the Secured Parties as hereinafter provided, shall continue to have a security interest in and lien upon and, (ii) to the extent not otherwise previously granted to Agent, Company hereby pledges, grants, assigns, hypothecates and transfers to the Agent, on behalf of the Secured Parties as hereinafter provided, a first priority security interest in and lien upon all of the Company’s personal property and fixture property and other assets, whether now owned or hereafter acquired by or arising in favor of the Company, and all of the Company’s right, title and interest therein, whether now existing or hereafter coming into existence, and regardless of where located, except for the Excluded Collateral (all of the foregoing except the Excluded Collateral being collectively referred to herein as “Collateral”), including but not limited to the following types and items of property:

a. all goods;

b. all accounts, general intangibles and payment intangibles (each as defined in the Uniform Commercial Code), including (but not limited to) all moneys due and to become due to the Company in respect of any loans or advances for the purchase price of Inventory or Equipment or other goods sold or leased or for services rendered, all moneys due and to become due to the Company under any guarantee (including a letter of credit) of the purchase price of Inventory or Equipment sold by the Company and all tax refunds (such accounts, general intangibles and moneys due and to become due being herein called collectively “Accounts”);

c. all instruments, all chattel paper, and all letters of credit (each as defined in the Uniform Commercial Code), including but not limited to those evidencing, representing, arising from or existing in respect of, relating to, securing or otherwise supporting the payment of, any of the Accounts, and including (but not limited to) promissory notes, drafts, bills of exchange and trade acceptances (herein collectively called “Instruments”);

d. all inventory (as defined in the Uniform Commercial Code) and all goods obtained by the Company in exchange for such inventory (herein collectively called “Inventory”);

e. all Intellectual Property and all other accounts or general intangibles of the Company not constituting Intellectual Property or Accounts;

f. all equipment (as defined in the Uniform Commercial Code) (herein collectively called “Equipment”);

g. each contract and other agreement of the Company relating to the sale or other disposition of Inventory or Equipment;

4 

h. all documents of title (as defined in the Uniform Commercial Code) and other receipts of the Company covering, evidencing or representing Inventory or Equipment (herein collectively called “Documents”);

i. All deposit accounts;

j. All securities and other investment property, including but not limited to the Pledged Interests;

k. all rights, claims and benefits of the Company against any person arising out of, relating to or in connection with Inventory or Equipment purchased by the Company, including, without limitation, any such rights, claims or benefits against any person storing or transporting such Inventory or Equipment; and

l. all other tangible or intangible property of the Company, including, without limitation, all proceeds, products and accessions of and to any of the property of the Company described in Clauses (a) through (k) above in this Section 3 (including, without limitation, any proceeds of insurance thereon), and, to the extent related to any property described in said Clauses or such proceeds, products and accessions, all books, correspondence, credit files, records, invoices and other papers, including without limitation all tapes, cards, computer runs and other papers and documents in the possession or under the control of the Company or any computer bureau or service company from time to time acting for the Company.

Section 4.         Further Assurances; Remedies. In furtherance of the grant of the pledge and security interest pursuant to Section 3 hereof, the Company hereby agrees with the Agent and each of the Secured Parties as follows:

4.01         Delivery and Other Perfection. The Company or XG Sciences IP, LLC shall:

a. give, execute, deliver, file and record any financing statement, notice, instrument, document, agreement or other papers that may be necessary (in the reasonable judgment of the Agent) to create, preserve, maintain, perfect or validate any security interest previously granted or granted pursuant hereto or to enable the Agent to exercise and enforce its rights hereunder with respect to such security interest, including, without limitation, causing any or all of the stock collateral to be transferred of record into the name of the Agent or its nominee provided that notices to account debtors in respect of any Accounts or Instruments shall be subject to the provisions of Section 4.08 below;

b. keep accurate books and records relating to the Collateral, and stamp or otherwise mark such books and records in such manner as the Agent may reasonably require in order to reflect the security interests granted by this Agreement;

c. furnish to the Agent from time to time (no more frequently than annually, unless an Event of Default shall have occurred and shall be continuing,) statements and schedules further identifying and describing the Copyright Collateral, the Patent Collateral and the Trademark Collateral, respectively, and such other reports in connection with the Copyright Collateral, the Patent Collateral and the Trademark Collateral, as the Agent may reasonably request, all in reasonable detail;

5 

d. permit representatives of the Agent, upon reasonable notice, at any time during normal business hours to inspect and make abstracts from its books and records pertaining to the Collateral, and permit representatives of the Agent to be present at the Company’s place of business to receive copies of all communications and remittances relating to the Collateral, and forward copies of any notices or communications by the Company with respect to the Collateral, all in such manner as the Agent may reasonably require; and

e. upon the occurrence and during the continuance of any Event of Default, upon request of the Agent, promptly notify each account debtor in respect of any Accounts or Instruments that such Collateral has been assigned to the Agent hereunder, and that any payments due or to become due in respect of such Collateral are to be made directly to the Agent.

4.02         Other Financing Statements and Liens. Except with respect to Permitted Indebtedness, Permitted Liens or as otherwise permitted under the Existing Notes, the Notes or the Subscription Agreements, without the prior written consent of the Agent, the Company shall not file or suffer to be on file, or authorize or permit to be filed or to be on file, in any jurisdiction, any financing statement or like instrument with respect to the Collateral in which the Agent is not named as the sole secured party for the benefit of each of the Secured Parties.

4.03         Special Provisions Relating to Certain Collateral.

a. Intellectual Property.

(1) For the purpose of enabling the Agent to exercise rights and remedies under Section 4.04 hereof at such time as the Agent shall be lawfully entitled to exercise such rights and remedies, and for no other purpose, the Company hereby grants to the Agent, to the extent assignable, an irrevocable, non-exclusive license (exercisable without payment of royalty or other compensation to the Company) to use, assign, license or sublicense any of the Intellectual Property (other than the Trademark Collateral or goodwill associated therewith) now owned or hereafter acquired by the Company, wherever the same may be located, including in such license reasonable access to all media in which any of the licensed items may be recorded or stored and to all computer programs used for the compilation or printout thereof.

(2) Notwithstanding anything contained herein to the contrary, so long as no Event of Default shall have occurred and shall be continuing, the Company and XG Sciences IP, LLC will be permitted to exploit, use, enjoy, protect, license, sublicense, assign, sell, dispose of or take other actions with respect to the Intellectual Property in the ordinary course of the business of the Company. In furtherance of the foregoing, unless an Event of Default shall have occurred and is continuing, the Agent shall from time to time, upon the request of the Company, execute and deliver any instruments, certificates or other documents, in the form so requested, which the Company shall have certified are appropriate (in its judgment) to allow it to take any action permitted above (including relinquishment of the license provided pursuant to Clause (1) immediately above as to any specific Intellectual Property). Further, upon the payment in full of all of the Secured Obligations or earlier expiration of this Agreement or release of the Collateral, the Agent shall grant back to the Company the license granted pursuant to Clause (1) immediately above. The exercise of rights and remedies under Section 4.04 hereof by the Agent shall not terminate the rights of the holders of any licenses or sublicenses theretofore granted by the Company in accordance with the first sentence of this Clause (2).

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b. Pledged Interests.

(1) If the Company shall acquire, obtain, receive or become entitled to receive any Pledged Interests after the date hereof, it shall promptly (and in any event within two (2) Business Days of acquiring or obtaining such Collateral) deliver to Agent a duly executed addendum to this Agreement, in form and substance satisfactory to Agent, identifying such Pledged Interests.

(2) The Company shall not make or consent to any amendment or other modification or waiver with respect to any Pledged Interests, the operating agreement of XG Sciences IP, LLC, or enter into any agreement or permit to exist any restriction with respect to any Pledged Interests if the same is prohibited pursuant to this Agreement or any other Transaction Agreement.

(3) The Company hereby covenants that the Pledged Interests (A) are not and shall not be dealt in or traded on securities exchanges or in securities markets, (B) do not and will not constitute investment company securities, and (C) are not and will not be held by the Company in a securities account. In addition, none of the operating agreement of XG Sciences IP, LLC or any other agreements governing any of the Pledged Interests provide or shall provide that such Pledged Interests are securities governed by Article 8 of the Uniform Commercial Code as in effect in any relevant jurisdiction.

(4) For so long as the Company shall have the right to vote the Pledged Interests owned by it, the Company covenants and agrees that it will not, without the prior written consent of the Secured Parties, vote or take any consensual action with respect to such Pledged Interests which would materially adversely affect the rights of the Secured Parties or the value of the Pledged Interests.

4.04         Events of Default, etc. During the period during which an Event of Default shall have occurred and be continuing:

a. the Company shall, at the request of the Agent, assemble the Collateral owned by it at such place or places, reasonably convenient to both the Agent and the Company, designated in its request;

b. the Agent may make any reasonable compromise or settlement deemed desirable with respect to any of the Collateral and may extend the time of payment, arrange for payment in installments, or otherwise modify the terms of, any of the Collateral;

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c. the Agent shall have all of the rights and remedies with respect to the Collateral of a secured party under the Uniform Commercial Code (whether or not said Code is in effect in the jurisdiction where the rights and remedies are asserted) and such additional rights and remedies to which a secured party is entitled under the laws in effect in any jurisdiction where any rights and remedies hereunder may be asserted, including, without limitation, the right, to the maximum extent permitted by law, to exercise all voting, consensual and other powers of ownership pertaining to the Collateral as if the Agent were the sole and absolute owner thereof (and the Company agrees to take all such action as may be appropriate to give effect to such right);

d. the Agent in its discretion may, in its name or in the name of the Company or otherwise, demand, sue for, collect or receive any money or property at any time payable or receivable on account of or in exchange for any of the Collateral, but shall be under no obligation to do so; and

e. the Agent may, upon ten (10) Business Days’ prior written notice to the Company of the time and place, with respect to the Collateral or any part thereof which shall then be or shall thereafter come into the possession, custody or control of the Agent, or any of its respective agents, sell, lease, assign or otherwise dispose of all or any of such Collateral, at such place or places as the Agent deems best, and for cash or on credit or for future delivery (without thereby assuming any credit risk), at public or private sale, without demand of performance or notice of intention to effect any such disposition or of time or place thereof (except such notice as is required above or by applicable statute and cannot be waived) and the Agent or anyone else may be the purchaser, lessee, assignee or recipient of any or all of the Collateral so disposed of at any public sale (or, to the extent permitted by law, at any private sale), and thereafter hold the same absolutely, free from any claim or right of whatsoever kind, including any right or equity of redemption (statutory or otherwise), of the Company, any such demand, notice or right and equity being hereby expressly waived and released. In the event of any sale, assignment, or other disposition of any of the Trademark Collateral, the goodwill of the Business connected with and symbolized by the Trademark Collateral subject to such disposition shall be included, and the Company shall supply to the Agent or its designee, for inclusion in such sale, assignment or other disposition, all Intellectual Property relating to such Trademark Collateral. The Agent may, without notice or publication, adjourn any public or private sale or cause the same to be adjourned from time to time by announcement at the time and place fixed for the sale, and such sale may be made at any time or place to which the same may be so adjourned.

The proceeds of each collection, sale or other disposition under this Section 4.04, including by virtue of the exercise of the license granted to the Agent in Section 4.03(a)(1) hereof, shall be applied in accordance with Section 4.07 hereof.

4.05         Deficiency. If the proceeds of sale, collection or other realization of or upon the Collateral pursuant to Section 4.04 hereof are insufficient to cover the costs and expenses of such realization and the payment in full of the Secured Obligations, the Company shall remain liable for any deficiency.

4.06         Removals, etc. Without at least thirty (30) days’ prior written notice to the Agent or unless otherwise required by law, the Company shall not (i) maintain any of its books or records with respect to the Collateral at any office or maintain its chief executive office or its principal place of business at any place, or permit any Inventory or Equipment to be located anywhere other than at one of the locations identified in Annex 3 hereto or in transit from one of such locations to another; or (ii) change its corporate name, or the name under which it does business, from the name shown on the signature page hereto.

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4.07         Application of Proceeds. Except as otherwise herein expressly provided, the proceeds of any collection, sale or other realization of all or any part of the Collateral pursuant hereto, and any other cash at the time held by the Agent under this Section 4, shall be applied by the Agent:

First, to the payment of the costs and expenses of such collection, sale or other realization, including reasonable out-of-pocket costs and expenses of the Agent and the fees and expenses of its agents and counsel, and all expenses, and advances made or incurred by the Agent in connection therewith;

Next, to the payment in full of the Secured Obligations in each case equally and ratably in accordance with the respective amounts thereof then due and owing to each of the Secured Parties; and

Finally, to the payment to the Company, or its successors or assigns, or as a court of competent jurisdiction may direct, of any surplus then remaining.

As used in this Section 4, “proceeds” of Collateral shall mean cash, securities and other property realized in respect of, and distributions in kind of, Collateral, including any thereof received under any reorganization, liquidation or adjustment of debt of the Company or any issuer of or obligor on any of the Collateral.

4.08         Attorney-in-Fact. Without limiting any rights or powers granted by this Agreement to the Agent while no Event of Default has occurred and is continuing, upon the occurrence and during the continuance of any Event of Default, the Agent is hereby appointed the attorney-in-fact of the Company for the purpose of carrying out the provisions of this Section 4 and taking any action and executing any instruments which the Agent may deem necessary or advisable to accomplish the purposes hereof, which appointment as attorney-in-fact is irrevocable and coupled with an interest. Without limiting the generality of the foregoing, so long as the Secured Parties shall be entitled under this Section 4 to make collections in respect of the Collateral, the Agent shall have the right and power to receive, endorse and collect all checks made payable to the order of the Company representing any dividend, payment, or other distribution in respect of the Collateral or any part thereof and to give full discharge for the same.

4.09         Perfection. Prior to or concurrently with the execution and delivery of this Agreement, the Company shall file such financing statements and other documents in such offices as the Agent may request to perfect or maintain the security interests granted by Section 3 of this Agreement; and without limiting the Company’s obligations with respect to perfection of the security interests, the Company hereby authorizes the Agent to file all such financing statements and other documents and, at Agent’s option, to describe the Collateral in any such financing statement as “all personal property.”

4.10         Termination, When all Secured Obligations shall have been paid in full under the Subscription Agreements, this Agreement shall terminate, and the Agent shall forthwith cause to be assigned, transferred and delivered, against receipt but without any recourse, warranty or representation whatsoever, any remaining Collateral and money received in respect thereof, to or on the order of the Company and to be released and cancelled all licenses and rights referred to in Section 4.03(a)(1) hereof. The Agent shall also execute and deliver to the Company upon such termination such Uniform Commercial Code termination statements and such other documentation as shall be reasonably requested by the Company to effect the termination and release of the liens on the Collateral.

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4.11         Expenses. The Company agrees to pay to the Agent all out-of-pocket expenses (including reasonable expenses for legal services of every kind) of, or incident to, the enforcement of any of the provisions of this Section 4, or performance by the Agent of any obligations of the Company in respect of the Collateral which the Company has failed or refused to perform upon reasonable notice, or any actual or attempted sale, or any exchange, enforcement, collection, compromise or settlement in respect of any of the Collateral, and for the care of the Collateral and defending or asserting rights and claims of the Agent in respect thereof, by litigation or otherwise, including expenses of insurance, and all such expenses shall be Secured Obligations to the Agent secured under Section 3 hereof. Each Secured Party agrees to advance to the Agent his/her/its pro rata share of any funds requested by the Agent to carry out the intent and purposes of this Agreement according to each Secured Party’s pro rata share of the total aggregate principal amount outstanding under the Notes at the time such request for advance is made. Any such advances will be refunded to the Secured Parties to the extent the Company reimburses the Agent for its expenses or the Agent makes recoveries from the disposition of the Company’s assets.

4.12         Further Assurances. The Company agrees that, from time to time upon the written request of the Agent, the Company will execute and deliver such further documents and do such other acts and things as the Agent may reasonably request in order fully to effect the purposes of this Agreement.

Section 5.         Miscellaneous.

5.01         No Waiver. No failure on the part of the Agent or any of its agents to exercise, and no course of dealing with respect to, and no delay in exercising, any right, power or remedy hereunder shall operate as a waiver thereof; nor shall any single or partial exercise by the Agent or any of its agents of any right, power or remedy hereunder preclude any other or further exercise thereof or the exercise of any other right, power or remedy. The remedies herein are cumulative and are not exclusive of any remedies provided by law.

5.02         Governing Law. This Agreement shall be governed by, and construed in accordance with, the law of the State of Michigan.

5.03         Notices. All notices, demands, requests, consents, approvals, and other communications required or permitted hereunder shall be in writing and, unless otherwise specified herein, shall be (a) personally served, (b) deposited in the mail, registered or certified, return receipt requested, postage prepaid, (c) delivered by reputable air courier service with charges prepaid, or (d) transmitted by hand delivery, telegram, or facsimile, addressed as set forth below or to such other address as such party shall have specified most recently by written notice given in accordance herewith. Any notice or other communication required or permitted to be given hereunder shall be deemed effective (i) upon hand delivery or delivery by facsimile, with accurate confirmation generated by the transmitting facsimile machine, at the address or number designated below (if delivered on a business day during normal business hours where such notice is to be received), or the first business day following such delivery (if delivered other than on a business day during normal business hours where such notice is to be received) or (ii) on the second business day following the date of mailing by express courier service or on the fifth business day after deposited in the mail, in each case, fully prepaid, addressed to such address, or upon actual receipt of such mailing, whichever shall first occur. The addresses for such communications shall be for (i) the Company at 3101 Grand Oak Drive, Lansing, MI 48911 (Telephone: (517) 703-1110, Fax: (517) 703-1113), (ii) the Agent at 1740 Persimmon Drive, Suite 100, Naples, FL 34109 (Telephone: (239) 325-2001, Fax: (239) 325-2001) and (iii) for each Secured Party as provided on the signature page hereto. Any party hereto may from time to time change its address or facsimile number for notices under this Section by written notice to the other parties.

5.04         Waivers, etc. The terms of this Agreement may be waived, altered or amended only by an instrument in writing duly executed by the Company and the Agent. Any such amendment or waiver shall be binding upon each of the Secured Parties and the Company.

5.05         Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the respective successors and assigns of the Company and each of the Secured Parties (provided, however, that the Company shall not assign or transfer its rights hereunder without the prior written consent of the Agent).

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5.06         Counterparts; Additional Secured Parties. This Agreement may be executed in any number of counterparts, ail of which together shall constitute one and the same instrument and any of the parties hereto may execute this Agreement by signing any such counterpart. In the event additional Secured Parties become holders of the Notes, such Secured Parties may become a party to this Agreement by signing a counterpart to this Agreement, all of which together shall be considered one and the same instrument. The Company shall provide a copy of each Security Agreement executed by a Secured Party to the Agent.

5.07         Appointment of Agent. Each Secured Party agrees to appoint Aspen Capital Advisors, LLC as its Agent for purposes of this Agreement. Each of Secured Party hereby authorizes the Agent to take such action and to exercise such powers hereunder as provided herein or as requested to or consented by the Secured Parties (acting together), together with such powers as are reasonably incidental thereto. Subject to the provisions of this Agreement, the Agent will not take any action contrary to the express written instructions of the Secured Parties (acting together) and will take any lawful action prescribed in express written instructions of the Secured Parties (acting together). The Agent may decline to take any action except upon the express written instructions of the Secured Parties (acting together) and the Agent may request a written ratification by the Secured Parties (acting together) of any action taken by it under this Agreement, which ratification shall not be unreasonably withheld, conditioned or delayed. The Agent shall not be obligated to take any action, or engage in any course of conduct, if the Secured Parties are not in agreement as to such action or course of conduct. The Agent may employ agents and attorneys-in-fact in connection herewith and shall not be responsible for the negligence or misconduct of any such agents or attorneys-in-fact selected by it in good faith.

5.08         Powers and Duties. Subject to and upon the other terms and conditions contained herein that limit the obligations or duties of the Agent, the duties and obligations of the Agent under this Agreement shall be those of a “collateral agent” and shall consist of and be limited to: (i) acquiring, holding and enforcing the security interest granted by the Company in the Collateral under this Agreement; (ii) selling, releasing, surrendering, realizing upon or otherwise dealing with, in any manner and in any order, all or any portion of the Collateral, (iii) exercising (or refraining from exercising) any rights, remedies or powers of the Agent under this Agreement, the [the Transaction Documents], or under applicable law in respect of all or any portion of the Collateral, (iv) making any demands or giving any notices hereunder or under the other transaction documents, and (v) effecting amendments to or granting waivers or consents hereunder or under the other transaction documents.

5.09         Resignation and Removal. The Agent shall be entitled to resign at any time upon written notice to the Secured Parties and the Agent may be removed at any time for cause by the vote of the Secured Parties holding a majority of the principal amounts of the secured indebtedness which is secured by a pledge of the Collateral hereunder. Except as provided above, upon any such resignation or removal, the Secured Parties shall have the right to appoint a successor Agent by the vote of the Secured Parties holding a majority of the principal amounts of the secured indebtedness which is secured by a pledge of the Collateral hereunder. If no successor Agent shall have been so appointed by such Secured Parties, and shall have accepted such appointment, within thirty (30) days after the retiring Agent’s giving of notice of resignation or the Secured Parties’ removal of the retiring Agent, then the retiring Agent may, on behalf of the Secured Parties, appoint a successor Agent. Upon the acceptance of any appointment as the Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations as the Agent under this Agreement. After any retiring or the Agent’s resignation or removal hereunder as the Agent, the provisions of Sections 5.07 through 5.10 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was the Agent under this Agreement..

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5.10         Indemnity of Agent. Each of the Secured Parties hereby covenants and agrees to reimburse, indemnify and hold the Agent harmless from and against any and all claims, actions, judgments, damages, losses, liabilities, costs, transfer or other taxes, and expenses (including, without limitation, reasonable attorneys’ fees and expenses) incurred or suffered without any bad faith, gross negligence or willful misconduct by the Agent, arising out of or incident to Agent’s actions or inactions as Agent with regard to its duties under or administration of this Agreement. Each Secured Party further agrees that any reimbursements or indemnity payments to the Agent shall be made according to each Secured Party’s pro rata share of the total aggregate principal amount outstanding under the Notes at the time of the event that gave rise to such reimbursement or indemnity claim by the Agent.

5.11         Severability. If any provision hereof is invalid and unenforceable in any jurisdiction, then, to the fullest extent permitted by law, (i) the other provisions hereof shall remain in full force and effect in such jurisdiction and shall be liberally construed in favor of the Secured Parties in order to carry out the intentions of the parties hereto as nearly as may be possible and (ii) the invalidity or unenforceability of any provision hereof in any jurisdiction shall not affect the validity or enforceability of such provision in any other jurisdiction.

5.12         Entire Agreement. This Agreement (together which each Annex hereto) contains the entire agreement and understanding by and between the parties hereto with respect to the subject matter hereof and their resulting obligations to each other, as herein described; and it amends, restates and supersedes all prior agreements and understandings between the parties to this Agreement relating to the subject matter hereof. No change or modification of this Agreement shall be valid or binding unless the same is in writing and signed by the party intended to be so bound. No waiver of any provision of this Agreement shall be valid unless the same is in writing and signed by the party against whom such waiver is sought to be enforced. Moreover, no valid waiver of any provision of this Agreement, at any time, shall be deemed to be a waiver of any other provision of this Agreement at such time, or shall be deemed to be a valid waiver of such provision at any other time.

[The remainder of this page intentionally left blank.]

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IN WITNESS WHEREOF, the parties hereto have caused this Second Amended and Restated Security Agreement to be duly executed as of the day and year first above written.

The “Company”:		The “Agent”:
XG Sciences, Inc.		Aspen Capital Advisors, LLC
By:	/s/ Michael R. Knox	By:	/s/ Steven C. Jones
Name: Michael R. Knox		Name: Steven C. Jones
Title:   Chief Executive Officer		Title:   Managing Member

SECOND AMENDED AND RESTATED SECURITY AGREEMENT

SECURED PARTY SIGNATURE PAGE 

IN WITNESS WHEREOF, the undersigned Secured Party agrees to the terms and conditions of the above Second Amended and Restated Security Agreement and hereby agrees that the execution of this Secured Party Signature Page is intended and shall be deemed to constitute the execution of such Second Amended and Restated Security Agreement by the undersigned.

NAME OF SECURED PARTY (type or print):

Aspen Advanced Opportunity Fund, LP

By:	/s/ Steven C. Jones	Date:	1/15/14
Name:	Steven C. Jones
Title:	Managing Member, AA XGS, LLC

Address for Notices:

Aspen Advanced Opportunity Fund, LP

Attn: General Partner

1740 Persimmon Drive. Suite 100

Naples. FL 34109

Phone:	(239) 325-2001
Fax:	(239) 325-2004

Principal Amount of Secured Obligations as of the date this Signature Page is signed: _________

Michael R. Knox

/s/ Michael R. Knox	Date:
Michael R. Knox

Address for Notices:

5337 Panda Bear Circle

East Lansing. MI 48823

Phone:	(517) 351-4813
Fax:	(517) 705-1113

Principal Amount of Secured Obligations as of the date this Signature Page is signed: _______

XGS II, LLC

By:	/s/ David G. Pendell	Date:	1-15-2014
Name:	David G. Pendell
Title:	Managing Member

Address for Notices:

XGS II, LLC

5500 Lake Grove Trail

Petoskey. MI 49770

Phone:	(239) 450-5097
Fax:

Amount of Secured Obligations as of the date this Signature Page is signed: _______

** signature pages continued on next page **

SVIC No. 15 New Technology Business Investment L.L.P.

By:	/s/ Seonjong Lee	Date:
Name:	SEONJONG LEE
Title:	C.E.O

Address for Notices:

29th Samsung ElectronicsBldg.

11, Seoch- dearo 74 gil, Seocho-gu,

Seoul, Korea 137-857

Phone:

Fax:

Amount of Secured Obligations as of the date this Signature Page is signed: _______

SECOND AMENDED AND RESTATED SECURITY AGREEMENT

ANNEX 1 - EXCLUDED COLLATERAL

The Patent Rights within the meaning of that certain Restated and Amended Exclusive License Agreement between Michigan State University and the Company.

SECOND AMENDED AND RESTATED SECURITY AGREEMENT

ANNEX 2 - EXCEPTIONS FOR COPYRIGHTS, PATENTS AND TRADEMARKS

The Company has distribution agreements with sales agents and other companies that allow the use of the Company’s trademarks n the normal course of business.

The Company has licensed the below listed production and manufacturing technology to the following licensees:

Cabot Corporation – production technology for the production of graphene nanoplatelets as more fully defined in the LICENSE AGREEMENT BETWEEN CABOT CORPORATION AND XG SCIENCES INC. dated November 1, 2011 and amended on January 23, 2013

POSCO – production technology for the production of graphene nanoplatelets as more fully defined in the LICENSE AGREEMENT between XG Sciences, Inc. and POSCO dated June 8, 2011

In November of 2011, the Company entered into a license agreement between the Company and Cabot Corporation (“Cabot”), a copy of which has been supplied to AAOF (the “License Agreement”). Subsequent to the execution of the License Agreement, Michigan State University (“MSU”) expressed concern regarding the form of the License Agreement, including whether any MSU technology might have been included in the License Agreement. After discussions among Cabot, MSU, and the Company, Cabot drafted a First Amendment to the License Agreement Between Cabot and the Company (the “Amendment”). The Amendment contains warranties, attested by both the Company and its Chief Scientist, Dr. Lawrence Drzal, asserting that no MSU technology had been improperly transferred to Cabot. The Company executed the Amendment on January 29, 2013, and has provided a copy to AAOF. The Company understood that this matter was closed when it provided the Amendment to AAOF. However, the Company subsequently learned that Cabot has not yet signed the Amendment because a new Vice President had been appointed. Additionally, the Company received a letter from MSU dated March 20, 2013 stating that MSU wanted to review this issue. The Company, Cabot, and MSU are currently renegotiating the Amendment. MSU is currently engaged in an audit of the technology transfer package associated with the Cabot License Agreement.

SECOND AMENDED AND RESTATED SECURITY AGREEMENT

ANNEX 3 - LIST OF LOCATIONS

3101 Grand Oak Drive

Lansing, MI 48911

4055 English Oak, Suite B

Lansing, MI 48911

2100 S. Washington Avenue

Lansing, MI 48910

SECOND AMENDED AND RESTATED SECURITY AGREEMENT

ANNEX 4 - EXISTING SECURED INDEBTEDNESS

1.	Aspen Advanced Opportunity Fund, LP (1)	$	4,178,330.92
2.	SVIC No. 15 New Technology Business Investment L.L.P.	$	3,000,000.00
3.	Michael Knox	$	872,998.15
4.	XGS II, LLC	$	739,349.83
	Total	$	8,790,678.90

(1) Aspen Amounts exclude certain funds advanced to the Company pursuant to a Master Lease Agreement for the purchase of equipment, the liens on which are permitted liens under this Agreement.

SECOND AMENDED AND RESTATED SECURITY AGREEMENT

ANNEX 5 - EXISTING LIENS

Secured Party	Assets Covered
Michael R. Knox	All tangible and intangible assets of the Company
Aspen Advanced Opportunity Fund, L.P.	All tangible and intangible assets of the Company
XGS II, LLC	All tangible and intangible assets of the Company
SVIC No. 15 New Technology Business Investment L.L.P.	All tangible and intangible assets of the Company

SECOND AMENDED AND RESTATED SECURITY AGREEMENT

ANNEX 6 - XG SCIENCES IP, LLC ASSETS

All “Intellectual Property” as defined in the Assignment of Intellectual Property dated effective as of January 15, 2014 between the Company and XG Sciences IP, LLC, including without limitation the following:

Patents:

Patent Application Number	Application Date	Description
13/474,860	5/18/2012	Process of Dry Milling Particulate Materials Milled Graphene/Metal Nano Composites
61/786,735	3/15/2013	Graphene Carbon Compositions
13/686,961	11/28/2012	Single Mode Microwave Device for Producing Exfoliated Graphite
13/610,934	9/12/2012	Cloud Mixer and Method of Minimizing Agglomeration of Particulates
13/435,260	3/30/2012	Mechanical Exfoliation Apparatus
61/786,745	3/15/2013	Electrodes for Capacitors from Mixed Carbon Compositions
14079057	11/13/2013	Silicon-Graphene Nanocomposites for Electrochemical Applications

Trademarks:

XG Sciences (Design Plus Words)

xGnP

XG Sciences The Material Difference (Design Plus Words)

XG Leaf (Application Pending)

SECOND AMENDED AND RESTATED SECURITY AGREEMENT

EXHIBIT A

Form of Secured Convertible Promissory Note

SECOND AMENDED AND RESTATED INTELLECTUAL PROPERTY SECURITY AGREEMENT

This Second Amended and Restated Intellectual Property Security Agreement (this “IP Security Agreement”) is made as of January 15, 2014 by and between XG Sciences, Inc., a Michigan corporation (“Pledgor”), Aspen Capital Advisors, LLC, a Florida limited liability corporation, as Agent (the “Agent”) for the undersigned lenders (‘‘Lenders”) from time to time holding secured convertible notes issued by the Pledgor, and the Lenders listed on the signature page hereto.

RECITALS

A.         Pledgor and Lenders are parties to those certain Secured Convertible Promissory Notes issued pursuant to those certain purchase agreements between the Pledgor and the Lenders as the same notes have been and may be modified, amended, supplemented, restated or superseded from time to time (the “Secured Notes”). Capitalized terms used but not defined herein shall have the meanings given to them in the Secured Notes or the Purchase Agreement (as defined below), as applicable.

B.          Pledgor entered into that certain Second Amended and Restated Purchase Agreement, dated January 15, 2014, with Aspen Advanced Opportunity Fund, LP (the “Purchase Agreement”).

C.          Pledgor and SVIC No. 15 New Technology Business Investment L.L.P. (“Samsung”) entered into that certain Purchase Agreement, dated January 15, 2014 (the “Samsung Purchase Agreement”, and together with the Purchase, Agreement, Secured Notes and the IP Security Agreement, the “Loan Documents”).

D.          Pledgor is the owner of the intellectual property collateral described herein.

E.          It is a condition to the Lenders’ entering into the Purchase Agreement and purchasing the Secured Notes that the Pledgor grants to the Agent a lien on and security interest in the collateral described herein.

NOW, THEREFORE, in consideration of the mutual promises and covenants set forth herein and other good and valuable consideration, the receipt and sufficiency of which is hereby conclusively acknowledged, the parties hereto agree as follows:

AGREEMENT

1.           Collateral Assignment, Patent Mortgage, and Grant of Security Interest. As collateral security for the prompt and complete payment and performance of: (i) all obligations of the Pledgor under the Secured Notes, (ii) all obligations of Pledgor hereunder and under any other documents related to and including the Purchase Agreement to which it is a party and (iii) all obligations of Pledgor under any other documents related to and including the Samsung Purchase Agreement (collectively, the “Secured Obligations”), Pledgor (i) hereby acknowledges, agrees and confirms that Agent shall continue to have a security interest in and, (ii) to the extent not otherwise granted to Agent, hereby grants a first priority security interest and mortgage to Agent for the benefit of the Lenders, as collateral security, in and to Pledgor’s entire right, title and interest in, to and under the following, now or hereafter existing, created, acquired, held or controlled by Pledgor (all of which shall collectively be called the “Intellectual Property Collateral”):

(a)          Any and all copyright rights, copyright applications, copyright registrations, copyright recordings and like protections in each work of authorship and derivative work thereof, whether registered or unregistered or published or unpublished and whether or not the same also constitutes a trade secret, held pursuant to the laws of the United States, any State thereof or of any other country or political subdivision thereof (collectively, the “Copyrights”);

(b)          any and all know-how including any and all information not covered by a patent or patent application, including but not limited to materials, trade secrets, information, experience and data, formulae, procedures, results and specifications, regulatory filings, clinical and pre-clinical data, in written or electronic form, including, without limitation, those set forth on Exhibit A attached hereto and incorporated herein by this reference (collectively, the “Know-How”);

(c)          any and all design rights which may be available to Pledgor;

(d)          any and all (i) letters patent, including, without limitation, utility patents, design patents, industrial designs and utility model registrations, of the United States or any other country, or any political subdivision thereof, and all reissues and extensions thereof, (ii) applications (including but not limited to provisional applications) for letters patent of the United States or any other country, or any political subdivision thereof, and all divisions, continuations, continuations-in-part, and continuing applications thereof, and (iii) rights to obtain any reissues, reexaminations or extensions thereof (collectively, the “Patents”) and any and all agreements, whether written or oral, providing for the grant by or to the Pledgor of any right to make, use, sell, offer to sell, or import any invention covered in whole or in part by one or more of the Patents and all renewals and extensions thereof (collectively, the “Patent Licenses”), including, without limitation, the Patents and Patent Licenses set forth on Exhibit A attached hereto and incorporated herein by this reference;

(e)          any and all trademarks, trade names, corporate names, company names, business names, trade styles, service marks, logos, other source or business identifiers, prints and labels on which any of the foregoing have appeared or appear, designs and general intangibles of like nature, all registrations and recordings thereof, and any applications in connection therewith, including, without limitation, registrations, recordings and applications in the United States Patent and Trademark Office or in any similar office or agency of the United States, any State thereof or any other country or any political subdivision thereof, and the entire goodwill of the business of Borrower connected with and symbolized by all such trademarks, including, without limitation, those set forth on Exhibit A attached hereto and incorporated herein by this reference (collectively, the “Trademarks”);

(f)          any and all income, royalties, damages, claims, and payments now and hereafter due and payable, including, without limitation, all claims for damages and payments by way of past, present and future infringement, misappropriation, or dilution of any of the rights included above, with the right, but not the obligation, to sue for and collect such damages for said use or infringement of the intellectual property rights identified above;

(g)          all licenses or other rights to use any of the Copyrights, Patents, Know-How, or Trademarks (collectively, the “Intellectual Property”) and all license fees and royalties arising from such use to the extent permitted by such license or rights and not prohibited by applicable law;

Second Amended and Restated Intellectual Property Security Agreement

(h)          all amendments, continuations, renewals, and extensions of any of the Intellectual Property;

(i)          all proceeds and products of the foregoing, including, without limitation, all payments under insurance or any indemnity or warranty payable in respect of any of the foregoing; and

(j)          all membership and any and all other equity ownership interests held by the Pledgor in and to XG Sciences IP, LLC.

Notwithstanding any of the foregoing, the term “Intellectual Property Collateral” shall not include any general intangibles of Pledgor (whether owned or held as licensee or lessee, or otherwise), to the extent that: (i) such general intangibles are not assignable or capable of being encumbered as a matter of law or under the terms of the license, lease or other agreement applicable thereto (but solely to the extent that any such restriction shall be enforceable under applicable law), without the consent of the licensor or lessor thereof or other applicable party thereto; and (ii) such consent has not been obtained; provided, however, that the grant of security interest herein shall extend to, and the term “Intellectual Property Collateral” shall include, (A) any and all proceeds of any general intangibles (“Proceeds”) which are otherwise excluded to the extent that the assignment or encumbrance of such Proceeds is not so restricted, (B) upon obtaining the consent of any such licensor, lessor or other applicable party’s consent with respect to any such otherwise excluded general intangibles, such general intangibles as well as any and all Proceeds thereof that might theretofore have been excluded from such a grant of a security interest and the term “Intellectual Property Collateral” and (C) any general intangible which is an account receivable or proceed of or otherwise related to the enforcement or collection of any account receivable or goods which are the subject of any account receivable. Notwithstanding anything contained herein to the contrary, the term “Intellectual Property Collateral” does not and shall not include any Patent Rights within the meaning of that certain Restated and Amended Exclusive License Agreement (the “MSU License”) between Michigan State University (“Licensor”) and Pledgor; provided, however, that the Pledgor agrees to use commercially reasonable best efforts to obtain the consent of Licensor to permit inclusion of the MSU License as Intellectual Property Collateral hereunder.

2.           Authorization and Request. Pledgor authorizes and requests that the Register of Copyrights and the Commissioner of Patents and Trademarks record this conditional assignment.

3.           Covenants and Warranties. Pledgor represents, warrants, covenants, and agrees as follows:

(a)          Pledgor or XG Sciences IP, LLC is now the sole owner of the Intellectual Property Collateral;

(b)          all of the Patents and Trademarks owned by Pledgor or XG Sciences IP, LLC or in which Pledgor or XG Sciences IP, LLC has any right, title, or interest are described on Exhibit A;

(c)          performance of this IP Security Agreement does not conflict with or result in a breach of any agreement to which Pledgor is a party or by which Pledgor is bound;

Second Amended and Restated Intellectual Property Security Agreement

(d)          during the term of this IP Security Agreement, Pledgor will not sell, transfer, assign, or otherwise encumber any interest in the Intellectual Property Collateral, except for (i) licenses granted by Pledgor in the ordinary course of its business as now conducted or as set forth in this IP Security Agreement or that do not, in the aggregate, impair the Intellectual Property Collateral or result in a Material Adverse Effect; and (ii) subject to Pledgor’s execution of appropriate documents, in form acceptable to Agent, to perfect or continue the perfection of Agent’s interest in the Intellectual Property Collateral, transfers to affiliates of Pledgor;

(e)          Except as disclosed on Exhibit A, to its knowledge; (i) each of the Patents (that is not listed as abandoned) is valid and enforceable, and there is no Intellectual Property (that is not listed as abandoned or pending) which has been judged invalid or unenforceable, in whole or in part; and (ii) no claim has been made that any part of the Intellectual Property Collateral (that is not listed as abandoned or pending) violates the rights of any third party;

(f)          Pledgor shall promptly advise Agent of any material changes in the composition of the Intellectual Property Collateral, including but not limited to any subsequent ownership right of Pledgor in or to any Intellectual Property not specified in this IP Security Agreement;

(g)          Pledgor shall: (i) protect, defend, and maintain the validity and enforceability of the Intellectual Property (other than property listed as abandoned), except where the failure to so protect, defend, and maintain would not, in the aggregate, result in a Material Adverse Effect; (ii) use all commercially reasonable efforts to detect infringements of the Intellectual Property (other than property listed as abandoned) and promptly advise Agent in writing of infringements detected and (iii) not allow any of its Intellectual Property (other than property listed as abandoned) to be abandoned, forfeited, or dedicated to the public without the written consent of Agent which shall not be unreasonably withheld;

(h)          Pledgor shall, from time to time, execute and file such instruments, and take such further actions as Agent may request from time to time to perfect or continue the perfection of Agent’s interest in the Intellectual Property Collateral;

(i)          Except for the MSU License, Pledgor is not party, nor will it, without the prior written consent of Agent, become party in the future, to any license or contract included in the Intellectual Property Collateral which, pursuant to its terms is not assignable (except in the case of Pledgor’s customer contracts) or capable of being encumbered;

(j)          this IP Security Agreement creates, and in the case of after acquired Intellectual Property Collateral, will create at the time Pledgor first has rights in such after acquired Intellectual Property Collateral, in favor of Agent a valid and (upon taking appropriate actions) perfected first priority security interest in the Intellectual Property Collateral in the United States securing the payment and performance of all present or future Secured Obligations;

(k)          to its knowledge, except for, and upon, the filings with, as applicable, (1) the United States Patent and Trademark Office, (2) the Register of Copyrights, and (3) the UCC Division of the applicable office of the Secretary of State, necessary to perfect the security interests and assignment created hereunder, and except as has been already made or obtained, no authorization, approval or other action by, and no notice to or filing with, any United States governmental authority or United States regulatory body is required either, (a) for the grant by Pledgor or maintenance of the security interest granted hereby or for the execution, delivery, or performance of this IP Security Agreement by Pledgor in the United States, or (b) for the perfection in the United States or the exercise by Agent of its rights and remedies hereunder;

Second Amended and Restated Intellectual Property Security Agreement

(l)           all information heretofore, herein, or hereafter supplied to Agent by or on behalf of Pledgor with respect to the Intellectual Property Collateral is accurate and complete in all material respects;

(m)          Pledgor shall not enter into any agreement that would impair or conflict with Pledgor’s obligations hereunder. For purposes of this subsection, Pledgor’s entering into license agreements in the ordinary course of business shall not be deemed to impair or conflict with Pledgor’s obligations hereunder. Pledgor shall not, without the prior written consent of Agent, permit the inclusion in any contract to which it becomes a party of any provisions that could or might in any way prevent the creation of a security interest in Pledgor’s rights and interests in any property included within the definition of the Intellectual Property Collateral acquired under such contracts, except that certain contracts may contain anti-assignment provisions that could in effect prohibit the creation of a security interest in such contracts; and

(n)          upon any executive officer of Pledgor’s obtaining actual knowledge thereof, Pledgor will promptly notify Agent in writing of any event that materially adversely affects the value of any Intellectual Property Collateral, the ability of Pledgor to dispose of any Intellectual Property Collateral or the rights and remedies of Agent in relation thereto, including the levy of any legal process against any of the Intellectual Property Collateral.

(o)          Pledgor is the sole holder of all equity securities of XG Sciences IP, LLC.

(p)          Prior to or contemporaneously with entering into any definitive purchase agreement with Samsung regarding the issuance of any Secured Notes, Pledgor shall have formed XG Sciences IP, LLC and shall have assigned all of intellectual property that is set forth on Exhibit B to XG Sciences IP, LLC, and such assignment of and manner of holding such intellectual property shall be deemed to be in compliance with this Agreement.

(q)          Pledgor and/or XG Sciences IP, LLC shall maintain a list of their material identifiable trade secrets, which list shall include information regarding the location of documentation for each trade secret and which employees have access to the trade secret (the “Trade Secret List”). Pledgor shall provide a copy of the Trade Secret List to its primary legal counsel from time to time to be held in escrow by such legal counsel. Pledgor shall direct such legal counsel to disclose the Trade Secret List to the Agent upon the Agent’s request following the delivery of a “foreclosure notice” in accordance with the Second Amended and Restated Intercreditor Agreement among the Lenders dated as of January 15, 2014.

4.            Agent’s Rights.

(a)          Agent shall have the right, but not the obligation, to take, at Pledgor’s sole expense, any actions that Pledgor is required under this IP Security Agreement to take but which Pledgor fails to take, after ten (10) calendar days’ written notice to Pledgor. Pledgor shall reimburse and indemnify Agent and Lenders for all costs and expenses incurred in the exercise of its rights under this Section 4.

Second Amended and Restated Intellectual Property Security Agreement

(b)          Each Lender agrees to appoint Aspen Capital Advisors, LLC as its Agent for purposes of this IP Security Agreement. Each Lender hereby authorizes the Agent to take such action and to exercise such powers hereunder as provided herein or as requested to or consented by the Lenders (acting together), together with such powers as are reasonably incidental thereto. Subject to the provisions of this Agreement, the Agent will not take any action contrary to the express written instructions of the Lenders (acting together) and will take any lawful action prescribed in express written instructions of the Lenders (acting together). The Agent may decline to take any action except upon the express written instructions of the Lenders (acting together) and the Agent may request a written ratification by the Lenders (acting together) of any action taken by it under this Agreement, which ratification shall not be unreasonably withheld, conditioned or delayed. The Agent shall not be obligated to take any action, or engage in any course of conduct, if the Lenders are not in agreement as to such action or course of conduct. The Agent may employ agents and attorneys-in-fact in connection herewith and shall not be responsible for the negligence or misconduct of any such agents or attorneys-in-fact selected by it in good faith.

(c)          The Agent shall be entitled to resign at any time upon written notice to the Lenders and the Agent may be removed at any time for cause a vote of the Lenders holding a majority of the principal amounts of the secured indebtedness which is secured by a pledge of the Intellectual Property Collateral hereunder. Except as provided above, upon any such resignation or removal, the Lenders shall have the right to appoint a successor Agent by the vote of the Lenders holding a majority of the principal amounts of the secured indebtedness which is secured by a pledge of the Intellectual Property Collateral hereunder. If no successor Agent shall have been so appointed by such Lenders, and shall have accepted such appointment, within thirty (30) days after the retiring Agent’s giving of notice of resignation or the Lenders’ removal of the retiring Agent, then the retiring Agent may, on behalf of the Lenders, appoint a successor Agent. Upon the acceptance of any appointment as the Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations as the Agent under this Agreement. After any retiring or the Agent’s resignation or removal hereunder as the Agent, the provisions of this Section 4 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was the Agent under this Agreement.

(d)          Subject to and upon the other terms and conditions contained herein that limit the obligations or duties of the Agent, the duties and obligations of the Agent under this Agreement shall be those of a “collateral agent” and shall consist of and be limited to: (i) acquiring, holding and enforcing the security interest granted by the Pledgor in the Collateral under this Agreement; (ii) selling, releasing, surrendering, realizing upon or otherwise dealing with, in any manner and in any order, all or any portion of the Collateral, (iii) exercising (or refraining from exercising) any rights, remedies or powers of the Agent under this Agreement, the Loan Documents and other agreements contemplated therein, or under applicable law in respect of all or any portion of the Collateral, (iv) making any demands or giving any notices hereunder or under the other transaction documents, and (v) effecting amendments to or granting waivers or consents hereunder or under the other transaction documents.

(e)          Each of the Lenders hereby covenants and agrees to reimburse, indemnify and hold the Agent harmless from and against any and all claims, actions, judgments, damages, losses, liabilities, costs, transfer or other taxes, and expenses (including, without limitation, reasonable attorneys’ fees and expenses) incurred or suffered without any bad faith, gross negligence or willful misconduct by the Agent, arising out of or incident to Agent’s actions or inactions as Agent with regard to its duties under or administration of this IP Security Agreement. Each Lender further agrees that any reimbursements or indemnity payments to the Agent shall be made according to each Lender’s pro rata share of the total aggregate principal amount outstanding under the Secured Notes at the time of the event that gave rise to such reimbursement or indemnity claim by the Agent.

Second Amended and Restated Intellectual Property Security Agreement

5.            Further Assurances: Attorney in Fact.

(a)          Pledgor agrees to deliver to Agent, upon the request of Agent, a report, in form acceptable to Agent and certified by an officer of Pledgor, which lists all material Intellectual Property owned by Pledgor, including, without limitation, all titles, names or marks together with all relevant registration and/or application numbers and registration and/or filing dates.

(b)          On a continuing basis for the purpose of perfecting and maintaining the perfection and priority of Agent’s security interest in all Intellectual Property, Pledgor will make, execute, acknowledge and deliver, and file and record in the proper filing and recording places in the United States, all such instruments, including appropriate financing and continuation statements and collateral agreements and filings with the United States Patent and Trademark Office and the Register of Copyrights, and take all such action as may be necessary or advisable, or as requested by Agent, and otherwise to carry out the intent and purposes of this IP Security Agreement, or for assuring and confirming to Agent the grant, priority, or perfection of a security interest in all Intellectual Property Collateral.

(c)          Pledgor hereby irrevocably appoints Agent as Pledgor’s attorney-in-fact, with full authority in the place and stead of Pledgor and in the name of Pledgor, from time to time in Agent’s discretion, to take any action and to execute any instrument which Agent may deem necessary or advisable to accomplish the purposes of this IP Security Agreement, including (i) to modify, in its discretion, this IP Security Agreement without first obtaining Pledgor’s approval of or signature to such modification by amending Exhibit A to include reference to any right, title or interest in or to any Intellectual Property acquired by Pledgor after the execution hereof or to delete any reference to any right, title or interest in or to any Intellectual Property in which Pledgor no longer has or claims any right, title or interest, (ii) to file, in its discretion, one or more financing or continuation statements and amendments thereto, relative to any of the Intellectual Property Collateral without the signature of Pledgor where permitted by law and (iii) to transfer the Intellectual Property Collateral into the name of Agent or a third party to the extent permitted under the UCC provided that Agent agrees that it shall not exercise its powers as attorney-in-fact under this Section 5 except upon the occurrence and during the continuation of a IP Security Agreement Event of Default (as hereinafter defined).

6.            Consent and Waiver: Obligations Not Impaired.

(a)          Pledgor waives: (i) promptness, diligence, and notice of acceptance of this IP Security Agreement and notice of the incurring of any obligation, indebtedness, or liability to which this IP Security Agreement applies or may apply and waives presentment for payment, notice of nonpayment, protest, demand, notice of protest, notice of intent to accelerate, notice of acceleration, notice of dishonor, diligence in enforcement and indulgences of every kind; and (ii) the taking of any other action by Agent or any Lender, including without limitation giving any notice of default or any other notice to, or making any demand on, the Pledgor, any guarantor of all or any part of the Secured Obligations or any other party, provided, that Pledgor does not waive any notices that Agent has expressly agreed to give to it in the Second Amended and Restated Security Agreement, dated as of January 15, 2014, by and among the Pledgor, the Lenders and the Agent (the “Security Agreement”).

Second Amended and Restated Intellectual Property Security Agreement

(b)          Agent and any Lender may at any time and from time to time, without the consent of or notice to Pledgor, without incurring responsibility to Pledgor and without impairing, releasing or reducing the obligations of Pledgor hereunder: (i) change the place of payment of all or any part of the Secured Obligations; (ii) release, surrender, or subordinate any collateral for all or any part of the Secured Obligations or this IP Security Agreement; (iii) neglect, delay, omit, fail or refuse to take or prosecute any action for the collection of all or any part of the Secured Obligations or this IP Security Agreement or to take or prosecute any action in connection with the Loan Documents; (iv) exercise or refrain from exercising any rights against the Pledgor or others, or otherwise act or refrain from acting; (v) settle or compromise all or any part of the Secured Obligations and subordinate the payment of all or any part of the Secured Obligations to the payment of any obligations, indebtedness or liabilities which may be due or become due by Pledgor to Agent, any Lender or others; (vi) apply any deposit balance, fund, payment, collections through process of law or otherwise or other collateral of Pledgor to the satisfaction and liquidation of the indebtedness or obligations of the Pledgor to Agent and Lenders not secured under this IP Security Agreement, if any, subject to the terms of the applicable agreements; and (vii) apply any sums paid to Agent or Lenders by Pledgor to the Secured Obligations in such order and manner as Agent, in its sole discretion, may determine.

(c)          Should Agent seek to enforce the obligations of Pledgor hereunder by action in any court or otherwise, Pledgor waives any requirement, substantive or procedural, that (i) Agent first enforce any rights or remedies against any other person or entity liable to Agent or any Lender for all or any part of the Secured Obligations, including without limitation that a judgment first be rendered against any other person or entity, or that any other person or entity should be joined in such cause, or (ii) Agent first enforce rights against any collateral which shall ever have been given to secure all or any part of the Secured Obligations or this IP Security Agreement. Such waiver shall be without prejudice to Agent’s right, at its option, to proceed against any other person or entity, whether by separate action or by joinder.

(d)          In addition to any other waivers, agreements, and covenants of Pledgor set forth herein, Pledgor hereby further waives and releases all claims, causes of action, defenses, and offsets for any act or omission of Agent and any Lender, and such Person’s directors, officers, employees, representatives, or agents in connection with Agent’s and such Lender’s administration of the Secured Obligations, except for Agent’s or such Lender’s willful misconduct and gross negligence.

(e)          Pledgor agrees that its obligations hereunder shall not be released, diminished, impaired, or reduced by the occurrence of any one or more of the following events: (i) the lack of corporate power of Pledgor, or any other guarantor of all or any part of the Secured Obligations, (ii) any receivership, insolvency, bankruptcy, or other proceedings affecting Pledgor, or any other guarantor of all or any part of the Secured Obligations, or any of their respective property; (iii) the partial or total release or discharge of any guarantor of all or any part of the Secured Obligations, or any other person or entity from the performance of any obligation contained in any instrument or agreement evidencing, governing or securing all or any part of the Secured Obligations, whether occurring by reason of taw or otherwise; (iv) the taking or accepting of any collateral for all or any part of the Secured Obligations or this IP Security Agreement; (v) the taking or accepting of any other guaranty for all or any part of the Secured Obligations; (vi) any failure by Agent to acquire, perfect, or continue any lien or security interest on collateral securing all or any part of the Secured Obligations or this IP Security Agreement; (vii) the impairment of any collateral securing all or any part of the Secured Obligations or this IP Security Agreement (including without limitation the negligent impairment); (viii) any failure by Agent to sell any collateral securing all or any part of the Secured Obligations or this IP Security Agreement in a commercially reasonable manner or as otherwise required by law; (ix) any invalidity or unenforceability of or defect or deficiency in the Loan Documents; or (x) any other act or circumstance which might otherwise constitute a defense available to, or discharge of, Pledgor, or any other guarantor of all or any part of the Secured Obligations,

Second Amended and Restated Intellectual Property Security Agreement

(f)          This IP Security Agreement shall continue to be effective or be reinstated, as the case may be, if at any time any payment of all or any part of the Secured Obligations is rescinded or must otherwise be returned by Agent or any Lender upon the insolvency, bankruptcy, or reorganization of Pledgor, any other guarantor of all or any part of the Secured Obligations, or otherwise, all as though such payment had not been made.

(g)          None of the following shall affect Pledgor’s liability hereunder: (i) the unenforceability of all or any part of the Secured Obligations against Pledgor by reason of the fact that the Secured Obligations exceed the amount permitted by law; (ii) the act of creating all or any part of the Secured Obligations is ultra vires; or (iii) the individual or individuals creating all or any part of the Secured Obligations acted in excess of their authority.

7.            IP Security Agreement Events of Default. The occurrence of any of the following shall constitute a “IP Security Agreement Event of Default” under this IP Security Agreement:

(a)          An Event of Default occurs under the Loan Documents; or

(b)          Pledgor breaches any warranty or agreement made by Pledgor in this IP Security Agreement.

8.            Remedies. Upon the occurrence and during the continuance of a IP Security Agreement Event of Default, Agent shall have the right to exercise all the remedies of a secured party under the UCC, including, without limitation, the right to require Pledgor to assemble the Intellectual Property Collateral and any tangible property in which Agent has a security interest and to make it available to Agent at a place designated by Agent. Agent shall have a nonexclusive, royalty free license or other right, solely pursuant to the provisions of this Section 8, to use, without charge, the Intellectual Property and any property of a similar nature as it pertains to the Intellectual Property Collateral, to the extent necessary to permit Agent to exercise its rights and remedies pursuant to this Section 8, including, without limitation, the completion of production, advertising for sale and the sale of any Intellectual Property Collateral and, in connection with Agent’s exercise of its rights hereunder, Pledgor’s rights under all licenses and all franchise agreements which constitute Intellectual Property Collateral shall inure to the benefit of Agent. Pledgor will pay any expenses (including reasonable attorneys’ fees) incurred by Agent or any Lender in connection with the exercise of any of Agent’s rights hereunder, including, without limitation, any expense incurred in disposing of the Intellectual Property Collateral. All of Agent’s rights and remedies with respect to the Intellectual Property Collateral shall be cumulative.

Second Amended and Restated Intellectual Property Security Agreement

9.          Indemnity. Pledgor agrees to defend, indemnify and hold harmless Agent and Lenders and their respective directors, officers, employees, attorneys and agents against (a) all obligations, demands, claims, and liabilities claimed or asserted by any other party in connection with the transactions contemplated by this IP Security Agreement and (b) all losses or expenses in any way suffered, incurred, or paid by Agent or any Lender as a result of or in any way arising out of, following or consequential to transactions between or among Agent, any Lender, and Pledgor, whether under this IP Security Agreement or otherwise (including, without limitation, reasonable attorneys’ fees and reasonable expenses), except for losses arising from or out of Agent’s gross negligence or willful misconduct. If Agent obtains recovery of any of the amounts that Pledgor has paid to it pursuant to the indemnity set forth in the section, then Agent shall promptly pay to Pledgor the amount of such recovery. PLEDGOR AND AGENT EXPRESSLY INTEND THAT THE FOREGOING INDEMNITY SHALL COVER, AND THAT PLEDGOR SHALL INDEMNIFY AND HOLD THE INDEMNIFIED PARTIES HARMLESS FROM AND AGAINST, COSTS, EXPENSES AND LOSSES SUFFERED AS A RESULT OF THE NEGLIGENCE OF ANY INDEMNIFIED PARTY.

10.         Successors and Assigns, This IP Security Agreement and all obligations of Pledgor hereunder shall be binding upon the successors and assigns of Pledgor, and shall, together with the rights and remedies of Agent hereunder, inure to the benefit of Agent, Lenders, and their respective successors and assigns. No sales of participations, other sales, assignments, transfers or other dispositions of any agreement governing or instrument evidencing the indebtedness secured hereby or any portion thereof or interest therein shall in any manner affect the security interest created herein and granted to Agent hereunder.

11.         Reassignment. At such time as Pledgor shall completely satisfy all of the Secured Obligations and no commitment on the part of any Lender to make loans to Pledgor is continuing, Agent shall execute and deliver to Pledgor all deeds, assignments, and other instruments as may be necessary or proper to revest in Pledgor full title to the property assigned hereunder, subject to any disposition thereof which may have been made by Agent pursuant hereto.

12.         No Failure or Delay. No failure or delay on the part of Agent in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise thereof.

13.         Costs and Expenses. Pledgor will upon demand pay to Agent the amount of any and all costs and expenses (including without limitation, reasonable attorneys’ fees and expenses), which Agent may incur in connection with (i) the perfection and preservation of the security interests granted under the Loan Documents, (ii) the administration of the Loan Documents, (iii) the custody, preservation, use or operation of, or the sale of, collection from, or other realization upon, the Intellectual Property Collateral, (iv) the exercise or enforcement of any of the rights of Agent hereunder, or (vi) the failure by Pledgor to perform or observe any of the provisions hereof.

14.         Amendments. Except as otherwise provided herein, this IP Security Agreement may be amended only by a written instrument signed by both parties hereto.

15.         Counterparts. This IP Security Agreement may be executed in any number of counterparts, each of which when so delivered shall be deemed an original, but all such counterparts shall constitute but one and the same instrument.

Second Amended and Restated Intellectual Property Security Agreement

16.         Governing Law; Jurisdiction. THIS IP SECURITY AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF MICHIGAN, WITHOUT REFERENCE TO THE RULES THEREOF RELATING TO CONFLICT OF LAWS. PLEDGOR HEREBY IRREVOCABLY SUBMITS ITSELF TO THE JURISDICTION OF THE STATE AND FEDERAL COURTS LOCATED IN INGHAM COUNTY, MICHIGAN, AND AGREES AND CONSENTS THAT SERVICE OF PROCESS MAY BE MADE UPON IT IN ANY LEGAL PROCEEDING RELATING TO THIS IP SECURITY AGREEMENT OR ANY OTHER RELATIONSHIP BETWEEN OR AMONG AGENT, ANY LENDER, AND PLEDGOR BY ANY MEANS ALLOWED UNDER STATE OR FEDERAL LAW. ANY LEGAL PROCEEDING ARISING OUT OF OR IN ANY WAY RELATED TO THIS IP SECURITY AGREEMENT OR ANY OTHER RELATIONSHIP BETWEEN OR AMONG AGENT, ANY LENDER, AND PLEDGOR SHALL BE BROUGHT AND LITIGATED EXCLUSIVELY IN ANY ONE OF THE STATE OR FEDERAL COURTS LOCATED IN INGHAM COUNTY, MICHIGAN, HAVING JURISDICTION UNLESS AGENT SHALL ELECT OTHERWISE. THE PARTIES HERETO HEREBY WAIVE AND AGREE NOT TO ASSERT, BY WAY OF MOTION, AS A DEFENSE OR OTHERWISE, THAT ANY SUCH PROCEEDING BROUGHT IN INGHAM COUNTY, MICHIGAN IS BROUGHT IN AN INCONVENIENT FORUM OR THAT THE VENUE THEREOF IS IMPROPER.

17.         Jury Trial Waiver. PLEDGOR AND AGENT HEREBY (A) IRREVOCABLY WAIVE, TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY AT ANY TIME ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS IP SECURITY AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY OR ASSOCIATED HEREWITH; (B) IRREVOCABLY WAIVE, TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW, ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY SUCH LITIGATION ANY SPECIAL, EXEMPLARY, PUNITIVE, OR CONSEQUENTIAL DAMAGES, OR DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES; (C) CERTIFY THAT NO PARTY HERETO NOR ANY REPRESENTATIVE OR AGENT OR COUNSEL FOR ANY PARTY HERETO HAS REPRESENTED, EXPRESSLY OR OTHERWISE, OR IMPLIED THAT SUCH PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVERS; AND (D) ACKNOWLEDGE THAT IT HAS BEEN INDUCED TO ENTER INTO THIS IP SECURITY AGREEMENT AND THE TRANSACTIONS CONTEMPLATED HEREBY BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS CONTAINED IN THIS PARAGRAPH.

18.         Conflict. In the event of a conflict between any term and/or provision contained in this IP Security Agreement with any term and/or provision contained in the Loan Documents, the term and/or provision of this IP Security Agreement shall govern.

19.         Termination. This IP Security Agreement and Pledgor’s obligations hereunder shall terminate upon the date that the Secured Obligations are paid in full, provided, that this IP Security Agreement shall continue to be effective or be reinstated, as the case may be, if at any time any payment of any of the Secured Obligations is rescinded or otherwise must be returned by Agent or any Lender, as though such payment has not been made.

20.         Entire Agreement. This IP Security Agreement (together which each Annex hereto) and the Security Agreement contain the entire agreement and understanding by and between the parties hereto with respect to the subject matter hereof and their resulting obligations to each other, as herein described; and it supersedes all prior agreements and understandings between the parties to this IP Security Agreement relating to the subject matter hereof. No change or modification of this IPSecurity Agreement shall be valid or binding unless the same is in writing and signed by the party intended to be so bound. No waiver of any provision of this IP Security Agreement shall be valid unless the same is in writing and signed by the party against whom such waiver is sought to be enforced. Moreover, no valid waiver of any provision of this IP Security Agreement, at any time, shall be deemed to be a waiver of any other provision of this IP Security Agreement at such time, or shall be deemed to be valid waiver of such provision at any other time.

[Signature page follows.]

Second Amended and Restated Intellectual Property Security Agreement

IN WITNESS WHEREOF, the undersigned party hereto has executed this Second Amended and Restated IP Security Agreement on the day and year first above written.

XG SCIENCES, INC.
By:	/s/ Michael R. Knox
Name: Michael R. Knox
Title:  Chief Executive Officer

Notarization:

STATE OF MICHIGAN	)
	)  ss:
COUNTY OF Ingham	)

The foregoing instrument was sworn to, subscribed and acknowledged before me this 10^th day of January, 2014, by Michael R. Knox, in his/her capacity as the Chief Executive Officer of XG Sciences, Inc., who is [    ] personally known to me or [ ü ] who has produced Michigan Driverse License (type of identification) as identification.

IMAGE OMITTED [tannex-ivpg13.jpg]	/s/ Kelly A. LaGrave
	NOTARY PUBLIC, STATE OF MICHIGAN
	Kelly A. LaGrave
	(Print, Type or Stamp Commissioned Name of Notary Public)

Second Amended and Restated Intellectual Property Security Agreement

IN WITNESS WHEREOF, the undersigned party hereto has executed this Second Amended and Restated IP Security Agreement on the day and year first above written.

AGENT:
ASPEN CAPITAL ADVISORS, LLC
By:	/s/ Steven C. Jones
Name:	Steven C. Jones
Title:	Managing Member

Notarization:
STATE OF FLORIDA	)
	)  ss:
COUNTY OF Miami Dade	)

The foregoing instrument was sworn to, subscribed and acknowledged before me this 15^th day of January, 2014, by Steven C. Jones, in his/her capacity as the Managing Member of Aspen Capital Advisors, LLC, who is [ ü ] personally known to me or [    ] who has produced _____________ (type of identification) as identification.

IMAGE OMITTED [tannex-ivpg14.jpg]	/s/ Charles Gamble
	NOTARY PUBLIC, STATE OF FLORIDA
	Charles Gamble
	(Print, Type or Stamp Commissioned Name of Notary Public)

Second Amended and Restated Intellectual Property Security Agreement

IN WITNESS WHEREOF, the undersigned party hereto has executed this Second Amended and Restated IP Security Agreement on the day and year first above written.

LENDER:
ASPEN ADVANCED OPPORTUNITY FUND, LP
By:	AA XGS, LLC
Its:	General Partner
By:	/s/ Steven C. Jones
Name:	Steven C. Jones
Title:	Managing Member

Notarization:
STATE OF FLORIDA	)
	) ss:
COUNTY OF Miami - Dade	)

The foregoing instrument was sworn to, subscribed and acknowledged before me this 15^th day of January, 2014, by Steven C. Jones, in his/her capacity as the Managing Member of Aspen Advanced Opportunity Fund, LP, who is [ ü ] personally known to me or [    ] who has produced ________________ (type of identification) as identification.

IMAGE OMITTED [tannex-ivpg15.jpg]	/s/ Charles Gamble
	NOTARY PUBLIC, STATE OF FLORIDA
	Charles Gamble
	(Print, Type or Stamp Commissioned Name of Notary Public)

Second Amended and Restated Intellectual Property Security Agreement

IN WITNESS WHEREOF, the undersigned party hereto has executed this Second Amended and Restated IP Security Agreement on the day and year first above written.

LENDER:
MICHAEL R. KNOX
By:	/s/ Michael R. Knox
Name:	Michael R. Knox

Notarization:
STATE OF MICHIGAN	)
	) ss:
COUNTY OF Ingham	)

The foregoing instrument was sworn to, subscribed and acknowledged before me this 10^th day of January, 2014, by Michael R. Knox, who is [   ] personally known to me or [ ü ] who has produced Michigan Driverse License (type of identification) as identification.

IMAGE OMITTED [tannex-ivpg16.jpg]	/s/ Kelly A. LaGrave
	NOTARY PUBLIC, STATE OF MICHIGAN
	Kelly A. LaGrave
	(Print, Type or Stamp Commissioned Name of Notary Public)

Second Amended and Restated Intellectual Property Security Agreement

IN WITNESS WHEREOF, the undersigned party hereto has executed this Second Amended and Restated IP Security Agreement on the day and year first above written.

LENDER:
XGS II, LLC
By:	/s/ David G. Pendell
Name:	David G. Pendell
Title:	Managing Member

Notarization:
STATE OF FLORIDA	)
	) ss:
COUNTY OF COLLIER	)

The foregoing instrument was sworn to, subscribed and acknowledged before me this 24 day of January, 2014, by David G. Pendell, in his/her capacity as the Managing Member of XGS II, LLC, who is [    ] personally known to me or [ ü ] who has produced FLDL (type of identification) as identification.

/s/ Ryan Sommerville

NOTARY PUBLIC, STATE OF FLORIDA

(Print, Type or Stamp Commissioned Name of Notary Public)

IMAGE OMITTED [tannex-ivpg17.jpg]

Second Amended and Restated Intellectual Property Security Agreement

IN WITNESS WHEREOF, the undersigned party hereto has executed this Second Amended and Restated IP Security Agreement on the day and year first above written.

LENDER:

SVIC NO. 15 NEW TECHNOLOGY BUSINESS INVESTMENT L.L.P.

By: Samsung Venture Investment Corporation, its Partner

By:	/s/ Seonjong Lee
Name:	SEONJONG LEE
Title:	C.E.O

Notarization:
STATE OF ________________	)
	) ss:
COUNTY OF _________________	)

The foregoing instrument was sworn to, subscribed and acknowledged before me this _____ day of__________, 2013, by_______________, in his/her capacity as the ___________________ of No. 15 New Technology Business Investment L.L.P, who is [    ] personally known to me or [    ] who has produced ___________ (type of identification) as identification.

NOTARY PUBLIC, STATE OF                                  

(Print, Type or Stamp Commissioned Name of Notary Public)

Second Amended and Restated Intellectual Property Security Agreement

EXHIBIT A

In November of 2011, the Company entered into a license agreement between the Company and Cabot Corporation (“Cabot”), a copy of which has been supplied to AAOF (the “License Agreement”). Subsequent to the execution of the License Agreement, Michigan State University (“MSU”) expressed concern regarding the form of the License Agreement, including whether any MSU technology might have been included in the License Agreement. After discussions among Cabot, MSU, and the Company, Cabot drafted a First Amendment to the License Agreement between Cabot and the Company (the “Amendment”). The Amendment contains warranties, attested by both the Company and its Chief Scientist, Dr. Lawrence Drzal, asserting that no MSU technology had been improperly transferred to Cabot. The Company executed the Amendment on January 29, 2013, and has provided a copy to AAOF. The Company understood that this matter was closed when it provided the Amendment to AAOF. However, the Company subsequently learned that Cabot has not yet signed the Amendment because a new Vice President had been appointed. Additionally, the Company received a letter from MSU dated March 20, 2013 stating that MSU wanted to review this issue. The Company, Cabot, and MSU are currently renegotiating the Amendment.

1) Patents and Patent Licenses

See attached.

2) Trademarks

XG Sciences (Design Plus Words)

xGnP

XG Sciences The Material Difference (Design Plus Words)

XG Leaf (Application Pending)

Second Amended and Restated Intellectual Property Security Agreement

EXHIBIT B

All “Intellectual Property” as defined in the Assignment of Intellectual Property dated effective as of January 15, 2014 between the Company and XG Sciences IP, LLC, including without limitation the following:

Patents:

Patent Application Number	Application Date	Description
13/474,860	5/18/2012	Process of Dry Milling Particulate Materials Milled Graphene/Metal Nano Composites
61/786,735	3/15/2013	Graphene Carbon Compositions
13/686,961	11/28/2012	Single Mode Microwave Device for Producing Exfoliated Graphite
13/610,934	9/12/2012	Cloud Mixer and Method of Minimizing Agglomeration of Particulates
13/435,260	3/30/2012	Mechanical Exfoliation Apparatus
61/786,745	3/15/2013	Electrodes for Capacitors from Mixed Carbon Compositions
14079057	11/13/2013	Silicon-Graphene Nanocomposites for Electrochemical Applications

Trademarks:

XG Sciences (Design Plus Words)

xGnP

XG Sciences The Material Difference (Design Plus Words)

XG Leaf (Application Pending)

Second Amended and Restated Intellectual Property Security Agreement

Exhibit 10.5

  500 Hogsback Road, Mason, Michigan 48854
Phone (888) DART-001
Fax (517) 244-2698

August 26, 2011

Michelle A. Coulter

XG Sciences

815 Terminal Road

Lansing, Ml 48906

Re: Signed Lease and First Amendment for Oakwood Executive Park

Dear Michelle:

Please find enclosed, for your records, a signed copy of the lease for your space at 3101 Grand Oak Drive in Oakwood Executive Park.

If you have any questions, please feel free to contact me. I look forward to serving your space needs at Oakwood Executive Park.

Sincerely,

DART DEVELOPMENT GROUP

/s/ Marsha Zimmerman

Marsha Zimmerman

Marketing Manager

www.dartdevelopment.com 

1.   LEASE OF THE PREMISES	1
2.   LEASE TERM	1
3.   BASE RENT	1
4.   COMMON COSTS AS ADDITIONAL RENT	2
A.   Taxes and Assessments	2
B.   CAM Charges	2
C.   Estimated Payments	3
E.   Late Charges	3
1.   Landlord May Incur Unanticipated Costs	3
2.   Tenant Owes Late Charge	3
3.   Late Charge is Fair Estimate	3
4.   If Tenant’s Check Returned	4
5.   Charges Become ‘Additional Rent’	4
6.   Application of Money From Tenant	4
7.   Payment by Landlord on Tenant’s Behalf and Associated Charges	4
8.   Landlord May Pursue Other Remedies	4
9.   Landlord May Require Advance Quarterly Payment	4
5.   SECURITY PROVISION	4
6.   INSURANCE	5
A.   Property Insurance	5
B.   Liability Insurance	5
C.   Form, Amount and Coverage, Etc.	5
D.   Increase in Insurance Premium	5
E.   Accidents	6
F.   Payment By Landlord	6
G.  Waivers of Claims/Subrogation	6
7.   USE	6
A.   Use	6
B.   Use of Common Areas	6
C.   Management and Operation of Common Areas	6
8.   DEFAULT	6
9.   LANDLORD’S REMEDIES FOR TENANT’S DEFAULT	7
10.   MISCELLANEOUS DEFAULT PROVISIONS	8
11.   ASSIGNMENT AND SUBLETTING	9
12.   HAZARDOUS SUBSTANCES	10
13.   ALTERATIONS	11
A.   Changes, Alterations and Additional Construction	11
B.   Manner of Construction	11
C.   Title to Alterations	11
14.   SURRENDER	12
A.   Delivery of Possession	12
B.   Holding Over	12
C.   Removal of Personal Property	13
D.   Retention of Personal Property	13
15.   RIGHT TO MORTGAGE	13
16.   ESTOPPEL CERTIFICATES	13
17.   MAINTENANCE AND REPAIRS	14
A.   Utilities	14
B.   Cleaning and Upkeep	14

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C.   Grounds Maintenance	14
D.   Snowplowing	14
E.   Landlord’s Right of Entry	14
F.   Repairs by Landlord	14
G.   Repairs by Tenant	14
H.   Liens	15
18.   DAMAGE OR DESTRUCTION	16
19.   CONDEMNATION	17
A.   Total Taking	17
B.   Award on Total Taking	17
C.   Partial Taking	17
D.   Reconstruction	17
E.   Award on Partial Taking	17
F.   Temporary Taking	17
G.   Settlement Agreement	18
H.   Abatement in Basic Rent	18
20.   LIABILITY; INDEMNIFICATION OF LANDLORD AND TENANT	18
A.   Damage in General	18
B.   Indemnification of Landlord	18
C.   Indemnification of Tenant	19
21.   MISCELLANEOUS PROVISIONS	19
A.   Governing Law	19
B.   References	19
C.   Binding Effect	19
D.   Entire Agreement	19
E.   Enforceability of Provisions	19
F.   Remedies Not Exclusive	19
G.  Landlord’s Right To Tenant’s Financial Information	20
H.   Re-Leasing	20
I.   Advertising and Signs	20
J.   Quiet Enjoyment	20
K.   Sale by Landlord	20
L.   Limitation of Liability	20
M.   Authority	20
N.   No Liability for Curtailment, Etc., of Services	20
O.   Survival	21
P.   Notices	21
Q.   Certificate of Occupancy	21
EXHIBIT A - Hazardous and Toxic Materials	1
EXHIBIT B - Rules and Regulations	1
1.   Control of Common Areas	1
2.   Observance of Rules	1
3.   No Obstruction	1
4.   Security of Premises	1
5.   Locks	1
6.   No Soliciting	1
7.   No Advertising	1
8.   Proper Use of Facilities	1
9.   Load Limits on Floors	1

ii

10.   Machinery and Equipment	1
11.   Moving of Equipment	2
12.   Replacement of Broken Glass	2
13.   No Hazardous Materials	2
14.   Good Houskeeping	2
15.   Landlord Not Liable	2
16.   Modifications to Rules and Regulations	2
17.   Drives and Parking Areas	2
18.   Storage and Loading Areas	2
19.   Contractors and Service Maintenance	2
20.   Lodging	2
21.   Exterior Installations	3
22.   Waivers	3
23.   Additions to Lease	3
24.   Access to Roof	3
25.   Sales From Premises	3

iii

LEASE

THIS LEASE is made effective as of August 1, 2011, between DART CONTAINER OF MICHIGAN LLC, a Michigan limited liability company with offices at 500 Hogsback Road, Mason, Michigan 48854 (“Landlord”); and XG SCIENCES, INC., a Michigan corporation, currently located at 5020 Northwind Drive, Suite 212, E. Lansing, Michigan 48823 (“Tenant”).

1.   LEASE OF THE PREMISES. Landlord, in consideration of the rents to be paid and the covenants and agreements to be performed by Tenant hereby leases to Tenant for the Term set forth below, the following described property (the “Premises”) located in Oakwood Executive Park (the “Park”):

Lot 29, Oakwood Executive Park, according to the Plat thereof recorded at Liber 50, Page 38 of Plats, Ingham County Records, and commonly known as 3101 Grand Oak Drive, Lansing, Michigan 48911, and also known as Tax Parcel No. 33-25-05-02-405-033.

Tenant hereby hires the Premises for the Lease Term and covenants to pay, or cause to be paid, to Landlord, at the dates and times set forth herein, the entire Rent, as specified herein.

2.   LEASE TERM. The term of this Lease shall be for a term of ten (10) years (the “Lease Term”), and shall commence on the first day of September, 2011, or as adjusted as provided in this Section 2 (“Commencement Date”). Unless terminated earlier in accordance with the terms of this Lease, this Lease shall terminate on August 31, 2021, or as adjusted as provided in this Section 2 (“Termination Date”).

Landlord requires approximately ninety (90) days for the build-out of the Premises, as described in Exhibits C, D, E, and F. The Commencement Date shall be the last to occur of (a) September 1, 2011, or (b) the date upon which Landlord notifies Tenant of the completion of Landlord’s build-out work described in Exhibits C, D, E, and F. If the Commencement Date shall be a date after September 1, 2011, then the Commencement Date, Termination Date, and rental periods shown in Section 3 shall be adjusted accordingly.

3. BASE RENT. During the Lease Term, Tenant shall pay annual Base Rent and all other rent due and owing by Tenant under this Lease (“Additional Rent”) to Landlord at such place as Landlord shall from time to time designate in writing. Annual Base Rent will be payable in equal monthly installments, as follows:

Lease Period	Monthly Installment		Annual Base Rent
09/01/11-08/31/12	$	15,833.00	$	189,996.00
09/01/12-08/31/13	$	16,150.00	$	193,800.00
09/01/13-08/31/14	$	16,473.00	$	197,676.00
09/01/14-08/31/15	$	16,803.00	$	201,636.00
09/01/15-08/31/16	$	17,139.00	$	205,668.00
09/01/16-08/31/17	$	17,481.00	$	209,772.00
09/01/17-08/31/18	$	17,831.00	$	213,972.00
09/01/18-08/31/19	$	18,188.00	$	218,256.00
09/01/19-08/31/20	$	18,551.00	$	222,612.00
09/01/20-08/31/21	$	18,922.00	$	227,064.00

1

A. All monthly installments of Base Rent shall be payable to Landlord in advance on the first day of each month during the Lease Term without notice, demand, deduction or set off, except as otherwise provided herein. Tenant shall pay the first month’s installment of Base Rent on the date of Tenant’s execution of this Lease. If Tenant shall not be in default at the time of the exercise of the option or at the end of the then current Lease Term, then Tenant shall have the right and option to renew this Lease for up to two (2) additional renewal terms of five (5) years each by providing Landlord with written notice of Tenant’s exercise of such right not less than six (6) months prior to the expiration of the initial Lease Term or the renewal Lease Term then in force, whichever is applicable. Annual Base Rent shall be increased at the commencement of each renewal term, and each anniversary of said commencement date of the renewal term by two percent (2%) per annum.

B. As used in this Lease, the term “Rent” shall include all amounts payable pursuant to this Lease and all other additional charges or sums payable to Landlord hereunder. All Rent due and owing by Tenant under this Lease shall be paid by Tenant to Landlord without deduction, set off or abatement, except as otherwise provided herein.

C. Tenant’s obligation to pay Base Rent, Additional Rent, and all other charges due and owing by Tenant under this Lease shall survive the expiration or earlier termination of this Lease.

4. COMMON COSTS AS ADDITIONAL RENT.

A. Taxes and Assessments. Tenant shall be responsible for and agrees to pay directly to Landlord as Additional Rent all taxes and assessments which may be billed or assessed by any lawful authority during each calendar year during the term of this Lease against the Premises or any part thereof (hereinafter referred to as the “Taxes”). Taxes shall also include all taxes, levies and charges which may be assessed, billed or imposed in replacement of or in addition to all or any part of real property taxes as revenue sources, and which in whole or in part are measured or calculated by or based upon the Premises, the freehold estate of the Landlord in and to the Premises, the leasehold estate of the Tenant created herein, or the rent and other charges payable hereunder. In no event shall Tenant be obligated to pay any income taxes, inheritance, estate, gift, transfer taxes, penalties and interest of Landlord. Notwithstanding anything stated or implied to the contrary in this paragraph, Tenant shall be responsible only for installments of special assessments which come due during the Lease Term.

Taxes shall be computed by adding all Taxes billed pertaining to the Premises during the calendar year regardless of any tax bill’s stated period of coverage. Tenant will be billed its respective share thereof either for the entire year or its prorata share of any partial year in which Tenant occupies the Premises.

B. CAM Charges. During the Lease Term, Tenant shall pay to Landlord, as Additional Rent, Tenant’s share of all common area electrical, grounds maintenance, security services (if any) and other common area charges and expenses (the “CAM Charges”), as provided below. The term “grounds maintenance” shall include, without limitation, all landscaping, planting, lawn and grounds care, all maintenance of and improvements to the grounds and other common areas adjacent to the Premises and to all sidewalks, driveways, loading areas, parking areas, and all snow removal. For the purposes of this Lease, “common areas” or “Common Areas” shall mean those areas of the Park outside of the Premises and outside of the leased premises of any other tenant of the Park which are to be maintained by Landlord.

2

C. Estimated Payments. Prior to the Commencement Date and prior to January 1 of each subsequent calendar year during the Lease Term, or as soon thereafter as possible, Landlord shall deliver to Tenant an estimate of: (1) the Property Taxes for that calendar year (the “Tax Estimate”); (2) the Insurance costs for that calendar year (the “Insurance Estimate”); and (3) the total CAM Charges for that calendar year (the “CAM Estimate”) and Tenant’s Share thereof. (The Tax Estimate, the Insurance Estimate and the CAM Estimate are sometimes referred to hereinafter collectively as the “Common Cost Estimates”.) Tenant shall thereafter during that calendar year pay to Landlord one-twelfth (1/12) of the amount of Tenant’s Share of the Common Cost Estimates at the same time its monthly installments of Base Rent hereunder are due and payable. In the event Landlord shall not have furnished the Common Cost Estimates to Tenant by January 1 of any calendar year, then until the first day of the month following the month in which the Common Cost Estimates are furnished to Tenant, Tenant shall continue to pay to Landlord on the first day of each calendar month its share of the Common Cost Estimates based on the previous year’s estimate. At such time as Landlord furnishes the Common Cost Estimates to Tenant, Landlord shall give Tenant notice stating whether the aggregate amount of the installments of Tenant’s Share of Tax Increase, Insurance Increase and CAM Charges previously paid for such calendar year is more or less than the aggregate amount of the installments due for such portion of the calendar year as computed in accordance with the Common Cost Estimates, and (1) if there shall be a deficiency, then within ten (10) days after the Tenant receives the Common Cost Estimates, Tenant shall pay the amount of such deficiency, (2) if there shall have been an overpayment, Landlord shall credit Tenant in the amount thereof toward the subsequent installments of the Common Cost Estimates, and (3) on the first day of the first month next following the month in which the Common Cost Estimates are furnished to Tenant, and monthly thereafter for the balance of such calendar year, Tenant shall pay to Landlord one-twelfth (1/12) of the amount of Tenant’s Share of the Common Cost Estimates. Tenant’s right to contest Common Cost Estimates shall be limited to six months from date of notification by Landlord.

Current monthly Common Cost Estimates, based on one hundred percent of building occupancy, are Four Thousand Two Hundred Twenty-Nine Dollars ($4,229.00).

D. Late Charges.

1. Landlord May Incur Unanticipated Costs. Tenant’s failure to pay Rent, Additional Rent, or any other Lease costs when due under this Lease may cause Landlord to incur unanticipated costs. The exact amount of such costs are impractical or extremely difficult to ascertain. Such costs may include, but are not limited to, processing and accounting charges and late charges that may be imposed on Landlord by any ground lease, mortgage, or other lien encumbering the Premises.

2. Tenant Owes Late Charge. Therefore, if Landlord does not receive the Rent, Additional Rent, or any other Lease costs in full on or before the fifth (5th) business day of the month after same is due, Tenant shall pay Landlord a late charge, which shall constitute liquidated damages, equal to Two Hundred and 00/100 Dollars ($200.00) (“Late Charge”), which shall be paid to Landlord together with such Rent, Additional Rent, or other Lease costs then in arrears.

3. Late Charge is Fair Estimate. The parties agree that such Late Charge represents a fair and reasonable estimate of the cost Landlord will incur by reason of such late payment.

3

4. If Tenant’s Check Returned. For each Tenant payment check to Landlord that is returned by a bank for any reason, Tenant shall pay both a Late Charge (if applicable) and a Returned Check Charge or such amount as shall be customarily charged by Landlord’s bank at the time.

5. Charges Become “Additional Rent”. All Late Charges and any Returned Check Charge shall then become Additional Rent and shall be due and payable immediately, along with such other Rent, Additional Rent, or other Lease costs then in arrears.

6. Application of Money From Tenant. Money paid by Tenant to Landlord shall be applied to Tenant’s account in the following order: (a) to any unpaid Additional Rent, including, without limitation, Late Charges, Returned Check Charges, legal fees and/or court costs legally chargeable to Tenant, and Operating/CAM Charges; and then (b) to unpaid Base Rent.

7. Payment by Landlord on Tenant’s Behalf and Associated Charges. If Tenant fails to make any payment or expenditure required to be paid by it under the terms of the Lease and such failure continues for a period of ten (10) days after written notice of such failure is sent by Landlord to Tenant (if such notice is required in this Lease), then Landlord may, at its option, make such payment or expenditure on behalf of Tenant. In that event, the amount of any such payment or expenditure by Landlord together with interest at the rate of ten percent (10%) per annum from the date of Landlord’s payment forward, shall be immediately due and payable to Landlord as Additional Rent.

8. Landlord May Pursue Other Remedies. Nothing herein contained shall be construed so as to compel Landlord to accept any payment of Rent, Additional Rent, or other Lease costs in arrears or Late Charge or Returned Check Charge should Landlord elect to apply its rights and remedies available under this Lease or at law or equity in the event of default hereunder by Tenant. Landlord’s acceptance of Rent, Additional Rent, or other Lease costs in arrears or Late Charge or Returned Check Charge pursuant to this Clause shall not constitute a waiver of Landlord’s rights and remedies available under this Lease or at law or equity as a result of Tenant’s default.

9. Landlord May Require Advance Quarterly Payment. If Rent due hereunder shall be late for three (3) consecutive months, then Landlord shall have the option to require that the Base Rent due shall be paid quarterly, in advance.

5.    SECURITY PROVISION. By no later than Jun 15, 2011, Tenant shall provide Landlord with a clean, unconditional, irrevocable, transferable letter of credit in the amount of One Hundred Eighty-Nine Thousand Nine Hundred Ninety-Six Dollars ($189,996.00) (the “Letter of Credit”), in form and issued by a financial institution (“Issuer”) satisfactory to Landlord in its sole discretion. The Letter of Credit must permit partial draws and provide that draws will be honored on receipt by Issuer of the original or a certified copy of the Letter of Credit accompanied by a written statement signed by Landlord or its authorized agent stating that Landlord is entitled to draw on the Letter of Credit pursuant to the terms of the Lease. The Letter of Credit must have an expiration date no earlier than August 31, 2021. If Tenant fails, by June 1, 2011, Tenant has failed to provide Landlord with the Letter of Credit as specified above, then this Lease shall be deemed immediately terminated and Tenant, within ten (10) business days of its receipt of an itemized list of Landlord’s amounts incurred as of June 1, 2011, for the improvements described in Exhibits C, D, E, and F, shall reimburse Landlord in full for those amounts incurred.

4

Landlord may draw the Letter of Credit in part or in full in the event of any uncured Event of Default by Tenant to the extent needed to pay for any Tenant obligations under this Lease. If Landlord so uses or applies all or any portion of the Letter of Credit, then Tenant shall restore the Letter of Credit to the full amount within twenty (20) business days after written demand therefor, and failure to do so shall be a material and immediate Event of Default of this Lease.

The Letter of Credit, if not applied toward putting the Premises in the condition required under Sec. 14(A), the payment of rent in arrears, or the payment of damages suffered by Landlord by reason of Tenant’s default under the Lease is to be returned to Tenant at the expiration of the Term of the Lease, provided Tenant has not committed an Event of Default of any provision of the Lease. In no event is the Letter of Credit to be returned until Tenant has vacated the Premises and delivered possession of same in in the condition required by this Lease.

In the event of the sale or other transfer of the Premises, Landlord shall have the right to transfer the Letter of Credit to such purchaser or Transferee, and Landlord shall thereupon be released by Tenant from all liability for return of the Letter of Credit.

In the event that Landlord repossesses the Premises because of Tenant’s Event of Default, Landlord may apply the Letter of Credit to all damages suffered to the date of repossession and may retain the Letter of Credit to apply to such damages as may be suffered or shall accrue thereafter by reason of Tenant’s Event of Default.

6. INSURANCE.

A. Property Insurance. During the term of the Lease, Landlord, on behalf of Tenant, shall keep the Premises insured with Broad Form fire and extended coverage insurance in an amount not less than the full replacement cost of the Premises as determined annually. Landlord will bill Tenant monthly, as Additional Rent, one-twelfth (1/12) of the annual insurance premium for the Premises. Tenant shall be named as an Additional Insured on said Policy, as Tenant’s interests appear, and Landlord shall provide Tenant with Evidence of Insurance form (Acord 27 revised 3/93) showing such insurance in force at all times during the term of this Lease and any renewals.

B. Liability Insurance. Tenant, at Tenant’s sole cost and expense, shall maintain comprehensive public liability insurance against any claims for bodily injury, death, or property damage, occurring on, in or about the Premises, and against contractual liability for such claims, such insurance to afford minimum protection in the amount of One Million Dollars ($1,000,000.00) or in such higher amount as Landlord may deem reasonably necessary. Landlord and any mortgagee of the Premises designated in writing by Landlord shall be named as co-insured or additional insured parties under all such policies. Tenant may provide public liability insurance under a blanket policy or policies which cover other properties in addition to the Premises. Tenant shall provide Landlord with an Evidence of Insurance form (ACORD25) or, in the alternative and at Landlord’s sole discretion, Landlord may require Tenant to provide a true copy of the actual liability insurance policy.

C. Form. Amount and Coverage, Etc. The form, amount, and coverage of each policy of insurance which Tenant is required to maintain shall be subject to Landlord’s approval, which shall not be unreasonably withheld. Tenant shall not permit any condition to exist on the Premises and shall not commit any act or omission which would wholly or partially invalidate any insurance.

D. Increase in Insurance Premiums. If anything done by Tenant, omitted to be done by Tenant, or allowed by Tenant to be kept on the Premises shall cause the rate of fire or other insurance on the Premises, or on other property of Landlord or of other Tenants in the Park, to be increased beyond the minimum rate from time to time applicable to the Premises or such other property, Tenant shall pay, as Additional Rent, the amount of any such increase upon Landlord’s demand.

5

E. Accidents. Upon the occurrence of any material accident, injury, or personal property casualty in or about the Premises, Tenant shall give prompt notice thereof to Landlord, and, upon Landlord’s request, Tenant shall provide Landlord with evidence that any liability of Landlord relating thereto is covered by the insurance which Tenant is required by this Lease to carry.

F. Payment By Landlord. Tenant shall deliver copies of all required policies to Landlord. If Tenant fails to maintain the insurance coverage required under this section and such failure continues for a period of ten (10) days after written notice thereof from Landlord to Tenant, Landlord may, at its option, pay the cost of maintaining the required insurance, which shall be Additional Rent due and payable immediately upon demand.

G. Waivers of Claims/Subrogation. Landlord and Tenant hereby waive all rights of action against the other for any loss, cost, damage, or expense resulting from fire, explosion, or any other casualty or occurrence incurred by either, which loss, cost, damage, or expense is then covered in whole or in part by insurance maintained or required to be maintained pursuant to this Lease, and each party waives any right of subrogation that might otherwise exist in or accrue to any person or account thereof.

7. USE.

A. Use. The Premises shall be used only for manufacture, processing, sales, and distribution of graphite nanoplatelets and related multifunctional materials purposes, including related laboratory, product research, storage, and office uses. Tenant shall not permit any liens to attach or exist as against the Premises or the Park, nor commit any waste. The Premises shall not be used for any illegal purposes, nor in any manner shall Tenant allow, suffer, or permit any vibration, noise, odor, light or other effect that could constitute a nuisance or trespass for Landlord or any other tenant, their customers, agents, or invitees. Upon notice by Landlord to Tenant that any of the aforesaid effects are occurring, Tenant agrees to immediately remove or control the same.

B. Use of Common Areas. Landlord grants to Tenant and its agents, employees and customers a non-exclusive license to use the Common Areas in common with others during the Lease Term, subject to the exclusive control and management thereof at all times by Landlord.

C. Management and Operation of Common Areas. Landlord will operate and maintain or will cause to be operated and maintained the Common Areas in good condition and repair and in a manner deemed by Landlord to be reasonable and appropriate and in the best interests of the Park. Landlord will have the right: (1) to establish, modify, and enforce reasonable rules and regulations with respect to the Common Areas, provided same do not unreasonably restrict or interfere with Tenant’s use of the Premises for the permitted uses; (2) to enter into, modify, and terminate easements and other Common Areas; (3) to close temporarily any or all portions of the Common Areas; and (4) to do any or perform such other acts in and to said areas and improvements as, in the exercise of good business judgment, Landlord shall determine to be advisable. A copy of the current Rules and Regulations is attached as Exhibit B and made a part of this Lease.

8. DEFAULT. The following shall constitute Events of Default under this Lease.

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A. Landlord fails to receive any payment of Rent or Additional Rent or any other charges payable hereunder within ten (10) days after the written notice from Landlord to Tenant that such payment is past due.

B. Failure of Tenant to perform any of the other terms, conditions or covenants of this Lease to be observed or performed by Tenant for a period of more than thirty (30) days after written notice of such failure from Landlord to Tenant.

However, if a non-monetary failure cannot reasonably be cured within thirty (30) days, no default shall take place if Tenant begins to cure said failure within those thirty (30) days and Tenant diligently prosecutes said cure to completion.

C. Tenant filing of a voluntary petition in bankruptcy or an involuntary petition in bankruptcy being filed against Tenant, and such petition is not dismissed within thirty (30) days of such filing.

D. If Tenant makes an assignment for the benefit of creditors or enters into a similar arrangement with creditors.

E. Tenant’s abandonment or vacating of the Premises at any time during the term of this Lease.

For the purposes of the Events of Default specified in this Section, the word “Tenant” shall include, without limitation: (1) any party comprising Tenant, should more than one person or entity execute this Lease as Tenant; and (2) any person or entity now or hereafter liable, whether primarily, secondarily or contingently, for the performance of the duties and obligations of Tenant under this Lease, including without limitation any principal, maker, endorser, guarantor, or surety.

9.    LANDLORD’S REMEDIES FOR TENANT’S DEFAULT. If any Event of Default shall have occurred and shall be continuing beyond those periods of time herein granted to cure the same, then Landlord shall have all of the following rights and remedies:

A. Landlord may, by notice to Tenant, accelerate all Base Rent due hereunder and otherwise payable in installments over the remainder of the Lease Term, and, at Landlord’s option, Additional Rent, including, but not limited to, unearned brokerage commissions paid by Landlord in connection with this Lease, to the extent that Additional Rent can be determined and calculated to a fixed sum; and the amount of accelerated Rent shall be due and payable to Landlord upon Landlord’s demand reduced by the reasonable rental value of the Premises and adjusted to reflect the time value of money at the Wall Street Journal published “Prime Rate” as of the date of Tenant’s default. Additional Rent which has not been included, in whole or in part, in accelerated Rent shall be due and payable by Tenant during the remainder of the Lease Term, in the amounts and at the times otherwise provided for in this Lease.

B. Landlord may, at Landlord’s option, with judicial process, enter upon the Premises and remove Tenant and any and all other persons therefrom and take and retain possession thereof and of any and all goods, inventory, equipment, fixtures, and all other personal property of Tenant situated in the Premises without liability for trespass or conversion, and may sell all or any part thereof at public or private sale. Tenant agrees that five (5) days’ prior notice of any public or private sale shall constitute reasonable notice. The proceeds of any such sale shall be applied, first, to the payment of all costs and expenses of conducting the sale or caring for or storing said property, including all attorneys’ fees; second, toward the payment of any indebtedness, including (without limitation) indebtedness for Rent, which may be or may become due from Tenant to Landlord; third, to compensate Landlord for unearned brokerage commissions paid by Landlord in connection with this Lease; and, fourth, to pay the Tenant, on demand in writing, any surplus remaining after all indebtedness of Tenant to Landlord has been fully paid.

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C. Landlord from time to time may re-let the Premises, or any part thereof, for such term or terms and on such conditions as Landlord, in its reasonable discretion, may determine, and Tenant shall be liable to Landlord for (i) the difference between the amount of Rent and Additional Rent payable hereunder and the net proceeds of such re-letting and (ii) unearned brokerage commissions paid by Landlord in connection with this Lease. In computing the amount of such difference there shall be added thereto such reasonable expenses as Landlord may have incurred in connection with such re-letting, including without limitation, attorneys’ fees, brokerage commissions, and expenses for keeping the Premises in good order and for preparing them for reletting, including expenses of remodeling and free rent or other rent incentives provided to the new tenant.

D. Landlord may give Tenant notice of Landlord’s intention to terminate this Lease on a date specified in such notice, on which date this Lease shall terminate. If Landlord shall so elect to terminate this Lease, then Landlord shall be entitled to recover from Tenant, in addition to all accrued Rent and other sums due from Tenant as of such termination date, damages in an amount equal to: (1) the amount of Rent reserved for the balance of the Lease Term, less the fair rental value of the Premises for the balance of the Lease Term, as adjusted to reflect the time value of money at the Wall Street Journal published “Prime Rate” as of the date of such termination, (2) unearned brokerage commissions paid by Landlord in connection with this Lease, and (3) all costs and expenses reasonably incurred by Landlord in securing possession from Tenant, in restoring the Premises to the condition in which Tenant is herein obligated to surrender same to Landlord, in preparing to re-let the Premises, in maintaining and safeguarding the Premises in attempting to re-let the Premises, and in recovering said damages from Tenant, which costs and expenses shall include, without limitation, reasonable attorneys’ fees and expenses, costs of security services, costs of storing or disposing of property left upon the Premises and cleaning and restoration costs. No act or proceeding done or undertaken by Landlord with respect to an Event of Default shall constitute a termination of this Lease by Landlord unless and until Landlord shall give to Tenant the termination notice specified in the first sentence of this Subsection D.

E. If Tenant is in monetary default twice in any six (6) month period, Landlord shall have the right to demand automatic wire transfer of Rent from Tenant’s account.

Landlord’s pursuit of any one or more of the remedies provided in this Lease shall not constitute an election of remedies excluding the election of another remedy or other remedies, or a forfeiture or waiver of any rent or other amounts payable under this Lease by Tenant or of any damages or other sums accruing to Landlord by reason of Tenant’s violation of any provision of this Lease. No action taken by or on behalf of Landlord shall be construed to mean acceptance of a surrender of this Lease, unless otherwise agreed in writing by Landlord. No failure of either party to pursue or exercise any of said party’s powers, rights or remedies or to insist upon strict and exact compliance by the other party with any provision of this Lease, and no custom or practice at variance with the terms of this Lease, shall constitute a waiver by any party of the right to demand strict and exact compliance with the terms and conditions of this Lease.

10.   MISCELLANEOUS DEFAULT PROVISIONS. The right to enforce all of the provisions of this Lease may, at the option of any assignee of Landlord’s rights in this Lease, be exercised by any such assignee.

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A. Any notation or statement by a party on any draft, check, or other method of payment of any obligation hereunder, or in any writing accompanying or accomplishing such payment, which notation or statement purports to impose conditions on such payment or to invoke the doctrine of accord and satisfaction, shall be absolutely void and of no effect, and may be ignored by the other party.

B. No right or remedy herein conferred upon or reserved to a party is intended to be exclusive of any other right or remedy, and every right and remedy shall be cumulative and in addition to any other right or remedy given hereunder or now or hereafter existing at law or in equity. Either party shall be entitled to injunctive relief in case of the violation, or attempted or threatened violation, of any covenant, agreement, condition or provision of this Lease and to a decree compelling performance of any covenant, agreement, condition or provision of this Lease, or to any other remedy allowed by law or in equity.

C. No failure by a party hereto to insist upon the strict performance of any covenant, agreement, term or condition of this Lease on the part of the other party to be performed, or to exercise any permitted right or remedy consequent upon a default therein, and no acceptance of the other party’s performance or, in the case of Landlord, of Tenant’s payment of full or partial Rent after such default, shall constitute a waiver by the party not in default of such default or of such covenant, agreement, term or condition, or any right or remedy of the party not in default with respect thereto.

D. If Landlord fails to perform any covenant on Landlord’s part to be performed under this Lease within thirty (30) days after written notice is sent from Tenant to Landlord stating the precise nature of the failure, then Tenant may declare Landlord in default, provided that if nature of the failure is such that it cannot be reasonably cured within the thirty (30) day period, then Landlord shall not be deemed in default if Landlord, within the thirty (30) day period, commences the cure and thereafter diligently pursues the same to completion. If Landlord does not cure any such failure within the notice and cure period, then Tenant may elect to terminate this Lease upon written notice to Landlord, sue for specific performance, sue for injunctive relief, or sue for damages, at Tenant’s option.

If legal action is required to enforce the performance of either party’s obligations under this Lease, then the prevailing party in that legal action shall be entitled to recover its reasonable attorneys’ fees and court costs incurred in that action from the other party.

11.   ASSIGNMENT AND SUBLETTING. Tenant shall not, directly or indirectly, without the prior written consent of Landlord, sell, assign, hypothecate or otherwise transfer this Lease or any interest hereunder, or sublet the Premises or any part thereof, or permit the use of the Premises by any party other than Tenant. Consent to any assignment or sublease shall not be deemed a waiver of the right of Landlord to disapprove any further assignment or subletting. Landlord’s consent hereunder shall not be unreasonably withheld, conditioned, or delayed. Notwithstanding any permitted assignment or subletting, Tenant shall remain liable for the full and complete performance, satisfaction and compliance with each and every agreement, term, covenant, condition, requirement, provision and restriction of this Lease, as principal and not as surety or guarantor, and as if no such assignment or subletting had been made.

Landlord is expressly given the right to assign any or all of its interest in the Premises or this Lease. Landlord shall give written notification to Tenant promptly after any such assignment.

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12.   HAZARDOUS SUBSTANCES. The term “Hazardous Substances” as used in this Lease, shall mean pollutants, contaminants, toxic or hazardous wastes, or any other substances, the removal of which is required or the use of which is restricted, prohibited or penalized by any “Environmental Law”, which term shall mean any existing or future federal, state, or local law or ordinance relating to pollution or protection of the environment. Tenant hereby represents and warrants and covenants with Landlord that:

A. Tenant will obtain prior to occupancy of the Premises and shall maintain in good standing all local, state and federal government licenses necessary in order to conduct its operations at the Premises;

B. No activity shall be conducted on the Premises that will produce any Hazardous Substance, except for such activities that: (1) are part of the ordinary course of Tenant’s business activities; and (2) are conducted in accordance with all Environmental Laws (the “Permitted Activities”);

C. The Premises shall not be used in any manner for the storage of any Hazardous Substances except for the temporary storage of such materials that: (1) are used in the ordinary course of Tenant’s business; (2) are properly stored in a manner and location meeting the requirements of all Environmental Laws; or (3) which are listed on Exhibit A attached to and made a part of this Lease (the “Permitted Materials”). Landlord agrees that all items listed on Exhibit A shall be deemed Permitted Materials, provided they are handled in accordance with the requirements of the preceding sentence.

D. No portion of the Premises shall be used as a landfill or a dump;

E. Tenant shall not install any underground tanks of any type;

F. Tenant shall not allow any surface or subsurface conditions to exist or come into existence that constitute, or with the passage of time may constitute, a public or private nuisance;

G. Tenant shall not permit any Hazardous Substances to be brought onto the Premises, except for the Permitted Materials, and if so brought or found thereon, the same shall be immediately removed, with proper disposal, and all required cleanup procedures shall be diligently undertaken pursuant to all Environmental Laws at Tenant’s sole expense.

The Tenant shall defend, indemnify, and hold harmless the Landlord, its employees, agents, officers, directors, and shareholders from and against any and all claims of every kind of nature, known or unknown, contingent or otherwise, demands, criminal and civil penalties, fines, liabilities, settlements, judgments, damages, costs or expenses, including without limitation, actual reasonable attorneys’ fees, consultants’ fees, investigation and laboratory fees, court costs and all litigation expenses, arising out of or in any way related to: (1) the presence, disposal, release or threatened release of any Hazardous Materials caused by Tenant, on, over, under, from or affecting the Premises or the soil, water, vegetation, buildings, personal property, persons, or animals; (2) any personal injury (including wrongful death) or property damage (real or personal) arising out of or in any way related to the release of such Hazardous Materials on the Premises by Tenant; (3) any lawsuit brought or threatened, settlement reached, or government order relating to the release of such Hazardous Materials by Tenant with respect to the Premises; and/or (4) any violation of Governmental Regulations which are based upon or in any way related to the release of such Hazardous Materials by Tenant.

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Landlord shall have the right, at any time upon attempted notice to Tenant, to inspect the Premises for violations of this section. Landlord, at its expense, shall provide Tenant with a current Phase I environmental study of the Premises certified to both Landlord and Tenant and containing no recognized environmental conditions prior to the Commencement Date. Tenant, at its expense, shall provide Landlord with a current Phase I environmental study of the Premises certified to both Landlord and Tenant and containing no recognized environmental conditions on the Leased Premises upon its vacation of the Premises.

13. ALTERATIONS.

A. Changes, Alterations and Additional Construction. Except as otherwise provided herein, Tenant, at its expense, shall be responsible for any improvements to the Premises, including but not limited to those required for compliance with fire and building codes, the Americans with Disabilities Act (and any regulations implementing said Act), and any other applicable federal, state, or local law or regulation, provided such improvements are required on account of Tenant’s activities on the Premises. Tenant shall not construct any change, alteration, or addition in or to the Premises or the Park (any and all of the foregoing being sometimes herein collectively called an “Alteration”) unless and until, in each instance, Tenant shall have submitted to Landlord plans, specifications and other materials for such Alteration as Landlord may request and Landlord shall have approved the same in writing. Landlord’s approval of any Alteration shall not be unreasonably withheld, conditioned, or delayed.

B. Manner of Construction. All Alterations which Landlord shall have approved shall be constructed by Tenant, without expense to Landlord, in a good, and workmanlike manner, and in compliance with the Landlord-approved plans and specifications therefore and all applicable permits, laws, ordinances and regulations and order, rules and regulations of the Board of Fire Insurance Underwriters or any other body exercising similar functions, and in compliance with the terms and conditions of this Lease.

C. Title to Alterations. Except to the extent otherwise expressly provided herein, upon the completion of construction of each Alteration (but excluding Tenant’s trade fixtures, equipment, machinery, and signage), such Alteration shall automatically be deemed part of the Premises for purposes of this Lease. Notwithstanding the foregoing, upon any termination of this Lease or Tenant’s right of possession of the Premises, at Landlord’s option, (1) prior to such expiration or termination, all such Alterations, or any parts or parts thereof designated by Landlord, shall be removed from the Premises and the Premises restored substantially to their condition immediately prior to the construction thereof, all at Tenant’s expense, or (2) upon such expiration or termination, title to such Alterations, or any part of parts thereof designated by Landlord, in the condition in which Tenant is obligated to maintain the Alterations pursuant to the provisions of this Lease, shall automatically pass to, vest in, and belong to Landlord without further action on the part of either party and without cost or charge to Landlord.

D. Landlord’s Initial Improvements. Prior to the Commencement Date, Landlord shall make the following improvements to the Premises in a good and workmanlike manner, in accordance with all applicable laws, codes, and ordinances, and in accordance with the plans and specifications approved in writing by Tenant: (1) make changes to the office space as shown on Exhibit C attached hereto, (2) build out the laboratory space as shown on Exhibit D attached hereto, (3) modify the employee washrooms as shown on Exhibit E attached hereto, and (4) modify the factory as shown on Exhibit F attached hereto. Prior to commencing these improvements, Landlord shall obtain a fixed price bid for the improvements from Wieland Davco or another contractor or contractors acceptable to the parties. Tenant must first agree in writing that the bid is acceptable before Landlord proceeds with the improvements, provided that Tenant shall be deemed to have approved the bid if Tenant does not provide substantive comments on it within five (5) days after Tenant’s receipt of the bid. If no bid is reasonably acceptable to Tenant, then Tenant may terminate this Lease upon written notice to Landlord. If the bid is acceptable to Tenant, then Tenant shall confirm that fact in writing delivered to Landlord and Landlord thereafter shall complete the improvements as promptly as practical. The cost of the improvements as reflected in the approved bid, together with any additions to the bid approved in writing by Tenant and Landlord, shall be paid by Landlord. This payment by Landlord shall be amortized as Additional Rent to be paid by Tenant together with Base Rent in equal monthly installments over the Lease Term, together with interest on the unpaid balance thereof at seven percent (7.0%) per annum.

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E. Subsequent Improvements. Landlord acknowledges that Tenant is leasing the Premises with an option to require Landlord to expand the Premises at some time during the first twenty-four (24) months of the Lease Term to include (1) an addition to the Building for chemical storage of approximately 15,000 square feet, with a blast wall to separate the chemical storage area from the rest of the Building and (2) to construct a loading dock. Tenant will provide Landlord with the plans and specifications for such expansion. As promptly as practical thereafter, Landlord will obtain fixed price bids for the expansion from Wieland Davco and other contractors acceptable to Landlord and Tenant. If Tenant approves in writing a bid for this expansion, then Landlord shall complete or cause the selected contractor to complete the expansion in good and workmanlike manner, in accordance with all laws, codes, and ordinances, and in accordance with the plans and specifications provided by Tenant as promptly as practical. The cost of the expansion as reflected in the approved bid and any additions to the bid approved in writing by Tenant and Landlord shall be paid by Landlord. Landlord’s payment shall be amortized as Additional Rent to be paid by Tenant as Additional Rent together with Base Rent in equal monthly installments over the remaining Lease Term, together with the interest on the unpaid balance thereof at seven percent (7.0%) per annum, commencing upon issuance of a certificate of occupancy for the expansion space. If Landlord is unwilling or fails to complete the expansion as herein provided, then Tenant’s sole remedy therefor shall be to terminate this Lease upon ninety (90) days prior written notice to Landlord, with such notice to be effective to be provided Landlord by no later than the thirty-sixth (36^th) month of the Lease Term.

14. SURRENDER.

A. Delivery of Possession. Tenant shall, on the Expiration Date of the Lease Term, or upon any earlier termination of this Lease, or upon any termination of Tenant’s right to possess the Premises pursuant to the provisions of this Lease, surrender and deliver up the Premises into the possession and use of Landlord without fraud or delay and in the condition at the time of occupancy, normal wear and tear excepted, broom clean and free of all debris and hazardous or toxic materials not present on the Commencement Date, and free and clear of all lettings, occupancies, liens and encumbrances, created by or through Tenant.

B. Holding Over. If Tenant holds over in the Premises after the expiration of the Lease Term or any earlier termination of this Lease or of Tenant’s right to possess the Premises in violation of the Lease, then at Landlord’s option, and without limitation to any right or remedy of Landlord with respect to such holding over, such holding over shall create a tenancy from month-to-month only, subject to Tenant’s obligation to pay Rent equal to one hundred twenty-five percent (125%) of the monthly Base Rent in effect immediately prior to such expiration or termination (as well as any Additional Rent), and subject to all the provisions and conditions of this Lease, other than provisions relating to length of Lease Term, which tenancy may be terminated at any time by Landlord giving notice thereof to Tenant. Landlord’s acceptance of any such rental during the period of Tenant’s holding over shall not waive or otherwise affect any claim or right which Landlord may have with respect to such holding over.

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C. Removal of Personal Property. Any and all personal property, machinery, and equipment furnished or installed by or at the expense of Tenant which does not constitute part of the Premises shall be removed by Tenant and all damage to the Premises caused by such removal repaired by Tenant prior to the expiration or earlier termination of the Lease Term or the termination of Tenant’s right to possess the Premises.

D. Retention of Personal Property. Any personal property, machinery, or equipment of Tenant which shall remain on the Premises after the expiration of the Lease Term or earlier termination of this Lease or Tenant’s right to possess the Premises may, at the option of Landlord, be deemed to have been abandoned by Tenant and may be retained by Landlord as Landlord’s property or be disposed of, without liability to Landlord, in such manner as Landlord may see fit, or Landlord, at its option, may require Tenant to remove the same at Tenant’s expense. In case of such removal, all costs of removal and of repairing any damage to the Premises arising from such removal shall be paid by Tenant upon Landlord’s demand. Tenant shall pay to Landlord on demand (1) a reasonable fee for storing and disposing of any such personal property, and (2) all costs and expenses incurred by Landlord in storing and disposing of any such personal property (including, without limitation, counsel fees relating to claims against Landlord by any and all parties claiming interests in such personal property).

15.   RIGHT TO MORTGAGE. Landlord reserves the right to subject and subordinate the Lease to the lien of any mortgage or security interest now or hereafter placed upon Landlord’s interest in all or any part of the Premises and upon the land, buildings, and fixtures of which the Premises are a part or upon any buildings hereafter placed upon the land of which the Premises form a part. Tenant covenants and agrees to execute and deliver upon demand such further instruments subordinating this Lease to the lien of any present or future mortgage or security interest or other lien as shall be desired by Landlord. In exchange for any such subordination, and as a condition thereof, Landlord will be required to provide a customary non-disturbance agreement from any existing lienholder providing that Tenant’s rights, interests, and possession under this Lease will not be disturbed so long as Tenant is not in default of this Lease.

16.   ESTOPPEL CERTIFICATES. Tenant agrees, at any time and from time to time upon not less than fifteen (15) days’ prior written notice by Landlord, to execute, acknowledge and deliver to Landlord a statement in writing certifying to the best of Tenant’s actual knowledge after reasonable investigation: (1) that this Lease is unmodified and in full force and effect (or if there have been modifications, that the same is in full force and effect as modified and stating the modifications); (2) whether there are then existing any offsets or defenses against the enforcement of any of the terms, covenants or conditions hereof upon the part of Landlord or Tenant to be performed (and if so, specifying the same); and (3) the dates to which the Rent and other charges have been paid in advance, if any, it being intended that any such statement delivered pursuant to this Section may be relied upon by any prospective purchaser of the Premises. Should either party comply with a request by the other to provide an Estoppel Certificate on the requesting party’s behalf, such compliance shall not estop the complying party from thereafter asserting its rights and remedies regarding any default existing on or before the date on which it executes such Estoppel Certificate of which it did not have actual knowledge on the date of execution thereof.

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17. MAINTENANCE AND REPAIRS.

A. Utilities. Tenant shall promptly pay all charges for utilities and other services furnished to the Premises by Landlord or the applicable utility company, including, but not limited to, gas, water, electricity, fuel, light, heat, and dumpster service. In the event any utilities furnished to the Premises are not separately metered, Tenant shall pay to Landlord, as Additional Rent, Tenant’s pro-rata share of the utilities.

B. Cleaning and Upkeep. Tenant shall keep the Premises, including any adjoining parking areas, walkways, drives, streets, alleys or yards clean and free of rubbish. If Tenant fails to do so, Landlord’s cost to have it done will be added to Tenant’s CAM Charges.

C. Grounds Maintenance. Tenant shall be responsible for all costs and expenses related to maintaining the lawn, shrubs, and any other landscaping on the Premises up to the standard which Landlord has historically maintained. Cost will be included in Tenant’s CAM Charges.

D. Snowplowing. Tenant shall be responsible for all costs and expenses for keeping the Premises free from ice and snow at all times. Cost will be included in Tenant’s CAM Charges.

E. Landlord’s Right of Entry. Landlord shall have the right to enter upon the Premises at all reasonable hours, with reasonable prior notice, for the purpose of inspection and repairs, except in case of emergency in which case no notice shall be required.

F. Repairs bv Landlord. Except as otherwise provided herein, Tenant accepts the Premises in their condition at Lease commencement and as suited for the uses intended by Tenant. Landlord shall deliver the Premises to Tenant on the Commencement Date with all building systems, equipment, and fixtures in good working order and condition. Except as otherwise expressly provided in this Lease, Landlord shall not be required to make any repairs or improvements to the Premises, except repairs to the foundation, structural components, exterior walls or roof of the Building as necessary for safety and tenantability, all of which shall be Landlord’s responsibility to repair and maintain at Landlord’s sole cost and expense if the need for repair is not brought about by any act or neglect of Tenant, its agents, employees, contractors, invitees, licensees or assignees. Without limiting the generality of the foregoing limitation, Landlord specifically shall have no obligation to repair any interior or exterior glass or doors (including loading doors) located in or on or constituting a part of the Premises, nor shall Landlord have any obligation to maintain exterior lighting

Notwithstanding the foregoing limitations on Landlord’s repair obligations, during the first year of the initial Lease Term only, Landlord shall be obligated to promptly correct any defects in material or workmanship throughout the Premises and repair any building systems, equipment, and fixtures which were not in good working order and condition as of the Commencement Date.

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G Repairs by Tenant. Tenant shall repair, maintain, replace as necessary, and keep in good, clean, and safe repair all portions of the Premises and all equipment, fixtures, and systems therein which are not specifically set forth as the responsibility of Landlord elsewhere in this Lease, ordinary wear and tear, damage by the elements, and casualty excepted. Tenant’s repairs and replacements shall include, without limitation, all electrical, plumbing, heating and air conditioning systems, parts, components, and fixtures. In connection therewith, Tenant shall maintain in force at all times a maintenance contract for the heating, ventilation and air conditioning equipment: (1) reasonably acceptable in form and content to Landlord; (2) with a service organization reasonably acceptable to Landlord; and (3) providing for at least semi-annual maintenance of such equipment, and shall provide Landlord with a true copy of such maintenance contract. Tenant shall also promptly repair or replace all partitions and all glass and plate glass within or constituting a part of the Premises immediately when cracked or broken, unless caused by Landlord or Landlord’s employees or agents, and Tenant shall be liable for and shall hold Landlord harmless against all loss, cost, and damage (including reasonable attorneys’ fees) arising from any damage or injury to the Premises or the Park or to any person or property caused or contributed to by any act or negligence of Tenant, any invitee, agent, affiliate, customer or client of Tenant or anyone in Tenant’s control or employ. Landlord gives to Tenant exclusive control of the Premises and shall be under no obligation to inspect the Premises. Tenant shall promptly report in writing to Landlord any defective conditions on the Premises known to Tenant which Landlord is required to repair, and failure to promptly report such defects after Tenant knows of the defective conditions shall make Tenant liable to Landlord for any liability incurred by Landlord by reason of such defects, and Tenant indemnifies and holds Landlord harmless from and against all loss, costs and damage (including reasonable attorneys’ fees) arising from or related to Tenant’s failure to so report such defective conditions. In no event shall Tenant cause or allow any outside storage of trash, refuse, debris, or anything else on the Premises. All personal property of Tenant or Tenant’s employees, agents, affiliates or invitees located in or brought upon the Premises or any part of the Park shall be at risk of Tenant only, and Landlord shall not be liable to Tenant or any other party for any damage thereto or theft thereof resulting from any cause other than the willful negligence or intentional misconduct of Landlord, its officers, employees, or agents.

If Tenant does not comply with this Section, Landlord shall have the right to do or cause to be done all acts necessary to bring Tenant into compliance and bill Tenant for all costs involved.

Tenant shall obtain all necessary governmental permits before making any renovations, improvements, alterations or additions to the Premises. Landlord agrees to cooperate with Tenant in obtaining such permits. However, Landlord shall have no obligation to pay any fees or charges in connection therewith.

H. Liens. If a mechanic’s or construction lien is filed against any portion of the Premises or Park as a result of work undertaken by Tenant, then within thirty (30) days after receiving notice of any such lien, Tenant shall discharge the lien either by payment of the indebtedness due lien claimant or by filing a bond as provided by statute.

If Tenant fails to discharge any lien in accordance with the terms hereof, Landlord shall have the right to discharge the lien by filing a bond or paying the indebtedness. In this event, Tenant shall pay the cost of the bond or the amount of the lien indebtedness to Landlord as Additional Rent immediately upon demand. If Tenant does not do so within ten (10) days of demand by Landlord, then Tenant shall be in default under this Lease and Landlord shall have the same remedies as provided for in Section 9.

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18. DAMAGE OR DESTRUCTION.

A. If the Premises are rendered partially or wholly unfit for occupancy by fire, the elements, act of God, or other casualty (fire, the elements, acts of God, or other casualties hereinafter referred to as a “Casualty”), and if such damage cannot, in Landlord’s reasonable estimation, be materially restored within one hundred eighty (180) days after such Casualty, then Landlord may, at its sole option, terminate this Lease as of the date of such Casualty and the Lease Term shall end on such date as if that date had been originally fixed in this Lease for the expiration of the Lease Term. Landlord shall exercise its election to terminate provided herein by written notice to Tenant as soon as practical and in any event within sixty (60) days after such Casualty. For purposes hereof, the Premises shall be deemed “materially restored” if they are in such condition as would not prevent or materially interfere with Tenant’s use of the Premises for the purpose for which it was then being used.

B. If this Lease is not terminated pursuant to Subsection A above, then Landlord shall proceed with all due diligence to repair and restore the Premises using the proceeds of insurance which shall be made available by Tenant, as the case may be (except that Landlord may elect not to rebuild, and thus terminate this Lease, if such Casualty occurs during the last year of the Lease Term exclusive of any renewal or extension option that is unexercised at the date of such Casualty). If Landlord shall fail to complete such repairs and material restoration within one hundred eighty (180) days after the date of the Casualty, then Tenant may at its option and as its sole remedy terminate this Lease by delivering written notice to Landlord, whereupon the Lease shall end on the date of such notice as if the date of such notice were the date originally fixed in this Lease for the expiration of the Lease Term hereof; provided, however, that if construction is delayed because of changes, deletions, or additions in construction requested by Tenant, or because of strikes, lockouts, casualties, acts of God, war, material or labor shortages, governmental regulation or control, or other causes beyond the reasonable control of Landlord, then the period for restoration, repair or rebuilding shall be extended for the amount of time Landlord is so delayed. In no event shall Landlord be required to rebuild, repair or replace any part of the partitions, fixtures, additions, or other property and improvements that may have been placed in or about the Premises by Tenant, provided that Tenant shall be entitled to rebuild, repair, or replace said items using the proceeds of any insurance available therefor.

C. If this Lease shall not be terminated by Landlord pursuant to this Section 18 and if the Premises are unfit for occupancy in whole or in part following such Casualty, then the Base Rent payable during the period in which the Premises are unfit for occupancy shall abate in proportion to the percentage of the rentable area of the Premises rendered unusable by such Casualty; provided, however, that no such abatement shall be made under the provisions of this Subsection C if such Casualty shall have been caused through the negligence or willful misconduct of Tenant, its agents, employees, contractors, invitees, licensees, tenants, or assignees.

D. Notwithstanding anything herein to the contrary, if, following any Casualty, the holder of any indebtedness secured by a mortgage or deed to secure debt or similar instrument covering the Premises requires that any insurance proceeds resulting from the Casualty be paid to it rather than to Landlord for the rebuilding or restoration of the Premises, then Landlord shall have the right to terminate this Lease by delivering written notice of termination to Tenant within fifteen (15) days after such requirement is made by any such person, whereupon the Lease shall end on the date of the Casualty as if the date of such Casualty were the date originally fixed in this Lease for the expiration of the Lease Term.

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E. If any Casualty described in this subsection occurs, then Landlord shall not be liable to Tenant for any inconvenience, annoyance, loss of profits, expenses, or any other type of injury or damage resulting from the repair of any such Casualty, or from any repair, modification, arranging or rearranging of any portion of the Premises or for termination of this Lease as provided in this subsection, except to the extent of any bodily injury to persons or damage to property resulting solely from Landlord’s negligence or intentional misconduct in performing such work.

19. CONDEMNATION.

A. Total Taking. In the event that the whole of the Premises shall be taken under the exercise of the power of eminent domain or by agreement with any condemnor in lieu of such taking, including but not limited to a temporary taking of the Premises for a period in excess of six (6) months (all of the foregoing herein called a “Total Taking”), then this Lease shall terminate as of the earlier of the date when title thereto vests in the condemnor or the date when possession thereof shall be delivered to the condemnor.

B. Award on Total Taking. The entire award with respect to any Total Taking shall be paid to Landlord, except that Tenant shall be entitled to any award which the condemnor may make, and which shall be provided for by law, specifically for Tenant’s improvements, moving expenses and business dislocation damages, provided that same are not deducted from the award otherwise payable to Landlord.

C. Partial Taking. In the event that any portion or portions of the Premises shall be taken under the exercise of the power of eminent domain or by agreement with any condemnor in lieu of such taking (herein called a “Partial Taking”), then this Lease, only as to the portion or portions so taken, shall terminate as of the date possession thereof shall be delivered to the condemnor; provided, however, if as a result of such Partial Taking, it is economically unfeasible to reconstruct or operate for Tenant’s business the remaining portion of the Premises because of the insufficiency in size of the remaining portion of the Premises or Tenant’s ability to access the Premises is severely reduced, and Tenant so certifies to Landlord, then (1) this Lease shall terminate thirty (30) days from the date possession of the part taken shall be delivered to the condemnor, and (2) such Partial Taking shall be deemed to be and treated as a Total Taking.

D. Reconstruction. If during the Lease Term there shall be a Partial Taking, and if this Lease shall not be terminated on account thereof pursuant to the provisions of the immediately preceding Subsection C, then (1) Landlord shall repair and restore the remaining portion of the Premises so that they constitute architectural units with the same general character and condition to the nearest extent possible under the circumstances as the previous Premises, and (2) this Lease shall remain in full force and effect with respect to such remaining portion of the Premises. Landlord shall use its best efforts to complete the reconstruction promptly and within the period mutually agreed upon by the parties.

E. Award on Partial Taking. The entire award with respect to any Partial Taking shall be paid to Landlord, excluding however any award for Tenant’s improvements and business interruption.

F. Temporary Taking. In the event a taking or condemnation of the Premises, or any part thereof, shall be for temporary use or occupancy not exceeding a period of six (6) months, then: (1) this Lease and all Tenant’s obligations hereunder shall continue in full force and effect (except to the extent that performance by Tenant of Tenant’s covenants and agreements is prevented by such taking); (2) there shall be no reduction or abatement of Rent; (3) Tenant shall be entitled to the entire award with respect to any such taking, except that Landlord shall be entitled to any portion of such award allocable to any period of time beyond the expiration of the Term of this Lease; and (4) the rights of Landlord and Tenant shall be unaffected by the other provisions of this Article and shall be governed by applicable law or Tenant shall have the option to terminate the Lease with no further liability to Landlord.

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G. Settlement Agreement. For the purposes of this Lease, all amounts paid pursuant to an agreement with any condemnor in settlement of any condemnation or any eminent domain proceeding affecting the Premises shall be deemed to constitute an award made in such proceeding.

H. Abatement in Base Rent. In a case of a Partial Taking which does not result in a termination of this Lease, the annual Base Rent payable under this Lease, after possession of the portion so taken shall be delivered to the condemnor, shall be reduced in the same proportion as the amount of usable floor area of the Premises shall have been reduced by such Taking, but any such Partial Taking shall not relieve Tenant from Tenant’s liability to pay the full Additional Rent payable under this Lease, or from any of Tenant’s other obligations hereunder, and except as herein expressly provided.

20. LIABILITY; INDEMNIFICATION OF LANDLORD AND TENANT.

A. Damage in General. Tenant agrees that Landlord, and its officers, employees and agents and those of all affiliated legal entities shall not be liable to Tenant, and Tenant hereby releases said parties, for any loss, injury, death, or damage (including incidental or consequential damages) to persons, property, or Tenant’s business from any cause whatsoever, unless such damage, loss or injury results from the negligence or willful misconduct of Landlord, or its officers, employees or agents. Landlord and its officers, employees, and agents shall not be liable to Tenant for any such damage or loss, whether or not such damage or loss results from the negligence or willful misconduct, to the extent Tenant is compensated therefore by Tenant’s insurance.

B. Indemnification of Landlord. Tenant agrees to defend with counsel reasonably satisfactory to Landlord, indemnify and save harmless Landlord from and against any and all liabilities, claims, damages, losses, cost and expenses, including without limitation attorneys’ fees, suffered or incurred by Landlord with respect to: (1) Tenant’s conduct, operation or management of the Premises, or any work, act or thing whatsoever by Tenant done in, on or about the Premises; (2) any condition of the Premises, resulting by reason of Tenant’s failure or refusal to perform its obligations under this Lease; (3) any breach or default on the part of Tenant in the observance or performance of any of its agreements or obligations hereunder; (4) any act or omission of Tenant or any sublessee or Assignee of Tenant or any of Tenant’s or such sublessee’s or Assignee’s agents, contractors, servants, employees, business invitees, licensees, visitors or guests with respect to the Premises and/or Park; and (5) any accident, injury to or death of any person or damage to any property caused by Tenant or its officers, employees, agents, contractors or invitees in or on the Premises. Landlord shall give prompt written notice to Tenant of any claim asserted against Landlord which, if sustained, may result in liability of Tenant hereunder, but failure on the part of Landlord to give such notice shall not relieve Tenant from Tenant’s obligation to defend, indemnify and save harmless Landlord as stated, except to the extent that the failure to give such notice results in actual loss or damage to Tenant.

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C. Indemnification of Tenant. Landlord agrees to defend with counsel reasonably satisfactory to Tenant, indemnify and save harmless Tenant from and against any and all claims, damages, losses, cost and expenses, including without limitation attorneys’ fees, suffered or incurred by Tenant as the result of any accident, injury to or death of any person or damage to any property to the extent caused in or about the Premises by the negligence or willful misconduct of Landlord or Landlord’s employees, servants, licensees, or its agents. Tenant shall give prompt written notice to Landlord of any claim against Tenant which, if sustained, may result in liability of Landlord hereunder, but Tenant’s failure to give such notice shall not relieve Landlord from Landlord’s obligation to defend, indemnify and save harmless Tenant as stated, except to the extent that the failure to give such notice results in actual loss or damage to Landlord.

21. MISCELLANEOUS PROVISIONS.

A. Governing Law. This Lease shall be construed and interpreted under the laws of the State of Michigan applicable to contracts made and fully performed within the state.

B. References. All references made and pronouns used herein shall be construed in the singular or plural, and in such gender as the sense and circumstances require. All references to Section or paragraph numbers or letters shall refer to sections or paragraphs of this Lease unless otherwise indicated.

The headings inserted in this Lease are for reference purposes only and shall in no way affect the construction of this Lease or limit the generality of any of its provisions.

C. Binding Effect. The terms and conditions of this Lease shall also bind the respective heirs, successors, personal representatives and assigns of the parties.

D. Entire Agreement. Except for the documents listed below, if any, this Lease constitutes the entire agreement between the parties and shall be deemed to supersede and cancel any other agreement between the parties relating to the transaction herein contemplated. None of the prior and contemporaneous negotiations, preliminary drafts or prior versions of this Lease containing conditions not set forth herein shall be used by any of the parties to construe or affect the validity of this Agreement. Each party acknowledges that no representation, inducement or condition not set forth herein has been made or relied upon by either party.

E. Enforceability of Provisions. In case any provision of this Lease or any agreement or instrument executed in connection herewith shall be deemed invalid, illegal or unenforceable, such provision shall be enforced to the fullest extent permitted by applicable law and the validity of the remaining provisions hereof shall not in any way be affected.

This Lease shall not be construed more strictly against one party as opposed to the other, merely because it may have been prepared by counsel for one of the parties. It is recognized that both Landlord and Tenant have contributed substantially and materially to the preparation of this Lease. Except as specifically provided to the contrary in this Agreement, any approval required by the terms of this Agreeement to be provided by either party shall not be unreasonably withheld, conditioned, or delayed.

F. Remedies Not Exclusive. All of the rights, remedies and benefits provided by this Lease shall be cumulative and shall not be exclusive of any other rights, remedies, and benefits allowed by law. One or more waivers of any covenant or condition by a party shall not be construed as a waiver of a further breach of the same or any other covenant or condition.

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G. Landlord’s Right to Tenant’s Financial Information. Landlord reserves the right to require Tenant to submit annual financial information including but not limited to financial statements and other relevant records. Tenant shall supply Landlord with the requested information within ten (10) business days of receipt of the request unless otherwise agreed upon. Any financial information provided by Tenant which is not publicly available and is conspicuously marked “Confidential” by Tenant shall be kept confidential by Landlord and may be disclosed by Landlord only to Landlord’s lender or to a prospective purchaser of Landlord, the Park, or the Premises under similar conditions of confidentiality.

H. Re-Leasing. Tenant agrees that for a period commencing six (6) months prior to the termination of this Lease, upon reasonable advance notice to Tenant Landlord may show the Premises to prospective tenants. Landlord may list the Premises for lease or rent with a broker and may display in and about the Premises the usual and ordinary signs during the last six (6) months of the Lease Term.

I. Advertising and Signs. All signs and advertising displayed on and about the Premises shall only advertise the business carried on upon the Premises. Landlord shall control the character and size of all signs and no sign shall be displayed except those approved in writing by Landlord, provided that Landlord shall permit Tenant to install signage in any existing pylon or road sign, building sign, or other existing sign on the Premises.

J. Quiet Enjoyment. Landlord covenants that Tenant, upon payment of all the Rent and Additional Rent due under this Lease, and performance of the covenants and obligations under this Lease or otherwise, may peacefully and quietly occupy the Premises for the term of this Lease including any written extensions or modifications of same.

K. Sale by Landlord. In the event of any sale, conveyance, transfer, or assignment by Landlord of its interest in and to the Premises, all obligations under this Lease of the party selling, conveying, transferring, assigning or otherwise disposing shall cease and terminate and Tenant releases said party from same, and Tenant shall thereafter look only and solely to the party to whom or which the Premises were sold, conveyed, transferred, assigned or otherwise disposed of for performance of all of Landlord’s duties and obligations under this Lease from and after the date of such sale, conveyance, transfer, assignment, or disposal.

L. Limitation of Liability. Landlord’s obligation and liability to Tenant with respect to this Lease shall be limited solely to Landlord’s interest in the Premises, and neither Landlord, nor any joint venturer, partner, officer, director or shareholder of Landlord or its affiliated legal entities or any of the joint venturers of Landlord shall have any liability whatsoever with respect to this Lease.

M. Authority. Each party executing this Lease warrants that it has full power, authority and legal right to execute and deliver this Lease, and to keep and observe all of the terms and provisions of this Lease on such party’s part to be observed and performed. Each party warrants that this Lease is its valid and enforceable obligation.

N. No Liability for Curtailment Etc., of Services. Landlord shall not be liable in damages or otherwise and Tenant waives any claim for the curtailment, delay, or failure in furnishing any services hereunder from any cause whatsoever, except where such curtailment, delay or failure is caused by Landlord’s willful negligence or misconduct. In no event will Landlord have any liability for any consequential, incidental, or special damages in connection with furnishing services pursuant to this Lease, nor shall any curtailment, delay, or failure in providing services, regardless of cause, constitute an eviction of Tenant or termination of this Lease. Landlord shall use reasonable efforts to restore promptly the curtailed, delayed or failed service.

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O. Survival. All agreements and obligations of a party hereunder which require observance or performance after the expiration or termination of this Lease, or which cannot reasonably be ascertained as having been observed or performed at the time of such expiration or termination, shall survive, and be enforceable against said parly following such expiration or termination.

P. Notices. Whenever a provision is made for notice of any kind, it shall be served by United States first class mail, or personally delivered to the party being put on notice at the addresses listed below or such other addresses as the parties may indicate for themselves by written notice delivered in like manner.

If to Landlord:	DART CONTAINER OF MICHIGAN LLC 500 Hogsback Road Treasury Department Mason, Michigan 48854-9541 ATTN:        Steve A. Mills
If to Tenant:	XG SCIENCES, INC. 3101 Grand Oak Drive Lansing, Michigan 48911 ATTN:        Michael R. Knox Title:           Chief Executive Officer

Q. Certificate of Occupancy. Upon Tenant’s written request, Landlord shall provide Tenant with a Certificate of Occupancy issued by the appropriate municipal authority.

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This lease is signed and made effective as of the date first written above.

	LANDLORD: DART CONTAINER OF MICHIGAN LLC
Dated: _______________, 2011	BY:
		Kevin M. Fox
	ITS:	Authorized Signatory

	TENANT: XG SCIENCES, INC.
Dated: June 2, 2011	BY:	/s/ Michael R. Knox
		Michael R. Knox
	ITS:	Chief Executive Officer

22

EXHIBIT A

PERMITTED MATERIALS

Tenant’s list of hazardous and toxic materials and wastes required to be disclosed under Section 12 of the Lease.

	LANDLORD: DART CONTAINER OF MICHIGAN LLC
Dated: _____________, 2011	BY:
		Kevin M. Fox
	ITS:	Authorized Signatory

	TENANT: XG SCIENCES, INC.
Dated: _June 2, 2011	BY:	/s/ Michael R. Knox
		Michael R. Knox
	ITS:	Chief Executive Officer

A-1

EXHIBIT B

RULES AND REGULATIONS

1. Control of Common Areas. Landlord shall have the right to control and operate the Common Areas of the Park in such manner as it deems best for the benefit of the tenants generally. No tenant shall invite to the Premises, or permit the visit of persons in such numbers or under such conditions as to interfere with the use and enjoyment of the entrances, corridors, facilities, and other Common Areas of the Park by other tenants.

2. Observance of Rules. Landlord reserves the right to exclude or expel from the Park any person who, in the judgment of Landlord, is intoxicated or under the influence of liquor or drugs, or who shall in any manner do any act in violation of any of the Rules and Regulations of the Park or in violation of any law, order, ordinance, or governmental regulation.

3. No Obstruction. The entries, exits, corridors, stairways and elevators shall not be blocked, obstructed, or interfered with in any way by any tenant, or used for any other purpose than ingress or egress to and from its respective offices. Nor shall tenant block, obstruct, or interfere with in any way sprinklers, fire extinguishers, or other fire control equipment, or any electrical, mechanical or other building systems located on the Premises or on the Park. Tenant shall not bring into or keep within the Premises any animal or motor vehicle unless prior arrangements have been made with the Landlord.

4. Security of Premises. All entrance doors on the Premises shall be kept locked when the Premises are not in use.

5. Locks. No additional locks shall be placed on the doors of the Premises by Tenant nor shall any existing locks be changed unless Landlord is immediately furnished with two keys for each lock on the entrance doors when Tenant assumes possession, with the understanding that at the termination or expiration of the Lease Term the keys shall be returned.

6. No Soliciting. Canvassing, soliciting, or peddling in the Park is prohibited and each tenant shall cooperate to prevent the same.

7. No Advertising. Tenant shall not advertise the business, profession or activities of Tenant in any manner which violates the letter or spirit of any code of ethics adopted by any recognized association or organization pertaining thereto or use the name of the Park for any purpose other than that of the business address of Tenant.

8. Proper Use of Facilities. The drinking fountains, lavatories, water closets, and urinals shall not be used for any purpose other than those for which they were installed.

9. Load Limits on Floors. Tenant shall not place a load upon any floor of the Premises which exceeds the floor load per square foot which such floor was designed to carry and is allowed by law. Landlord reserves the right to prescribe the weight and position of all heavy installations which Tenant wishes to place in the Premises so as to distribute properly the weight thereof.

10. Machinery and Equipment. Machinery and equipment used by Tenant on the Premises which cause noise and/or vibration that may be transmitted to the structure of the Premises or to other portions of the Park to such a degree as to be reasonably objectionable to Landlord or other Tenants shall be placed and maintained by Tenant, at Tenant’s expense, in settings of cork, rubber, or spring-type noise and/or vibration eliminators sufficient to reduce such noise and/or vibration to reasonably unobjectionable levels.

B-1

11. Moving of Equipment. Tenant shall move all heavy equipment in and out of the Building and/or Park in compliance with all applicable governmental laws, rules or regulations and the structural design of the Building.

12. Replacement of Broken Glass. Tenant shall replace, at Tenant’s expense, any and all broken glass, including glass partitions and doors, if any, in the Premises.

13. No Hazardous Materials. Tenant’s operations shall not include the manufacture, use and/or storage of flammable or explosive materials or substances, and explosive devices, unless same are maintained, used, and stored in accordance with applicable laws and Section 12 of the Lease. Tenant shall conduct its operations so as to avoid hazards associated with flammable or explosive materials or any other toxic or hazardous material or activity, unless same are maintained, used, and stored in accordance with applicable laws and Section 12 of the Lease.

14. Good Housekeeping. Tenant shall observe good housekeeping and keep the Premises reasonably clean and neat at all times, and free of pest or vermin of any kind.

15. Landlord Not Liable. Landlord is not responsible to any tenant for the non-observance or violation of the Rules and Regulations by any other tenant.

16. Modifications to Rules and Regulations. Landlord reserves the right by written notice to Tenant to rescind, amend, alter or waive any rule or regulation at any time prescribed for the Park when, in Landlord’s judgment, it is necessary, desirable or proper for the best interest of the Park and its tenants, provided that such rescissions, amendments, alterations, or waivers may not be unreasonable when applied to Tenant or may not unreasonably restrict Tenant’s use of the Premises for the purpose described in Section 7 of the Lease.

17. Drives and Parking Areas. All parking shall be within the Premises boundaries and within marked parking spaces. At no time shall Tenant obstruct drives and loading areas intended for the use of all tenants. The drives and parking areas are for the joint and non-exclusive use of Landlord’s tenants, and their agents, customers and invitees, unless specifically marked. Landlord shall have the right to restrict Tenant, its agents, customers, and/or invitees to certain parking areas. Tenant shall not permit any fleet trucks to park overnight in the Building’s parking areas.

18. Storage and Loading Areas. Unless specifically approved by Landlord in writing, no materials, supplies or equipment shall be stored anywhere except inside the Premises. Trash receptacles may not be placed in the service area except as otherwise approved by Landlord.

19. Contractors and Service Maintenance. Tenant will refer all contractors, contractor’s representatives and installation technicians rendering any service on or to the Premises for Tenant to Landlord for its approval and supervision before performance in the Building, including, but not limited to, installation of electrical devices and attachments and installations of any nature affecting floors, walls, woodwork, trim, windows, ceilings, equipment or any other physical portion of the Building.

20. Lodging. Tenant shall not at any time occupy any part of the Building as sleeping or lodging quarters.

B-2

21. Exterior Installations. Tenant shall not install any radio or television antenna, satellite dish, loudspeaker, or any other device on the roof or exterior walls of the Building without Landlord’s prior written consent.

22. Waivers. Landlord may waive any one or more of these Rules and Regulations for the benefit of any particular tenant in the Park, but no such waiver by Landlord shall be construed as a general waiver of such Rules and Regulations or of Landlord’s right to enforce such Rules and Regulations against Tenant or any other tenant in the Park.

23. Additions to Lease. These Rules and Regulations are in addition to, and shall not be construed to in any way, modify or amend, in whole or in part, the terms, covenants, agreements, and conditions of the Lease or any other lease of premises. In the event of any conflict or inconsistencies between these Rules and Regulations and the Lease, the terms of the Lease shall control.

24. Access to Roof. Neither Tenant nor any employee, contractor or invitee of Tenant shall go upon the roof of the Building without the prior written consent of Landlord.

25. Sales From Premises. Tenant shall not allow a fire or bankruptcy sale or any auction to be held on the Premises or allow the Premises to be used for the sale at retail of merchandise to the general public.

	LANDLORD: DART CONTAINER OF MICHIGAN LLC
Dated: _______________, 2011	BY:
		Kevin M. Fox
	ITS:	Authorized Signatory

	TENANT: XG SCIENCES, INC.
Dated: June 2, 2011	BY:	/s/ Michael R. Knox
		Michael R. Knox
	ITS:	Chief Executive Officer

B-3

Exhibit C

 

 

 

 

Michigan Department of Licensing and Regulatory Affairs

Filing Endorsement

This is to Certify that the CERTIFICATE OF AMENDMENT - CORPORATION

for

XG SCIENCES, INC.

ID NUMBER: 23029E

received by facsimile transmission on July 9, 2013 is hereby endorsed

Filed on July 10, 2013 by the Administrator.

The document is effective on the date filed, unless a subsequent effective date within 90 days after received date is stated in the document.

	In testimony whereof, I have hereunto set my hand and affixed the Seal of the Department, in the City of Lansing, this 10TH day of July, 2013.
[Graphics]	/s/ Alan J. Schefke
	Director
Sent by Facsimile Transmission 13191	Bureau of Commercial Services

BCS/CD-515 (Rev. 11/11)

MICHIGAN DEPARTMENT OF LICENSING AND REGULATORY AFFAIRS BUREAU OF COMMERCIAL SERVICES
Date Received
		This document is effective on the date filed, unless a subsequent effective date within 90 days after received date is stated in the document.
Name
Matt G. Hrebec, Esq.; Foster, Swift, Collins & Smith, P.C.
Address
313 S. Washington Square
City		State	ZIP Code
Lansing		MI	48933		EFFECTIVE DATE:
[Graphics]	Document will be returned to the name and address you enter above. If left blank, document will be returned to the registered office.			[Graphics]

 CERTIFICATE OF AMENDMENT TO THE ARTICLES OF INCORPORATION

For use by Domestic Profit and Nonprofit Corporations

(Please read information and instructions on the last page)

Pursuant to the provisions of Act 284, Public Acts of 1972, (profit corporations), or Act 162, Public Acts of 1982 (nonprofit corporations), the undersigned corporation executes the following Certificate:

1.	The present name of the corporation is:
	XG Sciences, Inc.
2.	The identification number assigned by the Bureau is:	23029E

3.	Article IIIof the Articles of Incorporation is hereby amended to read as follows:
	ARTICLE III
	The total authorized shares:
	1.	Common shares: 25,000,000
		Preferred shares: 8,000,000
	2.	A statement of all or any of the relative rights, preferences and limitations of the shares of each class is as follows:
	A.    Provisions Applicable to Common Shares: None
	B.   Provisions Applicable to Preferred Shares: The authorized shares of Preferred Stock may be issued from time to time in one or more series, each of such series to have such designations, powers, preferences, and relative participating, optional, or other rights, and such qualifications, limitations, or restrictions, as may be stated in a resolution or resolutions providing for the Issue of such series adopted by the Board of Directors.

COMPLETE ONLY ONE OF THE FOLLOWING:

4.	Profit or Nonprofit Corporations: For amendments adopted by unanimous consent of incorporators before the first meeting of the board of directors or trustees.
	The foregoing amendment to the Articles of Incorporation was duly adopted on the ________ day of __________________, _________, in accordance with the provisions of the Act by the unanimous consent of the incorporator(s) before the first meeting of the Board of Directors or Trustees.
	Signed this ________ day of ____________________________ , ___________
	(Signature)	(Signature)
	(Type or Print Name)	(Type or Print Name)
	(Signature)	(Signature)
	(Type or Print Name)	(Type or Print Name)

5.	Profit Corporation Only: Shareholder or Board Approval
	The foregoing amendment to the Articles of incorporation proposed by the board was duly adopted on the 26th day of June, 2013, by the: (check one of the following)
	þ	shareholders at a meeting in accordance with Section 611(3) of the Act.
	¨	written consent of the shareholders having not less than the minimum number of votes required by statute in accordance with Section 407(1) of the Act. Written notice to shareholders who have not consented in writing has been given. (Note: Written consent by less than all of the shareholders is permitted only if such provision appears in the Articles of Incorporation.)
	¨	written consent of all the shareholders entitled to vote in accordance with Section 407(2) of the Act.
	¨	board of a profit corporation pursuant to section 611(2) of the Act.
			Profit Corporations and Professional Service Corporations
			Signed this 8 day of July, 2013
			By	/s/ Michael R. Knox
				(Signature of an authorized officer or agent)
			Michael R. Knox, CEO
			(Type or Print Name)

XG SCIENCES, INC.

MICHIGAN CID 23029E

AMENDED AND RESTATED CERTIFICATE OF DESIGNATIONS

OF

SERIES A CONVERTIBLE PREFERRED STOCK

(Pursuant to Section 450.1302 of the

Michigan Business Corporation Act)

The undersigned, a duly authorized officer of XG Sciences, Inc., a Michigan corporation (the “Corporation”),DOES HEREBY CERTIFY that the following resolution was duly adopted bythe Board of Directors of the Corporation (the “Board of Directors”)pursuant to Section 450.1302 of the Michigan Business Corporation Act on June 26, 2013:

RESOLVED, that the Board of Directors of the Corporation pursuant to authority vested in it by the provisions of the Articles of Incorporation of the Corporation, hereby amends and restates its previous authorization of the issuance of a series of preferred stock designated as the Series A Convertible Preferred Stock of the Corporation and hereby fixes the designation, number of shares, powers, preferences, rights, qualifications, limitations and restrictions thereof (in addition to any provisions set forth in the Articles of Incorporation of the Corporation which are applicable to the Corporation’s preferred stock of all classes and series) as follows:

SERIES A CONVERTIBLE PREFERRED STOCK

1.Designation and Amount. There is hereby designated a series of the Corporation’s Preferred Stock (as defined below) as Series A Convertible Preferred Stock (the “Series A Preferred Stock”),and the number of shares so designated shall be three million (3,000,000).

2.           Definitions. In addition to the terms defined elsewhere in this Certificate of Designations the following terms have the meanings indicated:

(a)          “Common Stock”shall mean the Corporation’s common stock.

(b)          “Conversion Price”shall mean twelve dollars ($12.00) for the Series A Preferred Stock (subject to adjustment from time to time for Recapitalizations and as otherwise set forth elsewhere herein).

(c)          “Conversion Rate”shall have the meaning set forth in Section 5(a).

(d)          “Convertible Securities”shall mean any evidences of indebtedness, shares orother securities convertible into or exchangeable for Common Stock or Preferred Stock.

(e)          “Corporation”shall mean XG Sciences, Inc., a Michigan corporation.

(f)          “Junior Securities”shall mean the Common Stock and all other equity or equity equivalent securities of the Corporation other than those securities which are explicitly senior or pari passu in rights and liquidation preference to the Series A Preferred Stock.

(g)          “Liquidation Preference”shall mean twelve dollars ($12.00) per share for the Series A Preferred Stock (subject to adjustment from time to time for Recapitalizations as set forth elsewhere herein).

(h)          “Options”shall mean rights, options or warrants to subscribe for, purchase or otherwise acquire Common Stock or Convertible Securities.

(i)          “Original Issue Date”shall mean the date on which the first share of Series A Preferred Stock was issued.

(j)          “Preferred Stock”means the Corporation’s preferred stock.

(k)          “Qualified National Exchange”means a securities exchange registered with the U.S. Securities and Exchange Commission under Section 6(a) of the Securities Exchange Act of 1934, as amended, as well as the over the counter markets administered by the OTCQX® and the OTCQB®, and their successor-entities. The OTC Pink®, OTCBB and their successor-equivalent entities shall not be deemed a “Qualified National Exchange.”

(l)          “Recapitalization”shall mean any stock dividend, stock split, combination of shares, reorganization, recapitalization, reclassification or other similar event.

(m)          “Senior Securities”shall mean the Series A Preferred Stock and all other series of Preferred Stock of the Corporation that are explicitly senior or pari passu in rights and liquidation preference to the Series A Preferred Stock.

(n)          “Series A Original Issue Price”shall mean twelve dollars ($12.00) per share (subject to adjustment from time to time for Recapitalizations and as set forth in Section 5 herein).

3. Liquidation Rights.

(a)          Liquidation Preference.In the event of any liquidation, dissolution or winding up of the Corporation, either voluntary or involuntary, the holders of the Series A Preferred Stock shall be entitled to receive, prior and in preference to any distribution of any of the assets of the Corporation to the holders of the Common Stock by reason of their ownership of such stock, an amount per share for each share of Series A Preferred Stock held by them equal to (i) the Liquidation Preference specified for such share of Series A Preferred Stock less (ii) all dividends (if any) paid on such share of Series A Preferred Stock. If upon the liquidation, dissolution or winding up of the Corporation, the assets of the Corporation legally available for distribution to the holders of the Series A Preferred Stock are insufficient to permit the payment to such holders of the full amounts specified in this Section 4(a), then the entire assets of the Corporation legally available for distribution shall be distributed with equal priority and pro-rata among the holders of the Series A Preferred Stock in proportion to the full amounts they would otherwise be entitled to receive pursuant to this Section 3(a).

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(b)          Remaining Assets.After the payment to the holders of the Series A Preferred Stock of the full preferential amounts specified above, the entire remaining assets of the Corporation legally available for distribution by the Corporation shall be distributed with equal priority and pro-rata among the holders of the Series A Preferred Stock and Common Stock in proportion to the number of shares of Common Stock held by them, with the shares of Series A Preferred Stock being treated for this purpose as if they had been converted to shares of Common Stock at the then applicable Conversion Rate (as defined below).

(c)          Shares not Treated as Both Series A Preferred Stock and Common Stock in any Distribution.Shares of Series A Preferred Stock shall not be entitled to be converted into shares of Common Stock in order to participate in any distribution, or series of distributions, as shares of Common Stock, without first foregoing participation in the distribution, or series of distributions, as shares of Series A Preferred Stock.

(d)          Reorganization. For purposes of this Section 3, a liquidation, dissolution or winding up of the Corporation shall be deemed to be occasioned by, or to include: (a) the acquisition of the Corporation by another entity by means of any transaction or series of related transactions to which the Corporation is party (including, without limitation, any stock acquisition, reorganization, merger or consolidation but excluding any sale of stock for capital raising purposes) other than a transaction or series of transactions in which the holders of the voting securities of the Corporation outstanding immediately prior to such transaction continue to retain (either by such voting securities remaining outstanding or by such voting securities being converted into voting securities of the surviving entity), at least fifty percent (50%) of the total voting power represented by the voting securities of the Corporation or such surviving entity outstanding immediately after such transaction or series of transactions; (b) a sale, lease, transfer, exclusive license or other disposition, in a single transaction or series of related transactions, by the Corporation of all or substantially all the assets of the Corporation and its subsidiaries taken as a whole, except where such sale, lease, transfer, exclusive license or other disposition is to a wholly owned subsidiary of the Corporation; or (c) any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary.

(e)          Valuation of Non-Cash Consideration. If any assets of the Corporation distributed to stockholders in connection with any liquidation, dissolution, or winding up of the Corporation are other than cash, then the value of such assets shall be their fair market value as determined in good faith by the Board of Directors, except that any securities to be distributed to stockholders in a liquidation, dissolution, or winding up of the Corporation shall be valued as follows:

(i)          If the securities are then traded on a Qualified National Exchange, then the value of the securities shall be deemed to be the average of the closing prices of the securities on such exchange over the ten (10) trading day period ending five (5) trading days prior to the distribution;

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(ii)         if the securities are actively quoted on the OTC Pink®, then the value of the securities shall be deemed to be the average of the closing bid prices of the securities over the ten (10) trading day period ending five (5) trading days prior to the distribution; and

(iii)        if the securities are not traded on a Qualified National Exchange or actively quoted on the OTC Pink®, the value shall be the fair market value thereof, as determined in good faith by the Board of Directors of the Corporation.

In the event of a merger or other acquisition of the Corporation by another entity, the distribution date shall be deemed to be the date such transaction closes.

4.           Conversion Rights.The holders of the Series A Preferred Stock shall have conversion rights as follows (the “Conversion Rights”):

(a)          Right to Convert.Each share of Series A Preferred Stock shall be convertible, at the option of the holder thereof, at any time after the date of issuance of such share at the office of the Corporation or any transfer agent for the Series A Preferred Stock, into that number of fully-paid, nonassessable shares of Common Stock determined by dividing the Series A Original Issue Price by the Conversion Price. The number of shares of Common Stock into which each share of Series A Preferred Stock may be converted is hereinafter referred to as the “Conversion Rate”.Upon any decrease or increase in the Conversion Price, as described in this Section 4,the Conversion Rate shall be appropriately increased or decreased.

(b)          Mandatory Conversion.The Corporation shall have the right to effect the conversion of each share of Series A Preferred Stock then currently outstanding into fully-paid, non-assessable shares of Common Stock at the then effective Conversion Rate for such share upon the listing by the Corporation of the class of Common Stock on a Qualified National Exchange (such an event, a “Mandatory Conversion Event”).So long as the Common Stock remains listed on a Qualified National Exchange, any shares of Series A Preferred Stock issued following a Mandatory Conversion Event will be automatically converted into Common Stock pursuant to this Section 4(b) at the then effective Conversion Rate on such date of issuance of the Series A Preferred Stock.

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(c)          Mechanics of Conversion.No fractional shares of Common Stock shall be issued upon conversion of Series A Preferred Stock. In lieu of any fractional shares to which the holder would otherwise be entitled, the Corporation shall pay cash equal to such fraction multiplied by the then fair market value of a share of Common Stock as determined by the Board of Directors. For such purpose, all shares of Series A Preferred Stock held by each holder of Series A Preferred Stock shall be aggregated, and any resulting fractional share of Common Stock shall be paid in cash. Before any holder of Series A Preferred Stock shall be entitled to convert the same into full shares of Common Stock, and to receive certificates therefor, such holder shall either (A) surrender the certificate or certificates therefor, duly endorsed, at the office of the Corporation or of any transfer agent for the Series A Preferred Stock or (B)notify the Corporation or its transfer agent that such certificates have been lost, stolen or destroyed and execute an agreement satisfactory to the Corporation to indemnify the Corporation from any loss incurred by it in connection with such certificates, and shall give written notice to the Corporation at such office that he elects to convert the same; provided, however,that on the date of a Mandatory Conversion Event, the outstanding shares of Series A Preferred Stock shall be converted without any further action by the holders of such shares and whether or not the certificates representing such shares are surrendered to the Corporation or its transfer agent; provided further,however, that the Corporation shall not be obligated to issue certificates evidencing the shares of Common Stock issuable upon such Mandatory Conversion Event unless either the certificates evidencing such shares of Series A Preferred Stock are delivered to the Corporation or its transfer agent as provided above, or the holder notifies the Corporation or its transfer agent that such certificates have been lost, stolen or destroyed and executes an agreement satisfactory to the Corporation to indemnify the Corporation from any loss incurred by it in connection with such certificates. On the date of the occurrence of a Mandatory Conversion Event, each holder of record of shares of Series A Preferred Stock shall be deemed to be the holder of record of the Common Stock issuable upon such conversion, notwithstanding that the certificates representing such shares of Series A Preferred Stock shall not have been surrendered at the office of the Corporation, that notice from the Corporation shall not have been received by any holder of record of shares of Series A Preferred Stock, or that the certificates evidencing such shares of Common Stock shall not then be actually delivered to such holder.

(d)          Adjustments for Subdivisions or Combinations of Common Stock.In the event the outstanding shares of Common Stock shall be subdivided (by stock split, by payment of a stock dividend or otherwise), into a greater number of shares of Common Stock, the Conversion Price in effect immediately prior to such subdivision shall, concurrently with the effectiveness of such subdivision, be proportionately decreased. In the event the outstanding shares of Common Stock shall be combined (by reclassification or otherwise) into a lesser number of shares of Common Stock, the Conversion Price in effect immediately prior to such combination shall, concurrently with the effectiveness of such combination, be proportionately increased.

(e)          Adjustments for Subdivisions or Combinations of Series A Preferred Stock. In the event the outstanding shares of Series A Preferred Stock shall be subdivided (by stock split, by payment of a stock dividend or otherwise), into a greater number of shares of Series A Preferred Stock, the Series A Original Issue Price and Liquidation Preference of the Series A Preferred Stock in effect immediately prior to such subdivision shall, concurrently with the effectiveness of such subdivision, be proportionately decreased. In the event the outstanding shares of Series A Preferred Stock shall be combined (by reclassification or otherwise) into a lesser number of shares of Series A Preferred Stock, the Series A Original Issue Price and Liquidation Preference of the Series A Preferred Stock in effect immediately prior to such combination shall, concurrently with the effectiveness of such combination, be proportionately increased.

(f)          Adjustments for Reclassification, Exchange and Substitution.Subject to Section 4 above, if the Common Stock issuable upon conversion of the Series A Preferred Stock shall be changed into the same or a different number of shares of any other class or classes of stock, whether by capital reorganization, reclassification or otherwise (other than a subdivision or combination of shares provided for above), then, in any such event, in lieu of the number of shares of Common Stock which the holders would otherwise have been entitled to receive each holder of such Series A Preferred Stock shall have the right thereafter to convert such shares of Series A Preferred Stock into a number of shares of such other class or classes of stock which a holder of the number of shares of Common Stock deliverable upon conversion of such Series A Preferred Stock immediately before that change would have been entitled to receive in such reorganization or reclassification, all subject to further adjustment as provided herein with respect to such other shares.

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(g)          Adjustment of Series A Preferred Stock Conversion Price upon Issuance of Certain Securities. If and whenever on or after the Original Issue Date, the Corporation issues or sells, or is deemed to have issued or sold, any shares of Common Stock or securities convertible or exchangeable into Common Stock other than Excluded Securities (as defined below) for a consideration per share or an implied consideration per share of Common Stock less than a price (the “Applicable Price”)equal to the Conversion Price in effect immediately prior to such issuance or sale (such issuance a “Triggering New Issue”),then immediately after such issue or sale, the Conversion Price then in effect shall be deemed to be automatically reduced to an amount equal to eighty percent (80%) of the Applicable Price for such Triggering New Issue. After such adjustment of the Conversion Price hereunder, all subsequent conversions of the Series A Preferred Stock into Common Stock shall be effected using the new Conversion Price in the Conversion Rate. For the purposes of this Agreement, “Excluded Securities” are (i) those options and warrants of the Corporation issued prior to, and outstanding on, the Original Issue Date, (ii) the shares of Common Stock issuable on exercise of such options and warrants in subparagraph (i), provided such options and warrants are not amended after the Original Issue Date, and (iii) any options or warrants, or the shares of Common Stock into which such options and warrants are exercisable, which are issued to any employee, officer or director of the Corporation for services provided to the Corporation which have been approved by the compensation committee or the majority of the independent members of the Board of Directors.

(h)          Effect on Conversion Price of Certain Events. For purposes of determining the adjusted Conversion Price under Section 4(g) above, the following shall be applicable:

(i)          Issuance of Options or Warrants.If, after the Original Issue Date, the Corporation in any manner grants any options or warrants other than Excluded Securities and the lowest price per share for which a share of Common Stock is issuable upon the exercise of any such option or warrant is less than the Conversion Price in effect immediately prior to such grant, then such grant of options or warrants shall be deemed to have been a Triggering New Issue and the Conversion Price shall be deemed to be automatically reset pursuant to Section 4(g) above. No further adjustment of the Conversion Price shall be made upon the actual issuance of any shares of Common Stock upon the exercise of any such options or warrants.

(ii)         Issuance of Convertible Securities.If, after the Original Issue Date, the Corporation in any manner issues or sells any Convertible Securities and the lowest price per share of Common Stock at which such Convertible Security is convertible or exchangeable into Common Stock is less than the Conversion Price in effect immediately prior to such issuance or sale, then such issuance or sale shall be deemed to have been a Triggering New Issue and the Conversion Price shall be deemed to be automatically reset pursuant to Section 4(g) above. No further adjustment of the Conversion Price shall be made upon the actual issuance of any shares of Common Stock upon the conversion or exchange of such Convertible Security into shares of Common Stock.

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(iii)        Change in Option or Warrant Price or Rate of Conversion.If, after the Original Issue Date, the exercise, conversion, exchange, or other price payable provided for in any option, warrant or Convertible Security other than Excluded Securities, upon the exercise, conversion or exchange of any such securities is amended or altered at any time for any reason (any of the foregoing hereinafter referred to as an “Exercise/Conversion Change”),and any such Exercise/Conversion Change results in any of the foregoing securities being exercisable, convertible, or exchangeable at a price per share of Common Stock lower than the Conversion Price in effect immediately prior to such Exercise/Conversion Change, then such Exercise/Conversion Change shall be deemed to have been a Triggering New Issue and the Conversion Price shall be deemed to be automatically reset pursuant to Section 4(g) above.

(iv)        No adjustment pursuant to this Section 4(h) shall be made if such adjustment would result in an increase of the Conversion Price above the level that it was immediately prior to the occurrence of any of the foregoing events described in 4(h)(i)-(iii) that would give rise to an adjustment in the Conversion Price.

(i)          Waiver of Adjustment of Conversion Price.Notwithstanding anything herein to the contrary, any downward adjustment of the Conversion Price may be waived, either prospectively or retroactively and either generally or in a particular instance, by the consent or vote of the holders of the majority of the outstanding shares of Series A Preferred Stock. Any such waiver shall bind all future holders of shares of Series A Preferred Stock.

5.           Voting.On any matter presented to the stockholders of the Corporation for their action or consideration at any meeting of stockholders of the Corporation (or by written consent of stockholders in lieu of meeting), each holder of outstanding shares of Series A Preferred Stock shall be entitled to cast the number of votes equal to the number of whole shares of Common Stock into which the shares of Series A Preferred Stock held by such holder are convertible as of the record date for determining stockholders entitled to vote on such matter. Except as provided by law or by the other provisions of the Certificate of Incorporation, holders of Series A Preferred Stock shall vote together with the holders of Common Stock as a single class.

6.           Miscellaneous.

(a)          The headings herein are for convenience only, do not constitute a part of this Certificate of Designations and shall not be deemed to limit or affect any of the provisions hereof.

(b)          Any notice required or permitted by the provisions of this Certificate of Designations to be given to a holder of shares of Series A Preferred Stock shall be mailed, postage prepaid, to the post office address last shown on the records of the Corporation, or given by electronic communication in compliance with the provisions of the Michigan Business Corporation Act, and shall be deemed sent upon such mailing or electronic transmission.

(c)          No provision of this Certificate of Designations may be amended, except in a written instrument signed by the Corporation and holders of at least a majority of the shares of Series A Preferred Stock then outstanding. Any of the rights of the holders of the Series A Preferred Stock set forth herein may be waived by the affirmative vote of holders of at least a majority of the shares of Series A Preferred Stock then outstanding, except that each holder may waive its own rights as provided in this Certificate of Designations.

** Signature page follows **

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IN WITNESS WHEREOF, the undersigned has caused this Amended and Restated Certificate of Designation to be duly executed as of the 8 day of July, 2013.

XG SCIENCES, INC.
BY:	/s/ Michael R. Knox
	MICHAEL R. KNOX, CEO

SECOND AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT

This Second Amended and Restated Registration Rights Agreement (this “Agreement”), is made and entered into as of January 15, 2014 (the “Effective Date”), by and among XG Sciences, Inc., a Michigan corporation (the “Company”). Aspen Advanced Opportunity Fund, LP, a Delaware limited partnership (“Aspen”), XGS II, LLC, a Florida limited liability company (“XGS II”), SVIC No. 15 New Technology Business Investment L.L.P. (“Samsung”), and any Persons to whom Aspen, XGS II or Samsung may transfer any Registrable Securities hereunder or subsequent transferee Persons of such Aspen, XGS II, or Samsung transferees, each of whom shall be listed on Schedule A hereto which shall be deemed to have been automatically amended upon the transfer of any Registrable Securities hereunder (collectively, the “Investors”, and each individually, an “Investor”, and all together with the Company, the “Parties” and each, a “Party”).

RECITALS

WHEREAS, the Company and Aspen are parties to that certain Purchase Agreement, dated as of March 18, 2013, as amended and restated on July 12, 2013 and as amended and restated a second time on January 15, 2014 (the “Purchase Agreement”), pursuant to which Aspen purchased Securities (as defined below) of the Company; and

WHEREAS, in connection with the consummation of the transactions contemplated by the Purchase Agreement, and pursuant to the terms of the Purchase Agreement, Aspen, XGS II and the Company, on July 12, 2013, amended and restated the original Registration Rights Agreement between the Parties that was dated March 18, 2013 (such agreement as previously amended, the “Original Registration Rights Agreement”); and

WHEREAS, the Company and Samsung entered into a purchase agreement dated January 15, 2014 (the “Samsung Agreement”), pursuant to which Samsung purchased Securities and in connection therewith, the Parties have agreed to further amend and restate the Original Restated Registration Rights Agreement, in order to grant certain registration rights to each of the Investors as set forth herein below.

NOW, THEREFORE, in consideration of the foregoing and the mutual and dependent covenants hereinafter set forth, the Parties agree as follows:

AGREEMENT

1.          Defined Terms. As used in this Agreement, the following terms shall have the following meanings:

“Affiliate” of a Person means any other Person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, such Person. The term “control” (including the terms “controlled by” and “under common control with”) means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise.

“Agreement” has the meaning set forth in the preamble.

“Board” means the board of directors of the Company (and any successor governing body of the Company or any successor of the Company).

“Commission” means the Securities and Exchange Commission or any other federal agency administering the Securities Act and the Exchange Act at the time.

“Common Stock” means the common stock of the Company and any other common equity securities issued by the Company, and any other shares of stock issued or issuable with respect thereto (whether by way of a stock dividend or stock split or in exchange for or upon conversion of such shares or otherwise in connection with a combination of shares, distribution, recapitalization, merger, consolidation or other corporate reorganization).

“Company” has the meaning set forth in the preamble and includes the Company’s successors by merger, acquisition, reorganization or otherwise.

“Demand Registration” has the meaning set forth in Section 2(b).

“Exchange Act” means the Securities Exchange Act of 1934, as amended, or any successor federal statute, and the rules and regulations thereunder, which shall be in effect from time to time.

“Governmental Authority” means any federal, state, local or foreign government or political subdivision thereof, or any agency or instrumentality of such government or political subdivision, or any self-regulated organization or other non-governmental regulatory authority or quasi-govemmental authority (to the extent that the rules, regulations or orders of such organization or authority have the force of law), or any arbitrator, court or tribunal of competent jurisdiction.

“Investor” and “Investors” have the meanings set forth in the preamble.

“IPO” means (i) an initial underwritten public offering of the Common Stock pursuant to an effective Registration Statement filed under the Securities Act, other than pursuant to a Registration Statement on Form S-4, Form S-8 or any similar or successor form; or (ii) the reverse merger of the Company into any corporation that is subject to the reporting requirements of Section 13 or Section 15(d) of the Exchange Act.

“Long-Form Registration” has the meaning set forth in Section2(b).

“Parties” and “Party” have the meaning set forth in the preamble.

“Person” means an individual, corporation, partnership, joint venture, limited liability company, Governmental Authority, unincorporated organization, trust, association or other entity.

“Piggyback Registration” has the meaning set forth in Section 3(a).

“Prospectus” means the prospectus or prospectuses included in any Registration Statement, as amended or supplemented by any prospectus supplement with respect to the terms of the offering of any portion of the Registrable Securities covered by such Registration Statement and by all other amendments and supplements to the prospectus, including post-effective amendments and all material incorporated by reference in such prospectus or prospectuses.

“Purchase Agreement” has the meaning set forth in the Recitals.

“Registrable Securities” means (a) any shares of Common Stock held by the Investors or issuable upon conversion, exercise or exchange of any securities, including the Securities, owned by the Investors at any time, and (b) any shares of Common Stock issued or issuable with respect to any shares described in subsection (a) above by way of a stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization (it being understood that for purposes of this Agreement, a Person shall be deemed to be a holder of Registrable Securities whenever such Person has the right to then acquire or obtain from the Company any Registrable Securities, whether or not such acquisition has actually been effected).

“Registration Statement” means any registration statement of the Company which covers any of the Registrable Securities pursuant to the provisions of this Agreement, including the Prospectus, amendments and supplements to such Registration Statement, including post-effective amendments, all exhibits and all materials incorporated by reference in such Registration Statement.

“Rule 144” means Rule 144 promulgated under the Securities Act or any successor rule thereto or any complementary rule thereto (such as Rule 144A).

“Securities” means the secured notes, shares of Series A Convertible Preferred Stock, warrants and/or any other securities purchased by the Investors under the Purchase Agreement and the Samsung Agreement.

“Securities Act” means the Securities Act of 1933, as amended, or any successor federal statute, and the rules and regulations thereunder, which shall be in effect from time to time.

“Selling Expenses” means all underwriting discounts, selling commissions and stock transfer taxes applicable to the sale of Registrable Securities, and fees and disbursements of counsel for any holder of Registrable Securities, except for the reasonable fees and disbursements of counsel for the holders of Registrable Securities required to be paid by the Company pursuant to Section 6.

“Short-Form Registration” has the meaning set forth in Section 2(b).

2.          Demand Registration.

(a)          At any time after sixty (60) days after an IPO, holders of a majority of the Registrable Securities then outstanding may request registration under the Securities Act of all or any portion of their Registrable Securities on Form S-1 or any successor form thereto (each a “Long- Form Registration”). Each request for a Long-Form Registration shall specify the approximate number of Registrable Securities required to be registered. Upon receipt of such request, the Company shall promptly (but in no event later than ten (10) calendar days following receipt thereof) deliver notice of such request to all other holders of Registrable Securities who shall then have ten (10) calendar days from the date such notice is given to notify the Company in writing of their desire to be included in such registration. The Company shall cause a Registration Statement on Form S-1 (or any successor form) to be filed within sixty (60) days after the date on which the initial request is given and shall use its best efforts to cause such Registration Statement to be declared effective by the Commission as soon as practicable thereafter. The Company shall not be required to effect a Long-Form Registration more than four (4) times for the holders of Registrable Securities as a group; provided, that a Registration Statement shall not count as a Long-Form Registration requested under Section (a). unless and until it has become effective and the holders requesting such registration are able to register and sell at least all (100%) of the Registrable Securities requested to be included in such registration.

(b)          After an IPO, the Company shall use its best efforts to qualify and remain qualified to register securities under the Securities Act pursuant to a Registration Statement on Form S-3 or any successor form thereto. At such time as the Company shall have qualified for the use of a Registration Statement on Form S-3, the holders of Registrable Securities shall have the right to request four (4) registrations of their Registrable Securities on Form S-3 or any similar short-form registration (each a “Short-Form Registration” and, together with each Long-Form Registration, a “Demand Registration”). Each request for a Short-Form Registration shall specify the approximate number of Registrable Securities requested to be registered. Upon receipt of any such request, the Company shall promptly (but in no event later than ten (10) calendar days following receipt thereof) deliver notice of such request to all other holders of Registrable Securities who shall then have ten (10) calendar days from the date such notice is given to notify the Company in writing of their desire to be included in such registration. The Company shall cause a Registration Statement on Form S-3 (or any successor form) to be filed within thirty (30) days after the date on which the initial request is given and shall use its reasonable best efforts to cause such Registration Statement to be declared effective by the Commission as soon as practicable thereafter.

(c)          If the holders of the Registrable Securities initially requesting a Demand Registration elect to distribute the Registrable Securities covered by their request in an underwritten offering, they shall so advise the Company as a part of their request made pursuant to Section (a) or Section (b), and the Company shall include such information in its notice to the other holders of Registrable Securities. The holders of a majority of the Registrable Securities initially requesting the Demand Registration shall select the investment banking firm or firms to act as the managing underwriter or underwriters in connection with such offering.

(d)          The Company shall not include in any Demand Registration any securities which are not Registrable Securities without the prior written consent of the holders of a majority of the Registrable Securities included in such registration, which consent shall not be unreasonably withheld or delayed. If a Demand Registration involves an underwritten offering and the managing underwriter of the requested Demand Registration advises the Company and the holders of Registrable Securities in writing that in its opinion the number of shares of Common Stock proposed to be included in the Demand Registration, including all Registrable Securities and all other shares of Common Stock proposed to be included in such underwritten offering, exceeds the number of shares of Common Stock which can be sold in such underwritten offering and/or the number of shares of Common Stock proposed to be included in such registration would adversely affect the price per share of the Registrable Securities proposed to be sold in such underwritten offering, the Company shall include in such Demand Registration: (i) first, the number of shares of Common Stock that the holders of Registrable Securities propose to sell; and (ii) second, the number of shares of Common Stock proposed to be included therein by any other Persons (including shares of Common Stock to be sold for the account of the Company and/or other holders of Common Stock) allocated among such Persons in such manner as they may agree. If the managing underwriter determines that less than all of the Registrable Securities proposed to be sold can be included in such offering, then the Registrable Securities that are included in such offering shall be allocated pro-rata among the respective holders thereof on the basis of the number of Registrable Securities owned by each such holder.

3.          Piggyback Registration.

(a)          Whenever the Company proposes to register any shares of its Common Stock under the Securities Act (other than a registration effected solely to implement an employee benefit plan or a transaction to which Rule 145 of the Securities Act is applicable, or a Registration Statement on Form S-4, S-8 or any successor form thereto or another form not available for registering the Registrable Securities for sale to the public), whether for its own account or for the account of one or more shareholders of the Company and the form of Registration Statement to be used may be used for any registration of Registrable Securities (a “Piggyback Registration”), the Company shall give prompt written notice to the holders of Registrable Securities of its intention to effect such a registration and, subject to Section (b) and Section (c), shall include in such registration all Registrable Securities with respect to which the Company has received written requests for inclusion from the holders of Registrable Securities within twenty business (20) days after the Company’s notice has been given to each such holder. A Piggyback Registration shall not be deemed a Demand Registration for purposes of Section 2 of this Agreement.

(b)          If a Piggyback Registration is initiated as a primary underwritten offering on behalf of the Company and the managing underwriter advises the Company and the holders of Registrable Securities (if any holders of Registrable Securities have elected to include Registrable Securities in such Piggyback Registration) in writing that in its opinion the number of shares of Common Stock proposed to be included in such registration, including all Registrable Securities and all other shares of Common Stock proposed to be included in such underwritten offering, exceeds the number of shares of Common Stock which can be sold in such offering and/or that the number of shares of Common Stock proposed to be included in any such registration would adversely affect the price per share of the Common Stock to be sold in such offering, the Company shall include in such registration: (i) first, the number of shares of Common Stock that the Company proposes to sell; (ii) second, the number of shares of Common Stock requested to be included therein by holders of Registrable Securities, allocated pro-rata among all such holders on the basis of the number of Registrable Securities owned by each such holder or in such manner as they may otherwise agree; and (iii) third, the number of shares of Common Stock requested to be included therein by holders of Common Stock (other than holders of Registrable Securities), allocated among such holders in such manner as they may agree.

(c)          If a Piggyback Registration is initiated as an underwritten offering on behalf of a holder of Common Stock other than Registrable Securities, and the managing underwriter advises the Company in writing that in its opinion the number of shares of Common Stock proposed to be included in such registration, including all Registrable Securities and all other shares of Common Stock proposed to be included in such underwritten offering, exceeds the number of shares of Common Stock which can be sold in such offering and/or that the number of shares of Common Stock proposed to be included in any such registration would adversely affect the price per share of the Common Stock to be sold in such offering, the Company shall include in such registration: (i) first, the number of shares of Common Stock requested to be included therein by the holder(s) requesting such registration and by the holders of Registrable Securities, allocated pro-rata among such holders on the basis of the number of shares of Common Stock (on a fully diluted, as converted basis) and the number of Registrable Securities, as applicable, owned by all such holders or in such manner as they may otherwise agree; and (ii) second, the number of shares of Common Stock requested to be included therein by other holders of Common Stock, allocated among such holders in such manner as they may agree.

(d)          If any Piggyback Registration is initiated as a primary underwritten offering on behalf of the Company, the Company shall select (subject to the Investors’ written consent) the investment banking firm or firms to act as the managing underwriter or underwriters in connection with such offering.

4.          Lock-up Agreement. Each holder of outstanding Registrable Securities agrees that in connection with an IPO, and upon the request of the managing underwriter in such offering, such holder shall not, without the prior written consent of such managing underwriter, during the period commencing on the effective date of such registration and ending on the date specified by such managing underwriter (such period not to exceed one hundred eighty (180) days), (a) offer, pledge, sell, contract to sell, grant any option or contract to purchase, purchase any option or contract to sell, hedge the beneficial ownership of or otherwise dispose of, directly or indirectly, any shares of Common Stock or any securities convertible into, exercisable for or exchangeable for shares of Common Stock held immediately before the effectiveness of the registration statement for such offering, or (b) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of such securities, whether any such transaction described in clause (a) or (b) above is to be settled by delivery of Common Stock or such other securities, in cash or otherwise. The foregoing provisions of this Section 4 shall not apply to sales of Registrable Securities to be included in such offering pursuant to Section 2(a), Section 2(b), Section 3(a), and shall be applicable to the holders of Registrable Securities only if all officers and directors of the Company and all shareholders owning more than ten percent (10%) of the Company’s outstanding Common Stock are subject to the same restrictions. Each holder of Registrable Securities agrees to execute and deliver such other agreements as may be reasonably requested by the Company or the managing underwriter which are consistent with the foregoing or which are necessary to give further effect thereto. Notwithstanding anything to the contrary contained in this Section 4, each holder of Registrable Securities shall be released, pro-rata, from any lock-up agreement entered into pursuant to this Section 4 in the event and to the extent that the managing underwriter or the Company permit any discretionary waiver or termination of the restrictions of any lock-up agreement pertaining to any officer, director or holder of greater than ten percent (10%) of the outstanding Common Stock.

5.          Registration Procedures. If and whenever the holders of Registrable Securities request that any Registrable Securities be registered pursuant to the provisions of this Agreement, the Company shall use its best efforts to effect the registration and the sale of such Registrable Securities in accordance with the intended method of disposition thereof, and pursuant thereto the Company shall as soon as practicable:

(a)          subject to Section 2(a) and Section 2(b), prepare and file with the Commission a Registration Statement with respect to such Registrable Securities and use its best efforts to cause such Registration Statement to become effective;

(b)          prepare and file with the Commission such amendments, post-effective amendments and supplements to such Registration Statement and the Prospectus used in connection therewith as may be necessary to keep such Registration Statement effective for a period until all of such Registrable Securities have been disposed of and to comply with the provisions of the Securities Act with respect to the disposition of such Registrable Securities in accordance with the intended methods of disposition set forth in such Registration Statement;

(c)          at least ten (10) business days before filing such Registration Statement, Prospectus or amendments or supplements thereto, furnish to one counsel selected by holders of a majority of such Registrable Securities copies of such documents proposed to be filed, which documents shall be subject to the review, comment and approval of such counsel;

(d)          notify each selling holder of Registrable Securities, promptly after the Company receives notice thereof, of the time when such Registration Statement has been declared effective or a supplement to any Prospectus forming a part of such Registration Statement has been filed;

(e)          furnish to each selling holder of Registrable Securities such number of copies of the Prospectus included in such Registration Statement (including each preliminary Prospectus) and any supplement thereto (in each case including all exhibits and documents incorporated by reference therein) and such other documents as such seller may request in order to facilitate the disposition of the Registrable Securities owned by such seller;

(f)          use its best efforts to register or qualify such Registrable Securities under such other securities or “blue sky” laws of such jurisdictions as any selling holder reasonably requests and do any and all other acts and things which may be reasonably necessary or advisable to enable such holders to consummate the disposition in such jurisdictions of the Registrable Securities owned by such holders;

(g)          notify each selling holder of such Registrable Securities, at any time when a Prospectus relating thereto is required to be delivered under the Securities Act, of the happening of any event as a result of which the Prospectus included in such Registration Statement contains an untrue statement of a material fact or omits any fact necessary to make the statements therein not misleading, and, at the request of any such holder, the Company shall prepare a supplement or amendment to such Prospectus so that, as thereafter delivered to the purchasers of such Registrable Securities, such Prospectus shall not contain an untrue statement of a material fact or omit to state any fact necessary to make the statements therein not misleading;

(h)          make available for inspection by any selling holder of Registrable Securities, any underwriter participating in any disposition pursuant to such Registration Statement and any attorney, accountant or other agent retained by any such holder or underwriter (collectively, the “Inspectors”), all financial and other records, pertinent corporate documents and properties of the Company (collectively, the “Records”), and cause the Company’s officers, directors and employees to supply all information reasonably requested by any such Inspector in connection with such Registration Statement;

(i)          provide a transfer agent and registrar (which may be the same entity) for all such Registrable Securities not later than the effective date of such registration;

(j) use its best efforts to cause such Registrable Securities to be listed on each securities exchange on which the Common Stock is then listed or, if the Common Stock is not then listed, on a national securities exchange selected by the holders of a majority of such Registrable Securities;

(k)           in connection with an underwritten offering, enter into such customary agreements (including underwriting and lock-up agreements in customary form) and take all such other customary actions as the holders of such Registrable Securities or the managing underwriter of such offering request in order to expedite or facilitate the disposition of such Registrable Securities (including, without limitation, making appropriate officers of the Company available to participate in “road show” and other customary marketing activities (including one-on-one meetings with prospective purchasers of the Registrable Securities);

(1)           otherwise use its best efforts to comply with all applicable rules and regulations of the Commission and make available to its stockholders an earnings statement (in a form that satisfies the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder) no later than thirty (30) days after the end of the 12-month period beginning with the first day of the Company’s first full fiscal quarter after the effective date of such Registration Statement, which earnings statement shall cover said 12-month period, and which requirement will be deemed to be satisfied if the Company timely files complete and accurate information on Forms 10-Q, 10-K and 8- K under the Exchange Act and otherwise complies with Rule 158 under the Securities Act;

(m)           furnish to each selling holder of Registrable Securities and each underwriter, if any, with: (i) a legal opinion of the Company’s outside counsel, dated the effective date of such Registration Statement (and, if such registration includes an underwritten public offering, dated the date of the closing under the underwriting agreement), in form and substance as is customarily given in opinions of the Company’s counsel to underwriters in underwritten public offerings; and (ii) a “comfort” letter signed by the Company’s independent certified public accountants in form and substance as is customarily given in accountants’ letters to underwriters in underwritten public offerings;

(n)          without limiting Section (f) above, use its best efforts to cause such Registrable Securities to be registered with or approved by such other governmental agencies or authorities as may be necessary by virtue of the business and operations of the Company to enable the holders of such Registrable Securities to consummate the disposition of such Registrable Securities in accordance with their intended method of distribution thereof;

(o)           notify the holders of Registrable Securities promptly of any request by the Commission for the amending or supplementing of such Registration Statement or Prospectus or for additional information;

(p)          advise the holders of Registrable Securities, with one (1) business day after it shall receive notice or obtain knowledge thereof, of the issuance of any stop order by the Commission suspending the effectiveness of such Registration Statement or the initiation or threatening of any proceeding for such purpose and promptly use its best efforts to prevent the issuance of any stop order or to obtain its withdrawal at the earliest possible moment if such stop order should be issued;

(q)          otherwise use its best efforts to take all other steps necessary to effect the registration of such Registrable Securities contemplated hereby.

6.         Expenses. All expenses (other than Selling Expenses) incurred by the Company in complying with its obligations pursuant to this Agreement and in connection with the registration and disposition of Registrable Securities, including, without limitation, all registration and filing fees, underwriting expenses (other than fees, commissions or discounts), expenses of any audits incident to or required by any such registration, fees and expenses of complying with securities and “blue sky” laws, printing expenses, fees and expenses of the Company’s counsel and accountants and reasonable fees and expenses of one counsel for the holders of Registrable Securities participating in such registration as a group (selected by, in the case of a registration under Section 2(a), the holders of a majority of the Registrable Securities initially requesting such registration, and, in the case of all other registrations hereunder, the holders of a majority of the Registrable Securities included in the registration), shall be paid by the Company. All Selling Expenses relating to Registrable Securities registered pursuant to this Agreement shall be borne and paid by the holders of such Registrable Securities, in proportion to the number of Registrable Securities registered for each such holder.

7.         Indemnification.

(a)          The Company shall indemnify and hold harmless, to the fullest extent permitted by law, each holder of Registrable Securities, such holder's officers, directors, managers, members, partners, shareholders and Affiliates, each underwriter, broker or any other Person acting on behalf of such holder of Registrable Securities and each other Person, if any, who controls any of the foregoing Persons within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, against all losses, claims, actions, damages, liabilities and expenses, joint or several, to which any of the foregoing Persons may become subject under the Securities Act or otherwise, insofar as such losses, claims, actions, damages, liabilities or expenses arise out of or are based upon any untrue or alleged untrue statement of a material fact contained in any Registration Statement, Prospectus, preliminary Prospectus, free writing prospectus (as defined in Rule 405 promulgated under the Securities Act) or any amendment thereof or supplement thereto or any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein not misleading, or any violation or alleged violation by the Company of the Securities Act or any other similar federal or state securities laws or any rule or regulation promulgated thereunder applicable to the Company and relating to action or inaction required of the Company in connection with any such registration, qualification or compliance; and shall reimburse such Persons for any legal or other expenses reasonably incurred by any of them in connection with investigating or defending any such loss, claim, action, damage or liability, except insofar as the same are caused by or contained in any information furnished in writing to the Company by such holder expressly for use therein or by such holder’s failure to deliver a copy of the Registration Statement, Prospectus, free- writing prospectus (as defined in Rule 405 promulgated under the Securities Act) or any amendments or supplements thereto (if the same was required by applicable law to be so delivered) after the Company has furnished such holder with a sufficient number of copies of the same prior to any written confirmation of the sale of Registrable Securities.

(b)          In connection with any registration in which a holder of Registrable Securities is participating, each such holder shall furnish to the Company in writing such information and affidavits as the Company reasonably requests for use in connection with any such Registration Statement or Prospectus and, to the extent permitted by law, shall indemnify and hold harmless, the Company, each director of the Company, each officer of the Company who shall sign such Registration Statement, each underwriter, broker or other Person acting on behalf of the holders of Registrable Securities and each Person who controls any of the foregoing Persons within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act against any losses, claims, actions, damages, liabilities or expenses resulting from any untrue or alleged untrue statement of material fact contained in the Registration Statement, Prospectus, preliminary Prospectus, free writing prospectus (as defined in Rule 405 promulgated under the Securities Act) or any amendment thereof or supplement thereto or any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein not misleading, but only to the extent that such untrue statement or omission is contained in any information or affidavit so furnished in writing by such holder; provided, that the obligation to indemnify shall be several, not joint and several, for each holder and shall be limited to the net proceeds (after underwriting fees, commissions or discounts) actually received by such holder from the sale of Registrable Securities pursuant to such Registration Statement.

(c)          Promptly after receipt by an indemnified Party of notice of the commencement of any action involving a claim referred to in this Section 7, such indemnified Party shall, if a claim in respect thereof is made against an indemnifying Party, give written notice to the latter of the commencement of such action. The failure of any indemnified Party to notify an indemnifying Party of any such action shall not (unless such failure shall have a material adverse effect on the indemnifying Party) relieve the indemnifying Party from any liability in respect of such action that it may have to such indemnified Party hereunder. In case any such action is brought against an indemnified Party, the indemnifying Party shall be entitled to participate in and to assume the defense of the claims in any such action that are subject or potentially subject to indemnification hereunder, jointly with any other indemnifying Party similarly notified to the extent that it may wish, with counsel reasonably satisfactory to such indemnified Party, and after written notice from the indemnifying Party to such indemnified Party of its election so to assume the defense thereof, the indemnifying Party shall not be responsible for any legal or other expenses subsequently incurred by the indemnified Party in connection with the defense thereof; provided, that if (i) any indemnified Party shall have reasonably concluded that there may be one or more legal or equitable defenses available to such indemnified Party which are additional to or conflict with those available to the indemnifying Party, or that such claim or litigation involves or could have an effect upon matters beyond the scope of the indemnity provided hereunder, or (ii) such action seeks an injunction or equitable relief against any indemnified Party or involves actual or alleged criminal activity, the indemnifying Party shall not have the right to assume the defense of such action on behalf of such indemnified Party without such indemnified Party’s prior written consent (but, without such consent, shall have the right to participate therein with counsel of its choice) and such indemnifying Party shall reimburse such indemnified Party and any Person controlling such indemnified Party for that portion of the fees and expenses of any counsel retained by the indemnified Party which is reasonably related to the matters covered by the indemnity provided hereunder. If the indemnifying Party is not entitled to, or elects not to, assume the defense of a claim, it shall not be obligated to pay the fees and expenses of more than one counsel for all Parties indemnified by such indemnifying Party with respect to such claim, unless in the reasonable judgment of any indemnified Party a conflict of interest may exist between such indemnified Party and any other of such indemnified Parties with respect to such claim. In such instance, the conflicting indemnified Parties shall have a right to retain one separate counsel, chosen by the holders of a majority of the Registrable Securities included in the registration, at the expense of the indemnifying Party.

(d)          If the indemnification provided for hereunder is held by a court of competent jurisdiction to be unavailable to an indemnified Party with respect to any loss, claim, damage, liability or action referred to herein, then the indemnifying Party, in lieu of indemnifying such indemnified Party hereunder, shall contribute to the amounts paid or payable by such indemnified Party as a result of such loss, claim, damage, liability or action 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 which resulted in such loss, claim, damage, liability or action as well as any other relevant equitable considerations; provided, that the maximum amount of liability in respect of such contribution shall be limited, in the case of each holder of Registrable Securities, to an amount equal to the net proceeds (after underwriting fees, commissions or discounts) actually received by such seller from the sale of Registrable Securities effected pursuant to such registration. 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 or the omission or alleged omission to state 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. The Parties agree that it would not be just and equitable if contribution pursuant hereto were determined by pro rata allocation or by any other method or allocation which does not take account of the equitable considerations referred to herein. No Person guilty or liable of fraudulent misrepresentation shall be entitled to contribution from any Person.

8.         Participation in Underwritten Registrations. No Person may participate in any registration hereunder which is underwritten unless such Person: (a) agrees to sell such Person’s securities on the basis provided in any underwriting arrangements approved by the Person or Persons entitled hereunder to approve such arrangements; and (b) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents required under the terms of such underwriting arrangements; provided, that no holder of Registrable Securities included in any underwritten registration shall be required to make any representations or warranties to the Company or the underwriters (other than representations and warranties regarding such holder, such holder’s ownership of its shares of Common Stock to be sold in the offering and such holder’s intended method of distribution) or to undertake any indemnification obligations to the Company or the underwriters with respect thereto, except as otherwise provided in Section 7 herein.

9.         Rule 144 Compliance. With a view to making available to the holders of Registrable Securities the benefits of Rule 144 under the Securities Act and any other rule or regulation of the Commission that may at any time permit a holder to sell securities of the Company to the public without registration or pursuant to a registration on Form S-3 (or any successor form), the Company shall, at all times after an IPO:

(a)          make and keep public information available, as those terms are understood and defined in Rule 144 under the Securities Act, at all times after the Registration Date;

(b)          use best efforts to 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, at any time after the Company has become subject to such reporting requirements; and

(c)          furnish to any holder so long as the holder owns Registrable Securities, promptly upon request, a written statement by the Company as to its compliance with the reporting requirements of Rule 144 under the Securities Act and of the Securities Act and the Exchange Act, a copy of the most recent annual or quarterly report of the Company, and such other reports and documents so filed or furnished by the Company as such holder may reasonably request in connection with the sale of Registrable Securities without registration.

10.         Preservation of Rights. The Company shall not: (a) grant any registration rights to third-parties which are more favorable than or inconsistent with the rights granted hereunder, or (b) enter into any agreement, take any action, or permit any change to occur, with respect to its securities that violates or subordinates the rights expressly granted to the holders of Registrable Securities in this Agreement.

11.         Termination. This Agreement shall terminate and be of no further force or effect when there shall no longer be any Registrable Securities outstanding; provided, that the provisions of Section 6 and Section 7 shall survive any such termination.

12.         Notices. AH notices, requests, consents, claims, demands, waivers and other communications hereunder shall be in writing and shall be deemed to have been given (a) when delivered by hand (with written confirmation of receipt); (b) when received by the addressee if sent by a nationally recognized overnight courier (receipt requested); (c) on the date sent by facsimile or e-mail of a PDF document (with confirmation of transmission) if sent during normal business hours of the recipient, and on the next business day if sent after normal business hours of the recipient or (d) on the third day after the date mailed, by certified or registered mail, return receipt requested, postage prepaid. Such communications must be sent to the respective Parties at the addresses indicated below (or at such other address for a Party as shall be specified in a notice given in accordance with this Section 12).

If to the Company:	XG Sciences, Inc.
	3101 Grand Oak Drive
	Lansing, MI 48911
	Facsimile: 517.703.1110
	E-mail:
	Attention: Chief Executive Officer
with a copy to:	Matt G. Hrebec
	Foster Swift Collins & Smith P.C.
	313 S. Washington Square
	Lansing, MI 48933
	Facsimile; 517.371.8200
	E-mail: mhrebec@fosterswift.com

If to any Investor, to such Investor’s address as set forth on the signature page hereto.

13.         Entire Agreement. This Agreement, together with the Purchase Agreement, the Samsung Agreement and any related exhibits and schedules thereto, constitutes the sole and entire agreement of the Parties with respect to the subject matter contained herein, and supersedes all prior and contemporaneous understandings and agreements, both written and oral, with respect to such subject matter. Notwithstanding the foregoing, in the event of any conflict between the terms and provisions of this Agreement and those of the Purchase Agreement or the Samsung Agreement, the terms and conditions of this Agreement shall control.

14.         Successor and Assigns. This Agreement shall be binding upon and shall inure to the benefit of the Parties hereto and their respective successors and permitted assigns. Each Investor may assign its rights hereunder to any purchaser or transferee of Registrable Securities; provided, that such purchaser or transferee shall, as a condition to the effectiveness of such assignment, be required to execute a counterpart to this Agreement agreeing to be treated as an Investor whereupon such purchaser or transferee shall have the benefits of, and shall be subject to the restrictions contained in, this Agreement as if such purchaser or transferee was originally included in the definition of an Investor herein and had originally been a Party hereto.

15.         No Third-Party Beneficiaries. This Agreement is for the sole benefit of the Parties hereto and their respective successors and permitted assigns and nothing herein, express or implied, is intended to or shall confer upon any other Person any legal or equitable right, benefit or remedy of any nature whatsoever, under or by reason of this Agreement.

16.         Headings. The headings in this Agreement are for reference only and shall not affect the interpretation of this Agreement.

17.         Amendment, Modification and Waiver. Except as otherwise provided herein, the provisions of this Agreement may only be amended, modified, supplemented or waived with the prior written consent of the Company and the holders of at least seventy-five percent (75%) of the Registrable Securities. No waiver by any Party or Parties shall operate or be construed as a waiver in respect of any failure, breach or default not expressly identified by such written waiver, whether of a similar or different character, and whether occurring before or after that waiver. Except as otherwise set forth in this Agreement, no failure to exercise, or delay in exercising, any right, remedy, power or privilege arising from this Agreement shall operate or be construed as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege.

18.         Severability. If any term or provision of this Agreement is invalid, illegal or unenforceable in any jurisdiction, such invalidity, illegality or unenforceability shall not affect any other term or provision of this Agreement or invalidate or render unenforceable such term or provision in any other jurisdiction. Upon such determination that any term or other provision is invalid, illegal or unenforceable, the Parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the Parties as closely as possible in a mutually acceptable manner in order that the transactions contemplated hereby be consummated as originally contemplated to the greatest extent possible.

19.         Remedies. Each holder of Registrable Securities, in addition to being entitled to exercise all rights granted by law, including recovery of damages, shall be entitled to specific performance of its rights under this Agreement. The Company acknowledges that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Agreement and the Company hereby agrees to waive the defense in any action for specific performance that a remedy at law would be adequate.

20.         Governing Law; Submission to Jurisdiction. This Agreement shall be governed by and construed in accordance with the internal laws of the State of Michigan without giving effect to any choice or conflict of law provision or rule (whether of the State of Michigan or any other jurisdiction) that would cause the application of laws of any jurisdiction other than those of the State of Michigan. Any legal suit, action or proceeding arising out of or based upon this Agreement or the transactions contemplated hereby may be instituted in the federal courts of the United States or the courts of the State of Michigan in each case located in Ingham County, Michigan, and each Party irrevocably submits to the exclusive jurisdiction of such courts in any such suit, action or proceeding. Service of process, summons, notice or other document by mail to such Party’s address set forth herein shall be effective service of process for any suit, action or other proceeding brought in any such court. The Parties irrevocably and unconditionally waive any objection to the laying of venue of any suit, action or any proceeding in such courts and irrevocably waive and agree not to plead or claim in any such court that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum.

21.         Waiver of Jury Trial. Each Party acknowledges and agrees that any controversy which may arise under this Agreement is likely to involve complicated and difficult issues and, therefore, each such Party irrevocably and unconditionally waives any right it may have to a trial by jury in respect of any legal action arising out of or relating to this Agreement or the transactions contemplated hereby. Each Party to this Agreement certifies and acknowledges that (a) no representative of any other Party has represented, expressly or otherwise, that such other Party would not seek to enforce the foregoing waiver in the event of a legal action, (b) such Party has considered the implications of this waiver, (c) such Party makes this waiver voluntarily, and (d) such Party has been induced to enter into this Agreement by, among other things, the mutual waivers and certifications in this Section 21.

22.         Recitals. The Parties acknowledge that the above Recitals are true and correct and are incorporated into this Agreement by this reference.

23.         Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall be deemed to be one and the same agreement. A signed copy of this Agreement delivered by facsimile, e-mail or other means of electronic transmission shall be deemed to have the same legal effect as delivery of an original signed copy of this Agreement.

** SIGNATURE PAGE FOLLOWS **

IN WITNESS WHEREOF, the Parties hereto have executed this Second Amended and Restated Registration Rights Agreement on the Effective Date.

XG SCIENCES, INC.
By:	/s/ Michael R. Knox
Name:	Michael R. Knox
Title:	Chief Executive Officer

ASPEN ADVANCED OPPORTUNITY FUND, LP
By:	/s/ Steven C. Jones
Name:	Steven C. Jones
Title:	Managing Member
	AA XGS, LLC
	The General Partner
Address for Notices:
1740 Persimmon Drive, Suite 100
Naples, FL 34109

XGS II, LLC
By:	/s/ David G. Pendell
Name:	David G. Pendell
Title:	Managing Member
Address for Notices:
XGS II, LLC
5500 Lake Grove Trail
Petoskey, MI 49770

SVIC NO. 15 NEW TECHNOLOGY BUSINESS INVESTMENT L.L.P.
By:	/s/ Seonjong Lee
Name:	SEONJONG LEE
Title:	C.E.O
Address for Notices:
29th Fl., Samsung Electronics Bldg. 1320-10, Seocho2-dong, Seocho-gu Seoul, Korea 137-857

SCHEDULE A

Investors

Aspen Advanced Opportunity Fund, LP

XGS II, LLC 

SVIC No. 15 New Technology Business Investment L.L.P.

SECOND AMENDED AND RESTATED INTERCREDITOR AGREEMENT

THIS SECOND AMENDED AND RESTATED INTERCREDITOR AGREEMENT (the “Agreement”) is entered into as of this 15th day of January, 2014 by and among XG Sciences, Inc., a Michigan corporation (“XG” or “Borrower”). Aspen Advanced Opportunity Fund, I,P, a Delaware limited partnership (“Aspen”), XGS II, LLC, a Florida limited liability company (“XGS II”), SVIC No. 15 New Technology Business Investment L.L.P., a limited liability partnership under the Republic of Korea Amended Commercial Code (“Samsung”), and Michael Knox, an individual (“Knox,” with Knox, Samsung, XGS II and Aspen, each hereinafter referred to individually as a “Creditor,” and collectively as the “Creditors”). This Agreement amends and restates, in its entirety, the Amended and Restated Intercreditor Agreement, dated as of July 12, 2013, among XG, Aspen, and Knox.

RECITALS:

WHEREAS, as of the date hereof, each of the Creditors has entered into secured convertible note transactions and other agreements with the Borrower in the amounts set forth on Exhibit A of this Agreement pursuant to certain purchase agreements, security agreements and related loan documentation (collectively the “Creditor Agreements”); and

WHEREAS, pursuant to the Second Amended and Restated Security Agreement between the Creditors and the Borrower, of even date herewith (the “General Security Agreement”) and the Second Amended and Restated Intellectual Property Security Agreement, of even date herewith (the “IP Security Agreement” and, together with the General Security Agreement, the “Security Agreements”), the Borrower has granted or will grant a first priority lien in all of its assets, subject to certain permitted liens (the “Collateral”), to the Agent specified in such Security Agreements, on behalf of each specific Creditor; provided, however, that each of the Creditor Agreements stipulates that each such Creditor will share such first priority lien in the Collateral with each other Creditor on a pari passu basis; and

WHEREAS, as of the date hereof, the Borrower has entered into lease financing arrangements with Aspen in the amount of $635,769.73 (the “Current Lease Amount”) for certain equipment purchased by the Borrower under various lease schedules to that certain Master Lease Agreement between Aspen and Borrower, dated March 18, 2013; and Aspen may provide up to an additional $2,364,230.27 of lease financing to the Company pursuant to the Aspen Creditor Agreements (the total amount lease funding provided by Aspen to the Borrower at any time, hereafter, the “Total Lease Amount”); and

WHEREAS, under the Creditor Agreements, the Company is authorized to grant permitted liens on all purchased money indebtedness for new equipment purchases, which includes any lease financing provided by Aspen and other lessors, and thus none of the equipment acquired by the Company under lease financing arrangements is included in the Collateral; and

WHEREAS, as of the date hereof, the Borrower issued secured convertible notes to the Creditors with initial principal, excluding any accrued interest that may have been capitalized into the balance of such notes, totaling $8,300,000 in the aggregate (the “Current Note Amount”) and there is currently $100,000 of principal of other short term secured indebtedness outstanding to Knox (the “Knox Short Term Debt” and together with the Current Note Amount, the “Current Secured Amount”): and

WHEREAS, pursuant to the Creditor Agreements, the Borrower has reserved the right to issue up to an aggregate of $14,800,000 of principal amount of secured indebtedness, exclusive of any capitalized interest which may become part of any such secured indebtedness, consisting of up to $14,700,000 of initial principal of secured convertible notes (the “Notes”) to the Creditors with such amount being reduced by the Total Lease Amount outstanding at any time and up to $100,000 of principal of Knox Short Term Debt; and

WHEREAS, it is presently contemplated that the Knox Short Term Debt will be paid off within the next few months and the Creditors have all agreed that their respective Notes will all mature on the same day, which shall be March 18, 2018 (the “Maturity Date”); and

WHEREAS, the Creditors desire to clarify and stipulate the agreements between them with respect to any principal payments or foreclosure on the Collateral as a result of any uncured Events of Default (as such term may be defined in the Creditor Agreements) that may exist hereafter in any of the Creditor Agreements with respect to the Borrower.

NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and promises contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:

AGREEMENT:

1.          Incorporation of Recitals. The Recitals portion of this Agreement is hereby incorporated by this reference as though it were fully set forth and rewritten herein, and the affirmative statements therein contained shall be deemed to be representations of the Borrower and the Creditors which are hereby confirmed.

2.          Acknowledgement of Creditors With Respect to Potential Future Secured Financings. The Creditors acknowledge and agree that as of the date of this Agreement, the Borrower may in the future obtain up to $5,764,230.27 of additional financing through the issuance of additional Notes, with such amount of additional Notes being reduced by any additional lease financing provided by Aspen, provided that such additional financing does not carry a maturity date prior to the Maturity Date (the “Remaining Secured Amount”). The Creditors also agree that the Borrower may grant a first priority security interest in the Collateral as part of any future secured convertible note transactions with the Creditors up to the Remaining Secured Amount (hereinafter referred to as “Future Secured Financings”), provided that such first priority security interest is granted on a pari passu basis with the security interests in the Collateral of the Creditors.

3.          Acknowledgement of Borrower With Respect to Potential Future Secured Financings. Except as otherwise set forth herein, the Borrower acknowledges and agrees that it will not enter into any Future Secured Financings with any of the Creditors or any new lenders to the Company on such terms that are more favorable than those contained in each of the Creditor Agreements, and in the event that any such Future Secured Financings contain any terms that are more favorable than those contained in the Creditor Agreements, the Borrower will promptly amend each such Creditor Agreement to grant the Creditors such more favorable terms as well. The Borrower further agrees that as a condition precedent to the execution of any agreements for Future Secured Financings, it will require that any such future lenders, who have not already become a party to this agreement, will enter into and be made a part of this Agreement. The Borrower further agrees that any granting of a security interest in the Collateral to any future lenders as part of any Future Secured Financings will be on terms no more favorable than a pari passu security interest in the Collateral with the security interests of the Creditors.

4.          Priorities. The Creditors agree that regardless of the date that each such Creditor advanced funds to the Borrower or entered into its Creditor Agreement with the Borrower, each such Creditor’s respective security interests in the Borrower’s Collateral shall be pari passu with the security interests of all the Creditors.

5.          Rights of Recovery on Principal Payments. The Creditors agree that to the extent that any Creditors elect not to convert the principal amount of their Notes on or before the Maturity Date, and require the Company to repay such principal in cash (the aggregate amount of all such required cash principal payments by all Creditors hereinafter referred to as the “Required Cash Payments”), then each such Creditor who has elected such a cash payment shall be entitled to recover no more than an amount equal to its pro rata share of the Required Cash Payments (as measured by each creditor’s total indebtedness that is secured by the Collateral held at such time including all principal and accrued, but unpaid interest due at such time (such amount, a Creditor’s “Total Secured Amount”) to the Total Secured Amount held by all Creditors entitled to a Required Cash Payment) from the amount of cash available for repayment with the Borrower retaining sufficient cash for working capital needs. The Borrower specifically acknowledges the existence of this provision and agrees to use its best efforts to ensure that any payments of the Required Cash Payments that might for any reason be made in amounts that are less than the total Required Cash Payments, will be made in such a way as to ensure that all of the Creditors electing such cash payments, will be paid an amount of cash equal to their pro rata percentage of the Required Cash Payments multiplied by the total cash available for such purposes from the Company at such time.

6.          Notices of Default. Each Creditor agrees that in the event that it declares an Event of Default under any of the Creditor Agreements, it will provide a copy of any written notices that it sends to the Borrower to all of the other Creditors at the same time such notice is provided to the Borrower.

7.          Standby Provisions Prior to Exercising Foreclosure Rights and Formation of Creditors Committee. The Creditors agree that in the event there is any uncured Event of Default in any of the Creditor Agreements and any Creditor becomes eligible to foreclose on the Collateral under the Creditor Agreements, then such Creditor desiring to exercise its foreclosure rights will so notify all other Creditors of such intention and provide no less than fifteen (15) business days of notice (the “Foreclosure Notice”) prior to exercising any rights of foreclosure (the “Standby Period”) with the Borrower. At any time during the Standby Period, any other Creditor may also serve a Foreclosure Notice (all Creditors who serve a timely Foreclosure Notice shall be referred to as “Foreclosing Creditors”). Prior to the expiration of the Standby Period, the Foreclosing Creditors agree that they will use their best efforts to form a committee (the “Foreclosing Creditors Committee”) for the purpose of coordinating the foreclosure of the Collateral. The Creditors agree that they will not take any actions against the Borrower or the Collateral independent of the Foreclosing Creditors Committee, and that the Foreclosing Creditors Committee shall be comprised of at least one representative of each Creditor. The Foreclosing Creditors agree that the Agent shall, in its discretion and according to its business judgment, have the power and authority to exercise the rights and powers set forth in the Security Agreements. The Agent shall consult with the Foreclosing Creditors Committee, and shall act in accordance with the wishes of the Foreclosing Creditors as determined by a majority vote of the then-voting members of the Foreclosing Creditors Committee, with each members’ vote being weighted by their pro rata percentage of the Total Secured Amount held by all then-voting members of the Foreclosing Creditors Committee. No votes of the Foreclosing Creditors Committee may take place unless a quorum of at least half the Total Secured Amount held by the Foreclosing Creditors is present and participates in the voting (whether by acceptance, rejection, or abstention). The Foreclosing Creditors further agree that the Agent will be entitled to retain counsel or other professionals on behalf of the Agent and or incur fees and expenses on behalf of the Agent acting for the Creditors (collectively, the “Creditor Expenses”), and that each Creditor who serves a Foreclosure Notice will fund a pro rata percentage of the Creditor Expenses based on their percentage of the Total Secured Amount held by all such Foreclosing Creditors at the time the Agent requests funding for such Creditor Expenses or such other amounts which may be mutually agreed upon. Any Creditor who does not serve a Foreclosure Notice within the Standby Period shall forbear and refrain from taking any action against the Borrower or the Collateral without the express prior written consent of both the Agent and the Foreclosing Creditors Committee. The Creditors agree that the provisions set forth in this Section shall be their sole recourse and method for enforcing their claims against the Borrower and the Collateral.

8.          Rights of Recovery Upon any Foreclosure of the Collateral: Credit Bidding. The Creditors agree that in the event of any foreclosure of the Collateral and resultant sale of such Collateral (the dollar value of any such cash recovered from the sale of Collateral hereinafter referred to as a “Cash Recovery”), each Foreclosing Creditor will only be entitled to receive its pro rata percentage of such Cash Recovery after deducting any reasonable unpaid Creditor Expenses, based on their percentage of the Total Secured Amount held by them at the time the Foreclosing Creditors Committee is formed. The Borrower agrees that to the extent it is in any way involved in such foreclosure and sales of assets and the resultant distribution of any Cash Recovery, it will make payments to the Foreclosing Creditors in accordance with the procedures outlined in the previous sentence, and prior to such due distribution, shall hold any and all Cash Recovery in trust for the benefit of Foreclosing Creditors. If the Foreclosing Creditors have any right to credit bid at any foreclosure or other sale of the Collateral, then any Foreclosing Creditor may do so up to the amount of the total indebtedness due to it; provided, however, that in the event such Foreclosing Creditor makes a winning bid, it must pay the other Foreclosing Creditors the same percentage of the total indebtedness due to the other Foreclosing Creditors as the total indebtedness due to it represented by the winning bid (the “True-Up Payment”). For purposes of illustration, if a Foreclosing Creditor has a total indebtedness from the Borrower of $2,000,000.00, and submits a winning bid of $1,000,000.00, that Foreclosing Creditor must make a True-Up Payment to each Foreclosing Creditor in the amount of 50% of the total indebtedness due to each non-winning Foreclosing Creditor. Each Creditor further agrees that no auction shall be final until any required True-Up Payment is made, that all True-up Payments must be made no later than two (2) days after any auction, that in the event the True-Up Payment is not timely made the auction will be reopened but that a Foreclosing Creditor who fails to make a True-Up Payment shall not be eligible to bid in any subsequent auction.

9.          Amendments to Documents. Each Creditor may at any time or times, in its discretion, (i) renew or extend the time of payment of any obligations or indebtedness owing to it by Borrower; (ii) waive or release any collateral or guaranties which may be held therefor, or (iii) modify or amend the documents evidencing its financing arrangement with Borrower (its “Documents”) in any manner, in each case without further consent from the other Creditors or any other person, and without impairing or affecting this Agreement or any of its rights hereunder. The Borrower agrees that in the event that it and any Creditor so modify such Creditor’s Documents in any way that is more favorable to the Creditor than the terms and provisions contained in the Creditor Agreements, each of the Creditors’ Creditor Agreements shall be simultaneously modified in a similar fashion.

10.         Representations Concerning Borrower: Liability of Creditors. No Creditor, nor any of its respective directors, officers, agents or employees, shall be responsible to any other Creditor or to any other person for (i) Borrower’s solvency, financial condition or ability to repay its obligations or indebtedness to any Creditor; (ii) any oral or written statements of Borrower or (iii) the validity, sufficiency or enforceability of such indebtedness, any of its Creditor Agreements or Documents or the security interest and liens granted by Borrower. Each Creditor has entered into its financing arrangements with Borrower based upon its own independent investigation, and makes no warranty or representation to any other Creditor, nor does it rely on any warranty or representation of any other Creditor with respect to the matters referred to in this Section 10.

11.         Licensing Rights Restrictions. In the event that any of the Creditors, or their respective affiliates, obtains ownership, possession or control over any of the Intellectual Property Collateral (as such term is defined in the IP Security Agreement) prior to a sale or transfer of such Collateral in accordance with the terms of this Agreement, such Creditor shall have no rights or license to use any such Intellectual Property Collateral in any commercial activities other than as may be specifically provided for in the contemplated Joint Development Agreement between the Company and an affiliate of Samsung which such parties intend to enter into by June 30, 2014 that is expected to provide for joint ownership by the Borrower and such Samsung affiliate of certain jointly developed intellectual property related to advanced battery materials.

12.         Specific Performance. Each of the parties hereto acknowledges and agrees that each of the other parties would be irreparably damaged if any provision of this Agreement is not performed in accordance with its specific terms and that any breach of such provisions by a party could not be adequately compensated in all cases by monetary damages alone. Accordingly, in addition to any other right or remedy to which each party may be entitled, at law or in equity, it shall be entitled to enforce any provision of this Agreement by a decree of specific performance and to temporary, preliminary and permanent injunctive relief to prevent breaches or threatened breaches of any of the provisions of this Agreement by any other party, without posting any bond or other undertaking.

13.         Miscellaneous

(a)          The validity of this Agreement, its construction, interpretation and enforcement, and the rights of the parties hereunder shall be determined under, governed by, and construed in accordance with the laws of the State of Michigan.

(b)          Any notice, declaration, demand, request or other communication which by any provision of this Agreement is required or permitted to be given to or served on any party hereto shall be given in writing and shall be deemed to have been sufficiently given or served for all purposes when (i) delivered personally; (ii) sent by overnight mail; (iii) sent by registered or certified mail, return receipt requested, postage prepaid, or (iv) sent by facsimile, to the address or facsimile number set forth for such party below, or at such other address as one party may indicate from time to time in writing to the other:

If to Borrower:	XG Sciences, Inc.
	3101 Grand Oak Drive
	Lansing, MI 48911
	Attention:	President
	Telephone:	(517) 703-1110
	Facsimile:	(517) 703-1113

If to Aspen:	Aspen Advanced Opportunity Fund, LP
	1740 Persimmon Drive, Suite 100
	Naples, FL 34109
	Attention:	Steven C. Jones
	Telephone:	(239) 598-0964
	Facsimile:	(239) 594-5964

If to XGS II:	XGS II, LLC
	5500 Lake Grove Trail
	Petoskey, MI 49770
	Attention:	David G. Pendell
	Telephone:	(239) 450-5097
	Facsimile:

If to Samsung:	SVIC No. 15 New Technology Business Investment L.L.P.
	c/o Samsung Venture Investment Corporation 29th Fl., Samsung Electronics Bldg.

1320-10, Seocho2-dong, Seocho-gu

Seoul, Korea 137-857

Fax: 82.2.2255.0288

Attention:

Telephone:

If to Knox:	Mr. Michael Knox
	5337 Panda Bear Circle
	East Lansing, MI 48823
	Telephone:	(517) 351-4813
	Facsimile:	(517) 703-1113

Notices sent in accordance with the foregoing shall be deemed effective when so delivered personally; the next business day if sent by overnight mail; when confirmed in writing by the sender’s facsimile device if sent by facsimile, or, if mailed, five (5) days after being sent by United States mail.

(c)          Each of the Creditors represents and warrants to the other Creditors that it has not assigned its security interests in the Borrower’s Collateral. Any assignment entered into after the date of this Agreement shall be made expressly subject to the terms of this Agreement, and the party so assigning shall give written notice to the other parties to this Agreement at least ten (10) business days prior to such an assignment, provided that failure to give such notice shall not affect the validity of such assignment, and further provided that notice shall be required for the assignment by any party to an affiliate of such party, but the notice need not be given ten (10) business days prior to the assignment.

(d)          This Agreement constitutes the entire agreement between the parties and supersedes all prior agreements and understandings between the parties relating to the subject matter hereof. This Agreement may not be changed orally, but only by an agreement in writing and signed by the party against whom enforcement of any waiver, change, modification or discharge is sought.

(e)          The headings of the various sections of this Agreement have been inserted for convenience only and shall not be deemed to be part of this Agreement.

(f)          This Agreement shall be binding upon and inure to the benefit of each of the Creditors and their respective successors, permitted assigns and affiliates. This Agreement shall remain in full force and effect and enforceable pursuant to its terms in accordance with Section 510(a) of the United States Bankruptcy Code, and all references herein to the Borrower shall be deemed to apply to the Borrower as debtor in possession and to any trustee in bankruptcy for the estate of the Borrower.

(g)          If any term, restriction or covenant of this Agreement is deemed illegal or unenforceable, all other terms, restrictions and covenants, and the application thereof to all persons and circumstances subject thereto, shall remain unaffected to the extent permitted by law; and if any application of any term, restriction or covenant to any person or circumstance is deemed illegal, the application of such term, restriction or covenant to the persons and circumstances shall remain unaffected to the extent permitted by law.

(h)          The knowledge by any Creditor of any breach or other non-observance by any other Creditor of the terms of this Agreement shall not constitute a waiver thereof or of any obligations to be performed by such breaching or non-observing Creditor hereunder.

(i)          Except as provided herein, the agreements and priorities set forth hereinabove shall remain in full force and effect regardless of whether any party hereto in the future seeks to rescind, amend or terminate or reform by litigation or otherwise, its respective agreements with the Borrower until such time as any and all obligations due to the Creditors have been paid in full and the Creditor Agreements and any related Documents have been terminated or until the Borrower and the Creditors or their respective heirs or assigns shall have agreed to a written termination hereof.

(j)          Nothing contained in the provisions of this Agreement is intended to or shall impair, as between the Borrower and each of the Creditors, the obligations of the Borrower to each such Creditor, which are absolute and unconditional, to pay to the Creditors when due the amounts due pursuant to the Creditor Agreements and any related Documents, or is intended to or shall affect the relative rights of the Creditors of the Borrower.

(k)          This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but which when taken together shall constitute one and the same instrument. Facsimile signatures shall have the same force and effect as original signatures.

** SIGNATURES ON FOLLOWING PAGE **

IN WITNESS WHEREOF, the Creditors have signed this Second Amended and Restated Intercreditor Agreement as of the date first set forth above.

Aspen Advanced Opportunity Fund, LP, a Delaware limited partnership
By:	AA XGS, LLC
Its:	General Partner
By:	/s/ Steven C. Jones
Name:	Steven C. Jones
Title:	Managing Member
XGS II, LLC, a Florida limited liability company
By:	/s/ David G. Pendell
Name:	David G. Pendell
Title:	Managing Member
SVIC NO. 15 NEW TECHNOLOGY BUSINESS INVESTMENT L.L.P.
By: Samsung Venture Investment Corporation, its Partner
By:	/s/ Seonjong Lee
Name:	SEONJONG LEE
Its:	C.E.O
Michael R. Knox, an individual
By:	/s/ Michael R. Knox

CONSENT

Borrower hereby consents to all of the terms and conditions of the foregoing Second Amended and Restated Intercreditor Agreement, and agrees to be bound in all respects thereof:

BORROWER:
XG Sciences, Inc., a Michigan corporation
By:	/s/ Michael R. Knox
Name:	Michael R. Knox
Title:	Chief Executive Officer

STATE OF MICHIGAN	)
	) SS:
COUNTY OF INGHAM	)

The foregoing instrument was acknowledged before me this 10^th day of January, 2014 by Michael R. Knox, as President of XG Sciences, Inc. a Michigan corporation, on behalf of XG Sciences, Inc. He has produced a driver’s license as identification.

IMAGE OMITTED [tennex-viiipg13.jpg]	/s/ Kelly A. LaGrave
	Notary Public, State of Michigan
	Print Name: Kelly A. LaGrave
	My Commission Expires: 4-15-2018
	[NOTARIAL SEAL]

EXHIBIT A

Principal Amounts Outstanding of Secured Indebtedness that is Secured by the Collateral As of January 15, 2014

Aspen Advanced Opportunity Fund, LP(1)	$	3,909,425.00
Samsung Venture Investment Company	$	3,000,000.00
Michael Knox (2)	$	800,000.00
XGS II(3)	$	690.575.00
Total	$	8,400,000.00

(1)  Aspen amount excludes $268,905.92 of accrued interest which has been capitalized into the balance of the Aspen Notes as of January 15, 2014.

(2)  Knox amounts include $700,000 of initial principal of secured convertible notes and $100,000 of remaining principal on the Knox Short Term Debt. Secured Convertible Note balance excludes $72,998.15 of accrued interest which has been capitalized into the balance of the Knox Notes as of January 15, 2014.

(3)  XGS II amount excludes $48,774.83 of accrued interest which has been capitalized into the balance of the XGS II Notes as of January 15, 2014.

Second Amended and Restated Intercreditor Agreement

A-1 

Michigan Department of Licensing and Regulatory Affairs

Filing Endorsement

This is to Certify that the CERTIFICATE OF AMENDMENT - CORPORATION

for

XG SCIENCES, INC.

ID NUMBER: 23029E

received by facsimile transmission on July 9, 2013 is hereby endorsed

Filed on July 10, 2013 by the Administrator.

The document is effective on the date filed, unless a subsequent effective date within 90 days after received date is stated in the document.

	In testimony whereof, I have hereunto set my hand and affixed the Seal of the Department, in the City of Lansing, this 10TH day of July, 2013.
[Graphics]	/s/ Alan J. Schefke
	Director
Sent by Facsimile Transmission 13191	Bureau of Commercial Services

BCS/CD-515 (Rev. 11/11)

MICHIGAN DEPARTMENT OF LICENSING AND REGULATORY AFFAIRS BUREAU OF COMMERCIAL SERVICES
Date Received
		This document is effective on the date filed, unless a subsequent effective date within 90 days after received date is stated in the document.
Name
Matt G. Hrebec, Esq.; Foster, Swift, Collins & Smith, P.C.
Address
313 S. Washington Square
City		State	ZIP Code
Lansing		MI	48933		EFFECTIVE DATE:
[Graphics]	Document will be returned to the name and address you enter above. If left blank, document will be returned to the registered office.			[Graphics]

 CERTIFICATE OF AMENDMENT TO THE ARTICLES OF INCORPORATION

For use by Domestic Profit and Nonprofit Corporations

(Please read information and instructions on the last page)

Pursuant to the provisions of Act 284, Public Acts of 1972, (profit corporations), or Act 162, Public Acts of 1982 (nonprofit corporations), the undersigned corporation executes the following Certificate:

1.	The present name of the corporation is:
	XG Sciences, Inc.
2.	The identification number assigned by the Bureau is:	23029E

3.	Article IIIof the Articles of Incorporation is hereby amended to read as follows:
	ARTICLE III
	The total authorized shares:
	1.	Common shares: 25,000,000
		Preferred shares: 8,000,000
	2.	A statement of all or any of the relative rights, preferences and limitations of the shares of each class is as follows:
	A.    Provisions Applicable to Common Shares: None
	B.   Provisions Applicable to Preferred Shares: The authorized shares of Preferred Stock may be issued from time to time in one or more series, each of such series to have such designations, powers, preferences, and relative participating, optional, or other rights, and such qualifications, limitations, or restrictions, as may be stated in a resolution or resolutions providing for the Issue of such series adopted by the Board of Directors.

COMPLETE ONLY ONE OF THE FOLLOWING:

4.	Profit or Nonprofit Corporations: For amendments adopted by unanimous consent of incorporators before the first meeting of the board of directors or trustees.
	The foregoing amendment to the Articles of Incorporation was duly adopted on the ________ day of __________________, _________, in accordance with the provisions of the Act by the unanimous consent of the incorporator(s) before the first meeting of the Board of Directors or Trustees.
	Signed this ________ day of ____________________________ , ___________
	(Signature)	(Signature)
	(Type or Print Name)	(Type or Print Name)
	(Signature)	(Signature)
	(Type or Print Name)	(Type or Print Name)

5.	Profit Corporation Only: Shareholder or Board Approval
	The foregoing amendment to the Articles of incorporation proposed by the board was duly adopted on the 26th day of June, 2013, by the: (check one of the following)
	þ	shareholders at a meeting in accordance with Section 611(3) of the Act.
	¨	written consent of the shareholders having not less than the minimum number of votes required by statute in accordance with Section 407(1) of the Act. Written notice to shareholders who have not consented in writing has been given. (Note: Written consent by less than all of the shareholders is permitted only if such provision appears in the Articles of Incorporation.)
	¨	written consent of all the shareholders entitled to vote in accordance with Section 407(2) of the Act.
	¨	board of a profit corporation pursuant to section 611(2) of the Act.
			Profit Corporations and Professional Service Corporations
			Signed this 8 day of July, 2013
			By	/s/ Michael R. Knox
				(Signature of an authorized officer or agent)
			Michael R. Knox, CEO
			(Type or Print Name)

XG SCIENCES, INC.

MICHIGAN CID 23029E

AMENDED AND RESTATED CERTIFICATE OF DESIGNATIONS

OF

SERIES A CONVERTIBLE PREFERRED STOCK

(Pursuant to Section 450.1302 of the

Michigan Business Corporation Act)

The undersigned, a duly authorized officer of XG Sciences, Inc., a Michigan corporation (the “Corporation”),DOES HEREBY CERTIFY that the following resolution was duly adopted bythe Board of Directors of the Corporation (the “Board of Directors”)pursuant to Section 450.1302 of the Michigan Business Corporation Act on June 26, 2013:

RESOLVED, that the Board of Directors of the Corporation pursuant to authority vested in it by the provisions of the Articles of Incorporation of the Corporation, hereby amends and restates its previous authorization of the issuance of a series of preferred stock designated as the Series A Convertible Preferred Stock of the Corporation and hereby fixes the designation, number of shares, powers, preferences, rights, qualifications, limitations and restrictions thereof (in addition to any provisions set forth in the Articles of Incorporation of the Corporation which are applicable to the Corporation’s preferred stock of all classes and series) as follows:

SERIES A CONVERTIBLE PREFERRED STOCK

1.Designation and Amount. There is hereby designated a series of the Corporation’s Preferred Stock (as defined below) as Series A Convertible Preferred Stock (the “Series A Preferred Stock”),and the number of shares so designated shall be three million (3,000,000).

2.           Definitions. In addition to the terms defined elsewhere in this Certificate of Designations the following terms have the meanings indicated:

(a)          “Common Stock”shall mean the Corporation’s common stock.

(b)          “Conversion Price”shall mean twelve dollars ($12.00) for the Series A Preferred Stock (subject to adjustment from time to time for Recapitalizations and as otherwise set forth elsewhere herein).

(c)          “Conversion Rate”shall have the meaning set forth in Section 5(a).

(d)          “Convertible Securities”shall mean any evidences of indebtedness, shares orother securities convertible into or exchangeable for Common Stock or Preferred Stock.

(e)          “Corporation”shall mean XG Sciences, Inc., a Michigan corporation.

(f)          “Junior Securities”shall mean the Common Stock and all other equity or equity equivalent securities of the Corporation other than those securities which are explicitly senior or pari passu in rights and liquidation preference to the Series A Preferred Stock.

(g)          “Liquidation Preference”shall mean twelve dollars ($12.00) per share for the Series A Preferred Stock (subject to adjustment from time to time for Recapitalizations as set forth elsewhere herein).

(h)          “Options”shall mean rights, options or warrants to subscribe for, purchase or otherwise acquire Common Stock or Convertible Securities.

(i)          “Original Issue Date”shall mean the date on which the first share of Series A Preferred Stock was issued.

(j)          “Preferred Stock”means the Corporation’s preferred stock.

(k)          “Qualified National Exchange”means a securities exchange registered with the U.S. Securities and Exchange Commission under Section 6(a) of the Securities Exchange Act of 1934, as amended, as well as the over the counter markets administered by the OTCQX® and the OTCQB®, and their successor-entities. The OTC Pink®, OTCBB and their successor-equivalent entities shall not be deemed a “Qualified National Exchange.”

(l)          “Recapitalization”shall mean any stock dividend, stock split, combination of shares, reorganization, recapitalization, reclassification or other similar event.

(m)          “Senior Securities”shall mean the Series A Preferred Stock and all other series of Preferred Stock of the Corporation that are explicitly senior or pari passu in rights and liquidation preference to the Series A Preferred Stock.

(n)          “Series A Original Issue Price”shall mean twelve dollars ($12.00) per share (subject to adjustment from time to time for Recapitalizations and as set forth in Section 5 herein).

3. Liquidation Rights.

(a)          Liquidation Preference.In the event of any liquidation, dissolution or winding up of the Corporation, either voluntary or involuntary, the holders of the Series A Preferred Stock shall be entitled to receive, prior and in preference to any distribution of any of the assets of the Corporation to the holders of the Common Stock by reason of their ownership of such stock, an amount per share for each share of Series A Preferred Stock held by them equal to (i) the Liquidation Preference specified for such share of Series A Preferred Stock less (ii) all dividends (if any) paid on such share of Series A Preferred Stock. If upon the liquidation, dissolution or winding up of the Corporation, the assets of the Corporation legally available for distribution to the holders of the Series A Preferred Stock are insufficient to permit the payment to such holders of the full amounts specified in this Section 4(a), then the entire assets of the Corporation legally available for distribution shall be distributed with equal priority and pro-rata among the holders of the Series A Preferred Stock in proportion to the full amounts they would otherwise be entitled to receive pursuant to this Section 3(a).

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(b)          Remaining Assets.After the payment to the holders of the Series A Preferred Stock of the full preferential amounts specified above, the entire remaining assets of the Corporation legally available for distribution by the Corporation shall be distributed with equal priority and pro-rata among the holders of the Series A Preferred Stock and Common Stock in proportion to the number of shares of Common Stock held by them, with the shares of Series A Preferred Stock being treated for this purpose as if they had been converted to shares of Common Stock at the then applicable Conversion Rate (as defined below).

(c)          Shares not Treated as Both Series A Preferred Stock and Common Stock in any Distribution.Shares of Series A Preferred Stock shall not be entitled to be converted into shares of Common Stock in order to participate in any distribution, or series of distributions, as shares of Common Stock, without first foregoing participation in the distribution, or series of distributions, as shares of Series A Preferred Stock.

(d)          Reorganization. For purposes of this Section 3, a liquidation, dissolution or winding up of the Corporation shall be deemed to be occasioned by, or to include: (a) the acquisition of the Corporation by another entity by means of any transaction or series of related transactions to which the Corporation is party (including, without limitation, any stock acquisition, reorganization, merger or consolidation but excluding any sale of stock for capital raising purposes) other than a transaction or series of transactions in which the holders of the voting securities of the Corporation outstanding immediately prior to such transaction continue to retain (either by such voting securities remaining outstanding or by such voting securities being converted into voting securities of the surviving entity), at least fifty percent (50%) of the total voting power represented by the voting securities of the Corporation or such surviving entity outstanding immediately after such transaction or series of transactions; (b) a sale, lease, transfer, exclusive license or other disposition, in a single transaction or series of related transactions, by the Corporation of all or substantially all the assets of the Corporation and its subsidiaries taken as a whole, except where such sale, lease, transfer, exclusive license or other disposition is to a wholly owned subsidiary of the Corporation; or (c) any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary.

(e)          Valuation of Non-Cash Consideration. If any assets of the Corporation distributed to stockholders in connection with any liquidation, dissolution, or winding up of the Corporation are other than cash, then the value of such assets shall be their fair market value as determined in good faith by the Board of Directors, except that any securities to be distributed to stockholders in a liquidation, dissolution, or winding up of the Corporation shall be valued as follows:

(i)          If the securities are then traded on a Qualified National Exchange, then the value of the securities shall be deemed to be the average of the closing prices of the securities on such exchange over the ten (10) trading day period ending five (5) trading days prior to the distribution;

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(ii)         if the securities are actively quoted on the OTC Pink®, then the value of the securities shall be deemed to be the average of the closing bid prices of the securities over the ten (10) trading day period ending five (5) trading days prior to the distribution; and

(iii)        if the securities are not traded on a Qualified National Exchange or actively quoted on the OTC Pink®, the value shall be the fair market value thereof, as determined in good faith by the Board of Directors of the Corporation.

In the event of a merger or other acquisition of the Corporation by another entity, the distribution date shall be deemed to be the date such transaction closes.

4.           Conversion Rights.The holders of the Series A Preferred Stock shall have conversion rights as follows (the “Conversion Rights”):

(a)          Right to Convert.Each share of Series A Preferred Stock shall be convertible, at the option of the holder thereof, at any time after the date of issuance of such share at the office of the Corporation or any transfer agent for the Series A Preferred Stock, into that number of fully-paid, nonassessable shares of Common Stock determined by dividing the Series A Original Issue Price by the Conversion Price. The number of shares of Common Stock into which each share of Series A Preferred Stock may be converted is hereinafter referred to as the “Conversion Rate”.Upon any decrease or increase in the Conversion Price, as described in this Section 4,the Conversion Rate shall be appropriately increased or decreased.

(b)          Mandatory Conversion.The Corporation shall have the right to effect the conversion of each share of Series A Preferred Stock then currently outstanding into fully-paid, non-assessable shares of Common Stock at the then effective Conversion Rate for such share upon the listing by the Corporation of the class of Common Stock on a Qualified National Exchange (such an event, a “Mandatory Conversion Event”).So long as the Common Stock remains listed on a Qualified National Exchange, any shares of Series A Preferred Stock issued following a Mandatory Conversion Event will be automatically converted into Common Stock pursuant to this Section 4(b) at the then effective Conversion Rate on such date of issuance of the Series A Preferred Stock.

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(c)          Mechanics of Conversion.No fractional shares of Common Stock shall be issued upon conversion of Series A Preferred Stock. In lieu of any fractional shares to which the holder would otherwise be entitled, the Corporation shall pay cash equal to such fraction multiplied by the then fair market value of a share of Common Stock as determined by the Board of Directors. For such purpose, all shares of Series A Preferred Stock held by each holder of Series A Preferred Stock shall be aggregated, and any resulting fractional share of Common Stock shall be paid in cash. Before any holder of Series A Preferred Stock shall be entitled to convert the same into full shares of Common Stock, and to receive certificates therefor, such holder shall either (A) surrender the certificate or certificates therefor, duly endorsed, at the office of the Corporation or of any transfer agent for the Series A Preferred Stock or (B)notify the Corporation or its transfer agent that such certificates have been lost, stolen or destroyed and execute an agreement satisfactory to the Corporation to indemnify the Corporation from any loss incurred by it in connection with such certificates, and shall give written notice to the Corporation at such office that he elects to convert the same; provided, however,that on the date of a Mandatory Conversion Event, the outstanding shares of Series A Preferred Stock shall be converted without any further action by the holders of such shares and whether or not the certificates representing such shares are surrendered to the Corporation or its transfer agent; provided further,however, that the Corporation shall not be obligated to issue certificates evidencing the shares of Common Stock issuable upon such Mandatory Conversion Event unless either the certificates evidencing such shares of Series A Preferred Stock are delivered to the Corporation or its transfer agent as provided above, or the holder notifies the Corporation or its transfer agent that such certificates have been lost, stolen or destroyed and executes an agreement satisfactory to the Corporation to indemnify the Corporation from any loss incurred by it in connection with such certificates. On the date of the occurrence of a Mandatory Conversion Event, each holder of record of shares of Series A Preferred Stock shall be deemed to be the holder of record of the Common Stock issuable upon such conversion, notwithstanding that the certificates representing such shares of Series A Preferred Stock shall not have been surrendered at the office of the Corporation, that notice from the Corporation shall not have been received by any holder of record of shares of Series A Preferred Stock, or that the certificates evidencing such shares of Common Stock shall not then be actually delivered to such holder.

(d)          Adjustments for Subdivisions or Combinations of Common Stock.In the event the outstanding shares of Common Stock shall be subdivided (by stock split, by payment of a stock dividend or otherwise), into a greater number of shares of Common Stock, the Conversion Price in effect immediately prior to such subdivision shall, concurrently with the effectiveness of such subdivision, be proportionately decreased. In the event the outstanding shares of Common Stock shall be combined (by reclassification or otherwise) into a lesser number of shares of Common Stock, the Conversion Price in effect immediately prior to such combination shall, concurrently with the effectiveness of such combination, be proportionately increased.

(e)          Adjustments for Subdivisions or Combinations of Series A Preferred Stock. In the event the outstanding shares of Series A Preferred Stock shall be subdivided (by stock split, by payment of a stock dividend or otherwise), into a greater number of shares of Series A Preferred Stock, the Series A Original Issue Price and Liquidation Preference of the Series A Preferred Stock in effect immediately prior to such subdivision shall, concurrently with the effectiveness of such subdivision, be proportionately decreased. In the event the outstanding shares of Series A Preferred Stock shall be combined (by reclassification or otherwise) into a lesser number of shares of Series A Preferred Stock, the Series A Original Issue Price and Liquidation Preference of the Series A Preferred Stock in effect immediately prior to such combination shall, concurrently with the effectiveness of such combination, be proportionately increased.

(f)          Adjustments for Reclassification, Exchange and Substitution.Subject to Section 4 above, if the Common Stock issuable upon conversion of the Series A Preferred Stock shall be changed into the same or a different number of shares of any other class or classes of stock, whether by capital reorganization, reclassification or otherwise (other than a subdivision or combination of shares provided for above), then, in any such event, in lieu of the number of shares of Common Stock which the holders would otherwise have been entitled to receive each holder of such Series A Preferred Stock shall have the right thereafter to convert such shares of Series A Preferred Stock into a number of shares of such other class or classes of stock which a holder of the number of shares of Common Stock deliverable upon conversion of such Series A Preferred Stock immediately before that change would have been entitled to receive in such reorganization or reclassification, all subject to further adjustment as provided herein with respect to such other shares.

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(g)          Adjustment of Series A Preferred Stock Conversion Price upon Issuance of Certain Securities. If and whenever on or after the Original Issue Date, the Corporation issues or sells, or is deemed to have issued or sold, any shares of Common Stock or securities convertible or exchangeable into Common Stock other than Excluded Securities (as defined below) for a consideration per share or an implied consideration per share of Common Stock less than a price (the “Applicable Price”)equal to the Conversion Price in effect immediately prior to such issuance or sale (such issuance a “Triggering New Issue”),then immediately after such issue or sale, the Conversion Price then in effect shall be deemed to be automatically reduced to an amount equal to eighty percent (80%) of the Applicable Price for such Triggering New Issue. After such adjustment of the Conversion Price hereunder, all subsequent conversions of the Series A Preferred Stock into Common Stock shall be effected using the new Conversion Price in the Conversion Rate. For the purposes of this Agreement, “Excluded Securities” are (i) those options and warrants of the Corporation issued prior to, and outstanding on, the Original Issue Date, (ii) the shares of Common Stock issuable on exercise of such options and warrants in subparagraph (i), provided such options and warrants are not amended after the Original Issue Date, and (iii) any options or warrants, or the shares of Common Stock into which such options and warrants are exercisable, which are issued to any employee, officer or director of the Corporation for services provided to the Corporation which have been approved by the compensation committee or the majority of the independent members of the Board of Directors.

(h)          Effect on Conversion Price of Certain Events. For purposes of determining the adjusted Conversion Price under Section 4(g) above, the following shall be applicable:

(i)          Issuance of Options or Warrants.If, after the Original Issue Date, the Corporation in any manner grants any options or warrants other than Excluded Securities and the lowest price per share for which a share of Common Stock is issuable upon the exercise of any such option or warrant is less than the Conversion Price in effect immediately prior to such grant, then such grant of options or warrants shall be deemed to have been a Triggering New Issue and the Conversion Price shall be deemed to be automatically reset pursuant to Section 4(g) above. No further adjustment of the Conversion Price shall be made upon the actual issuance of any shares of Common Stock upon the exercise of any such options or warrants.

(ii)         Issuance of Convertible Securities.If, after the Original Issue Date, the Corporation in any manner issues or sells any Convertible Securities and the lowest price per share of Common Stock at which such Convertible Security is convertible or exchangeable into Common Stock is less than the Conversion Price in effect immediately prior to such issuance or sale, then such issuance or sale shall be deemed to have been a Triggering New Issue and the Conversion Price shall be deemed to be automatically reset pursuant to Section 4(g) above. No further adjustment of the Conversion Price shall be made upon the actual issuance of any shares of Common Stock upon the conversion or exchange of such Convertible Security into shares of Common Stock.

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(iii)        Change in Option or Warrant Price or Rate of Conversion.If, after the Original Issue Date, the exercise, conversion, exchange, or other price payable provided for in any option, warrant or Convertible Security other than Excluded Securities, upon the exercise, conversion or exchange of any such securities is amended or altered at any time for any reason (any of the foregoing hereinafter referred to as an “Exercise/Conversion Change”),and any such Exercise/Conversion Change results in any of the foregoing securities being exercisable, convertible, or exchangeable at a price per share of Common Stock lower than the Conversion Price in effect immediately prior to such Exercise/Conversion Change, then such Exercise/Conversion Change shall be deemed to have been a Triggering New Issue and the Conversion Price shall be deemed to be automatically reset pursuant to Section 4(g) above.

(iv)        No adjustment pursuant to this Section 4(h) shall be made if such adjustment would result in an increase of the Conversion Price above the level that it was immediately prior to the occurrence of any of the foregoing events described in 4(h)(i)-(iii) that would give rise to an adjustment in the Conversion Price.

(i)          Waiver of Adjustment of Conversion Price.Notwithstanding anything herein to the contrary, any downward adjustment of the Conversion Price may be waived, either prospectively or retroactively and either generally or in a particular instance, by the consent or vote of the holders of the majority of the outstanding shares of Series A Preferred Stock. Any such waiver shall bind all future holders of shares of Series A Preferred Stock.

5.           Voting.On any matter presented to the stockholders of the Corporation for their action or consideration at any meeting of stockholders of the Corporation (or by written consent of stockholders in lieu of meeting), each holder of outstanding shares of Series A Preferred Stock shall be entitled to cast the number of votes equal to the number of whole shares of Common Stock into which the shares of Series A Preferred Stock held by such holder are convertible as of the record date for determining stockholders entitled to vote on such matter. Except as provided by law or by the other provisions of the Certificate of Incorporation, holders of Series A Preferred Stock shall vote together with the holders of Common Stock as a single class.

6.           Miscellaneous.

(a)          The headings herein are for convenience only, do not constitute a part of this Certificate of Designations and shall not be deemed to limit or affect any of the provisions hereof.

(b)          Any notice required or permitted by the provisions of this Certificate of Designations to be given to a holder of shares of Series A Preferred Stock shall be mailed, postage prepaid, to the post office address last shown on the records of the Corporation, or given by electronic communication in compliance with the provisions of the Michigan Business Corporation Act, and shall be deemed sent upon such mailing or electronic transmission.

(c)          No provision of this Certificate of Designations may be amended, except in a written instrument signed by the Corporation and holders of at least a majority of the shares of Series A Preferred Stock then outstanding. Any of the rights of the holders of the Series A Preferred Stock set forth herein may be waived by the affirmative vote of holders of at least a majority of the shares of Series A Preferred Stock then outstanding, except that each holder may waive its own rights as provided in this Certificate of Designations.

** Signature page follows **

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IN WITNESS WHEREOF, the undersigned has caused this Amended and Restated Certificate of Designation to be duly executed as of the 8 day of July, 2013.

XG SCIENCES, INC.
BY:	/s/ Michael R. Knox
	MICHAEL R. KNOX, CEO

XG SCIENCES, INC.

SHAREHOLDER AGREEMENT

This Shareholder Agreement (this “Agreement”)is made and entered into effective as of March ___, 2013, by and among XG SCIENCES, INC., a Michigan corporation (the “Company”), and each of the individual and entity shareholders of the Company that are listed on Exhibit A and each of the individual and entity shareholders of the Company that execute an adoption agreement generally in the form of Exhibit B (collectively, the “Shareholders” and collectively with the Company, the “Parties”).

Recitals

Whereas, the Shareholders who are listed on Exhibit A are the beneficial owners of an aggregate of One Million Eight Thousand Two Hundred Eleven (1,008,211) shares of the Common Stock of the Company;

Whereas, certain of the Shareholders and other persons are the beneficial owners of options and warrants that entitle them to purchase Ninety-Eight Thousand Eight Hundred Ninety-Four (98,894) shares of the Common Stock of the Company (the “Shareholder Options and Warrants”);

Whereas, Aspen Advanced Opportunity Fund, LP (“Aspen”)is purchasing senior secured convertible notes (the “Convertible Notes”)from the Company pursuant to a securities purchase agreement (the “Purchase Agreement”)of the same date as this Agreement (the “Financing”);

Whereas, the Convertible Notes are convertible into Series A convertible preferred stock to be issued by the Company (the “Series A Stock”),and when issued the Series A Stock will be convertible into Common Stock of the Company;

Whereas, the obligations in the Purchase Agreement are conditioned upon the execution and delivery of this Agreement; and

Whereas, in connection with the consummation of the Financing, the Company and the Shareholders have agreed to the provisions of this Agreement.

Agreement

Now, Therefore, in consideration of the recitals and for other good and valuable consideration, the receipt and sufficiency of which are acknowledged, the Parties agree as follows:

1. Definitions.

Capitalized terms that are used in this Agreement but that are not otherwise defined have the following meanings:

1.1           “Shareholder Stock”and “Shareholder’s Stock”mean the shares of Common Stock, Series A Stock, and other capital stock of the Company that are now owned or are subsequently acquired by a Shareholder by gift; conversion of the Convertible Notes, Series A Stock, or other convertible debt or convertible equity securities of the Company; purchase; dividend; exercise of the Shareholder Options and Warrants or any other options, warrants or other security or right of any kind convertible into or exchangeable for Common Stock issued by the Company; or any other means whether or not such securities are only registered in a Shareholder’s name or beneficially or are legally owned by such Shareholder, including any interest of a spouse in any Shareholder Stock, whether that interest is asserted pursuant to marital property laws or otherwise. The number of shares of Shareholder Stock owned by each of the Shareholders as of the date of this Agreement is set forth on Exhibit A, which exhibit may be amended from time to time by the Company to reflect changes in the number of shares of Shareholder Stock owned by the Shareholders, but the failure to so amend shall have noeffect on any Shareholder Stock being subject to this Agreement.

1.2           “Common Stock”means shares of the Company’s common stock and shares of common stock issued or issuable upon conversion of the Convertible Notes, Series A Stock, or other convertible debt or convertible equity securities of the Company or the exercise of the Shareholder Options and Warrants or any other options, warrants or other security or right of any kind convertible into or exchangeable for Common Stock issued by the Company.

1.3           “Full Conversion”means the deemed conversion of any outstanding Convertible Notes into Series A Stock and then into Common Stock, the deemed conversion of any outstanding Series A Stock into Common Stock, and the deemed conversion of all other outstanding convertible debt and convertible equity securities of the Company into Common Stock.

1.4           “Independent Director”meansa director who is not an executive officer or employee of the Company and who does not have a relationship that, in the reasonable opinion of the Company’s board of directors, would interfere with the person’s exercise of independent judgment in carrying out his or her responsibilities as a director. A director nominated by Aspen, POSCO, or Hanwha pursuant to Section 2 is not an Independent Director.

1.5           “Transfer” meansany sale, assignment, conveyance in trust, gift, transfer by request, devise or descent, or other transfer or disposition of any kind, including transfers to receivers, levying creditors, trustees or receivers in bankruptcy proceedings or general assignees for the benefit of creditors, whether voluntary or by operation of law, directly or indirectly, of any Shareholder Stock.

1.6           “Affiliate” and “Affiliated”means, with respect to a Shareholder, any person or entity that, directly or indirectly, controls, is controlled by or is under common control with such Shareholder, including any general partner, member, officer or director of such Shareholder and any venture capital fund now or hereafter existing which is controlled by one or more general partners of, or shares the same management company as, such Shareholder.

2. BOARD OF DIRECTORS.

2.1           Size of the Board. For so long as Aspen or its Affiliates owns 10% or more of the aggregate outstanding Shareholder Stock (assuming Full Conversion), each Shareholder agrees to vote all of the Shareholder’s Stock from time to time in whatever manner is necessary to ensure that the size of the Company’s board of directors is set and remains at seven (7) directors; provided, however, that the number of directors on the board of directors may be increased or decreased with the prior written consent of (a) Aspen and (b) Shareholders (including Aspen) who in the aggregate then own Shareholder Stock representing a majority of the then issued and outstanding voting stock of the Company.

2.2           Composition of Board. Each Shareholder agrees to vote all of the Shareholder’s Stock in the Company from time to time in whatever manner is necessary to ensure that at each annual or special meeting of Shareholders at which an election of directors is held or pursuant to any written consent of the Shareholders of the Company:

(a)          for so long as Aspen owns 10% or more of the aggregate outstanding Shareholder Stock (assuming Full Conversion):

(i)          one person nominated by Aspen is elected to the Company’s board of directors as a director; and

(ii)         two of the members of the board of directors, other than a director who is nominated by Aspen, POSCO, or Hanwha pursuant to this Section 2.2, qualify as Independent Directors;

(b)          for so long as POSCO, a South Korean corporation (“POSCO”)or its Affiliates, owns 10% or more of the aggregate outstanding Shareholder Stock (assuming Full Conversion), one person nominated by POSCO is elected to the Company’s board of directors; and

(c)          for so long as Hanwha Chemical Company, a South Korean corporation (“Hanwha”)or its Affiliates, owns 10% or more of the aggregate outstanding Shareholder Stock (assuming Full Conversion), one person nominated by Hanwha is elected to the Company’s board of directors.

Each of the persons nominated or appointed by one of the foregoing Shareholders shall be reasonably acceptable to the other directors of the Company. If such a Shareholder nominates or appoints a person who is not reasonably acceptable to the other directors of the Company, such Shareholder shall withdraw the nomination or appointment and consult with the other directors of the Company to select a new nominee or appointee who is reasonably acceptable to the remaining directors.

2.3           Removal of Board Members; Vacancies. Each Shareholder agrees to vote all of the Shareholder’s Stock from time to time in whatever manner is necessary to ensure that:

(a)          no director who is elected pursuant to Section 2.2 is removed from office without the consent of the nominating Shareholder, but only for so long as the nominating Shareholder or its Affiliates owns 10% or more of the aggregate outstanding Shareholder Stock (assuming Full Conversion) (the “Minimum Ownership Requirements”);and

(b)          any vacancies created by the resignation, removal, or death of a director who is elected pursuant to Section 2.2 is filled pursuant to the provisions of Section 2.2, subject to the Minimum Ownership Requirements.

2.4           Observer. For so long as Aspen or its Affiliates owns 10% or more of the aggregate outstanding Shareholder Stock (assuming Full Conversion), Aspen, as an intended third party beneficiary of this Agreement, shall have the right to appoint one person to act as a non-voting observer (the “Observer”) at all regular and special meetings of the Company’s board of directors. The Observer will receive all the information a director of the Corporation receives for any regular and special meetings of the Company’s board of directors or in connection with any written consent to be executed by such directors.

2.5           Written Consents. Each of the Shareholders agrees to execute and deliver any written consent that is required to effectuate its obligations under this Section 2, and the Company agrees that at the request of Aspen, POSCO, or Hanwha the Company will call a special meeting of Shareholders for the purpose of electing directors, subject to the Minimum Ownership Requirements.

2.6           Contracts with Affiliated Persons. With the approval of a majority of the Independent Directors in each case, the Company may enter into one or more agreements, leases, contracts or other arrangements for the furnishing to or by the Company of goods, services or space with any officer or director of the Company, any Shareholder or their Affiliates, and may pay compensation thereunder for such goods, services or space, provided in each case the amounts payable thereunder are reasonably comparable to those which would be payable to unaffiliated persons under similar agreements, and if the determination of such amounts is made in good faith it shall be conclusive absent manifest error.

2.7           Certain Approvals. The following actions of the Company shall require the written approval of Aspen (for so long as Aspen or its Affiliates owns 10% or more of the aggregate outstanding Shareholder Stock (assuming Full Conversion)):

(i) Create, obligate itself to create, authorize or issue (by reclassification or otherwise) any new class or classes of securities which has a preference over or being on a parity with the Series A Stock in any respect;

(ii) Sell any material portion of the tangible or intangible assets of the Company that secure the indebtedness to Aspen;

(iii) Incur additional secured indebtedness.

2.8           Incentive Grants. The Shareholders and the Company agree that 15% of the Shareholder Stock as of the date hereof (assuming Full Conversion) shall be reserved for issuance of incentive equity awards as determined by the Independent Directors or the compensation committee of the Company, if it exists.

3. Voluntary Transfer by a Shareholder.

3.1           Notice of Transfer. If a Shareholder (the “Transferring Shareholder”)proposes to voluntarily Transfer any shares of Shareholder Stock (the “Transferring Shareholder’s Stock”) (including pursuant to the provisions of Section 3.5), then the Transferring Shareholder shall promptly give written notice (the “Transfer Notice”)simultaneously to the Company and to each of the other Shareholders and holders of Convertible Notes (collectively, the “Non-Transferring Parties”)at least sixty (60) days prior to the closing of such Transfer. The Transfer Notice shall describe in reasonable detail the proposed Transfer, including the number of shares of the Transferring Shareholder’s Stock to be transferred, the nature of the Transfer, the consideration to be paid, and the name and address of each prospective purchaser or transferee. In the event that the Transfer is being made pursuant to the provisions of Section 3.5, the Notice shall describe in reasonable detail the basis for the claimed exemption from Article 3.

3.2           Company Right of First Refusal.

(a)          Subject to Section 3.5, the Company shall have the right to purchase all or any part of the Transferring Shareholder’s Stock from the Transferring Shareholder for the consideration per share and the terms and conditions specified in the Transfer Notice. The Company may exercise such right by written notice to the Transferring Shareholder delivered no later than fourteen (14) days after receipt of the Transfer Notice.

(b)          In the event that the Company does not exercise its right within such fourteen-day period with respect to all of the Transferring Shareholder’s Stock, the Company shall, by the last day of such fourteen-day period, give written notice of that fact to the Transferring Shareholder and the Non-Transferring Parties (the “Shareholder Transfer Notice”). The Shareholder Transfer Notice shall specify the number of shares of the Transferring Shareholder’s Stock not to be purchased by the Company (the “Remaining Transferring Shareholder’s Stock”).

(c)          In the event that the Company timely exercises its right to purchase all or part of the Transferring Shareholder’s Stock, the closing of such purchase shall take place at the offices of the Company by the date that is twenty-eight (28) days after the expiration of such fourteen-day period. At the closing, the Transferring Shareholder shall deliver to the Company the certificate(s) representing the Transferring Shareholder’s Stock to be purchased by the Company, each certificate to be properly endorsed for transfer.

3.3           Shareholder Right of First Refusal.

(a)          In the event that the Company does not exercise its right pursuant to Section 3.2 with respect to all of the Transferring Shareholder’s Stock within the time period set forth in Section 3.2, each Non-Transferring Party shall, subject to Section 3.5, have the right, exercisable by written notice to the Transferring Shareholder with a copy to the Company delivered no later than fourteen (14) days after receipt of the Shareholder Transfer Notice, to purchase its pro rata share of the Remaining Transferring Shareholder’s Stock on the same terms and conditions specified in the Transfer Notice. Each Non-Transferring Parties’ pro rata share shall be equal to the product obtained by multiplying: (i) the aggregate number of shares of the Remaining Transferring Shareholder’s Stock, by (ii) a fraction, the numerator of which is the number of shares of Common Stock (assuming Full Conversion) owned by the Non-Transferring Party on the date on which the Shareholder Transfer Notice is delivered and the denominator of which is the total number of shares of Common Stock (assuming Full Conversion) owned by all of the Non-Transferring Parties on the date on which the Shareholder Transfer Notice is delivered. Except as set forth in Section 3.3(b), the Non-Transferring Parties who timely exercise their rights (the “Participating Parties”)and the Transferring Shareholder shall effect the purchase of the Remaining Transferring Shareholder’s Stock being purchased by the Participating Parties, including payment of the purchase price, not more than fourteen (14) days after expiration of the fourteen-day period referenced above in this Section 3.3(a), and at such time the Transferring Shareholder shall deliver to the Participating Parties the certificate(s) representing the Remaining Transferring Shareholder’s Stock to be purchased by the Participating Parties, each certificate to be properly endorsed for transfer.

(b)          In the event that not all of the Non-Transferring Parties elect to purchase their respective pro rata shares of the Remaining Transferring Shareholder’s Stock pursuant to their rights under Section 3.3(a) within the time period set forth in Section 3.3(a), the Transferring Shareholder shall, by the last day of such 14-day period, give written notice to each of the Participating Parties, which shall set forth the number of shares of the Remaining Transferring Shareholder’s Stock not subscribed to by the other Non-Transferring Parties, and shall offer such Participating Parties the right to purchase such unsubscribed shares (the “Second Shareholder Notice”).Each Participating Party shall have fourteen (14) days after receipt of the Second Notice to deliver a written notice to the Transferring Shareholder with a copy to the Company of its election to purchase its pro rata share of the unsubscribed shares on the same terms and conditions as set forth in the Transfer Notice. Each Participating Parties’ pro rata share shall be equal to the product obtained by multiplying: (i) the aggregate number of shares of the Remaining Transferring Shareholder’s Stock not subscribed to by the other Non-Transferring Parties, by (ii) a fraction, the numerator of which is the number of shares of Common Stock (assuming Full Conversion) owned by the Participating Party on the date on which the Second Shareholder Notice is delivered and the denominator of which is the total number of shares of Common Stock (assuming Full Conversion) owned by all of the Participating Parties on the date on which the Second Shareholder Notice is delivered. The Participating Parties and the Transferring Shareholder shall then effect the purchase of the Remaining Transferring Shareholder’s Stock to be purchased by such Participating Parties pursuant to this Section 3.3(b), including payment of the purchase price, not more than fourteen (14) days after expiration of the fourteen-day period referenced above in this Section 3.3(b), and at such time, the Transferring Shareholder shall deliver to the Participating Parties the certificates representing the Remaining Transferring Shareholder’s Stock to be purchased by such Participating Parties pursuant to this Section 3.3(b), each certificate to be properly endorsed for transfer. In the event that not all of the Participating Parties elect to purchase their respective pro rata shares of the Remaining Transferring Shareholder’s Stock pursuant to their rights under this Section 3.3(b) within the time period set forth in this Section 3.3(b), the foregoing process shall be repeated with respect to the Participating Parties who did elect to purchase their respective pro rata shares of the Remaining Transferring Shareholder’s Stock pursuant to this Section 3.3(b) until either all of the Remaining Transferring Shareholder’s Stock is subscribed to pursuant to this Section 3.3(b) or no Participating Party desires to subscribe to additional shares of the Remaining Transferring Shareholder’s Stock.

3.4           Right of Co-Sale.

(a)          In the event that the Non-Transferring Parties fail to exercise their respective rights to purchase all of the Remaining Transferring Shareholder’s Stock pursuant to Section 3.3, and that following the exercise or expiration of the rights of purchase set forth in Section 3.3 the Transferring Shareholder proposes to sell shares of Shareholder Stock on the terms and conditions set forth in the Transfer Notice that represent more than five percent (5%) of the shares of Shareholder Stock then outstanding (assuming Full Conversion), then the Transferring Shareholder shall deliver to the Company and to each Non-Transferring Party that is not a Participating Party (a “Co-Sale Right Holder”)written notice (the “Co-Sale Notice”)that each Co-Sale Right Holder shall have the right, exercisable by written notice to the Transferring Shareholder with a copy to the Company (the “Sale Participation Notice”)delivered no later than fourteen (14) days after receipt of the Co-Sale Notice (such fourteen-day period, the “Exercise Period”),to sell shares of the Co-Sale Right Holder’s Shareholder Stock on the same terms and conditions specified in the Transfer Notice (provided that the price set forth in the Transfer Notice with respect to shares of Shareholder Stock shall be appropriately adjusted, if necessary, based on the conversion ratio of any Series A Stock or other preferred stock to be sold). The Sale Participation Notice shall indicate the number of shares of Shareholder Stock such Co-Sale Right Holder wishes to sell (which number shall not exceed the total number of shares of Transferring Shareholder Stock, specified in the Transfer Notice). The Transferring Shareholder shall use commercially reasonable efforts to interest the prospective purchaser of the Transferring Shareholder’s Stock (the “Offeror”)in purchasing, in addition to the Transferring Shareholder’s Stock, the Shareholder Stock that the Co-Sale Right Holders wish to sell.

(b)          If the Offeror does not wish to purchase the Transferring Shareholder’s Stock and allof the Shareholder Stock made available for purchase by the participating Co-Sale Right Holders (the “Co-Sale Participants”),then the Transferring Shareholder shall promptly notify each of the Co-Sale Participants of such fact (the “Proration Notice”),and each of the Co-Sale Participant and the Transferring Shareholder shall be entitled to sell, at the price and on the terms and conditions set forth in the Transfer Notice (provided that the price set forth in the Transfer Notice with respect to shares of Shareholder Stock shall be appropriately adjusted, if necessary, based on the conversion ratio of any Series A Stock or other preferred stock to be sold), a portion of the relevant Shareholder’s Stock being offered for sale to the Offeror, in the same proportion as such Transferring Shareholder’s or Co-Sale Participant’s (as the case may be) ownership of shares of Common Stock (assuming Full Conversion) on the date on which the Proration Notice is delivered bears to the aggregate number of shares of Common Stock (assuming Full Conversion) owned in the aggregate by the Transferring Shareholder and the Co-Sale Participants on the date on which the Proration Notice is delivered. The Proration Notice shall indicate the total number of shares of Shareholder Stock the Offeror is willing to purchase. Each Co-Sale Participant exercise its prorate co-sale rights by delivering written notice to the Transferring Shareholder no later than fourteen (14) days after receipt of the Proration Notice.

(c)          Each Co-Sale Participant shall effect its participation in the Transfer by timely delivering to the Transferring Shareholder, for transfer to the Offeror, one or more certificates, properly endorsed for transfer, which represent:

(i)          the number of shares of Common Stock which such Co-Sale Participant elects to sell; or

(ii)         that number of shares of Series A Stock and other preferred stock which is at such time convertible into the number of shares of Common Stock which such Co-Sale Participant elects to sell; provided, however, that if the Offeror objects to the delivery of preferred stock in lieu of Common Stock, such Co-Sale Participant shall convert such preferred stock into Common Stock pursuant to the relevant provisions of the Company’s Articles of Incorporation and such preferred stock, and deliver Common Stock as provided in Section 3.4(c)(i) above. The Company agrees to make any such conversion concurrent with and contingent upon the actual transfer of such Shareholder Stock to the Offeror.

(d)          The stock certificate or certificates that the Co-Sale Participant delivers to such Transferring Shareholder pursuant to Section 3.4(c) shall be transferred to the Offeror in consummation of the sale of the Common Stock pursuant to the terms and conditions specified in the Co-Sale Notice, and the Transferring Shareholder shall concurrently remit to the Co-Sale Participant that portion of the sale proceeds to which such Co-Sale Participant is entitled by reason of its participation in the sale. To the extent that the Offeror refuses to purchase shares or other securities from a Co-Sale Participant that the Co-Sale Participant has elected to sell pursuant to this Section 3.4, the Transferring Sharehorder shall not sell to the prospective purchaser or purchasers any Shareholder Stock unless and until, simultaneously with the sale, the Transferring Shareholder purchases such shares or other securities from such Co-Sale Participant on the same terms and conditions as are specified in the Co-Sale Notice, subject to the proration required by Section 3.4(b).

(e)          The exercise or non-exercise of the rights of any Co-Sale Right Holder to participate in one or more Transfers of Shareholder Stock made by a Transferring Shareholder will not adversely affect its right to participate in subsequent Transfers of Shareholder Stock pursuant to Article 3, provided that the Shareholder then otherwise meets the requirements of Article 3.

(f)          The transactions contemplated by the Transfer Notice, including the exercise of any right of first refusal and/or co-sale under this Article 3, shall be consummated in any event not later than ninety (90) days after the expiration of the Exercise Period and only on the terms of the Transfer Notice and in compliance with Article 3. Any Transfer after the expiration of such ninety-day period, any proposed Transfer on terms and conditions more favorable than those described in the Transfer Notice, and any subsequent or additional proposed Transfer of any Shareholder Stock by a Transferring Shareholder, shall again be subject to the first refusal and co-sale rights of the Non-Transferring Parties and shall require compliance by the Transferring Shareholder with the procedures described in this Article 3.

3.5           Exempt Transfers.

(a)          Exempt Transfers. Notwithstanding anything to the contrary in this Agreement, the first refusal and co-sale rights of the Shareholders set forth above in this Article 3 shall not apply to any Transfer by a Shareholder that is: (a) a partnership Transferring to its partners or to any other individual or entity that is an Affiliate of such Shareholder or to any beneficial owners of any Affiliates; (b) a corporation Transferring to any Affiliate; (c) a limited liability company Transferring to its members or to any other individual or entity that is an Affiliate of such beneficial owners of any Affiliate; or (d) an individual Transferring to a revocable trust for the benefit of the individual Shareholder or his or her spouse or children; provided that in each case the transferee will agree in writing to be subject to the terms of this Agreement to the same extent as if it were an original Shareholder under this Agreement, and all transferred Shareholder Stock shall remain “Shareholder Stock” under this Agreement, and such transferee shall be treated as a “Shareholder” for purposes of this Agreement.

(b)          Registration Exemption. Notwithstanding anything to the contrary in this Agreement, the provisions of this Article shall not apply to the sale of any Shareholder Stock to the public pursuant to a registration statement filed with, and declared effective by, the Securities and Exchange Commission under the Securities Act of 1933, as amended.

4. Death of a Shareholder.

4.1           Company Right of First Refusal.

(a)          Upon the death of an individual Shareholder (the “Deceased Shareholder”),the Company shall have the right to purchase all or any part of the Shareholder Stock of the Deceased Shareholder (the “Deceased Shareholder Stock”or the “Deceased Shareholder’s Stock”) from the estate (or trust) of the Deceased Shareholder for the purchase price and on the other terms set forth in this Article 4. The Company may exercise such right by written notice to the Deceased Shareholder’s personal representative (or successor trustee) no later than ninety (90) days after the date on which the Company receives notice of the Deceased Shareholder’s death.

(b)          In the event the Company does not exercise its right within such ninety-day period with respect to all of the Deceased Shareholder’s Stock, the Company shall, by the last day of such ninety-day period, give written notice of that fact to the Deceased Shareholder’s personal representative (or successor trustee) and to the Shareholders other than the Deceased Shareholder (the “Decedent Notice”).The Decedent Notice shall specify the number of shares of the deceased Shareholder’s Stock not purchased by the Company (the “Remaining Deceased Shareholder’s Stock”).

(c)          In the event that the Company timely exercises its right to purchase allor part of the Deceased Shareholder’s Stock, the Deceased Shareholder’s personal representative (or successor trustee) will sell such Deceased Shareholder’s Stock to the Company for the purchase price and on the other terms set forth in this Article 4.

4.2           Shareholder Right of First Refusal.

(a)          In the event that the Company does not exercise its right pursuant to Section 4.1 with respect to all of the Deceased Shareholder’s Stock within the time period set forth in Section 4.1, each Shareholder other than the Deceased Shareholder and each holder of Convertible Notes (the “Offeree Parties”) shall have the right, exercisable by written notice to the Deceased Shareholder’s personal representative (or successor trustee) with a copy to the Company delivered no later than thirty (30) days after receipt of the Decedent Notice, to purchase its pro rata share of the Remaining Deceased Shareholder’s Stock, for the purchase price and on the other terms set forth in this Article 4. Each Offeree Party’s pro rata share shall be equal to the product obtained by multiplying: (i) the aggregate number of shares of the Remaining Deceased Shareholder’s Stock, and (ii) a fraction, the numerator of which is the number of shares of Common Stock (assuming Full Conversion) owned by the Offeree Party on the date on which the Decedent Notice is delivered and the denominator of which is the total number of shares of Common Stock (assuming Full Conversion) owned by all of the Offeree Parties on the date on which the Decedent Notice is delivered.

(b)          In the event that not all of the Offeree Parties elect to purchase their respective pro rata shares of the Remaining Deceased Shareholder’s Stock pursuant to their rights under Section 4.2(a) within the time period set forth in Section 4.2(a), the Company shall give written notice to each of the Offeree Parties who did elect to purchase its respective pro rata share of the shares of the Remaining Deceased Shareholder’s Stock (the “Participating Offeree Parties”), which shall set forth the number of Remaining Deceased Shareholder’s Stock not subscribed to by the other Offeree Parties, and shall offer such Participating Offeree Parties the right to purchase such unsubscribed shares (the “Second Decedent Notice”). Each Participating Offeree Party shall have fourteen (14) days after receipt of the Second Decedent Notice to deliver a written notice to the Deceased Shareholder’s personal representative (or successor trustee) with a copy to the Company of its election to purchase its pro rata share of the unsubscribed shares, for the purchase price and on the other terms set forth in this Article 4. Each Participating Offeree Party’s pro rata share shall be equal to the product obtained by multiplying: (i) the aggregate number of shares of the Remaining Deceased Shareholder’s Stock not subscribed to by the other Offeree Parties, by (ii) a fraction, the numerator of which is the number of shares of Common Stock (assuming Full Conversion) owned by the Participating Offeree Party on the date on which the Second Decedent Notice is delivered and the denominator of which is the total number of shares of Common Stock (assuming Full Conversion) owned by all of the Participating Offeree Parties on the date on which the Second Decedent Notice is delivered. In the event that not all of the Participating Offeree Parties elect to purchase their respective pro rata shares of the Remaining Deceased Shareholder’s Stock pursuant to their rights under this Section 4.2(b) within the time period set forth in this Section 4.2(b), the foregoing process shall be repeated with respect to the Participating Offeree Parties who did elect to purchase their respective pro rata shares of the Remaining Deceased Shareholder’s Stock pursuant to this Section 4.2(b) until either all of the Remaining Deceased Shareholder’s Stock is subscribed to pursuant to this Section 4.2(b) or no Participating Offeree Party desires to subscribe to additional shares of the Remaining Deceased Shareholder’s Stock.

4.3           Deceased Shareholder’s Shareholder Stock. For purposes of this Agreement, “Deceased Shareholder’s Stock” means Shareholder Stock owned at the time of the Deceased Shareholder’s death by: (i) the Deceased Shareholder; or (ii) the trustee of a trust settled by the Deceased Shareholder.

4.4           Purchase Price for Deceased Shareholder’s Stock. The purchase price for the Deceased Shareholder’s Stock shall be its fair market value as of the last day of the month that immediately precedes the month in which the Deceased Shareholder died, as determined by the mutual agreement of the purchasing parties (the Company and/or the Participating Offeree Parties) and the Deceased Shareholder’s personal representative (or successor trustee). If the purchasing parties and the Deceased Shareholder’s personal representative (or successor trustee) cannot agree on the fair market value of the Deceased Shareholder’s Stock within sixty (60) days after the earlier of the expiration of the last time period referenced above and the date on which all of the Deceased Shareholder’s Stock has been subscribed to by the Company and/or the Offeree Parties, then the fair market value of the Deceased Shareholder’s Stock shall be determined by appraisal performed by a professional appraiser or certified public accountant qualified by experience and ability to appraise the shares of stock of a closely held company similar to the Company (a “Qualified Appraiser”)who is acceptable to all of the purchasing parties and the Deceased Shareholder’s personal representative (or successor trustee). If all of the purchasing parties and the Deceased Shareholder’s personal representative (or successor trustee) cannot agree on a Qualified Appraiser, then the purchasing parties shall by majority vote (each purchasing party is allowed one vote) select a Qualified Appraiser, and the Deceased Shareholder’s personal representative (or successor trustee) shall select a Qualified Appraiser. If only the purchasing parties, on the one hand, or only the Deceased Shareholder’s personal representative (or successor trustee), on the other hand, select a Qualified Appraiser, that appraiser’s written opinion on the fair market value of the Deceased Shareholder’s Stock shall be conclusive and binding on all of the purchasing parties and the Deceased Shareholder’s personal representative (or successor trustee). If the purchasing parties, on the one hand, and the Deceased Shareholder’s personal representative (or successor trustee), on the other hand, both select a Qualified Appraiser and the two (2) Qualified Appraisers agree on the fair market value of the Deceased Shareholder’s Stock, their written opinion shall be conclusive and binding on all of the purchasing parties and the Deceased Shareholder’s personal representative (or successor trustee). If the two Qualified Appraisers disagree on the fair market value of the Deceased Shareholder’s Stock, they shall appoint a third Qualified Appraiser mutually acceptable to them, and the written opinion of the third Qualified Appraiser shall be conclusive and binding as to the fair market value of the Deceased Shareholder’s Shares on all of the purchasing parties and the Deceased Shareholder’s personal representative (or successor trustee).

4.5           Settlement Date. The settlement date for a purchase under this Article 4 will he such date as may be mutually agreed upon by the parties to the purchase, but in no event later than 270 days after the Deceased Shareholder’s date of death.

4.6           Insurance. The Company may apply for and own policies of insurance on the lives of any or all Shareholders, with the Company named as beneficiary, to provide for part or all of the funds necessary for the Company to discharge its rights under this Agreement. The Company will pay all premiums on any such policies.

4.7           Payment When Insurance Proceeds Equal or Exceed the Purchase Price. Upon the death of a Shareholder, the Company will promptly take all necessary steps to collect any proceeds of insurance on the Deceased Shareholder’s life. If said insurance proceeds equal or exceed the purchase price and the Company exercises its option pursuant to Section 4.1, then the Company will pay the entire purchase price to the Deceased Shareholder’s estate or trust, as the case may be, as soon as possible after the value of the Deceased Shareholder’s Stock has been determined and the insurance proceeds have been collected by the Company.

4.8           Payment When Purchase Price Is In Excess of Insurance, or When There Is No Insurance. If the Company does not hold insurance on the Deceased Shareholder’s life for purposes of buying the Deceased Shareholder’s Stock, if the purchase price for the Deceased Shareholder’s Stock exceeds the proceeds of any insurance on the life of the Deceased Shareholder, or to the extent that the Offeree Parties are purchasing the Deceased Shareholder’s Stock, the following procedure will be used:

(a)          Notice. Within ten (10) days of receiving notice from the Company or the Offeree Parties that one of the conditions in the introduction to this Section 4.8 exists, the legal representative of the Deceased Shareholder (hereinafter called the “Decedent Seller”)will deposit any Deceased Shareholder Stock to be purchased with the Company, and each of the purchasing parties (the Company and/or the Participating Offeree Parties) will pay the down payment to and issue a promissory note to the Seller pursuant to Section 4.8(b) below.

(b)          Payment of Purchase Price. Simultaneously with the deposit of the Deceased Shareholder’s Stock by the Seller with the Company, each purchasing party (the Company and/or the Participating Offeree Parties): (i) will pay to the Seller a down payment equal to ten percent (10%) of the purchase price for the Deceased Shareholder’s Stock being purchased by that purchaser; and (ii) will deposit with the Decedent Seller a promissory note in the amount of the unpaid balance of the purchase price for the Deceased Shareholder’s Stock being purchased by that purchaser. The promissory note will be executed by the purchasing party and delivered to the Decedent Seller, and will provide that the face amount of the promissory note evidencing the unpaid balance of the purchase price will be payable in ten (10) annual installments of principal and interest beginning on the first anniversary of the first day of the month first following the date of the down payment referred to above. The per annum interest rate on the unpaid balance of each of the promissory notes will be 1% plus the “prime rate” as reported in The Wall Street Journal (United States edition) last published before the date on which the note is deposited with the Seller, or if The Wall Street Journal (United States edition) no longer publishes a “prime rate,” the last “prime rate” announced before the date on which the note is deposited with the Seller by the financial institution with which the Company maintains its primary banking relationship. When a promissory note is paid, the Seller will cancel the note so paid and return it to the Company.

4.9           Delivery of Stock. Upon full payment of the purchase price or upon the payment of the down payment and delivery of the proper promissory note(s) for the Deceased Shareholder’s Stock being purchased by a purchaser, the certificate or certificates for the Deceased Shareholder’s Stock being purchased by a purchaser will be duly assigned, transferred and delivered by the holder or holders thereof to the purchaser, together with any and all other documents required to effectuate the transfer of such stock to the purchaser.

4.10         Transfer to Estate or Trust. If, at the end of the option periods described in Sections 4.1 and 4.2, the Company and the Offeree Parties have not purchased all of the Deceased Shareholder’s Stock, then the Deceased Shareholder’s Stock not to be sold to the Company or to the Offeree Parties will transfer to the Shareholder’s heirs or trust, as the case may be; provided that any Shareholder Stock transferred as described above will remain subject to all of the terms of this Agreement.

5. Involuntary Transfers.

5.1           Involuntary Transfer. If any Shareholder Stock becomes subject to a Transfer by operation of law (an “Involuntary Transfer”). such Shareholder (the “Debtor Shareholder”)and the creditor shall give written notice of the Involuntary Transfer (the “Involuntary Transfer Notice”)simultaneously to the Company and to each of the other Shareholders and holders of Convertible Notes (collectively, the “Non-Debtor Parties”) prior to or within ten (10) days after the date on which the Shareholder Stock of the Debtor Shareholder (the “Debtor Shareholder’s Stock”)becomes subject to Involuntary Transfer. An Involuntary Transfer includes, without limitation, any of the following:

(a)          a sale or other disposition of any Shareholder Stock by a trustee or debtor in possession appointed or retained in a bankruptcy case of a Shareholder;

(b)          a sale of any Shareholder Stock at any creditors’ or judicial sale;

(c)          a transfer of any Shareholder Stock arising out of any pledge or security agreement; or

(d)          a transfer or other disposition of any Shareholder Stock in connection with a divorce or separation proceeding (including any property settlement agreement in contemplation of any divorce or separation proceeding).

5.2           Option of the Company.

(a)          Transmittal to the Company of the Involuntary Transfer Notice, which is enforceable by specific performance, will constitute an offer by the Debtor Shareholder and the creditor to sell to the Company all of the Debtor Shareholder’s Stock that is the subject of the Involuntary Transfer at a purchase price per Share and on the other terms of purchase determined pursuant to Article 4as if the Debtor Shareholder had died. The Company may accept such offer as to all or any part of the Debtor Shareholder’s Stock by written notice to the Debtor Shareholder or the creditor, as the case may be, delivered no later than ninety (90) days after receipt of the Involuntary Transfer Notice.

(b)          In the event that the Company does not exercise its right within such ninety-day period with respect to all of the Debtor Shareholder’s Stock that is the subject of the Involuntary Transfer, the Company shall, by the last day of such ninety-day period, give written notice of that fact to the Debtor Shareholder or the creditor, as the case may be, and the Non-Debtor Parties (the “Shareholder Involuntary Transfer Notice”).The Shareholder Involuntary Transfer Notice shall specify the number of shares of the Debtor Shareholder’s Stock that is the subject of the Involuntary Transfer but is not to be purchased by the Company (the “Remaining Debtor Shareholder’s Stock”).

5.3           Options of Non-Debtor Parties.

(a)          If the Company does not exercise its option with respect to all of the Debtor Shareholder’s Stock that is the subject of the Involuntary Transfer in accordance with Section 5.2, then the Debtor Shareholder or the creditor, as the case may be, will be deemed to have offered to sell the Remaining Debtor Shareholder’s Stock to each of the Non-Debtor Parties at the price and upon the terms set forth in Section 5.2. Each Non-Debtor Party shall have the right, exercisable by written notice to the Debtor Shareholder or the creditor, as the case may be, with a copy to the Company delivered no later than thirty (30) days after receipt of the Shareholder Involuntary Transfer Notice, to purchase its pro rata share of the Remaining Debtor Shareholder’s Stock subject to the Shareholder Involuntary Transfer Notice, at a purchase price per Share and on the other terms of purchase determined pursuant to Article 4 as if the Debtor Shareholder had died. Each Non-Debtor Party’s pro rata share shall be equal to the product obtained by multiplying: (i) the aggregate number of shares of the Remaining Debtor Shareholder’s Stock, and (ii) a fraction, the numerator of which is the number of shares of Common Stock (assuming Full Conversion) owned by the Non-Debtor Party on the date on which the Shareholder Involuntary Transfer Notice is delivered and the denominator of which is the total number of shares of Common Stock (assuming Full Conversion) owned by all of the Non-Debtor Parties on the date on which the Shareholder Involuntary Transfer Notice is delivered.

(b)          In the event that not all of the Non-Debtor Parties elect to purchase their respective pro rata shares of the Remaining Debtor Shareholder’s Stock pursuant to their rights under Section 5.3(a) within the time period set forth in Section 5.3(a), the Company shall give written notice to each of the Non-Debtor Parties who did elect to purchase its respective pro rata share of the Remaining Debtor Shareholder’s Stock (the “Participating Non-Debtor Parties”), which shall set forth the number of Remaining Debtor Shareholder’s Stock not subscribed to by the other Non-Debtor Parties, and shall offer such Participating Non-Debtor Parties the right to purchase such unsubscribed shares (the “Second Shareholder Involuntary Transfer Notice”). Each Participating Non-Debtor Party shall have the right, exercisable by written notice to the Debtor Shareholder or the creditor, as the case may be, with a copy to the Company delivered no later than thirty (30) days after receipt of the Second Shareholder Involuntary Transfer Notice, to purchase its pro rata share of the unsubscribed shares, at a purchase price per Share and on the other terms of purchase determined pursuant to Article 4 as if the Debtor Shareholder had died. Each Participating Non-Debtor Party’s pro rata share shall be equal to the product obtained by multiplying: (i) the aggregate number of shares of the Remaining Debtor Shareholder’s Stock not subscribed to by the other Non-Debtor Parties, by (ii) a fraction, the numerator of which is the number of shares of Common Stock (assuming Full Conversion) owned by the Participating Non-Debtor Party on the date on which the Second Shareholder Involuntary Transfer Notice is delivered and the denominator of which is the total number of shares of Common Stock (assuming Full Conversion) owned by all of the Participating Non-Debtor Parties on the date on which the Second Shareholder Involuntary Transfer Notice is delivered. In the event that not all of the Participating Non-Debtor Parties elect to purchase their respective pro rata shares of the Remaining Debtor’s Shareholder’s Stock pursuant to their rights under this Section 5.3(b) within the time period set forth in this Section 5.3(b), the foregoing process shall be repeated with respect to the Participating Non-Debtor Parties who did elect to purchase their respective pro rata shares of the Remaining Debtor Shareholder’s Stock pursuant to this Section 5.3(b) until either all of the Remaining Debtor Shareholder’s Stock is subscribed to pursuant to this Section 5.3(b) or no Participating Non-Debtor Party desires to subscribe to additional shares of the Remaining Deceased Shareholder’s Stock.

5.4           Transfer to Creditor. If, at the end of the option periods described in Sections 5.2 and 5.3, the Company and the Non-Debtor Parties have not purchased all of the Debtor Shareholder’s Stock that is the subject of the Involuntary Transfer, then the Debtor Shareholder’s Stock that is the subject of the Involuntary Transfer and not to be sold to the Company or to the Non-Debtor Parties will transfer to the creditor by operation of law or remain the property of the creditor, as the case may be; provided that any Shareholder Stock transferred as described above will remain subject to all of the terms of this Shareholder Agreement.

6. Prohibited Transfers.

6.1           General Prohibition. Shareholder Stock may not be transferred except as expressly permitted or required by this Agreement.

6.2           Call Option.

(a)          In the event of a Transfer in violation of Section 3.2 and 3.3 (a “Prohibited Transfer”), the Shareholders other than the Shareholder whose Shareholder Stock (the “Breaching Shareholder”) is subject to the Prohibited Transfer and the holders of Convertible Notes (collectively, the “Non-Breaching Parties”) shall have the option to purchase from the purchaser or transferee of the Shareholder Stock transferred in violation of this Agreement, the number of shares that the Non-Breaching Parties would have been entitled to purchase had such Prohibited Transfer been effected in accordance with this Agreement, on the following terms and conditions:

(i)          The price per share at which the shares are to be purchased by the Non-Breaching Parties shall be equal to the lower of the price per share paid to such Breaching Shareholder by the third party purchaser or purchasers of such Shareholder Stock that is subject to the Prohibited Transfer, or a purchase price per Share determined pursuant to Article 4 as if the Breaching Shareholder had died; and

(ii)         The Breaching Shareholder effecting such Prohibited Transfer shall reimburse the Non-Breaching Parties for any expenses, including legal fees and expenses, incurred in effecting such purchase.

6.3           Put Option.

(a)          In the event that a Transferring Shareholder should sell any Shareholder Stock in contravention of the co-sale rights of each Non-Transferring Party under Section 3.4 of this Agreement (a “Prohibited Sale”),each Non-Transferring Party, in addition to such other remedies as may be available at law, in equity or under this Agreement, shall have the put option provided for below, and such Transferring Shareholder shall be bound by the applicable provisions of such option.

(b)          In the event of a Prohibited Sale, each Non-Transferring Party shall have the right to sell to such Transferring Shareholder the type and number of shares of Common Stock that is equal to the number of shares each Non-Transferring Party would have been entitled to Transfer to the purchaser under Section 3.4 had the Prohibited Sale been effected pursuant to and in compliance with the terms of this Agreement. Such sale shall be made on the following terms and conditions:

(i)          The price per share at which the shares are to be sold to the Transferring Shareholder shall be equal to the price per share paid by the purchaser to such Transferring Shareholder in such Prohibited Sale. The Transferring Shareholder shall also reimburse each Non-Transferring Party for any and all fees and expenses, including legal fees and expenses, incurred in connection with the exercise or the attempted exercise of such Non-Transferring Party’s rights under Section 3.4 and this Section 6.3.

(ii)         Within sixty (60) days after the date on which a Non-Transferring Party received notice of the Prohibited Sale or otherwise became aware of the Prohibited Sale, such Non-Transferring Party shall, if exercising the option provided for in this Section 6.3, tender to the Transferring Shareholder the certificate or certificates representing the shares to be sold, each certificate to be properly endorsed for transfer.

(iii)       The Transferring Shareholder shall, upon tender of the certificate or certificates for the shares to be sold by a Non-Transferring Party, pursuant to this Section 6.3, pay the aggregate purchase price and the amount of reimbursable fees and expenses, as specified in Section 6.3(b)(i), in cash or by other means acceptable to the Non-Transferring Party.

7.          Bring-Along Rights

7.1           Bring-Along Transfer. If one or more Shareholders (the “Bring-Along Sellers”)propose to Transfer (in a Transfer consummated in a single Transfer or a series of related Transfers to a single purchaser or a group of purchasers as part of a single transaction or group of related transactions) to a non-Shareholder third Party offeror(s) (a “Third Party”)Shareholder Stock that represents more than fifty percent (50%) of the then-outstanding shares of Common Stock (assuming Full Conversion) (a “Bring Along Transfer”),then the Bring-Along Sellers will have the right (the “Bring Along Right”), but not the obligation, to cause each of the Shareholders who are not Bring-Along Sellers to tender to the Third Party for purchase, at the same price per share and on the same terms of payment and conditions as apply to the Bring-Along Sellers, a number of shares of each class of Shareholder Stock held by the Shareholder that is equal to the product obtained by multiplying: (i) the aggregate number of shares of such class of Shareholder Stock held by the Shareholder, and (ii) a fraction, the numerator of which is the aggregate number of Common Stock (assuming Full Conversion) that the Bring-Along Sellers propose to Transfer to the Third Party and the denominator of which is the aggregate number of shares of Common Stock (assuming Full Conversion) owned by the Bring-Along Sellers. If the Bring-Along Sellers exercise the Bring-Along Right provided for in this Section 7.1, then Article 3 shall not apply to the Transfers by the Bring-Along Sellers or pursuant to the exercise of the Bring-Along Right, and such Transfers shall not be a Prohibited Transfer or a Prohibited Sale.

7.2           Bring-Along Notice. Ifthe Bring-Along Sellers elect to exercise the Bring-Along Right provided for in Section 7.1, then the Bring-Along Sellers shall provide written notice (the “Bring Along Notice”)to the Company and to the other Shareholders and holders of Convertible Notes. Each Bring-Along Notice will set forth (i) the name and address of the Third Party to which the Bring-Along Sellers proposes to transfer Shareholder Stock and the number of shares of each class of Shareholder Stock proposed to be transferred. (ii) the nature of the proposed Transfer, (iii) the proposed amount and form of consideration and terms and conditions of payment offered by the Third Party and any other material terms pertaining to the Transfer (the “Third Party Terms”),and (iv) that the Third Party has been informed of the rights provided for in this Article 7 and has agreed to purchase Shareholder Stock in accordance with the terms of this Article 7. The Bring-Along Notice will be given at least thirty (30) days before settlement of the proposed Transfer.

7.3           Consummation. Upon the giving of a Bring-Along Notice, each Shareholder will be entitled and obligated to sell the number of shares of Shareholder Stock described above to the Third Party on the Third Party Terms; neither the Bring-Along Sellers nor any other Shareholder will be obligated to consummate the sale of any shares of Shareholder Stock pursuant to this Article 7 if the Third Party does not purchase all shares of Shareholder Stock that the Shareholders are entitled and required to sell pursuant to this Article 7.

7.4           Settlement. At the settlement of any transaction completed pursuant to this Article 7, the Third Party will remit to each Shareholder the consideration for the total sales price of the shares of Shareholder Stock such Shareholder sold pursuant to this Article 7, upon delivery by the Shareholder of the certificate(s) representing the Shareholder Stock to be purchased by the Third Party, each certificate to be properly endorsed for transfer.

8.          Preemptive Rights.

8.1           Subsequent Offerings. Subject to applicable securities laws, each Shareholder and holder of Convertible Notes shall have the right to purchase its pro rata share of all Shareholder Stock that the Company may, from time to time, propose to sell, issue, or exchange after the date of this Agreement, other than the Shareholder Stock excluded by Section 8.4. Each Shareholder’s pro rata share shall be equal to the ratio of (i) the aggregate number of shares of the Company's Common Stock (assuming Full Conversion) owned by the Shareholder at the time of the delivery of the Preemptive Rights Notice to (ii) the aggregate number of shares of Common Stock (assuming Full Conversion) owned by all of the Shareholders at the time of the delivery of the Preemptive Rights Notice.

8.2           Exercise of Rights. Ifthe Company proposes to issue, sell or exchange any Shareholder Stock, it shall give each Shareholder and holder of Convertible Notes a written notice (the “Preemptive Rights Notice”)that shall (i) identify and describe the Shareholder Stock being issued, sold or exchanged, (ii) describe the price and other terms upon which it is to be issued, sold or exchanged, and the number or amount of the shares of Shareholder Stock to be issued, sold or exchanged, (iii) identify the persons or entities (if known) to which or with whichthe Shareholder Stock are to be offered, issued, sold or exchanged, and (iv) offer to issue and sell to or exchange with such Shareholder its pro rata share of such Shareholder Stock. Each Shareholder and holder of Convertible Notes shall have thirty (30) days from the giving of the Preemptive Rights Notice to agree to purchase its pro rata share of the Shareholder Stock for the price and upon the terms and conditions specified in the Preemptive Rights Notice by giving written notice to the Company and stating therein the number of shares of Shareholder Stock to be purchased.

8.3           Closing. The parties exercising their preemptive rights and the Company shall effect the purchase of the Shareholder Stock to be issued to such exercising parties pursuant to this Article, including payment of the purchase price, not more than twenty-one (21) days after the expiration of the foregoing option periods, and at such time, the Company shall deliver to the parties exercising their preemptive rights the certificates representing the Shareholder Stock to be purchased by such parties exercising their preemptive rights pursuant to this Article 8. If the Company complies with this Article 8, the Company may issue, sell or exchange on the terms set forth in the Preemptive Rights Notice an amount of Shareholder Stock that was offered to the Shareholders and holders of Convertible Notes free of any additional preemptive rights established by this Article 8.

8.4           Excluded Securities. The preemptive rights established by this Article 8 shall have no application to any of the following Shareholder Stock:

(a)          Shares of Shareholder Stock and/or options, warrants or other Shareholder Stock purchase rights issued to, and the Shareholder Stock issued pursuant to such options, warrants or other purchase rights, employees, officers or directors of, or consultants or advisors to, the Company or any subsidiary, pursuant to stock purchase or stock option plans or other arrangements that are approved by the Company’s board of directors;

(b)          Shareholder Stock issued or issuable pursuant to any rights or agreements, options, warrants, or convertible securities outstanding as of the date of this Agreement, including Shareholder Stock issued upon the conversion of the Convertible Notes or the Series A Stock;

(c)          Shareholder Stock issued pursuant to any convertible securities granted after the date of this Agreement to the extent that the rights of first refusal established by this Article 8 were complied with or were inapplicable pursuant to any provision of this Article 8 with respect to the initial sale, issuance, or exchange by the Company of such convertible securities;

(d)          Any Shareholder Stock issued for consideration other than cash pursuant to a merger, consolidation, acquisition, or similar business combination approved by the board of directors and by a majority of the outstanding shares of Common Stock then held by Shareholders;

(e)          shares of Common Stock issued in connection with any stock split, stock dividendor subdivision by the Company that is approved by the board of directors;

(f)          up to Three Hundred Thousand (300,000) (orsuch greater amount as may be approved by a majority of the outstanding shares of Common Stock then held by Shareholders) shares of any Shareholder Stock issued pursuant to any equipment loan or leasing arrangement, real property leasing arrangement, or debt financing from a bank or similar financial or lending institution approved by the board of directors; and

(g)          any Shareholder Stock issued in connection with strategic transactions involving the Company and other entities, including (i) joint ventures, strategic alliances, manufacturing, marketing or distribution arrangements, and (ii) technology transfer or development arrangements; provided that, in each case, the issuance of shares therein has been approved by the board of directors and a majority of the outstanding shares of Common Stock thenheld by Shareholders.

9.          Covenant Not To Compete; Nonsolicitation.

9.1           Restrictions While a Shareholder. While a Shareholder who is a natural person is a Shareholder of the Company (and while a trust, for the benefit of the natural person or his or her spouse or children, is a Shareholder of the Company), the natural person agrees that he or she will not, directly or indirectly, either alone or in association with others, in any other capacity: (i) conduct, become engaged in, or interested in, any business that competes, directly or indirectly, with the business of the Company or any of its Affiliates worldwide; (ii) solicit, divert or take away or attempt to solicit, divert or take away, directly or indirectly, any of the Company’s or its Affiliates current, prior, or prospective customers; or (iii) solicit or attempt to solicit any person who is employed or engaged to perform services by the Company or its Affiliates to leave his or her employment or engagement with Company or its Affiliates. Notwithstanding anything to the contrary herein, this Section 9.1 shall not be violated, however, by the passive ownership by the natural person of up to 2% of a class of outstanding publicly traded shares of a corporation that is listed or quoted on a national securities exchange, including any such corporation that competes with the business of the Company.

9.2           Restrictions After Disposition of Shareholder Stock. Any natural person who is a Shareholder of the Company and who sells or otherwise transfers or surrenders all of his or her Shareholder Stock (including any natural person who settled a trust, for the benefit of the natural person or his or her spouse or children, that is a Shareholder of the Company and that sells or otherwise transfers or surrenders all of its Shareholder Stock), either to the Company, another Shareholder, or to a third party, agrees that he or she will not, for a period of three (3) years from the date of sale, directly or indirectly, either alone or in association with others, for himself or herself or in any other capacity: (i) conduct, become engaged in, or interested in, any business that competes, directly or indirectly, with the business of the Company or any of its Affiliates worldwide; (ii) solicit, divert or take away or attempt to solicit, divert or take away, directly or indirectly, any of the Company’s or its affiliates current, prior, or prospective customers; or (iii) solicit or attempt to solicit any person who is employed or engaged to perform services by the Company or its affiliates to leave his or her employment or engagement with Company or its Affiliates. Notwithstanding anything to the contrary herein, this Section 9.2 shall not be violated, however, by the passive ownership by the natural person of up to 2% of a class of outstanding publicly traded shares of a corporation that is listed or quoted on a national securities exchange, including any such corporation that competes with the business of the Company.

9.3           Judicial Determination. The Company and the Shareholders agree that the restrictions set forth in this Article 9 are reasonable in light of the nature of the Parties’ business. However, should any court of competent jurisdiction determine that these restrictions are unreasonable, then the Parties agree that the restrictions shall, without further acts of the Parties, be modified or amended to conform to the judgment of the court as to what would be reasonable, with the restrictions of this Article 9 to be limited in accordance with such judgment.

9.4           Remedies. In the event of any breach of this Article 9 by a Shareholder, the Company shall be entitled to the remedies set forth in this Agreement, as well as injunctive relief and damages, together with any reasonable attorneys’ fees or costs incurred as a result of such breach, and awarded by the court. Shareholders shall not have standing to enforce this Article 9.

9.5           Entity Shareholders. Each Shareholder who is not a natural person (and is not a trust for the benefit of a natural person or his or her spouse or children) will enter a nondisclosure agreement on terms that are reasonably acceptable to the Company.

10.        Confidentiality.

10.1         General Restriction. While a Shareholder is a shareholder of the Company and following the transfer or surrender of all of its Shareholder Stock, the Shareholder agrees to keep all information relating to the Company, its Affiliates, and their businesses, however obtained, confidential and not to disclose such information to any person or use such information for his benefit or the benefit of any other person or entity. A Shareholder’s obligations with respect to such information will not include any information that (i) is or becomes part of the public domain without violation of this Agreement, (ii) has been rightfully received by the Shareholder from a third person not under obligation of confidentiality to the Company and without breach of this Agreement, or (iii) is independently developed by the Shareholder without use or access to any such information.

10.2        Judicial Determination. The Company and Shareholders agree that the restrictions set forth in this Article 10 are reasonable in light of the nature of the Parties’ business. However, should any court of competent jurisdiction determine that these restrictions are unreasonable, then the Parties agree that the restrictions shall, without further acts of the Parties, be modified or amended to conform to the judgment of the court as to what would be reasonable, with the restrictions of this Article 10 to be limited in accordance with such judgment.

10.4        Remedies. In the event of any breach of this Article 10 by a Shareholder, the Company shall be entitled to the remedies set forth in this Agreement, as well as injunctive relief and damages, together with any reasonable attorneys’ fees or costs incurred as a result of such breach, and awarded by the court. Shareholders shall not have standing to enforce this Article 10.

11.       Power of Attorney.

11.1        The officers of the Company are hereby appointed as attorney-in-fact to effectuate Transfers of Shareholder Stock that are required by and consummated in compliance with the requirements of this Agreement by entering the required Transfer on the books of the Company. The Parties agree that the officers may exercise their power of attorney to enter such a Transfer of Shareholder Stock on the books of the Company to effectuate Transfers of Shareholder Stock that are required by and consummated incompliance with the requirements of this Agreement regardless of whether a Shareholder tenders its Shareholder Stock to the Company for Transfer.

12.       LEGEND.

12.1        Each certificate representing shares of Shareholder Stock now or hereafter owned by any Shareholder shall be endorsed with the following legend:

THE SALE, OR OTHER TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO THE TERMS AND CONDITIONS OF A CERTAIN SHAREHOLDER AGREEMENT BY AND BETWEEN THE SHAREHOLDER, THE COMPANY AND CERTAIN HOLDERS OF STOCK OF THE COMPANY. COPIES OF SUCH AGREEMENT MAY BE OBTAINED UPON WRITTEN REQUEST TO THE SECRETARY OF THE COMPANY.

12.2       The Shareholders agree that the Company may instruct its transfer agent to impose transfer restrictions on the shares represented by certificates bearing the legend referred to in Section 12.1 above to enforce the provisions of this Agreement and the Company agrees to promptly do so. The legend shall be removed at the request of any Shareholder following termination of this Agreement.

13.       MISCELLANEOUS.

13.1         Conditions to Exercise of Rights. Exercise of the Shareholders' rights under this Agreement shall be subject to and conditioned upon compliance with applicable laws.

13.2         Governing Law. This Agreement shall be governed by and construed under the laws of the State of Michigan, excluding the principles of conflicts of law.

13.3         Amendment and Waiver. This Agreement may be amended or terminated and the observance of any term of this Agreement may be waived with respect to any Party to this Agreement (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of (i) a majority of the Company's board of directors, and (ii) persons holding, in the aggregate, shares of Shareholder Stock representing at least sixty percent (60%) of the voting power of all shares of Shareholder Stock then held by Shareholders and their permitted assignees; provided that Article 2 may not be so amended without the consent of Aspen, POSCO, and Hanwha, subject to the Minimum Ownership Requirements, and provided further that for so long as Aspen owns 10% or more of the aggregate outstanding Shareholder Stock (assuming Full Conversion) no provision of this Agreement may be amended in a manner that would have a material adverse impact on Aspen, in its capacity as a holder of Convertible Notes or a Shareholder, without the written consent of Aspen. The Company shall give prompt written notice of any amendment or termination hereof or waiver hereunder to any Party hereto that did not consent in writing to such amendment, termination or waiver. Any amendment, termination or waiver effected in accordance with this Section 13.3 shall be binding on all Parties hereto, even if they do not execute such consent. No waivers of or exceptions to any term, condition or provision of this Agreement, in any one or more instances, shall be deemed to be, or construed as, a further or continuing waiver of any such term, condition or provision.

13.4         Third Party Beneficiaries. The holders of Convertible Notes are each intendedthird party beneficiaries of the provisions of this Agreement that grant rights to them only, and each holder of Convertible Notes may enforce the provisions of this Agreement that grant rights to it to the extent that such holder complies with the requirements of the provision to be enforced. Pursuant to Section 13.12, the holders of Convertible Notes shall become a party to and shall be bound by this Agreement as a Shareholder party to it upon the conversion of the Convertible Notes into Shareholder Stock. Aspen, in addition to any other rights that it may have under this Agreement, is an intended third party beneficiary of Section 2.4, and may enforce the provisions of Section 2.4, subject to its Minimum Ownership Requirement.

13.5         Successors and Assigns. The provisions of this Agreement shall inure to the benefit of, and be binding upon, the Parties and their respective successors, assigns, heirs, executors and administrators and other legal representatives.

13.6         Term. This Agreement shall continue in full force and effect from the date hereof through the earliest of the following dates, on which date it shall terminate in its entirety:

(a)          the date of the closing of a public offering of the Common Stock pursuant to a registration statement filed with the Securities and Exchange Commission, and declared effective under the Securities Act of 1933, as amended in which the Company receives gross proceeds of at least $10,000,000; or

(b)          the date on which this Agreement is terminated pursuant to Section 13.3.

13.7         Ownership. The Shareholders represent and warrant that each is the sole legal and beneficial owner of those shares of Shareholder Stock set forth opposite such Shareholder's name on Exhibit A, and that no other person has any interest (other than a community property interest) in such shares.

13.8         Notices. All notices required or permitted hereunder shall be in writing and shall be deemed effectively given: (a) upon personal delivery to the Party to be notified, (b) three (3) days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (c) one (1) day after deposit with a nationally recognized overnight courier, specifying next day delivery, with written verification of receipt. All communications shall be sent to the Party to be notified at the address as set forth on the signature page or Exhibits hereof or at such other address as such Party may designate by ten (10) days advance written notice to the other Party hereto.

13.9         Severability. In the event one or more of the provisions of this Agreement should, for any reason, be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality, or unenforceability shall not affect any other provisions of this Agreement, and this Agreement shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein.

13.10       Attorneys' Fees. In the event that any suit or action is instituted under or in relation to this Agreement, including without limitation to enforce any provision in this Agreement, the prevailing Party in such dispute shall be entitled to recover from the losing Party all fees, costs and expenses of enforcing any right of such prevailing Party under or with respect to this Agreement, including without limitation, such reasonable fees and expenses of attorneys and accountants, which shall include, without limitation, all fees, costs and expenses of appeals.

13.11       Termination of Prior Agreements. The following agreements are hereby expressly terminated by the execution of this Agreement by the parties to such agreements: (1) the Stock Redemption Agreement between the Company and Hanwha dated as of December 1, 2010; (2) the Voting Agreement between the Company and Hanwha dated as of December 1, 2010; (3) the Stock Redemption Agreement between the Company and POSCO dated as of June 8, 2011; (4) the Voting Agreement between the Company and POSCO dated as of June 8, 2011; (5) the Stock Redemption Agreement between the Company and certain Shareholders dated as of July 15, 2006; and (6) the Amended and Restated Voting Agreement between the Company and certain Shareholders dated as of January 14, 2009.

13.12       Shares Covered by this Agreement. This Agreement applies to all Shareholder Stock that is now or hereafter registered in the Company's records in a Shareholder's name or beneficiary or are legally owned by such Shareholder, including Shareholder Stock that is subsequently acquired by a Shareholder by gift; conversion of the Convertible Notes, Series A Stock, or other convertible debt or convertible equity securities of the Company; purchase; dividend; exercise of the Shareholder Options and Warrants or any other options, warrants or other security or right of any kind convertible into or exchangeable for Common Stock issued by the Company; or any other means, including through reorganization, recapitalization, stock split-up, combinations of shares, merger, or consolidation. Any individual or entity who is not a Shareholder but who acquires Shareholder Stock in the Company shall be become a party to and shall be bound by this Agreement as a Shareholder party to it, including the holders of Convertible Notes upon the conversion of the Convertible Notes into Shareholder Stock, and the Company shall not issue such Shareholder Stock unless and until such individual or entity executes an adoption agreement generally in the form of Exhibit B.

13.13       Entire Agreement. This Agreement and the exhibits attached to it, along with the Purchase Agreement and the other documents delivered pursuant to the Financing, constitute the full and entire understanding and agreement between the Parties with regard to the subjects hereof and thereof and no Party shall be liable or bound to any other in any manner by any oral or written representations, warranties, covenants and agreements except as specifically set forth herein and therein. Each Party expressly represents and warrants that it is not relying on any oral or written representations, warranties, covenants or agreements outside of this Agreement, the Purchase Agreement and the other Related Agreements (as defined in the Purchase Agreement).

13.14     Construction. References in this Agreement to any gender shall be construed to refer to all genders, and use of a plural or singular form shall be construed to refer to the other.

13.15     Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

[EXHIBITS AND COUNTERPART SIGNATURE PAGES FOLLOW.]

XG SCIENCES, INC.

SHAREHOLDER AGREEMENT

COUNTERPART SIGNATURE PAGE

The foregoing XG SCIENCES, INC. SHAREHOLDER AGREEMENT is hereby executed by the undersigned.

COMPANY:
XG SCIENCES, INC.
Signature:
	Michael R. Knox
	Chief Executive Officer

Date:___________________________________________

XG SCIENCES, INC.

SHAREHOLDER AGREEMENT

COUNTERPART SIGNATURE PAGE

The foregoing XG SCIENCES, INC. SHAREHOLDER AGREEMENT is hereby executed by the undersigned.

COMPANY:
XG SCIENCES, INC.
Signature:	/s/ Michael R. Knox
	Michael R. Knox
	Chief Executive Officer

Date:                            3-18-2013                                   

XG SCIENCES, INC.

SHAREHOLDER AGREEMENT

COUNTERPART SIGNATURE PAGE

The foregoing XG SCIENCES, INC. SHAREHOLDER AGREEMENT is hereby executed by the undersigned.

ENTITY SHAREHOLDER:

Entity Name:

Signature:

Print Name:

Title:

Date:

XG SCIENCES, INC.

SHAREHOLDER AGREEMENT

COUNTERPART SIGNATURE PAGE

The foregoing XG SCIENCES, INC. SHAREHOLDER AGREEMENT is hereby executed by the undersigned.

INDIVIDUAL SHAREHOLDER or

JOINT INDIVIDUAL SHAREHOLDERS:

Signature #1:

Print Name:

Date:

Signature #2:

Print Name:

Date:

Exhibit A

LIST OF SHAREHOLDERS

Name of Shareholder	No. of Shares Owned		Percentage Ownership
Michael R. Knox		121,667		12.068	%
Linnea Van Dyne		5,380		0.534	%
Lawrence T. Drzal Revocable Trust		50,550		5.014	%
Hiroyuki Fukushima		50,000		4.959	%
Inhwan Do		50,000		4.959	%
Michigan State University Foundation		9,543		0.947	%
Mark S. Kerrins and Rosemary Kerrins. JTWROS		32,500		3.224	%
Peter Bosanic and Lisa Kendzioski-Bosanic, JTWROS		2,550		0.253	%
Paul Nordstrom		5,758		0.571	%
Edward J. Demmer		30,000		2.976	%
Kevin B. Miller		2,400		0.238	%
David J. Donovan		16,257		1.612	%
Jeffery A. Wesley		9,005		0.893	%
Stephen J. Linder Trust No. 1		5,251		0.521	%
Mark E. Hooper Revocable Living Trust		3,625		0.360	%
W.D. Hamilton and S.M. Heathfield		7,251		0.719	%
Marjorie E. Frisch		2,087,5		0.207	%
Matthew H. Frisch		2,087,5		0.207	%
Colin D. Cronin		4,570		0.453	%
Ann Arbor SPARK		36,257		3.596	%
Robert Skandalaris		34,977		3.469	%
John W. Dourjalian		2,690		0.267	%
William G. Lutz		1,653		0.164	%
David and Vicky Pendell (JTWROS)		3,157		0.313	%
Reed Shick		880		0.087	%
Gary Griffin		1,500		0.149	%
Robert L. McKellar		592		0.059	%
ASC-XGS, LLC		166,023		16.467	%
Hanwha Chemical Corporation		150,000		14.878	%
POSCO, a South Korean corporation		200,000		19.837	%
TOTALS		1,008,211		100.000	%

Exhibit B

ADOPTION AGREEMENT

This ADOPTION AGREEMENT (this “Adoption Agreement”) is entered into effective as of ___________________ among XG Sciences, Inc., a Michigan corporation (the “Company”);and ___________________ (the “Adopting Shareholder”) pursuant to the terms of the Shareholder Agreement dated as of __________, 2013 among the Company and certain Shareholders of the Company (the “Shareholder Agreement”). Capitalized terms used but not defined in this Adoption Agreement shall have the meanings given to them in the Shareholder Agreement.

1.          Acknowledgement. The Adopting Shareholder acknowledges that the Adopting Shareholder is acquiring the following equity securities of the Company (the “Shares”):_________________________________________________, which Shares are subject to the terms and conditions of the Shareholder Agreement.

2.          Agreement. The Adopting Shareholder (i) agrees that the Shares acquired by the Adopting Shareholder are bound by and subject to the terms of the Shareholder Agreement, (ii) that the Adopting Shareholder hereby agrees to become a party to the Shareholder Agreement as a Shareholder and as such shall be, and the Shares shall be, bound by and subject to the terms of the Shareholder Agreement, and (iii) hereby adopts the Shareholder Agreement with the same force and effect as if Adopting Shareholder were originally a Shareholder party thereto.

ADOPTING SHAREHOLDER:
COMPANY:
	XG Sciences, INC.
	By:
		______________________, President

OFFICER’S CERTIFICATE

The undersigned, Michael R. Knox, certifies that he is the Chief Executive Officer of XG SCIENCES, INC., a Michigan Corporation (the “Company”), and makes this certificate in connection with and pursuant to Section 6.j. of that certain Purchase Agreement dated January 15, 2014 (the “Purchase Agreement”) by and between the Company and SVIC No. 15 New Technology Business Investment L.L.P. (“Buyer”), and certifies to Buyer as follows:

All conditions and provisions of Section 6 of the Purchase Agreement are fully satisfied, including receipt by Buyer of all required deliveries thereunder, and the Company has delivered to Buyer all securities owed and issuable to Buyer on or prior to the date hereof under the Transaction Agreements. In furtherance of and without limiting the foregoing, as of the date hereof, (A) the Transaction Agreements, other documents required pursuant thereto, and security interests and liens created thereby, are in full force and effect, (B) each representation and warranty of the Company in the Transaction Agreements is true and correct as if made on and as of the date hereof (except where such representation or warranty is otherwise expressly made as of and limited to a particular date, in which case it is, was or will be true and correct on and as of such other date), before and after giving effect to the consummation of the transactions to be consummated on the date hereof, and as of or since the Initial Closing Date, (C) the Company is in compliance with all, and not in violation, breach or default of any, covenants, agreements and/or other provisions of any of the Transaction Agreements, (D) no breach of, or default or event of default under any of the Transaction Agreements has occurred and is continuing or exists on the date hereof, or would exist after giving effect to the consummation of the transactions to be consummated on the date hereof, or has occurred as of or since the Initial Closing Date, (E) the Company is in compliance with the provisions and covenants of Section 4 of the Purchase Agreement, (F) no Material Adverse Effect has occurred and there are no liabilities or obligations with respect to the Company of any nature whatsoever (whether absolute, accrued, contingent or otherwise and whether or not due) which, individually or in the aggregate, could constitute a Material Adverse Effect, (G) the Company has delivered to Buyer unaudited monthly financial statements for all months ending at least sixty (60) days prior to the date hereof and any other more recent months which have been closed by the Company’s accounting staff, (H) the Company has discussed any material deviations from the last financial projections of the Company furnished to Buyer pursuant to Section 7(a) of the Purchase Agreement and has updated such financial projections as may be required and provided such revised projections to the Buyer, and (I) no event(s), fact(s), condition(s) or circumstance(s) has occurred which, individually or in the aggregate, make it improbable that the Company will be able to observe or perform in all material respects any of its obligations under the Transaction Agreements.

Capitalized terms used, but not defined herein, shall have the meanings given such terms in the Purchase Agreement.

IN WITNESS WHEREOF, the undersigned has caused this Officer's Certificate to be executed as of the date first written above.

XG SCIENCES, INC.
By:	/s/ Michael R. Knox
	Michael R. Knox, Chief Executive Officer

OFFICER’S CERTIFICATE

The undersigned, Michael R. Knox, certifies that he is the Chief Executive Officer of XG SCIENCES, INC., a Michigan Corporation (the “Company”), and makes this certificate in connection with and pursuant to Section 7.i. of that certain Purchase Agreement dated January 15, 2014 (the “Purchase Agreement”) by and between the Company and XGS II, LLC (“Buyer”), and certifies to Buyer as follows:

All conditions and provisions of Section 7 of the Purchase Agreement are fully satisfied, including receipt by Buyer of all required deliveries thereunder, and the Company has delivered to Buyer all securities owed and issuable to Buyer on or prior to the date hereof under the Transaction Agreements. In furtherance of and without limiting the foregoing, as of the date hereof, (A) the Transaction Agreements, other documents required pursuant thereto, and security interests and liens created thereby, are in full force and effect, (B) each representation and warranty of the Company in the Transaction Agreements is true and correct as if made on and as of the date hereof (except where such representation or warranty is otherwise expressly made as of and limited to a particular date, in which case it is, was or will be true and correct on and as of such other date), before and after giving effect to the consummation of the transactions to be consummated on the date hereof, and as of or since the Initial Closing Date, (C) the Company is in compliance with all, and not in violation, breach or default of any, covenants, agreements and/or other provisions of any of the Transaction Agreements, (D) no breach of, or default or event of default under any of the Transaction Agreements has occurred and is continuing or exists on the date hereof, or would exist after giving effect to the consummation of the transactions to be consummated on the date hereof, or has occurred as of or since the Initial Closing Date, (E) the Company is in compliance with the provisions and covenants of Section 4 of the Purchase Agreement, (F) no Material Adverse Effect has occurred and there are no liabilities or obligations with respect to the Company of any nature whatsoever (whether absolute, accrued, contingent or otherwise and whether or not due) which, individually or in the aggregate, could constitute a Material Adverse Effect, (G) the Company has delivered to Buyer unaudited monthly financial statements for all months ending at least sixty (60) days prior to the date hereof and any other more recent months which have been closed by the Company’s accounting staff, (H) the Company has discussed any material deviations from the last financial projections of the Company furnished to Buyer pursuant to the Purchase Agreement and has updated such financial projections as may be required and provided such revised projections to the Buyer, and (I) no event(s), fact(s), condition(s) or circumstance(s) has occurred which, individually or in the aggregate, make it improbable that the Company will be able to observe or perform in all material respects any of its obligations under the Transaction Agreements.

Capitalized terms used, but not defined herein, shall have the meanings given such terms in the Purchase Agreement.

IN WITNESS WHEREOF, the undersigned has caused this Officer's Certificate to be executed as of the date first written above.

XG SCIENCES, INC.
By:	/s/ Michael R. Knox
	Michael R. Knox, Chief Executive Officer

OFFICER’S CERTIFICATE

The undersigned, Michael R. Knox, certifies that he is the Chief Executive Officer of XG SCIENCES, INC., a Michigan Corporation (the “Company”), and makes this certificate in connection with and pursuant to Section 6.j. of that certain Purchase Agreement dated January 15, 2014 (the “Purchase Agreement”) by and between the Company and SVIC No. 15 New Technology Business Investment L.L.P. (“Buyer”), and certifies to Buyer as follows:

All conditions and provisions of Section 6 of the Purchase Agreement are fully satisfied, including receipt by Buyer of all required deliveries thereunder, and the Company has delivered to Buyer all securities owed and issuable to Buyer on or prior to the date hereof under the Transaction Agreements. In furtherance of and without limiting the foregoing, as of the date hereof, (A) the Transaction Agreements, other documents required pursuant thereto, and security interests and liens created thereby, are in full force and effect, (B) each representation and warranty of the Company in the Transaction Agreements is true and correct as if made on and as of the date hereof (except where such representation or warranty is otherwise expressly made as of and limited to a particular date, in which case it is, was or will be true and correct on and as of such other date), before and after giving effect to the consummation of the transactions to be consummated on the date hereof, and as of or since the Initial Closing Date, (C) the Company is in compliance with all, and not in violation, breach or default of any, covenants, agreements and/or other provisions of any of the Transaction Agreements, (D) no breach of, or default or event of default under any of the Transaction Agreements has occurred and is continuing or exists on the date hereof, or would exist after giving effect to the consummation of the transactions to be consummated on the date hereof, or has occurred as of or since the Initial Closing Date, (E) the Company is in compliance with the provisions and covenants of Section 4 of the Purchase Agreement, (F) no Material Adverse Effect has occurred and there are no liabilities or obligations with respect to the Company of any nature whatsoever (whether absolute, accrued, contingent or otherwise and whether or not due) which, individually or in the aggregate, could constitute a Material Adverse Effect, (G) the Company has delivered to Buyer unaudited monthly financial statements for all months ending at least sixty (60) days prior to the date hereof and any other more recent months which have been closed by the Company’s accounting staff, (H) the Company has discussed any material deviations from the last financial projections of the Company furnished to Buyer pursuant to the Purchase Agreement and has updated such financial projections as may be required and provided such revised projections to the Buyer, and (I) no event(s), fact(s), condition(s) or circumstance(s) has occurred which, individually or in the aggregate, make it improbable that the Company will be able to observe or perform in all material respects any of its obligations under the Transaction Agreements.

Capitalized terms used, but not defined herein, shall have the meanings given such terms in the Purchase Agreement.

IN WITNESS WHEREOF, the undersigned has caused this Officer's Certificate to be executed as of the date first written above.

XG SCIENCES, INC.
By:	/s/ Michael R. Knox
	Michael R. Knox, Chief Executive Officer

VOTING AGREEMENT

THIS VOTING AGREEMENT (“Agreement”) is made and entered into effective as of January 15, 2014 (the “Effective Date”), by and among XG Sciences, Inc., a Michigan corporation (the “Company”), certain holders of the Company’s outstanding stock (the “Shareholders”), and SVIC No. 15 New Technology Business Investment L.L.P. (“Samsung”). The Company, the Shareholders, and Samsung are individually referred to as a “Party,” and are collectively referred to as the “Parties.”

RECITALS

WHEREAS, The Company and the Shareholders entered into that certain Shareholder Agreement dated March 18, 2013 (the “Shareholder Agreement”), which among other things provides for the designation of certain directors to the board of directors of the Company (the “Board”);

WHEREAS, concurrently with the execution of this Agreement, the Company and Samsung are entering into a transaction whereby Samsung is purchasing a secured convertible promissory note from the Company.

WHEREAS, notwithstanding anything in the Shareholder Agreement, the purchase agreement that memorializes that transaction requires that the Company use its best efforts to cause Shareholders owning a majority of the Company’s voting securities to enter into this Agreement, pursuant to which Samsung is provided a right to designate a member of the Board.

AGREEMENT

NOW, THEREFORE, in consideration of the recitals and the mutual promises contained in this Agreement, the Parties agree as follows:

1.           Definitions. Capitalized terms that are used in this Agreement but that are not otherwise defined have the following meanings:

1.1           “Common Stock” means shares of the Company’s common stock and shares of common stock issued or issuable upon conversion of the Series A Stock, convertible debt of the Company, or convertible equity securities of the Company or the exercise of warrants, options, or other securities or rights of any kind convertible into or exchangeable for Common Stock issued by the Company.

1.2           “Full Conversion” means the deemed conversion of any outstanding convertible debt into Series A Stock and then into Common Stock, the deemed conversion of any outstanding Series A Stock into Common Stock, and the deemed conversion of all other outstanding convertible equity securities of the Company into Common Stock.

1.3           “Series A Stock” means the Series A Convertible Preferred Stock issued by the Company.

2. Voting Agreement.

2.1           Samsung Director. For so long as Samsung owns 10% or more of the aggregate outstanding Common Stock (assuming Full Conversion, but excluding any shares of Common Stock issuable upon exercise of any warrants held by Samsung) (the “Minimum Ownership Requirement”), each Shareholder agrees to vote all of the Shareholder’s voting securities in the Company (including Common Stock and Series A Stock), whether now owned or hereafter acquired (together the “Shares”), from time to time in whatever manner is necessary to ensure that at each annual or special meeting of the shareholders of the Company at which an election of directors is held or pursuant to any written consent of the shareholders of the Company, one person nominated by Samsung is elected to the Company’s Board as a director (the “Samsung Director”). The Samsung Director shall be reasonably acceptable to the other directors of the Company. If Samsung nominates a person who is not reasonably acceptable to the other directors of the Company, then Samsung shall withdraw the nomination or appoint and consult with the other directors of the Company to select a new nominee or appointee who is reasonably acceptable to the remaining directors. As a condition to election to the Board, the Samsung Director shall sign a non-competition and non-disclosure agreement in such form as is reasonably acceptable to the Company. The Samsung Director shall be automatically recused from discussions by the Company’s Board that relate to customers or potential customers of the Company that are in competition with Samsung or any projects relating to such competitive customers.

2.2           Removal of Board Members; Vacancies. For so long as the Minimum Ownership Requirement is met, each Shareholder agrees to vote all of such Shareholder’s Shares from time to time and at all times in whatever manner as shall be necessary to ensure that: (i) the Samsung Director may not be removed from office without the consent of Samsung; and (ii) any vacancy created by the resignation, removal, or death of the Samsung Director is filled pursuant to the provisions of Section 2.1.

2.3           Written Consents. Each of the Shareholders agrees to execute and deliver any written consent that is required to effectuate its obligations under this Section 2.

3.           Term. The rights granted to Samsung under this Agreement are effective from the Effective Date until, and will terminate upon, the first to occur of: (i) the date on which the Minimum Ownership Requirement is no longer satisfied, (ii) the date on which the Shareholder Agreement is terminated for any reason, or (iii) the date that Samsung agrees in writing to terminate this Agreement.

4.           Specific Enforcement. Each Party acknowledges and agrees that it will be irreparably damaged if any of the provisions of this Agreement are not performed by the Parties in accordance with their specific terms. Accordingly, it is agreed that each of the Company, Samsung, and the Shareholders shall be entitled to specific enforcement of this Agreement in any action instituted in any court of the United States or any state having subject matter jurisdiction, in addition to any other remedy to which the Parties may be entitled at law or in equity.

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5.           Miscellaneous.

5.1 Transfers, Successors and Assigns.

(a)           Samsung and its assignees may not assign their benefits under this Agreement without the written consent of the Company; provided that Samsung may assign its benefits under this Agreement to an affiliate. The terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and permitted assigns of the Parties. Nothing in this Agreement, express or implied, is intended to confer upon any party other than the Parties or their respective successors and permitted assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement.

(b)           Each transferee or assignee of the Shares subject to this Agreement shall continue to be subject to the terms hereof, and, as a condition to the Company’s recognizing such transfer, each transferee or assignee shall agree in writing to be subject to each of the terms of this Agreement by executing and delivering an Adoption Agreement substantially in the form attached hereto as Appendix 1. Upon the execution and delivery of an Adoption Agreement by any transferee, the transferee shall be deemed to be a Party hereto as if the transferee’s signature appeared on the signature page of this Agreement. The Company shall not permit the transfer of the Shares subject to this Agreement on its books or issue a new certificate representing any such Shares unless and until the transferee has complied with the terms of this Section 5.1. Each certificate representing the Shares subject to this Agreement if issued on or after the date of this Agreement shall be endorsed by the Company with the legend set forth in Section 5.8.

5.2           Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the state of Michigan, without regard to its principles of conflicts of laws.

5.3           Counterparts, Signatures. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. A facsimile signature or signature by electronic transmission shall bind the signatory in the same way that an original signature would bind the signatory.

5.4           Titles and Subtitles. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement.

5.5           Notices. All notices and other communications given or made pursuant to this Agreement shall be in writing and shall be deemed effectively given: (a) upon personal delivery to the Party to be notified; (b) when sent by confirmed electronic mail or facsimile if sent during normal business hours of the recipient, and if not so confirmed, then on the next business day; (c) five business days after having been sent by registered or certified mail, return receipt requested, postage prepaid; or (d) one business day after deposit with a nationally recognized overnight courier, specifying next day delivery, with written verification of receipt. All communications shall be sent to the respective Parties at their address on file with the Company or to such email address, facsimile number or address as subsequently modified by written notice given in accordance with this Section 5.5.

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5.6           Amendment. This Agreement may be amended or modified only by a written instrument executed the Parties.

5.7           Severability. The invalidity or unenforceability of any provision hereof shall in no way affect the validity or enforceability of any other provision.

5.8           Legend on Share Certificates. Each certificate representing any Shares shall be endorsed by the Company with a legend reading substantially as follows:

THE SHARES EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO A VOTING AGREEMENT (A COPY OF WHICH MAY BE OBTAINED UPON WRITTEN REQUEST FROM THE COMPANY) AND BY ACCEPTING ANY INTEREST IN SUCH SHARES THE PERSON ACCEPTING SUCH INTEREST SHALL BE DEEMED TO AGREE TO AND SHALL BECOME BOUND BY ALL THE PROVISIONS OF THAT VOTING AGREEMENT.

5.9           Execution by the Company. The Company and the Shareholders agree that they will cause the certificates evidencing the Shares to bear the legend required by Section 5.8 of this Agreement, and it shall supply, free of charge, a copy of this Agreement to any holder of a certificate evidencing Shares. The Parties to this Agreement do hereby agree that the failure to cause the certificates evidencing the Shares to bear the legend required by Section 5.8 herein and the failure of the Company to supply, free of charge, a copy of this Agreement as provided under this Section 5.9 shall not affect the validity or enforcement of this Agreement.

5.10         Stock Splits, Stock Dividends, Etc. In the event of any issuance of Shares of the Company’s voting securities hereafter to any of the Shareholders (including, without limitation, in connection with any stock split, stock dividend, recapitalization, reorganization, or the like), such Shares shall become subject to this Agreement and shall be endorsed with the legend set forth in Section 5.8.

5.11         Manner of Voting; Grant of Proxy. The voting of Shares pursuant to this Agreement may be effected in person, by proxy, by written consent or in any other manner permitted by applicable law. Each Shareholder agrees to vote his Shares as may be necessary or appropriate to effectuate this Agreement and to the extent a Shareholder fails to vote his Shares as required by this Agreement he shall be deemed to have voted his Shares as so required.

5.12         Interpretation. When permitted by the context, each pronoun used in this Agreement shall include the same pronoun in other numbers or another gender, and each noun used in this Agreement includes the same noun in other numbers. As used in this Agreement, the words “include” and “including” and their variants shall not be deemed to be terms of limitation but shall instead be deemed to be followed by the words “without limitation.” Except as otherwise indicated in the context, all references in this Agreement to “Sections”, “Schedules” and “Exhibits” are intended to refer to Sections, Schedules and Exhibits of this Agreement.

[Remainder of this page intentionally left blank.]

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[Signature Page to Voting Agreement]

IN WITNESS WHEREOF, the Parties have executed this Voting Agreement effective as of the Effective Date.

COMPANY:
XG SCIENCES, INC.
By:
	Michael R. Knox, President
SAMSUNG:
SVIC NO. 15 NEW TECHNOLOGY BUSINESS
INVESTMENT L.L.P.
By:	Samsung Venture Investment Corporation, its Partner
By:
Name:
Title:
SHAREHOLDERS:
SEE ATTACHED SIGNATURE PAGES

[Shareholder Signature Page to Voting Agreement]

IN WITNESS WHEREOF, the Shareholder below has executed this Voting Agreement effective as of the Effective Date.

SHAREHOLDER:

Name of Shareholder:

Name and Title of Authorized Signatory:

Signature:

APPENDIX 1

ADOPTION AGREEMENT

This ADOPTION AGREEMENT (this “Adoption Agreement”) is entered into effective as of___________________________ among XG Sciences, Inc., a Michigan corporation (the “Company”); and ____________________ (the “Adopting Shareholder”) pursuant to the terms of the Voting Agreement dated as of January 15, 2014 among the Company, SVIC No. 15 New Technology Business Investment L.L.P. and certain Shareholders of the Company (the “Voting Agreement”). Capitalized terms used but not defined in this Adoption Agreement shall have the meanings given to them in the Voting Agreement.

1.          Acknowledgement. The Adopting Shareholder acknowledges that the Adopting Shareholder is acquiring the following equity securities of the Company (the “Shares”): _________________________________________________, which Shares are subject to the terms and conditions of the Voting Agreement.

2.          Agreement. The Adopting Shareholder (i) agrees that the Shares acquired by the Adopting Shareholder are bound by and subject to the terms of the Voting Agreement, (ii) that the Adopting Shareholder hereby agrees to become a party to the Voting Agreement as a Shareholder and as such shall be, and the Shares shall be, bound by and subject to the terms of the Voting Agreement, and (iii) hereby adopts the Voting Agreement with the same force and effect as if Adopting Shareholder were originally a Shareholder party thereto.

ADOPTING SHAREHOLDER:
COMPANY:
	XG Sciences, INC.
	By:
		_________________, Chief
		Executive Officer

Michigan Department of Licensing and Regulatory Affairs

Filing Endorsement

This is to Certify that the CERTIFICATE OF AMENDMENT - CORPORATION

for

XG SCIENCES, INC.

ID NUMBER: 23029E

received by facsimile transmission on July 9, 2013 is hereby endorsed

Filed on July 10, 2013 by the Administrator.

The document is effective on the date filed, unless a subsequent effective date within 90 days after received date is stated in the document.

	In testimony whereof, I have hereunto set my hand and affixed the Seal of the Department, in the City of Lansing, this 10TH day of July, 2013.
[Graphics]	/s/ Alan J. Schefke
	Director
Sent by Facsimile Transmission 13191	Bureau of Commercial Services

BCS/CD-515 (Rev. 11/11)

MICHIGAN DEPARTMENT OF LICENSING AND REGULATORY AFFAIRS BUREAU OF COMMERCIAL SERVICES
Date Received
		This document is effective on the date filed, unless a subsequent effective date within 90 days after received date is stated in the document.
Name
Matt G. Hrebec, Esq.; Foster, Swift, Collins & Smith, P.C.
Address
313 S. Washington Square
City		State	ZIP Code
Lansing		MI	48933		EFFECTIVE DATE:
[Graphics]	Document will be returned to the name and address you enter above. If left blank, document will be returned to the registered office.			[Graphics]

 CERTIFICATE OF AMENDMENT TO THE ARTICLES OF INCORPORATION

For use by Domestic Profit and Nonprofit Corporations

(Please read information and instructions on the last page)

Pursuant to the provisions of Act 284, Public Acts of 1972, (profit corporations), or Act 162, Public Acts of 1982 (nonprofit corporations), the undersigned corporation executes the following Certificate:

1.	The present name of the corporation is:
	XG Sciences, Inc.
2.	The identification number assigned by the Bureau is:	23029E

3.	Article IIIof the Articles of Incorporation is hereby amended to read as follows:
	ARTICLE III
	The total authorized shares:
	1.	Common shares: 25,000,000
		Preferred shares: 8,000,000
	2.	A statement of all or any of the relative rights, preferences and limitations of the shares of each class is as follows:
	A.    Provisions Applicable to Common Shares: None
	B.   Provisions Applicable to Preferred Shares: The authorized shares of Preferred Stock may be issued from time to time in one or more series, each of such series to have such designations, powers, preferences, and relative participating, optional, or other rights, and such qualifications, limitations, or restrictions, as may be stated in a resolution or resolutions providing for the Issue of such series adopted by the Board of Directors.

COMPLETE ONLY ONE OF THE FOLLOWING:

4.	Profit or Nonprofit Corporations: For amendments adopted by unanimous consent of incorporators before the first meeting of the board of directors or trustees.
	The foregoing amendment to the Articles of Incorporation was duly adopted on the ________ day of __________________, _________, in accordance with the provisions of the Act by the unanimous consent of the incorporator(s) before the first meeting of the Board of Directors or Trustees.
	Signed this ________ day of ____________________________ , ___________
	(Signature)	(Signature)
	(Type or Print Name)	(Type or Print Name)
	(Signature)	(Signature)
	(Type or Print Name)	(Type or Print Name)

5.	Profit Corporation Only: Shareholder or Board Approval
	The foregoing amendment to the Articles of incorporation proposed by the board was duly adopted on the 26th day of June, 2013, by the: (check one of the following)
	þ	shareholders at a meeting in accordance with Section 611(3) of the Act.
	¨	written consent of the shareholders having not less than the minimum number of votes required by statute in accordance with Section 407(1) of the Act. Written notice to shareholders who have not consented in writing has been given. (Note: Written consent by less than all of the shareholders is permitted only if such provision appears in the Articles of Incorporation.)
	¨	written consent of all the shareholders entitled to vote in accordance with Section 407(2) of the Act.
	¨	board of a profit corporation pursuant to section 611(2) of the Act.
			Profit Corporations and Professional Service Corporations
			Signed this 8 day of July, 2013
			By	/s/ Michael R. Knox
				(Signature of an authorized officer or agent)
			Michael R. Knox, CEO
			(Type or Print Name)

XG SCIENCES, INC.

MICHIGAN CID 23029E

AMENDED AND RESTATED CERTIFICATE OF DESIGNATIONS

OF

SERIES A CONVERTIBLE PREFERRED STOCK

(Pursuant to Section 450.1302 of the

Michigan Business Corporation Act)

The undersigned, a duly authorized officer of XG Sciences, Inc., a Michigan corporation (the “Corporation”),DOES HEREBY CERTIFY that the following resolution was duly adopted bythe Board of Directors of the Corporation (the “Board of Directors”)pursuant to Section 450.1302 of the Michigan Business Corporation Act on June 26, 2013:

RESOLVED, that the Board of Directors of the Corporation pursuant to authority vested in it by the provisions of the Articles of Incorporation of the Corporation, hereby amends and restates its previous authorization of the issuance of a series of preferred stock designated as the Series A Convertible Preferred Stock of the Corporation and hereby fixes the designation, number of shares, powers, preferences, rights, qualifications, limitations and restrictions thereof (in addition to any provisions set forth in the Articles of Incorporation of the Corporation which are applicable to the Corporation’s preferred stock of all classes and series) as follows:

SERIES A CONVERTIBLE PREFERRED STOCK

1.Designation and Amount. There is hereby designated a series of the Corporation’s Preferred Stock (as defined below) as Series A Convertible Preferred Stock (the “Series A Preferred Stock”),and the number of shares so designated shall be three million (3,000,000).

2.           Definitions. In addition to the terms defined elsewhere in this Certificate of Designations the following terms have the meanings indicated:

(a)          “Common Stock”shall mean the Corporation’s common stock.

(b)          “Conversion Price”shall mean twelve dollars ($12.00) for the Series A Preferred Stock (subject to adjustment from time to time for Recapitalizations and as otherwise set forth elsewhere herein).

(c)          “Conversion Rate”shall have the meaning set forth in Section 5(a).

(d)          “Convertible Securities”shall mean any evidences of indebtedness, shares orother securities convertible into or exchangeable for Common Stock or Preferred Stock.

(e)          “Corporation”shall mean XG Sciences, Inc., a Michigan corporation.

(f)          “Junior Securities”shall mean the Common Stock and all other equity or equity equivalent securities of the Corporation other than those securities which are explicitly senior or pari passu in rights and liquidation preference to the Series A Preferred Stock.

(g)          “Liquidation Preference”shall mean twelve dollars ($12.00) per share for the Series A Preferred Stock (subject to adjustment from time to time for Recapitalizations as set forth elsewhere herein).

(h)          “Options”shall mean rights, options or warrants to subscribe for, purchase or otherwise acquire Common Stock or Convertible Securities.

(i)          “Original Issue Date”shall mean the date on which the first share of Series A Preferred Stock was issued.

(j)          “Preferred Stock”means the Corporation’s preferred stock.

(k)          “Qualified National Exchange”means a securities exchange registered with the U.S. Securities and Exchange Commission under Section 6(a) of the Securities Exchange Act of 1934, as amended, as well as the over the counter markets administered by the OTCQX® and the OTCQB®, and their successor-entities. The OTC Pink®, OTCBB and their successor-equivalent entities shall not be deemed a “Qualified National Exchange.”

(l)          “Recapitalization”shall mean any stock dividend, stock split, combination of shares, reorganization, recapitalization, reclassification or other similar event.

(m)          “Senior Securities”shall mean the Series A Preferred Stock and all other series of Preferred Stock of the Corporation that are explicitly senior or pari passu in rights and liquidation preference to the Series A Preferred Stock.

(n)          “Series A Original Issue Price”shall mean twelve dollars ($12.00) per share (subject to adjustment from time to time for Recapitalizations and as set forth in Section 5 herein).

3. Liquidation Rights.

(a)          Liquidation Preference.In the event of any liquidation, dissolution or winding up of the Corporation, either voluntary or involuntary, the holders of the Series A Preferred Stock shall be entitled to receive, prior and in preference to any distribution of any of the assets of the Corporation to the holders of the Common Stock by reason of their ownership of such stock, an amount per share for each share of Series A Preferred Stock held by them equal to (i) the Liquidation Preference specified for such share of Series A Preferred Stock less (ii) all dividends (if any) paid on such share of Series A Preferred Stock. If upon the liquidation, dissolution or winding up of the Corporation, the assets of the Corporation legally available for distribution to the holders of the Series A Preferred Stock are insufficient to permit the payment to such holders of the full amounts specified in this Section 4(a), then the entire assets of the Corporation legally available for distribution shall be distributed with equal priority and pro-rata among the holders of the Series A Preferred Stock in proportion to the full amounts they would otherwise be entitled to receive pursuant to this Section 3(a).

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(b)          Remaining Assets.After the payment to the holders of the Series A Preferred Stock of the full preferential amounts specified above, the entire remaining assets of the Corporation legally available for distribution by the Corporation shall be distributed with equal priority and pro-rata among the holders of the Series A Preferred Stock and Common Stock in proportion to the number of shares of Common Stock held by them, with the shares of Series A Preferred Stock being treated for this purpose as if they had been converted to shares of Common Stock at the then applicable Conversion Rate (as defined below).

(c)          Shares not Treated as Both Series A Preferred Stock and Common Stock in any Distribution.Shares of Series A Preferred Stock shall not be entitled to be converted into shares of Common Stock in order to participate in any distribution, or series of distributions, as shares of Common Stock, without first foregoing participation in the distribution, or series of distributions, as shares of Series A Preferred Stock.

(d)          Reorganization. For purposes of this Section 3, a liquidation, dissolution or winding up of the Corporation shall be deemed to be occasioned by, or to include: (a) the acquisition of the Corporation by another entity by means of any transaction or series of related transactions to which the Corporation is party (including, without limitation, any stock acquisition, reorganization, merger or consolidation but excluding any sale of stock for capital raising purposes) other than a transaction or series of transactions in which the holders of the voting securities of the Corporation outstanding immediately prior to such transaction continue to retain (either by such voting securities remaining outstanding or by such voting securities being converted into voting securities of the surviving entity), at least fifty percent (50%) of the total voting power represented by the voting securities of the Corporation or such surviving entity outstanding immediately after such transaction or series of transactions; (b) a sale, lease, transfer, exclusive license or other disposition, in a single transaction or series of related transactions, by the Corporation of all or substantially all the assets of the Corporation and its subsidiaries taken as a whole, except where such sale, lease, transfer, exclusive license or other disposition is to a wholly owned subsidiary of the Corporation; or (c) any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary.

(e)          Valuation of Non-Cash Consideration. If any assets of the Corporation distributed to stockholders in connection with any liquidation, dissolution, or winding up of the Corporation are other than cash, then the value of such assets shall be their fair market value as determined in good faith by the Board of Directors, except that any securities to be distributed to stockholders in a liquidation, dissolution, or winding up of the Corporation shall be valued as follows:

(i)          If the securities are then traded on a Qualified National Exchange, then the value of the securities shall be deemed to be the average of the closing prices of the securities on such exchange over the ten (10) trading day period ending five (5) trading days prior to the distribution;

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(ii)         if the securities are actively quoted on the OTC Pink®, then the value of the securities shall be deemed to be the average of the closing bid prices of the securities over the ten (10) trading day period ending five (5) trading days prior to the distribution; and

(iii)        if the securities are not traded on a Qualified National Exchange or actively quoted on the OTC Pink®, the value shall be the fair market value thereof, as determined in good faith by the Board of Directors of the Corporation.

In the event of a merger or other acquisition of the Corporation by another entity, the distribution date shall be deemed to be the date such transaction closes.

4.           Conversion Rights.The holders of the Series A Preferred Stock shall have conversion rights as follows (the “Conversion Rights”):

(a)          Right to Convert.Each share of Series A Preferred Stock shall be convertible, at the option of the holder thereof, at any time after the date of issuance of such share at the office of the Corporation or any transfer agent for the Series A Preferred Stock, into that number of fully-paid, nonassessable shares of Common Stock determined by dividing the Series A Original Issue Price by the Conversion Price. The number of shares of Common Stock into which each share of Series A Preferred Stock may be converted is hereinafter referred to as the “Conversion Rate”.Upon any decrease or increase in the Conversion Price, as described in this Section 4,the Conversion Rate shall be appropriately increased or decreased.

(b)          Mandatory Conversion.The Corporation shall have the right to effect the conversion of each share of Series A Preferred Stock then currently outstanding into fully-paid, non-assessable shares of Common Stock at the then effective Conversion Rate for such share upon the listing by the Corporation of the class of Common Stock on a Qualified National Exchange (such an event, a “Mandatory Conversion Event”).So long as the Common Stock remains listed on a Qualified National Exchange, any shares of Series A Preferred Stock issued following a Mandatory Conversion Event will be automatically converted into Common Stock pursuant to this Section 4(b) at the then effective Conversion Rate on such date of issuance of the Series A Preferred Stock.

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(c)          Mechanics of Conversion.No fractional shares of Common Stock shall be issued upon conversion of Series A Preferred Stock. In lieu of any fractional shares to which the holder would otherwise be entitled, the Corporation shall pay cash equal to such fraction multiplied by the then fair market value of a share of Common Stock as determined by the Board of Directors. For such purpose, all shares of Series A Preferred Stock held by each holder of Series A Preferred Stock shall be aggregated, and any resulting fractional share of Common Stock shall be paid in cash. Before any holder of Series A Preferred Stock shall be entitled to convert the same into full shares of Common Stock, and to receive certificates therefor, such holder shall either (A) surrender the certificate or certificates therefor, duly endorsed, at the office of the Corporation or of any transfer agent for the Series A Preferred Stock or (B)notify the Corporation or its transfer agent that such certificates have been lost, stolen or destroyed and execute an agreement satisfactory to the Corporation to indemnify the Corporation from any loss incurred by it in connection with such certificates, and shall give written notice to the Corporation at such office that he elects to convert the same; provided, however,that on the date of a Mandatory Conversion Event, the outstanding shares of Series A Preferred Stock shall be converted without any further action by the holders of such shares and whether or not the certificates representing such shares are surrendered to the Corporation or its transfer agent; provided further,however, that the Corporation shall not be obligated to issue certificates evidencing the shares of Common Stock issuable upon such Mandatory Conversion Event unless either the certificates evidencing such shares of Series A Preferred Stock are delivered to the Corporation or its transfer agent as provided above, or the holder notifies the Corporation or its transfer agent that such certificates have been lost, stolen or destroyed and executes an agreement satisfactory to the Corporation to indemnify the Corporation from any loss incurred by it in connection with such certificates. On the date of the occurrence of a Mandatory Conversion Event, each holder of record of shares of Series A Preferred Stock shall be deemed to be the holder of record of the Common Stock issuable upon such conversion, notwithstanding that the certificates representing such shares of Series A Preferred Stock shall not have been surrendered at the office of the Corporation, that notice from the Corporation shall not have been received by any holder of record of shares of Series A Preferred Stock, or that the certificates evidencing such shares of Common Stock shall not then be actually delivered to such holder.

(d)          Adjustments for Subdivisions or Combinations of Common Stock.In the event the outstanding shares of Common Stock shall be subdivided (by stock split, by payment of a stock dividend or otherwise), into a greater number of shares of Common Stock, the Conversion Price in effect immediately prior to such subdivision shall, concurrently with the effectiveness of such subdivision, be proportionately decreased. In the event the outstanding shares of Common Stock shall be combined (by reclassification or otherwise) into a lesser number of shares of Common Stock, the Conversion Price in effect immediately prior to such combination shall, concurrently with the effectiveness of such combination, be proportionately increased.

(e)          Adjustments for Subdivisions or Combinations of Series A Preferred Stock. In the event the outstanding shares of Series A Preferred Stock shall be subdivided (by stock split, by payment of a stock dividend or otherwise), into a greater number of shares of Series A Preferred Stock, the Series A Original Issue Price and Liquidation Preference of the Series A Preferred Stock in effect immediately prior to such subdivision shall, concurrently with the effectiveness of such subdivision, be proportionately decreased. In the event the outstanding shares of Series A Preferred Stock shall be combined (by reclassification or otherwise) into a lesser number of shares of Series A Preferred Stock, the Series A Original Issue Price and Liquidation Preference of the Series A Preferred Stock in effect immediately prior to such combination shall, concurrently with the effectiveness of such combination, be proportionately increased.

(f)          Adjustments for Reclassification, Exchange and Substitution.Subject to Section 4 above, if the Common Stock issuable upon conversion of the Series A Preferred Stock shall be changed into the same or a different number of shares of any other class or classes of stock, whether by capital reorganization, reclassification or otherwise (other than a subdivision or combination of shares provided for above), then, in any such event, in lieu of the number of shares of Common Stock which the holders would otherwise have been entitled to receive each holder of such Series A Preferred Stock shall have the right thereafter to convert such shares of Series A Preferred Stock into a number of shares of such other class or classes of stock which a holder of the number of shares of Common Stock deliverable upon conversion of such Series A Preferred Stock immediately before that change would have been entitled to receive in such reorganization or reclassification, all subject to further adjustment as provided herein with respect to such other shares.

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(g)          Adjustment of Series A Preferred Stock Conversion Price upon Issuance of Certain Securities. If and whenever on or after the Original Issue Date, the Corporation issues or sells, or is deemed to have issued or sold, any shares of Common Stock or securities convertible or exchangeable into Common Stock other than Excluded Securities (as defined below) for a consideration per share or an implied consideration per share of Common Stock less than a price (the “Applicable Price”)equal to the Conversion Price in effect immediately prior to such issuance or sale (such issuance a “Triggering New Issue”),then immediately after such issue or sale, the Conversion Price then in effect shall be deemed to be automatically reduced to an amount equal to eighty percent (80%) of the Applicable Price for such Triggering New Issue. After such adjustment of the Conversion Price hereunder, all subsequent conversions of the Series A Preferred Stock into Common Stock shall be effected using the new Conversion Price in the Conversion Rate. For the purposes of this Agreement, “Excluded Securities” are (i) those options and warrants of the Corporation issued prior to, and outstanding on, the Original Issue Date, (ii) the shares of Common Stock issuable on exercise of such options and warrants in subparagraph (i), provided such options and warrants are not amended after the Original Issue Date, and (iii) any options or warrants, or the shares of Common Stock into which such options and warrants are exercisable, which are issued to any employee, officer or director of the Corporation for services provided to the Corporation which have been approved by the compensation committee or the majority of the independent members of the Board of Directors.

(h)          Effect on Conversion Price of Certain Events. For purposes of determining the adjusted Conversion Price under Section 4(g) above, the following shall be applicable:

(i)          Issuance of Options or Warrants.If, after the Original Issue Date, the Corporation in any manner grants any options or warrants other than Excluded Securities and the lowest price per share for which a share of Common Stock is issuable upon the exercise of any such option or warrant is less than the Conversion Price in effect immediately prior to such grant, then such grant of options or warrants shall be deemed to have been a Triggering New Issue and the Conversion Price shall be deemed to be automatically reset pursuant to Section 4(g) above. No further adjustment of the Conversion Price shall be made upon the actual issuance of any shares of Common Stock upon the exercise of any such options or warrants.

(ii)         Issuance of Convertible Securities.If, after the Original Issue Date, the Corporation in any manner issues or sells any Convertible Securities and the lowest price per share of Common Stock at which such Convertible Security is convertible or exchangeable into Common Stock is less than the Conversion Price in effect immediately prior to such issuance or sale, then such issuance or sale shall be deemed to have been a Triggering New Issue and the Conversion Price shall be deemed to be automatically reset pursuant to Section 4(g) above. No further adjustment of the Conversion Price shall be made upon the actual issuance of any shares of Common Stock upon the conversion or exchange of such Convertible Security into shares of Common Stock.

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(iii)        Change in Option or Warrant Price or Rate of Conversion.If, after the Original Issue Date, the exercise, conversion, exchange, or other price payable provided for in any option, warrant or Convertible Security other than Excluded Securities, upon the exercise, conversion or exchange of any such securities is amended or altered at any time for any reason (any of the foregoing hereinafter referred to as an “Exercise/Conversion Change”),and any such Exercise/Conversion Change results in any of the foregoing securities being exercisable, convertible, or exchangeable at a price per share of Common Stock lower than the Conversion Price in effect immediately prior to such Exercise/Conversion Change, then such Exercise/Conversion Change shall be deemed to have been a Triggering New Issue and the Conversion Price shall be deemed to be automatically reset pursuant to Section 4(g) above.

(iv)        No adjustment pursuant to this Section 4(h) shall be made if such adjustment would result in an increase of the Conversion Price above the level that it was immediately prior to the occurrence of any of the foregoing events described in 4(h)(i)-(iii) that would give rise to an adjustment in the Conversion Price.

(i)          Waiver of Adjustment of Conversion Price.Notwithstanding anything herein to the contrary, any downward adjustment of the Conversion Price may be waived, either prospectively or retroactively and either generally or in a particular instance, by the consent or vote of the holders of the majority of the outstanding shares of Series A Preferred Stock. Any such waiver shall bind all future holders of shares of Series A Preferred Stock.

5.           Voting.On any matter presented to the stockholders of the Corporation for their action or consideration at any meeting of stockholders of the Corporation (or by written consent of stockholders in lieu of meeting), each holder of outstanding shares of Series A Preferred Stock shall be entitled to cast the number of votes equal to the number of whole shares of Common Stock into which the shares of Series A Preferred Stock held by such holder are convertible as of the record date for determining stockholders entitled to vote on such matter. Except as provided by law or by the other provisions of the Certificate of Incorporation, holders of Series A Preferred Stock shall vote together with the holders of Common Stock as a single class.

6.           Miscellaneous.

(a)          The headings herein are for convenience only, do not constitute a part of this Certificate of Designations and shall not be deemed to limit or affect any of the provisions hereof.

(b)          Any notice required or permitted by the provisions of this Certificate of Designations to be given to a holder of shares of Series A Preferred Stock shall be mailed, postage prepaid, to the post office address last shown on the records of the Corporation, or given by electronic communication in compliance with the provisions of the Michigan Business Corporation Act, and shall be deemed sent upon such mailing or electronic transmission.

(c)          No provision of this Certificate of Designations may be amended, except in a written instrument signed by the Corporation and holders of at least a majority of the shares of Series A Preferred Stock then outstanding. Any of the rights of the holders of the Series A Preferred Stock set forth herein may be waived by the affirmative vote of holders of at least a majority of the shares of Series A Preferred Stock then outstanding, except that each holder may waive its own rights as provided in this Certificate of Designations.

** Signature page follows **

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IN WITNESS WHEREOF, the undersigned has caused this Amended and Restated Certificate of Designation to be duly executed as of the 8 day of July, 2013.

XG SCIENCES, INC.
BY:	/s/ Michael R. Knox
	MICHAEL R. KNOX, CEO

THIS WARRANT AND THE UNDERLYING SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR UNDER THE SECURITIES LAWS OF ANY STATE. THESE SECURITIES MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED EXCEPT AS PERMITTED UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS IN ACCORDANCE WITH APPLICABLE REGISTRATION REQUIREMENTS OR AN EXEMPTION THEREFROM. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE ISSUER THAT SUCH OFFER, SALE, TRANSFER, PLEDGE OR HYPOTHECATION OTHERWISE COMPLIES WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS. THIS WARRANT MUST BE SURRENDERED TO THE COMPANY OR ITS TRANSFER AGENT AS A CONDITION PRECEDENT TO THE SALE, TRANSFER, PLEDGE OR HYPOTHECATION OF ANY INTEREST IN ANY OF THE SECURITIES REPRESENTED HEREBY.

WARRANT TO PURCHASE SHARES OF SERIES A CONVERTIBLE PREFERRED STOCK

of

XG SCIENCES, INC.

Dated as of                 

Void after the date specified in Section 9

Warrant to Purchase

                Shares of

Series A Convertible Preferred Stock

(subject to adjustment)

THIS CERTIFIES THAT, for value received,                   , a                    (“       ”), or its registered assigns (          or its assigns generally referred to herein as the “Holder”), is entitled, subject to the provisions and upon the terms and conditions set forth herein, to purchase from XG Sciences, Inc., a Michigan corporation (the “Company”), shares of the Company’s Series A Convertible Preferred Stock (the “Preferred Stock”) (the “Shares”) in the amounts, at such times and at the price per share set forth in Section 1. The term “Warrant” as used herein shall include this Warrant and any warrants delivered in substitution or exchange therefor as provided herein.

The following is a statement of the rights of the Holder and the conditions to which this Warrant is subject, and to which the Holder, by acceptance of this Warrant, agrees:

1. Number and Price of Shares; Exercise Period.

(a)          Number of Shares. Subject to any previous exercise of this Warrant, the Holder shall have the right to purchase up to              Shares, as may be adjusted pursuant hereto, prior to (or in connection with) the expiration of this Warrant as provided in Section 9.

(b)          Exercise Price. The exercise price per Share shall initially be equal to $ 12.00, subject to adjustment as provided in Section 7 (the “Exercise Price”).

(c)          Exercise Period. This Warrant shall be exercisable on or after the date of grant and prior to (or in connection with) the expiration of this Warrant as set forth in Section 9.

2.          Exercise of the Warrant.

(a)          Exercise. The purchase rights represented by this Warrant may be exercised at the election of the Holder, in whole or in part, but not for less than one hundred (100) Shares at a time (or such lesser number of shares which may then constitute the maximum number purchasable pursuant to Section 1) (such number being subject to adjustment as provided in Section 7, in accordance with Section 1) by:

(i)          the tender to the Company at its principal office (or such other office or agency as the Company may designate) of a notice of exercise in the form of Exhibit A (the “Notice of Exercise”), duly completed and executed by or on behalf of the Holder, together with the surrender of this Warrant; and

(ii)         the payment to the Company of an amount equal to (x) the Exercise Price multiplied by (y) the number of Shares being purchased, by wire transfer or certified, cashier’s or other check acceptable to the Company and payable to the order of the Company; and

(iii)        with respect to the first exercise by the Holder of this Warrant, in whole or in part, delivery of counterpart signature pages to that certain Shareholder Agreement, dated March 18, 2013, by and among the parties thereto and attached as Exhibit B hereto (the “Shareholder Agreement”), and any subsequent amendments thereto, such that as a condition to the first exercise by the Holder of this Warrant, in whole or in part, the Holder shall become a party to, and bound by, the Shareholder Agreement as a “Stockholder” thereunder; provided, however, that Holder will not be required to be bound to any provision of any such amendment to the Shareholder Agreement that creates a material financial obligation for the Holder; it being understood that the Shareholder Agreement as currently in effect does not create any such financial obligations.

(b)          Net Issue Exercise. In lieu of exercising this Warrant pursuant to Section 2(a)(ii), if the fair market value of one Share is greater than the Exercise Price (at the date of calculation as set forth below), the Holder may elect to receive a number of Shares equal to the value of this Warrant (or of any portion of this Warrant being canceled) by surrender of this Warrant at the principal office of the Company (or such other office or agency as the Company may designate) together with a properly completed and executed Notice of Exercise reflecting such election, in which event the Company shall issue to the Holder that number of Shares computed using the following formula:

IMAGE OMITTED [tan-14_pg2.jpg]

Where:

X	=	The number of Shares to be issued to the Holder
Y	=	The number of Shares purchasable under this Warrant or, if only a portion of the Warrant is being exercised, the portion of the Warrant being exercised (at the date of such calculation)
A	=	The fair market value of one Share (at the date of such calculation)
B	=	The Exercise Price (as adjusted to the date of such calculation)

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For purposes of the calculation above, the fair market value of one Share shall be determined by the Board of Directors of the Company, acting in good faith; provided, however, that;

(i)          where a public market exists for the Common Stock at the time of such exercise, the fair market value per Share shall be based on the average of the closing ask prices of the Common Stock underlying such Shares or the closing price quoted on the national securities exchange on which the Common Stock is listed as published in the Wall Street Journal, as applicable, for the ten (10) trading day period ending five (5) trading days prior to the date of determination of fair market value; and

(ii)         if the Warrant is exercised in connection with the Company’s initial public offering of the Common Stock, the fair market value per Share shall be based on the offering price per share of Common Stock to the public of the Company’s initial public offering.

(c)          Automatic Exercise. If any portion of this Warrant remains unexercised as of the Expiration Date of this Warrant as set forth in Section 9 and the fair market value per share of the Shares as of the Expiration Date is greater than the applicable Exercise Price as of the Expiration Date, then, without further action by the Holder, this Warrant shall be deemed to have been exercised automatically on the date (the “Automatic Exercise Date”) which is the day immediately prior to the close of business on the Expiration Date (or, in the event that the Expiration Date is not a Business Day, the immediately preceding Business Day) as if the Holder had duly given a Notice of Exercise for a Net Issue Exercise as contemplated by Section 2(b) hereof, and the Holder (or such other person or persons as directed by the Holder) shall be treated for all purposes as the holder of record of such Shares as of the close of business on such Automatic Exercise Date. This Warrant shall be deemed to be surrendered to the Company on the Automatic Exercise Date by virtue of this Section 2(c) without any action by the Holder

(d)          Stock Certificates. The rights under this Warrant shall be deemed to have been exercised and the Shares issuable upon such exercise shall be deemed to have been issued immediately prior to the close of business on the date this Warrant is exercised in accordance with its terms, and the person entitled to receive the Shares issuable upon such exercise shall be treated for all purposes as the holder of record of such Shares as of the close of business on such date. As promptly as reasonably practicable on or after such date, and in any event within thirty (30) days thereafter, the Company shall issue and deliver to the person or persons entitled to receive the same a certificate or certificates for that number of shares issuable upon such exercise. In the event that the rights under this Warrant are exercised in part and have not expired, the Company shall execute and deliver a new Warrant reflecting the number of Shares that remain subject to this Warrant.

(e)          No Fractional Shares or Scrip. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of the rights under this Warrant, In lieu of such fractional share to which the Holder would otherwise be entitled, the Company shall make a cash payment equal to the Exercise Price multiplied by such fraction.

(f)          Reservation of Stock. The Company agrees during the term the rights under this Warrant are exercisable to take all reasonable action to reserve and keep available from its authorized and unissued shares of Preferred Stock, and the Common Stock into which such shares of Preferred Stock are convertible, for the purpose of effecting the exercise of this Warrant such number of shares as shall from time to time be sufficient to effect the exercise of the rights under this Warrant; and if at any time the number of authorized but unissued shares of Preferred Stock, and the Common Stock into which such shares of Preferred Stock are convertible, shall not be sufficient for purposes of the exercise of this Warrant in accordance with its terms, without limitation of such other remedies as may be available to the Holder, the Company will use all reasonable efforts to take such corporate action as may, in the opinion of counsel, be necessary to increase its authorized and unissued shares of its Preferred Stock, and the Common Stock into which shares of Preferred Stock are convertible, to a number of shares as shall be sufficient for such purposes. The Company represents and warrants that all shares that may be issued upon the exercise of this Warrant will, when issued in accordance with the terms hereof, be validly issued, fully paid and nonassessable.

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3.          Replacement of the Warrant. Subject to the receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of loss, theft or destruction, on delivery of an indemnity agreement reasonably satisfactory in form and substance to the Company or, in the case of mutilation, on surrender and cancellation of this Warrant, the Company at the expense of the Holder shall execute and deliver, in lieu of this Warrant, a new warrant of like tenor and amount.

4.          Vesting of the Warrant. The Shares subject to this Warrant shall vest immediately.

5.          Transfer of the Warrant.

(a)          Warrant Register. The Company shall maintain a register (the “Warrant Register”) containing the name and address of the Holder or Holders. Until this Warrant is transferred on the Warrant Register in accordance herewith, the Company may treat the Holder as shown on the Warrant Register as the absolute owner of this Warrant for all purposes, notwithstanding any notice to the contrary. Any Holder of this Warrant (or of any portion of this Warrant) may change its address as shown on the Warrant Register by written notice to the Company requesting a change.

(b)           Warrant Agent. The Company may appoint an agent for the purpose of maintaining the Warrant Register referred to in Section 5(a), issuing the Shares or other securities then issuable upon the exercise of the rights under this Warrant, exchanging this Warrant, replacing this Warrant or conducting related activities.

(c)          Transferability of the Warrant. Subject to the provisions of this Warrant with respect to compliance with the Securities Act of 1933, as amended (the “Securities Act”) and limitations on assignments and transfers, including without limitation compliance with the restrictions on transfer set forth in Section 6, title to this Warrant may be transferred by endorsement (by the transferor and the transferee executing the assignment form attached as Exhibit C (the “Assignment Form”) and delivery in the same manner as a negotiable instrument transferable by endorsement and delivery.

(d)          Exchange of the Warrant upon a Transfer. On surrender of this Warrant (and a properly endorsed Assignment Form) for exchange, subject to the provisions of this Warrant with respect to compliance with the Securities Act and limitations on assignments and transfers, the Company shall issue to or on the order of the Holder a new warrant or warrants of like tenor, in the name of the Holder or as the Holder (on payment by the Holder of any applicable transfer taxes) may direct, for the number of shares issuable upon exercise hereof, and the Company shall register any such transfer upon the Warrant Register. This Warrant (and the securities issuable upon exercise of the rights under this Warrant) must be surrendered to the Company or its warrant or transfer agent, as applicable, as a condition precedent to the sale, pledge, hypothecation or other transfer of any interest in any of the securities represented hereby.

(e)          Minimum Transfer. This Warrant may not be transferred in part unless such transfer is to a transferee who, pursuant to such transfer, receives the right to purchase at least one hundred (100) Shares hereunder (as adjusted from time to time in accordance with Section 7).

(f)          Taxes. In no event shall the Company be required to pay any tax which may be payable in respect of any transfer involved in the issue and delivery of any certificate in a name other than that of the Holder, and the Company shall not be required to issue or deliver any such certificate unless and until the person or persons requesting the issue thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid or is not payable.

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6.         Restrictions on Transfer of the Warrant and Shares; Compliance with Securities Laws. By acceptance of this Warrant, the Holder agrees to comply with the following:

(a)          Restrictions on Transfers. Any transfer of the Shares or the Common Stock issuable upon conversion of the Shares (collectively the “Securities”) must be in compliance with all applicable federal and state securities laws. The Holder agrees not to make any sale, assignment, transfer, pledge or other disposition of all or any portion of the Securities, or any beneficial interest therein, unless and until the transferee thereof has agreed in writing for the benefit of the Company to take and hold such Securities subject to, and to be bound by, the terms and conditions set forth in this Warrant to the same extent as if the transferee were the original Holder hereunder, and

(i)          there is then in effect a registration statement under the Securities Act covering such proposed disposition and such disposition is made in accordance with such registration statement, or

(ii)        (A) such Holder shall have given prior written notice to the Company of such Holder’s intention to make such disposition and shall have furnished the Company with a detailed description of the manner and circumstances of the proposed disposition, (B) the transferee shall have confirmed to the satisfaction of the Company in writing, substantially in the form of Exhibit A-1. that the Securities are being acquired (i) solely for the transferee’s own account and not as a nominee for any other party, (ii) for investment and (iii) not with a view toward distribution or resale, and shall have confirmed such other matters related thereto as may be reasonably requested by the Company, and (C) such Holder shall have furnished the Company, at the Holder’s expense, with (i) an opinion of counsel, reasonably satisfactory to the Company, to the effect that such disposition will not require registration of such Securities under the Securities Act or (ii) a “no action” letter from the Securities and Exchange Commission to the effect that the transfer of such Securities without registration will not result in a recommendation by the staff of the Securities and Exchange Commission that action be taken with respect thereto, whereupon such Holder shall be entitled to transfer such Securities in accordance with the terms of the notice delivered by the Holder to the Company; provided, that the requirements of Section 6(a)(ii)(C) hall not apply in the case of permitted transfers under Section 6(b).

(b)          Permitted Transfers. Permitted transfers include (i) a transfer not involving a change in beneficial ownership, or (ii) transactions involving the distribution without consideration of Securities by any Holder to a parent or majority owned subsidiary of the Holder that is a corporation; provided, in each case, that the Holder shall give written notice to the Company of the Holder’s intention to effect such disposition and shall have furnished the Company with a detailed description of the manner and circumstances of the proposed disposition.

(c)          Securities Law Legend. The Securities shall (unless otherwise permitted by the provisions of this Warrant) be stamped or imprinted with a legend substantially similar to the following (in addition to any legend required by state securities laws):

THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR UNDER THE SECURITIES LAWS OF CERTAIN STATES, THESE SECURITIES MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED EXCEPT AS PERMITTED UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS IN ACCORDANCE WITH APPLICABLE REGISTRATION REQUIREMENTS OR AN EXEMPTION THEREFROM. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE ISSUER THAT SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION OTHERWISE COMPLIES WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS. THIS CERTIFICATE MUST BE SURRENDERED TO THE COMPANY OR ITS TRANSFER AGENT AS A CONDITION PRECEDENT TO THE SALE, TRANSFER, PLEDGE OR HYPOTHECATION OF ANY INTEREST IN ANY OF THE SECURITIES REPRESENTED HEREBY.

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(d)          Shareholder Agreement Legend. The Shares issued upon exercise hereof shall also be stamped or imprinted with any and all legends described in the Company’s Shareholder Agreement.

(e)          Instructions Regarding Transfer Restrictions. The Holder consents to the Company making a notation on its records and giving instructions to any transfer agent in order to implement the restrictions on transfer established in Sections 5 and 6. The Company will not be required to (i) transfer on its books or in its Warrant Register any Securities that have been transferred in violation of any provisions of this Warrant or (ii) to treat as owner of such Securities, or accord the right to vote or pay dividends to any purchaser, donee or other transferee to whom such Securities may have been so transferred.

(f)          Removal of Legend. The legend referring to federal and state securities laws identified in Section 6(d) stamped on a certificate evidencing the Shares and the stock transfer instructions and record notations with respect to such securities shall be removed and the Company shall issue a certificate without such legend to the holder of such securities if (i) such securities are registered under the Securities Act, or (ii) such holder provides the Company with an opinion of counsel reasonably acceptable to the Company to the effect that a sale or transfer of such securities may be made without registration or qualification.

7.         Adjustments. Subject to the expiration of this Warrant pursuant to Section 9, the number and kind of shares purchasable hereunder and the Exercise Price therefor are subject to adjustment from time to time after the date first stated herein, as follows;

(a)          Merger or Reorganization. If at any time there shall be any reorganization, recapitalization, merger or consolidation (a “Reorganization”) involving the Company (other than as otherwise provided for herein or as would cause the expiration of this Warrant under Section 9) in which the Preferred Stock are converted into or exchanged for securities, cash or other property, then, as a part of such Reorganization, lawful provision shall be made so that the Holder shall thereafter be entitled to receive upon exercise of this Warrant, the kind and amount of securities, cash or other property of the successor corporation resulting from such Reorganization, equivalent in value to that which a holder of the Shares deliverable upon exercise of this Warrant would have been entitled in such Reorganization if the right to purchase the Shares hereunder had been exercised immediately prior to such Reorganization. In any such case, appropriate adjustment (as determined in good faith by the Board of Directors of the successor corporation) shall be made in the application of the provisions of this Warrant with respect to the rights and interests of the Holder after such Reorganization to the end that the provisions of this Warrant shall be applicable after the event, as near as reasonably may be, in relation to any shares or other securities deliverable after that event upon the exercise of this Warrant.

(b)          Reclassification of Shares. If the securities issuable upon exercise of this Warrant are changed into the same or a different number of securities of any other class or classes by reclassification, capital reorganization or otherwise (other than as otherwise provided for herein) (a “Reclassification”), then, in any such event, in lieu of the number of Shares which the Holder would otherwise have been entitled to receive, the Holder shall have the right thereafter to exercise this Warrant for a number of shares of such other class or classes of stock that a holder of the number of securities deliverable upon exercise of this Warrant immediately before that change would have been entitled to receive in such Reclassification, all subject to further adjustment as provided herein with respect to such other shares.

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(c)          Subdivisions and Combinations. In the event that the outstanding shares of the Preferred Stock are subdivided (by stock split, by payment of a stock dividend or otherwise) into a greater number of shares of such securities, the number of Shares issuable upon exercise of the rights under this Warrant immediately prior to such subdivision shall, concurrently with the effectiveness of such subdivision, be proportionately increased, and the Exercise Price shall be proportionately decreased, and in the event that the outstanding shares of the Preferred Stock are combined (by reclassification or otherwise) into a lesser number of shares of such securities, the number of Shares issuable upon exercise of the rights under this Warrant immediately prior to such combination shall, concurrently with the effectiveness of such combination, be proportionately decreased, and the Exercise Price shall be proportionately increased.

(d)          Notice of Adjustments. Upon any adjustment in accordance with this Section 7, the Company shall give notice thereof to the Holder, which notice shall state the event giving rise to the adjustment, the Exercise Price as adjusted and the number of securities or other property purchasable upon the exercise of the rights under this Warrant, setting forth in reasonable detail the method of calculation of each. The Company shall, upon the written request of any Holder, furnish or cause to be furnished to such Holder a certificate setting forth (i) such adjustments, (ii) the Exercise Price at the time in effect and (iii) the number of securities and the amount, if any, of other property that at the time would be received upon exercise of this Warrant.

8.         Notification of Certain Events. Prior to the expiration of this Warrant pursuant to Section 9, in the event that the Company shall authorize:

(a)          the voluntary liquidation, dissolution or winding up of the Company;

(b)          any transaction resulting in the expiration of this Warrant pursuant to Section 9(b); or

(c)          any cash dividend, stock dividend, property dividend or any other distribution of the Company;

the Company shall send to the Holder of this Warrant at least fifteen (15) days prior written notice of the date on which a record shall be taken for any such action, dividend or distribution specified in clause (a) or (c) or the expected effective date of any such other event specified in clause (b) or (c), as applicable. The notice provisions set forth in this section may be shortened or waived prospectively or retrospectively by the consent of the Holder of this Warrant.

9.         Expiration of the Warrant. This Warrant shall expire and shall no longer be exercisable as of the earlier of (such date, the “Expiration Date”):

(a)          5:00 p.m., Eastern time, on January 15, 2024; or

7

(b)          (i) the acquisition of the Company by another entity by means of any transaction or series of related transactions to which the Company is a party (including, without limitation, any stock acquisition, reorganization, merger or consolidation, but excluding any sale of stock for capital raising purposes and any transaction effected primarily for purposes of changing the Company’s jurisdiction of incorporation) other than a transaction or series of related transactions in which the holders of the voting securities of the Company outstanding immediately prior to such transaction or series of related transactions retain, immediately after such transaction or series of transactions, as a result of shares in the Company held by such holders prior to such transaction or series of transactions, at least a majority of the total voting power represented by the outstanding voting securities of the Company or such other surviving or resulting entity (or if the Company or such other surviving or resulting entity is a wholly-owned subsidiary immediately following such acquisition, its parent), or (ii) a sale, lease or other disposition of all or substantially all of the assets of the Company and its subsidiaries taken as a whole by means of any transaction or series of related transactions, except where such sale, lease or other disposition is to a wholly-owned subsidiary of the Company (any of the foregoing events specified in this Section 9(b), referred to generally as a “Change of Control”).

10.         No Rights as a Stockholder. Nothing contained herein shall entitle the Holder to any rights as a stockholder of the Company or to be deemed the holder of any securities that may at any time be issuable on the exercise of the rights hereunder for any purpose nor shall anything contained herein be construed to confer upon the Holder, as such, any right to vote for the election of directors or upon any matter submitted to stockholders at any meeting thereof, or to give or withhold consent to any corporate action (whether upon any recapitalization, issuance of stock, reclassification of stock, change of par value or change of stock to no par value, consolidation, merger, conveyance or otherwise) or to receive notice of meetings, or to receive dividends or subscription rights or any other rights of a stockholder of the Company until the rights under the Warrant shall have been exercised and the Shares purchasable upon exercise of the rights hereunder shall have become deliverable as provided herein.

11.         Representations and Warranties of the Holder. By acceptance of this Warrant, the Holder represents and warrants to the Company as follows:

(a)          No Registration. The Holder understands that the Securities have not been, and will not be, registered under the Securities Act by reason of a specific exemption from the registration provisions of the Securities Act, the availability of which depends upon, among other things, the bona fide nature of the investment intent and the accuracy of the Holder’s representations as expressed herein or otherwise made pursuant hereto.

(b)          Investment Intent. The Holder is acquiring the Securities for investment for its own account, not as a nominee or agent, and not with a view to, or for resale in connection with, any distribution thereof. The Holder has no present intention of selling, granting any participation in, or otherwise distributing the Securities, nor does it have any contract, undertaking, agreement or arrangement for the same.

(c)          Investment Experience. The Holder has substantial experience in evaluating and investing in private placement transactions of securities in companies similar to the Company, and has such knowledge and experience in financial or business matters so that it is capable of evaluating the merits and risks of its investment in the Company and protecting its own interests.

(d)          Speculative Nature of Investment. The Holder understands and acknowledges that the Company has a limited financial and operating history and that its investment in the Company is highly speculative and involves substantial risks. The Holder can bear the economic risk of its investment and is able, without impairing its financial condition, to hold the Securities for an indefinite period of time and to suffer a complete loss of its investment.

(e)          Access to Data. The Holder has had an opportunity to ask questions of officers of the Company, which questions were answered to its satisfaction. The Holder believes that it has received all the information that it considers necessary or appropriate for deciding whether to acquire the Securities. The Holder understands that any such discussions, as well as any information issued by the Company, were intended to describe certain aspects of the Company’s business and prospects, but were not necessarily a thorough or exhaustive description. The Holder acknowledges that any business plans prepared by the Company have been, and continue to be, subject to change and that any projections included in such business plans or otherwise are necessarily speculative in nature, and it can be expected that some or all of the assumptions underlying the projections will not materialize or will vary significantly from actual results.

8

(f)          Accredited Investor. The Holder is an “accredited investor” within the meaning of Regulation D, Rule 501(a), promulgated by the Securities and Exchange Commission and agrees to submit to the Company such further assurances of such status as may be reasonably requested by the Company.

(g)          Residency. The residency of the Holder (or, in the case of a partnership or corporation, such entity’s principal place of business) is correctly set forth on the signature page hereto.

(h)          Restrictions on Resales. The Holder acknowledges that the Securities must be held indefinitely unless subsequently registered under the Securities Act or an exemption from such registration is available. The Holder is aware of the provisions of Rule 144 promulgated under the Securities Act, which permit resale of shares purchased in a private placement subject to the satisfaction of certain conditions, which may include, among other things, the availability of certain current public information about the Company; the resale occurring not less than a specified period after a party has purchased and paid for the security to be sold; the number of shares being sold during any three-month period not exceeding specified limitations; the sale being effected through a “broker’s transaction,” a transaction directly with a “market maker” or a “riskless principal transaction” (as those terms are defined in the Securities Act or the Exchange Act, as amended, and the rules and regulations promulgated thereunder); and the filing of a Form 144 notice, if applicable. The Holder acknowledges and understands that the Company may not be satisfying the current public information requirement of Rule 144 at the time the Holder wishes to sell the Securities and that, in such event, the Holder may be precluded from selling the Securities under Rule 144 even if the other applicable requirements of Rule 144 have been satisfied. The Holder acknowledges that, in the event the applicable requirements of Rule 144 are not met, registration under the Securities Act or an exemption from registration will be required for any disposition of the Securities. The Holder understands that, although Rule 144 is not exclusive, the Securities and Exchange Commission has expressed its opinion that persons proposing to sell restricted securities received in a private offering other than in a registered offering or pursuant to Rule 144 will have a substantial burden of proof in establishing that an exemption from registration is available for such offers or sales and that such persons and the brokers who participate in the transactions do so at their own risk.

(i)          No Public Market. The Holder understands and acknowledges that no public market now exists for any of the securities issued by the Company and that the Company has made no assurances that a public market will ever exist for the Company’s securities.

(j)          Brokers and Finders. The Holder has not engaged any brokers, finders or agents in connection with the Securities, and the Company has not incurred nor will incur, directly or indirectly, as a result of any action taken by the Holder, any liability for brokerage or finders’ fees or agents’ commissions or any similar charges in connection with the Securities.

(k)          Legal Counsel. The Holder has had the opportunity to review this Warrant, the exhibits and schedules attached hereto and the transactions contemplated by this Warrant with its own legal counsel. The Holder is not relying on any statements or representations of the Company or its agents for legal advice with respect to this investment or the transactions contemplated by this Warrant.

(l)          Tax Advisors. The Holder has reviewed with its own tax advisors the U.S. federal, state and local and non-U.S. tax consequences of this investment and the transactions contemplated by this Warrant. With respect to such matters, the Holder relies solely on any such advisors and not on any statements or representations of the Company or any of its agents, written or oral. The Holder understands that it (and not the Company) shall be responsible for its own tax liability that may arise as a result of this investment and the transactions contemplated by this Warrant.

9

12. Miscellaneous.

(a)          Amendments. Except as expressly provided herein, neither this Warrant nor any term hereof may be amended, waived, discharged or terminated other than by a written instrument referencing this Warrant and signed by the Company and the Holder. Any amendment, waiver, discharge or termination effected in accordance with this Section 12(a) shall be binding upon the Holder, each future holder of such Warrants and the Company.

(b)          Waivers. No waiver of any single breach or default shall be deemed a waiver of any other breach or default theretofore or thereafter occurring.

(c)          Notices. All notices and other communications required or permitted hereunder shall be in writing and shall be mailed by registered or certified mail, postage prepaid, sent by facsimile or electronic mail (if to the Holder) or otherwise delivered by hand, messenger or courier service addressed:

(i)          if to the Holder, to the Holder at the Holder’s address, facsimile number or electronic mail address as shown in the Company’s records, as may be updated in accordance with the provisions hereof, or until any such Holder so furnishes an address, facsimile number or electronic mail address to the Company, then to and at the address, facsimile number or electronic mail address of the last holder of this Warrant for which the Company has contact information in its records; or

(ii)        if to the Company, to the attention of the Chief Executive Officer of the Company at the Company’s address as shown on the signature page hereto, or at such other address as the Company shall have furnished to the Holder.

Each such notice or other communication shall for all purposes of this Warrant be treated as effective or having been given (i) if delivered by hand, messenger or courier service, when delivered, or (ii) if sent by mail, at the earlier of its receipt or 72 hours after the same has been deposited in a regularly maintained receptacle for the deposit of the United States mail, addressed and mailed as aforesaid, or (iii) if sent by facsimile, upon confirmation of facsimile transfer or, if sent by electronic mail, upon confirmation of delivery when directed to the relevant electronic mail address. In the event of any conflict between the Company’s books and records and this Warrant or any notice delivered hereunder, the Company’s books and records will control absent fraud or error.

(d)          Governing Law. This Warrant and all actions arising out of or in connection with this Warrant shall be governed by and construed in accordance with the laws of the State of Michigan, without regard to the conflicts of law provisions of any other state.

(e)          Jurisdiction and Venue. Each of the Holder and the Company irrevocably consents to the exclusive jurisdiction and venue of any court within the Ingham County, State of Michigan, in connection with any matter based upon or arising out of this Warrant or the matters contemplated herein, and agrees that process may be served upon them in any manner authorized by the laws of the State of Florida for such persons.

(f)          Titles and Subtitles. The titles and subtitles used in this Warrant are used for convenience only and are not to be considered in construing or interpreting this Warrant. All references in this Warrant to sections, paragraphs and exhibits shall, unless otherwise provided, refer to sections and paragraphs hereof and exhibits attached hereto.

10

(g)          Severability. If any provision of this Warrant becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, portions of such provision, or such provision in its entirety, to the extent necessary, shall be severed from this Warrant, and such illegal, unenforceable or void provision shall be replaced with a valid and enforceable provision that will achieve, to the extent possible, the same economic, business and other purposes of the illegal, unenforceable or void provision. The balance of this Warrant shall be enforceable in accordance with its terms.

(h)          Waiver of Jury Trial. EACH OF THE HOLDER AND THE COMPANY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATED TO THIS WARRANT. If the waiver of jury trial set forth in this paragraph is not enforceable, then any claim or cause of action arising out of or relating to this Warrant shall be settled by judicial reference pursuant to the laws of the State of Michigan before a referee sitting without a jury, such referee to be mutually acceptable to the parties or, if no agreement is reached, by a referee appointed by the state courts of Michigan. This paragraph shall not restrict the Holder or the Company from exercising remedies under the Uniform Commercial Code or from exercising pre- judgment remedies under applicable law.

(i)          Saturdays, Sundays and Holidays. If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall be a Saturday, Sunday or U.S. federal holiday, then such action may be taken or such right may be exercised on the next succeeding day that is not a Saturday, Sunday or U.S. federal holiday (such day a “Business Day”).

(j)Rights and Obligations Survive Exercise of the Warrant. Except as otherwise provided herein, the rights and obligations of the Company and the Holder under this Warrant shall survive exercise of this Warrant.

(k)Entire Agreement. Except as expressly set forth herein, this Warrant (including the exhibits attached hereto) constitutes the entire agreement and understanding of the Company and the Holder with respect to the subject matter hereof and supersedes all prior agreements and understandings relating to the subject matter hereof.

(Signature Page Follows)

11

The Company and the Holder sign this Warrant as of the date stated on the first page.

XG SCIENCES, INC.

a Michigan corporation

By:
Name:	Michael R. Knox
Title:	Chief Executive Officer

Address:
3101 Grand Oak Drive Lansing, MI 48911
Telephone:	517.703.1110
Facsimile:	517.703.1113

AGREED AND ACKNOWLEDGED:

By:

Name:

Title:

Address:

Telephone:

Facsimile:

EXHIBIT A

NOTICE OF EXERCISE

TO:	XG Sciences, Inc. (the “Company”)
Attention:	Chief Executive Officer

(1) Exercise. The undersigned elects to purchase the following pursuant to the terms of the attached warrant:

Number of shares:

Type of security:

(2) Method of Exercise. The undersigned elects to exercise the attached warrant pursuant to:

¨ A cash payment, and tenders herewith payment of the purchase price for such shares in full, together with all applicable transfer taxes, if any.

¨ The net issue exercise provisions of Section 2(b) of the attached warrant.

(3) Stock Certificate. Please issue a certificate or certificates representing the shares in the name of:

¨ The undersigned

¨	Other—Name:
	Address:

(4) Unexercised Portion of the Warrant. Please issue a new warrant for the unexercised portion of the attached warrant in the name of:

¨	The undersigned
¨	Other—Name:
	Address:
¨	Not applicable

(5) Investment Intent. The undersigned represents and warrants that the aforesaid shares are being acquired for investment for its own account, not as a nominee or agent, and not with a view to, or for resale in connection with, the distribution thereof, and that the undersigned has no present intention of selling, granting any participation in, or otherwise distributing the shares, nor does it have any contract, undertaking, agreement or arrangement for the same, and all representations and warranties of the undersigned set forth in Section 11 of the attached warrant are true and correct as of the date hereof.

(Signature page to the Notice of Exercise)

A-1

(6) Investment Representation Statement. The undersigned has executed, and delivers herewith, an Investment Representation Statement in a form substantially similar to the form attached to the warrant as Exhibit A-1.

(Print name of the warrant holder)

(Signature)

(Name and title of signatory, if applicable)

(Date)

(Fax number)

(Email address)

(Signature page to the Notice of Exercise)

A-2

EXHIBIT A-l

INVESTMENT REPRESENTATION STATEMENT

INVESTOR:

COMPANY:	XG Sciences, Inc., a Michigan corporation
SECURITIES:	THE WARRANT ISSUED ON                 (THE “WARRANT”) AND THE SECURITIES ISSUED OR ISSUABLE UPON EXERCISE THEREOF

DATE:

In connection with the purchase or acquisition of the above-listed Securities, the undersigned Investor represents and warrants to, and agrees with, the Company as follows:

1.          No Registration. The Investor understands that the Securities have not been, and will not be, registered under the Securities Act of 1933, as amended (the “Securities Act’), by reason of a specific exemption from the registration provisions of the Securities Act, the availability of which depends upon, among other things, the bona fide nature of the investment intent and the accuracy of the Investor’s representations as expressed herein or otherwise made pursuant hereto.

2.          Investment Intent. The Investor is acquiring the Securities for investment for its own account, not as a nominee or agent, and not with a view to, or for resale in connection with, any distribution thereof. The Investor has no present intention of selling, granting any participation in, or otherwise distributing the Securities, nor does it have any contract, undertaking, agreement or arrangement for the same.

3.          Investment Experience. The Investor has substantial experience in evaluating and investing in private placement transactions of securities in companies similar to the Company, and has such knowledge and experience in financial or business matters so that it is capable of evaluating the merits and risks of its investment in the Company and protecting its own interests.

4.          Speculative Nature of Investment. The Investor understands and acknowledges that its investment in the Company is highly speculative and involves substantial risks. The Investor can bear the economic risk of its investment and is able, without impairing its financial condition, to hold the Securities for an indefinite period of time and to suffer a complete loss of its investment.

5.          Access to Data. The Investor has had an opportunity to ask questions of officers of the Company, which questions were answered to its satisfaction. The Investor understands that any such discussions, as well as any information issued by the Company, were intended to describe certain aspects of the Company’s business and prospects, but were not necessarily a thorough or exhaustive description. The Investor acknowledges that any business plans prepared by the Company have been, and continue to be, subject to change and that any projections included in such business plans or otherwise are necessarily speculative in nature, and it can be expected that some or all of the assumptions underlying the projections will not materialize or will vary significantly from actual results.

6.         Accredited Investor. The Investor is an “accredited investor” within the meaning of Regulation D, Rule 501(a), promulgated by the Securities and Exchange Commission and agrees to submit to the Company such further assurances of such status as may be reasonably requested by the Company.

A-1-1

7.         Residency. The residency of the Investor (or, in the case of a partnership or corporation, such entity’s principal place of business) is correctly set forth on the signature page hereto.

8.         Restrictions on Resales. The Investor acknowledges that the Securities must be held indefinitely unless subsequently registered under the Securities Act or an exemption from such registration is available. The Investor is aware of the provisions of Rule 144 promulgated under the Securities Act, which permit resale of shares purchased in a private placement subject to the satisfaction of certain conditions, which may include, among other things, the availability of certain current public information about the Company; the resale occurring not less than a specified period after a party has purchased and paid for the security to be sold; the number of shares being sold during any three-month period not exceeding specified limitations; the sale being effected through a “broker’s transaction,” a transaction directly with a “market maker” or a “riskless principal transaction” (as those terms are defined in the Securities Act or the Exchange Act (as defined below), as amended, and the rules and regulations promulgated thereunder); and the filing of a Form 144 notice, if applicable. The Investor acknowledges and understands that the Company may not be satisfying the current public information requirement of Rule 144 at the time the Investor wishes to sell the Securities and that, in such event, the Investor may be precluded from selling the Securities under Rule 144 even if the other applicable requirements of Rule 144 have been satisfied. The Investor understands and acknowledges that, in the event the applicable requirements of Rule 144 are not met, registration under the Securities Act or an exemption from registration will be required for any disposition of the Securities. The Investor understands that, although Rule 144 is not exclusive, the Securities and Exchange Commission has expressed its opinion that persons proposing to sell restricted securities received in a private offering other than in a registered offering or pursuant to Rule 144 will have a substantial burden of proof in establishing that an exemption from registration is available for those offers or sales and that those persons and the brokers who participate in the transactions do so at their own risk.

9.         No Public Market. The Investor understands and acknowledges that no public market now exists for any of the securities issued by the Company and that the Company has made no assurances that a public market will ever exist for the Company’s securities.

10.         Brokers and Finders. The Investor has not engaged any brokers, finders or agents in connection with the Securities, and the Company has not incurred nor will incur, directly or indirectly, as a result of any action taken by the Investor, any liability for brokerage or finders’ fees or agents’ commissions or any similar charges in connection with the Securities.

11.         Legal Counsel. The Investor has had the opportunity to review the Warrant, the exhibits and schedules attached thereto and the transactions contemplated by the Warrant with its own legal counsel. The Investor is not relying on any statements or representations of the Company or its agents for legal advice with respect to this investment or the transactions contemplated by the Warrant.

12.         Tax Advisors. The Investor has reviewed with its own tax advisors the U.S. federal, state and local and non-U.S. tax consequences of this investment and the transactions contemplated by the Warrant. With respect to such matters, the Investor relies solely on such advisors and not on any statements or representations of the Company or any of its agents, written or oral. The Investor understands that it (and not the Company) shall be responsible for its own tax liability that may arise as a result of this investment or the transactions contemplated by the Warrant.

A-1-2

The Investor is signing this Investment Representation Statement on the date First written above.

INVESTOR

[                                   ]

(Print name of the investor)

(Signature)

(Name and title of signatory, if applicable)

(Street address)

(City, state and ZIP)

A-1-3

EXHIBIT B

[Shareholder Agreement]

B-1

EXHIBIT C

ASSIGNMENT FORM

ASSIGNOR:
COMPANY:	XG SCIENCES, INC.
WARRANT:	THE WARRANT TO PURCHASE SHARES OF SERIES A CONVERTIBLE PREFERRED STOCK ISSUED ON                 , 2013 (THE “WARRANT”)
DATE:

(1) Assignment. The undersigned registered holder of the Warrant (“Assignor”) assigns and transfers to the assignee named below (“Assignee”) all of the rights of Assignor under the Warrant, with respect to the number of shares set forth below:

Name of Assignee:

Address of Assignee:

Number of Shares Assigned:

and does irrevocably constitute and appoint                                        as attorney to make such transfer on the books of XG Sciences, Inc., maintained for the purpose, with full power of substitution in the premises.

(2) Obligations of Assignee. Assignee agrees to take and hold the Warrant and any shares of stock to be issued upon exercise of the rights thereunder (the “Securities”) subject to, and to be bound by, the terms and conditions set forth in the Warrant to the same extent as if Assignee were the original holder thereof.

(3) Investment Intent. Assignee represents and warrants that the Securities are being acquired for investment for its own account, not as a nominee or agent, and not with a view to, or for resale in connection with, the distribution thereof, and that Assignee has no present intention of selling, granting any participation in, or otherwise distributing the shares, nor does it have any contract, undertaking, agreement or arrangement for the same, and all representations and warranties set forth in Section 11 of the Warrant are true and correct as to Assignee as of the date hereof.

(4) Investment Representation Statement. Assignee has executed, and delivers herewith, an Investment Representation Statement in a form substantially similar to the form attached to the Warrant as Exhibit A-l.

C-2

Assignor and Assignee are signing this Assignment Form on the date first set forth above.

ASSIGNOR	ASSIGNEE
(Print name of Assignor)	(Print name of Assignee)
(Signature of Assignor)	(Signature of Assignee)
(Print name of signatory, if applicable)	(Print name of signatory, if applicable)
(Print title of signatory, if applicable)	(Print title of signatory, if applicable)
Address:	Address:

C-3

DATED: JANUARY 15, 2014

RESTATED BYLAWS

OF

XG SCIENCES, INC.

ARTICLE I

Shares of Capital Stock

1.1           Certificate of Shares. The certificates of shares of capital stock of the Corporation shall be in such form as shall be approved by the Board of Directors and as shall be required by law. The certificates of shares of capital stock shall be signed by the Chairman of the Board, Vice-Chairman of the Board, President or a Vice-President and may also be signed by another officer of the Corporation. The certificates may be sealed with the seal of the Corporation or a facsimile thereof. In these Bylaws, the term “capital stock” means the Company’s outstanding: (i) common stock, and (ii) convertible preferred stock of any series.

1.2           Transfer of Shares. Shares of capital stock of the Corporation shall be transferred by endorsement of the certificates representing said shares of capital stock by the registered holder thereof, or by his legal representative, who shall furnish proper evidence of authority to transfer, or by his attorney who shall be authorized by a Power of Attorney which is duly executed and filed with the Secretary of the Corporation, and by the surrender of the shares of capital stock to the Secretary for cancellation. The person whose name is listed on the books of the Corporation as the owner of the shares of capital stock shall be deemed by the Corporation to be the owner thereof for all purposes.

1.3           Lost Certificates. In the event of loss of stock certificates, new certificates shall be issued only upon proof of loss by affidavit by the registered holder and approval by the Board of Directors, who may require a Bond of Indemnity in a form satisfactory to them as a condition thereof.

1.4           Fixing of Record Date. For the purpose of determining shareholders entitled to notice of and to vote at a meeting of shareholders or an adjournment of a meeting, the Board may fix a record date which shall not precede the date on which the resolution fixing the record date is adopted by the Board. The date shall be not more than sixty (60) nor less than ten (10) days before the date of the meeting. If a record date is not fixed, the record date for determination of shareholders entitled to notice of or to vote at a meeting of shareholders shall be the close of business on the day next preceding the day on which notice is given, or if no notice is given, the day next preceding the day on which the meeting is held. When a determination of shareholders of record entitled to notice of or to vote at a meeting of shareholders has been made as provided in this section, the determination applies to any adjournment of the meeting, unless the Board fixes a new record date under this section for the adjourned meeting.

For the purpose of determining shareholders entitled to express consent to or to dissent from a proposal without a meeting, the Board may fix a record date which shall not precede the date on which the resolution fixing the record date is adopted by the Board and shall not be more than ten (10) days after the Board resolution. If a record date is not fixed and prior action by the Board is required with respect to the corporate action to be taken without a meeting, the record date shall be the close of business on the day on which the resolution of the Board is adopted. If a record date is not fixed and prior action by the Board is not required, the record date shall be the first date on which a signed written consent is delivered to the Corporation pursuant to Section 407 of the Michigan Business Corporation Act, as amended, or any successor provision.

For the purpose of determining shareholders entitled to receive payment of a share dividend or distribution, or allotment of a right, or for the purpose of any other action, the Board may fix a record date which shall not precede the date on which the resolution fixing the record date is adopted by the Board. The date shall not be more than sixty (60) days before the payment of the share dividend or distribution or allotment of a right or other action. If a record date is not fixed, the record date shall be the close of business on the day on which the resolution of the Board relating to the corporate action is adopted.

1.5           Dividends. The Board of Directors may, from time to time, declare and the Corporation may pay dividends on its outstanding shares of capital stock in the manner and upon the terms and conditions provided by law and its Articles of Incorporation.

ARTICLE II

Shareholders

2.1           Annual Meeting. The annual meeting of the shareholders shall be held at a time and place designated by the Board of Directors. The purpose of the annual meeting shall be to elect Directors, and to transact such other business as may come before the meeting.

2.2           Special Meeting. Special meetings of the shareholders may be called by the President or Secretary and shall be called by either of them on the request in writing of the Board of Directors or by vote of shareholders of record owning 10% or more of the issued and outstanding shares of capital stock of the Corporation, but a quorum as defined in Section 2.4 is required for the shareholders to do business at a special meeting.

2.3           Notice of Meeting. Notice of the time, place if any, and purpose of any shareholders’ meeting shall be given to each shareholder, either personally, by mail, or by electronic transmission, not less than ten (10) days nor more than sixty (60) days before the meeting. If mailed, notice shall be deemed given by depositing the same in a post office box, postage prepaid, and addressed to the last-known address of such shareholder. If notice is given by electronic transmission, the notice is given when electronically transmitted to the shareholder entitled to the notice in a manner authorized by the shareholder. If a Shareholder or proxy holder may be present and vote at the meeting by electronic transmission shall be as defined in the Michigan Business Corporation Act, as amended.

 2

2.4           Quorum of Shareholders. Except as hereinafter provided and as otherwise provided by law, at any meeting of the shareholders, a majority in interest of all the capital stock issued and outstanding, represented by shareholders of record in person or by proxy, shall constitute a quorum. The shareholders present in person or by proxy at such meeting may continue to do business until adjournment, notwithstanding the withdrawal of enough shareholders to leave less than a quorum. Less interest than a quorum may adjourn any meeting.

2.5           Voting. Each outstanding share of capital stock is entitled to one vote on each matter submitted to a vote, unless otherwise provided in the Articles of Incorporation. A vote may be cast either orally or in writing. When an action, other than the election of Directors, is to be taken by vote of the shareholders, it shall be authorized by a majority of the votes cast by the holders of shares of capital stock entitled to vote thereon, unless a greater plurality is required by the Articles of Incorporation or by law. Except as otherwise provided by the Articles of Incorporation, the Directors shall be elected by a plurality of the votes cast at an election of Directors.

2.6         Proxies.

(a)          A shareholder entitled to vote at a meeting of shareholders or to express consent or dissent without a meeting may authorize other persons to act for him or her by proxy.

(b)          A proxy is not valid after the expiration of three years from its date unless otherwise provided in the proxy.

(c)          Without limiting the manner in which a shareholder may authorize another person or persons to act for him or her as proxy pursuant to Subsection (a) of this section, the following methods constitute a valid means by which a shareholder may grant authority to another person to act as proxy:

(1)         The execution of a writing authorizing another person or persons to act for the shareholder as proxy. Execution may be accomplished by the shareholder or by an authorized officer, director, employee, or agent signing the writing or causing his or her signature to be affixed to the writing by any reasonable means including, but not limited to, facsimile signature.

(2)         Transmitting or authorizing the transmission of a telegram, cablegram, or other means of electronic transmission to the person who will hold the proxy or to a proxy solicitation firm, proxy support service organization, or similar agent fully authorized by the person who will hold the proxy to receive that transmission. Any telegram, cablegram, or other means of electronic transmission must either set forth or be submitted with information from which it can be determined that the telegram, cablegram, or other electronic transmission was authorized by the shareholder. If a telegram, cablegram, or other electronic transmission is determined to be valid, the inspectors, or, if there are no inspectors, the persons making the determination shall specify the information upon which they relied.

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(d)          A copy, facsimile telecommunication, or other reliable reproduction of the writing or transmission created pursuant to Subsection (c) of this section may be substituted or used in lieu of the original writing or transmission for any purpose for which the original writing or transmission could be used, if the copy, facsimile telecommunication, or other reproduction is a complete reproduction of the entire original writing or transmission.

2.7           Waiver of Notice. Attendance of a person at a meeting of shareholders, in person or by proxy, constitutes a waiver of notice of the meeting, except when the shareholder attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened.

2.8           Consent in Writing. Any action required or permitted to be taken at an annual or special meeting of shareholders may be taken without a meeting, without prior notice, and without a vote, if consents in writing, setting forth the action so taken, are signed by the holders of outstanding shares of capital stock having not less than the minimum number of votes that would be necessary to authorize or take the action at a meeting at which all shares of capital stock entitled to vote on the action were present and voted. The written consents shall bear the date of signature of each shareholder who signs the consent. No written consents shall be effective to take corporate action referred to unless, within 60 days after the record date for determining shareholders entitled to express consent to or to dissent from a proposal without a meeting, written consents dated not more than 10 days before the record date and signed by a sufficient number of shareholders to take the action are delivered to the Corporation. Delivery shall be to the Corporation’s registered office, its principal place of business, or an officer or agent of the Corporation having custody of the minutes of the proceedings of its shareholders. Delivery made to the Corporation’s registered office shall be by hand or by certified or registered mail, return receipt requested. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to shareholders who would have been entitled to notice of the shareholder meeting if the action had been taken at a meeting and who have not consented to the action in writing. An electronic transmission consenting to an action must comply with Section 407(3) of the Michigan Business Corporation Act.

2.9           Electronic Meetings. The shareholders may participate in a meeting of the shareholders by means of conference telephone or similar communications equipment by means, of which all persons participating in the meeting can communicate with each other. All participants shall be advised of the communications equipment and the names of the participants in the conference shall be divulged to all participants. Participation in a meeting pursuant to this Section shall constitute presence in person at the meeting. Unless otherwise restricted by the Articles of Incorporation or these Bylaws, the Board of Directors may hold a meeting of shareholders conducted solely by means of remote communication.

2.10         Conduct of Meetings. At each meeting of shareholders, a chair shall preside. In the absence of a specific selection by the Board of Directors, the chair shall be the chairperson of the Board. The chair shall determine the order of business and shall have the authority to establish rules for the conduct of the meeting that are fair to shareholders. The chair of the meeting shall announce at the meeting when the polls close for each matter voted on. If no announcement is made, the polls shall be deemed to have closed on the meeting's final adjournment. After the polls close, no ballots, proxies, or votes, nor any revocations or changes to them, may be accepted.

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ARTICLE III

Board of Directors

3.1           Number, Term, and Qualifications. The business and affairs of the Corporation shall be managed by its Board of Directors. The number of Directors on the Board of Directors shall be seven (7). The number of Directors on the Board of Directors may be changed from time to time, as determined by the Board of Directors or shareholders of the Corporation, subject to the requirements of any shareholder agreement or voting agreement then in effect. A Director need not be a shareholder. Each Director shall hold office for the term for which he is elected and until his successor shall have been elected and qualified or until his resignation or removal.

3.2           Meetings. Regular meetings of the Board of Directors shall be held either with or without notice, at such times and such places as any of the Directors may by resolution from time to time determine. Special meetings of the Board of Directors shall be held whenever called by the President; or when the President shall be required to call a special meeting upon the written request, either in writing or by electronic transmission, by any Director. Due notice of any special meeting, which may be waived, shall be given by the Secretary, either personally, by electronic transmission, or in writing, not later than the day preceding the meeting. A Director’s attendance at, or participation in, a meeting constitutes a waiver of notice of the meeting, except where, at the beginning of the meeting or upon his arrival, the Director objects to the meeting or the transacting of business at the meeting and does not thereafter vote for or assent to any action taken at the meeting. A Director may participate in a regular or special meeting by means of conference telephone or other means of remote communication, which participation constitutes presence in person, through which all persons participating in the meeting can communicate with other participants.

3.3           Quorum. A majority of the members of the Board then in office, or of the members of a committee thereof, constitutes a quorum for the transaction of business.

3.4           Voting. The vote of the majority of members present at a meeting in person or by Director Proxy, at which a quorum is present, constitutes the action of the Board or of the committee.

3.5           Vacancies. Vacancies in the Board of Directors, including a vacancy resulting from an increase in the number of Directors, may be filled by either the shareholders or the Directors. If the Directors remaining in office constitute fewer than a quorum of the Board, they may fill the vacancy by the affirmative vote of a majority of all Directors remaining in office.

3.6           Action Without a Meeting. Action may be taken by the Board of Directors or a committee thereof without a meeting if, before or after the action, all members of the Board then in office or of the committee consent thereto in writing. The written consent shall be filed with the minutes of the proceedings of the Board or committee.

3.7           Removal of Directors. A Director or the entire Board may be removed, with or without cause, by vote of the holders of a majority of the shares of capital stock entitled to vote at an election of Directors, subject to the requirements of any shareholder agreement or voting agreement then in effect with respect to the removal of Directors.

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3.8           Electronic Meetings. The Board of Directors or any committee designated by the Board of Directors may participate in a meeting of such Board, or committee, by means of conference telephone or similar communications equipment by means, of which all persons participating in the meeting can communicate with each other. Participation in a meeting pursuant to this Section shall constitute presence in person at the meeting.

3.9           Director Proxies.

(a)          The Board of Directors may, from time to time, in its sole discretion, authorize a “corporate director” that is entitled to vote at a meeting of the Board of Directors (an “Authorized Director”) to appoint another person to act for him or her by proxy or power of attorney (collectively, a "Director Proxy").

(b)          A Director Proxy shall be valid for such period of time or for such meeting or meetings, as designated by the Board of Directors in its authorizing resolution.

(c)          The following methods constitute valid means by which an Authorized Director may grant authority to another person to act as proxy or power of attorney:

(1)         The execution and delivery of a writing authorizing another person to act for an Authorized Director as proxy or power of attorney. Execution may be accomplished by an Authorized Director signing the writing or causing his or her signature to be affixed to the writing by any reasonable means including, but not limited to, facsimile signature or an electronic signature.

(2)         Transmitting or authorizing the transmission of the written Director Proxy by a telegram, cablegram, facsimile, email or other means of electronic transmission to the person who will hold the Director Proxy. Any telegram, cablegram, facsimile, email or other means of electronic transmission must either set forth or be submitted with information from which it can be determined that the telegram, cablegram, facsimile, email or other electronic transmission was authorized by the Authorized Director.

(d)          A copy, facsimile telecommunication, PDF or other reliable reproduction of the writing or transmission created pursuant to Subsection (c) of this section may be substituted or used in lieu of the original writing or transmission for any purpose for which the original writing or transmission could be used, if the copy, facsimile telecommunication, PDF, or other reproduction is a complete reproduction of the entire original writing or transmission.

(e)          A Director Proxy shall be submitted to the Secretary of the Corporation, with a carbon copy to the Chairman of the Board, a reasonable time prior to the meeting of the Board of Directors at which it will be used, for a determination by the Board of Directors of its validity and effect.

(f)          For purposes of this Section 3.9, a "corporate director" shall mean a director who is appointed as representative of a specific Corporation shareholder or group of shareholders as reflected in a voting agreement entered into by the Corporation and the shareholders.

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ARTICLE IV

Officers

4.1           Officers. The officers of this Corporation shall consist of a President, a Secretary, a Treasurer, and if desired, a Chairman of the Board and one or more Vice Presidents, who shall be elected by the Board of Directors at the annual meeting held immediately after the adjournment of the regular annual meeting of the shareholders. The Board of Directors may also appoint such other officers and agents as they shall deem necessary for the transaction of business of the Corporation. An officer shall hold office for the term for which he is elected or appointed and until his successor is elected or appointed and qualified, or until his resignation or removal. Two or more offices may be held by the same person, but an officer shall not execute, acknowledge or verify an instrument in more than one capacity, if the instrument is required by law, or the Articles of Incorporation, or these Bylaws, to be executed and acknowledged or verified by two or more officers.

4.2           Duties of Officers. The officers of the Corporation shall be charged with such duties and authority as usually appertains to such offices in a Corporation, except that said duties may be varied or added to by the Board of Directors.

4.3           Removal of Officers and Agents. Any officer or agent may be removed by the Board of Directors whenever in its judgment the business interests of the Corporation will be served thereby.

ARTICLE V

Fiscal Year

5.1           Fiscal Year. The Corporation's fiscal year shall be as determined from time to time by the Board of Directors.

ARTICLE VI

Indemnification

6.1           Right of Indemnification. Each person who is or was or had agreed to become a director or officer of the Corporation, or each such person who is or was serving or who had agreed to serve at the request of the Board of Directors as an employee or agent of the Corporation, or as a director, officer, employee or agent of another corporation (whether for profit or not), partnership, joint venture, trust or other enterprise (including the heirs, executors, administrators or estate of such person), shall be indemnified by the Corporation to the full extent permitted by the Michigan Business Corporation Act or any other applicable laws as presently or hereafter in effect.

6.2           Non-Exclusivitv of Rights. The right to indemnification conferred in this article shall not be exclusive of any right that any person may have or acquire under any statute, provision of the articles of incorporation, bylaw, agreement, vote of shareholders or disinterested directors, or otherwise.

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6.3           Insurance. The Corporation shall have the power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation or is or was serving at the request of the Corporation as a director, officer, partner, trustee, employee or agent of another foreign or domestic corporation, partnership, joint venture, trust or other enterprise, whether for profit or not, against any liability asserted against him or her and incurred by him or her in any such capacity or arising out of his or her status as such, whether or not the Corporation would have the power to indemnify him or her against such liability under the provisions of this Article.

6.4           Amendment. If the Corporation repeals, amends or modifies this Article VI, it shall not affect any right or protection existing at the time of such repeal, amendment or modification.

ARTICLE VII

Amendments

7.1           Amendments. These Bylaws may be altered or amended by the shareholders or the Board of Directors. Amendment of the Bylaws by the Board requires the vote of not less than a majority of the members of the Board then in office.

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XG SCIENCES, INC.

PURCHASE AGREEMENT

BETWEEN

XG SCIENCES, INC.

AND

XGS II, LLC

ANNEX XI

DISCLOSURE ANNEX

January 15, 2014

This Disclosure Annex is arranged in sections corresponding to the identified Sections of the Purchase Agreement between XG Sciences, Inc. and XGS II, LLC to which it is attached as Annex XI (the “Agreement”), but the disclosure in any such Section shall qualify other provisions in the Agreement, as well as all disclosures in any of the other Transaction Agreements, to the extent that it would be readily apparent to an informed reader from a reading of such Section and the other Transaction Agreements that such disclosure is also relevant to other provisions of the Agreement or any of the other Transaction Agreements.

Capitalized terms that are used but not defined in this Disclosure Annex shall have the meanings set forth in the Agreement.

Section 3.a.

The following agreements grant preemptive rights to stockholders of the Company with respect to the Company’s Common Stock: (1) Stock Redemption Agreement dated July 15, 2006 (superseded by Shareholder Agreement); (2) Stock Redemption Agreement dated December 1, 2010 with Hanwha Chemical Corporation (superseded by Shareholder Agreement); (3) Stock Redemption Agreement dated June 8, 2011 with POSCO (superseded by Shareholder Agreement); (4) the Shareholder Agreement; (5) Section 4.n of the Agreement; (6) Section 4.n of the Purchase Agreement dated July 12, 2013 between the Company and Aspen Advanced Opportunity Fund, LP, as amended on the Closing Date; and (7) Section 4.m. of the Purchase Agreement dated as of the Closing Date between the Company and SVIC No. 15 New Technology Business Investment L.L.P.

Michigan State University has tag-along and “piggy-back” registration rights under the Restated and Amended Exclusive License Agreement between MSU and the Company.

Section 3.c.(i).

Outstanding Common Stock
Name of Holder of Common Stock	Shares of Common Stock
Michael R. Knox (and Linn Van Dyne)		127,047.0
Lawrence T. Drzal, Trustee of Drzal Revocable Trust		50,550.0
Hiroyuki Fukushima		50,000.0
Inhwan Do		50,000.0
Ann Arbor SPARK		36,257.0
Robert Skandalaris		34,977.0
Edward J. Demmer		30,000.0
Mark S. Kerrins & Rosemary Kerrins (JTWROS)		32,500.0
David J. Donovan		16,257.0
Michigan State University Foundation		9,543.0
W. D. Hamilton and S.M Heathfield		7,251.0
Paul Nordstrom		3,637 .0

Colin D. Cronin	2,803.0
Stephen J. Linder trust No 1	5,251.0
Matthew H. Frisch	2,087.5
Jeffery A. Wesley	9,005.0
Mark E. Hooper Revocable Living Trust	3,625.0
Peter S, Bosanic & Lisa Kendzioski Bosanic (JTWROS)	1,925.0
Kevin B. Miller	2,400.0
William G. Lutz	1,653.0
John W. Dourjalian	1,649.0
Reed Shick	880.0
Gary Griffin	1,500.0
Robert L. McKellar	592.0
Hanwha Chemical	150,000.0
POSCO	200,000.0
Marjorie E. Frisch	2,087.5
Total Common Stock Issued and Outstanding	833,477.0

Outstanding Series A Convertible Preferred Stock
Name of Holder of Series A Convertible Preferred Stock	Shares of Series A Convertible Preferred Stock
Paul Nordstrom		6,363.0
Colin D. Cronin		5,300.0
Peter S. Bosanic & Lisa Kendzioski Bosanic (JTWROS)		1,875.0
John W. Dourjalian		3,123.0
Dave and Vicky Pendell		3,157.0
ASC-XGS, LLC		166,023.0
Total Series A Convertible Preferred Stock Issued and Outstanding		185,841.0
Total Common Stock and Series A Convertible Preferred Stock Issued and Outstanding		1,019,318

Note: The Corporation is authorized to issue: (A) 25,000,000 shares of Common Stock, and (B) 8,000,000 shares of Series A Convertible Preferred Stock.

Outstanding Warrants and Options
Holder	Issue Date	Shares Subject to Warrant*		Shares Subject to Option		Expiration Date	Exercise Price
Scott Murray	12/1/2007		0		10,000	12/1/2017	$	8.00
William Lutz	7/31/2009		1,650		0	7/31/2014	$	15.00
Michael R. Knox	3/15/2009		0		12,500	3/15/2014	$	12.00
Michael R. Knox	7/1/2009		6,000		0	7/1/2019	$	8.00
William Lutz	4/1/2010		5,000		0	4/1/2015	$	10.00
ASC-XGS LLC	7/16/2010		21,044		0	7/16/2014	$	10.00
Jihyun Chung	7/12/2011		4,000		0	7/31/2015	$	20.00
Michael R. Knox	10/8/2012		5,000		0	10/8/2027	$	12.00
Aspen Advanced Opportunity Fund, LP	3/18/2013		208,333		0	3/18/2023	$	12.00
Arnold Allemang	6/1/2013		0		3,750	6/1/2021	$	12.00
Iris Linder	6/1/2013		0		3,750	6/1/2021	$	12.00
Steven Jones	6/1/2013		0		2,500	6/1/2021	$	12.00

Scott Murray	6/1/2013	0		10,000	6/1/2021	$	12.00
Robert Privette	6/1/2013	0		20,000	6/1/2021	$	12.00
Liya Wang	6/1/2013	0		30,000	6/1/2021	$	12.00
Michael R. Knox	6/1/2013	0		50,000	6/1/2021	$	13.20
Corinne Lyon	6/1/2013	0		10,000	6/1/2021	$	12.00
Aspen Advanced Opportunity Fund, LP	7/12/2013	208,333	*	0	7/12/2023	$	12.00
XGS II, LLC	7/12/2013	31,250	*	0	7/12/2023	$	12.00
		490,610	*	152,500

*On the Closing Date, the Company will cancel the warrants issued to each of Aspen Advanced Opportunity Fund, LP and XGS II, LLC; issue a restated warrant to Aspen Advanced Opportunity Fund, LP for 833,333 shares; issue a restated warrant to XGS II, LLC for 83,333 shares; issue a warrant to SVIC No. 15 New Technology Business Investment L.L.P. for 100,000; and issue warrants to each of the shareholders who participated in the preemptive rights offering that ended October 31, 2013 (2,121 to Paul Nordstrom, 1,767 to Colin D. Cronin, 625 to Peter S. Bosanic & Lisa Kendzioski Bosanic (JTWROS), and 1,041 to John W. Dourjalian).

Section 3.c.(ii).

• The $603,846.58 secured convertible promissory note dated March 18, 2013 to Aspen Advanced Opportunity Fund, LP.** The note is convertible into Series A Stock and then Common Stock.

• The $250,000.00 secured convertible promissory note dated April 3, 2013 to Aspen Advanced Opportunity Fund, LP.** The note is convertible into Series A Stock and then Common Stock.

• The $250,000.00 secured convertible promissory note dated April 12, 2013 to Aspen Advanced Opportunity Fund, LP.** The note is convertible into Series A Stock and then Common Stock.

• The $1,400,000.00 secured convertible promissory note dated April 26, 2013 to Aspen Advanced Opportunity Fund, LP.** The note is convertible into Series A Stock and then Common Stock.

• The $800,000.00 secured convertible promissory note dated July 29, 2013 to Aspen Advanced Opportunity Fund, LP, of which $490,575 will be transferred to the benefit of XGS II, LLC on the Closing Date.** The note is convertible into Series A Stock and then Common Stock.

• The $200,000.00 secured convertible promissory note dated September 30, 2013 to Aspen Advanced Opportunity Fund, LP.** The note is convertible into Series A Stock and then Common Stock.

• The $300,000.00 secured convertible promissory note dated October 15, 2013 to Aspen Advanced Opportunity Fund, LP.** The note is convertible into Series A Stock and then Common Stock.

• The $500,000.00 secured convertible promissory note dated December 2, 2013 to Aspen Advanced Opportunity Fund, LP.** The note is convertible into Series A Stock and then Common Stock.

• The $100,000.00 secured convertible promissory note dated January 7, 2014 to Aspen Advanced Opportunity Fund, LP.** The note is convertible into Series A Stock and then Common Stock.

• The $700,000.00 secured convertible promissory note dated March 18, 2013 to Michael Knox.*** The note is convertible into Series A Stock and then Common Stock.

• The $200,000.00 secured convertible promissory note dated October 15, 2013 to XGS II, LLC, to which $490,575 will be transferred to the benefit of XGS II, LLC on the Closing Date.*** The note is convertible into Series A Stock and then Common Stock.

• The Options and Warrants set forth in Section 3.c.(i) of this Disclosure Annex.

** On the Closing Date, this note will be restated and consolidated with all other notes issued by the Company to Aspen Advanced Opportunity Fund, LP. The restated note will include capitalized interest through the Closing Date.

*** On the Closing Date, this note will be restated. The restated note will include capitalized interest through the Closing Date.

Section 3.g.(i).

The Company issued the secured convertible promissory notes that are described above to and entered into the related transaction documents with each of Aspen Advanced Opportunity Fund, LP, Michael Knox, and XGS II, LLC.

Section 3.g.(vii).

The Company is engaged in litigation with a former employee, Heather Sommers. Heather Sommers signed a separation agreement with the Company on July 27, 2012. On October 22, 2012, the Company received a complaint and demand for jury trial alleging wrongful termination, breach of implied employment contract, discharge against public policy, violations of civil rights laws, violations of the whistleblower protection act, and other claims. The Company’s insurer has reviewed the claim and advised the Company that the claim is covered by the Company’s standard officers and directors’ insurance policy. The insurer has assumed the defense of the claim. On September 24, 2013, the Circuit Court for the County of Ingham granted Defendant’s Motion for Summary Disposition, resolving all pending claims and closing the case. On October 30,2013 the same court denied Plaintiff’s Motion for Reconsideration.

Section 3.h,

In November of 2011, the Company entered into a license agreement between the Company and Cabot Corporation (“Cabot”), a copy of which has been supplied to the Buyer (the “License Agreement”). Subsequent to the execution of the License Agreement, Michigan State University (“MSU”) expressed concern regarding the form of the License Agreement, including whether any MSU technology might have been included in the License Agreement. After discussions among Cabot, MSU, and the Company, Cabot drafted a First Amendment to the License Agreement Between Cabot and the Company (the “Amendment”). The Amendment contains warranties, attested by both the Company and its Chief Scientist, Dr. Lawrence Drzal, asserting that no MSU technology had been improperly transferred to Cabot. The Company executed the Amendment on January 29, 2013, and has provided a copy to the Buyer. The Company understood that this matter was closed when it provided the Amendment to the Buyer. However, the Company subsequently learned that Cabot has not yet signed the Amendment because a new Vice President had been appointed. Additionally, the Company received a letter from MSU dated March 20, 2013 stating that MSU wanted to review this issue. The Company, Cabot, and MSU have been renegotiating the Amendment. MSU is currently engaged in an audit of the technology transfer package associated with the Cabot License Agreement.

Section 3.i.

The Company is engaged in litigation with a former employee, Heather Sommers. Heather Sommers signed a separation agreement with the Company on July 27, 2012. On October 22, 2012, the Company received a complaint and demand for jury trial alleging wrongful termination, breach of implied employment contract, discharge against public policy, violations of civil rights laws, violations of the whistleblower protection act, and other claims. The Company’s insurer has reviewed the claim and advised the Company that the claim is covered by the Company’s standard officers and directors’ insurance policy. The insurer has assumed the defense of the claim. On September 24, 2013, the Circuit Court for the County of Ingham granted Defendant’s Motion for Summary Disposition, resolving all pending claims and closing the case. On October 30, 2013, the same court denied Plaintiff’s Motion for Reconsideration.

Section 3.o.

The Company is obligated to pay SVIC No. 15 New Technology Business Investment L.L.P. transaction fees, up to $65,000, in connection with the transactions contemplated by the purchase agreement between SVIC No. 15 New Technology Business Investment L.L.P. and the Company.

The Company is obligated to pay the Buyer’s and Aspen Advanced Opportunity Fund, LP’s transaction fees, up to $150,000 and $25,000, respectively, in connection with the transactions contemplated by the Agreement.

Section 3.s.

The warrant to purchase 5,000 shares issued to Michael R. Knox contains an exercise price reset mechanism triggered by subsequent offerings of Common Stock. Pursuant to that mechanism, the price was reset from $20 to $12 on August 21, 2013.

The Company’s options and warrants contain anti-dilution protection with respect to stock splits, stock dividends, and other recapitalizations.

EX-10.21

Exhibit 10.21

XG SCIENCES, INC.

PURCHASE AGREEMENT

THIS PURCHASE AGREEMENT (this “Agreement”), dated as of January 15, 2014 (the “Effective Date”), is entered into by and between XG SCIENCES, INC., a Michigan corporation, with headquarters located at 3101 Grand Oak Drive, Lansing, Michigan 48911 (the “Company”), and SVIC No. 15 New Technology Business Investment L.L.P., whose principal address is as set forth in Section 12 herein (the “Buyer”, and together with the Company, the “Parties”).

WITNESSETH:

WHEREAS, the Buyer desires to provide $3,000,000 of new financing to the Company in exchange for the form of a secured convertible promissory note attached as Annex I hereto (the “Note”), of which XG Sciences IP, LLC, the Company’s wholly-owned Subsidiary (“XGS IP”), shall also be a maker;

WHEREAS, in connection with the Buyer’s purchase of the Note, the Company has agreed to issue to the Buyer a warrant (the “Warrant”) to purchase 100,000 shares of the Company’s Series A Convertible Preferred Stock (the “Series A Stock”), with the Warrant being in the form attached hereto as Annex II;

WHEREAS, prior to the Closing Date, the only secured indebtedness of the Company outstanding was held by: (i) Michael Knox (“Knox”), (ii) Aspen Advanced Opportunity Fund, LP (“Aspen”), and (iii) XGS II, LLC (“XGS II” and collectively with Knox and Aspen, the “Existing Creditors”), which was issued by the Company in the form of secured convertible promissory notes (the “Prior Notes”) pursuant to those certain purchase agreements dated March 18, 2013 and July 12, 2013 (the “Existing Creditor Original Purchase Agreements”), and each of Knox, Aspen and XGS II have entered into that certain Amended and Restated Intercreditor Agreement effective as of July 12, 2013 (the “Original Intercreditor Agreement”);

WHEREAS, the Company issued certain warrants to Aspen and XGS II pursuant to the Existing Creditor Original Purchase Agreement (“Prior Warrants”);

WHEREAS, in connection with the transactions contemplated herein, the Prior Notes shall be consolidated and restated, the Prior Warrants shall be amended and restated, and the Existing Creditor Original Purchase Agreements each shall be amended and restated (the “Restated Purchase Agreements”);

WHEREAS, the Existing Creditors have consented to the transactions contemplated herein pursuant to that certain Side Letter dated as of the Closing Date;

WHEREAS, the Company has granted to the Existing Creditors security interests in the Company’s assets as set forth in that certain amended and restated security agreement dated as of July 12, 2013 and that certain amended and restated intellectual property security agreement dated as of July 12, 2013, each of which are by and among the Company and the Existing Creditors (collectively, the “Prior Security Agreements”);

WHEREAS, the Company and the Buyer desire that the Buyer become a party to and beneficiary of each of the Prior Security Agreements by amending and restating each of the Prior Security Agreements effective as of the Closing Date in the form of: (A) a Second Amended and Restated Security Agreement in the form attached hereto as Annex III (the “Security Agreement”); and (B) a Second Amended and Restated Intellectual Property Security Agreement in the form attached hereto as Annex IV (the “IP Security Agreement”), each of which shall be by and among the Company, XGS IP, the Existing Creditors, and the Buyer;

WHEREAS, the Company, the Existing Creditors, and the Buyer desire to amend and restate the Original Intercreditor Agreement and enter into the Second Amended and Restated Intercreditor Agreement attached hereto as Annex VIII (the “Intercreditor Agreement”); and

WHEREAS, the Company and the Buyer are executing and delivering this Agreement in reliance upon the exemption from securities registration for offers and sales to accredited investors afforded, inter alia, by Rule 506 under Regulation D (“Regulation D”) as promulgated by the United States Securities and Exchange Commission (the “SEC”) under the Securities Act of 1933, as amended (the “1933 Act”), and/or Section 4(2) of the 1933 Act.

NOW THEREFORE, in consideration of the premises and the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties agree as follows:

1.            GENERAL AGREEMENTS.

a.           (i)         On the Closing Date, the Buyer hereby agrees to purchase from the Company, and the Company hereby agrees to sell to the Buyer, the Note with a principal amount of $3,000,000 upon and subject to the terms and conditions set forth herein. The Note issued to the Buyer shall be secured pursuant to the terms of the Security Agreement and the IP Security Agreement.

(ii)         On the Closing Date, the Company shall deliver the Warrant to purchase 100,000 shares of Series A Stock to the Buyer and take the other actions set forth in Section 7.

(iii)        The loan to be made by the Buyer through the Note and the issuance of the Note and the Warrant (the “Purchased Securities”) to the Buyer are sometimes referred to herein and in the other Transaction Agreements as the purchase and sale of the Purchased Securities.

b.           Delivery of Transaction Agreements. Upon the Closing Date, the Company will deliver executed copies of the Transaction Agreements.

c.           Certain Definitions. As used herein, each of the following terms has the meaning set forth below, unless the context otherwise requires:

“Affiliate” means, as to any Person: (a) any other Person that, directly or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, such Person; (b) any other Person who is a director or officer: (i) of such Person, (ii) of any subsidiary of such Person, or (iii) of any Person described in clause (a) above with respect to such Person; (c) any other Person which, directly or indirectly through one or more intermediaries, is the beneficial or record owner (as defined in Rule 13d-3 of the Securities Exchange Act of 1934, as amended (the “1934 Act”), as the same is in effect on the Effective Date) of five percent (5%) or more of any class of the outstanding voting stock, securities or other equity or ownership interests of such Person; and (d) in the case such Person is an individual, any other Person who is an immediate family member, spouse or lineal descendant of individuals of such Person or any Affiliate of such Person. For purposes of this definition, the term “control” (and the correlative terms, “controlled by” and “under common control with”) shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies, whether through ownership of securities or other interests, by contract or otherwise. “Affiliate” shall include any Subsidiary.

“Buyer Control Person” means the Buyer and each such other Persons as may be deemed in control of the Buyer pursuant to Rule 405 under the 1933 Act or Section 20 of the 1934 Act.

“By-laws” means the Amended and Restated By-laws of the Company (howsoever denominated), substantially in the form attached hereto as Annex VI.

“Certificate of Incorporation” means the certificate of incorporation, articles of incorporation or other charter document (howsoever denominated) of the Company, as amended to date.

“Certificate of Designations” means the Company’s Amended and Restated Certificate of Designations of Series A Convertible Preferred Stock, as amended pursuant to this Agreement.

“Certificate of Designations Amendment” means the amendment to the Certificate of Designations, in the form attached hereto as Annex V.

“Closing” means the closing of the transactions contemplated by this Agreement.

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“Closing Date” means the date of the Closing; the Parties shall use their best efforts to close the transactions contemplated by this Agreement on or before January 15, 2014.

“Common Stock” means the Company’s common stock, no par value.

“Company Control Person” means each director, executive officer, promoter, and such other Persons as may be deemed in control of the Company pursuant to Rule 405 under the 1933 Act or Section 20 of the 1934 Act.

“Conversion Shares” means: (i) the shares of Common Stock issued or issuable upon conversion of the Series A Stock (issued or issuable pursuant to the Purchased Securities), (ii) the shares of Series A Stock issued or issuable upon conversion of the Note or exercise of the Warrant, or (iii) any or all of them, as the context may require.

“Disclosure Annex” means Annex VII to this Agreement; provided, however, that the Disclosure Annex shall be arranged in sections corresponding to the identified Sections of this Agreement, but the disclosure in any such section of the Disclosure Annex shall qualify other provisions in this Agreement to the extent that it would be readily apparent to an informed reader from a reading of such section of the Disclosure Annex that it is also relevant to other provisions of this Agreement.

“Existing Creditor Term Sheet” means the Summary Term Sheet dated November 20, 2013 between the Company, Aspen, Knox, and XGS II.

“Full Conversion” means the deemed conversion of the Note into Series A Stock and then into Common Stock, the deemed conversion of any outstanding Series A Stock into Common Stock, and the deemed conversion of all other outstanding convertible debt and convertible equity securities of the Company into Common Stock.

“Holder” means the Person holding the relevant Securities at the relevant time.

“Last Audited Date” means December 31, 2012.

“Material Adverse Effect” means an event or combination of events, which individually or in the aggregate, would reasonably be expected to: (x) adversely affect the legality, validity or enforceability of the Purchased Securities or any of the Transaction Agreements, (y) have or result in a material adverse effect on the results of operations, assets, or financial condition of the Company and its subsidiaries, taken as a whole, or (z) adversely impair the Company’s ability to perform fully on a timely basis its material obligations under any of the Transaction Agreements or the transactions contemplated thereby.

“Person” means any living individual person or any legal entity, such as, but not necessarily limited to, a corporation, partnership or trust.

“Officer’s Certificate” means the Officer’s Certificate substantially in the form attached hereto as Annex IX.

“Purchased Securities” means the Note and the Warrant.

“Registrable Securities” means shares of Common Stock issuable to the Holder: (x) on conversion of the Series A Stock (issued or issuable pursuant to the Purchased Securities), or (y) pursuant to any other provision of the Transaction Agreements as of the date of the filing of the Registration Statement or any amendment thereof.

“Registration Rights Agreement” means the Second Amended and Restated Registration Rights Agreement substantially in the form attached hereto as Annex X.

“Registration Statement” means a registration statement covering the resale by the Holder of Registrable Securities, including the S-l Registration Statement.

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“Securities” means the Note, the Warrant and the Conversion Shares.

“Series A Stock” means Series A Convertible Preferred Stock of the Company.

“Shareholder Agreement” means the shareholder agreement in the form attached hereto as Annex XI. The Parties agree that the reference to the “Convertible Notes” in the Shareholder Agreement shall be deemed to include the Note that is issued pursuant to this Agreement.

“Shareholder Stock” and “Shareholder’s Stock” mean the shares of Common Stock, Series A Stock, and other capital stock of the Company that are now owned or are subsequently acquired by a shareholder by gift; conversion of the Note, Series A Stock, or other convertible debt or convertible equity securities of the Company; purchase; dividend; exercise of the Warrant or any other options, warrants or other security or right of any kind convertible into or exchangeable for Common Stock issued by the Company; or any other means whether or not such securities are only registered in a shareholder’s name or beneficially or are legally owned by such shareholder, including any interest of a spouse in any Shareholder Stock, whether that interest is asserted pursuant to marital property laws or otherwise.

“Shares” means the shares of Common Stock representing any or all of the Conversion Shares.

“Side Letter” means the agreement in letter form that is attached as Annex XII.

“State of Incorporation” means Michigan,

“Subsidiary” means, as of the relevant date, any subsidiary of the Company whether now existing or hereafter acquired or created.

“Transaction Agreements” means this Agreement, the Note, the Registration Rights Agreement, the Security Agreement, the IP Security Agreement, the Warrant, the Certificate of Designations Amendment, the Intercreditor Agreement, the Voting Rights Agreement, the Side Letter, and the Disclosure Annex and includes all ancillary documents referred to in those agreements, and each of those agreements as may be amended.

“Voting Rights Agreement” means the Voting Rights Agreement substantially in the form attached as Annex XIII.

“Warrant” means the warrant to purchase Series A Stock, substantially in the form attached as Annex II.

2.            BUYER REPRESENTATIONS, WARRANTIES, ETC.; ACCESS TO INFORMATION; INDEPENDENT INVESTIGATION.

The Buyer represents and warrants to, and covenants and agrees with, the Company, as of the Effective Date and as of the Closing Date, as follows:

a.           Without limiting Buyer’s right to sell the Securities pursuant to an effective registration statement or otherwise in compliance with the 1933 Act, the Buyer is purchasing the Securities for the Buyer’s own account for investment only and not with a view towards the public sale or distribution thereof and not with a view to or for sale in connection with any distribution thereof.

b.           The Buyer is: (i) an “accredited investor” as that term is defined in Rule 501 of the General Rules and Regulations under the 1933 Act; (ii) experienced in making investments of the kind described in this Agreement and the other Transaction Agreements; (iii) able, by reason of the business and financial experience of the Buyer and the Buyer’s professional advisors (who are not affiliated with or compensated in any way by the Company or any of its Affiliates or selling agents), to protect the Buyer’s own interests in connection with the transactions described in this Agreement and the other Transaction Agreements, and to evaluate the merits and risks of an investment in the Securities; and (iv) able to afford the entire loss of its investment in the Securities.

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c.           All subsequent offers and sales of the Securities by the Buyer shall be made pursuant to registration of the relevant Securities under the 1933 Act or pursuant to an exemption from such registration.

d.           The Buyer understands and agrees that the Securities have not been registered under the 1933 Act or any applicable state securities laws, by reason of their issuance in a transaction that does not require registration under the 1933 Act (based in part on the accuracy of the representations and warranties of the Buyer contained herein), and that such Securities must be held indefinitely unless a subsequent disposition is registered under the 1933 Act or any applicable state securities laws or is exempt from such registration. The Buyer understands that the Securities are being offered and sold to the Buyer in reliance on specific exemptions from the registration requirements of the 1933 Act and state securities laws and that the Company is relying upon the truth and accuracy of, and the Buyer’s compliance with, the representations, warranties, agreements, acknowledgments and understandings of the Buyer set forth herein in order to determine the availability of such exemptions and the eligibility of the Buyer to acquire the Securities.

e.           The Buyer and the Buyer’s advisors, if any, have been furnished with or have been given access to all materials relating to the business, finances and operations of the Company and materials relating to the offer and sale of the Securities which have been requested by the Buyer, including those set forth in any annex attached hereto. The Buyer and the Buyer’s advisors, if any, have been afforded the opportunity to ask questions of the Company and its management and have received complete and satisfactory answers to any such inquiries.

f.            The Buyer understands that its investment in the Securities involves a high degree of risk.

g.           The Buyer hereby represents that, in connection with the Buyer’s investment or the Buyer’s decision to purchase the Securities, the Buyer has not relied on any statement or representation of any Person, including any such statement or representation by the Company or any of their respective controlling Persons, officers, directors, partners, agents and employees or any of their respective attorneys, except as specifically set forth herein.

h.           The Buyer understands that no United States federal or state agency or any other government or governmental agency has passed on or made any recommendation or endorsement of the Securities or the suitability of the investment in the Securities nor have any such authorities passed upon or endorsed the merits of the offering of the Securities.

i.            This Agreement and each of the other Transaction Agreements to which the Buyer is a party, and the transactions contemplated hereby and thereby, have been duly and validly authorized by the Buyer. This Agreement has been executed and delivered by the Buyer, and this Agreement is, and each of the other Transaction Agreements to which the Buyer is a party, when executed and delivered by the Buyer (if necessary), will be valid and binding obligations of the Buyer enforceable in accordance with their respective terms, subject as to enforceability to general principles of equity and to bankruptcy, insolvency, moratorium and other similar laws affecting the enforcement of creditors’ rights generally.

j.            The offer to sell the Securities was directly communicated to the Buyer by the Company. At no time was the Buyer presented with or solicited by any leaflet, newspaper or magazine article, radio or television advertisement, or any other form of general advertising or solicited or invited to attend a promotional meeting otherwise than in connection and concurrently with such communicated offer.

k.          The execution, delivery and performance of this Agreement and the consummation by the Buyer of the transactions contemplated hereby or relating hereto do not and will not conflict with, or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of any agreement, indenture or instrument or obligation to which the Buyer is a party or by which its properties or assets are bound, or result in a violation of any law, rule, or regulation, or any order, judgment or decree of any court or governmental agency applicable to such Buyer or its properties (except for such conflicts, defaults and violations as would not, individually or in the aggregate, have a material adverse effect on the Buyer’s ability to fulfill its obligations under this Agreement or the other Transaction Agreements). The Buyer is not required to obtain any consent, authorization or order of, or make any filing or registration with, any court or governmental agency in order for it to execute, deliver or perform any of its obligations under this Agreement or to purchase the Securities in accordance with the terms hereof, provided that for purposes of the representation made in this sentence, the Buyer is assuming and relying upon the accuracy of the relevant representations and agreements of the Company herein.

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l.            The Buyer is a limited liability partnership under the Amended Korean Commercial Code duly organized, validly existing and in good standing under the laws of the Republic of Korea and has the requisite power to own its properties and to carry on its business as now being conducted.

m.           “Bad Actor” Disqualification. The Buyer represents and warrants on behalf of itself and its Affiliates that neither: (x) such Person; nor (y) any entity that controls such Person or is under the control of, or under common control with, such Person; nor (z) any director of the Company that has been designated by such Person, if applicable; is subject to any Disqualification Event (as defined in Section 3(k)(6) below), except for Disqualification Events covered by Rule 506(d)(2)(ii) or (iii) under the 1933 Act and disclosed in writing in reasonable detail to the Company. Buyer represents that it has exercised reasonable care to determine the accuracy of the representation made by it this Section 2(m) and agrees to notify the Company if it becomes aware of any fact that makes the representation given by it hereunder inaccurate.

3.            COMPANY REPRESENTATIONS, WARRANTIES, ETC. The Company represents and warrants to the Buyer as of the Effective Date and as of the Closing Date that, except as otherwise provided in the Disclosure Annex:

a.           Rights of Others Affecting the Transactions. Except as set forth in the Disclosure Annex, there are no preemptive rights of any stockholder of the Company to acquire the Securities that have not otherwise been waived or adjudicated with any stockholders of the Company. No other party has a currently exercisable right of first refusal which would be applicable to any or all of the transactions contemplated by the Transaction Agreements. Except as set forth in the Disclosure Annex, no Person has, and as of the Closing Date, no Person shall have, any demand, “piggy-back” or other rights to cause the Company to file any registration statement under the 1933 Act relating to any of its securities or to participate in any such registration statement.

b.           Status. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Incorporation and has the requisite corporate power to own its properties and to carry on its business as now being conducted. The Company is duly qualified as a foreign corporation to do business and is in good standing in each jurisdiction where the nature of the business conducted or property owned by it makes such qualification necessary, other than those jurisdictions in which the failure to so qualify would not have or result in a Material Adverse Effect.

c.           Authorized Shares.

(i)          The capitalization of the Company (including the number of shares of each class of stock which is authorized and the number of such shares which are outstanding) is as set forth in the Disclosure Annex.

(ii)         Except as set forth in the Disclosure Annex, there are no outstanding securities which are exercisable for, exchangeable for or convertible into shares of Common Stock or exercisable for, exchangeable for or convertible into instruments which are convertible into shares of Common Stock, whether such exercise, exchange or conversion is currently exercisable or exercisable only upon some future date or the occurrence of some event in the future. If any such securities are listed on the Disclosure Annex, the number or amount of each such outstanding convertible security and the conversion terms are set forth in said Disclosure Annex.

(iii)        All issued and outstanding shares of Common Stock have been duly authorized and validly issued and are fully paid and non-assessable. The Company has sufficient authorized and unissued shares of Common Stock as may be necessary to effect the issuance of the Shares on the Closing Date, were the Note fully converted on that date. In addition, the Company has sufficient authorized and unissued shares of Common Stock as may be necessary to effect the issuance of any other shares of Common Stock in connection with any other securities previously issued by the Company that are convertible or exchangeable into Common Stock including all such securities listed in the Disclosure Annex.

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(iv)        The Shares have been duly authorized by all necessary corporate action on the part of the Company, and, when issued on conversion of, or in payment of interest on, the Note will have been duly and validly issued, fully paid and non-assessable and will not subject the Holder thereof to personal liability by reason of being such Holder.

d.           Transaction Agreements and Stock. This Agreement and each of the other Transaction Agreements, and the transactions contemplated hereby and thereby, have been duly and validly authorized by the Company. This Agreement has been duly executed and delivered by the Company and this Agreement is, and the Note and each of the other Transaction Agreements, when executed and delivered by the Company (if necessary), will be valid and binding obligations of the Company enforceable in accordance with their respective terms, subject as to enforceability to general principles of equity and to bankruptcy, insolvency, moratorium, and other similar laws affecting the enforcement of creditors’ rights generally.

e.           Non-contravention. The execution and delivery of this Agreement and each of the other Transaction Agreements by the Company, the issuance of the Securities in accordance with the terms hereof, and the consummation by the Company of the other transactions contemplated by this Agreement, the Note, the Warrant and the other Transaction Agreements do not and will not conflict with or result in a breach by the Company of any of the terms or provisions of, or constitute a default under: (i) the Certificate of Incorporation or By-laws, each as currently in effect and as amended, (ii) any indenture, mortgage, deed of trust, or other material agreement or instrument to which the Company is a party or by which it or any of its properties or assets are bound, including any listing agreement for the Common Stock except as herein set forth, or (iii) to its knowledge, any existing applicable law, rule, or regulation or any applicable decree, judgment, or order of any court, United States federal or state regulatory body, administrative agency, or other governmental body having jurisdiction over the Company or any of its properties or assets, except such conflict, breach or default which would not have or result in a Material Adverse Effect. The timely payment of interest on the Note is not prohibited by the Certificate of Incorporation or By-Laws, or any agreement, contract, document or other undertaking to which the Company is a party.

f.            Securities Law Matters; Approvals.

(i)          No authorization, approval or consent of any court, governmental body, regulatory agency, self-regulatory organization, or stock exchange or market or the stockholders of the Company is required to be obtained by the Company for the issuance and sale of the Securities to the Buyer as contemplated by this Agreement, except such authorizations, approvals and consents that have been obtained.

(ii)         Assuming the accuracy of the representations and warranties of the Buyer set forth in Section 2, the offer and sale by the Company of the Purchased Securities is exempt from: (A) the registration and prospectus delivery requirements of the 1933 Act and the rules and regulations of the SEC thereunder, and (B) the registration and/or qualification provisions of all applicable state and provincial securities and “blue sky” laws.

g.           Absence of Certain Changes. Since the Last Audited Date, there has been no Material Adverse Effect, except as disclosed in the Disclosure Annex. Since the Last Audited Date, except as provided in the Disclosure Annex, the Company has not: (i) incurred or become subject to any material liabilities (absolute or contingent) except liabilities incurred in the ordinary course of business consistent with past practices; (ii) discharged or satisfied any material lien or encumbrance or paid any material obligation or liability (absolute or contingent), other than current liabilities paid in the ordinary course of business consistent with past practices, (iii) declared or made any payment or distribution of cash or other property to stockholders with respect to its capital stock, or purchased or redeemed, or made any agreements to purchase or redeem, any shares of its capital stock; (iv) sold, assigned or transferred any other material tangible assets, or canceled any material debts owed to the Company by any third party or material claims of the Company against any third party, except in the ordinary course of business consistent with past practices; (v) waived any rights of material value, whether or not in the ordinary course of business, or suffered the loss of any material amount of existing business; (vi) made any increases in employee compensation, except in the ordinary course of business consistent with past practices; or (vii) experienced any material problems with labor or management in connection with the terms and conditions of their employment.

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h.           Full Disclosure. There is no fact known to the Company (other than conditions disclosed in the Disclosure Annex) that has not been disclosed in writing to the Buyer that would reasonably be expected to have or result in a Material Adverse Effect.

i.            Absence of Litigation. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board or body pending or, to the knowledge of the Company, threatened against or affecting the Company before or by any governmental authority or non-governmental department, commission, board, bureau, agency or instrumentality or any other person, wherein an unfavorable decision, ruling or finding would have a Material Adverse Effect or which would adversely affect the validity or enforceability of, or the authority or ability of the Company to perform its obligations under, any of the Transaction Agreements. The Company is not aware of any valid basis for any such claim that (either individually or in the aggregate with all other such events and circumstances) could reasonably be expected to have a Material Adverse Effect. Except as set forth in the Disclosure Annex, there are no outstanding or unsatisfied judgments, orders, decrees, writs, injunctions or stipulations to which the Company is a party or by which it or any of its properties is bound, that involve the transaction contemplated herein or that, alone or in the aggregate, could reasonably be expect to have a Material Adverse Effect.

j.            Absence of Events of Default. Except as set forth in Disclosure Annex, no event of default (or its equivalent term), as defined in the respective agreement to which the Company or its Subsidiary is a party, and no event which, with the giving of notice or the passage of time or both, would become an event of default (or its equivalent term) (as so defined in such agreement), has occurred and is continuing, which would have a Material Adverse Effect.

k.          Absence of Certain Company Control Person Actions or Events. To the Company’s knowledge, except as disclosed in the Disclosure Annex, none of the following has occurred during the past two (2) years with respect to a Company Control Person:

(1) A petition under the federal bankruptcy laws or any state insolvency law was filed by or against, or a receiver, fiscal agent or similar officer was appointed by a court for the business or property of such Company Control Person, or any partnership in which he was a general partner at or within two years before the time of such filing, or any corporation or business association of which he was an executive officer at or within two years before the time of such filing;

(2) Such Company Control Person was convicted in a criminal proceeding or is a named subject of a pending criminal proceeding (excluding traffic violations and other minor offenses);

(3) Such Company Control Person was the subject of any order, judgment or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining him from, or otherwise limiting, the following activities:

(i) acting, as an investment advisor, underwriter, broker or dealer in securities, or as an affiliated person, director or employee of any investment company, bank, savings and loan association or insurance company, as a futures commission merchant, introducing broker, commodity trading advisor, commodity pool operator, floor broker, any other Person regulated by the Commodity Futures Trading Commission (“CFTC”) or engaging in or continuing any conduct or practice in connection with such activity;

(ii) engaging in any type of business practice; or

(iii) engaging in any activity in connection with the purchase or sale of any security or commodity or in connection with any violation of federal or state securities laws or federal commodities laws;

(4) Such Company Control Person was the subject of any order, judgment or decree, not subsequently reversed, suspended or vacated, of any federal or state authority barring, suspending or otherwise limiting for more than sixty (60) days the right of such Company Control Person to engage in any activity described in paragraph (3) of this item, or to be associated with Persons engaged in any such activity; or

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(5) Such Company Control Person was found by a court of competent jurisdiction in a civil action or by the CFTC or SEC to have violated any federal or state securities law, and the judgment in such civil action or finding by the CFTC or SEC has not been subsequently reversed, suspended, or vacated.

(6) The Company has exercised reasonable care to determine whether any Company Covered Person (as defined below) is subject to any of the “bad actor” disqualifications described in Rule 506(d)(l)(i) through (viii), as modified by Rules 506(d)(2) and (d)(3), under the 1933 Act (“Disqualification Events”). To the Company’s knowledge, no Company Covered Person is subject to a Disqualification Event. The Company has complied, to the extent required, with any disclosure obligations under Rule 506(e) under the 1933 Act. For purposes of this Agreement, “Company Covered Persons” are those persons specified in Rule 506(d)(1) under the 1933 Act; provided, however, that Company Covered Persons do not include (a) the Buyer, (b) any person or entity that is deemed to be an affiliated issuer of the Company solely as a result of the relationship between the Company and the Buyer, or (c) any director of the Company that has been designated by the Buyer.

l.            No Undisclosed Liabilities or Events. The Company has no liabilities or obligations other than those disclosed in the Transaction Agreements or those incurred in the ordinary course of the Company’s business since the Last Audited Date, or which individually or in the aggregate, do not or would not have a Material Adverse Effect. No event or circumstance has occurred or exists with respect to the Company or its properties, business, operations, condition (financial or otherwise), or results of operations, which, under applicable law, rule or regulation, requires public disclosure or announcement prior to the Effective Date by the Company but which has not been so publicly announced or disclosed. There are no proposals currently under consideration or currently anticipated to be under consideration by the Board of Directors or the executive officers of the Company which proposal would, other than as contemplated in the Transaction Agreements: (x) change the Certificate of Incorporation or the By-laws (except for the By-law restatement contemplated in connection with the consummation of the transactions contemplated herein as set forth in Annex VI), each as currently in effect, with or without stockholder approval, which change would reduce or otherwise adversely affect the rights and powers of the stockholders of the Common Stock, or (y) materially or substantially change the business, assets or capital of the Company, including its interests in subsidiaries. All unsatisfied judgments against the Company are disclosed in the Disclosure Annex.

m.           No Integrated Offering. Neither the Company nor any of its Affiliates nor any Person acting on its or their behalf has, directly or indirectly, at any time since January 1, 2007, made any offer or sales of any security or solicited any offers to buy any security under circumstances that would eliminate the availability of the exemption from registration under Regulation D in connection with the offer and sale of the Securities as contemplated hereby.

n.           Dilution. Each of the Company and its executive officers and directors is aware that the number of Conversion Shares issuable on conversion of the Note into Series A Stock, exercise of the Warrant for Series A Stock, or the conversion of Series A Stock into Common Stock, or pursuant to the other terms of the Transaction Agreements may have a dilutive effect on the ownership interests of the other stockholders (and Persons having the right to become stockholders) of the Company, The Company specifically acknowledges that its obligation to issue the Conversion Shares upon such instances is binding upon the Company and enforceable regardless of the dilution such issuances may have on the ownership interests of other stockholders of the Company, and the Company will honor such obligations, including, but not necessarily limited to, honoring every notice of conversion (as contemplated by the Note or the Series A Stock) or notice of exercise (as contemplated by the Warrant), unless the Company is subject to an injunction (which injunction was not sought by the Company) prohibiting the Company from doing so.

o.           Fees to Brokers, Finders and Others. Buyer shall have no obligation with respect to such fees or with respect to any claims made by or on behalf of other Persons for fees of a type contemplated in this paragraph that may be due in connection with the transactions contemplated hereby except such fees as set forth on the Disclosure Annex. The Company shall indemnify and hold harmless each of Buyer, its employees, officers, directors, agents, and partners, and their respective Affiliates, from and against all claims, losses, damages, costs (including the costs of preparation and attorney’s fees) and expenses suffered in respect of any such claimed or existing fees.

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p.           Tax Returns. The Company and each of its Subsidiaries has made and filed all federal and state income and all other tax returns, reports and declarations required by any jurisdiction to which it is subject and (unless and only to the extent that the Company and each of its Subsidiaries has set aside on its books provisions reasonably adequate for the payment of all unpaid and unreported taxes) has paid all taxes and other governmental assessments and charges that are material in amount, shown or determined to be due on such returns, reports and declarations, except those being contested in good faith and has set aside on its books provision reasonably adequate for the payment of all taxes for periods subsequent to the periods to which such returns, reports or declarations apply. Except as disclosed on the Disclosure Annex, there are no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and the officers of the Company know of no basis for any such claim.

q.           Disclosure. All information relating to or concerning the Company set forth in the Transaction Agreements is true and correct in all material respects and the Company has not omitted to state any material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading. No event or circumstance has occurred or exists or is about to occur which has resulted in or would result in an Material Adverse Effect with respect to the Company or its business, properties, prospects, operations or financial conditions, which has not been disclosed on the Disclosure Annex.

r.            Existence of Other Secured Indebtedness. The Company represents and warrants that other than holders of Permitted Liens (as defined in the Note) (a) there are no other secured creditors of the Company except for the Buyer, Aspen, Knox, and XGS II, and (b) all of such other secured creditors have each executed the Security Agreement, the IP Security Agreement and the Intercreditor Agreement.

s.          Anti-Dilution Rights of Holders of Convertible Debt and Other Equity-Linked Securities Issued by the Company. The Company represents and warrants that, except as set forth in the Disclosure Annex, no convertible debt or other equity-linked securities, including, but not limited to warrants to purchase common stock, containing any kind of anti-dilution or conversion price or exercise price reset mechanism triggered by subsequent issuance of equity-linked securities to third parties have been previously issued to any parties.

t.            Shareholder Agreement. The Company represents and warrants that at least ninety percent (90%) of its existing shareholders have executed the Shareholder Agreement prior to the Closing Date.

u.           Certificate of Designation. The Company represents and warrants that the Certificate of Designation Amendment has been approved by the Board of Directors as of the Closing Date and will be filed with the State of Michigan as of the Closing Date.

4.            CERTAIN COVENANTS AND ACKNOWLEDGMENTS.

a.           Transfer Restrictions. The Buyer acknowledges that: (1) the Purchased Securities have not been and are not being registered under the provisions of the 1933 Act and the Shares have not been and are not being registered under the 1933 Act, and may not be transferred unless: (A) subsequently registered thereunder, or (B) the Buyer shall have delivered to the Company an opinion of counsel, reasonably satisfactory in form, scope and substance to the Company, to the effect that the Securities to be sold or transferred may be sold or transferred pursuant to an exemption from such registration, (2) any sale of the Securities made in reliance on Rule 144 of the 1933 Act may be made only in accordance with the terms of said rule and further, if said rule is not applicable, any resale of such Securities under circumstances in which the seller, or the Person through whom the sale is made, may be deemed to be an underwriter, as that term is used in the 1933 Act, may require compliance with some other exemption under the 1933 Act or the rules and regulations of the SEC thereunder, and (3) neither the Company nor any other Person is under any obligation to register the Securities under the 1933 Act or to comply with the terms and conditions of any exemption thereunder except pursuant to this Agreement.

b.           Restrictive Legend. The Buyer acknowledges and agrees that, until such time as the relevant Conversion Shares have been registered under the 1933 Act and may be sold in accordance with an effective registration statement, or until such Conversion Shares can otherwise be sold without restriction, whichever is earlier, the certificates and other instruments representing any of the Purchased Securities shall bear a restrictive legend in substantially the following form (and a stop-transfer order may be placed against transfer of any such Securities):

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THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR UNDER THE SECURITIES LAWS OF CERTAIN STATES. THESE SECURITIES MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED EXCEPT AS PERMITTED UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS IN ACCORDANCE WITH APPLICABLE REGISTRATION REQUIREMENTS OR AN EXEMPTION THEREFROM. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE ISSUER THAT SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION OTHERWISE COMPLIES WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS. THIS CERTIFICATE MUST BE SURRENDERED TO THE COMPANY OR ITS TRANSFER AGENT AS A CONDITION PRECEDENT TO THE SALE, TRANSFER, PLEDGE OR HYPOTHECATION OF ANY INTEREST IN ANY OF THE SECURITIES REPRESENTED HEREBY.

c.           Filings. The Company undertakes and agrees to make all filings required to be made by it in connection with the sale of the Purchased Securities to the Buyer under the 1933 Act, the 1934 Act or any United States state securities laws and regulations thereof applicable to the Company or by the rules and regulations of any securities exchange on which its securities are listed.

d.           Use of Proceeds. The Company will use the net proceeds received hereunder for general corporate purposes, including growth and capital initiatives.

e.           Available Shares. The Company shall have at all times authorized and reserved for issuance, free from preemptive rights, a number of shares (the “Reserved Amount”) at least equal to the sum of: (y) one hundred ten percent (110%) of the Series A Stock issuable upon conversion of the Note and exercise of the Warrant, and (z) one hundred ten percent (110%) of the number of shares of Common Stock issuable upon conversion of the Series A Stock, at any time, to satisfy the rights of the Holders of any of the Purchased Securities through the maturity date of each such security plus interest thereon through the maturity date (in each case, whether any of such outstanding Purchased Securities were originally issued to the Holder, the Buyer or to any other party and without regard to any restrictions which might limit any Holder’s right to convert any of the Purchased Securities held by such Holder). The Company shall give written instructions to its transfer agent, if any, to reserve for issuance to the Buyer the number of shares equal to the Reserved Amount. The Company will, at the request of the Buyer, provide written confirmation, certified by an executive officer of the Company, of the number of shares then reserved for the Buyer and that the instructions referred to in the preceding sentence have been given to the Company’s transfer agent, if any.

f.            Registration Rights Agreement. The Company shall have entered into the Registration Rights Agreement with the Buyer and the Existing Creditors effective as of the Closing Date.

g.           Publicity, Filings, Releases, Etc. Each of the Parties agrees that it will not disseminate any information relating to the Transaction Agreements or the transactions contemplated thereby, including issuing any press releases, holding any press conferences or other forums, or filing any reports (collectively, “Publicity”), without giving the other Party reasonable advance notice and an opportunity to comment on the contents thereof. Neither Party will include in any such Publicity any statement or statements or other material to which the other Party reasonably objects, unless in the reasonable opinion of counsel to the Party proposing such statement, such statement is legally required to be included.

h.           Keeping of Records and Books of Account. The Company shall keep and cause each Subsidiary, if any, to maintain a standard and uniform system of accounting and to keep adequate records and books of account, in which complete entries will be made in accordance with GAAP consistently applied, reflecting ail financial transactions of the Company and such subsidiaries, and in which, for each fiscal year, all proper reserves for depreciation, depletion, obsolescence, amortization, taxes, bad debts and other purposes in connection with its business shall be made.

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i.            Transactions with Affiliates. While the Note is outstanding, neither the Company nor any of its Subsidiaries shall, directly or indirectly, enter into any material transaction or agreement with any stockholder, officer, director or Affiliate of the Company or family member of any officer, director or Affiliate of the Company, unless the transaction or agreement is: (i) reviewed and approved by a majority of Independent Directors (as such term is hereinafter defined), and (ii) on terms no less favorable to the Company or the applicable Subsidiary than those obtainable from a non-affiliated person. The term “Independent Director” means a director who is not an executive officer or employee of the Company and who does not have a relationship that, in the reasonable opinion of the Company’s board of directors, would interfere with the person’s exercise of independent judgment in carrying out his or her responsibilities as a director. A director nominated by the Buyer, Aspen, POSCO, or Hanwha Chemical Company is not an Independent Director.

j.            Certain Restrictions. While the Note is outstanding, without the consent of the Buyer no dividends shall be declared or paid or set apart for payment nor shall any other distribution be declared or made upon any capital stock of the Company, nor shall any capital stock of the Company be redeemed, purchased or otherwise acquired (other than a redemption, purchase or other acquisition of shares of Common Stock made for purposes of an employee incentive or benefit plan (including a stock option plan) of the Company or pursuant to the security agreements, if any, listed on the Disclosure Annex) for any consideration by the Company, directly or indirectly, nor shall any moneys be paid to or made available for a sinking fund for the redemption of any Common Stock.

k.           Information Rights. So long as the Buyer holds any Securities of the Company, the Company will deliver to the Buyer audited annual and unaudited quarterly financial statements, annual budgets and other information reasonably requested by Buyer or any Affiliates thereof. The Company shall also permit the Buyer or its authorized representatives, to visit and inspect the properties of the Company, including its corporate and financial records, and to discuss its business and finances with officers of the Company and make copies of any financial or other business records that the Buyer deems appropriate in its sole discretion, during normal business hours following reasonable notice and as often as may be reasonably requested. Notwithstanding the forgoing, Buyer agrees that it will enter into a mutually satisfactory form of confidentiality agreement prior to making any copies of records, if requested by the Company.

l.            Expenses. If the transactions contemplated herein close on the Closing Date, then the Company agrees that it will reimburse the Buyer for all fees and expenses in connection with these transactions promptly upon submission of proof of such expenses but in no case later than fifteen (15) business days after such submission. Such fees and expenses will include all legal and accounting fees, documentary stamp taxes, UCC filing fees and such other out of pocket expenses; provided, however, that such reimbursements will not exceed $65,000 in the aggregate.

m.          Preemptive Rights. The Company agrees that it will open a new round of preemptive rights financing pursuant to which the Company’s stockholders will be permitted to purchase one (1) share of Series A Stock at a purchase price of $12 per share (each a “Preemptive Share”) for every two (2) shares of Series A Stock and/or Common Stock owned by such stockholder on the Closing Date. Furthermore, for every two (2) Preemptive Shares purchased by a stockholder, the Company will issue that stockholder a warrant to purchase one (1) additional share of Series A Stock substantially in the form attached hereto as Annex XIV (the “Preemptive Warrants”). The preemptive rights granted in this section will expire on March 31, 2014. The Company shall also retroactively issue Preemptive Warrants, on the same terms set forth herein, to those stockholders who participated in the preemptive rights round expiring on October 31, 2013.

n.           Registration Statement on Form S-l. The Company agrees to use its best efforts to complete and file an initial Registration Statement on Form S-1 (the “S-1 Registration Statement”) with the U.S. Securities and Exchange Commission to register shares of the Company’s Common Stock, consisting of such shares identified by and agreed to by the Buyer, before March 31, 2014 or such other date as may be mutually agreed upon by the Parties in writing. The Company further agrees that it will use commercially reasonable efforts to clear any comments that the SEC may have during the registration process and have such S-1 Registration Statement declared effective by June 30, 2014.

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o.           Public Listing of the Company’s Common Stock. Providing that the SEC has declared the S-1 Registration Statement effective by such time, the Company agrees to use its best efforts to have its Common Stock become publicly-traded on the New York Stock Exchange, the NYSE Amex, or the NASDAQ Capital Market, or become qualified by and quoted on the OTCQB, OTCQX, or OTC PINK marketplace operated by the OTC Markets Group, Inc. or any successor thereto, before June 30, 2014 or such other date that as may be mutually agreed upon.

p.           Access to Monthly Financial Records. The Company agrees that it will provide its monthly unaudited financial statements to the Buyer upon reasonable request therefore or enable a mechanism whereby representatives of the Buyer can remotely access the Company’s general ledger accounting during all times that either: (a) the Note is outstanding, or (b) the Buyer and its Affiliates own ten percent (10%) or more of the aggregate outstanding Shareholder Stock (calculated on a Full Conversion basis).

q.           Most Favored Nation. If the Company sells or licenses the Company’s products, services, property, or technology (the “Company Products”) to Samsung or an Affiliate of Samsung, then the terms and conditions of such sale or license, including price and discounts, will be more favorable when taken as a whole than the terms and conditions that are provided under comparable business conditions and purchase volumes to similarly situated customers or licensees of the Company that are purchasing or licensing, as applicable, the same (in all material respects) Company Products. The right granted in this subparagraph q will expire on the earlier of: (A) the fifth (5^th) anniversary of the Closing Date of this Agreement, or (B) the date of the closing of: (y) the sale, lease or other disposition of all or substantially all of the assets of the Company, or (z) a merger, acquisition, or other similar transaction in which the holders of Shareholder Stock immediately before the closing of such transaction own less than a majority of the voting power of the entity surviving such transaction.

r.            Merger and Acquisition Notification. If the Company receives or initiates an Acquisition Proposal, then the Company must give written notice of the Acquisition Proposal to the Buyer and Aspen within 48 hours after receiving or initiating the Acquisition Proposal (the “M&A Notice”). The M&A Notice shall state: (i) the primary business of the Persons that would be parties to the transaction contemplated in the Acquisition Proposal (but excluding the name of such business or Person), and (ii) the implied value of the transaction contemplated in the Acquisition Proposal, plus or minus twenty percent (20%). “Acquisition Proposal” means: (i) the receipt of a bona fide offer whereby the Company would: (y) be a party to a merger, consolidation, or other business combination, whereby the holders of Shareholder Stock immediately prior to such transaction would have beneficial ownership of less than a majority of the combined voting power of the surviving entity following such transaction, or (z) sell, lease, or otherwise dispose of all or substantially all of its assets; or (ii) the approval by the Board of Directors of the making of an offer to a Person, other than Aspen or any existing Company stockholder, to (y) sell forty percent (40%) or more of the total voting power of the Company, or (ii) sell, lease, or otherwise dispose of all or substantially all of the Company’s assets. The right of the Buyer and Aspen to receive an M&A Notice shall cease upon the earlier of: (i) the date of the listing of the Company’s securities pursuant to a Registration Statement filed by the Company under the 1933 Act, or (ii) provided that the Company has complied with the provisions of this subparagraph, the date of closing of any transaction contemplated in an Acquisition Proposal.

s.          Joint Development Agreements. The Buyer shall assist the Company in negotiating and entering into one or more Joint Development Agreements (“JDA”) with Samsung SDI Co., Ltd. (“Samsung SDI”) or other Affiliates of the Buyer on terms that are mutually acceptable and negotiated in good faith. Any JDA between the Company and Samsung SDI or other Affiliate of the Buyer (each a “Samsung Affiliate”) shall include the terms set forth in 1. through 4. below:

1.          The JDA will be governed by the laws of the United States of America.

2.          The Company and the Samsung Affiliate will each retain sole ownership of their respective Background IP. “Background IP” means any and all data, drawings, processes, materials, methods, know-how, inventions, discoveries, ideas and other technical information which: (i) is developed before the effective date of the applicable JDA, and (ii) the Company or the Samsung Affiliate has the right to disclose and grant licenses or sublicenses to the other party without any obligations.

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3.          Sole Foreground IP will be solely owned by the party who developed it and such party shall be solely responsible for determining whether to make patent applications with respect thereto and shall bear the costs in respect thereof. “Sole Foreground IP” means any Foreground IP that is separately conducted at one party’s own facilities without incorporating and/or embodying proprietary and confidential information of the other party’s Background IP provided by the other party. “Foreground IP” means any inventions, creations, modifications, derivatives, improvements, enhancements, know-how, idea, method or other technology, including any and all intellectual property rights thereto, which arise out of development work under any JDA.

4.          Joint Foreground IP will be co-owned by the Company and the Samsung Affiliate and such parties will negotiate the remaining rights and terms governing the use of the Joint Foreground IP in good faith pursuant to the applicable JDA. “Joint Foreground IP” means any Foreground IP that is conducted jointly at either party’s facilities, or conducted separately by one party at that party’s own facilities but incorporating and/or embodying proprietary and confidential information of the other party’s Background IP provided by the other party or contained in written information proven to be provided by the other party.

The covenants set forth in this subparagraph 4.s. shall survive any conversion of the Note into Conversion Shares; provided that such survival shall not affect the terms of any JDA between the Company and a Samsung Affiliate.

t.            JDA Output Exclusivity. If Joint Foreground IP is developed under any JDA between the Company and a Samsung Affiliate, then the Samsung Affiliate shall have the right of first refusal to commercialize any such JDA output on an exclusive basis for a period equal to the lesser of: (a) two years from the date of the originally contemplated contractual end of the JDA, or (b) three years from the date of the execution of the original JDA. If the Buyer or the Samsung Affiliate does not agree to “begin commercializing” any such JDA output within six months of the date on which such JDA output has been finalized, then the Company will be free to sell such JDA output to other third parties at its discretion. The Parties will negotiate a definition of the phrase “begin commercializing” in good faith as part of the JDA, and such term will identify measurable criteria (e.g., size of orders placed by the Samsung Affiliate with the Company) such that an independent third party could readily ascertain whether the Buyer or the Samsung Affiliate has begun commercializing the JDA output.

u.           Board Rights. If there is a vacancy on the Company’s board of directors on the Closing Date that may be filled by the members of the board of directors, then the Company will use its best efforts to have appointed a person that is mutually acceptable to Samsung and the Company to fill such vacancy until the next election of directors. If there is not a vacancy on the Company’s board of directors on the Closing Date, then the Company will use its best efforts to cause shareholders owning a majority of the aggregate outstanding Shareholder Stock to appoint a director for a term of one-year that is mutually acceptable to the Company and Samsung.

The Company will use its best efforts to cause shareholders owning a majority of aggregate outstanding Shareholder Stock to enter into the Voting Agreement in the form attached as Annex XIII, granting Samsung the right to appoint one director in certain circumstances (the “Samsung Director”). In any event, for so long as Samsung owns 5% or more of the aggregate outstanding Shareholder Stock (assuming Full Conversion, but excluding Shareholder Stock issuable to Samsung pursuant to unexercised warrants) but a Samsung Director has not been appointed, then Samsung will have the right to appoint one person to act as a non-voting observer at all regular and special meetings of the Company’s Board of Directors. The observer will receive all the information a director of the Company receives for any regular and special meetings of the Company’s Board of Directors or in connection with any written consent to be executed by such Board of Directors. The observer shall execute a non-competition and non-disclosure agreement in such form as is reasonably acceptable to the Company. The observer shall be automatically recused from discussions by the Company’s Board of Directors that relate to customers or potential customers of the Company that are in competition with Samsung or any projects relating to such competitive customers.

The covenants set forth in this subparagraph 4.u. shall survive any conversion of the Note into Conversion Shares; provided that such survival shall not affect the terms of the Voting Agreement.

5.           CONDITIONS TO THE COMPANY’S OBLIGATION TO CLOSE.

The Buyer understands that the Company’s obligation to consummate the transactions contemplated in this Agreement is conditioned upon the fulfillment on or before Closing of each of the following conditions:

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a.           The execution of an amendment and restatement of the Purchase Agreement dated July 12, 2013 between the Company and XGS II, as contemplated in principal in the Existing Creditor Term Sheet.

b.           The execution of an amendment and restatement of the Amended and Restated Purchase Agreement dated July 12, 2013 between the Company and Aspen, as contemplated in principal in the Existing Creditor Term Sheet.

c.           The satisfaction or completion of all other actions in the Existing Creditor Term Sheet that are contemplated in principal to be satisfied or completed on or before the Closing Date.

d.           The accuracy on the Closing Date of the representations and warranties of the Buyer contained in this Agreement, each as if made on such date, and the performance by the Buyer on or before such date of all covenants and agreements of the Buyer required to be performed on or before such date.

e.           There shall not be in effect any law, rule or regulation prohibiting or restricting the transactions contemplated hereby, or requiring any consent or approval which shall not have been obtained.

f.            The execution and delivery of this Agreement and the other Transaction Agreements by the Buyer and the other necessary parties on or before the Closing Date.

g.           Each of the Transaction Agreements executed by the Buyer on or before the Closing Date shall, except for the Voting Rights Agreement, be in full force and effect and the Buyer shall not be in default thereunder.

6.           CONDITIONS TO THE BUYER’S OBLIGATION TO CLOSE.

The Company understands that the Buyer’s obligation to consummate the transactions contemplated this Agreement is conditioned upon the fulfillment on or before Closing of each of the following conditions:

a.           The issuance of a restated Secured Convertible Promissory Note to Aspen by the Company that replaces all notes previously issued to Aspen, including such notes dated March 18, 2013; April 3, 2013; April 12, 2013; April 26, 2013; July 29, 2013; September 30, 2013; October 15, 2013; December 2, 2013; and January 7, 2014, as may be adjusted by the Second Amended and Restated Purchase Agreement between the Company and Aspen dated January 15, 2014.

b.           The issuance of a restated Secured Convertible Promissory Note to Knox by the Company that replaces the note dated March 18, 2013.

c.           The issuance of a restated Secured Convertible Promissory Note to XGS II by the Company that replaces the note dated October 15, 2013, as may be adjusted by the Second Amended and Restated Purchase Agreement between the Company and Aspen dated January 15, 2014.

d.           The issuance, pursuant to the Existing Creditor Term Sheet, of a new warrant to Aspen for the purchase of up to 833,333 shares of Series A Stock.

e.           The issuance, pursuant to the Existing Creditor Term Sheet, of a new warrant to XGS II for the purchase of up to 83,333 shares of Series A Stock.

f.            The satisfaction or completion of all other actions in the Existing Creditor Term Sheet that are contemplated in principal to be satisfied or completed on or before the Closing Date.

g.           The execution and delivery of this Agreement and the other Transaction Agreements by the Company and the other necessary parties on or before the Closing Date.

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h.           Each of the Transaction Agreements executed by the Company on or before the Closing Date shall, except for the Voting Rights Agreement, be in full force and effect and the Company shall not be in default thereunder,

i.            The accuracy in all material respects on the Closing Date of the representations and warranties of the Company contained in this Agreement and the other Transaction Agreements, each as if made on such date, and the performance by the Company on or before such date of all covenants and agreements of the Company required to be performed on or before such date.

j.            The Company shall have delivered to the Buyer an Officer’s Certificate similar in form and substance as that attached hereto as Annex IX.

k.          There shall not be in effect any law, rule or regulation prohibiting or restricting the transactions contemplated hereby, or requiring any consent or approval which shall not have been obtained, including, but not limited to, any new regulations which may be promulgated after the date of this Agreement under the Dodd-Frank Wall Street Reform and Consumer Protection Act.

l.            The Certificate of Designation Amendment shall have been filed with the State of Michigan.

7.           CLOSING ACTIONS.

a.           Company’s Closing Actions. At Closing, the Company shall execute and deliver to the Buyer the Note and Officer’s Certificate.

b.           Buyer’s Closing Actions. At Closing, the Buyer will pay the Company $3,000,000 in exchange for the Note.

c.           Joint Company’s and Buyer’s Closing Actions. At Closing, the Company and Buyer will execute and deliver: (i) this Agreement if not already executed and delivered, (ii) the Warrant, (iii) the Intercreditor Agreement (along with the Existing Creditors), (iv) the Security Agreement (along with the Existing Creditors), (v) the IP Security Agreement (along with the Existing Creditors), (vi) the Registration Rights Agreement (along with the Existing Creditors), and (vii) the Side Letter (along with the Existing Creditors). The Company will use its best efforts to have the Voting Rights Agreement executed by shareholders owning a majority of aggregate outstanding Shareholder Stock as soon as practicable following Closing.

8.           INDEMNIFICATION AND REIMBURSEMENT.

a.           (i)  The Company agrees to indemnify and hold harmless the Buyer and its officers, directors, employees, and agents, and each Buyer Control Person from and against any losses, claims, damages, liabilities or expenses incurred (collectively, “Damages”), joint or several, and any action in respect thereof to which the Buyer, its partners, Affiliates, officers, directors, employees, and duly authorized agents, and any such Buyer Control Person becomes subject to, resulting from, arising out of or relating to any misrepresentation, breach of warranty or nonfulfillment of or failure to perform any covenant or agreement on the part of Company contained in this Agreement, as such Damages are incurred, except to the extent such Damages result primarily from Buyer’s failure to perform any covenant or agreement contained in this Agreement or the Buyer’s or its officer’s, director’s, employee’s, agent’s or Buyer Control Person’s illegal or willful misconduct, gross negligence, recklessness or bad faith (in each case, as determined by a non-appealable judgment to such effect) in performing its obligations under this Agreement.

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(ii)   The Company hereby agrees that, if the Buyer, other than by reason of its gross negligence or willful misconduct (in each case, as determined by a non-appealable judgment to such effect), (x) becomes involved in any capacity in any action, proceeding or investigation brought by any stockholder of the Company, in connection with or as a result of the consummation of the transactions contemplated by this Agreement or the other Transaction Agreements, or if the Buyer is impleaded in any such action, proceeding or investigation by any Person, or (y) becomes involved in any capacity in any action, proceeding or investigation brought by the SEC, any self-regulatory organization or other body having jurisdiction, against or involving the Company or in connection with or as a result of the consummation of the transactions contemplated by this Agreement or the other Transaction Agreements, or (z) is impleaded in any such action, proceeding or investigation by any Person, then in any such case, the Company shall indemnify, defend and hold harmless the Buyer from and against and in respect of all losses, claims, liabilities, damages or expenses resulting from, imposed upon or incurred by the Buyer, directly or indirectly, and reimburse such Buyer for its reasonable legal and other expenses (including the cost of any investigation and preparation) incurred in connection therewith, as such expenses are incurred. The indemnification and reimbursement obligations of the Company under this paragraph shall be in addition to any liability which the Company may otherwise have, shall extend upon the same terms and conditions to any Affiliates of the Buyer who are actually named in such action, proceeding or investigation, and partners, directors, agents, employees and Buyer Control Persons (if any), as the case may be, of the Buyer and any such Affiliate, and shall be binding upon and inure to the benefit of any successors, assigns, heirs and personal representatives of the Company, the Buyer, any such Affiliate and any such Person. The Company also agrees that neither the Buyer nor any such Affiliate, partner, director, agent, employee or Buyer Control Person shall have any liability to the Company or any Person asserting claims on behalf of or in right of the Company in connection with or as a result of the consummation of this Agreement or the other Transaction Agreements, except as may be expressly and specifically provided in or contemplated by this Agreement.

b.           All claims for indemnification by any Indemnified Party (as defined below) under this Section shall be asserted and resolved as follows:

(i)          In the event any claim or demand in respect of which any Person claiming indemnification under any provision of this Section (an “Indemnified Party”) might seek indemnity under paragraph (a) of this Section is asserted against or sought to be collected from such Indemnified Party by a Person other than a Party hereto or an Affiliate thereof (a “Third Party Claim”), the Indemnified Party shall deliver a written notification, enclosing a copy of all papers served, if any, and specifying the nature of and basis for such Third Party Claim and for the Indemnified Party’s claim for indemnification that is being asserted under any provision of this Section against any Person (the “Indemnifying Party”), together with the amount or, if not then reasonably ascertainable, the estimated amount, determined in good faith, of such Third Party Claim (a “Claim Notice”) within ten (10) days of receipt of the Third Party Claim to the Indemnifying Party. If the Indemnified Party fails to provide the Claim Notice with within said period, the Indemnifying Party shall not be obligated to indemnify the Indemnified Party with respect to such Third Party Claim to the extent that the Indemnifying Party’s ability to defend has been prejudiced by such failure of the Indemnified Party. The Indemnifying Party shall notify the Indemnified Party as soon as practicable within the period ending thirty (30) calendar days following receipt by the Indemnifying Party of either a Claim Notice or an Indemnity Notice (as defined below) (the “Dispute Period”) whether the Indemnifying Party disputes its liability or the amount of its liability to the Indemnified Party under this Section and whether the Indemnifying Party desires, at its sole cost and expense, to defend the Indemnified Party against such Third Party Claim. The following provisions shall also apply.

(x)  If the Indemnifying Party notifies the Indemnified Party within the Dispute Period that the Indemnifying Party desires to defend the Indemnified Party with respect to the Third Party Claim pursuant to this paragraph (b) of this Section, then the Indemnifying Party shall have the right to defend, with counsel reasonably satisfactory to the Indemnified Party, at the sole cost and expense of the Indemnifying Party, such Third Party Claim by all appropriate proceedings, which proceedings shall be vigorously and diligently prosecuted by the Indemnifying Party to a final conclusion or will be settled at the discretion of the Indemnifying Party (but only with the consent of the Indemnified Party in the case of any settlement that provides for any relief other than the payment of monetary damages or that provides for the payment of monetary damages as to which the Indemnified Party shall not be indemnified in full pursuant to paragraph (a) of this Section). The Indemnifying Party shall have full control of such defense and proceedings, including any compromise or settlement thereof; provided, however, that the Indemnified Party may, at the sole cost and expense of the Indemnified Party, at any time prior to the Indemnifying Party’s delivery of the notice referred to in the first sentence of this subparagraph (x), file any motion, answer or other pleadings or take any other action that the Indemnified Party reasonably believes to be necessary or appropriate protect its interests; and provided further, that if requested by the Indemnifying Party, the Indemnified Party will, at the sole cost and expense of the Indemnifying Party, provide reasonable cooperation to the Indemnifying Party in contesting any Third Party Claim that the Indemnifying Party elects to contest. The Indemnified Party may participate in, but not control, any defense or settlement of any Third Party Claim controlled by the Indemnifying Party pursuant to this subparagraph (x), and except as provided in the preceding sentence, the Indemnified Party shall bear its own costs and expenses with respect to such participation. Notwithstanding the foregoing, the Indemnified Party may take over the control of the defense or settlement of a Third Party Claim at any time if it irrevocably waives its right to indemnity under paragraph (a) of this Section with respect to such Third Party Claim.

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(y)  If the Indemnifying Party fails to notify the Indemnified Party within the Dispute Period that the Indemnifying Party desires to defend the Third Party Claim pursuant to paragraph (b) of this Section, or if the Indemnifying Party gives such notice but fails to prosecute vigorously and diligently or settle the Third Party Claim, each in a reasonable manner, or if the Indemnifying Party fails to give any notice whatsoever within the Dispute Period, then the Indemnified Party shall have the right to defend, at the sole cost and expense of the Indemnifying Party, the Third Party Claim by all appropriate proceedings, which proceedings shall be prosecuted by the Indemnified Party in a reasonable manner and in good faith or will be settled at the discretion of the Indemnified Party (with the consent of the Indemnifying Party, which consent will not be unreasonably withheld). The Indemnified Party will have full control of such defense and proceedings, including any compromise or settlement thereof; provided, however, that if requested by the Indemnified Party, the Indemnifying Party will, at the sole cost and expense of the Indemnifying Party, provide reasonable cooperation to the Indemnified Party and its counsel in contesting any Third Party Claim which the Indemnified Party is contesting. Notwithstanding the foregoing provisions of this subparagraph (y), if the Indemnifying Party has notified the Indemnified Party within the Dispute Period that the Indemnifying Party disputes its liability or the amount of its liability hereunder to the Indemnified Party with respect to such Third Party Claim and if such dispute is resolved in favor of the Indemnifying Party in the manner provided in subparagraph(z) below, the Indemnifying Party will not be required to bear the costs and expenses of the Indemnified Party’s defense pursuant to this subparagraph (y) or of the Indemnifying Party’s participation therein at the Indemnified Party’s request, and the Indemnified Party shall reimburse the Indemnifying Party in full for all reasonable costs and expenses incurred by the Indemnifying Party in connection with such litigation. The Indemnifying Party may participate in, but not control, any defense or settlement controlled by the Indemnified Party pursuant to this subparagraph (y), and the Indemnifying Party shall bear its own costs and expenses with respect to such participation.

(z)  If the Indemnifying Party notifies the Indemnified Party that it does not dispute its liability or the amount of its liability to the Indemnified Party with respect to the Third Party Claim under paragraph (a) of this Section or fails to notify the Indemnified Party within the Dispute Period whether the Indemnifying Party disputes its liability or the amount of its liability to the Indemnified Party with respect to such Third Party Claim, the amount of Damages specified in the Claim Notice shall be conclusively deemed a liability of the Indemnifying Party under paragraph (a) of this Section and the Indemnifying Party shall pay the amount of such Damages to the Indemnified Party on demand. If the Indemnifying Party has timely disputed its liability or the amount of its liability with respect to such claim, the Indemnifying Party and the Indemnified Party shall proceed in good faith to negotiate a resolution of such dispute; provided, however, that if the dispute is not resolved within thirty (30) days after the Claim Notice, the Indemnifying Party shall be entitled to institute such legal action as it deems appropriate.

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(ii)         In the event any Indemnified Party should have a claim under paragraph (a) of this Section against the Indemnifying Party that does not involve a Third Party Claim, the Indemnified Party shall deliver a written notification of a claim for indemnity under paragraph (a) of this Section specifying the nature of and basis for such claim, together with the amount or, if not then reasonably ascertainable, the estimated amount, determined in good faith, of such claim (an “Indemnity Notice”) within 10 days of discovery of said claim to the Indemnifying Party. The failure by any Indemnified Party to give the Indemnity Notice shall not impair such party’s rights hereunder except to the extent that the Indemnifying Party demonstrates that it has been irreparably prejudiced thereby. If the Indemnifying Party notifies the Indemnified Party that it does not dispute the claim or the amount of the claim described in such Indemnity Notice or fails to notify the Indemnified Party within the Dispute Period whether the Indemnifying Party disputes the claim or the amount of the claim described in such Indemnity Notice, the amount of Damages specified in the Indemnity Notice will be conclusively deemed a liability of the Indemnifying Party under paragraph (a) of this Section and the Indemnifying Party shall pay the amount of such Damages to the Indemnified Party on demand. If the Indemnifying Party has timely disputed its liability or the amount of its liability with respect to such claim, the Indemnifying Party and the Indemnified Party shall proceed in good faith to negotiate a resolution of such dispute; provided, however, that if the dispute is not resolved within thirty (30) days after the Claim Notice, the Indemnifying Party shall be entitled to institute such legal action as it deems appropriate.

c.           The indemnity agreements contained herein shall be in addition to (i) any cause of action or similar rights of the Indemnified Party against the Indemnifying Party or others, and (ii) any liabilities the Indemnifying Party may be subject to.

9.          JURY TRIAL WAIVER. The Company and the Buyer hereby waive a trial by jury in any action, proceeding or counterclaim brought by either of the Parties hereto against the other in respect of any matter arising out or in connection with the Transaction Agreements.

10.         SPECIFIC PERFORMANCE. The Company and the Buyer acknowledge and agree that irreparable damage would occur in the event that any provision of this Agreement or any of the other Transaction Agreements were not performed in accordance with its specific terms or were otherwise breached. It is accordingly agreed that the Parties (including any Holder) shall be entitled to an injunction or injunctions, without (except as specified below) the necessity to post a bond, to prevent or cure breaches of the provisions of this Agreement or such other Transaction Agreement and to enforce specifically the terms and provisions hereof or thereof, this being in addition to any other remedy to which any of them may be entitled by law or equity; provided, however that the Company, upon receipt of a notice of conversion or a notice of exercise, may not fail or refuse to deliver the stock certificates and the related legal opinions, if any, or if there is a claim for a breach by the Company of any other provision of this Agreement or any of the other Transaction Agreements, the Company shall not raise as a legal defense, based on any claim that the Holder or anyone associated or affiliated with the Holder has violated any provision hereof or any other Transaction Agreement, has engaged in any violation of law or for any other reason, unless the Company has first posted a bond for one hundred fifty percent (150%) of the principal amount and, if relevant, then obtained a court order specifically directing it not to deliver said stock certificates to the Holder. The proceeds of such bond shall be payable to the Holder to the extent that the Holder obtains judgment or its defense is recognized. Such bond shall remain in effect until the completion of the relevant proceeding and, if the Holder appeals therefrom, until all such appeals are exhausted. This provision is deemed incorporated by reference into each of the Transaction Agreements as if set forth therein in full.

11.         GOVERNING LAW: MISCELLANEOUS.

a.           This Agreement shall be governed by and interpreted in accordance with the laws of the State of Michigan for contracts to be wholly performed in such state and without giving effect to the principles thereof regarding the conflict of laws. Each of the Parties consents to the exclusive jurisdiction of the federal courts whose districts encompass any part of Ingham County or the state courts of the State of Michigan sitting in Ingham County in connection with any dispute arising under this Agreement or any of the other Transaction Agreements and hereby waives, to the maximum extent permitted by law, any objection, including any objection based on forum non conveniens, to the bringing of any such proceeding in such jurisdictions or to any claim that such venue of the suit, action or proceeding is improper. To the extent determined by such court, the Company shall reimburse the Buyer for any reasonable legal fees and disbursements incurred by the Buyer in enforcement of or protection of any of its rights under any of the Transaction Agreements. Nothing in this Section shall affect or limit any right to serve process in any other manner permitted by law.

b.           Failure of any Party to exercise any right or remedy under this Agreement or otherwise, or delay by a Party in exercising such right or remedy, shall not operate as a waiver thereof.

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c.           This Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the Parties hereto. The Buyer shall have the right to assign all or any portion of this Agreement, the Note, the Warrant, any Conversion Shares, the Registration Rights Agreement, and (only with the written consent of the Company except with respect to an assignment to an Affiliate of the Buyer) the Voting Rights Agreement to: (a) any Affiliate of the Buyer, (b) any investors in the Buyer or its direct assignees, or (c) any other “accredited investor” as that term is defined in Rule 501 of the General Rules and Regulations under the 1933 Act.

d.           All pronouns and any variations thereof refer to the masculine, feminine or neuter, singular or plural, as the context may require.

e.           This Agreement may be signed in one or more counterparts, each of which shall be deemed an original.

f.            A facsimile or other electronic transmission of this signed Agreement shall be legal and binding on all Parties hereto.

g.           The headings of this Agreement are for convenience of reference and shall not form part of, or affect the interpretation of, this Agreement.

h.           If any provision of this Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect the validity or enforceability of the remainder of this Agreement or the validity or enforceability of this Agreement in any other jurisdiction.

i.            This Agreement may be amended only by an instrument in writing signed by the Party to be charged with enforcement thereof.

j.            All dollar amounts referred to or contemplated by this Agreement or any other Transaction Agreement shall be deemed to refer to US Dollars, unless otherwise explicitly stated to the contrary.

12.         NOTICES. Any notice required or permitted hereunder shall be given in writing (unless otherwise specified herein) and shall be deemed effectively given on the earliest of:

a.           the date delivered, if delivered by personal delivery as against written receipt therefor or by confirmed facsimile transmission,

b.           the fifth (5^th) calendar day after deposit, postage prepaid, in the United States Postal Service by registered or certified mail, or

c.           the third calendar day after mailing by domestic or international express courier, with delivery costs and fees prepaid,

in each case, addressed to each of the other Parties thereunto entitled at the following addresses (or at such other addresses as such Party may designate by ten (10) days’ advance written notice similarly given to each of the other Parties hereto):

COMPANY:	XG Sciences, Inc.
	Attn: Chief Executive Officer
	3101 Grand Oak Drive
	Lansing, MI 48911
	Telephone:            517.703.1110
	Facsimile:             517.703.1113

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with a copy to :	Matt G. Hrebec
	Foster Swift Collins & Smith PC
	313 South Washington Square
	Lansing, MI 48933-2193
	Telephone:        517.371.8256
	Facsimile:          517.367.7356
BUYER:	SVIC No.15 New Technology Business Investment L.L.P.
	c/o Samsung Venture Investment Corporation
	29th Fl., Samsung Electronics Bldg.
	1320-10, Seocho2-dong, Seocho-gu
	Seoul, Korea 137-857
	Fax: 82.2.2255.0288
with a copy to:

13.            SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The Company’s and the Buyer’s representations and warranties herein shall survive the execution and delivery of this Agreement and the delivery of the Purchased Securities and the payment of the purchase price, for a period of two (2) years after the Closing Date hereunder and shall inure to the benefit of the Buyer and the Company and their respective successors and assigns.

**BALANCE OF PAGE INTENTIONALLY LEFT BLANK**

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PURCHASE AGREEMENT

IN WITNESS WHEREOF, each of the undersigned represents that the foregoing statements made by it above are true and correct and that it has caused this Agreement to be duly executed on its behalf (if an entity, by one of its officers thereunto duly authorized) as of the date first above written.

BUYER:
SVIC NO.I5 NEW TECHNOLOGY BUSINESS INVESTMENT L.L.P.
By: Samsung Venture Investment Corporation, its Partner
By:	/s/ SEONJONG  LEE
Name :	SEONJONG  LEE
Title:	C.E.O
COMPANY:
XG SCIENCES, INC.
By:	/s/ Michael R. Knox
Name:	Michael R. Knox
Title:	Chief Executive Officer

ANNEX I	FORM OF SECURED CONVERTIBLE PROMISSORY NOTE
ANNEX II	FORM OF WARRANT
ANNEX III	FORM OF SECOND AMENDED & RESTATED SECURITY AGREEMENT
ANNEX IV	FORM OF SECOND AMENDED & RESTATED INTELLECTUAL PROPERTY SECURITY AGREEMENT
ANNEX V	FORM OF SERIES A CERTIFICATE OF DESIGNATION AMENDMENT
ANNEX VI	AMENDED AND RESTATED BY-LAWS
ANNEX VII	DISCLOSURE ANNEX
ANNEX VIII	FORM OF SECOND AMENDED & RESTATED INTERCREDITOR AGREEMENT
ANNEX IX	FORM OF OFFICER’S CERTIFICATE
ANNEX X	FORM OF AMENDED & RESTATED REGISTRATION RIGHTS AGREEMENT
ANNEX XI	FORM OF SHAREHOLDER AGREEMENT
ANNEX XII	FORM OF SIDE LETTER
ANNEX XIII	VOTING RIGHTS AGREEMENT
ANNEX XIV	FORM OF PREEMPTIVE WARRANT

NEITHER THIS NOTE NOR THE SECURITIES INTO WHICH THIS NOTE IS CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE, IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”),AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS.

No. 13 3,000,000.00

XG SCIENCES, INC.

Secured Convertible Promissory Note

Due March 18, 2018

This Secured Convertible Promissory Note (this “Note”) is issued this 15th day of January 2014, jointly and severally by XG Sciences, Inc. (“XGS”),a Michigan corporation, and XG Sciences IP, LLC, a Michigan limited liability company (collectively the “Borrower” or the “Company”),to SVIC No. _15 New Technology Business Investment L.L.P. (“Samsung”) (“Samsung” or the “Holder”), pursuant to that certain Purchase Agreement, dated January 15, 2014, between the parties and any amendments thereto (the “Purchase Agreement”).

FOR VALUE RECEIVED, the Borrower hereby promises to pay to the Holder or his, her or its successors and assigns the principal sum of THREE MILLION AND xx/100 DOLLARS ($3,000,000.00) on or before March 18, 2018 (the “Maturity Date”) and to pay interest on the principal sum outstanding from time to time in arrears at the rate of 12.0% per annum, accruing from the Original Issue Date (as defined in Section 7 hereof) until the date (each, an“Interest Payment Date”) which is the earlier of (i) the next Conversion Date (as defined below), (ii) the date which is the last day of the month of the first month after the Original Issue Date and the last day of every month thereafter, or (iii) the Maturity Date, as the case may be. Interest shall accrue monthly (pro-rated on a daily basis for any period longer or shorter than a month) from the later of the Original Issue Date or the previous Interest Payment Date and shall be payable in cash. If not paid in full on an Interest Payment Date, interest shall be fully cumulative and shall accrue on a daily basis, based on a 360-day year, and compound monthly on the last day of each month beginning on the last day of the first full month after the Original Issue Date, until paid.

Interest payable in cash hereunder shall be paid on or before each Interest Payment Date in US Dollars to the Holder (such reference and all subsequent references to the “Holder” shall include his, her or its permitted and recognized successors and assigns) at the address last appearing on the Note register of the Borrower or as designated in writing by the Holder from time to time. Notwithstanding the foregoing, at the Company’s option, interest payable hereunder may as it accrues be added to the principal amount of this Note until December 31, 2014. After December 31, 2014, the Holder, at its option and upon written notice to the Company, shall have the right to a) receive any interest payments currently due and payable in cash, or b) receive all or a portion of such currently due interest in the form of Series A Convertible Preferred Stock of XGS (“Series A Stock”)at a price per share equal to the then effective Series A Original Issue Price (as defined in the XGS’s Certificate of Designations of Series A Convertible Stock), or c) receive all or a portion of such currently due interest in the form of any other series of Preferred Stock which may be outstanding at the time such interest is due pursuant to the provision of Section 4 hereof, or d) elect to accrue such interest payment and add it to the balance of the Note.

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In the event that the entire principal amount of this Note is converted to XGS’s Preferred Stock pursuant to Section 4 below, all accrued interest and other amounts due and owing under this Note shall be due immediately and shall be added to the principal amount hereof to determine the total amount of indebtedness hereunder being converted to Preferred Stock. In the event that less than all of the principal amount of this Note is converted to Preferred Stock, a pro rata portion of the accrued interest (based on the percentage of this Note converted) shall be due immediately and shall be added to the portion of the principal amount of this Note being converted to the Preferred Stock.

This Note is subject to the following additional provisions (including the defined terms in Section 6 below that are spelled in title case letters — i.e. initial capital letters):

Section 1.          Right of Redemption. The Borrower at its option shall have the right, by giving fifteen (15) Business Days advance written notice (the “Redemption Notice”)to the Holder, to redeem a portion or all amounts outstanding under this Note prior to the Maturity Date. In such event, the Borrower shall pay an amount equal to the principal amount being redeemed plus a pro rata portion (based upon the percentage of this Note being redeemed) of accrued interest and any other amounts due and owing under this Note (collectively referred to as the “Redemption Amount”). The Borrower shall deliver to the Holder the Redemption Amount on the fifteenth (15^th) Business Day after the Redemption Notice unless the Holder has elected to convert the Redemption Amount into Preferred Stock pursuant to Section 4 hereof.

Section 2.         Covenants.

(a)         Affirmative Covenants. The Borrower covenants and agrees that, unless otherwise indicated in the Transaction Documents, until all of the Obligations under the Transaction Documents have been fully performed and either Paid in Full in cash or converted into shares of Preferred Stock of XGS pursuant to Section 4 hereof and this Note has been terminated, it will abide by the following affirmative covenants and any other affirmative covenants that may be listed in any of the other Transaction Documents:

(1)         Financial Reports, Notices and Other Information.

(A)         Financial Reports. Borrower shall furnish to Holder (i) as soon as available, an in any event when submitted to the Securities and Exchange Commission (“SEC”)if required to be so submitted, but no later than one hundred and five (105) calendar days after the end of each fiscal year, audited annual consolidated financial statements, including the notes thereto, consisting of a consolidated balance sheet at the end of such completed fiscal year and the related consolidated statements of income, retained earnings, cash flows and owners’ equity for such completed fiscal year, which financial statements shall be prepared by an independent certified public accounting firm, (ii) as soon as available and in any event within forty five (45) calendar days after the end of each fiscal quarter (60 calendar days after the end of any quarter which coincides with the end of a fiscal year provided that such unaudited quarterly financials may be subject to further audit adjustment), unaudited financial statements consisting of a balance sheet and statements of income and cash flows as of the end of the immediately preceding calendar quarter, and (iii) as soon as available and in any event within thirty (30) calendar days after the end of each fiscal month (45 calendar days after the end of any month which coincides with the end of a fiscal quarter provided that such unaudited monthly financials may be subject to further audit adjustment), unaudited financial statements consisting of a balance sheet and statements of income and cash flows as of the end of the immediately preceding calendar month. All such financial statements shall be prepared in accordance with GAAP consistently applied with prior periods except for any normal quarter and year-end adjustments which may be applied in future periods and for any changes in accounting methodology that may have been applied since any prior period and except for the absence of footnotes for unaudited financial statements.

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(B)         Notices. Borrower shall promptly, and in any event within four (4) Business Days after it or any authorized officer of Borrower obtains knowledge thereof, notify Holder in writing of (i) any pending or threatened litigation, suit, investigation, arbitration, dispute resolution proceeding or administrative proceeding brought against or initiated by Borrower or otherwise affecting or involving or relating to Borrower or any of its property or assets to the extent the amount in controversy exceeds $50,000.00, or to the extent any of the foregoing seeks injunctive relief, (ii) any Default or Event of Default, which notice shall specify the nature and status thereof the period of existence thereof and what action is proposed to be taken with respect thereto, (iii) any other development, event, fact, circumstance or condition that would reasonably be expected to result in a Material Adverse Change, in each case describing the nature and status thereof and the action proposed to be taken with respect thereto, (iv) any notice received by Borrower from any payor of a claim, suit or other action such payor has, claims or has filed against Borrower (v) any matter(s) affecting the value, enforceability or collectability of any of the Collateral, including, without limitation, claims or disputes in the amount of $50,000.00 or more, singly or in the aggregate, in existence at any one time, (vi) any notice given by Borrower to any other lender or any notice received by Borrower from any other lender and shall furnish to Holder a copy of such notice, (vii) receipt of any notice or request from any Governmental Authority regarding any liability or claim of liability in excess of $50,000.00 singly or in the aggregate, (viii) Borrower being served with or receiving any search warrant, subpoena, civil investigative demand or contact letter by or from any federal or state enforcement agency relating to an investigation, (ix) Borrower becoming subject to any written complaint filed with or submitted to any Governmental Authority having jurisdiction over Borrower or filed with or submitted to Borrower pursuant to Borrower’s policies relating to the filing or submissions of such types of complaints, from employees, independent contractors, vendors, or any other person that would indicate that Borrower has violated any law, regulation or law, or (x) any other event occurs that would require Borrower to file a Form 8K disclosure with the SEC, to the extent Borrower is publicly-traded at such time, in which case Borrower shall either furnish a copy of such Form 8K filing or, otherwise provide a description of the facts and circumstances around the event or events giving rise to the need to file such Form 8K.

(C)         Ancillary Materials to be Furnished Upon Request. Upon written request by Holder, Borrower shall use its best efforts to furnish to Holder within ten (10) Business Days after the request therefore the following kinds of information: (i) any other reports, materials or other information regarding or otherwise relating to the current or future business of the Borrower prepared by, for, or on behalf of, Borrower or any of its subsidiaries, including, without limitation, operating budgets, sales and marketing plans, new product development plans, staffing plans, current or future agreements of a material nature with other third parties, fundraising plans and strategies, and plans for mergers and acquisitions, (ii) copies of material licenses and Permits required by applicable federal, state, foreign or local law, statute, ordinance or regulation or Governmental Authority for the operation of Borrower’s business and (iii) such other information as may be reasonably requested by Holder. Holder agrees that to the extent requested by Borrower, it will execute a mutually agreeable form of confidentiality agreement with Borrower as part of any such request. Borrower agrees that any information requested by and delivered to any Holder will be delivered to all Holders.

(2)         Conduct of Business and Maintenance of Existence and Assets. Borrower shall (i) conduct its business in accordance with good business practices customary to the industry, (ii) engage principally in the same or similar lines of business substantially as heretofore conducted, (iii) collect its Accounts in the ordinary course of business, (iv) maintain all of its material properties, assets and equipment used or useful in its business in good repair, working order and condition (normal wear and tear excepted and except as may be disposed of in the ordinary course of business and in accordance with the terms of the Transaction Documents and otherwise as determined by such Borrower using commercially reasonable business judgment), (v) from time to time to make all necessary or desirable repairs, renewals and replacements thereof, as determined by such Borrower using commercially reasonable business judgment, (vi) maintain and keep in full force and effect its existence and all material Permits and qualifications to do business and good standing in each jurisdiction in which the ownership or lease of property or the nature of its business makes such Permits or qualification necessary and in which failure to maintain such Permits or qualification could reasonably be expected to result in a Material Adverse Change; and (vii) remain in good standing and maintain operations in all jurisdictions in which currently located.

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(3)         Compliance with Legal and Other Obligations. Borrower shall (i) comply with all laws, statutes, rules, regulations, ordinances and tariffs of all Governmental Authorities applicable to it or its business, assets or operations (ii) pay all taxes, assessments, fees, governmental charges, claims for labor, supplies, rent and all other obligations or liabilities of any kind, except liabilities being contested in good faith and against which adequate reserves have been established, (iii) perform in accordance with its terms each contract, agreement or other arrangement to which it is a party or by which it or any of the Collateral is bound, except where the failure to comply, pay or perform could not reasonably be expected to result in a Material Adverse Change, and (iv) maintain and comply with all Permits necessary to conduct its business and comply with any new or additional requirements that may be imposed on it or its business.

(4)         Insurance. Borrower shall keep (i) all of its insurable properties, Collateral and assets adequately insured in all material respects against losses, damages and hazards as are customarily insured against by businesses engaging in similar activities or owning similar assets or properties and at least the minimum amount required by applicable law; (ii) maintain general public liability insurance at all times against liability on account of damage to persons and property having such limits, deductibles, exclusions and co-insurance and other provisions as are customary for a business engaged in activities similar to those of Borrower; and (iii) maintain insurance under all applicable workers’ compensation laws; all of the foregoing insurance policies to be satisfactory in form and substance to Holders. With respect toproperty insurance covering business interruption, accounts receivable and the books and records in connection therewith, Holder shall be named as loss payee and additional insured and with respect to general liability insurance Holder shall be named as additional insured.

(5)         Inspections; Periodic Audits And Reappraisals. Borrower shall permit the representatives of any Holder, at the expense of the Holder, from time to time during normal business hours, but no more frequently than two times per year so long as no Default or Event of Default occurs and is continuing, upon reasonable notice, to (i) visit and inspect any of its offices or properties or any other place where Collateral is located inspect the Collateral and/or to examine or audit all of Borrower’s books of account, records, reports and other papers, (ii) make copies and extracts therefrom, and (iii) discuss its business, operations, prospects, properties, assets, liabilities, condition and/or Accounts with its officers and independent public accountants (and by this provision such officers and accountants are authorized to discuss the foregoing) upon seven (7) Business Days prior written notice; provided, however, that no notice shall be required to do any of the foregoing if any Event of Default has occurred and is continuing.

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(6)         Further Assurances; Post-Closing. At Borrower’s cost and expense, Borrower shall (i) within five (5) Business Days after Holder’s request, take such further actions, obtain such consents and approvals and duly execute and deliver such further agreements, assignments, instructions or documents as Holder may deem necessary in its Permitted Discretion with respect to furtherance of the purposes, terms and conditions of the Transaction Documents and the consummation of the transactions contemplated thereby, whether before, at or after the performance or consummation of the transactions contemplated hereby or the occurrence of a Default or Event of Default, (ii) without limiting and notwithstanding any other provision of any Transaction Document, execute and deliver, or cause to be executed and delivered, such agreements and documents, and take or cause to be taken such actions, and otherwise perform, observe and comply with such obligations, as are set forth on Schedule 2(a)(6) attached hereto (if any so listed), and (iii) upon the exercise by Holder or any of its Affiliates of any power, right, privilege or remedy pursuant to any Transaction Document or under applicable law or at equity which requires any consent, approval, registration, qualification or authorization of any Governmental Authority, execute and deliver, or cause the execution and delivery of, all applications, certificates, instruments and other documents requested by Holder in its Permitted Discretion that may be so required for such consent, approval, registration, qualification or authorization. Without limiting the foregoing, upon the exercise by Holder or any of its Affiliates of any right or remedy under any Transaction Document which requires any consent, approval or registration with, consent, qualification or authorization by, any Person, Borrower shall execute and deliver, or cause the execution and delivery of, all applications, certificates, instruments and other documents that Holder or its Affiliate may be required to obtain for such consent, approval, registration, qualification or authorization.

(7)         Subsidiaries and New Subsidiaries. As of the date of the Closing, Borrower has no subsidiaries other than those listed on Schedule 2(a)(7) hereof (if any). If at any time after the Closing Date, Borrower shall form or acquire any new Subsidiary, Borrower shall promptly, and in any event not later than fifteen (15) Business Days after the creation or acquisition of such Subsidiary or such longer period as Holder may determine in writing, execute, and cause such new Subsidiary to execute, and deliver to Holder such joinder agreements and amendments to this Agreement and the other Transaction Documents, in form and substance satisfactory to Holder, and providing such other documentation as Holder may reasonably request, including, without limitation, UCC searches, as applicable, and filings, legal opinions and corporate authorization documentation, and to take such other actions in each case as Holder deems necessary or advisable to (a) join and make such new Subsidiary a co-Borrower hereunder and thereunder, subject to all the rights and benefits and obligations and burdens of a Borrower hereunder, (b) grant to Holder a perfected first priority security interest in the Collateral of such new Subsidiary subject to no Liens other than the Permitted Liens.

(b)          Negative Covenants. The Borrower covenants and agrees that, until all of the Obligations under the Transaction Documents have been fully performed and either Paid in Full in cash or converted into shares of Preferred Stock of XGS pursuant to Section 4 hereof and this Note has been terminated, it will abide by the following negative covenants and any other negative covenants that may be listed in any of the other Transaction Documents:

(1)         Permitted Payments. The Borrower shall not make any principal or interest payment on any Indebtedness other than Permitted Payments, prior to the repayment or conversion of all of the principal amount outstanding under this Note without first obtaining the prior written consent of the Holder.

(2)         Permitted Indebtedness. The Borrower shall not create, incur, assume or suffer to exist any Indebtedness, other than Permitted Indebtedness, prior to the repayment or conversion of all the Obligations outstanding under this Note without first obtaining the prior written consent of the Holder.

(3)         Permitted Liens. The Borrower shall not create, incur assume or suffer to exist any Lien upon, in or against, or pledge of any of the Collateral or any of its properties or assets, whether now owned or hereafter acquired, except for Permitted Liens, without first obtaining the prior written consent of the Holder.

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(4)         Location of Collateral; Investments; New Facilities or Collateral; Subsidiaries. Borrower maintains its places of business only at the locations listed on Schedule 2(b)(4),and all Accounts of Borrower arise, originate and are located, and all of the Collateral and all books and records in connection therewith or in any way relating thereto or evidence of the Collateral are located and shall be only, in and at such locations. Except as set forth on Schedule 2(b)(4), Borrower shall not, directly or indirectly, enter into any agreement to, (i) purchase, own, hold, invest in or otherwise acquire obligations or stock or securities of, or any other interest in, or all or substantially all of the assets of, any Person or any joint venture, or (ii) make or permit to exist any loans, advances or guarantees to or for the benefit of any Person or assume, guarantee, endorse, contingently agree to purchase or otherwise become liable for or upon or incur any obligation of any Person (other than those created by the Transaction Documents and Permitted Indebtedness and other than (A) trade credit extended in the ordinary course of business, (B) advances for business travel and similar temporary advances made in the ordinary course of business to officers, directors and employees, (C) investments in cash equivalents and (D) the endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business). Borrower shall not, directly or indirectly, purchase, own, operate, hold, invest in or otherwise acquire any facility, property or assets or any Collateral that is not located at the locations set forth on Schedule 2(b)(4) unless Borrower shall provide to Holder at least ten (10) Business Days prior written notice. Borrower shall not have any Subsidiaries Other than those Subsidiaries set forth on Schedule 2(a)(7) hereof.

Notwithstanding the foregoing, Borrower shall be permitted to make Permitted Acquisitions with Holder’s prior written consent; provided, however, that the consent of Holder shall not be required if the cash consideration paid in respect of the Permitted Acquisition does not exceed $250,000 and Borrower fully complies with Section 2(a)(7) hereof.

(5)         Dividends; Redemptions. Borrower shall not (i) declare, pay or make any Distribution, (ii) apply any of its funds, property or assets to the acquisition, redemption or other retirement of any Capital Stock, (iii) otherwise make any payments or Distributions to any stockholder, member, partner or other equity owner in such Person’s capacity as such, or (iv) make any payment of any Management or Service Fee; provided however, that absent the occurrence and continuation of a Default or Event of Default, and if a Default or Event of Default would not arise therefrom, Borrower may: (x) declare, pay or make Distributions payable in its stock, or split-ups or reclassifications of its stock; and (y) redeem its Capital Stock from terminated employees pursuant to, but only to the extent required under the terms of the related employment agreements.

(6)         Transactions With Affiliates. Except as setforth on Schedule 2(b)(6) or as contemplated in the Aspen Transaction Documents, Borrower shall not enter into or consummate any transaction of any kind with any of its Affiliates other than: (i) salary, bonus, severance, employee stock option and other compensation, consulting and employment arrangements with directors or officers in the ordinary course of business, provided, that, no payment of any cash bonus or severance shall be permitted if a Default or Event of Default has occurred and remains in effect or would be caused by or result from such payment, and no payment of any severance shall be made, individually or in the aggregate, in excess of $250,000 in any twelve (12) month period, (ii) Distributions permitted pursuant to Section 2(b)(5), and (iii) the making of payments permitted under and pursuant to a written agreement entered into by and between Borrower and one or more of its Affiliates that both (A) reflects and constitutes a transaction on overall terms at least as favorable to Borrower as would be the case in an arm’s-length transaction between unrelated parties of equal bargaining power; provided, that, notwithstanding the foregoing Borrower shall not (Y) enter into or consummate any transaction or agreement pursuant to which it becomes a party to any mortgage, Debenture, indenture or guarantee evidencing any Indebtedness of any of its Affiliates or otherwise to become responsible or liable, as a guarantor, surety or otherwise, pursuant to agreement for any Indebtedness of any such Affiliate, or (Z) make any payments to any of its Affiliates in excess of $50,000 in the aggregate during any consecutive twelve calendar month period without the prior written consent of Holder (other than payments permitted pursuant to clause (i) or (ii) above).

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(7)         Charter Documents; Fiscal Year; Dissolution; Use of Proceeds. Except as contemplated in the Aspen Transaction Documents, Borrower shall not (i) amend, modify, restate or change its certificate of incorporation or formation or bylaws or similar charter documents without the prior written consent of the Holder, which consent shall not be unreasonably withheld, (ii) amend, alter or suspend or terminate or make provisional in any material way, any material Permit without the prior written consent of Holder, which consent shall not be unreasonably withheld. Notwithstanding the foregoing, the Holder acknowledges that the following will not be deemed to be a violation of this covenant: any amendment of a license or Permit in the ordinary course of business to enable Borrower to pursue additional opportunities; (iii) wind up, liquidate or dissolve (voluntarily or involuntarily) or commence or suffer any proceedings seeking or that would result in any of the foregoing, or (iv) without providing at least thirty (30) calendar days prior written notice to Holder, change its name or organizational identification number, if it has one.

(8)         Truth of Statements. Borrower shall not (a) furnish to Holder any certificate or other document created or produced by Borrower that contains any untrue statement of a material fact or that omits to state a material fact necessary to make it not misleading in light of the circumstances under which it was furnished as of the date it was provided to Holder; and (b) furnish any document created or produced by a third party that Borrower knows (A) contains any untrue statement of a material fact or (B) omits to state a material fact necessary to make it not misleading in light of the circumstances under which it was furnished.

(9)         Transfer of Assets. Notwithstanding any other provision of this Agreement or any other Transaction Document, Borrower shall not, nor shall it permit any of its Subsidiaries to, sell, lease, transfer, assign, spin-off or otherwise dispose of any interest in any properties or assets (other than the assignment of intellectual property by XG Sciences, Inc. to XG Sciences IP, LLCas contemplated in the Transaction Documents and the Aspen Transaction Documents, other than obsolete fixed assets or excess fixed assets no longer needed in the conduct of the business in the ordinary course of business and sales of inventory in the ordinary course of business), or agree to do any of the foregoing at any future time, without the written consent of the Holder, except that:

(A)         Borrower may lease or sublease (as lessor or sub-lessor) real or personal property pursuant to a true lease not constituting Indebtedness and not entered into as part of a sale and leaseback transaction, in each case in the ordinary course of business and which could not reasonably be expected to result in a Material Adverse Effect.

(B)         Borrower may arrange for warehousing, fulfillment or storage of inventory at locations not owned or leased by Borrower, in each case in the ordinary course of business;

(C)         Borrower may license or sublicense Intellectual Property to third parties in the ordinary course of business; provided, that, such licenses or sublicenses shall not interfere with the business or other operations of Borrower; and

(D)         Borrower may consummate such other sales or dispositions of property or assets in excess of $50,000 (including any sale or transfer or disposition of all or any part of its assets and thereupon and within one year thereafter rent or lease the assets so sold or transferred) only to the extent prior written notice has been given to Holder and to the extent Holder has given its prior written consent thereto, subject in each case to such conditions as may be set forth in such consent.

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Section 3.          Events of Default.

(a)          An “Event of Default”, wherever used herein, means any one of the following events (whatever the reason and whether it shall be voluntary or involuntary or effected by operation of law or pursuant to any judgment, decree or order of any court, or any order, rule or regulation of any administrative or governmental body):

(i)          Any default in the payment of the principal of, interest on, or other charges in respect of this Note, free of any claim of subordination, as and when the same shall become due and payable (whether on an Interest Payment Date, a Conversion Date or the Maturity Date or by Acceleration or otherwise);

(ii)         The Borrower shall fail to observe or perform any other covenant, term, condition, agreement or obligation contained in, or otherwise commit any breach or default of any provision of this Note (except as may be covered by Section 3(a)(i) hereof) or any Transaction Document (as defined in Section 7 below) and such failure is not cured within (A) the time prescribed or (B) if no time is prescribed, such failure is not cured within thirty (30) days after the Borrower’s receipt of written notice from the Holder of such failure; or

(iii)       Any of the representations or warranties made by the Borrower herein, in any of the other Transaction Documents or in any other written or financial statements hereafter furnished by the Borrower to the Holder shall be false or misleading in any material respect at the time made; or

(iv)        The Borrower (A) fails to authorize and issue or the cause its Transfer Agent to issue shares of Preferred Stock upon the exercise by the Holder of the conversion rights of the Holder in accordance with the terms of this Note (provided, however, that for purposes of this provision, such failure to issue or cause the Transfer Agent to issue such shares shall not be deemed to occur until Five (5) Business Days after the Conversion Date), (B) fails to transfer or to cause its Transfer Agent to transfer any certificate for shares of Preferred Stock issued upon conversion of this Note and when required by this Note, and such transfer is otherwise lawful, or (C) fails to remove a restrictive legend or cause its Transfer Agent to remove a restrictive legend on any share certificate, in each case where such removal is lawful, and any such failure of A, B or C above shall continue uncured for ten (10) days; or

(v)         The Borrower shall make any principal or interest payment on any unsecured indebtedness prior to the repayment or conversion of all of the principal amount outstanding under this Note without first obtaining the prior written consent of the Holder; or

(vi)       The Borrower shall default on any other indebtedness or material obligation to which it is a party and any other party to any such indebtedness or material agreement with the Company in default exercises any material remedies which it may be entitled; or

(vii)     The Borrower or any Subsidiary of the Borrower shall commence, or there shall be commenced against the Borrower or any Subsidiary of the Borrower, a proceeding under any applicable bankruptcy or insolvency laws as now or hereafter in effect or any successor thereto, or the Borrower or any Subsidiary of the Borrower shall commence any other proceeding under any reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction, whether now or hereafter in effect, relating to the Borrower or any Subsidiary of the Borrower; or there is commenced against the Borrower or any Subsidiary of the Borrower any such bankruptcy, insolvency or other proceeding which remains un-dismissed for a period of sixty-one (61) days; or the Borrower or any Subsidiary of the Borrower is adjudicated insolvent or bankrupt; or any order of relief or other order approving any such case or proceeding is entered; or the Borrower or any Subsidiary of the Borrower suffers any appointment of any custodian, private or court appointed receiver or the like for it or any substantial part of its property, which continues un-discharged or un-stayed for a period of sixty one (61) days; or the Borrower or any Subsidiary of the Borrower makes a general assignment for the benefit of creditors; or the Borrower or any Subsidiary of the Borrower shall fail to pay, or shall state that it is unable to pay, or shall be unable to pay, its debts generally as they become due; or the Borrower or any Subsidiary of the Borrower shall by any act or failure to act expressly indicate its consent to, approval of or acquiescence in any of the foregoing; or any corporate or other action is taken by the Borrower or any Subsidiary of the Borrower for the purpose of effecting any of the foregoing; or

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(viii)    In the event that the Borrower shall experience a Change of Control at any time while the Note is outstanding.

(b)          If an Event of Default shall have occurred and is continuing, then, unless and until such Event of Default shall have been cured or waived in writing by the Holder (which waiver shall not be deemed to be waiver of any subsequent default), at the option of the Holder and in the Holder’s sole discretion, but without further notice from the Holder, the unpaid amount of this Note, computed as of the date on which the Event of Default was first deemed to have occurred, will bear interest at the rate (the “Default Rate”) equal to fifteen percent (15%) per annum or the highest rate allowed by law, whichever is lower, from the date of the Event of Default until and including the date actually paid; and any partial payments shall be applied in the order provided in Section 16 hereof.

(c)          During the time that any portion of this Note is outstanding, if any Event of Default has occurred and any applicable cure period has expired, the Holder, at its option, may declare that the full principal amount of this Note, together with any accrued interest and other amounts owed pursuant to any other provision of this Note or any other Transaction Document are immediately due and payable in cash (an “Acceleration”). In addition to any other remedies, the Holder shall have the right (but not the obligation) to convert this Note at any time after an Event of Default at the Note Conversion Price (as defined in Section 4(b)(i) below). The Holder need not provide and the Borrower hereby waives any presentment, demand, protest or other notice of any kind; and immediately and without expiration of any grace period, the Holder may enforce any and all rights and remedies hereunder and all other remedies available under the Security Agreement or under applicable law. Furthermore, a declaration of an Event of Default may be rescinded and annulled by the Holder at any time prior to payment hereunder. No such rescission or annulment shall affect or impair any of the Holder’s rights with respect to any subsequent Event of Default.

Section 4.          Conversion.

(a)          Conversion at Option of Holder.  Any principal, currently due interest, accrued interest, or other amounts due and payable under this Note at any time (collectively, the “Outstanding Amount” as of such time) shall be convertible into shares of Preferred Stock (as defined below) of XGS at the option of the Holder, in whole or in part at any time and from time to time, after the Original Issue Date so long as this Note is outstanding; provided that if more than one series of convertible preferred stock is outstanding on a Conversion Date, the Holder, in its sole discretion, shall be entitled to elect to convert such amounts due and payable hereunder into any such series; or if no such convertible preferred stock has been issued as of a Conversion Date, then shares of Series A Stock. The number of shares of Preferred Stock that may be issued upon a conversion hereunder equals the quotient obtained by dividing (x) the Outstanding Amount of this Note, or any portion thereof, to be converted as of the Conversion Date (as defined in Section 4(c)) by (y) the Note Conversion Price (as defined in Section 4(d) below). For the purposes of this Note, “Preferred Stock” shall mean any series of convertible preferred stock issued by XGS which may be outstanding on any date on which a Holder Notice of Conversion (as defined in Section 4(c) below) is delivered to the Company.

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(b)          Conversion at Option of Borrower. Upon the Equity Threshold being reached, the Outstanding Amount due and payable under this Note as of the Conversion Date may, at the option of the Borrower, be converted into Series A Stock (the “Borrower Option”) upon written notice delivered to the Holder fifteen (15) Business Days prior to the date on which such Borrower Option will become effective. The number of shares of Series A Stock that shall be issued to the Holder upon an exercise of the Borrower Option equals the quotient obtained by dividing (x) the Outstanding Amount of this Note as of the Conversion Date by (y) the Note Conversion Price.

(c)          Exercise of Conversion Options. The: (i) Holder shall effect conversions in Section 4(a) by delivering to the Borrower a completed notice in the form attached hereto as Exhibit “A” (a “Holder Notice of Conversion”), and (ii) Borrower shall effect the conversion in Section 4(b) by delivering written notice to the Holder (a “Borrower Notice of Conversion”). The “Conversion Date” shall be (A) if the Holder delivers a Holder Notice of Conversion, the date on which a Holder Notice of Conversion is delivered, or (B) if the Borrower delivers a Borrower Notice of Conversion, the date which is fifteen (15) Business Days from the date such notice is deemed to have been delivered pursuant to Section 19 hereof. The Borrower shall deliver the applicable stock certificate to the Holder prior to the close of the fifth (5^th) Business Day after a Conversion Date. The Holder shall physically surrender this Note to the Borrower in connection with a conversion, whether a partial conversion or a total conversion. In the event of a partial conversion, in order to reflect the reduction in the outstanding principal amount of this Note and the reduction in the accrued and unpaid interest, the Borrower shall prepare and deliver to the Holder a new Note, identical in all respects to the surrendered Note except for the principal amount outstanding reflected on the first page hereof. Such replacement Note (resulting from the partial conversion) shall be delivered to the Holder prior to the close of the fifth (5^th) Business Day after the applicable Conversion Date. The Holder and the Borrower shall maintain records showing the principal amount converted and the date of such conversions. In the event of any dispute or discrepancy, the records of the Borrower shall be controlling and determinative in the absence of manifest error; provided, however, that if the Borrower has not kept records or there is manifest error in the Borrower’s records, then the records of the Holder shall be controlling and determinative.

(d)          Note Conversion Price and Adjustments to Note Conversion Price.

(i)          The conversion price in effect on any Conversion Date shall (i) if the conversion is into Series A Stock, then the conversion price shall be the Series A Original Issue Price (as defined in the Series A Certificate of Designation); or (ii) if the conversion is into any other series of convertible preferred stock which may be outstanding on a Conversion Date, then the conversion price shall be the price per share at which such other series of convertible preferred stock is then being issued or was most recently issued (such conversion price as may be in effect on a Conversion Date, herein generally referred to as the “Note Conversion Price”).

(ii)         The Borrower agrees to provide notice to the Holders of any event or issuance that would result in any adjustment to the Conversion Price pursuant to this Section 4(d) and such notice shall specify the new Note Conversion Price in effect.

(e)          No Taxes on Certificates.  The issuance of certificates for shares of the Preferred Stock on conversion of this Note shall be made without charge to the Holder thereof for any documentary stamp or similar taxes that may be payable in respect of the issue or delivery of such certificate.

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Section 5.        Exchange into New Securities Issued to Third Parties. After the Original Issue Date, in the event that the Borrower consummates any financing transaction with any other third party using any form of debt, equity or equity-linked security that has terms deemed to be more favorable, in the Holder’s sole discretion, than the terms of this Note (any such security used in such new financing hereinafter referred to as a “New Security”), then the Holder shall have the option, in its sole discretion, to exchange all or any portion of the Obligations outstanding under this Note into such New Security on the same terms as such New Security was offered to third parties (an “Exchange”). Upon an Exchange, the Holder also shall be assigned all rights (and assume all obligations other than obligations to provide any incremental amounts of financing to the Company) provided in the definitive agreements pursuant to which the New Security was sold. The Borrower covenants and agrees that so long as all or any portion of this Note is outstanding, it will notify in writing any Holder of this Note promptly within ten (10) Business Days of the issuance of any New Security and such notice will contain: (a) the names and contact information for any holders of the New Security, (b) the aggregate dollar amount or principal amount of such New Securities being issued to each new holder of such securities, and (c) a copy of all transaction documentation for such New Security. So long as this Note remains outstanding, the Holder shall have the right to exchange all or any portion of the Obligations outstanding under this Note for up to one hundred eighty (180) days after any such New Security issold to any other third party upon written notice to the Borrower.

Section 6.        Security Agreement. This Note is secured by a Security Agreement of even date herewith (the “Security Agreement”) and an Intellectual Property Security Agreement of even date herewith (the “IP Security Agreement”) between the Borrower, the Holder, XGS II, LLC, a Florida limited liability company (“XGS II”), Mr. Michael R. Knox (“Knox”), Aspen Advanced Opportunity Fund, L.P., a Delaware limited partnership (“Aspen” and together with XGS II and Knox, the “Other Secured Parties”), and the Agent specified in such Security Agreement and IP Security Agreement. The Holder understands and acknowledges that the Borrower has issued secured indebtedness to Knox secured by the Collateral (as defined in the Security Agreement) as more fully described on Exhibit B and intends to issue either simultaneously with this Note or at a subsequent time, additional Notes or other similar securities to the Holder and Other Secured Parties and consents to such additional secured indebtedness so long as all of the following conditions are met:

(a) no more than $14,800,000 in the aggregate (as measured by the initial principal amount outstanding before adding in capitalized interest which may be part of the principal balance of this Note or any other similar notes held by the Other Secured Parties) of secured Indebtedness which is secured by the Collateral defined in the Security Agreement has been or will be issued by the Borrower to the Holder or the Other Secured Parties at any time while this Note is outstanding; and

(b) no other secured Indebtedness matures prior to the Maturity Date of this Note, except for the Indebtedness described on paragraph 4 of Exhibit B, without the prior written consent of the Holder; and

(c) no other secured Indebtedness has any more favorable economic terms than the Note; and

(d) no other secured Indebtedness is issued in a manner that would result in such Indebtedness being senior to this Note; and

(e) no other secured Indebtedness will be issued to any Other Secured Parties until such Other Secured Parties have agreed to be bound by the terms of the Intercreditor Agreement, the Security Agreement, and the IP Security Agreement and have executed copies of such documents; and

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(f) all other secured Indebtedness issued by the Borrower pursuant to this exception is issued in exchange for cash consideration or as a replacement to the form of note previously issued in exchange for cash consideration.

Section 7.        Definitions. For the purposes hereof, the following terms shall have the following meanings:

“Accounts” shall mean “accounts” as defined in Section 9-102 of the UCC.

“Affiliate” shall mean, as to any Person (a) any other Person that, directly or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, such Person, (b) any other Person who is a director or officer (i) of such Person, (ii) of any Subsidiary of such Person, or (iii) of any Person described in clause (a) above with respect to such Person, (c) any other Person which, directly or indirectly through one or more intermediaries, is the beneficial or record owner (as defined in Rule 13d-3 of the Securities Exchange Act of 1934, as amended, as the same is in effect on the date hereof) of five percent (5%) or more of any class of the outstanding voting stock, securities or other equity or ownership interests of such Person and (d) in the case such Person is an individual, any other Person who is an immediate family member, spouse or lineal descendant of individuals of such Person or any Affiliate of such Person. For purpose of this definition, the term “control” (and the correlative terms, “controlled by” and “under common control with”) shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies, whether through ownership of securities or other interests, by contract or otherwise. “Affiliate” shall include any Subsidiary.

“Aspen Transaction Documents” means the purchase agreements between the Company and Aspen, on the one hand, and the Company and XGS II, on the other hand, as amended and restated, and any other agreements delivered in connection with such agreements.

“Business Day” means any day except Saturday, Sunday and any day which shall be a federal legal holiday in the United States or a day on which banking institutions are authorized or required by law or other government action to close.

“Capital Lease” shall mean, as to any Person, a lease of any interest in any kind of property or asset by that Person as lessee that is, should be or should have been recorded as a “capital lease” in accordance with GAAP.

“Capitalized Lease Obligations” shallmean all obligations of any Person under Capital Leases, in each case, taken at the amount thereof accounted for as a liability in accordance with GAAP.

“Capital Stock” shall mean any and all shares, interests, participations or other equivalents (however designated) of capital stock of a corporation, any and all equivalent ownership interests in a Person (other than a corporation) and any and all warrants, rights or options to purchase any of the foregoing.

“Change of Control” means the occurrence of any of the following events after the Original Issue Date: (i) any “person” or “group” (as defined in Section 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) together with their affiliates become the ultimate “beneficial owner” (as defined in Rule 13d-3 of the Exchange Act) of voting stock of the Borrower representing more than 50% of the voting power of the total voting stock of the Borrower; (ii) the Stockholders of the Borrower approve a merger or consolidation of the Borrower with any other Corporation or entity regardless of which entity is the survivor, other than a merger or a consolidation which would result in the voting stock of the Borrower outstanding immediately prior thereto continuing to represent (either by remaining outstanding or being converted into voting securities of the surviving entity or the parent thereof) at least 50% of the combined voting power of the voting securities of the Borrower or such surviving entity or the parent thereof, outstanding immediately after such merger or consolidation; or (iii) the stockholders of the Borrower approve a plan of complete liquidation or winding up of the Borrower or an agreement for the sale or disposition by the Borrower of all or substantially all of the Borrower’s assets.

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“Closing” shall mean the date on which this Note is issued by the Company to the Holder.

“Closing Date” shall mean the date upon which the Closing occurs.

“Collateral” shall have the meaning set forth in the Security Agreement and IP Security Agreement.

“Common Stock” means the common stock, no par value, of the Borrower and stock of any other class into which such shares may hereafter be changed or reclassified.

“Conversion Date” shall have the meaning set forth in Section 4(c).

“Debtor Relief Law” shall mean, collectively, the Bankruptcy Code of the United States of America and all other applicable federal and state liquidation, conservatorship, bankruptcy, moratorium, rearrangement, receivership, insolvency, reorganization or similar debtor relief laws from time to time in effect affecting the rights of creditors generally, as amended and in effect from time to time.

“Default” shall mean any event, fact, circumstance or condition that, with the giving of applicable notice or passage of time or both, would constitute or be or result in an Event of Default.

“Default Rate” shall have themeaning set forth in Section 3(b).

“Deposit Accounts” shall mean “deposit accounts” as defined in Section 9-102 of the UCC.

“Distribution” shall mean any direct or indirect dividend, distribution or other payment of any kind or character (whether in cash, securities or other property) in respect of any equity interests.

“Equity Threshold” shall mean that XGS has received an aggregate of $15 million in cash consideration (excluding amounts received from Samsung, XGS II, Aspen, and Knox) after the Original Issue Date from XGS’s sale or issuance of: (i) Common Stock, (ii) Preferred Stock, (iii) other equity-linked securities, (iv) rights, options, or warrants to purchase equity securities of XGS, and (v) securities of any type whatsoever, including convertible debt, that are or may become convertible into, exchange into, or exercisable for, equity securities of XGS.

“Event of Default” shall mean the occurrence of any event set forth in Section 3(a).

“Existing Indebtedness” shall mean any existing Indebtedness of the Borrower as of the Original Issue Date as set forth on Exhibit B and Exhibit D hereto.

“GAAP” shall mean generally accepted accounting principles in the United States as in effect on the Closing Date.

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“Governmental Authority” shall mean any federal, state, municipal, national, local or other governmental department, court, commission, board, bureau, agency or instrumentality or political subdivision thereof, or any entity or officer exercising executive, legislative or judicial, regulatory or administrative functions of or pertaining to any government or any court, in each case, whether of the United States or a state, territory or possession thereof, a foreign sovereign entity or country or jurisdiction or the District of Columbia.

“Indebtedness” of any Person shall mean, without duplication, (a) all obligations for borrowed money, (b) all obligations evidenced by bonds, debentures, notes, or other similar instruments and all reimbursement or other obligations in respect of letters of credit or bankers acceptances, (c) all Capitalized Lease Obligations, (d) all obligations or liabilities of others secured by a Lien on any asset of such Person or its Subsidiaries, irrespective of whether such obligation or liability is assumed, (e) all obligations to pay the deferred purchase price of assets (other than trade payables incurred in the ordinary course of business and not outstanding more than one hundred twenty (120) calendar days after the date such payable was created) or such longer period as shall be agreed in writing by Holder and Borrower, (f) all net obligations owing to counterparties under hedging agreements, (g) all obligations with respect to redeemable Capital Stock or repurchase obligations under any Capital Stock issued by such Person, (h) the present value of future rental payments under all synthetic leases (excluding specifically any operating leases or real estate leases) and (i) any obligation guaranteeing or intended to guarantee (whether directly or indirectly guaranteed, endorsed, co-made, discounted, or sold with recourse) any obligation of any other Person that constitutes Indebtedness under any of clauses (a) through (h) above.

“Investment Property” shall mean “investment property” as defined in Section 9-102 of the UCC.

“Landlord Waiver and Consent” shall mean a waiver/consent from the owner/lessor/mortgagee of any premises either owned or occupied by Borrower at which any of the Collateral is now or hereafter located for the purpose of providing Holder access to such Collateral, in each case as such may be modified, amended, or supplemented from time to time.

“Lien” shall mean any mortgage, pledge, security interest, encumbrance, restriction, lien or charge of any kind (including any agreement to give any of the foregoing, any conditional sale or other title retention agreement or any lease in the nature thereof), or any other arrangement pursuant to which title to the property is retained by or vested in some other Person for security purposes.

“Management or Service Fee” shall mean any management, service or related or similar fee paid by Borrower to any Person with respect to any facility owned, operated or leased by Borrower.

“Material Adverse Change” shall mean any event, condition or circumstance or set of events, conditions or circumstances or any change(s) which (i) has, had or would reasonably be likely to have any material adverse effect upon or change in the validity or enforceability of any Transaction Document, (ii) has been or would reasonably be expected to be adverse to the value of any material portion of the Collateral, or to the priority of Holder’s security interest in any portion of the Collateral, (iii) has been or would reasonably be expected to be materially adverse to the business, operations, prospects, properties, assets, liabilities or financial condition of the Borrower, either individually or taken as a whole, or (iv) has materially impaired or would reasonably be likely to materially impair the ability of any Borrower to pay any portion of the Obligations or otherwise perform the Obligations or to consummate the transactions under the Transaction Documents executed by such Person.

“Note Conversion Price” shall have the meaning set forth in Section 4(d) hereof.

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“Obligations” shall mean all present and future obligations, Indebtedness and liabilities of Borrower to Holder at any time and from time to time of every kind, nature and description, direct or indirect, secured or unsecured, joint and several, absolute or contingent, due or to become due, matured or unmatured, now existing or hereafter arising, contractual or tortious, liquidated or unliquidated, (whether or not evidenced by a note or debenture), including, without limitation, all principal, interest, applicable fees, charges and expenses and all amounts paid or advanced by Holder on behalf of or for the benefit of Borrower for any reason at any time, including in each case obligations of performance as well as obligations of payment and interest that accrue after the commencement of any proceeding under any Debtor Relief Law by or against any such Person.

“Original Issue Date” shall mean the date of the first issuance of this Note regardless of the number of transfers and regardless of the number of instruments, which may be issued to evidence such Note.

“Paid in Full” and “Payment in Full” mean, with respect to the Obligations, all amounts owing with respect thereto (including any interest accruing thereon after the commencement of any proceeding under any Debtor Relief Law by or against Borrower, whether or not allowed as a claim against such Borrower in such proceeding, but excluding as yet unasserted contingent obligations), have been fully, finally and completely paid in cash.

“Permit” shall mean collectively all licenses, leases, powers, permits, franchises, certificates, authorizations, approvals, certificates of need, provider numbers and other right.

“Permitted Acquisition” shall mean any acquisition by Borrower, whether through a purchase of stock, membership interests or otherwise or the purchase of assets or through a merger, consolidation or amalgamation, of another Person, or the assets constituting an entire or any portion of any business or operating business unit or division of another person or securities of such other Person that satisfies the requirements set forth in Sections 2(a)(7) and 2(b)(4) hereof.

“Permitted Discretion” shall mean a determination or judgment made by Holder in good faith in the exercise of reasonable (from perspective of a secured lender) business judgment.

“Permitted Indebtedness” shall mean any of the following: (i) any current or future Indebtedness contemplated under the Transaction Documents or the Aspen Transaction Documents, (ii) any Existing Indebtedness, (iii) Capitalized Lease Obligations incurred after the Closing Date and Indebtedness incurred to purchase capital equipment and secured by purchase money Liens constituting Permitted Liens in an aggregate amount outstanding at any time not to exceed $2,000,000, provided, that, the debt service for such Indebtedness shall not exceed $600,000 for any twelve (12) month period, (iv) accounts payable to trade creditors and current operating expenses (other than for borrowed money) which are not aged more than one hundred twenty (120) calendar days from the date such payable was created or such longer period as shall be agreed in writing by Holder, except, in each case incurred in the ordinary course of business and paid within such time period, unless the same are being contested in good faith and by appropriate and lawful proceedings and such reserves, if any, with respect thereto as are required by GAAP shall have been reserved, and (v) new unsecured Indebtedness incurred in the ordinary course of business and not exceeding $2,000,000 individually or in the aggregate outstanding at any one time when considered collectively with any Existing Indebtedness; provided, however, that such new Indebtedness (A) shall not be secured by Collateral, any cash, money, Investment Property or Deposit Accounts; (B) the debt service for such new Indebtedness and any remaining Existing Indebtedness shall not exceed $400,000 for any twelve (12) month period; (C) upon the incurrence of such new Indebtedness and after giving effect thereto no Default or Event of Default shall exist and be continuing, and (D) such new Indebtedness shall be subordinated in right of repayment and remedies to all of the Obligations and to all of Holder’s rights pursuant to a written agreement among Holder, Borrower and the lender with respect to such new Indebtedness, in form and substance satisfactory to Holder.

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“Permitted Liens” shall mean with respect to the Borrower any of the following: (i) Liens under the Transaction Documents, the Aspen Transaction Documents or otherwise arising in favor of any Holder of Indebtedness, (ii) Liens imposed by law for taxes, assessments or charges of any Governmental Authority for claims not yet due or which are being contested in good faith by appropriate proceedings and with respect to which adequate reserves or other appropriate provisions are being maintained by such Person in accordance with GAAP to the satisfaction of Holder in its Permitted Discretion, (iii) (A) statutory Liens of landlords (provided, that, with respect to Required Locations any such landlord has executed a Landlord Waiver and Consent in form and substance satisfactory to Holder) and of carriers, warehousemen, mechanics, materialmen, and (B) other Liens imposed by law or that arise by operation of law in the ordinary course of business from the date of creation thereof, in each case only for amounts not yet due or which are being contested in good faith by appropriate proceedings and with respect to which adequate reserves or other appropriate provisions are being maintained by such Person in accordance with GAAP to the satisfaction of Holder in its Permitted Discretion, (iv) Liens (A) incurred or deposits made in the ordinary course of business (including, without limitation, surety bonds and appeal bonds) in connection with workers’ compensation, unemployment insurance and other types of social security benefits or to secure the performance of tenders, bids, leases, contracts (other than for the repayment of Indebtedness), statutory obligations and other similar obligations, or (B) arising as a result of progress payments under government contracts, (v) purchase money Liens (A) securing the type of Permitted Indebtedness set forth under clause (iii) of the definition of “Permitted Indebtedness”, or (B) in connection with the purchase by such Person of equipment in the normal course of business, provided, that, such payables shall not exceed any limits on Indebtedness provided for herein and shall otherwise be Permitted Indebtedness hereunder; (vi) any existing Liens disclosed in the Security Agreement.

“Permitted Payments” shall mean (a) any payments of principal, interest or accrued fees and expenses due and owing on this Note, and (b), plus any payments to holders of Indebtedness of the Company as outlined Exhibit C hereof.

“Person” means a corporation, an association, a partnership, organization, a business, an individual, a government or political subdivision thereof a governmental agency.

“Required Locations” shall mean collectively: (a) the leased premises located at, (i) 3101 Grand Oak Drive, Lansing, MI 48911, (ii) 4055 English Oak, Suite B, Lansing, MI 48911, and (iii) 2100 S. Washington Avenue, Lansing MI 48910; and (b) any location leased by Borrower at which books and records relating to Accounts are kept of which duplicates are not kept at the location identified in (a) above.

“Subsidiary” shall mean, (i) as to Borrower, any Person in which more than fifty percent (50%) of all equity, membership, partnership or other ownership interests is owned directly or indirectly by such Borrower or one or more of its Subsidiaries, and (ii) as to any other Person, any Person in which more than fifty percent (50%) of all equity, membership, partnership or other ownership interests is owned directly or indirectly by such Person or by one or more of such Person’s Subsidiaries.

“Transaction Documents” means the Purchase Agreement and any other agreement delivered in connection with the Purchase Agreement, including, without limitation, this Note, the Security Agreement and the IP Security Agreement.

“Transfer Agent” means any stock transfer agent that the Borrower may appoint from time to time or if no such transfer agent has been appointed, then the Borrower.

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“UCC” shall mean the Uniform Commercial Code as in effect in the State of Michigan from time to time.

Section 8.           No Stockholder Rights. Except to the extent provided for in the Transaction Documents, this Note shall not entitle the Holder to any of the rights of a stockholder of the Borrower, including without limitation, the right to vote, to receive dividends and other distributions, or to receive any notice of, or to attend, meetings of stockholders or any other proceedings of the Borrower, unless and to the extent converted into shares of Preferred Stock in accordance with the terms hereof.

Section 9.           Spin-offs. If, at any time while any portion of this Note remains outstanding, the Borrower spins off or otherwise divests itself of a part of its business or operations or disposes of all or of a part of its assets in a transaction (the “Spin Off”) in which the Borrower, in addition to or in lieu of any other compensation received and retained by the Borrower for such business, operations or assets, causes securities of another entity (the “Spin Off Securities”) to be issued to security holders of the Borrower, the Borrower shall cause (i) to be reserved Spin Off Securities equal to the number thereof which would have been issued to the Holder had all of the Holder’s Notes outstanding on the record date (the “Record Date”) for determining the amount and number of Spin Off Securities to be issued to security holders of the Borrower (the “Outstanding Notes”) been converted as of the close of business on the Business Day immediately before the Record Date (the “Reserved Spin Off Shares”), and (ii) to be issued to the Holder on the conversion of all or any of the Outstanding Notes, such amount of the Reserved Spin Off Shares equal to (x) the Reserved Spin Off Shares multiplied by (y) a fraction, of which (I) the numerator is the principal amount of the Outstanding Notes then being converted, and (II) the denominator is the principal amount of the Outstanding Notes.

Section 10.            Ranking; Seniority. This Note is a direct obligation of the Borrower. This Note ranks pari passu with all other Indebtedness listed on Exhibit B hereto issued by the Borrower prior to or simultaneously with the Notes on the Original Issue Date and senior to all other indebtedness of the Borrower issued after the Original Issue Date. No Indebtedness of the Borrower, either now or hereafter while this Note is outstanding, is or will be senior to this Note in right of payment, whether with respect to interest; damages or upon liquidation or dissolution or otherwise, with respect to the assets of the Borrower. Without the Holder’s consent, the Borrower shall not and shall not permit any of its Subsidiaries to, directly or indirectly, enter into, create, incur, assume or suffer to exist any indebtedness of any kind, on or with respect to any of its property or assets now owned or hereafter acquired or any interest therein or any income or profits therefrom that is senior in any respect to the obligations of the Borrower under this Note.

Section 11.            Transferability. This Note has been issued subject to investment representations of the original Holder hereof and may be transferred to a) any entity controlled by the Holder, b) any investors in the Holder or their direct assignees or c) any other accredited investors or exchanged only in compliance with the Securities Act of 1933, as amended (the “Act”), and other applicable state and foreign securities laws. In the event of any proposed transfer of this Note, the Borrower may require, prior to issuance of a new Note in the name of such other person, that it receive reasonable transfer documentation that is sufficient to evidence that such proposed transfer complies with the Act and other applicable state and foreign securities laws. Prior to due presentment for transfer of this Note, the Borrower and any agent of the Borrower may treat the person in whose name this Note is duly registered on the Borrower’s Note register as the owner hereof for the purpose of receiving payment as herein provided and for all other purposes, whether or not this Note be overdue, and neither the Borrower nor any such agent shall be affected by notice to the contrary. Subject to the foregoing, this Note may be transferred or assigned, in whole or in part, by the Holder at any time. The Notes will initially be issued in denominations determined by the Borrower, but are exchangeable for an equal aggregate principal amount of Notes of different denominations, as requested by the Holder surrendering the same. No service charge will be made for such registration or transfer or exchange.

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Section 12.        Replacement. If this Note is mutilated, lost, stolen or destroyed, the Borrower shall execute and deliver, in exchange and substitution for and upon cancellation of the mutilated Note, or in lieu of or in substitution for a lost, stolen or destroyed Note, a new Note for the principal amount of this Note so mutilated, lost, stolen or destroyed but only upon receipt of evidence of such loss, theft or destruction of such Note, and of the ownership hereof, and an agreement to indemnify Borrower for any resulting claims, all reasonably satisfactory to the Borrower.

Section 13.        Enforcement Expenses. If the Borrower fails to strictly comply with the terms of this Note, then the Borrower shall reimburse the Holder promptly for all reasonable fees, costs and expenses, including, without limitation, reasonable attorneys’ fees and expenses of the Holder in any action in connection with this Note that are incurred: (a) during any workout, attempted workout, and in connection with the rendering of legal advice as to the Holder’s rights, remedies and obligations; (b) collecting any sums which become due to the Holder, (c) defending or prosecuting any proceeding or any counterclaim to any proceeding or appeal; or (d) the protection, preservation or enforcement of any rights or remedies of the Holder under this Note or any of the Transaction Documents.

Section 14.        Waiver. Any waiver by the Holder of a breach of any provision of this Note shall not operate as or be construed to be a waiver of any other breach of such provision or of any breach of any other provision of this Note. The failure of the Holder to insist upon strict adherence to any term of this Note on one or more occasions shall not be considered a waiver or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Note. Any waiver must be in writing.

Section 15.         Severability. If any provision of this Note is invalid, illegal or unenforceable, the balance of this Note shall remain in effect, and if any provision is inapplicable to any person or circumstance, it shall nevertheless remain applicable to all other persons and circumstances. If it shall be found that any interest or other amount deemed interest due hereunder shall violate applicable laws governing usury, the applicable rate of interest due hereunder shall automatically be lowered to equal the maximum permitted rate of interest. The Borrower covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law or other law which would prohibit or forgive the Borrower from paying all or any portion of the principal of or interest on this Note as contemplated herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants or the performance of this Note.

Section 16.         Payment Dates; Payment Order of Priority. Whenever any payment or other obligation hereunder shall be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day. All payments received shall be applied in the following order of priority: (i) first to any amounts due to the Holder for the reimbursement of any expenses or fees under any provision of this Note or the Transaction Documents, all of which shall be provided to the Borrower in writing in sufficient detail prior the application of any payments for this purpose; and (ii) then amounts due to the Holder for accrued but unpaid interest on this Note; and (iii) then, to principal of this Note.

Section 17.        WAIVER OF TRIAL BY JURY. THE PARTIES HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT ANY OF THEM MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY TRANSACTION DOCUMENT OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF ANY PARTY. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE PARTIES’ ACCEPTANCE OF THIS AGREEMENT.

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Section 18.         Governing Law. This Note shall be governed by and construed in accordance with the laws of the State of Michigan, without giving effect to conflicts of laws thereof. Each of the parties consents to the jurisdiction of the state courts of the State of Michigan sitting in Ingham County, Michigan and the U.S. District Court for the Western District of Michigan in connection with any dispute arising under this Note and hereby waives, to the maximum extent permitted by law, any objection, including any objection based on forum non conveniens to the bringing of any such proceeding in such jurisdictions.

Section 19.         Notices. Any notices, consents, waivers or other communications required or permitted to be given under the terms hereof must be in writing and will be deemed to have been delivered: (a) upon receipt, when delivered personally; (b) upon receipt, when sent by facsimile (provided confirmation of transmission is mechanically or electronically generated and kept on file by the sending party); (c) on the next Business Day following deposit of such notice with a nationally recognized overnight delivery service; and (d) on the third Business Day following deposit of such notice with the U.S. Postal Service in an envelope mailed Certified Mail. The address and facsimile numbers for such communications shall be:

If to the Borrower, to:	XG Sciences, Inc.
	3101 Grand Oak Drive
	Lansing, MI 48911
	Attn: Chief Executive Officer
	Telephone:	(517) 703-1110, ext. 5445
	Facsimile:	(517) 703-1113
With a copy to:	Matt G. Hrebec
	Attorney
	Foster Swift Collins & Smith PC
	313 South Washington Square
	Lansing, MI 48933-2193
	Telephone: 517.371.8256
	Facsimile: 517.367.7356
If to the Holder:	SVIC No.15 New Technology Business Investment L.L.P.
	29th Fl., Samsung Electronics Bldg.
	1320-10, Seocho2-dong, Seocho-gu
	Seoul, Korea 137-857
	Fax: 82.2.2255.0288

Such address and facsimile number and persons to receive notice may be changed from time to time by either party providing written notice to the other party three (3) Business Days prior to the effectiveness of such change. Written confirmation of receipt (i) given by the recipient of such notice, consent, waiver or other communication, (ii) mechanically or electronically generated by the sender’s facsimile machine containing the time, date, recipient facsimile number and an image of the first page of such transmission, (iii) provided by a nationally recognized overnight delivery service, and (iv) the Certified Mail records of the U.S. Postal Service shall constitute rebuttable evidence of personal receipt in accordance with this Section 19.

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Section 20.        Entire Agreement. This Note constitutes and contains the entire agreement of the Borrower and the Holder with respect to the matters addressed herein and supersedes any and all prior negotiations, correspondence, understandings and agreements between the Borrower and Holder respecting the subject matter hereof.

[The Remainder of this Page Intentionally Left Blank.]

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IN WITNESS WHEREOF, the Borrower has caused this Note to be duly executed by a duly authorized officer as of the date set forth above.

XG SCIENCES, INC.
By:	/s/ Michael R. Knox
Name:   Michael R. Knox
Title:    Chief Executive Officer
XG SCIENCES IP, LLC
By:	/s/ Michael R. Knox
Name:  Michael R. Knox
Title:    Manager

EXHIBIT “A”

NOTICE OF CONVERSION

(To be executed by the Holder in order to convert this Note)

To:

XG Sciences, Inc.

3101 Grand Oak Drive

Lansing, MI 48911

Attn: Chief Executive Officer

The undersigned hereby irrevocably elects to convert $______________________ of the outstanding principal and/or accrued interest of the above Note into shares of Series A Convertible Preferred Stock of XG Sciences, Inc., according to the conditions stated therein, as of the Conversion Date written below.

Conversion Date:
Applicable Note Conversion Price:
Signature:
Name:
Address:
Amount to be converted:	$
Amount of Note unconverted:	$
Note Conversion Price per share:	$
Number of shares of Common Stock to be issued:
Please issue the shares of Common Stock in the following name and to the following address:
Issue to:
Authorized Signature:
Name:
Title:
Phone Number:

EXHIBIT “B”

EXISTING INDEBTEDNESS OF BORROWER WHICH RANKS PARI PASSU TO THE NOTE

1. $4,178,330.92 Amended and Restated Secured Convertible Promissory Note issued on January 15, 2014 by the Borrower to Aspen Advanced Opportunity Fund.

2. $772,998.15 Amended and Restated Secured Convertible Promissory Note issued on January 15, 2014 by the Borrower to Michael R. Knox.

3. $739,349.83 Amended and Restated Secured Convertible Promissory Note issued on January 15, 2014 by the Borrower to XGS II, LLC.

4. $300,000.00 Line of Credit Note, dated March 18, 2013, by and between XG Sciences, Inc. as the “Borrower” and Michael R. Knox as the “Lender” thereunder, of which $100,000 of principal remained outstanding as of January 15, 2014.

EXHIBIT “C”

PERMITTED PAYMENTS TO HOLDERS OF EXISTING INDEBTEDNESS

1) TRADE ACCOUNT PAYABLES

a) 100% of trade payables incurred in the ordinary course of business including unpaid employee compensation and authorized compensation payable to Affiliates

2) ACCRUED LIABILITIES

a) 100% of accrued liabilities incurred in the ordinary course of business including payroll, tax, and other liabilities.

3) SECURED NOTES PAYABLE DESCRIBED ON EXHIBIT B

a) All interest payments relating to the Indebtedness listed on Exhibit B hereof to the extent such interest payments are paid in cash.

b) Principal payments relating to that Indebtedness listed on Exhibit B, #4, provided, that such principal payments will only be made in the amounts and after the dates indicated below:

- $100,000 after the date on which Aspen and its Affiliates have provided $4.0. million of aggregate funding to the Company pursuant to the Transaction Documents

c) Principal payments relating to that Existing Indebtedness listed on Exhibit B, #1, #2, and #3, pursuant to the terms thereof, and subject to the terms of the Transaction Documents or the Aspen Transaction Documents, provided that such principal payments are made pro rata to the holders thereof in proportion to the aggregate principal amount of all such notes that may be outstanding as of the date of any such principal payments.

4) UNSECURED NOTES PAYABLE

a) Interest on the unsecured notes payable listed on Exhibit D hereof or any other amounts of Permitted Indebtedness subject to any limitations established in the definition of Permitted Indebtedness.

EXHIBIT “D”

EXISTING INDEBTEDNESS

UNSECURED NOTES PAYABLE

None

SCHEDULES

Schedule 2(a)(6) – Post Closing Obligations

Borrower shall direct the Collateral Agent specified in the Security Agreement to file a UCC-1 Statement evidencing Holder’s security interest in the Collateral within ten (10) days after the Closing Date.

Schedule 2(a)(7) – Subsidiaries of Borrower

XG Sciences IP, LLC (wholly owned subsidiary of XG Sciences, Inc.)

Schedule 2(b)(4) – Location of Collateral

(Headquarters)

3101 Grand Oak Drive

Lansing, MI 48911

(R&D Facility)

4055 English Oak

Suite B

Lansing, MI 48911

(Pilot Plant)

2100 S. Washington Ave.

Lansing, MI 48910

Schedule 2(b)(4) – Securities

100% of the membership interests of XG Sciences IP, LLC is owned by XG Sciences, Inc.

Schedule 2(b)(6) – Transactions with Affiliates

1. $4,178,330.92 Amended and Restated Secured Convertible Promissory Note issued on January 15, 2014 by the Borrower to Aspen Advanced Opportunity Fund.

2. $772,998.15 Amended and Restated Secured Convertible Promissory Note issued on January 15, 2014 by the Borrower to Michael R. Knox.

3. $739,349.83 Amended and Restated Secured Convertible Promissory Note issued on January 15, 2014 by the Borrower to XGS II, LLC.

4. $300,000.00 Line of Credit Note, dated March 18, 2013, by and between XG Sciences, Inc. as the “Borrower” and Michael R. Knox as the “Lender” thereunder, of which $100,000 of principal remained outstanding as of January 15, 2014.

5. One or more joint development agreements with Samsung or any of its affiliates as contemplated in the Transaction Documents.

THIS WARRANT AND THE UNDERLYING SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR UNDER THE SECURITIES LAWS OF ANY STATE. THESE SECURITIES MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED EXCEPT AS PERMITTED UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS IN ACCORDANCE WITH APPLICABLE REGISTRATION REQUIREMENTS OR AN EXEMPTION THEREFROM. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE ISSUER THAT SUCH OFFER, SALE, TRANSFER, PLEDGE OR HYPOTHECATION OTHERWISE COMPLIES WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS. THIS WARRANT MUST BE SURRENDERED TO THE COMPANY OR ITS TRANSFER AGENT AS A CONDITION PRECEDENT TO THE SALE, TRANSFER, PLEDGE OR HYPOTHECATION OF ANY INTEREST IN ANY OF THE SECURITIES REPRESENTED HEREBY.

WARRANT TO PURCHASE SHARES OF SERIES A CONVERTIBLE PREFERRED STOCK

of

XG SCIENCES, INC.

Dated as of January 15, 2014

Void after the date specified in Section 9

Warrant to Purchase

833,333 Shares of

Series A Convertible Preferred Stock

(subject to adjustment)

THIS CERTIFIES THAT, for value received, Aspen Advanced Opportunity Fund, LP, a Delaware limited partnership (“Aspen”), or its registered assigns (Aspen or its assigns generally referred to herein as the “Holder”), is entitled, subject to the provisions and upon the terms and conditions set forth herein, to purchase from XG Sciences, Inc., a Michigan corporation (the “Company”), shares of the Company’s Series A Convertible Preferred Stock (the “Preferred Stock”) (the “Shares”) in the amounts, at such times and at the price per share set forth in Section 1. The term “Warrant” as used herein shall include this Warrant and any warrants delivered in substitution or exchange therefor as provided herein. This Warrant is issued in connection with the sale of certain securities pursuant to the Amended & Restated Purchase Agreement, dated January 15, 2014, by and between the Holder and the Company (the “Purchase Agreement”). This Warrant restates and consolidates the warrants issued by the Company to Aspen on March 18, 2013 and July 12, 2013, each for 208,333 shares, respectively (the “Prior Warrants”). The Prior Warrants are hereby cancelled, and Aspen shall physically deliver the Prior Warrants to the Company upon the execution of this Warrant.

The following is a statement of the rights of the Holder and the conditions to which this Warrant is subject, and to which the Holder, by acceptance of this Warrant, agrees:

1. Number and Price of Shares; Exercise Period.

(a)          Number of Shares. Subject to any previous exercise of this Warrant and the vesting provisions outlined in Section 4 hereof, the Holder shall have the right to purchase up to 833,333 Shares, as may be adjusted pursuant hereto, prior to (or in connection with) the expiration of this Warrant as provided in Section 9.

(b)          Exercise Price. The exercise price per Share shall initially be equal to $12.00, subject to adjustment as provided in Section 7 (the “Exercise Price”).

(c)          Exercise Period. This Warrant shall be exercisable on or after the date of grant and prior to (or in connection with) the expiration of this Warrant as set forth in Section 9.

2.            Exercise of the Warrant.

(a)           Exercise. Subject to the vesting provisions outlined in Section 4 hereof, the purchase rights represented by this Warrant may be exercised at the election of the Holder, in whole or in part, but not for less than one hundred (100) Shares at a time (or such lesser number of shares which may then constitute the maximum number purchasable pursuant to Section 1) (such number being subject to adjustment as provided in Section 7, in accordance with Section 1), by:

(i)          the tender to the Company at its principal office (or such other office or agency as the Company may designate) of a notice of exercise in the form of Exhibit A (the “Notice of Exercise”), duly completed and executed by or on behalf of the Holder, together with the surrender of this Warrant; and

(ii)         the payment to the Company of an amount equal to (x) the Exercise Price multiplied by (y) the number of Shares being purchased, by wire transfer or certified, cashier’s or other check acceptable to the Company and payable to the order of the Company; and

(iii)        with respect to the first exercise by the Holder of this Warrant, in whole or in part, delivery of counterpart signature pages to that certain Shareholder Agreement, dated March 18, 2013, by and among the parties thereto and attached as Exhibit B hereto (the “Shareholder Agreement”), and any subsequent amendments thereto, such that as a condition to the first exercise by the Holder of this Warrant, in whole or in part, the Holder shall become a party to, and bound by, the Shareholder Agreement as a “Stockholder” thereunder; provided, however, that Holder will not be required to be bound to any provision of any such amendment to the Shareholder Agreement that creates a material financial obligation for the Holder; it being understood that the Shareholder Agreement as currently in effect does not create any such financial obligations.

(b)           Net Issue Exercise. In lieu of exercising this Warrant pursuant to Section 2(a)(ii), if the fair market value of one Share is greater than the Exercise Price (at the date of calculation as set forth below), the Holder may elect to receive a number of Shares equal to the value of this Warrant (or of any portion of this Warrant being canceled) by surrender of this Warrant at the principal office of the Company (or such other office or agency as the Company may designate) together with a properly completed and executed Notice of Exercise reflecting such election, in which event the Company shall issue to the Holder that number of Shares computed using the following formula:

X	=	Y (A – B)
		A

Where:

X	=	The number of Shares to be issued to the Holder
Y	=	The number of Shares purchasable under this Warrant or, if only a portion of the Warrant is being exercised, the portion of the Warrant being exercised (at the date of such calculation)

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A	=	The fair market value of one Share (at the date of such calculation)
B	=	The Exercise Price (as adjusted to the date of such calculation)

For purposes of the calculation above, the fair market value of one Share shall be determined by the Board of Directors of the Company, acting in good faith; provided, however; that:

(i)          where a public market exists for the Common Stock at the time of such exercise, the fair market value per Share shall be based on the average of the closing ask prices of the Common Stock underlying such Shares or the closing price quoted on the national securities exchange on which the Common Stock is listed as published in the Wall Street Journal, as applicable, for the ten (10) trading day period ending five (5) trading days prior to the date of determination of fair market value; and

(ii)         if the Warrant is exercised in connection with the Company’s initial public offering of the Common Stock, the fair market value per Share shall be based on the offering price per share of Common Stock to the public of the Company’s initial public offering.

(c)           Automatic Exercise. If any portion of this Warrant remains unexercised as of the Expiration Date of this Warrant as set forth in Section 9 and the fair market value per share of the Shares as of the Expiration Date is greater than the applicable Exercise Price as of the Expiration Date, then, without further action by the Holder, this Warrant shall be deemed to have been exercised automatically on the date (the “Automatic Exercise Date”) which is the day immediately prior to the close of business on the Expiration Date (or, in the event that the Expiration Date is not a Business Day, the immediately preceding Business Day) as if the Holder had duly given a Notice of Exercise for a Net Issue Exercise as contemplated by Section 2(b) hereof, and the Holder (or such other person or persons as directed by the Holder) shall be treated for all purposes as the holder of record of such Shares as of the close of business on such Automatic Exercise Date. This Warrant shall be deemed to be surrendered to the Company on the Automatic Exercise Date by virtue of this Section 2(c) without any action by the Holder

(d)           Stock Certificates. The rights under this Warrant shall be deemed to have been exercised and the Shares issuable upon such exercise shall be deemed to have been issued immediately prior to the close of business on the date this Warrant is exercised in accordance with its terms, and the person entitled to receive the Shares issuable upon such exercise shall be treated for all purposes as the holder of record of such Shares as of the close of business on such date. As promptly as reasonably practicable on or after such date, and in any event within thirty (30) days thereafter, the Company shall issue and deliver to the person or persons entitled to receive the same a certificate or certificates for that number of shares issuable upon such exercise. In the event that the rights under this Warrant are exercised in part and have not expired, the Company shall execute and deliver a new Warrant reflecting the number of Shares that remain subject to this Warrant.

(e)           No Fractional Shares or Scrip. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of the rights under this Warrant. In lieu of such fractional share to which the Holder would otherwise be entitled, the Company shall make a cash payment equal to the Exercise Price multiplied by such fraction.

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(f)           Reservation of Stock. The Company agrees during the term the rights under this Warrant are exercisable to take all reasonable action to reserve and keep available from its authorized and unissued shares of Preferred Stock, and the Common Stock into which such shares of Preferred Stock are convertible, for the purpose of effecting the exercise of this Warrant such number of shares as shall from time to time be sufficient to effect the exercise of the rights under this Warrant; and if at any time the number of authorized but unissued shares of Preferred Stock, and the Common Stock into which such shares of Preferred Stock are convertible, shall not be sufficient for purposes of the exercise of this Warrant in accordance with its terms, without limitation of such other remedies as may be available to the Holder, the Company will use all reasonable efforts to take such corporate action as may, in the opinion of counsel, be necessary to increase its authorized and unissued shares of its Preferred Stock, and the Common Stock into which shares of Preferred Stock are convertible, to a number of shares as shall be sufficient for such purposes. The Company represents and warrants that all shares that may be issued upon the exercise of this Warrant will, when issued in accordance with the terms hereof, be validly issued, fully paid and nonassessable.

3.          Replacement of the Warrant. Subject to the receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of loss, theft or destruction, on delivery of an indemnity agreement reasonably satisfactory in form and substance to the Company or, in the case of mutilation, on surrender and cancellation of this Warrant, the Company at the expense of the Holder shall execute and deliver, in lieu of this Warrant, a new warrant of like tenor and amount.

4.          Vesting of the Warrant. The Shares subject to this Warrant shall vest according to the following schedule:

(a)           378,766 Shares, as described in Section 1, shall be deemed to have vested as of January 15, 2014 in consideration for Aspen having advanced on or before such date (i) $3,909,425.00 of initial principal of Convertible Secured Notes pursuant to the transaction documents referenced in the Purchase Agreement (such documents collectively the “Transaction Documents”), and (ii) $635,769.73 of funding to certain vendors of the Company pursuant to Lease Schedules #1 and #2 of that certain Master Lease Agreement between the Aspen and the Company, dated March 18, 2013 (the “Master Lease”).

(b)           454,567 warrants shall vest according to the following schedule. For every $12 of new capital advanced to the Company in cash by Aspen over and above the amounts referenced in Section 4(a) above under any of the Transaction Documents after January 15, 2014, one Share, as described in Section 1, shall be deemed to be vested. For the purposes of this Warrant, any funds advanced to vendors of the Company by Aspen pursuant to the Master Lease Agreement between the parties, dated March 18, 2013, shall not be deemed to have been advanced to the Company until the earlier to occur of (i) the date on which a completed lease schedule is executed between the parties covering the funds advanced to vendors of the Company on the Company’s behalf; or (ii) the date which is six months from the date on which any advance is made by Aspen to a vendor of the Company pursuant to a signed certificate of understanding between Aspen and the Company.

(c)           In the event there is a Default or Event of Default (as such terms are defined in the Transaction Documents) by the Company under any of the Transaction Documents and such Default or Event of Default continues uncured for a period of thirty (30) days after the Company’s receipt of written notice of the Event of Default, then all remaining unvested Shares subject to this Warrant will be deemed to have immediately vested.

(d)           In the event there is a Change of Control of the Company as provided in Section 9 hereof, all remaining unvested Shares subject to this Warrant will be deemed to have immediately vested on the Business Day prior to such Change of Control.

 4

5. Transfer of the Warrant.

(a)           Warrant Register. The Company shall maintain a register (the “Warrant Register”)containing the name and address of the Holder or Holders. Until this Warrant is transferred on the Warrant Register in accordance herewith, the Company may treat the Holder as shown on the Warrant Register as the absolute owner of this Warrant for all purposes, notwithstanding any notice to the contrary. Any Holder of this Warrant (or of any portion of this Warrant) may change its address as shown on the Warrant Register by written notice to the Company requesting a change.

(b)           Warrant Agent. The Company may appoint an agent for the purpose of maintaining the Warrant Register referred to in Section 5(a), issuing the Shares or other securities then issuable upon the exercise of the rights under this Warrant, exchanging this Warrant, replacing this Warrant or conducting related activities.

(c)           Transferability of the Warrant. Subject to the provisions of this Warrant with respect to compliance with the Securities Act of 1933, as amended (the “Securities Act”) and limitations on assignments and transfers, including without limitation compliance with the restrictions on transfer set forth in Section 6, title to this Warrant may be transferred by endorsement (by the transferor and the transferee executing the assignment form attached as Exhibit C (the “Assignment Form”) and delivery in the same manner as a negotiable instrument transferable by endorsement and delivery.

(d)           Exchange of the Warrant upon a Transfer. On surrender of this Warrant (and a properly endorsed Assignment Form) for exchange, subject to the provisions of this Warrant with respect to compliance with the Securities Act and limitations on assignments and transfers, the Company shall issue to or on the order of the Holder a new warrant or warrants of like tenor, in the name of the Holder or as the Holder (on payment by the Holder of any applicable transfer taxes) may direct for the number of shares issuable upon exercise hereof, and the Company shall register any such transfer upon the Warrant Register. This Warrant (and the securities issuable upon exercise of the rights under this Warrant) must be surrendered to the Company or its warrant or transfer agent, as applicable, as a condition precedent to the sale, pledge, hypothecation or other transfer of any interest in any of the securities represented hereby.

(e)           Minimum Transfer. This Warrant may not be transferred in part unless such transfer is to a transferee who, pursuant to such transfer, receives the right to purchase at least one hundred (100) Shares hereunder (as adjusted from time to time in accordance with Section 7).

(f)           Taxes. In no event shall the Company be required to pay any tax which may be payable in respect of any transfer involved in the issue and delivery of any certificate in a name other than that of the Holder, and the Company shall not be required to issue or deliver any such certificate unless and until the person or persons requesting the issue thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid or is not payable.

6.           Restrictions on Transfer of the Warrant and Shares; Compliance with Securities Laws. By acceptance of this Warrant, the Holder agrees to comply with the following:

(a)           Restrictions on Transfers. Any transfer of the Shares or the Common Stock issuable upon conversion of the Shares (collectively the “Securities”) must be in compliance with all applicable federal and state securities laws. The Holder agrees not to make any sale, assignment, transfer, pledge or other disposition of all or any portion of the Securities, or any beneficial interest therein, unless and until the transferee thereof has agreed in writing for the benefit of the Company to take and hold such Securities subject to, and to be bound by, the terms and conditions set forth in this Warrant to the same extent as if the transferee were the original Holder hereunder, and

 5

(i)          there is then in effect a registration statement under the Securities Act covering such proposed disposition and such disposition is made in accordance with such registration statement, or

(ii)         (A) such Holder shall have given prior written notice to the Company of such Holder’s intention to make such disposition and shall have furnished the Company with a detailed description of the manner and circumstances of the proposed disposition, (B) the transferee shall have confirmed to the satisfaction of the Company in writing, substantially in the form of Exhibit A-1, that the Securities are being acquired (i) solely for the transferee’s own account and not as a nominee for any other party, (ii) for investment and (iii) not with a view toward distribution or resale, and shall have confirmed such other matters related thereto as may be reasonably requested by the Company, and (C) such Holder shall have furnished the Company, at the Holder’s expense, with (i) an opinion of counsel, reasonably satisfactory to the Company, to the effect that such disposition will not require registration of such Securities under the Securities Act or (ii) a “no action” letter from the Securities and Exchange Commission to the effect that the transfer of such Securities without registration will not result in a recommendation by the staff of the Securities and Exchange Commission that action be taken with respect thereto, whereupon such Holder shall be entitled to transfer such Securities in accordance with the terms of the notice delivered by the Holder to the Company; provided, that the requirements of Section 6(a)(ii)(C) shall not apply in the case of permitted transfers under Section 6(b).

(b)           Permitted Transfers. Permitted transfers include (i) a transfer not involving a change in beneficial ownership, or (ii) transactions involving the distribution without consideration of Securities by any Holder to a parent or majority owned subsidiary of the Holder that is a corporation; provided, in each case, that the Holder shall give written notice to the Company of the Holder’s intention to effect such disposition and shall have furnished the Company with a detailed description of the manner and circumstances of the proposed disposition.

(c)           Securities Law Legend. The Securities shall (unless otherwise permitted by the provisions of this Warrant) be stamped or imprinted with a legend substantially similar to the following (in addition to any legend required by state securities laws):

THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR UNDER THE SECURITIES LAWS OF CERTAIN STATES. THESE SECURITIES MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED EXCEPT AS PERMITTED UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS IN ACCORDANCE WITH APPLICABLE REGISTRATION REQUIREMENTS OR AN EXEMPTION THEREFROM. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE ISSUER THAT SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION OTHERWISE COMPLIES WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS. THIS CERTIFICATE MUST BE SURRENDERED TO THE COMPANY OR ITS TRANSFER AGENT AS A CONDITION PRECEDENT TO THE SALE, TRANSFER, PLEDGE OR HYPOTHECATION OF ANY INTEREST IN ANY OF THE SECURITIES REPRESENTED HEREBY.

(d)           Shareholder Agreement Legend. The Shares issued upon exercise hereof shall also be stamped or imprinted with any and all legends described in the Company’s Shareholder Agreement.

(e)           Instructions Regarding Transfer Restrictions. The Holder consents to the Company making a notation on its records and giving instructions to any transfer agent in order to implement the restrictions on transfer established in Sections 5 and 6. The Company will not be required to (i) transfer on its books or in its Warrant Register any Securities that have been transferred in violation of any provisions of this Warrant or (ii) to treat as owner of such Securities, or accord the right to vote or pay dividends to any purchaser, donee or other transferee to whom such Securities may have been so transferred.

 6

(f)           Removal of Legend. The legend referring to federal and state securities laws identified in Section 6(d) stamped on a certificate evidencing the Shares and the stock transfer instructions and record notations with respect to such securities shall be removed and the Company shall issue a certificate without such legend to the holder of such securities if (i) such securities are registered under the Securities Act, or (ii) such holder provides the Company with an opinion of counsel reasonably acceptable to the Company to the effect that a sale or transfer of such securities may be made without registration or qualification.

7.          Adjustments. Subject to the expiration of this Warrant pursuant to Section 9, the number and kind of shares purchasable hereunder and the Exercise Price therefor are subject to adjustment from time to time after the date first stated herein, as follows:

(a)           Merger or Reorganization. If at any time there shall be any reorganization, recapitalization, merger or consolidation (a “Reorganization”) involving the Company (other than as otherwise provided for herein or as would cause the expiration of this Warrant under Section 9) in which the Preferred Stock are converted into or exchanged for securities, cash or other property, then, as a part of such Reorganization, lawful provision shall be made so that the Holder shall thereafter be entitled to receive upon exercise of this Warrant, the kind and amount of securities, cash or other property of the successor corporation resulting from such Reorganization, equivalent in value to that which a holder of the Shares deliverable upon exercise of this Warrant would have been entitled in such Reorganization if the right to purchase the Shares hereunder had been exercised immediately prior to such Reorganization. In any such case, appropriate adjustment (as determined in good faith by the Board of Directors of the successor corporation) shall be made in the application of the provisions of this Warrant with respect to the rights and interests of the Holder after such Reorganization to the end that the provisions of this Warrant shall be applicable after the event, as near as reasonably may be, in relation to any shares or other securities deliverable after that event upon the exercise of this Warrant.

(b)           Reclassification of Shares. If the securities issuable upon exercise of this Warrant are changed into the same or a different number of securities of any other class or classes by reclassification, capital reorganization or otherwise (other than as otherwise provided for herein) (a “Reclassification”), then, in any such event, in lieu of the number of Shares which the Holder would otherwise have been entitled to receive, the Holder shall have the right thereafter to exercise this Warrant for a number of shares of such other class or classes of stock that a holder of the number of securities deliverable upon exercise of this Warrant immediately before that change would have been entitled to receive in such Reclassification, all subject to further adjustment as provided herein with respect to such other shares.

(c)           Subdivisions and Combinations. In the event that the outstanding shares of the Preferred Stock are subdivided (by stock split, by payment of a stock dividend or otherwise) into a greater number of shares of such securities, the number of Shares issuable upon exercise of the rights under this Warrant immediately prior to such subdivision shall, concurrently with the effectiveness of such subdivision, be proportionately increased, and the Exercise Price shall be proportionately decreased, and in the event that the outstanding shares of the Preferred Stock are combined (by reclassification or otherwise) into a lesser number of shares of such securities, the number of Shares issuable upon exercise of the rights under this Warrant immediately prior to such combination shall, concurrently with the effectiveness of such combination, be proportionately decreased, and the Exercise Price shall be proportionately increased.

 7

(d)           Notice of Adjustments. Upon any adjustment in accordance with this Section 7, the Company shall give notice thereof to the Holder, which notice shall state the event giving rise to the adjustment, the Exercise Price as adjusted and the number of securities or other property purchasable upon the exercise of the rights under this Warrant, setting forth in reasonable detail the method of calculation of each. The Company shall, upon the written request of any Holder, furnish or cause to be furnished to such Holder a certificate setting forth (i) such adjustments, (ii) the Exercise Price at the time in effect and (iii) the number of securities and the amount, if any, of other property that at the time would be received upon exercise of this Warrant

8.           Notification of Certain Events. Prior to the expiration of this Warrant pursuant to Section 9, in the event that the Company shall authorize:

(a)           the voluntary liquidation, dissolution or winding up of the Company;

(b)           any transaction resulting in the expiration of this Warrant pursuant to Section 9(b); or

(c)           any cash dividend, stock dividend, property dividend or any other distribution of the Company;

the Company shall send to the Holder of this Warrant at least fifteen (15) days prior written notice of the date on which a record shall be taken for any such action, dividend or distribution specified in clause (a) or (c) or the expected effective date of any such other event specified in clause (b) or (c), as applicable. The notice provisions set forth in this section may be shortened or waived prospectively or retrospectively by the consent of the Holder of this Warrant.

9.           Expiration of the Warrant. This Warrant shall expire and shall no longer be exercisable as of the earlier of (such date, the “Expiration Date”):

(a)           5:00 p.m., Eastern time, on January 15, 2024;

(b)           (i) the acquisition of the Company by another entity by means of any transaction or series of related transactions to which the Company is a party (including, without limitation, any stock acquisition, reorganization, merger or consolidation, but excluding any sale of stock for capital raising purposes and any transaction effected primarily for purposes of changing the Company’s jurisdiction of incorporation) other than a transaction or series of related transactions in which the holders of the voting securities of the Company outstanding immediately prior to such transaction or series of related transactions retain, immediately after such transaction or series of transactions, as a result of shares in the Company held by such holders prior to such transaction or series of transactions, at least a majority of the total voting power represented by the outstanding voting securities of the Company or such other surviving or resulting entity (or if the Company or such other surviving or resulting entity is a wholly-owned subsidiary immediately following such acquisition, its parent), or (ii) a sale, lease or other disposition of all or substantially all of the assets of the Company and its subsidiaries taken as a whole by means of any transaction or series of related transactions, except where such sale, lease or other disposition is to a wholly-owned subsidiary of the Company (any of the foregoing events specified in this Section 9(b), referred to generally as a “Change of Control”).

10.          No Rights as a Stockholder. Nothing contained herein shall entitle the Holder to any rights as a stockholder of the Company or to be deemed the holder of any securities that may at any time be issuable on the exercise of the rights hereunder for any purpose nor shall anything contained herein be construed to confer upon the Holder, as such, any right to vote for the election of directors or upon any matter submitted to stockholders at any meeting thereof, or to give or withhold consent to any corporate action (whether upon any recapitalization, issuance of stock, reclassification of stock, change of par value or change of stock to no par value, consolidation, merger, conveyance or otherwise) or to receive notice of meetings, or to receive dividends or subscription rights or any other rights of a stockholder of the Company until the rights under the Warrant shall have been exercised and the Shares purchasable upon exercise of the rights hereunder shall have become deliverable as provided herein.

 8

11.         Representations and Warranties of the Holder. By acceptance of this Warrant, the Holder represents and warrants to the Company as follows:

(a)           No Registration. The Holder understands that the Securities have not been, and will not be, registered under the Securities Act by reason of a specific exemption from the registration provisions of the Securities Act, the availability of which depends upon, among other things, the bona fide nature of the investment intent and the accuracy of the Holder’s representations as expressed herein or otherwise made pursuant hereto.

(b)           Investment Intent. The Holder is acquiring the Securities for investment for its own account, not as a nominee or agent, and not with a view to, or for resale in connection with, any distribution thereof. The Holder has no present intention of selling, granting any participation in, or otherwise distributing the Securities, nor does it have any contract, undertaking, agreement or arrangement for the same.

(c)           Investment Experience. The Holder has substantial experience in evaluating and investing in private placement transactions of securities in companies similar to the Company, and has such knowledge and experience in financial or business matters so that it is capable of evaluating the merits and risks of its investment in the Company and protecting its own interests.

(d)           Speculative Nature of Investment. The Holder understands and acknowledges that the Company has a limited financial and operating history and that its investment in the Company is highly speculative and involves substantial risks. The Holder can bear the economic risk of its investment and is able, without impairing its financial condition, to hold the Securities for an indefinite period of time and to suffer a complete loss of its investment.

(e)           Access to Data. The Holder has had an opportunity to ask questions of officers of the Company, which questions were answered to its satisfaction. The Holder believes that it has received all the information that it considers necessary or appropriate for deciding whether to acquire the Securities. The Holder understands that any such discussions, as well as any information issued by the Company, were intended to describe certain aspects of the Company’s business and prospects, but were not necessarily a thorough or exhaustive description. The Holder acknowledges that any business plans prepared by the Company have been, and continue to be, subject to change and that any projections included in such business plans or otherwise are necessarily speculative in nature, and it can be expected that some or all of the assumptions underlying the projections will not materialize or will vary significantly from actual results.

(f)           Accredited Investor. The Holder is an “accredited investor” within the meaning of Regulation D, Rule 501(a), promulgated by the Securities and Exchange Commission and agrees to submit to the Company such further assurances of such status as may be reasonably requested by the Company.

(g)           Residency. The residency of the Holder (or, in the case of a partnership or corporation, such entity’s principal place of business) is correctly set forth on the signature page hereto.

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(h)           Restrictions on Resales. The Holder acknowledges that the Securities must be held indefinitely unless subsequently registered under the Securities Act or an exemption from such registration is available. The Holder is aware of the provisions of Rule 144 promulgated under the Securities Act, which permit resale of shares purchased in a private placement subject to the satisfaction of certain conditions, which may include, among other things, the availability of certain current public information about the Company; the resale occurring not less than a specified period after a party has purchased and paid for the security to be sold; the number of shares being sold during any three-month period not exceeding specified limitations; the sale being effected through a “broker’s transaction,” a transaction directly with a “market maker” or a “riskless principal transaction” (as those terms are defined in the Securities Act or the Exchange Act, as amended, and the rules and regulations promulgated thereunder); and the filing of a Form 144 notice, if applicable. The Holder acknowledges and understands that the Company may not be satisfying the current public information requirement of Rule 144 at the time the Holder wishes to sell the Securities and that, in such event, the Holder may be precluded from selling the Securities under Rule 144 even if the other applicable requirements of Rule 144 have been satisfied. The Holder acknowledges that, in the event the applicable requirements of Rule 144 are not met, registration under the Securities Act or an exemption from registration will be required for any disposition of the Securities. The Holder understands that, although Rule 144 is not exclusive, the Securities and Exchange Commission has expressed its opinion that persons proposing to sell restricted securities received in a private offering other than in a registered offering or pursuant to Rule 144 will have a substantial burden of proof in establishing that an exemption from registration is available for such offers or sales and that such persons and the brokers who participate in the transactions do so at their own risk.

(i)           No Public Market. The Holder understands and acknowledges that no public market now exists for any of the securities issued by the Company and that the Company has made no assurances that a public market will ever exist for the Company’s securities.

(j)           Brokers and Finders. The Holder has not engaged any brokers, finders or agents in connection with the Securities, and the Company has not incurred nor will incur, directly or indirectly, as a result of any action taken by the Holder, any liability for brokerage or finders’ fees or agents’ commissions or any similar charges in connection with the Securities.

(k)          Legal Counsel. The Holder has had the opportunity to review this Warrant, the exhibits and schedules attached hereto and the transactions contemplated by this Warrant with its own legal counsel. The Holder is not relying on any statements or representations of the Company or its agents for legal advice with respect to this investment or the transactions contemplated by this Warrant.

(l)          Tax Advisors. The Holder has reviewed with its own tax advisors the U.S. federal, state and local and non-U.S. tax consequences of this investment and the transactions contemplated by this Warrant. With respect to such matters, the Holder relies solely on any such advisors and not on any statements or representations of the Company or any of its agents, written or oral. The Holder understands that it (and not the Company) shall be responsible for its own tax liability that may arise as a result of this investment and the transactions contemplated by this Warrant.

12.         Miscellaneous.

(a)           Amendments. Except as expressly provided herein, neither this Warrant nor any term hereof may be amended, waived, discharged or terminated other than by a written instrument referencing this Warrant and signed by the Company and the Holder. Any amendment, waiver, discharge or termination effected in accordance with this Section 12(a) shall be binding upon the Holder, each future holder of such Warrants and the Company.

(b)           Waivers. No waiver of any single breach or default shall be deemed a waiver of any other breach or default theretofore or thereafter occurring.

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(c)           Notices. All notices and other communications required or permitted hereunder shall be in writing and shall be mailed by registered or certified mail, postage prepaid, sent by facsimile or electronic mail (if to the Holder) or otherwise delivered by hand, messenger or courier service addressed:

(i)          if to the Holder, to the Holder at the Holder’s address, facsimile number or electronic mail address as shown in the Company’s records, as may be updated in accordance with the provisions hereof, or until any such Holder so furnishes an address, facsimile number or electronic mail address to the Company, then to and at the address, facsimile number or electronic mail address of the last holder of this Warrant for which the Company has contact information in its records; or

(ii)         if to the Company, to the attention of the Chief Executive Officer of the Company at the Company’s address as shown on the signature page hereto, or at such other address as the Company shall have furnished to the Holder.

Each such notice or other communication shall for all purposes of this Warrant be treated as effective or having been given (i) if delivered by hand, messenger or courier service, when delivered, or (ii) if sent by mail, at the earlier of its receipt or 72 hours after the same has been deposited in a regularly maintained receptacle for the deposit of the United States mail, addressed and mailed as aforesaid, or (iii) if sent by facsimile, upon confirmation of facsimile transfer or, if sent by electronic mail, upon confirmation of delivery when directed to the relevant electronic mail address. In the event of any conflict between the Company’s books and records and this Warrant or any notice delivered hereunder, the Company’s books and records will control absent fraud or error.

(d)           Governing Law. This Warrant and all actions arising out of or in connection with this Warrant shall be governed by and construed in accordance with the laws of the State of Michigan, without regard to the conflicts of law provisions of any other state.

(e)           Jurisdiction and Venue. Each of the Holder and the Company irrevocably consents to the exclusive jurisdiction and venue of any court within the Ingham County, State of Michigan, in connection with any matter based upon or arising out of this Warrant or the matters contemplated herein, and agrees that process may be served upon them in any manner authorized by the laws of the State of Florida for such persons.

(f)           Titles and Subtitles. The titles and subtitles used in this Warrant are used for convenience only and are not to be considered in construing or interpreting this Warrant. All references in this Warrant to sections, paragraphs and exhibits shall, unless otherwise provided, refer to sections and paragraphs hereof and exhibits attached hereto.

(g)           Severability. If any provision of this Warrant becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, portions of such provision, or such provision in its entirety, to the extent necessary, shall be severed from this Warrant, and such illegal, unenforceable or void provision shall be replaced with a valid and enforceable provision that will achieve, to the extent possible, the same economic, business and other purposes of the illegal, unenforceable or void provision. The balance of this Warrant shall be enforceable in accordance with its terms.

(h)           Waiver of Jury Trial. EACH OF THE HOLDER AND THE COMPANY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATED TO THIS WARRANT. If the waiver of jury trial set forth in this paragraph is not enforceable, then any claim or cause of action arising out of or relating to this Warrant shall be settled by judicial reference pursuant to the laws of the State of Michigan before a referee sitting without a jury, such referee to be mutually acceptable to the parties or, if no agreement is reached, by a referee appointed by the state courts of Michigan. This paragraph shall not restrict the Holder or the Company from exercising remedies under the Uniform Commercial Code or from exercising pre- judgment remedies under applicable law.

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(i)            Saturdays, Sundays and Holidays. If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall be a Saturday, Sunday or U.S. federal holiday, then such action may be taken or such right may be exercised on the next succeeding day that is not a Saturday, Sunday or U.S. federal holiday (such day a “Business Day”).

(j)           Rights and Obligations Survive Exercise of the Warrant. Except as otherwise provided herein, the rights and obligations of the Company and the Holder under this Warrant shall survive exercise of this Warrant.

(k)          Entire Agreement. Except as expressly set forth herein, this Warrant (including the exhibits attached hereto) constitutes the entire agreement and understanding of the Company and the Holder with respect to the subject matter hereof and supersedes all prior agreements and understandings relating to the subject matter hereof, including the Prior Warrants.

(Signature Page Follows)

 12

The Company and the Holder sign this Warrant as of the date stated on the first page.

XG SCIENCES, INC.
a Michigan corporation
By:	/s/ Michael R. Knox
Name:	Michael R. Knox
Title:	Chief Executive Officer
Address:
3101 Grand Oak Drive
Lansing, MI 48911
Telephone:      517.703.1110
Facsimile:       517.703.1113

AGREED AND ACKNOWLEDGED:
ASPEN ADVANCED OPPORTUNITY FUND, LP,
a Delaware limited partnership
By:	AA XGS, LLC
Its:	General Partner
By:	/s/  Steven C. Jones
Name:	Steven C. Jones
Title:	Managing Member
Address:
1740 Persimmon Drive, Suite 100
Naples, FL 34109
Telephone:     239.325.2001
Facsimile:      239.325.2004

EXHIBIT A

NOTICE OF EXERCISE

TO: XG Sciences, Inc. (the “Company”)

Attention: Chief Executive Officer

(1) Exercise. The undersigned elects to purchase the following pursuant to the terms of the attached warrant:

Number of shares:

Type of security:

(2) Method of Exercise. The undersigned elects to exercise the attached warrant pursuant to:

¨ A cash payment, and tenders herewith payment of the purchase price for such shares in full, together with all applicable transfer taxes, if any.

¨ The net issue exercise provisions of Section 2(b) of the attached warrant.

(3) Stock Certificate. Please issue a certificate or certificates representing the shares in the name of:

¨ The undersigned

¨	Other—Name:
	Address:

(4) Unexercised Portion of the Warrant. Please issue a new warrant for the unexercised portion of the attached warrant in the name of:

¨	The undersigned
¨	Other—Name:
	Address:
¨	Not applicable

(5) Investment Intent. The undersigned represents and warrants that the aforesaid shares are being acquired for investment for its own account, not as a nominee or agent, and not with a view to, or for resale in connection with, the distribution thereof, and that the undersigned has no present intention of selling, granting any participation in, or otherwise distributing the shares, nor does it have any contract, undertaking, agreement or arrangement for the same, and all representations and warranties of the undersigned set forth in Section 11 of the attached warrant are true and correct as of the date hereof.

(Signature page to the Notice of Exercise)

 A-1

(6) Investment Representation Statement. The undersigned has executed, and delivers herewith, an Investment Representation Statement in a form substantially similar to the form attached to the warrant as Exhibit A-1.

(Print name of the warrant holder)

(Signature)

(Name and title of signatory, if applicable)

(Date)

(Fax number)

(Email address)

(Signature page to the Notice of Exercise)

 A-2

EXHIBIT A-1

INVESTMENT REPRESENTATION STATEMENT

INVESTOR:
COMPANY:	XG Sciences, Inc., a Michigan corporation
SECURITIES:	THE WARRANT ISSUED ON JANUARY 15, 2014 (THE “WARRANT”) AND THE SECURITIES ISSUED OR ISSUABLE UPON EXERCISE THEREOF
DATE:

In connection with the purchase or acquisition of the above-listed Securities, the undersigned Investor represents and warrants to, and agrees with, the Company as follows:

1.          No Registration. The Investor understands that the Securities have not been, and will not be, registered under the Securities Act of 1933, as amended (the “Securities Act”), by reason of a specific exemption from the registration provisions of the Securities Act, the availability of which depends upon, among other things, the bona fide nature of the investment intent and the accuracy of the Investor’s representations as expressed herein or otherwise made pursuant hereto.

2.          Investment Intent. The Investor is acquiring the Securities for investment for its own account, not as a nominee or agent, and not with a view to, or for resale in connection with, any distribution thereof. The Investor has no present intention of selling, granting any participation in, or otherwise distributing the Securities, nor does it have any contract, undertaking, agreement or arrangement for the same.

3.          Investment Experience. The Investor has substantial experience in evaluating and investing in private placement transactions of securities in companies similar to the Company, and has such knowledge and experience in financial or business matters so that it is capable of evaluating the merits and risks of its investment in the Company and protecting its own interests.

4.          Speculative Nature of Investment. The Investor understands and acknowledges that its investment in the Company is highly speculative and involves substantial risks. The Investor can bear the economic risk of its investment and is able, without impairing its financial condition, to hold the Securities for an indefinite period of time and to suffer a complete loss of its investment.

5.          Access to Data. The Investor has had an opportunity to ask questions of officers of the Company, which questions were answered to its satisfaction. The Investor understands that any such discussions, as well as any information issued by the Company, were intended to describe certain aspects of the Company’s business and prospects, but were not necessarily a thorough or exhaustive description. The Investor acknowledges that any business plans prepared by the Company have been, and continue to be, subject to change and that any projections included in such business plans or otherwise are necessarily speculative in nature, and it can be expected that some or all of the assumptions underlying the projections will not materialize or will vary significantly from actual results.

6.          Accredited Investor. The Investor is an “accredited investor” within the meaning of Regulation D, Rule 501(a), promulgated by the Securities and Exchange Commission and agrees to submit to the Company such further assurances of such status as may be reasonably requested by the Company.

 A-1-1

7.          Residency. The residency of the Investor (or, in the case of a partnership or corporation, such entity’s principal place of business) is correctly set forth on the signature page hereto.

8.          Restrictions on Resales. The Investor acknowledges that the Securities must be held indefinitely unless subsequently registered under the Securities Act or an exemption from such registration is available. The Investor is aware of the provisions of Rule 144 promulgated under the Securities Act, which permit resale of shares purchased in a private placement subject to the satisfaction of certain conditions, which may include, among other things, the availability of certain current public information about the Company; the resale occurring not less than a specified period after a party has purchased and paid for the security to be sold; the number of shares being sold during any three-month period not exceeding specified limitations; the sale being effected through a “broker’s transaction,” a transaction directly with a “market maker” or a “riskless principal transaction” (as those terms are defined in the Securities Act or the Exchange Act (as defined below), as amended, and the rules and regulations promulgated thereunder); and the filing of a Form 144 notice, if applicable. The Investor acknowledges and understands that the Company may not be satisfying the current public information requirement of Rule 144 at the time the Investor wishes to sell the Securities and that, in such event, the Investor may be precluded from selling the Securities under Rule 144 even if the other applicable requirements of Rule 144 have been satisfied. The Investor understands and acknowledges that, in the event the applicable requirements of Rule 144 are not met, registration under the Securities Act or an exemption from registration will be required for any disposition of the Securities. The Investor understands that, although Rule 144 is not exclusive, the Securities and Exchange Commission has expressed its opinion that persons proposing to sell restricted securities received in a private offering other than in a registered offering or pursuant to Rule 144 will have a substantial burden of proof in establishing that an exemption from registration is available for those offers or sales and that those persons and the brokers who participate in the transactions do so at their own risk.

9.          No Public Market. The Investor understands and acknowledges that no public market now exists for any of the securities issued by the Company and that the Company has made no assurances that a public market will ever exist for the Company’s securities.

10.        Brokers and Finders. The Investor has not engaged any brokers, finders or agents in connection with the Securities, and the Company has not incurred nor will incur, directly or indirectly, as a result of any action taken by the Investor, any liability for brokerage or finders’ fees or agents’ commissions or any similar charges in connection with the Securities.

11.        Legal Counsel. The Investor has had the opportunity to review the Warrant, the exhibits and schedules attached thereto and the transactions contemplated by the Warrant with its own legal counsel. The Investor is not relying on any statements or representations of the Company or its agents for legal advice with respect to this investment or the transactions contemplated by the Warrant.

12.        Tax Advisors. The Investor has reviewed with its own tax advisors the U.S. federal, state and local and non-U.S. tax consequences of this investment and the transactions contemplated by the Warrant. With respect to such matters, the Investor relies solely on such advisors and not on any statements or representations of the Company or any of its agents, written or oral. The Investor understands that it (and not the Company) shall be responsible for its own tax liability that may arise as a result of this investment or the transactions contemplated by the Warrant.

 A-1-2

The Investor is signing this Investment Representation Statement on the date first written above.

INVESTOR

[_________________]

(Print name of the investor)

(Signature)

(Name and title of signatory, if applicable)

(Street address)

(City, state and ZIP)

 A-1-3

EXHIBIT B

[Shareholder Agreement]

 B-1

EXHIBIT C

ASSIGNMENT FORM

ASSIGNOR:
COMPANY:	XG SCIENCES, INC.
WARRANT:	THE WARRANT TO PURCHASE SHARES. OF SERIES A CONVERTIBLE PREFERRED STOCK ISSUED ON JANUARY 15, 2014 (THE “WARRANT”)
DATE:

(1) Assignment. The undersigned registered holder of the Warrant (“Assignor”) assigns and transfers to the assignee named below (“Assignee”) all of the rights of Assignor under the Warrant, with respect to the number of shares set forth below:

Name of Assignee:

Address of Assignee:

Number of Shares Assigned:

and does irrevocably constitute and appoint ____________________ as attorney to make such transfer on the books of XG Sciences, Inc., maintained for the purpose, with full power of substitution in the premises.

(2) Obligations of Assignee. Assignee agrees to take and hold the Warrant and any shares of stock to be issued upon exercise of the rights thereunder (the “Securities”) subject to, and to be bound by, the terms and conditions set forth in the Warrant to the same extent as if Assignee were the original holder thereof.

(3) Investment Intent. Assignee represents and warrants that the Securities are being acquired for investment for its own account, not as a nominee or agent, and not with a view to, or for resale in connection with, the distribution thereof, and that Assignee has no present intention of selling, granting any participation in, or otherwise distributing the shares, nor does it have any contract, undertaking, agreement or arrangement for the same, and all representations and warranties set forth in Section 11 of the Warrant are true and correct as to Assignee as of the date hereof.

(4) Investment Representation Statement. Assignee has executed, and delivers herewith, an Investment Representation Statement in a form substantially similar to the form attached to the Warrant as Exhibit A-1.

 C-1

Assignor and Assignee are signing this Assignment Form on the date first set forth above.

ASSIGNOR	ASSIGNEE
(Print name of Assignor)	(Print name of Assignee)
(Signature of Assignor)	(Signature of Assignee)
(Print name of signatory, if applicable)	(Print name of signatory, if applicable)
(Print title of signatory, if applicable)	(Print title of signatory, if applicable)
Address:	Address:

 C-2

SECOND AMENDED AND RESTATED SECURITY AGREEMENT

This Second Amended and Restated Security Agreement, dated as of January 15, 2014 (the “Agreement”) is made by and among XG Sciences, Inc., a corporation duly organized and validly existing under the laws of Michigan (the “Company”), Aspen Advanced Opportunity Fund, LP, a Delaware limited partnership (“AAOF”), XGS II, LLC, a Florida limited liability company (“XGS II”), SVIC No. 15 New Technology Business Investment L.L.P. (“Samsung”), Michael R. Knox (“Knox”), and any other party who may sign a Secured Party signature page attached hereto (each, a “Secured Party,” and collectively, the “Secured Parties”), and Aspen Capital Advisors, LLC, a Florida limited liability corporation, as agent for the Secured Parties (in such capacity, together with its successors in such capacity, the “Agent”).

WHEREAS, the Company and AAOF entered into a Second Amended & Restated Purchase Agreement, dated January 15, 2014 (the “Purchase Agreement”), which includes the terms and conditions pursuant to which AAOF would provide up to $10.0 million of funding to the Company in exchange for certain securities of the Company; and

WHEREAS, the Company executed and delivered to AAOF, Knox and XGS II certain convertible secured promissory notes, of various dates from March 18, 2013 to January 7, 2014, which have been restated and consolidated into a new convertible secured promissory note dated January 15, 2014 (the “Existing Notes”) that grant a first priority security interest in all assets of the Company to AAOF and XGS II; and

WHEREAS, the Company has and contemplates issuing additional secured promissory notes, in substantially the form attached hereto as Exhibit A to Samsung pursuant to a purchase agreement between the Company and Samsung (the “Samsung Purchase Agreement”), the Secured Parties and potentially to other third parties in the future as part of the transactions contemplated by the Purchase Agreement (the “Notes”).

NOW THEREFORE, in order to induce AAOF, XGS II, Samsung, Knox, and potential other Secured Parties to enter into the Existing Notes and the Notes, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company has agreed to pledge and grant a continuing security interest in the Collateral (as hereinafter defined) as security for the Secured Obligations (as hereinafter defined). Accordingly, the parties hereto agree as follows:

Section 1.         Definitions. Each capitalized term used herein and not otherwise defined shall have the meaning assigned to such term in the Existing Notes, the Notes or the Purchase Agreement. In addition, as used herein:

“Accounts” shall have the meaning ascribed thereto in Section 3(b) hereof.

“Agent” shall mean Aspen Capital Advisors, LLC, a Florida limited liability corporation and its successors who succeed to its duties hereunder as agent for the Secured Parties, with respect to the rights of the Secured Parties hereunder.

“Business” shall mean the businesses from time to time, now or hereafter, conducted by the Company and its Subsidiaries, when formed.

“Collateral” shall have the meaning ascribed thereto in Section 3 hereof.

“Copyright Collateral” shall mean all Copyrights, whether now owned or hereafter acquired by the Company that are associated with the Business.

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“Copyrights” shall mean all copyrights, copyright registrations, and applications for copyright registrations, including, without limitation, all renewals and extensions thereof, the right to recover for all past, present and future infringements thereof, and all other rights of any kind whatsoever accruing thereunder or pertaining thereto.

“Documents” shall have the meaning ascribed thereto in Section 3(h) hereof.

“Equipment” shall have the meaning ascribed thereto in Section 3(f) hereof.

“Event of Default” shall have the meaning ascribed thereto in Section 3 of the AAOF Note and the Notes.

“Excluded Collateral” shall mean the assets of the Company which secure the Permitted Indebtedness and the assets listed on Annex 1 hereto.

“Instruments” shall have the meaning ascribed thereto in Section 3(c) hereof.

“Intellectual Property” shall mean, collectively, all Copyright Collateral, all Patent Collateral and all Trademark Collateral, together with (a) all inventions, processes, production methods, proprietary information, know-how and trade secrets used or useful in the Business; (b) all licenses or user or other agreements granted to the Company with respect to any of the foregoing, in each case whether now or hereafter owned or used including, without limitation, the licenses or other agreements with respect to the Copyright Collateral, the Patent Collateral or the Trademark Collateral; (c) all customer lists, identification of suppliers, data, plans, blueprints, specifications, designs, drawings, recorded knowledge, surveys, manuals, materials standards, processing standards, catalogs, computer and automatic machinery software and programs, and the like pertaining to the operation by the Company of the Business; (d) all sales data and other information relating to sales now or hereafter collected and/or maintained by the Company that pertain to the Business; (e) all accounting information which pertains to the Business and all media in which or on which any of the information or knowledge or data or records which pertain to the Business may be recorded or stored and all computer programs used for the compilation or printout of such information, knowledge, records or data; (f) all licenses, consents, permits, variances, certifications and approvals of governmental agencies now or hereafter held by the Company pertaining to the operation by the Company and its Subsidiaries of the Business; and (g) all causes of action, claims and warranties now or hereafter owned or acquired by the Company in respect of any of the items listed above. Notwithstanding anything contained herein to the contrary, the Intellectual Property does not and shall not include any Patent Rights within the meaning of that certain Restated and Amended Exclusive License Agreement (the “MSU License”) between Michigan State University (“Licensor”) and the Company; provided, however, that the Company agrees to use commercially reasonable best efforts to obtain the consent of Licensor to permit inclusion of the MSU License as Intellectual Property Collateral hereunder.

“Inventory” shall have the meaning ascribed thereto in Section 3(d) hereof.

“Patent Collateral” shall mean all Patents and pending Patents, whether now owned or hereafter acquired by the Company that are associated with the Business. Notwithstanding the foregoing, Patent Collateral does not and shall not include any Patent Rights within the meaning of that certain MSU License.

“Patents” shall mean all patents and patent applications, including, without limitation, the inventions and improvements described and claimed therein together with the reissues, divisions, continuations, renewals, extensions and continuations-in-part thereof, all income, royalties, damages and payments now or hereafter due or payable under and with respect thereto, including, without limitation, damages and payments for past or future infringements thereof, the right to sue for past, present and future infringements thereof, and all rights corresponding thereto throughout the world.

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mandatory provisions of law, any or all of the attachment, perfection, priority, or remedies with respect to Agent’s and the Secured Parties’ lien on any Collateral is governed by the Uniform Commercial Code as enacted and in effect in a jurisdiction other than the State of Michigan, the term “Uniform Commercial Code” shall mean the Uniform Commercial Code as enacted and in effect in such other jurisdiction solely for purposes of the provisions thereof relating to such attachment, perfection, priority, or remedies.

Section 2.         Representations and Warranties of the Company.The Company represents and warrants to each of the Secured Parties that:

a. the Company is the sole beneficial owner of the Collateral and no lien exists or will exist upon any Collateral at any time, except for Permitted Liens and the pledge and security interest in favor of each of the Secured Parties created or provided for herein, which pledge and security interest constitutes a first priority perfected pledge and security interest in and to all of the Collateral;

b. Except as set forth on Annex 2, the Company or XG Sciences IP, LLC owns and possesses the right to use, and has done nothing to authorize or enable any other person to use, all of their respective Copyrights, Patents and Trademarks, and all registrations of its material Copyrights, Patents and Trademarks are valid and in full force and effect. Except as may be set forth in Annex 2 and except for Permitted Liens, the Company or XG Sciences IP, LLC owns and possesses the right to use all material Copyrights, Patents and Trademarks, necessary for the operation of the Business;

c. to the Company’s knowledge, (i) except as set forth in Annex 2 hereto, there is no violation by others of any right of the Company with respect to any material Copyrights, Patents or Trademarks, respectively, and (ii) the Company is not, in connection with the Business, infringing in any respect upon any Copyrights, Patents or Trademarks of any other person; and no proceedings have been instituted or are pending against the Company or, to the Company’s knowledge, threatened, and no claim against the Company has been received by the Company, alleging any such violation, except as may be set forth in said Annex 2, and except, in each case for matters which singly or in the aggregate could not reasonably be expected to have a material adverse effect upon the Company or the Collateral in the aggregate;

d. Neither the Company nor any of its subsidiaries owns any material Trademarks registered in the United States of America to which the second sentence of the definition of Trademark Collateral applies;

e. Neither the Company nor any of its subsidiaries has or will issue any indebtedness which is secured by the Collateral to any third parties other than AAOF, XGS II, Samsung and Knox; and

f. The Company is the sole holder and beneficial owner of all of the equity ownership securities of its wholly-owned subsidiary XG Sciences IP, LLC (the “Pledged Interests”), which owns and possesses the Copyrights, Know-How, Patents, Patent Licenses, Trademarks, and other intellectual property and other assets set forth on Annex 6 hereto, (i) All of the Pledged Interests are duly authorized, validly issued, fully paid and non-assessable, (ii) Company has the right and requisite authority to pledge the Pledged Interests as provided herein, and (iii) all actions necessary or desirable to perfect and establish the first priority of, or otherwise protect, Agent’s and Secured Parties’ liens in the Pledged Interests, and the proceeds thereof, have been duly taken, upon (A) the execution and delivery of this Agreement; and (B) the filing of a financing statements in the applicable jurisdiction for the Company. None of the Pledged Interests owned or held by the Company has been issued or transferred in violation of any securities registration, securities disclosure, or similar laws of any jurisdiction to which such issuance or transfer may be subject. The Pledged Interests (A) are not dealt in or traded on securities exchanges or in securities markets, (B) do not constitute investment company securities, and (C) are not held by the Company in a securities account.

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Section 3.         Collateral. As collateral security for the prompt payment in full when due (whether at stated maturity, by acceleration or otherwise) of the Secured Obligations, the Company hereby acknowledges, agrees and confirms that (i) Agent, on behalf of the Secured Parties as hereinafter provided, shall continue to have a security interest in and lien upon and, (ii) to the extent not otherwise previously granted to Agent, Company hereby pledges, grants, assigns, hypothecates and transfers to the Agent, on behalf of the Secured Parties as hereinafter provided, a first priority security interest in and lien upon all of the Company’s personal property and fixture property and other assets, whether now owned or hereafter acquired by or arising in favor of the Company, and all of the Company’s right, title and interest therein, whether now existing or hereafter coming into existence, and regardless of where located, except for the Excluded Collateral (all of the foregoing except the Excluded Collateral being collectively referred to herein as “Collateral”), including but not limited to the following types and items of property:

a. all goods;

b. all accounts, general intangibles and payment intangibles (each as defined in the Uniform Commercial Code), including (but not limited to) all moneys due and to become due to the Company in respect of any loans or advances for the purchase price of Inventory or Equipment or other goods sold or leased or for services rendered, all moneys due and to become due to the Company under any guarantee (including a letter of credit) of the purchase price of Inventory or Equipment sold by the Company and all tax refunds (such accounts, general intangibles and moneys due and to become due being herein called collectively “Accounts”);

c. all instruments, all chattel paper, and all letters of credit (each as defined in the Uniform Commercial Code), including but not limited to those evidencing, representing, arising from or existing in respect of, relating to, securing or otherwise supporting the payment of, any of the Accounts, and including (but not limited to) promissory notes, drafts, bills of exchange and trade acceptances (herein collectively called “Instruments”);

d. all inventory (as defined in the Uniform Commercial Code) and all goods obtained by the Company in exchange for such inventory (herein collectively called “Inventory”);

e. all Intellectual Property and all other accounts or general intangibles of the Company not constituting Intellectual Property or Accounts;

f. all equipment (as defined in the Uniform Commercial Code) (herein collectively called “Equipment”);

g. each contract and other agreement of the Company relating to the sale or other disposition of Inventory or Equipment;

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h. all documents of title (as defined in the Uniform Commercial Code) and other receipts of the Company covering, evidencing or representing Inventory or Equipment (herein collectively called “Documents”);

i. All deposit accounts;

j. All securities and other investment property, including but not limited to the Pledged Interests;

k. all rights, claims and benefits of the Company against any person arising out of, relating to or in connection with Inventory or Equipment purchased by the Company, including, without limitation, any such rights, claims or benefits against any person storing or transporting such Inventory or Equipment; and

l. all other tangible or intangible property of the Company, including, without limitation, all proceeds, products and accessions of and to any of the property of the Company described in Clauses (a) through (k) above in this Section 3 (including, without limitation, any proceeds of insurance thereon), and, to the extent related to any property described in said Clauses or such proceeds, products and accessions, all books, correspondence, credit files, records, invoices and other papers, including without limitation all tapes, cards, computer runs and other papers and documents in the possession or under the control of the Company or any computer bureau or service company from time to time acting for the Company.

Section 4.         Further Assurances; Remedies. In furtherance of the grant of the pledge and security interest pursuant to Section 3 hereof, the Company hereby agrees with the Agent and each of the Secured Parties as follows:

4.01         Delivery and Other Perfection. The Company or XG Sciences IP, LLC shall:

a. give, execute, deliver, file and record any financing statement, notice, instrument, document, agreement or other papers that may be necessary (in the reasonable judgment of the Agent) to create, preserve, maintain, perfect or validate any security interest previously granted or granted pursuant hereto or to enable the Agent to exercise and enforce its rights hereunder with respect to such security interest, including, without limitation, causing any or all of the stock collateral to be transferred of record into the name of the Agent or its nominee provided that notices to account debtors in respect of any Accounts or Instruments shall be subject to the provisions of Section 4.08 below;

b. keep accurate books and records relating to the Collateral, and stamp or otherwise mark such books and records in such manner as the Agent may reasonably require in order to reflect the security interests granted by this Agreement;

c. furnish to the Agent from time to time (no more frequently than annually, unless an Event of Default shall have occurred and shall be continuing,) statements and schedules further identifying and describing the Copyright Collateral, the Patent Collateral and the Trademark Collateral, respectively, and such other reports in connection with the Copyright Collateral, the Patent Collateral and the Trademark Collateral, as the Agent may reasonably request, all in reasonable detail;

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d. permit representatives of the Agent, upon reasonable notice, at any time during normal business hours to inspect and make abstracts from its books and records pertaining to the Collateral, and permit representatives of the Agent to be present at the Company’s place of business to receive copies of all communications and remittances relating to the Collateral, and forward copies of any notices or communications by the Company with respect to the Collateral, all in such manner as the Agent may reasonably require; and

e. upon the occurrence and during the continuance of any Event of Default, upon request of the Agent, promptly notify each account debtor in respect of any Accounts or Instruments that such Collateral has been assigned to the Agent hereunder, and that any payments due or to become due in respect of such Collateral are to be made directly to the Agent.

4.02         Other Financing Statements and Liens. Except with respect to Permitted Indebtedness, Permitted Liens or as otherwise permitted under the Existing Notes, the Notes or the Subscription Agreements, without the prior written consent of the Agent, the Company shall not file or suffer to be on file, or authorize or permit to be filed or to be on file, in any jurisdiction, any financing statement or like instrument with respect to the Collateral in which the Agent is not named as the sole secured party for the benefit of each of the Secured Parties.

4.03         Special Provisions Relating to Certain Collateral.

a. Intellectual Property.

(1) For the purpose of enabling the Agent to exercise rights and remedies under Section 4.04 hereof at such time as the Agent shall be lawfully entitled to exercise such rights and remedies, and for no other purpose, the Company hereby grants to the Agent, to the extent assignable, an irrevocable, non-exclusive license (exercisable without payment of royalty or other compensation to the Company) to use, assign, license or sublicense any of the Intellectual Property (other than the Trademark Collateral or goodwill associated therewith) now owned or hereafter acquired by the Company, wherever the same may be located, including in such license reasonable access to all media in which any of the licensed items may be recorded or stored and to all computer programs used for the compilation or printout thereof.

(2) Notwithstanding anything contained herein to the contrary, so long as no Event of Default shall have occurred and shall be continuing, the Company and XG Sciences IP, LLC will be permitted to exploit, use, enjoy, protect, license, sublicense, assign, sell, dispose of or take other actions with respect to the Intellectual Property in the ordinary course of the business of the Company. In furtherance of the foregoing, unless an Event of Default shall have occurred and is continuing, the Agent shall from time to time, upon the request of the Company, execute and deliver any instruments, certificates or other documents, in the form so requested, which the Company shall have certified are appropriate (in its judgment) to allow it to take any action permitted above (including relinquishment of the license provided pursuant to Clause (1) immediately above as to any specific Intellectual Property). Further, upon the payment in full of all of the Secured Obligations or earlier expiration of this Agreement or release of the Collateral, the Agent shall grant back to the Company the license granted pursuant to Clause (1) immediately above. The exercise of rights and remedies under Section 4.04 hereof by the Agent shall not terminate the rights of the holders of any licenses or sublicenses theretofore granted by the Company in accordance with the first sentence of this Clause (2).

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b. Pledged Interests.

(1) If the Company shall acquire, obtain, receive or become entitled to receive any Pledged Interests after the date hereof, it shall promptly (and in any event within two (2) Business Days of acquiring or obtaining such Collateral) deliver to Agent a duly executed addendum to this Agreement, in form and substance satisfactory to Agent, identifying such Pledged Interests.

(2) The Company shall not make or consent to any amendment or other modification or waiver with respect to any Pledged Interests, the operating agreement of XG Sciences IP, LLC, or enter into any agreement or permit to exist any restriction with respect to any Pledged Interests if the same is prohibited pursuant to this Agreement or any other Transaction Agreement.

(3) The Company hereby covenants that the Pledged Interests (A) are not and shall not be dealt in or traded on securities exchanges or in securities markets, (B) do not and will not constitute investment company securities, and (C) are not and will not be held by the Company in a securities account. In addition, none of the operating agreement of XG Sciences IP, LLC or any other agreements governing any of the Pledged Interests provide or shall provide that such Pledged Interests are securities governed by Article 8 of the Uniform Commercial Code as in effect in any relevant jurisdiction.

(4) For so long as the Company shall have the right to vote the Pledged Interests owned by it, the Company covenants and agrees that it will not, without the prior written consent of the Secured Parties, vote or take any consensual action with respect to such Pledged Interests which would materially adversely affect the rights of the Secured Parties or the value of the Pledged Interests.

4.04         Events of Default, etc. During the period during which an Event of Default shall have occurred and be continuing:

a. the Company shall, at the request of the Agent, assemble the Collateral owned by it at such place or places, reasonably convenient to both the Agent and the Company, designated in its request;

b. the Agent may make any reasonable compromise or settlement deemed desirable with respect to any of the Collateral and may extend the time of payment, arrange for payment in installments, or otherwise modify the terms of, any of the Collateral;

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c. the Agent shall have all of the rights and remedies with respect to the Collateral of a secured party under the Uniform Commercial Code (whether or not said Code is in effect in the jurisdiction where the rights and remedies are asserted) and such additional rights and remedies to which a secured party is entitled under the laws in effect in any jurisdiction where any rights and remedies hereunder may be asserted, including, without limitation, the right, to the maximum extent permitted by law, to exercise all voting, consensual and other powers of ownership pertaining to the Collateral as if the Agent were the sole and absolute owner thereof (and the Company agrees to take all such action as may be appropriate to give effect to such right);

d. the Agent in its discretion may, in its name or in the name of the Company or otherwise, demand, sue for, collect or receive any money or property at any time payable or receivable on account of or in exchange for any of the Collateral, but shall be under no obligation to do so; and

e. the Agent may, upon ten (10) Business Days’ prior written notice to the Company of the time and place, with respect to the Collateral or any part thereof which shall then be or shall thereafter come into the possession, custody or control of the Agent, or any of its respective agents, sell, lease, assign or otherwise dispose of all or any of such Collateral, at such place or places as the Agent deems best, and for cash or on credit or for future delivery (without thereby assuming any credit risk), at public or private sale, without demand of performance or notice of intention to effect any such disposition or of time or place thereof (except such notice as is required above or by applicable statute and cannot be waived) and the Agent or anyone else may be the purchaser, lessee, assignee or recipient of any or all of the Collateral so disposed of at any public sale (or, to the extent permitted by law, at any private sale), and thereafter hold the same absolutely, free from any claim or right of whatsoever kind, including any right or equity of redemption (statutory or otherwise), of the Company, any such demand, notice or right and equity being hereby expressly waived and released. In the event of any sale, assignment, or other disposition of any of the Trademark Collateral, the goodwill of the Business connected with and symbolized by the Trademark Collateral subject to such disposition shall be included, and the Company shall supply to the Agent or its designee, for inclusion in such sale, assignment or other disposition, all Intellectual Property relating to such Trademark Collateral. The Agent may, without notice or publication, adjourn any public or private sale or cause the same to be adjourned from time to time by announcement at the time and place fixed for the sale, and such sale may be made at any time or place to which the same may be so adjourned.

The proceeds of each collection, sale or other disposition under this Section 4.04, including by virtue of the exercise of the license granted to the Agent in Section 4.03(a)(1) hereof, shall be applied in accordance with Section 4.07 hereof.

4.05         Deficiency. If the proceeds of sale, collection or other realization of or upon the Collateral pursuant to Section 4.04 hereof are insufficient to cover the costs and expenses of such realization and the payment in full of the Secured Obligations, the Company shall remain liable for any deficiency.

4.06         Removals, etc. Without at least thirty (30) days’ prior written notice to the Agent or unless otherwise required by law, the Company shall not (i) maintain any of its books or records with respect to the Collateral at any office or maintain its chief executive office or its principal place of business at any place, or permit any Inventory or Equipment to be located anywhere other than at one of the locations identified in Annex 3 hereto or in transit from one of such locations to another; or (ii) change its corporate name, or the name under which it does business, from the name shown on the signature page hereto.

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4.07         Application of Proceeds. Except as otherwise herein expressly provided, the proceeds of any collection, sale or other realization of all or any part of the Collateral pursuant hereto, and any other cash at the time held by the Agent under this Section 4, shall be applied by the Agent:

First, to the payment of the costs and expenses of such collection, sale or other realization, including reasonable out-of-pocket costs and expenses of the Agent and the fees and expenses of its agents and counsel, and all expenses, and advances made or incurred by the Agent in connection therewith;

Next, to the payment in full of the Secured Obligations in each case equally and ratably in accordance with the respective amounts thereof then due and owing to each of the Secured Parties; and

Finally, to the payment to the Company, or its successors or assigns, or as a court of competent jurisdiction may direct, of any surplus then remaining.

As used in this Section 4, “proceeds” of Collateral shall mean cash, securities and other property realized in respect of, and distributions in kind of, Collateral, including any thereof received under any reorganization, liquidation or adjustment of debt of the Company or any issuer of or obligor on any of the Collateral.

4.08         Attorney-in-Fact. Without limiting any rights or powers granted by this Agreement to the Agent while no Event of Default has occurred and is continuing, upon the occurrence and during the continuance of any Event of Default, the Agent is hereby appointed the attorney-in-fact of the Company for the purpose of carrying out the provisions of this Section 4 and taking any action and executing any instruments which the Agent may deem necessary or advisable to accomplish the purposes hereof, which appointment as attorney-in-fact is irrevocable and coupled with an interest. Without limiting the generality of the foregoing, so long as the Secured Parties shall be entitled under this Section 4 to make collections in respect of the Collateral, the Agent shall have the right and power to receive, endorse and collect all checks made payable to the order of the Company representing any dividend, payment, or other distribution in respect of the Collateral or any part thereof and to give full discharge for the same.

4.09         Perfection. Prior to or concurrently with the execution and delivery of this Agreement, the Company shall file such financing statements and other documents in such offices as the Agent may request to perfect or maintain the security interests granted by Section 3 of this Agreement; and without limiting the Company’s obligations with respect to perfection of the security interests, the Company hereby authorizes the Agent to file all such financing statements and other documents and, at Agent’s option, to describe the Collateral in any such financing statement as “all personal property.”

4.10         Termination, When all Secured Obligations shall have been paid in full under the Subscription Agreements, this Agreement shall terminate, and the Agent shall forthwith cause to be assigned, transferred and delivered, against receipt but without any recourse, warranty or representation whatsoever, any remaining Collateral and money received in respect thereof, to or on the order of the Company and to be released and cancelled all licenses and rights referred to in Section 4.03(a)(1) hereof. The Agent shall also execute and deliver to the Company upon such termination such Uniform Commercial Code termination statements and such other documentation as shall be reasonably requested by the Company to effect the termination and release of the liens on the Collateral.

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4.11         Expenses. The Company agrees to pay to the Agent all out-of-pocket expenses (including reasonable expenses for legal services of every kind) of, or incident to, the enforcement of any of the provisions of this Section 4, or performance by the Agent of any obligations of the Company in respect of the Collateral which the Company has failed or refused to perform upon reasonable notice, or any actual or attempted sale, or any exchange, enforcement, collection, compromise or settlement in respect of any of the Collateral, and for the care of the Collateral and defending or asserting rights and claims of the Agent in respect thereof, by litigation or otherwise, including expenses of insurance, and all such expenses shall be Secured Obligations to the Agent secured under Section 3 hereof. Each Secured Party agrees to advance to the Agent his/her/its pro rata share of any funds requested by the Agent to carry out the intent and purposes of this Agreement according to each Secured Party’s pro rata share of the total aggregate principal amount outstanding under the Notes at the time such request for advance is made. Any such advances will be refunded to the Secured Parties to the extent the Company reimburses the Agent for its expenses or the Agent makes recoveries from the disposition of the Company’s assets.

4.12         Further Assurances. The Company agrees that, from time to time upon the written request of the Agent, the Company will execute and deliver such further documents and do such other acts and things as the Agent may reasonably request in order fully to effect the purposes of this Agreement.

Section 5.         Miscellaneous.

5.01         No Waiver. No failure on the part of the Agent or any of its agents to exercise, and no course of dealing with respect to, and no delay in exercising, any right, power or remedy hereunder shall operate as a waiver thereof; nor shall any single or partial exercise by the Agent or any of its agents of any right, power or remedy hereunder preclude any other or further exercise thereof or the exercise of any other right, power or remedy. The remedies herein are cumulative and are not exclusive of any remedies provided by law.

5.02         Governing Law. This Agreement shall be governed by, and construed in accordance with, the law of the State of Michigan.

5.03         Notices. All notices, demands, requests, consents, approvals, and other communications required or permitted hereunder shall be in writing and, unless otherwise specified herein, shall be (a) personally served, (b) deposited in the mail, registered or certified, return receipt requested, postage prepaid, (c) delivered by reputable air courier service with charges prepaid, or (d) transmitted by hand delivery, telegram, or facsimile, addressed as set forth below or to such other address as such party shall have specified most recently by written notice given in accordance herewith. Any notice or other communication required or permitted to be given hereunder shall be deemed effective (i) upon hand delivery or delivery by facsimile, with accurate confirmation generated by the transmitting facsimile machine, at the address or number designated below (if delivered on a business day during normal business hours where such notice is to be received), or the first business day following such delivery (if delivered other than on a business day during normal business hours where such notice is to be received) or (ii) on the second business day following the date of mailing by express courier service or on the fifth business day after deposited in the mail, in each case, fully prepaid, addressed to such address, or upon actual receipt of such mailing, whichever shall first occur. The addresses for such communications shall be for (i) the Company at 3101 Grand Oak Drive, Lansing, MI 48911 (Telephone: (517) 703-1110, Fax: (517) 703-1113), (ii) the Agent at 1740 Persimmon Drive, Suite 100, Naples, FL 34109 (Telephone: (239) 325-2001, Fax: (239) 325-2001) and (iii) for each Secured Party as provided on the signature page hereto. Any party hereto may from time to time change its address or facsimile number for notices under this Section by written notice to the other parties.

5.04         Waivers, etc. The terms of this Agreement may be waived, altered or amended only by an instrument in writing duly executed by the Company and the Agent. Any such amendment or waiver shall be binding upon each of the Secured Parties and the Company.

5.05         Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the respective successors and assigns of the Company and each of the Secured Parties (provided, however, that the Company shall not assign or transfer its rights hereunder without the prior written consent of the Agent).

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5.06         Counterparts; Additional Secured Parties. This Agreement may be executed in any number of counterparts, ail of which together shall constitute one and the same instrument and any of the parties hereto may execute this Agreement by signing any such counterpart. In the event additional Secured Parties become holders of the Notes, such Secured Parties may become a party to this Agreement by signing a counterpart to this Agreement, all of which together shall be considered one and the same instrument. The Company shall provide a copy of each Security Agreement executed by a Secured Party to the Agent.

5.07         Appointment of Agent. Each Secured Party agrees to appoint Aspen Capital Advisors, LLC as its Agent for purposes of this Agreement. Each of Secured Party hereby authorizes the Agent to take such action and to exercise such powers hereunder as provided herein or as requested to or consented by the Secured Parties (acting together), together with such powers as are reasonably incidental thereto. Subject to the provisions of this Agreement, the Agent will not take any action contrary to the express written instructions of the Secured Parties (acting together) and will take any lawful action prescribed in express written instructions of the Secured Parties (acting together). The Agent may decline to take any action except upon the express written instructions of the Secured Parties (acting together) and the Agent may request a written ratification by the Secured Parties (acting together) of any action taken by it under this Agreement, which ratification shall not be unreasonably withheld, conditioned or delayed. The Agent shall not be obligated to take any action, or engage in any course of conduct, if the Secured Parties are not in agreement as to such action or course of conduct. The Agent may employ agents and attorneys-in-fact in connection herewith and shall not be responsible for the negligence or misconduct of any such agents or attorneys-in-fact selected by it in good faith.

5.08         Powers and Duties. Subject to and upon the other terms and conditions contained herein that limit the obligations or duties of the Agent, the duties and obligations of the Agent under this Agreement shall be those of a “collateral agent” and shall consist of and be limited to: (i) acquiring, holding and enforcing the security interest granted by the Company in the Collateral under this Agreement; (ii) selling, releasing, surrendering, realizing upon or otherwise dealing with, in any manner and in any order, all or any portion of the Collateral, (iii) exercising (or refraining from exercising) any rights, remedies or powers of the Agent under this Agreement, the [the Transaction Documents], or under applicable law in respect of all or any portion of the Collateral, (iv) making any demands or giving any notices hereunder or under the other transaction documents, and (v) effecting amendments to or granting waivers or consents hereunder or under the other transaction documents.

5.09         Resignation and Removal. The Agent shall be entitled to resign at any time upon written notice to the Secured Parties and the Agent may be removed at any time for cause by the vote of the Secured Parties holding a majority of the principal amounts of the secured indebtedness which is secured by a pledge of the Collateral hereunder. Except as provided above, upon any such resignation or removal, the Secured Parties shall have the right to appoint a successor Agent by the vote of the Secured Parties holding a majority of the principal amounts of the secured indebtedness which is secured by a pledge of the Collateral hereunder. If no successor Agent shall have been so appointed by such Secured Parties, and shall have accepted such appointment, within thirty (30) days after the retiring Agent’s giving of notice of resignation or the Secured Parties’ removal of the retiring Agent, then the retiring Agent may, on behalf of the Secured Parties, appoint a successor Agent. Upon the acceptance of any appointment as the Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations as the Agent under this Agreement. After any retiring or the Agent’s resignation or removal hereunder as the Agent, the provisions of Sections 5.07 through 5.10 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was the Agent under this Agreement..

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5.10         Indemnity of Agent. Each of the Secured Parties hereby covenants and agrees to reimburse, indemnify and hold the Agent harmless from and against any and all claims, actions, judgments, damages, losses, liabilities, costs, transfer or other taxes, and expenses (including, without limitation, reasonable attorneys’ fees and expenses) incurred or suffered without any bad faith, gross negligence or willful misconduct by the Agent, arising out of or incident to Agent’s actions or inactions as Agent with regard to its duties under or administration of this Agreement. Each Secured Party further agrees that any reimbursements or indemnity payments to the Agent shall be made according to each Secured Party’s pro rata share of the total aggregate principal amount outstanding under the Notes at the time of the event that gave rise to such reimbursement or indemnity claim by the Agent.

5.11         Severability. If any provision hereof is invalid and unenforceable in any jurisdiction, then, to the fullest extent permitted by law, (i) the other provisions hereof shall remain in full force and effect in such jurisdiction and shall be liberally construed in favor of the Secured Parties in order to carry out the intentions of the parties hereto as nearly as may be possible and (ii) the invalidity or unenforceability of any provision hereof in any jurisdiction shall not affect the validity or enforceability of such provision in any other jurisdiction.

5.12         Entire Agreement. This Agreement (together which each Annex hereto) contains the entire agreement and understanding by and between the parties hereto with respect to the subject matter hereof and their resulting obligations to each other, as herein described; and it amends, restates and supersedes all prior agreements and understandings between the parties to this Agreement relating to the subject matter hereof. No change or modification of this Agreement shall be valid or binding unless the same is in writing and signed by the party intended to be so bound. No waiver of any provision of this Agreement shall be valid unless the same is in writing and signed by the party against whom such waiver is sought to be enforced. Moreover, no valid waiver of any provision of this Agreement, at any time, shall be deemed to be a waiver of any other provision of this Agreement at such time, or shall be deemed to be a valid waiver of such provision at any other time.

[The remainder of this page intentionally left blank.]

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IN WITNESS WHEREOF, the parties hereto have caused this Second Amended and Restated Security Agreement to be duly executed as of the day and year first above written.

The “Company”:		The “Agent”:
XG Sciences, Inc.		Aspen Capital Advisors, LLC
By:	/s/ Michael R. Knox	By:	/s/ Steven C. Jones
Name: Michael R. Knox		Name: Steven C. Jones
Title:   Chief Executive Officer		Title:   Managing Member

SECOND AMENDED AND RESTATED SECURITY AGREEMENT

SECURED PARTY SIGNATURE PAGE 

IN WITNESS WHEREOF, the undersigned Secured Party agrees to the terms and conditions of the above Second Amended and Restated Security Agreement and hereby agrees that the execution of this Secured Party Signature Page is intended and shall be deemed to constitute the execution of such Second Amended and Restated Security Agreement by the undersigned.

NAME OF SECURED PARTY (type or print):

Aspen Advanced Opportunity Fund, LP

By:	/s/ Steven C. Jones	Date:	1/15/14
Name:	Steven C. Jones
Title:	Managing Member, AA XGS, LLC

Address for Notices:

Aspen Advanced Opportunity Fund, LP

Attn: General Partner

1740 Persimmon Drive. Suite 100

Naples. FL 34109

Phone:	(239) 325-2001
Fax:	(239) 325-2004

Principal Amount of Secured Obligations as of the date this Signature Page is signed: _________

Michael R. Knox

/s/ Michael R. Knox	Date:
Michael R. Knox

Address for Notices:

5337 Panda Bear Circle

East Lansing. MI 48823

Phone:	(517) 351-4813
Fax:	(517) 705-1113

Principal Amount of Secured Obligations as of the date this Signature Page is signed: _______

XGS II, LLC

By:	/s/ David G. Pendell	Date:	1-15-2014
Name:	David G. Pendell
Title:	Managing Member

Address for Notices:

XGS II, LLC

5500 Lake Grove Trail

Petoskey. MI 49770

Phone:	(239) 450-5097
Fax:

Amount of Secured Obligations as of the date this Signature Page is signed: _______

** signature pages continued on next page **

SVIC No. 15 New Technology Business Investment L.L.P.

By:	/s/ Seonjong Lee	Date:
Name:	SEONJONG LEE
Title:	C.E.O

Address for Notices:

29th Samsung ElectronicsBldg.

11, Seoch- dearo 74 gil, Seocho-gu,

Seoul, Korea 137-857

Phone:

Fax:

Amount of Secured Obligations as of the date this Signature Page is signed: _______

SECOND AMENDED AND RESTATED SECURITY AGREEMENT

ANNEX 1 - EXCLUDED COLLATERAL

The Patent Rights within the meaning of that certain Restated and Amended Exclusive License Agreement between Michigan State University and the Company.

SECOND AMENDED AND RESTATED SECURITY AGREEMENT

ANNEX 2 - EXCEPTIONS FOR COPYRIGHTS, PATENTS AND TRADEMARKS

The Company has distribution agreements with sales agents and other companies that allow the use of the Company’s trademarks n the normal course of business.

The Company has licensed the below listed production and manufacturing technology to the following licensees:

Cabot Corporation – production technology for the production of graphene nanoplatelets as more fully defined in the LICENSE AGREEMENT BETWEEN CABOT CORPORATION AND XG SCIENCES INC. dated November 1, 2011 and amended on January 23, 2013

POSCO – production technology for the production of graphene nanoplatelets as more fully defined in the LICENSE AGREEMENT between XG Sciences, Inc. and POSCO dated June 8, 2011

In November of 2011, the Company entered into a license agreement between the Company and Cabot Corporation (“Cabot”), a copy of which has been supplied to AAOF (the “License Agreement”). Subsequent to the execution of the License Agreement, Michigan State University (“MSU”) expressed concern regarding the form of the License Agreement, including whether any MSU technology might have been included in the License Agreement. After discussions among Cabot, MSU, and the Company, Cabot drafted a First Amendment to the License Agreement Between Cabot and the Company (the “Amendment”). The Amendment contains warranties, attested by both the Company and its Chief Scientist, Dr. Lawrence Drzal, asserting that no MSU technology had been improperly transferred to Cabot. The Company executed the Amendment on January 29, 2013, and has provided a copy to AAOF. The Company understood that this matter was closed when it provided the Amendment to AAOF. However, the Company subsequently learned that Cabot has not yet signed the Amendment because a new Vice President had been appointed. Additionally, the Company received a letter from MSU dated March 20, 2013 stating that MSU wanted to review this issue. The Company, Cabot, and MSU are currently renegotiating the Amendment. MSU is currently engaged in an audit of the technology transfer package associated with the Cabot License Agreement.

SECOND AMENDED AND RESTATED SECURITY AGREEMENT

ANNEX 3 - LIST OF LOCATIONS

3101 Grand Oak Drive

Lansing, MI 48911

4055 English Oak, Suite B

Lansing, MI 48911

2100 S. Washington Avenue

Lansing, MI 48910

SECOND AMENDED AND RESTATED SECURITY AGREEMENT

ANNEX 4 - EXISTING SECURED INDEBTEDNESS

1.	Aspen Advanced Opportunity Fund, LP (1)	$	4,178,330.92
2.	SVIC No. 15 New Technology Business Investment L.L.P.	$	3,000,000.00
3.	Michael Knox	$	872,998.15
4.	XGS II, LLC	$	739,349.83
	Total	$	8,790,678.90

(1) Aspen Amounts exclude certain funds advanced to the Company pursuant to a Master Lease Agreement for the purchase of equipment, the liens on which are permitted liens under this Agreement.

SECOND AMENDED AND RESTATED SECURITY AGREEMENT

ANNEX 5 - EXISTING LIENS

Secured Party	Assets Covered
Michael R. Knox	All tangible and intangible assets of the Company
Aspen Advanced Opportunity Fund, L.P.	All tangible and intangible assets of the Company
XGS II, LLC	All tangible and intangible assets of the Company
SVIC No. 15 New Technology Business Investment L.L.P.	All tangible and intangible assets of the Company

SECOND AMENDED AND RESTATED SECURITY AGREEMENT

ANNEX 6 - XG SCIENCES IP, LLC ASSETS

All “Intellectual Property” as defined in the Assignment of Intellectual Property dated effective as of January 15, 2014 between the Company and XG Sciences IP, LLC, including without limitation the following:

Patents:

Patent Application Number	Application Date	Description
13/474,860	5/18/2012	Process of Dry Milling Particulate Materials Milled Graphene/Metal Nano Composites
61/786,735	3/15/2013	Graphene Carbon Compositions
13/686,961	11/28/2012	Single Mode Microwave Device for Producing Exfoliated Graphite
13/610,934	9/12/2012	Cloud Mixer and Method of Minimizing Agglomeration of Particulates
13/435,260	3/30/2012	Mechanical Exfoliation Apparatus
61/786,745	3/15/2013	Electrodes for Capacitors from Mixed Carbon Compositions
14079057	11/13/2013	Silicon-Graphene Nanocomposites for Electrochemical Applications

Trademarks:

XG Sciences (Design Plus Words)

xGnP

XG Sciences The Material Difference (Design Plus Words)

XG Leaf (Application Pending)

SECOND AMENDED AND RESTATED SECURITY AGREEMENT

EXHIBIT A

Form of Secured Convertible Promissory Note

SECOND AMENDED AND RESTATED INTELLECTUAL PROPERTY SECURITY AGREEMENT

This Second Amended and Restated Intellectual Property Security Agreement (this “IP Security Agreement”) is made as of January 15, 2014 by and between XG Sciences, Inc., a Michigan corporation (“Pledgor”), Aspen Capital Advisors, LLC, a Florida limited liability corporation, as Agent (the “Agent”) for the undersigned lenders (‘‘Lenders”) from time to time holding secured convertible notes issued by the Pledgor, and the Lenders listed on the signature page hereto.

RECITALS

A.         Pledgor and Lenders are parties to those certain Secured Convertible Promissory Notes issued pursuant to those certain purchase agreements between the Pledgor and the Lenders as the same notes have been and may be modified, amended, supplemented, restated or superseded from time to time (the “Secured Notes”). Capitalized terms used but not defined herein shall have the meanings given to them in the Secured Notes or the Purchase Agreement (as defined below), as applicable.

B.          Pledgor entered into that certain Second Amended and Restated Purchase Agreement, dated January 15, 2014, with Aspen Advanced Opportunity Fund, LP (the “Purchase Agreement”).

C.          Pledgor and SVIC No. 15 New Technology Business Investment L.L.P. (“Samsung”) entered into that certain Purchase Agreement, dated January 15, 2014 (the “Samsung Purchase Agreement”, and together with the Purchase, Agreement, Secured Notes and the IP Security Agreement, the “Loan Documents”).

D.          Pledgor is the owner of the intellectual property collateral described herein.

E.          It is a condition to the Lenders’ entering into the Purchase Agreement and purchasing the Secured Notes that the Pledgor grants to the Agent a lien on and security interest in the collateral described herein.

NOW, THEREFORE, in consideration of the mutual promises and covenants set forth herein and other good and valuable consideration, the receipt and sufficiency of which is hereby conclusively acknowledged, the parties hereto agree as follows:

AGREEMENT

1.           Collateral Assignment, Patent Mortgage, and Grant of Security Interest. As collateral security for the prompt and complete payment and performance of: (i) all obligations of the Pledgor under the Secured Notes, (ii) all obligations of Pledgor hereunder and under any other documents related to and including the Purchase Agreement to which it is a party and (iii) all obligations of Pledgor under any other documents related to and including the Samsung Purchase Agreement (collectively, the “Secured Obligations”), Pledgor (i) hereby acknowledges, agrees and confirms that Agent shall continue to have a security interest in and, (ii) to the extent not otherwise granted to Agent, hereby grants a first priority security interest and mortgage to Agent for the benefit of the Lenders, as collateral security, in and to Pledgor’s entire right, title and interest in, to and under the following, now or hereafter existing, created, acquired, held or controlled by Pledgor (all of which shall collectively be called the “Intellectual Property Collateral”):

(a)          Any and all copyright rights, copyright applications, copyright registrations, copyright recordings and like protections in each work of authorship and derivative work thereof, whether registered or unregistered or published or unpublished and whether or not the same also constitutes a trade secret, held pursuant to the laws of the United States, any State thereof or of any other country or political subdivision thereof (collectively, the “Copyrights”);

(b)          any and all know-how including any and all information not covered by a patent or patent application, including but not limited to materials, trade secrets, information, experience and data, formulae, procedures, results and specifications, regulatory filings, clinical and pre-clinical data, in written or electronic form, including, without limitation, those set forth on Exhibit A attached hereto and incorporated herein by this reference (collectively, the “Know-How”);

(c)          any and all design rights which may be available to Pledgor;

(d)          any and all (i) letters patent, including, without limitation, utility patents, design patents, industrial designs and utility model registrations, of the United States or any other country, or any political subdivision thereof, and all reissues and extensions thereof, (ii) applications (including but not limited to provisional applications) for letters patent of the United States or any other country, or any political subdivision thereof, and all divisions, continuations, continuations-in-part, and continuing applications thereof, and (iii) rights to obtain any reissues, reexaminations or extensions thereof (collectively, the “Patents”) and any and all agreements, whether written or oral, providing for the grant by or to the Pledgor of any right to make, use, sell, offer to sell, or import any invention covered in whole or in part by one or more of the Patents and all renewals and extensions thereof (collectively, the “Patent Licenses”), including, without limitation, the Patents and Patent Licenses set forth on Exhibit A attached hereto and incorporated herein by this reference;

(e)          any and all trademarks, trade names, corporate names, company names, business names, trade styles, service marks, logos, other source or business identifiers, prints and labels on which any of the foregoing have appeared or appear, designs and general intangibles of like nature, all registrations and recordings thereof, and any applications in connection therewith, including, without limitation, registrations, recordings and applications in the United States Patent and Trademark Office or in any similar office or agency of the United States, any State thereof or any other country or any political subdivision thereof, and the entire goodwill of the business of Borrower connected with and symbolized by all such trademarks, including, without limitation, those set forth on Exhibit A attached hereto and incorporated herein by this reference (collectively, the “Trademarks”);

(f)          any and all income, royalties, damages, claims, and payments now and hereafter due and payable, including, without limitation, all claims for damages and payments by way of past, present and future infringement, misappropriation, or dilution of any of the rights included above, with the right, but not the obligation, to sue for and collect such damages for said use or infringement of the intellectual property rights identified above;

(g)          all licenses or other rights to use any of the Copyrights, Patents, Know-How, or Trademarks (collectively, the “Intellectual Property”) and all license fees and royalties arising from such use to the extent permitted by such license or rights and not prohibited by applicable law;

Second Amended and Restated Intellectual Property Security Agreement

(h)          all amendments, continuations, renewals, and extensions of any of the Intellectual Property;

(i)          all proceeds and products of the foregoing, including, without limitation, all payments under insurance or any indemnity or warranty payable in respect of any of the foregoing; and

(j)          all membership and any and all other equity ownership interests held by the Pledgor in and to XG Sciences IP, LLC.

Notwithstanding any of the foregoing, the term “Intellectual Property Collateral” shall not include any general intangibles of Pledgor (whether owned or held as licensee or lessee, or otherwise), to the extent that: (i) such general intangibles are not assignable or capable of being encumbered as a matter of law or under the terms of the license, lease or other agreement applicable thereto (but solely to the extent that any such restriction shall be enforceable under applicable law), without the consent of the licensor or lessor thereof or other applicable party thereto; and (ii) such consent has not been obtained; provided, however, that the grant of security interest herein shall extend to, and the term “Intellectual Property Collateral” shall include, (A) any and all proceeds of any general intangibles (“Proceeds”) which are otherwise excluded to the extent that the assignment or encumbrance of such Proceeds is not so restricted, (B) upon obtaining the consent of any such licensor, lessor or other applicable party’s consent with respect to any such otherwise excluded general intangibles, such general intangibles as well as any and all Proceeds thereof that might theretofore have been excluded from such a grant of a security interest and the term “Intellectual Property Collateral” and (C) any general intangible which is an account receivable or proceed of or otherwise related to the enforcement or collection of any account receivable or goods which are the subject of any account receivable. Notwithstanding anything contained herein to the contrary, the term “Intellectual Property Collateral” does not and shall not include any Patent Rights within the meaning of that certain Restated and Amended Exclusive License Agreement (the “MSU License”) between Michigan State University (“Licensor”) and Pledgor; provided, however, that the Pledgor agrees to use commercially reasonable best efforts to obtain the consent of Licensor to permit inclusion of the MSU License as Intellectual Property Collateral hereunder.

2.           Authorization and Request. Pledgor authorizes and requests that the Register of Copyrights and the Commissioner of Patents and Trademarks record this conditional assignment.

3.           Covenants and Warranties. Pledgor represents, warrants, covenants, and agrees as follows:

(a)          Pledgor or XG Sciences IP, LLC is now the sole owner of the Intellectual Property Collateral;

(b)          all of the Patents and Trademarks owned by Pledgor or XG Sciences IP, LLC or in which Pledgor or XG Sciences IP, LLC has any right, title, or interest are described on Exhibit A;

(c)          performance of this IP Security Agreement does not conflict with or result in a breach of any agreement to which Pledgor is a party or by which Pledgor is bound;

Second Amended and Restated Intellectual Property Security Agreement

(d)          during the term of this IP Security Agreement, Pledgor will not sell, transfer, assign, or otherwise encumber any interest in the Intellectual Property Collateral, except for (i) licenses granted by Pledgor in the ordinary course of its business as now conducted or as set forth in this IP Security Agreement or that do not, in the aggregate, impair the Intellectual Property Collateral or result in a Material Adverse Effect; and (ii) subject to Pledgor’s execution of appropriate documents, in form acceptable to Agent, to perfect or continue the perfection of Agent’s interest in the Intellectual Property Collateral, transfers to affiliates of Pledgor;

(e)          Except as disclosed on Exhibit A, to its knowledge; (i) each of the Patents (that is not listed as abandoned) is valid and enforceable, and there is no Intellectual Property (that is not listed as abandoned or pending) which has been judged invalid or unenforceable, in whole or in part; and (ii) no claim has been made that any part of the Intellectual Property Collateral (that is not listed as abandoned or pending) violates the rights of any third party;

(f)          Pledgor shall promptly advise Agent of any material changes in the composition of the Intellectual Property Collateral, including but not limited to any subsequent ownership right of Pledgor in or to any Intellectual Property not specified in this IP Security Agreement;

(g)          Pledgor shall: (i) protect, defend, and maintain the validity and enforceability of the Intellectual Property (other than property listed as abandoned), except where the failure to so protect, defend, and maintain would not, in the aggregate, result in a Material Adverse Effect; (ii) use all commercially reasonable efforts to detect infringements of the Intellectual Property (other than property listed as abandoned) and promptly advise Agent in writing of infringements detected and (iii) not allow any of its Intellectual Property (other than property listed as abandoned) to be abandoned, forfeited, or dedicated to the public without the written consent of Agent which shall not be unreasonably withheld;

(h)          Pledgor shall, from time to time, execute and file such instruments, and take such further actions as Agent may request from time to time to perfect or continue the perfection of Agent’s interest in the Intellectual Property Collateral;

(i)          Except for the MSU License, Pledgor is not party, nor will it, without the prior written consent of Agent, become party in the future, to any license or contract included in the Intellectual Property Collateral which, pursuant to its terms is not assignable (except in the case of Pledgor’s customer contracts) or capable of being encumbered;

(j)          this IP Security Agreement creates, and in the case of after acquired Intellectual Property Collateral, will create at the time Pledgor first has rights in such after acquired Intellectual Property Collateral, in favor of Agent a valid and (upon taking appropriate actions) perfected first priority security interest in the Intellectual Property Collateral in the United States securing the payment and performance of all present or future Secured Obligations;

(k)          to its knowledge, except for, and upon, the filings with, as applicable, (1) the United States Patent and Trademark Office, (2) the Register of Copyrights, and (3) the UCC Division of the applicable office of the Secretary of State, necessary to perfect the security interests and assignment created hereunder, and except as has been already made or obtained, no authorization, approval or other action by, and no notice to or filing with, any United States governmental authority or United States regulatory body is required either, (a) for the grant by Pledgor or maintenance of the security interest granted hereby or for the execution, delivery, or performance of this IP Security Agreement by Pledgor in the United States, or (b) for the perfection in the United States or the exercise by Agent of its rights and remedies hereunder;

Second Amended and Restated Intellectual Property Security Agreement

(l)           all information heretofore, herein, or hereafter supplied to Agent by or on behalf of Pledgor with respect to the Intellectual Property Collateral is accurate and complete in all material respects;

(m)          Pledgor shall not enter into any agreement that would impair or conflict with Pledgor’s obligations hereunder. For purposes of this subsection, Pledgor’s entering into license agreements in the ordinary course of business shall not be deemed to impair or conflict with Pledgor’s obligations hereunder. Pledgor shall not, without the prior written consent of Agent, permit the inclusion in any contract to which it becomes a party of any provisions that could or might in any way prevent the creation of a security interest in Pledgor’s rights and interests in any property included within the definition of the Intellectual Property Collateral acquired under such contracts, except that certain contracts may contain anti-assignment provisions that could in effect prohibit the creation of a security interest in such contracts; and

(n)          upon any executive officer of Pledgor’s obtaining actual knowledge thereof, Pledgor will promptly notify Agent in writing of any event that materially adversely affects the value of any Intellectual Property Collateral, the ability of Pledgor to dispose of any Intellectual Property Collateral or the rights and remedies of Agent in relation thereto, including the levy of any legal process against any of the Intellectual Property Collateral.

(o)          Pledgor is the sole holder of all equity securities of XG Sciences IP, LLC.

(p)          Prior to or contemporaneously with entering into any definitive purchase agreement with Samsung regarding the issuance of any Secured Notes, Pledgor shall have formed XG Sciences IP, LLC and shall have assigned all of intellectual property that is set forth on Exhibit B to XG Sciences IP, LLC, and such assignment of and manner of holding such intellectual property shall be deemed to be in compliance with this Agreement.

(q)          Pledgor and/or XG Sciences IP, LLC shall maintain a list of their material identifiable trade secrets, which list shall include information regarding the location of documentation for each trade secret and which employees have access to the trade secret (the “Trade Secret List”). Pledgor shall provide a copy of the Trade Secret List to its primary legal counsel from time to time to be held in escrow by such legal counsel. Pledgor shall direct such legal counsel to disclose the Trade Secret List to the Agent upon the Agent’s request following the delivery of a “foreclosure notice” in accordance with the Second Amended and Restated Intercreditor Agreement among the Lenders dated as of January 15, 2014.

4.            Agent’s Rights.

(a)          Agent shall have the right, but not the obligation, to take, at Pledgor’s sole expense, any actions that Pledgor is required under this IP Security Agreement to take but which Pledgor fails to take, after ten (10) calendar days’ written notice to Pledgor. Pledgor shall reimburse and indemnify Agent and Lenders for all costs and expenses incurred in the exercise of its rights under this Section 4.

Second Amended and Restated Intellectual Property Security Agreement

(b)          Each Lender agrees to appoint Aspen Capital Advisors, LLC as its Agent for purposes of this IP Security Agreement. Each Lender hereby authorizes the Agent to take such action and to exercise such powers hereunder as provided herein or as requested to or consented by the Lenders (acting together), together with such powers as are reasonably incidental thereto. Subject to the provisions of this Agreement, the Agent will not take any action contrary to the express written instructions of the Lenders (acting together) and will take any lawful action prescribed in express written instructions of the Lenders (acting together). The Agent may decline to take any action except upon the express written instructions of the Lenders (acting together) and the Agent may request a written ratification by the Lenders (acting together) of any action taken by it under this Agreement, which ratification shall not be unreasonably withheld, conditioned or delayed. The Agent shall not be obligated to take any action, or engage in any course of conduct, if the Lenders are not in agreement as to such action or course of conduct. The Agent may employ agents and attorneys-in-fact in connection herewith and shall not be responsible for the negligence or misconduct of any such agents or attorneys-in-fact selected by it in good faith.

(c)          The Agent shall be entitled to resign at any time upon written notice to the Lenders and the Agent may be removed at any time for cause a vote of the Lenders holding a majority of the principal amounts of the secured indebtedness which is secured by a pledge of the Intellectual Property Collateral hereunder. Except as provided above, upon any such resignation or removal, the Lenders shall have the right to appoint a successor Agent by the vote of the Lenders holding a majority of the principal amounts of the secured indebtedness which is secured by a pledge of the Intellectual Property Collateral hereunder. If no successor Agent shall have been so appointed by such Lenders, and shall have accepted such appointment, within thirty (30) days after the retiring Agent’s giving of notice of resignation or the Lenders’ removal of the retiring Agent, then the retiring Agent may, on behalf of the Lenders, appoint a successor Agent. Upon the acceptance of any appointment as the Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations as the Agent under this Agreement. After any retiring or the Agent’s resignation or removal hereunder as the Agent, the provisions of this Section 4 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was the Agent under this Agreement.

(d)          Subject to and upon the other terms and conditions contained herein that limit the obligations or duties of the Agent, the duties and obligations of the Agent under this Agreement shall be those of a “collateral agent” and shall consist of and be limited to: (i) acquiring, holding and enforcing the security interest granted by the Pledgor in the Collateral under this Agreement; (ii) selling, releasing, surrendering, realizing upon or otherwise dealing with, in any manner and in any order, all or any portion of the Collateral, (iii) exercising (or refraining from exercising) any rights, remedies or powers of the Agent under this Agreement, the Loan Documents and other agreements contemplated therein, or under applicable law in respect of all or any portion of the Collateral, (iv) making any demands or giving any notices hereunder or under the other transaction documents, and (v) effecting amendments to or granting waivers or consents hereunder or under the other transaction documents.

(e)          Each of the Lenders hereby covenants and agrees to reimburse, indemnify and hold the Agent harmless from and against any and all claims, actions, judgments, damages, losses, liabilities, costs, transfer or other taxes, and expenses (including, without limitation, reasonable attorneys’ fees and expenses) incurred or suffered without any bad faith, gross negligence or willful misconduct by the Agent, arising out of or incident to Agent’s actions or inactions as Agent with regard to its duties under or administration of this IP Security Agreement. Each Lender further agrees that any reimbursements or indemnity payments to the Agent shall be made according to each Lender’s pro rata share of the total aggregate principal amount outstanding under the Secured Notes at the time of the event that gave rise to such reimbursement or indemnity claim by the Agent.

Second Amended and Restated Intellectual Property Security Agreement

5.            Further Assurances: Attorney in Fact.

(a)          Pledgor agrees to deliver to Agent, upon the request of Agent, a report, in form acceptable to Agent and certified by an officer of Pledgor, which lists all material Intellectual Property owned by Pledgor, including, without limitation, all titles, names or marks together with all relevant registration and/or application numbers and registration and/or filing dates.

(b)          On a continuing basis for the purpose of perfecting and maintaining the perfection and priority of Agent’s security interest in all Intellectual Property, Pledgor will make, execute, acknowledge and deliver, and file and record in the proper filing and recording places in the United States, all such instruments, including appropriate financing and continuation statements and collateral agreements and filings with the United States Patent and Trademark Office and the Register of Copyrights, and take all such action as may be necessary or advisable, or as requested by Agent, and otherwise to carry out the intent and purposes of this IP Security Agreement, or for assuring and confirming to Agent the grant, priority, or perfection of a security interest in all Intellectual Property Collateral.

(c)          Pledgor hereby irrevocably appoints Agent as Pledgor’s attorney-in-fact, with full authority in the place and stead of Pledgor and in the name of Pledgor, from time to time in Agent’s discretion, to take any action and to execute any instrument which Agent may deem necessary or advisable to accomplish the purposes of this IP Security Agreement, including (i) to modify, in its discretion, this IP Security Agreement without first obtaining Pledgor’s approval of or signature to such modification by amending Exhibit A to include reference to any right, title or interest in or to any Intellectual Property acquired by Pledgor after the execution hereof or to delete any reference to any right, title or interest in or to any Intellectual Property in which Pledgor no longer has or claims any right, title or interest, (ii) to file, in its discretion, one or more financing or continuation statements and amendments thereto, relative to any of the Intellectual Property Collateral without the signature of Pledgor where permitted by law and (iii) to transfer the Intellectual Property Collateral into the name of Agent or a third party to the extent permitted under the UCC provided that Agent agrees that it shall not exercise its powers as attorney-in-fact under this Section 5 except upon the occurrence and during the continuation of a IP Security Agreement Event of Default (as hereinafter defined).

6.            Consent and Waiver: Obligations Not Impaired.

(a)          Pledgor waives: (i) promptness, diligence, and notice of acceptance of this IP Security Agreement and notice of the incurring of any obligation, indebtedness, or liability to which this IP Security Agreement applies or may apply and waives presentment for payment, notice of nonpayment, protest, demand, notice of protest, notice of intent to accelerate, notice of acceleration, notice of dishonor, diligence in enforcement and indulgences of every kind; and (ii) the taking of any other action by Agent or any Lender, including without limitation giving any notice of default or any other notice to, or making any demand on, the Pledgor, any guarantor of all or any part of the Secured Obligations or any other party, provided, that Pledgor does not waive any notices that Agent has expressly agreed to give to it in the Second Amended and Restated Security Agreement, dated as of January 15, 2014, by and among the Pledgor, the Lenders and the Agent (the “Security Agreement”).

Second Amended and Restated Intellectual Property Security Agreement

(b)          Agent and any Lender may at any time and from time to time, without the consent of or notice to Pledgor, without incurring responsibility to Pledgor and without impairing, releasing or reducing the obligations of Pledgor hereunder: (i) change the place of payment of all or any part of the Secured Obligations; (ii) release, surrender, or subordinate any collateral for all or any part of the Secured Obligations or this IP Security Agreement; (iii) neglect, delay, omit, fail or refuse to take or prosecute any action for the collection of all or any part of the Secured Obligations or this IP Security Agreement or to take or prosecute any action in connection with the Loan Documents; (iv) exercise or refrain from exercising any rights against the Pledgor or others, or otherwise act or refrain from acting; (v) settle or compromise all or any part of the Secured Obligations and subordinate the payment of all or any part of the Secured Obligations to the payment of any obligations, indebtedness or liabilities which may be due or become due by Pledgor to Agent, any Lender or others; (vi) apply any deposit balance, fund, payment, collections through process of law or otherwise or other collateral of Pledgor to the satisfaction and liquidation of the indebtedness or obligations of the Pledgor to Agent and Lenders not secured under this IP Security Agreement, if any, subject to the terms of the applicable agreements; and (vii) apply any sums paid to Agent or Lenders by Pledgor to the Secured Obligations in such order and manner as Agent, in its sole discretion, may determine.

(c)          Should Agent seek to enforce the obligations of Pledgor hereunder by action in any court or otherwise, Pledgor waives any requirement, substantive or procedural, that (i) Agent first enforce any rights or remedies against any other person or entity liable to Agent or any Lender for all or any part of the Secured Obligations, including without limitation that a judgment first be rendered against any other person or entity, or that any other person or entity should be joined in such cause, or (ii) Agent first enforce rights against any collateral which shall ever have been given to secure all or any part of the Secured Obligations or this IP Security Agreement. Such waiver shall be without prejudice to Agent’s right, at its option, to proceed against any other person or entity, whether by separate action or by joinder.

(d)          In addition to any other waivers, agreements, and covenants of Pledgor set forth herein, Pledgor hereby further waives and releases all claims, causes of action, defenses, and offsets for any act or omission of Agent and any Lender, and such Person’s directors, officers, employees, representatives, or agents in connection with Agent’s and such Lender’s administration of the Secured Obligations, except for Agent’s or such Lender’s willful misconduct and gross negligence.

(e)          Pledgor agrees that its obligations hereunder shall not be released, diminished, impaired, or reduced by the occurrence of any one or more of the following events: (i) the lack of corporate power of Pledgor, or any other guarantor of all or any part of the Secured Obligations, (ii) any receivership, insolvency, bankruptcy, or other proceedings affecting Pledgor, or any other guarantor of all or any part of the Secured Obligations, or any of their respective property; (iii) the partial or total release or discharge of any guarantor of all or any part of the Secured Obligations, or any other person or entity from the performance of any obligation contained in any instrument or agreement evidencing, governing or securing all or any part of the Secured Obligations, whether occurring by reason of taw or otherwise; (iv) the taking or accepting of any collateral for all or any part of the Secured Obligations or this IP Security Agreement; (v) the taking or accepting of any other guaranty for all or any part of the Secured Obligations; (vi) any failure by Agent to acquire, perfect, or continue any lien or security interest on collateral securing all or any part of the Secured Obligations or this IP Security Agreement; (vii) the impairment of any collateral securing all or any part of the Secured Obligations or this IP Security Agreement (including without limitation the negligent impairment); (viii) any failure by Agent to sell any collateral securing all or any part of the Secured Obligations or this IP Security Agreement in a commercially reasonable manner or as otherwise required by law; (ix) any invalidity or unenforceability of or defect or deficiency in the Loan Documents; or (x) any other act or circumstance which might otherwise constitute a defense available to, or discharge of, Pledgor, or any other guarantor of all or any part of the Secured Obligations,

Second Amended and Restated Intellectual Property Security Agreement

(f)          This IP Security Agreement shall continue to be effective or be reinstated, as the case may be, if at any time any payment of all or any part of the Secured Obligations is rescinded or must otherwise be returned by Agent or any Lender upon the insolvency, bankruptcy, or reorganization of Pledgor, any other guarantor of all or any part of the Secured Obligations, or otherwise, all as though such payment had not been made.

(g)          None of the following shall affect Pledgor’s liability hereunder: (i) the unenforceability of all or any part of the Secured Obligations against Pledgor by reason of the fact that the Secured Obligations exceed the amount permitted by law; (ii) the act of creating all or any part of the Secured Obligations is ultra vires; or (iii) the individual or individuals creating all or any part of the Secured Obligations acted in excess of their authority.

7.            IP Security Agreement Events of Default. The occurrence of any of the following shall constitute a “IP Security Agreement Event of Default” under this IP Security Agreement:

(a)          An Event of Default occurs under the Loan Documents; or

(b)          Pledgor breaches any warranty or agreement made by Pledgor in this IP Security Agreement.

8.            Remedies. Upon the occurrence and during the continuance of a IP Security Agreement Event of Default, Agent shall have the right to exercise all the remedies of a secured party under the UCC, including, without limitation, the right to require Pledgor to assemble the Intellectual Property Collateral and any tangible property in which Agent has a security interest and to make it available to Agent at a place designated by Agent. Agent shall have a nonexclusive, royalty free license or other right, solely pursuant to the provisions of this Section 8, to use, without charge, the Intellectual Property and any property of a similar nature as it pertains to the Intellectual Property Collateral, to the extent necessary to permit Agent to exercise its rights and remedies pursuant to this Section 8, including, without limitation, the completion of production, advertising for sale and the sale of any Intellectual Property Collateral and, in connection with Agent’s exercise of its rights hereunder, Pledgor’s rights under all licenses and all franchise agreements which constitute Intellectual Property Collateral shall inure to the benefit of Agent. Pledgor will pay any expenses (including reasonable attorneys’ fees) incurred by Agent or any Lender in connection with the exercise of any of Agent’s rights hereunder, including, without limitation, any expense incurred in disposing of the Intellectual Property Collateral. All of Agent’s rights and remedies with respect to the Intellectual Property Collateral shall be cumulative.

Second Amended and Restated Intellectual Property Security Agreement

9.          Indemnity. Pledgor agrees to defend, indemnify and hold harmless Agent and Lenders and their respective directors, officers, employees, attorneys and agents against (a) all obligations, demands, claims, and liabilities claimed or asserted by any other party in connection with the transactions contemplated by this IP Security Agreement and (b) all losses or expenses in any way suffered, incurred, or paid by Agent or any Lender as a result of or in any way arising out of, following or consequential to transactions between or among Agent, any Lender, and Pledgor, whether under this IP Security Agreement or otherwise (including, without limitation, reasonable attorneys’ fees and reasonable expenses), except for losses arising from or out of Agent’s gross negligence or willful misconduct. If Agent obtains recovery of any of the amounts that Pledgor has paid to it pursuant to the indemnity set forth in the section, then Agent shall promptly pay to Pledgor the amount of such recovery. PLEDGOR AND AGENT EXPRESSLY INTEND THAT THE FOREGOING INDEMNITY SHALL COVER, AND THAT PLEDGOR SHALL INDEMNIFY AND HOLD THE INDEMNIFIED PARTIES HARMLESS FROM AND AGAINST, COSTS, EXPENSES AND LOSSES SUFFERED AS A RESULT OF THE NEGLIGENCE OF ANY INDEMNIFIED PARTY.

10.         Successors and Assigns, This IP Security Agreement and all obligations of Pledgor hereunder shall be binding upon the successors and assigns of Pledgor, and shall, together with the rights and remedies of Agent hereunder, inure to the benefit of Agent, Lenders, and their respective successors and assigns. No sales of participations, other sales, assignments, transfers or other dispositions of any agreement governing or instrument evidencing the indebtedness secured hereby or any portion thereof or interest therein shall in any manner affect the security interest created herein and granted to Agent hereunder.

11.         Reassignment. At such time as Pledgor shall completely satisfy all of the Secured Obligations and no commitment on the part of any Lender to make loans to Pledgor is continuing, Agent shall execute and deliver to Pledgor all deeds, assignments, and other instruments as may be necessary or proper to revest in Pledgor full title to the property assigned hereunder, subject to any disposition thereof which may have been made by Agent pursuant hereto.

12.         No Failure or Delay. No failure or delay on the part of Agent in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise thereof.

13.         Costs and Expenses. Pledgor will upon demand pay to Agent the amount of any and all costs and expenses (including without limitation, reasonable attorneys’ fees and expenses), which Agent may incur in connection with (i) the perfection and preservation of the security interests granted under the Loan Documents, (ii) the administration of the Loan Documents, (iii) the custody, preservation, use or operation of, or the sale of, collection from, or other realization upon, the Intellectual Property Collateral, (iv) the exercise or enforcement of any of the rights of Agent hereunder, or (vi) the failure by Pledgor to perform or observe any of the provisions hereof.

14.         Amendments. Except as otherwise provided herein, this IP Security Agreement may be amended only by a written instrument signed by both parties hereto.

15.         Counterparts. This IP Security Agreement may be executed in any number of counterparts, each of which when so delivered shall be deemed an original, but all such counterparts shall constitute but one and the same instrument.

Second Amended and Restated Intellectual Property Security Agreement

16.         Governing Law; Jurisdiction. THIS IP SECURITY AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF MICHIGAN, WITHOUT REFERENCE TO THE RULES THEREOF RELATING TO CONFLICT OF LAWS. PLEDGOR HEREBY IRREVOCABLY SUBMITS ITSELF TO THE JURISDICTION OF THE STATE AND FEDERAL COURTS LOCATED IN INGHAM COUNTY, MICHIGAN, AND AGREES AND CONSENTS THAT SERVICE OF PROCESS MAY BE MADE UPON IT IN ANY LEGAL PROCEEDING RELATING TO THIS IP SECURITY AGREEMENT OR ANY OTHER RELATIONSHIP BETWEEN OR AMONG AGENT, ANY LENDER, AND PLEDGOR BY ANY MEANS ALLOWED UNDER STATE OR FEDERAL LAW. ANY LEGAL PROCEEDING ARISING OUT OF OR IN ANY WAY RELATED TO THIS IP SECURITY AGREEMENT OR ANY OTHER RELATIONSHIP BETWEEN OR AMONG AGENT, ANY LENDER, AND PLEDGOR SHALL BE BROUGHT AND LITIGATED EXCLUSIVELY IN ANY ONE OF THE STATE OR FEDERAL COURTS LOCATED IN INGHAM COUNTY, MICHIGAN, HAVING JURISDICTION UNLESS AGENT SHALL ELECT OTHERWISE. THE PARTIES HERETO HEREBY WAIVE AND AGREE NOT TO ASSERT, BY WAY OF MOTION, AS A DEFENSE OR OTHERWISE, THAT ANY SUCH PROCEEDING BROUGHT IN INGHAM COUNTY, MICHIGAN IS BROUGHT IN AN INCONVENIENT FORUM OR THAT THE VENUE THEREOF IS IMPROPER.

17.         Jury Trial Waiver. PLEDGOR AND AGENT HEREBY (A) IRREVOCABLY WAIVE, TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY AT ANY TIME ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS IP SECURITY AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY OR ASSOCIATED HEREWITH; (B) IRREVOCABLY WAIVE, TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW, ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY SUCH LITIGATION ANY SPECIAL, EXEMPLARY, PUNITIVE, OR CONSEQUENTIAL DAMAGES, OR DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES; (C) CERTIFY THAT NO PARTY HERETO NOR ANY REPRESENTATIVE OR AGENT OR COUNSEL FOR ANY PARTY HERETO HAS REPRESENTED, EXPRESSLY OR OTHERWISE, OR IMPLIED THAT SUCH PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVERS; AND (D) ACKNOWLEDGE THAT IT HAS BEEN INDUCED TO ENTER INTO THIS IP SECURITY AGREEMENT AND THE TRANSACTIONS CONTEMPLATED HEREBY BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS CONTAINED IN THIS PARAGRAPH.

18.         Conflict. In the event of a conflict between any term and/or provision contained in this IP Security Agreement with any term and/or provision contained in the Loan Documents, the term and/or provision of this IP Security Agreement shall govern.

19.         Termination. This IP Security Agreement and Pledgor’s obligations hereunder shall terminate upon the date that the Secured Obligations are paid in full, provided, that this IP Security Agreement shall continue to be effective or be reinstated, as the case may be, if at any time any payment of any of the Secured Obligations is rescinded or otherwise must be returned by Agent or any Lender, as though such payment has not been made.

20.         Entire Agreement. This IP Security Agreement (together which each Annex hereto) and the Security Agreement contain the entire agreement and understanding by and between the parties hereto with respect to the subject matter hereof and their resulting obligations to each other, as herein described; and it supersedes all prior agreements and understandings between the parties to this IP Security Agreement relating to the subject matter hereof. No change or modification of this IPSecurity Agreement shall be valid or binding unless the same is in writing and signed by the party intended to be so bound. No waiver of any provision of this IP Security Agreement shall be valid unless the same is in writing and signed by the party against whom such waiver is sought to be enforced. Moreover, no valid waiver of any provision of this IP Security Agreement, at any time, shall be deemed to be a waiver of any other provision of this IP Security Agreement at such time, or shall be deemed to be valid waiver of such provision at any other time.

[Signature page follows.]

Second Amended and Restated Intellectual Property Security Agreement

IN WITNESS WHEREOF, the undersigned party hereto has executed this Second Amended and Restated IP Security Agreement on the day and year first above written.

XG SCIENCES, INC.
By:	/s/ Michael R. Knox
Name: Michael R. Knox
Title:  Chief Executive Officer

Notarization:

STATE OF MICHIGAN	)
	)  ss:
COUNTY OF Ingham	)

The foregoing instrument was sworn to, subscribed and acknowledged before me this 10^th day of January, 2014, by Michael R. Knox, in his/her capacity as the Chief Executive Officer of XG Sciences, Inc., who is [    ] personally known to me or [ ü ] who has produced Michigan Driverse License (type of identification) as identification.

	/s/ Kelly A. LaGrave
	NOTARY PUBLIC, STATE OF MICHIGAN
	Kelly A. LaGrave
	(Print, Type or Stamp Commissioned Name of Notary Public)

Second Amended and Restated Intellectual Property Security Agreement

IN WITNESS WHEREOF, the undersigned party hereto has executed this Second Amended and Restated IP Security Agreement on the day and year first above written.

AGENT:
ASPEN CAPITAL ADVISORS, LLC
By:	/s/ Steven C. Jones
Name:	Steven C. Jones
Title:	Managing Member

Notarization:
STATE OF FLORIDA	)
	)  ss:
COUNTY OF Miami Dade	)

The foregoing instrument was sworn to, subscribed and acknowledged before me this 15^th day of January, 2014, by Steven C. Jones, in his/her capacity as the Managing Member of Aspen Capital Advisors, LLC, who is [ ü ] personally known to me or [    ] who has produced _____________ (type of identification) as identification.

	/s/ Charles Gamble
	NOTARY PUBLIC, STATE OF FLORIDA
	Charles Gamble
	(Print, Type or Stamp Commissioned Name of Notary Public)

Second Amended and Restated Intellectual Property Security Agreement

IN WITNESS WHEREOF, the undersigned party hereto has executed this Second Amended and Restated IP Security Agreement on the day and year first above written.

LENDER:
ASPEN ADVANCED OPPORTUNITY FUND, LP
By:	AA XGS, LLC
Its:	General Partner
By:	/s/ Steven C. Jones
Name:	Steven C. Jones
Title:	Managing Member

Notarization:
STATE OF FLORIDA	)
	) ss:
COUNTY OF Miami - Dade	)

The foregoing instrument was sworn to, subscribed and acknowledged before me this 15^th day of January, 2014, by Steven C. Jones, in his/her capacity as the Managing Member of Aspen Advanced Opportunity Fund, LP, who is [ ü ] personally known to me or [    ] who has produced ________________ (type of identification) as identification.

	/s/ Charles Gamble
	NOTARY PUBLIC, STATE OF FLORIDA
	Charles Gamble
	(Print, Type or Stamp Commissioned Name of Notary Public)

Second Amended and Restated Intellectual Property Security Agreement

IN WITNESS WHEREOF, the undersigned party hereto has executed this Second Amended and Restated IP Security Agreement on the day and year first above written.

LENDER:
MICHAEL R. KNOX
By:	/s/ Michael R. Knox
Name:	Michael R. Knox

Notarization:
STATE OF MICHIGAN	)
	) ss:
COUNTY OF Ingham	)

The foregoing instrument was sworn to, subscribed and acknowledged before me this 10^th day of January, 2014, by Michael R. Knox, who is [   ] personally known to me or [ ü ] who has produced Michigan Driverse License (type of identification) as identification.

	/s/ Kelly A. LaGrave
	NOTARY PUBLIC, STATE OF MICHIGAN
	Kelly A. LaGrave
	(Print, Type or Stamp Commissioned Name of Notary Public)

Second Amended and Restated Intellectual Property Security Agreement

IN WITNESS WHEREOF, the undersigned party hereto has executed this Second Amended and Restated IP Security Agreement on the day and year first above written.

LENDER:
XGS II, LLC
By:	/s/ David G. Pendell
Name:	David G. Pendell
Title:	Managing Member

Notarization:
STATE OF FLORIDA	)
	) ss:
COUNTY OF COLLIER	)

The foregoing instrument was sworn to, subscribed and acknowledged before me this 24 day of January, 2014, by David G. Pendell, in his/her capacity as the Managing Member of XGS II, LLC, who is [    ] personally known to me or [ ü ] who has produced FLDL (type of identification) as identification.

/s/ Ryan Sommerville

NOTARY PUBLIC, STATE OF FLORIDA

(Print, Type or Stamp Commissioned Name of Notary Public)

Second Amended and Restated Intellectual Property Security Agreement

IN WITNESS WHEREOF, the undersigned party hereto has executed this Second Amended and Restated IP Security Agreement on the day and year first above written.

LENDER:

SVIC NO. 15 NEW TECHNOLOGY BUSINESS INVESTMENT L.L.P.

By: Samsung Venture Investment Corporation, its Partner

By:	/s/ Seonjong Lee
Name:	SEONJONG LEE
Title:	C.E.O

Notarization:
STATE OF ________________	)
	) ss:
COUNTY OF _________________	)

The foregoing instrument was sworn to, subscribed and acknowledged before me this _____ day of__________, 2013, by_______________, in his/her capacity as the ___________________ of No. 15 New Technology Business Investment L.L.P, who is [    ] personally known to me or [    ] who has produced ___________ (type of identification) as identification.

NOTARY PUBLIC, STATE OF                                  

(Print, Type or Stamp Commissioned Name of Notary Public)

Second Amended and Restated Intellectual Property Security Agreement

EXHIBIT A

In November of 2011, the Company entered into a license agreement between the Company and Cabot Corporation (“Cabot”), a copy of which has been supplied to AAOF (the “License Agreement”). Subsequent to the execution of the License Agreement, Michigan State University (“MSU”) expressed concern regarding the form of the License Agreement, including whether any MSU technology might have been included in the License Agreement. After discussions among Cabot, MSU, and the Company, Cabot drafted a First Amendment to the License Agreement between Cabot and the Company (the “Amendment”). The Amendment contains warranties, attested by both the Company and its Chief Scientist, Dr. Lawrence Drzal, asserting that no MSU technology had been improperly transferred to Cabot. The Company executed the Amendment on January 29, 2013, and has provided a copy to AAOF. The Company understood that this matter was closed when it provided the Amendment to AAOF. However, the Company subsequently learned that Cabot has not yet signed the Amendment because a new Vice President had been appointed. Additionally, the Company received a letter from MSU dated March 20, 2013 stating that MSU wanted to review this issue. The Company, Cabot, and MSU are currently renegotiating the Amendment.

1) Patents and Patent Licenses

See attached.

2) Trademarks

XG Sciences (Design Plus Words)

xGnP

XG Sciences The Material Difference (Design Plus Words)

XG Leaf (Application Pending)

Second Amended and Restated Intellectual Property Security Agreement

EXHIBIT B

All “Intellectual Property” as defined in the Assignment of Intellectual Property dated effective as of January 15, 2014 between the Company and XG Sciences IP, LLC, including without limitation the following:

Patents:

Patent Application Number	Application Date	Description
13/474,860	5/18/2012	Process of Dry Milling Particulate Materials Milled Graphene/Metal Nano Composites
61/786,735	3/15/2013	Graphene Carbon Compositions
13/686,961	11/28/2012	Single Mode Microwave Device for Producing Exfoliated Graphite
13/610,934	9/12/2012	Cloud Mixer and Method of Minimizing Agglomeration of Particulates
13/435,260	3/30/2012	Mechanical Exfoliation Apparatus
61/786,745	3/15/2013	Electrodes for Capacitors from Mixed Carbon Compositions
14079057	11/13/2013	Silicon-Graphene Nanocomposites for Electrochemical Applications

Trademarks:

XG Sciences (Design Plus Words)

xGnP

XG Sciences The Material Difference (Design Plus Words)

XG Leaf (Application Pending)

Second Amended and Restated Intellectual Property Security Agreement

Michigan Department of Licensing and Regulatory Affairs

Filing Endorsement

This is to Certify that the CERTIFICATE OF AMENDMENT - CORPORATION

for

XG SCIENCES, INC.

ID NUMBER: 23029E

received by facsimile transmission on July 9, 2013 is hereby endorsed

Filed on July 10, 2013 by the Administrator.

The document is effective on the date filed, unless a subsequent effective date within 90 days after received date is stated in the document.

	In testimony whereof, I have hereunto set my hand and affixed the Seal of the Department, in the City of Lansing, this 10TH day of July, 2013.
[Graphics]	/s/ Alan J. Schefke
	Director
Sent by Facsimile Transmission 13191	Bureau of Commercial Services

BCS/CD-515 (Rev. 11/11)

MICHIGAN DEPARTMENT OF LICENSING AND REGULATORY AFFAIRS BUREAU OF COMMERCIAL SERVICES
Date Received
		This document is effective on the date filed, unless a subsequent effective date within 90 days after received date is stated in the document.
Name
Matt G. Hrebec, Esq.; Foster, Swift, Collins & Smith, P.C.
Address
313 S. Washington Square
City		State	ZIP Code
Lansing		MI	48933		EFFECTIVE DATE:
[Graphics]	Document will be returned to the name and address you enter above. If left blank, document will be returned to the registered office.			[Graphics]

 CERTIFICATE OF AMENDMENT TO THE ARTICLES OF INCORPORATION

For use by Domestic Profit and Nonprofit Corporations

(Please read information and instructions on the last page)

Pursuant to the provisions of Act 284, Public Acts of 1972, (profit corporations), or Act 162, Public Acts of 1982 (nonprofit corporations), the undersigned corporation executes the following Certificate:

1.	The present name of the corporation is:
	XG Sciences, Inc.
2.	The identification number assigned by the Bureau is:	23029E

3.	Article IIIof the Articles of Incorporation is hereby amended to read as follows:
	ARTICLE III
	The total authorized shares:
	1.	Common shares: 25,000,000
		Preferred shares: 8,000,000
	2.	A statement of all or any of the relative rights, preferences and limitations of the shares of each class is as follows:
	A.    Provisions Applicable to Common Shares: None
	B.   Provisions Applicable to Preferred Shares: The authorized shares of Preferred Stock may be issued from time to time in one or more series, each of such series to have such designations, powers, preferences, and relative participating, optional, or other rights, and such qualifications, limitations, or restrictions, as may be stated in a resolution or resolutions providing for the Issue of such series adopted by the Board of Directors.

COMPLETE ONLY ONE OF THE FOLLOWING:

4.	Profit or Nonprofit Corporations: For amendments adopted by unanimous consent of incorporators before the first meeting of the board of directors or trustees.
	The foregoing amendment to the Articles of Incorporation was duly adopted on the ________ day of __________________, _________, in accordance with the provisions of the Act by the unanimous consent of the incorporator(s) before the first meeting of the Board of Directors or Trustees.
	Signed this ________ day of ____________________________ , ___________
	(Signature)	(Signature)
	(Type or Print Name)	(Type or Print Name)
	(Signature)	(Signature)
	(Type or Print Name)	(Type or Print Name)

5.	Profit Corporation Only: Shareholder or Board Approval
	The foregoing amendment to the Articles of incorporation proposed by the board was duly adopted on the 26th day of June, 2013, by the: (check one of the following)
	þ	shareholders at a meeting in accordance with Section 611(3) of the Act.
	¨	written consent of the shareholders having not less than the minimum number of votes required by statute in accordance with Section 407(1) of the Act. Written notice to shareholders who have not consented in writing has been given. (Note: Written consent by less than all of the shareholders is permitted only if such provision appears in the Articles of Incorporation.)
	¨	written consent of all the shareholders entitled to vote in accordance with Section 407(2) of the Act.
	¨	board of a profit corporation pursuant to section 611(2) of the Act.
			Profit Corporations and Professional Service Corporations
			Signed this 8 day of July, 2013
			By	/s/ Michael R. Knox
				(Signature of an authorized officer or agent)
			Michael R. Knox, CEO
			(Type or Print Name)

XG SCIENCES, INC.

MICHIGAN CID 23029E

AMENDED AND RESTATED CERTIFICATE OF DESIGNATIONS

OF

SERIES A CONVERTIBLE PREFERRED STOCK

(Pursuant to Section 450.1302 of the

Michigan Business Corporation Act)

The undersigned, a duly authorized officer of XG Sciences, Inc., a Michigan corporation (the “Corporation”),DOES HEREBY CERTIFY that the following resolution was duly adopted bythe Board of Directors of the Corporation (the “Board of Directors”)pursuant to Section 450.1302 of the Michigan Business Corporation Act on June 26, 2013:

RESOLVED, that the Board of Directors of the Corporation pursuant to authority vested in it by the provisions of the Articles of Incorporation of the Corporation, hereby amends and restates its previous authorization of the issuance of a series of preferred stock designated as the Series A Convertible Preferred Stock of the Corporation and hereby fixes the designation, number of shares, powers, preferences, rights, qualifications, limitations and restrictions thereof (in addition to any provisions set forth in the Articles of Incorporation of the Corporation which are applicable to the Corporation’s preferred stock of all classes and series) as follows:

SERIES A CONVERTIBLE PREFERRED STOCK

1.Designation and Amount. There is hereby designated a series of the Corporation’s Preferred Stock (as defined below) as Series A Convertible Preferred Stock (the “Series A Preferred Stock”),and the number of shares so designated shall be three million (3,000,000).

2.           Definitions. In addition to the terms defined elsewhere in this Certificate of Designations the following terms have the meanings indicated:

(a)          “Common Stock”shall mean the Corporation’s common stock.

(b)          “Conversion Price”shall mean twelve dollars ($12.00) for the Series A Preferred Stock (subject to adjustment from time to time for Recapitalizations and as otherwise set forth elsewhere herein).

(c)          “Conversion Rate”shall have the meaning set forth in Section 5(a).

(d)          “Convertible Securities”shall mean any evidences of indebtedness, shares orother securities convertible into or exchangeable for Common Stock or Preferred Stock.

(e)          “Corporation”shall mean XG Sciences, Inc., a Michigan corporation.

(f)          “Junior Securities”shall mean the Common Stock and all other equity or equity equivalent securities of the Corporation other than those securities which are explicitly senior or pari passu in rights and liquidation preference to the Series A Preferred Stock.

(g)          “Liquidation Preference”shall mean twelve dollars ($12.00) per share for the Series A Preferred Stock (subject to adjustment from time to time for Recapitalizations as set forth elsewhere herein).

(h)          “Options”shall mean rights, options or warrants to subscribe for, purchase or otherwise acquire Common Stock or Convertible Securities.

(i)          “Original Issue Date”shall mean the date on which the first share of Series A Preferred Stock was issued.

(j)          “Preferred Stock”means the Corporation’s preferred stock.

(k)          “Qualified National Exchange”means a securities exchange registered with the U.S. Securities and Exchange Commission under Section 6(a) of the Securities Exchange Act of 1934, as amended, as well as the over the counter markets administered by the OTCQX® and the OTCQB®, and their successor-entities. The OTC Pink®, OTCBB and their successor-equivalent entities shall not be deemed a “Qualified National Exchange.”

(l)          “Recapitalization”shall mean any stock dividend, stock split, combination of shares, reorganization, recapitalization, reclassification or other similar event.

(m)          “Senior Securities”shall mean the Series A Preferred Stock and all other series of Preferred Stock of the Corporation that are explicitly senior or pari passu in rights and liquidation preference to the Series A Preferred Stock.

(n)          “Series A Original Issue Price”shall mean twelve dollars ($12.00) per share (subject to adjustment from time to time for Recapitalizations and as set forth in Section 5 herein).

3. Liquidation Rights.

(a)          Liquidation Preference.In the event of any liquidation, dissolution or winding up of the Corporation, either voluntary or involuntary, the holders of the Series A Preferred Stock shall be entitled to receive, prior and in preference to any distribution of any of the assets of the Corporation to the holders of the Common Stock by reason of their ownership of such stock, an amount per share for each share of Series A Preferred Stock held by them equal to (i) the Liquidation Preference specified for such share of Series A Preferred Stock less (ii) all dividends (if any) paid on such share of Series A Preferred Stock. If upon the liquidation, dissolution or winding up of the Corporation, the assets of the Corporation legally available for distribution to the holders of the Series A Preferred Stock are insufficient to permit the payment to such holders of the full amounts specified in this Section 4(a), then the entire assets of the Corporation legally available for distribution shall be distributed with equal priority and pro-rata among the holders of the Series A Preferred Stock in proportion to the full amounts they would otherwise be entitled to receive pursuant to this Section 3(a).

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(b)          Remaining Assets.After the payment to the holders of the Series A Preferred Stock of the full preferential amounts specified above, the entire remaining assets of the Corporation legally available for distribution by the Corporation shall be distributed with equal priority and pro-rata among the holders of the Series A Preferred Stock and Common Stock in proportion to the number of shares of Common Stock held by them, with the shares of Series A Preferred Stock being treated for this purpose as if they had been converted to shares of Common Stock at the then applicable Conversion Rate (as defined below).

(c)          Shares not Treated as Both Series A Preferred Stock and Common Stock in any Distribution.Shares of Series A Preferred Stock shall not be entitled to be converted into shares of Common Stock in order to participate in any distribution, or series of distributions, as shares of Common Stock, without first foregoing participation in the distribution, or series of distributions, as shares of Series A Preferred Stock.

(d)          Reorganization. For purposes of this Section 3, a liquidation, dissolution or winding up of the Corporation shall be deemed to be occasioned by, or to include: (a) the acquisition of the Corporation by another entity by means of any transaction or series of related transactions to which the Corporation is party (including, without limitation, any stock acquisition, reorganization, merger or consolidation but excluding any sale of stock for capital raising purposes) other than a transaction or series of transactions in which the holders of the voting securities of the Corporation outstanding immediately prior to such transaction continue to retain (either by such voting securities remaining outstanding or by such voting securities being converted into voting securities of the surviving entity), at least fifty percent (50%) of the total voting power represented by the voting securities of the Corporation or such surviving entity outstanding immediately after such transaction or series of transactions; (b) a sale, lease, transfer, exclusive license or other disposition, in a single transaction or series of related transactions, by the Corporation of all or substantially all the assets of the Corporation and its subsidiaries taken as a whole, except where such sale, lease, transfer, exclusive license or other disposition is to a wholly owned subsidiary of the Corporation; or (c) any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary.

(e)          Valuation of Non-Cash Consideration. If any assets of the Corporation distributed to stockholders in connection with any liquidation, dissolution, or winding up of the Corporation are other than cash, then the value of such assets shall be their fair market value as determined in good faith by the Board of Directors, except that any securities to be distributed to stockholders in a liquidation, dissolution, or winding up of the Corporation shall be valued as follows:

(i)          If the securities are then traded on a Qualified National Exchange, then the value of the securities shall be deemed to be the average of the closing prices of the securities on such exchange over the ten (10) trading day period ending five (5) trading days prior to the distribution;

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(ii)         if the securities are actively quoted on the OTC Pink®, then the value of the securities shall be deemed to be the average of the closing bid prices of the securities over the ten (10) trading day period ending five (5) trading days prior to the distribution; and

(iii)        if the securities are not traded on a Qualified National Exchange or actively quoted on the OTC Pink®, the value shall be the fair market value thereof, as determined in good faith by the Board of Directors of the Corporation.

In the event of a merger or other acquisition of the Corporation by another entity, the distribution date shall be deemed to be the date such transaction closes.

4.           Conversion Rights.The holders of the Series A Preferred Stock shall have conversion rights as follows (the “Conversion Rights”):

(a)          Right to Convert.Each share of Series A Preferred Stock shall be convertible, at the option of the holder thereof, at any time after the date of issuance of such share at the office of the Corporation or any transfer agent for the Series A Preferred Stock, into that number of fully-paid, nonassessable shares of Common Stock determined by dividing the Series A Original Issue Price by the Conversion Price. The number of shares of Common Stock into which each share of Series A Preferred Stock may be converted is hereinafter referred to as the “Conversion Rate”.Upon any decrease or increase in the Conversion Price, as described in this Section 4,the Conversion Rate shall be appropriately increased or decreased.

(b)          Mandatory Conversion.The Corporation shall have the right to effect the conversion of each share of Series A Preferred Stock then currently outstanding into fully-paid, non-assessable shares of Common Stock at the then effective Conversion Rate for such share upon the listing by the Corporation of the class of Common Stock on a Qualified National Exchange (such an event, a “Mandatory Conversion Event”).So long as the Common Stock remains listed on a Qualified National Exchange, any shares of Series A Preferred Stock issued following a Mandatory Conversion Event will be automatically converted into Common Stock pursuant to this Section 4(b) at the then effective Conversion Rate on such date of issuance of the Series A Preferred Stock.

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(c)          Mechanics of Conversion.No fractional shares of Common Stock shall be issued upon conversion of Series A Preferred Stock. In lieu of any fractional shares to which the holder would otherwise be entitled, the Corporation shall pay cash equal to such fraction multiplied by the then fair market value of a share of Common Stock as determined by the Board of Directors. For such purpose, all shares of Series A Preferred Stock held by each holder of Series A Preferred Stock shall be aggregated, and any resulting fractional share of Common Stock shall be paid in cash. Before any holder of Series A Preferred Stock shall be entitled to convert the same into full shares of Common Stock, and to receive certificates therefor, such holder shall either (A) surrender the certificate or certificates therefor, duly endorsed, at the office of the Corporation or of any transfer agent for the Series A Preferred Stock or (B)notify the Corporation or its transfer agent that such certificates have been lost, stolen or destroyed and execute an agreement satisfactory to the Corporation to indemnify the Corporation from any loss incurred by it in connection with such certificates, and shall give written notice to the Corporation at such office that he elects to convert the same; provided, however,that on the date of a Mandatory Conversion Event, the outstanding shares of Series A Preferred Stock shall be converted without any further action by the holders of such shares and whether or not the certificates representing such shares are surrendered to the Corporation or its transfer agent; provided further,however, that the Corporation shall not be obligated to issue certificates evidencing the shares of Common Stock issuable upon such Mandatory Conversion Event unless either the certificates evidencing such shares of Series A Preferred Stock are delivered to the Corporation or its transfer agent as provided above, or the holder notifies the Corporation or its transfer agent that such certificates have been lost, stolen or destroyed and executes an agreement satisfactory to the Corporation to indemnify the Corporation from any loss incurred by it in connection with such certificates. On the date of the occurrence of a Mandatory Conversion Event, each holder of record of shares of Series A Preferred Stock shall be deemed to be the holder of record of the Common Stock issuable upon such conversion, notwithstanding that the certificates representing such shares of Series A Preferred Stock shall not have been surrendered at the office of the Corporation, that notice from the Corporation shall not have been received by any holder of record of shares of Series A Preferred Stock, or that the certificates evidencing such shares of Common Stock shall not then be actually delivered to such holder.

(d)          Adjustments for Subdivisions or Combinations of Common Stock.In the event the outstanding shares of Common Stock shall be subdivided (by stock split, by payment of a stock dividend or otherwise), into a greater number of shares of Common Stock, the Conversion Price in effect immediately prior to such subdivision shall, concurrently with the effectiveness of such subdivision, be proportionately decreased. In the event the outstanding shares of Common Stock shall be combined (by reclassification or otherwise) into a lesser number of shares of Common Stock, the Conversion Price in effect immediately prior to such combination shall, concurrently with the effectiveness of such combination, be proportionately increased.

(e)          Adjustments for Subdivisions or Combinations of Series A Preferred Stock. In the event the outstanding shares of Series A Preferred Stock shall be subdivided (by stock split, by payment of a stock dividend or otherwise), into a greater number of shares of Series A Preferred Stock, the Series A Original Issue Price and Liquidation Preference of the Series A Preferred Stock in effect immediately prior to such subdivision shall, concurrently with the effectiveness of such subdivision, be proportionately decreased. In the event the outstanding shares of Series A Preferred Stock shall be combined (by reclassification or otherwise) into a lesser number of shares of Series A Preferred Stock, the Series A Original Issue Price and Liquidation Preference of the Series A Preferred Stock in effect immediately prior to such combination shall, concurrently with the effectiveness of such combination, be proportionately increased.

(f)          Adjustments for Reclassification, Exchange and Substitution.Subject to Section 4 above, if the Common Stock issuable upon conversion of the Series A Preferred Stock shall be changed into the same or a different number of shares of any other class or classes of stock, whether by capital reorganization, reclassification or otherwise (other than a subdivision or combination of shares provided for above), then, in any such event, in lieu of the number of shares of Common Stock which the holders would otherwise have been entitled to receive each holder of such Series A Preferred Stock shall have the right thereafter to convert such shares of Series A Preferred Stock into a number of shares of such other class or classes of stock which a holder of the number of shares of Common Stock deliverable upon conversion of such Series A Preferred Stock immediately before that change would have been entitled to receive in such reorganization or reclassification, all subject to further adjustment as provided herein with respect to such other shares.

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(g)          Adjustment of Series A Preferred Stock Conversion Price upon Issuance of Certain Securities. If and whenever on or after the Original Issue Date, the Corporation issues or sells, or is deemed to have issued or sold, any shares of Common Stock or securities convertible or exchangeable into Common Stock other than Excluded Securities (as defined below) for a consideration per share or an implied consideration per share of Common Stock less than a price (the “Applicable Price”)equal to the Conversion Price in effect immediately prior to such issuance or sale (such issuance a “Triggering New Issue”),then immediately after such issue or sale, the Conversion Price then in effect shall be deemed to be automatically reduced to an amount equal to eighty percent (80%) of the Applicable Price for such Triggering New Issue. After such adjustment of the Conversion Price hereunder, all subsequent conversions of the Series A Preferred Stock into Common Stock shall be effected using the new Conversion Price in the Conversion Rate. For the purposes of this Agreement, “Excluded Securities” are (i) those options and warrants of the Corporation issued prior to, and outstanding on, the Original Issue Date, (ii) the shares of Common Stock issuable on exercise of such options and warrants in subparagraph (i), provided such options and warrants are not amended after the Original Issue Date, and (iii) any options or warrants, or the shares of Common Stock into which such options and warrants are exercisable, which are issued to any employee, officer or director of the Corporation for services provided to the Corporation which have been approved by the compensation committee or the majority of the independent members of the Board of Directors.

(h)          Effect on Conversion Price of Certain Events. For purposes of determining the adjusted Conversion Price under Section 4(g) above, the following shall be applicable:

(i)          Issuance of Options or Warrants.If, after the Original Issue Date, the Corporation in any manner grants any options or warrants other than Excluded Securities and the lowest price per share for which a share of Common Stock is issuable upon the exercise of any such option or warrant is less than the Conversion Price in effect immediately prior to such grant, then such grant of options or warrants shall be deemed to have been a Triggering New Issue and the Conversion Price shall be deemed to be automatically reset pursuant to Section 4(g) above. No further adjustment of the Conversion Price shall be made upon the actual issuance of any shares of Common Stock upon the exercise of any such options or warrants.

(ii)         Issuance of Convertible Securities.If, after the Original Issue Date, the Corporation in any manner issues or sells any Convertible Securities and the lowest price per share of Common Stock at which such Convertible Security is convertible or exchangeable into Common Stock is less than the Conversion Price in effect immediately prior to such issuance or sale, then such issuance or sale shall be deemed to have been a Triggering New Issue and the Conversion Price shall be deemed to be automatically reset pursuant to Section 4(g) above. No further adjustment of the Conversion Price shall be made upon the actual issuance of any shares of Common Stock upon the conversion or exchange of such Convertible Security into shares of Common Stock.

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(iii)        Change in Option or Warrant Price or Rate of Conversion.If, after the Original Issue Date, the exercise, conversion, exchange, or other price payable provided for in any option, warrant or Convertible Security other than Excluded Securities, upon the exercise, conversion or exchange of any such securities is amended or altered at any time for any reason (any of the foregoing hereinafter referred to as an “Exercise/Conversion Change”),and any such Exercise/Conversion Change results in any of the foregoing securities being exercisable, convertible, or exchangeable at a price per share of Common Stock lower than the Conversion Price in effect immediately prior to such Exercise/Conversion Change, then such Exercise/Conversion Change shall be deemed to have been a Triggering New Issue and the Conversion Price shall be deemed to be automatically reset pursuant to Section 4(g) above.

(iv)        No adjustment pursuant to this Section 4(h) shall be made if such adjustment would result in an increase of the Conversion Price above the level that it was immediately prior to the occurrence of any of the foregoing events described in 4(h)(i)-(iii) that would give rise to an adjustment in the Conversion Price.

(i)          Waiver of Adjustment of Conversion Price.Notwithstanding anything herein to the contrary, any downward adjustment of the Conversion Price may be waived, either prospectively or retroactively and either generally or in a particular instance, by the consent or vote of the holders of the majority of the outstanding shares of Series A Preferred Stock. Any such waiver shall bind all future holders of shares of Series A Preferred Stock.

5.           Voting.On any matter presented to the stockholders of the Corporation for their action or consideration at any meeting of stockholders of the Corporation (or by written consent of stockholders in lieu of meeting), each holder of outstanding shares of Series A Preferred Stock shall be entitled to cast the number of votes equal to the number of whole shares of Common Stock into which the shares of Series A Preferred Stock held by such holder are convertible as of the record date for determining stockholders entitled to vote on such matter. Except as provided by law or by the other provisions of the Certificate of Incorporation, holders of Series A Preferred Stock shall vote together with the holders of Common Stock as a single class.

6.           Miscellaneous.

(a)          The headings herein are for convenience only, do not constitute a part of this Certificate of Designations and shall not be deemed to limit or affect any of the provisions hereof.

(b)          Any notice required or permitted by the provisions of this Certificate of Designations to be given to a holder of shares of Series A Preferred Stock shall be mailed, postage prepaid, to the post office address last shown on the records of the Corporation, or given by electronic communication in compliance with the provisions of the Michigan Business Corporation Act, and shall be deemed sent upon such mailing or electronic transmission.

(c)          No provision of this Certificate of Designations may be amended, except in a written instrument signed by the Corporation and holders of at least a majority of the shares of Series A Preferred Stock then outstanding. Any of the rights of the holders of the Series A Preferred Stock set forth herein may be waived by the affirmative vote of holders of at least a majority of the shares of Series A Preferred Stock then outstanding, except that each holder may waive its own rights as provided in this Certificate of Designations.

** Signature page follows **

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IN WITNESS WHEREOF, the undersigned has caused this Amended and Restated Certificate of Designation to be duly executed as of the 8 day of July, 2013.

XG SCIENCES, INC.
BY:	/s/ Michael R. Knox
	MICHAEL R. KNOX, CEO

DATED: JANUARY 15, 2014

RESTATED BYLAWS

OF

XG SCIENCES, INC.

ARTICLE I

Shares of Capital Stock

1.1           Certificate of Shares. The certificates of shares of capital stock of the Corporation shall be in such form as shall be approved by the Board of Directors and as shall be required by law. The certificates of shares of capital stock shall be signed by the Chairman of the Board, Vice-Chairman of the Board, President or a Vice-President and may also be signed by another officer of the Corporation. The certificates may be sealed with the seal of the Corporation or a facsimile thereof. In these Bylaws, the term “capital stock” means the Company’s outstanding: (i) common stock, and (ii) convertible preferred stock of any series.

1.2           Transfer of Shares. Shares of capital stock of the Corporation shall be transferred by endorsement of the certificates representing said shares of capital stock by the registered holder thereof, or by his legal representative, who shall furnish proper evidence of authority to transfer, or by his attorney who shall be authorized by a Power of Attorney which is duly executed and filed with the Secretary of the Corporation, and by the surrender of the shares of capital stock to the Secretary for cancellation. The person whose name is listed on the books of the Corporation as the owner of the shares of capital stock shall be deemed by the Corporation to be the owner thereof for all purposes.

1.3           Lost Certificates. In the event of loss of stock certificates, new certificates shall be issued only upon proof of loss by affidavit by the registered holder and approval by the Board of Directors, who may require a Bond of Indemnity in a form satisfactory to them as a condition thereof.

1.4           Fixing of Record Date. For the purpose of determining shareholders entitled to notice of and to vote at a meeting of shareholders or an adjournment of a meeting, the Board may fix a record date which shall not precede the date on which the resolution fixing the record date is adopted by the Board. The date shall be not more than sixty (60) nor less than ten (10) days before the date of the meeting. If a record date is not fixed, the record date for determination of shareholders entitled to notice of or to vote at a meeting of shareholders shall be the close of business on the day next preceding the day on which notice is given, or if no notice is given, the day next preceding the day on which the meeting is held. When a determination of shareholders of record entitled to notice of or to vote at a meeting of shareholders has been made as provided in this section, the determination applies to any adjournment of the meeting, unless the Board fixes a new record date under this section for the adjourned meeting.

For the purpose of determining shareholders entitled to express consent to or to dissent from a proposal without a meeting, the Board may fix a record date which shall not precede the date on which the resolution fixing the record date is adopted by the Board and shall not be more than ten (10) days after the Board resolution. If a record date is not fixed and prior action by the Board is required with respect to the corporate action to be taken without a meeting, the record date shall be the close of business on the day on which the resolution of the Board is adopted. If a record date is not fixed and prior action by the Board is not required, the record date shall be the first date on which a signed written consent is delivered to the Corporation pursuant to Section 407 of the Michigan Business Corporation Act, as amended, or any successor provision.

For the purpose of determining shareholders entitled to receive payment of a share dividend or distribution, or allotment of a right, or for the purpose of any other action, the Board may fix a record date which shall not precede the date on which the resolution fixing the record date is adopted by the Board. The date shall not be more than sixty (60) days before the payment of the share dividend or distribution or allotment of a right or other action. If a record date is not fixed, the record date shall be the close of business on the day on which the resolution of the Board relating to the corporate action is adopted.

1.5           Dividends. The Board of Directors may, from time to time, declare and the Corporation may pay dividends on its outstanding shares of capital stock in the manner and upon the terms and conditions provided by law and its Articles of Incorporation.

ARTICLE II

Shareholders

2.1           Annual Meeting. The annual meeting of the shareholders shall be held at a time and place designated by the Board of Directors. The purpose of the annual meeting shall be to elect Directors, and to transact such other business as may come before the meeting.

2.2           Special Meeting. Special meetings of the shareholders may be called by the President or Secretary and shall be called by either of them on the request in writing of the Board of Directors or by vote of shareholders of record owning 10% or more of the issued and outstanding shares of capital stock of the Corporation, but a quorum as defined in Section 2.4 is required for the shareholders to do business at a special meeting.

2.3           Notice of Meeting. Notice of the time, place if any, and purpose of any shareholders’ meeting shall be given to each shareholder, either personally, by mail, or by electronic transmission, not less than ten (10) days nor more than sixty (60) days before the meeting. If mailed, notice shall be deemed given by depositing the same in a post office box, postage prepaid, and addressed to the last-known address of such shareholder. If notice is given by electronic transmission, the notice is given when electronically transmitted to the shareholder entitled to the notice in a manner authorized by the shareholder. If a Shareholder or proxy holder may be present and vote at the meeting by electronic transmission shall be as defined in the Michigan Business Corporation Act, as amended.

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2.4           Quorum of Shareholders. Except as hereinafter provided and as otherwise provided by law, at any meeting of the shareholders, a majority in interest of all the capital stock issued and outstanding, represented by shareholders of record in person or by proxy, shall constitute a quorum. The shareholders present in person or by proxy at such meeting may continue to do business until adjournment, notwithstanding the withdrawal of enough shareholders to leave less than a quorum. Less interest than a quorum may adjourn any meeting.

2.5           Voting. Each outstanding share of capital stock is entitled to one vote on each matter submitted to a vote, unless otherwise provided in the Articles of Incorporation. A vote may be cast either orally or in writing. When an action, other than the election of Directors, is to be taken by vote of the shareholders, it shall be authorized by a majority of the votes cast by the holders of shares of capital stock entitled to vote thereon, unless a greater plurality is required by the Articles of Incorporation or by law. Except as otherwise provided by the Articles of Incorporation, the Directors shall be elected by a plurality of the votes cast at an election of Directors.

2.6         Proxies.

(a)          A shareholder entitled to vote at a meeting of shareholders or to express consent or dissent without a meeting may authorize other persons to act for him or her by proxy.

(b)          A proxy is not valid after the expiration of three years from its date unless otherwise provided in the proxy.

(c)          Without limiting the manner in which a shareholder may authorize another person or persons to act for him or her as proxy pursuant to Subsection (a) of this section, the following methods constitute a valid means by which a shareholder may grant authority to another person to act as proxy:

(1)         The execution of a writing authorizing another person or persons to act for the shareholder as proxy. Execution may be accomplished by the shareholder or by an authorized officer, director, employee, or agent signing the writing or causing his or her signature to be affixed to the writing by any reasonable means including, but not limited to, facsimile signature.

(2)         Transmitting or authorizing the transmission of a telegram, cablegram, or other means of electronic transmission to the person who will hold the proxy or to a proxy solicitation firm, proxy support service organization, or similar agent fully authorized by the person who will hold the proxy to receive that transmission. Any telegram, cablegram, or other means of electronic transmission must either set forth or be submitted with information from which it can be determined that the telegram, cablegram, or other electronic transmission was authorized by the shareholder. If a telegram, cablegram, or other electronic transmission is determined to be valid, the inspectors, or, if there are no inspectors, the persons making the determination shall specify the information upon which they relied.

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(d)          A copy, facsimile telecommunication, or other reliable reproduction of the writing or transmission created pursuant to Subsection (c) of this section may be substituted or used in lieu of the original writing or transmission for any purpose for which the original writing or transmission could be used, if the copy, facsimile telecommunication, or other reproduction is a complete reproduction of the entire original writing or transmission.

2.7           Waiver of Notice. Attendance of a person at a meeting of shareholders, in person or by proxy, constitutes a waiver of notice of the meeting, except when the shareholder attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened.

2.8           Consent in Writing. Any action required or permitted to be taken at an annual or special meeting of shareholders may be taken without a meeting, without prior notice, and without a vote, if consents in writing, setting forth the action so taken, are signed by the holders of outstanding shares of capital stock having not less than the minimum number of votes that would be necessary to authorize or take the action at a meeting at which all shares of capital stock entitled to vote on the action were present and voted. The written consents shall bear the date of signature of each shareholder who signs the consent. No written consents shall be effective to take corporate action referred to unless, within 60 days after the record date for determining shareholders entitled to express consent to or to dissent from a proposal without a meeting, written consents dated not more than 10 days before the record date and signed by a sufficient number of shareholders to take the action are delivered to the Corporation. Delivery shall be to the Corporation’s registered office, its principal place of business, or an officer or agent of the Corporation having custody of the minutes of the proceedings of its shareholders. Delivery made to the Corporation’s registered office shall be by hand or by certified or registered mail, return receipt requested. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to shareholders who would have been entitled to notice of the shareholder meeting if the action had been taken at a meeting and who have not consented to the action in writing. An electronic transmission consenting to an action must comply with Section 407(3) of the Michigan Business Corporation Act.

2.9           Electronic Meetings. The shareholders may participate in a meeting of the shareholders by means of conference telephone or similar communications equipment by means, of which all persons participating in the meeting can communicate with each other. All participants shall be advised of the communications equipment and the names of the participants in the conference shall be divulged to all participants. Participation in a meeting pursuant to this Section shall constitute presence in person at the meeting. Unless otherwise restricted by the Articles of Incorporation or these Bylaws, the Board of Directors may hold a meeting of shareholders conducted solely by means of remote communication.

2.10         Conduct of Meetings. At each meeting of shareholders, a chair shall preside. In the absence of a specific selection by the Board of Directors, the chair shall be the chairperson of the Board. The chair shall determine the order of business and shall have the authority to establish rules for the conduct of the meeting that are fair to shareholders. The chair of the meeting shall announce at the meeting when the polls close for each matter voted on. If no announcement is made, the polls shall be deemed to have closed on the meeting's final adjournment. After the polls close, no ballots, proxies, or votes, nor any revocations or changes to them, may be accepted.

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ARTICLE III

Board of Directors

3.1           Number, Term, and Qualifications. The business and affairs of the Corporation shall be managed by its Board of Directors. The number of Directors on the Board of Directors shall be seven (7). The number of Directors on the Board of Directors may be changed from time to time, as determined by the Board of Directors or shareholders of the Corporation, subject to the requirements of any shareholder agreement or voting agreement then in effect. A Director need not be a shareholder. Each Director shall hold office for the term for which he is elected and until his successor shall have been elected and qualified or until his resignation or removal.

3.2           Meetings. Regular meetings of the Board of Directors shall be held either with or without notice, at such times and such places as any of the Directors may by resolution from time to time determine. Special meetings of the Board of Directors shall be held whenever called by the President; or when the President shall be required to call a special meeting upon the written request, either in writing or by electronic transmission, by any Director. Due notice of any special meeting, which may be waived, shall be given by the Secretary, either personally, by electronic transmission, or in writing, not later than the day preceding the meeting. A Director’s attendance at, or participation in, a meeting constitutes a waiver of notice of the meeting, except where, at the beginning of the meeting or upon his arrival, the Director objects to the meeting or the transacting of business at the meeting and does not thereafter vote for or assent to any action taken at the meeting. A Director may participate in a regular or special meeting by means of conference telephone or other means of remote communication, which participation constitutes presence in person, through which all persons participating in the meeting can communicate with other participants.

3.3           Quorum. A majority of the members of the Board then in office, or of the members of a committee thereof, constitutes a quorum for the transaction of business.

3.4           Voting. The vote of the majority of members present at a meeting in person or by Director Proxy, at which a quorum is present, constitutes the action of the Board or of the committee.

3.5           Vacancies. Vacancies in the Board of Directors, including a vacancy resulting from an increase in the number of Directors, may be filled by either the shareholders or the Directors. If the Directors remaining in office constitute fewer than a quorum of the Board, they may fill the vacancy by the affirmative vote of a majority of all Directors remaining in office.

3.6           Action Without a Meeting. Action may be taken by the Board of Directors or a committee thereof without a meeting if, before or after the action, all members of the Board then in office or of the committee consent thereto in writing. The written consent shall be filed with the minutes of the proceedings of the Board or committee.

3.7           Removal of Directors. A Director or the entire Board may be removed, with or without cause, by vote of the holders of a majority of the shares of capital stock entitled to vote at an election of Directors, subject to the requirements of any shareholder agreement or voting agreement then in effect with respect to the removal of Directors.

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3.8           Electronic Meetings. The Board of Directors or any committee designated by the Board of Directors may participate in a meeting of such Board, or committee, by means of conference telephone or similar communications equipment by means, of which all persons participating in the meeting can communicate with each other. Participation in a meeting pursuant to this Section shall constitute presence in person at the meeting.

3.9           Director Proxies.

(a)          The Board of Directors may, from time to time, in its sole discretion, authorize a “corporate director” that is entitled to vote at a meeting of the Board of Directors (an “Authorized Director”) to appoint another person to act for him or her by proxy or power of attorney (collectively, a "Director Proxy").

(b)          A Director Proxy shall be valid for such period of time or for such meeting or meetings, as designated by the Board of Directors in its authorizing resolution.

(c)          The following methods constitute valid means by which an Authorized Director may grant authority to another person to act as proxy or power of attorney:

(1)         The execution and delivery of a writing authorizing another person to act for an Authorized Director as proxy or power of attorney. Execution may be accomplished by an Authorized Director signing the writing or causing his or her signature to be affixed to the writing by any reasonable means including, but not limited to, facsimile signature or an electronic signature.

(2)         Transmitting or authorizing the transmission of the written Director Proxy by a telegram, cablegram, facsimile, email or other means of electronic transmission to the person who will hold the Director Proxy. Any telegram, cablegram, facsimile, email or other means of electronic transmission must either set forth or be submitted with information from which it can be determined that the telegram, cablegram, facsimile, email or other electronic transmission was authorized by the Authorized Director.

(d)          A copy, facsimile telecommunication, PDF or other reliable reproduction of the writing or transmission created pursuant to Subsection (c) of this section may be substituted or used in lieu of the original writing or transmission for any purpose for which the original writing or transmission could be used, if the copy, facsimile telecommunication, PDF, or other reproduction is a complete reproduction of the entire original writing or transmission.

(e)          A Director Proxy shall be submitted to the Secretary of the Corporation, with a carbon copy to the Chairman of the Board, a reasonable time prior to the meeting of the Board of Directors at which it will be used, for a determination by the Board of Directors of its validity and effect.

(f)          For purposes of this Section 3.9, a "corporate director" shall mean a director who is appointed as representative of a specific Corporation shareholder or group of shareholders as reflected in a voting agreement entered into by the Corporation and the shareholders.

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ARTICLE IV

Officers

4.1           Officers. The officers of this Corporation shall consist of a President, a Secretary, a Treasurer, and if desired, a Chairman of the Board and one or more Vice Presidents, who shall be elected by the Board of Directors at the annual meeting held immediately after the adjournment of the regular annual meeting of the shareholders. The Board of Directors may also appoint such other officers and agents as they shall deem necessary for the transaction of business of the Corporation. An officer shall hold office for the term for which he is elected or appointed and until his successor is elected or appointed and qualified, or until his resignation or removal. Two or more offices may be held by the same person, but an officer shall not execute, acknowledge or verify an instrument in more than one capacity, if the instrument is required by law, or the Articles of Incorporation, or these Bylaws, to be executed and acknowledged or verified by two or more officers.

4.2           Duties of Officers. The officers of the Corporation shall be charged with such duties and authority as usually appertains to such offices in a Corporation, except that said duties may be varied or added to by the Board of Directors.

4.3           Removal of Officers and Agents. Any officer or agent may be removed by the Board of Directors whenever in its judgment the business interests of the Corporation will be served thereby.

ARTICLE V

Fiscal Year

5.1           Fiscal Year. The Corporation's fiscal year shall be as determined from time to time by the Board of Directors.

ARTICLE VI

Indemnification

6.1           Right of Indemnification. Each person who is or was or had agreed to become a director or officer of the Corporation, or each such person who is or was serving or who had agreed to serve at the request of the Board of Directors as an employee or agent of the Corporation, or as a director, officer, employee or agent of another corporation (whether for profit or not), partnership, joint venture, trust or other enterprise (including the heirs, executors, administrators or estate of such person), shall be indemnified by the Corporation to the full extent permitted by the Michigan Business Corporation Act or any other applicable laws as presently or hereafter in effect.

6.2           Non-Exclusivitv of Rights. The right to indemnification conferred in this article shall not be exclusive of any right that any person may have or acquire under any statute, provision of the articles of incorporation, bylaw, agreement, vote of shareholders or disinterested directors, or otherwise.

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6.3           Insurance. The Corporation shall have the power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation or is or was serving at the request of the Corporation as a director, officer, partner, trustee, employee or agent of another foreign or domestic corporation, partnership, joint venture, trust or other enterprise, whether for profit or not, against any liability asserted against him or her and incurred by him or her in any such capacity or arising out of his or her status as such, whether or not the Corporation would have the power to indemnify him or her against such liability under the provisions of this Article.

6.4           Amendment. If the Corporation repeals, amends or modifies this Article VI, it shall not affect any right or protection existing at the time of such repeal, amendment or modification.

ARTICLE VII

Amendments

7.1           Amendments. These Bylaws may be altered or amended by the shareholders or the Board of Directors. Amendment of the Bylaws by the Board requires the vote of not less than a majority of the members of the Board then in office.

SECOND AMENDED AND RESTATED INTERCREDITOR AGREEMENT

THIS SECOND AMENDED AND RESTATED INTERCREDITOR AGREEMENT (the “Agreement”) is entered into as of this 15th day of January, 2014 by and among XG Sciences, Inc., a Michigan corporation (“XG” or “Borrower”). Aspen Advanced Opportunity Fund, I,P, a Delaware limited partnership (“Aspen”), XGS II, LLC, a Florida limited liability company (“XGS II”), SVIC No. 15 New Technology Business Investment L.L.P., a limited liability partnership under the Republic of Korea Amended Commercial Code (“Samsung”), and Michael Knox, an individual (“Knox,” with Knox, Samsung, XGS II and Aspen, each hereinafter referred to individually as a “Creditor,” and collectively as the “Creditors”). This Agreement amends and restates, in its entirety, the Amended and Restated Intercreditor Agreement, dated as of July 12, 2013, among XG, Aspen, and Knox.

RECITALS:

WHEREAS, as of the date hereof, each of the Creditors has entered into secured convertible note transactions and other agreements with the Borrower in the amounts set forth on Exhibit A of this Agreement pursuant to certain purchase agreements, security agreements and related loan documentation (collectively the “Creditor Agreements”); and

WHEREAS, pursuant to the Second Amended and Restated Security Agreement between the Creditors and the Borrower, of even date herewith (the “General Security Agreement”) and the Second Amended and Restated Intellectual Property Security Agreement, of even date herewith (the “IP Security Agreement” and, together with the General Security Agreement, the “Security Agreements”), the Borrower has granted or will grant a first priority lien in all of its assets, subject to certain permitted liens (the “Collateral”), to the Agent specified in such Security Agreements, on behalf of each specific Creditor; provided, however, that each of the Creditor Agreements stipulates that each such Creditor will share such first priority lien in the Collateral with each other Creditor on a pari passu basis; and

WHEREAS, as of the date hereof, the Borrower has entered into lease financing arrangements with Aspen in the amount of $635,769.73 (the “Current Lease Amount”) for certain equipment purchased by the Borrower under various lease schedules to that certain Master Lease Agreement between Aspen and Borrower, dated March 18, 2013; and Aspen may provide up to an additional $2,364,230.27 of lease financing to the Company pursuant to the Aspen Creditor Agreements (the total amount lease funding provided by Aspen to the Borrower at any time, hereafter, the “Total Lease Amount”); and

WHEREAS, under the Creditor Agreements, the Company is authorized to grant permitted liens on all purchased money indebtedness for new equipment purchases, which includes any lease financing provided by Aspen and other lessors, and thus none of the equipment acquired by the Company under lease financing arrangements is included in the Collateral; and

WHEREAS, as of the date hereof, the Borrower issued secured convertible notes to the Creditors with initial principal, excluding any accrued interest that may have been capitalized into the balance of such notes, totaling $8,300,000 in the aggregate (the “Current Note Amount”) and there is currently $100,000 of principal of other short term secured indebtedness outstanding to Knox (the “Knox Short Term Debt” and together with the Current Note Amount, the “Current Secured Amount”): and

WHEREAS, pursuant to the Creditor Agreements, the Borrower has reserved the right to issue up to an aggregate of $14,800,000 of principal amount of secured indebtedness, exclusive of any capitalized interest which may become part of any such secured indebtedness, consisting of up to $14,700,000 of initial principal of secured convertible notes (the “Notes”) to the Creditors with such amount being reduced by the Total Lease Amount outstanding at any time and up to $100,000 of principal of Knox Short Term Debt; and

WHEREAS, it is presently contemplated that the Knox Short Term Debt will be paid off within the next few months and the Creditors have all agreed that their respective Notes will all mature on the same day, which shall be March 18, 2018 (the “Maturity Date”); and

WHEREAS, the Creditors desire to clarify and stipulate the agreements between them with respect to any principal payments or foreclosure on the Collateral as a result of any uncured Events of Default (as such term may be defined in the Creditor Agreements) that may exist hereafter in any of the Creditor Agreements with respect to the Borrower.

NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and promises contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:

AGREEMENT:

1.          Incorporation of Recitals. The Recitals portion of this Agreement is hereby incorporated by this reference as though it were fully set forth and rewritten herein, and the affirmative statements therein contained shall be deemed to be representations of the Borrower and the Creditors which are hereby confirmed.

2.          Acknowledgement of Creditors With Respect to Potential Future Secured Financings. The Creditors acknowledge and agree that as of the date of this Agreement, the Borrower may in the future obtain up to $5,764,230.27 of additional financing through the issuance of additional Notes, with such amount of additional Notes being reduced by any additional lease financing provided by Aspen, provided that such additional financing does not carry a maturity date prior to the Maturity Date (the “Remaining Secured Amount”). The Creditors also agree that the Borrower may grant a first priority security interest in the Collateral as part of any future secured convertible note transactions with the Creditors up to the Remaining Secured Amount (hereinafter referred to as “Future Secured Financings”), provided that such first priority security interest is granted on a pari passu basis with the security interests in the Collateral of the Creditors.

3.          Acknowledgement of Borrower With Respect to Potential Future Secured Financings. Except as otherwise set forth herein, the Borrower acknowledges and agrees that it will not enter into any Future Secured Financings with any of the Creditors or any new lenders to the Company on such terms that are more favorable than those contained in each of the Creditor Agreements, and in the event that any such Future Secured Financings contain any terms that are more favorable than those contained in the Creditor Agreements, the Borrower will promptly amend each such Creditor Agreement to grant the Creditors such more favorable terms as well. The Borrower further agrees that as a condition precedent to the execution of any agreements for Future Secured Financings, it will require that any such future lenders, who have not already become a party to this agreement, will enter into and be made a part of this Agreement. The Borrower further agrees that any granting of a security interest in the Collateral to any future lenders as part of any Future Secured Financings will be on terms no more favorable than a pari passu security interest in the Collateral with the security interests of the Creditors.

4.          Priorities. The Creditors agree that regardless of the date that each such Creditor advanced funds to the Borrower or entered into its Creditor Agreement with the Borrower, each such Creditor’s respective security interests in the Borrower’s Collateral shall be pari passu with the security interests of all the Creditors.

5.          Rights of Recovery on Principal Payments. The Creditors agree that to the extent that any Creditors elect not to convert the principal amount of their Notes on or before the Maturity Date, and require the Company to repay such principal in cash (the aggregate amount of all such required cash principal payments by all Creditors hereinafter referred to as the “Required Cash Payments”), then each such Creditor who has elected such a cash payment shall be entitled to recover no more than an amount equal to its pro rata share of the Required Cash Payments (as measured by each creditor’s total indebtedness that is secured by the Collateral held at such time including all principal and accrued, but unpaid interest due at such time (such amount, a Creditor’s “Total Secured Amount”) to the Total Secured Amount held by all Creditors entitled to a Required Cash Payment) from the amount of cash available for repayment with the Borrower retaining sufficient cash for working capital needs. The Borrower specifically acknowledges the existence of this provision and agrees to use its best efforts to ensure that any payments of the Required Cash Payments that might for any reason be made in amounts that are less than the total Required Cash Payments, will be made in such a way as to ensure that all of the Creditors electing such cash payments, will be paid an amount of cash equal to their pro rata percentage of the Required Cash Payments multiplied by the total cash available for such purposes from the Company at such time.

6.          Notices of Default. Each Creditor agrees that in the event that it declares an Event of Default under any of the Creditor Agreements, it will provide a copy of any written notices that it sends to the Borrower to all of the other Creditors at the same time such notice is provided to the Borrower.

7.          Standby Provisions Prior to Exercising Foreclosure Rights and Formation of Creditors Committee. The Creditors agree that in the event there is any uncured Event of Default in any of the Creditor Agreements and any Creditor becomes eligible to foreclose on the Collateral under the Creditor Agreements, then such Creditor desiring to exercise its foreclosure rights will so notify all other Creditors of such intention and provide no less than fifteen (15) business days of notice (the “Foreclosure Notice”) prior to exercising any rights of foreclosure (the “Standby Period”) with the Borrower. At any time during the Standby Period, any other Creditor may also serve a Foreclosure Notice (all Creditors who serve a timely Foreclosure Notice shall be referred to as “Foreclosing Creditors”). Prior to the expiration of the Standby Period, the Foreclosing Creditors agree that they will use their best efforts to form a committee (the “Foreclosing Creditors Committee”) for the purpose of coordinating the foreclosure of the Collateral. The Creditors agree that they will not take any actions against the Borrower or the Collateral independent of the Foreclosing Creditors Committee, and that the Foreclosing Creditors Committee shall be comprised of at least one representative of each Creditor. The Foreclosing Creditors agree that the Agent shall, in its discretion and according to its business judgment, have the power and authority to exercise the rights and powers set forth in the Security Agreements. The Agent shall consult with the Foreclosing Creditors Committee, and shall act in accordance with the wishes of the Foreclosing Creditors as determined by a majority vote of the then-voting members of the Foreclosing Creditors Committee, with each members’ vote being weighted by their pro rata percentage of the Total Secured Amount held by all then-voting members of the Foreclosing Creditors Committee. No votes of the Foreclosing Creditors Committee may take place unless a quorum of at least half the Total Secured Amount held by the Foreclosing Creditors is present and participates in the voting (whether by acceptance, rejection, or abstention). The Foreclosing Creditors further agree that the Agent will be entitled to retain counsel or other professionals on behalf of the Agent and or incur fees and expenses on behalf of the Agent acting for the Creditors (collectively, the “Creditor Expenses”), and that each Creditor who serves a Foreclosure Notice will fund a pro rata percentage of the Creditor Expenses based on their percentage of the Total Secured Amount held by all such Foreclosing Creditors at the time the Agent requests funding for such Creditor Expenses or such other amounts which may be mutually agreed upon. Any Creditor who does not serve a Foreclosure Notice within the Standby Period shall forbear and refrain from taking any action against the Borrower or the Collateral without the express prior written consent of both the Agent and the Foreclosing Creditors Committee. The Creditors agree that the provisions set forth in this Section shall be their sole recourse and method for enforcing their claims against the Borrower and the Collateral.

8.          Rights of Recovery Upon any Foreclosure of the Collateral: Credit Bidding. The Creditors agree that in the event of any foreclosure of the Collateral and resultant sale of such Collateral (the dollar value of any such cash recovered from the sale of Collateral hereinafter referred to as a “Cash Recovery”), each Foreclosing Creditor will only be entitled to receive its pro rata percentage of such Cash Recovery after deducting any reasonable unpaid Creditor Expenses, based on their percentage of the Total Secured Amount held by them at the time the Foreclosing Creditors Committee is formed. The Borrower agrees that to the extent it is in any way involved in such foreclosure and sales of assets and the resultant distribution of any Cash Recovery, it will make payments to the Foreclosing Creditors in accordance with the procedures outlined in the previous sentence, and prior to such due distribution, shall hold any and all Cash Recovery in trust for the benefit of Foreclosing Creditors. If the Foreclosing Creditors have any right to credit bid at any foreclosure or other sale of the Collateral, then any Foreclosing Creditor may do so up to the amount of the total indebtedness due to it; provided, however, that in the event such Foreclosing Creditor makes a winning bid, it must pay the other Foreclosing Creditors the same percentage of the total indebtedness due to the other Foreclosing Creditors as the total indebtedness due to it represented by the winning bid (the “True-Up Payment”). For purposes of illustration, if a Foreclosing Creditor has a total indebtedness from the Borrower of $2,000,000.00, and submits a winning bid of $1,000,000.00, that Foreclosing Creditor must make a True-Up Payment to each Foreclosing Creditor in the amount of 50% of the total indebtedness due to each non-winning Foreclosing Creditor. Each Creditor further agrees that no auction shall be final until any required True-Up Payment is made, that all True-up Payments must be made no later than two (2) days after any auction, that in the event the True-Up Payment is not timely made the auction will be reopened but that a Foreclosing Creditor who fails to make a True-Up Payment shall not be eligible to bid in any subsequent auction.

9.          Amendments to Documents. Each Creditor may at any time or times, in its discretion, (i) renew or extend the time of payment of any obligations or indebtedness owing to it by Borrower; (ii) waive or release any collateral or guaranties which may be held therefor, or (iii) modify or amend the documents evidencing its financing arrangement with Borrower (its “Documents”) in any manner, in each case without further consent from the other Creditors or any other person, and without impairing or affecting this Agreement or any of its rights hereunder. The Borrower agrees that in the event that it and any Creditor so modify such Creditor’s Documents in any way that is more favorable to the Creditor than the terms and provisions contained in the Creditor Agreements, each of the Creditors’ Creditor Agreements shall be simultaneously modified in a similar fashion.

10.         Representations Concerning Borrower: Liability of Creditors. No Creditor, nor any of its respective directors, officers, agents or employees, shall be responsible to any other Creditor or to any other person for (i) Borrower’s solvency, financial condition or ability to repay its obligations or indebtedness to any Creditor; (ii) any oral or written statements of Borrower or (iii) the validity, sufficiency or enforceability of such indebtedness, any of its Creditor Agreements or Documents or the security interest and liens granted by Borrower. Each Creditor has entered into its financing arrangements with Borrower based upon its own independent investigation, and makes no warranty or representation to any other Creditor, nor does it rely on any warranty or representation of any other Creditor with respect to the matters referred to in this Section 10.

11.         Licensing Rights Restrictions. In the event that any of the Creditors, or their respective affiliates, obtains ownership, possession or control over any of the Intellectual Property Collateral (as such term is defined in the IP Security Agreement) prior to a sale or transfer of such Collateral in accordance with the terms of this Agreement, such Creditor shall have no rights or license to use any such Intellectual Property Collateral in any commercial activities other than as may be specifically provided for in the contemplated Joint Development Agreement between the Company and an affiliate of Samsung which such parties intend to enter into by June 30, 2014 that is expected to provide for joint ownership by the Borrower and such Samsung affiliate of certain jointly developed intellectual property related to advanced battery materials.

12.         Specific Performance. Each of the parties hereto acknowledges and agrees that each of the other parties would be irreparably damaged if any provision of this Agreement is not performed in accordance with its specific terms and that any breach of such provisions by a party could not be adequately compensated in all cases by monetary damages alone. Accordingly, in addition to any other right or remedy to which each party may be entitled, at law or in equity, it shall be entitled to enforce any provision of this Agreement by a decree of specific performance and to temporary, preliminary and permanent injunctive relief to prevent breaches or threatened breaches of any of the provisions of this Agreement by any other party, without posting any bond or other undertaking.

13.         Miscellaneous

(a)          The validity of this Agreement, its construction, interpretation and enforcement, and the rights of the parties hereunder shall be determined under, governed by, and construed in accordance with the laws of the State of Michigan.

(b)          Any notice, declaration, demand, request or other communication which by any provision of this Agreement is required or permitted to be given to or served on any party hereto shall be given in writing and shall be deemed to have been sufficiently given or served for all purposes when (i) delivered personally; (ii) sent by overnight mail; (iii) sent by registered or certified mail, return receipt requested, postage prepaid, or (iv) sent by facsimile, to the address or facsimile number set forth for such party below, or at such other address as one party may indicate from time to time in writing to the other:

If to Borrower:	XG Sciences, Inc.
	3101 Grand Oak Drive
	Lansing, MI 48911
	Attention:	President
	Telephone:	(517) 703-1110
	Facsimile:	(517) 703-1113

If to Aspen:	Aspen Advanced Opportunity Fund, LP
	1740 Persimmon Drive, Suite 100
	Naples, FL 34109
	Attention:	Steven C. Jones
	Telephone:	(239) 598-0964
	Facsimile:	(239) 594-5964

If to XGS II:	XGS II, LLC
	5500 Lake Grove Trail
	Petoskey, MI 49770
	Attention:	David G. Pendell
	Telephone:	(239) 450-5097
	Facsimile:

If to Samsung:	SVIC No. 15 New Technology Business Investment L.L.P.
	c/o Samsung Venture Investment Corporation 29th Fl., Samsung Electronics Bldg.

1320-10, Seocho2-dong, Seocho-gu

Seoul, Korea 137-857

Fax: 82.2.2255.0288

Attention:

Telephone:

If to Knox:	Mr. Michael Knox
	5337 Panda Bear Circle
	East Lansing, MI 48823
	Telephone:	(517) 351-4813
	Facsimile:	(517) 703-1113

Notices sent in accordance with the foregoing shall be deemed effective when so delivered personally; the next business day if sent by overnight mail; when confirmed in writing by the sender’s facsimile device if sent by facsimile, or, if mailed, five (5) days after being sent by United States mail.

(c)          Each of the Creditors represents and warrants to the other Creditors that it has not assigned its security interests in the Borrower’s Collateral. Any assignment entered into after the date of this Agreement shall be made expressly subject to the terms of this Agreement, and the party so assigning shall give written notice to the other parties to this Agreement at least ten (10) business days prior to such an assignment, provided that failure to give such notice shall not affect the validity of such assignment, and further provided that notice shall be required for the assignment by any party to an affiliate of such party, but the notice need not be given ten (10) business days prior to the assignment.

(d)          This Agreement constitutes the entire agreement between the parties and supersedes all prior agreements and understandings between the parties relating to the subject matter hereof. This Agreement may not be changed orally, but only by an agreement in writing and signed by the party against whom enforcement of any waiver, change, modification or discharge is sought.

(e)          The headings of the various sections of this Agreement have been inserted for convenience only and shall not be deemed to be part of this Agreement.

(f)          This Agreement shall be binding upon and inure to the benefit of each of the Creditors and their respective successors, permitted assigns and affiliates. This Agreement shall remain in full force and effect and enforceable pursuant to its terms in accordance with Section 510(a) of the United States Bankruptcy Code, and all references herein to the Borrower shall be deemed to apply to the Borrower as debtor in possession and to any trustee in bankruptcy for the estate of the Borrower.

(g)          If any term, restriction or covenant of this Agreement is deemed illegal or unenforceable, all other terms, restrictions and covenants, and the application thereof to all persons and circumstances subject thereto, shall remain unaffected to the extent permitted by law; and if any application of any term, restriction or covenant to any person or circumstance is deemed illegal, the application of such term, restriction or covenant to the persons and circumstances shall remain unaffected to the extent permitted by law.

(h)          The knowledge by any Creditor of any breach or other non-observance by any other Creditor of the terms of this Agreement shall not constitute a waiver thereof or of any obligations to be performed by such breaching or non-observing Creditor hereunder.

(i)          Except as provided herein, the agreements and priorities set forth hereinabove shall remain in full force and effect regardless of whether any party hereto in the future seeks to rescind, amend or terminate or reform by litigation or otherwise, its respective agreements with the Borrower until such time as any and all obligations due to the Creditors have been paid in full and the Creditor Agreements and any related Documents have been terminated or until the Borrower and the Creditors or their respective heirs or assigns shall have agreed to a written termination hereof.

(j)          Nothing contained in the provisions of this Agreement is intended to or shall impair, as between the Borrower and each of the Creditors, the obligations of the Borrower to each such Creditor, which are absolute and unconditional, to pay to the Creditors when due the amounts due pursuant to the Creditor Agreements and any related Documents, or is intended to or shall affect the relative rights of the Creditors of the Borrower.

(k)          This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but which when taken together shall constitute one and the same instrument. Facsimile signatures shall have the same force and effect as original signatures.

** SIGNATURES ON FOLLOWING PAGE **

IN WITNESS WHEREOF, the Creditors have signed this Second Amended and Restated Intercreditor Agreement as of the date first set forth above.

Aspen Advanced Opportunity Fund, LP, a Delaware limited partnership
By:	AA XGS, LLC
Its:	General Partner
By:	/s/ Steven C. Jones
Name:	Steven C. Jones
Title:	Managing Member
XGS II, LLC, a Florida limited liability company
By:	/s/ David G. Pendell
Name:	David G. Pendell
Title:	Managing Member
SVIC NO. 15 NEW TECHNOLOGY BUSINESS INVESTMENT L.L.P.
By: Samsung Venture Investment Corporation, its Partner
By:	/s/ Seonjong Lee
Name:	SEONJONG LEE
Its:	C.E.O
Michael R. Knox, an individual
By:	/s/ Michael R. Knox

CONSENT

Borrower hereby consents to all of the terms and conditions of the foregoing Second Amended and Restated Intercreditor Agreement, and agrees to be bound in all respects thereof:

BORROWER:
XG Sciences, Inc., a Michigan corporation
By:	/s/ Michael R. Knox
Name:	Michael R. Knox
Title:	Chief Executive Officer

STATE OF MICHIGAN	)
	) SS:
COUNTY OF INGHAM	)

The foregoing instrument was acknowledged before me this 10^th day of January, 2014 by Michael R. Knox, as President of XG Sciences, Inc. a Michigan corporation, on behalf of XG Sciences, Inc. He has produced a driver’s license as identification.

	/s/ Kelly A. LaGrave
	Notary Public, State of Michigan
	Print Name: Kelly A. LaGrave
	My Commission Expires: 4-15-2018
	[NOTARIAL SEAL]

EXHIBIT A

Principal Amounts Outstanding of Secured Indebtedness that is Secured by the Collateral As of January 15, 2014

Aspen Advanced Opportunity Fund, LP(1)	$	3,909,425.00
Samsung Venture Investment Company	$	3,000,000.00
Michael Knox (2)	$	800,000.00
XGS II(3)	$	690.575.00
Total	$	8,400,000.00

(1)  Aspen amount excludes $268,905.92 of accrued interest which has been capitalized into the balance of the Aspen Notes as of January 15, 2014.

(2)  Knox amounts include $700,000 of initial principal of secured convertible notes and $100,000 of remaining principal on the Knox Short Term Debt. Secured Convertible Note balance excludes $72,998.15 of accrued interest which has been capitalized into the balance of the Knox Notes as of January 15, 2014.

(3)  XGS II amount excludes $48,774.83 of accrued interest which has been capitalized into the balance of the XGS II Notes as of January 15, 2014.

Second Amended and Restated Intercreditor Agreement

A-8 

OFFICER’S CERTIFICATE

The undersigned, Michael R. Knox, certifies that he is the Chief Executive Officer of XG SCIENCES, INC., a Michigan Corporation (the “Company”), and makes this certificate in connection with and pursuant to Section 6.j. of that certain Purchase Agreement dated January 15, 2014 (the “Purchase Agreement”) by and between the Company and SVIC No. 15 New Technology Business Investment L.L.P. (“Buyer”), and certifies to Buyer as follows:

All conditions and provisions of Section 6 of the Purchase Agreement are fully satisfied, including receipt by Buyer of all required deliveries thereunder, and the Company has delivered to Buyer all securities owed and issuable to Buyer on or prior to the date hereof under the Transaction Agreements. In furtherance of and without limiting the foregoing, as of the date hereof, (A) the Transaction Agreements, other documents required pursuant thereto, and security interests and liens created thereby, are in full force and effect, (B) each representation and warranty of the Company in the Transaction Agreements is true and correct as if made on and as of the date hereof (except where such representation or warranty is otherwise expressly made as of and limited to a particular date, in which case it is, was or will be true and correct on and as of such other date), before and after giving effect to the consummation of the transactions to be consummated on the date hereof, and as of or since the Initial Closing Date, (C) the Company is in compliance with all, and not in violation, breach or default of any, covenants, agreements and/or other provisions of any of the Transaction Agreements, (D) no breach of, or default or event of default under any of the Transaction Agreements has occurred and is continuing or exists on the date hereof, or would exist after giving effect to the consummation of the transactions to be consummated on the date hereof, or has occurred as of or since the Initial Closing Date, (E) the Company is in compliance with the provisions and covenants of Section 4 of the Purchase Agreement, (F) no Material Adverse Effect has occurred and there are no liabilities or obligations with respect to the Company of any nature whatsoever (whether absolute, accrued, contingent or otherwise and whether or not due) which, individually or in the aggregate, could constitute a Material Adverse Effect, (G) the Company has delivered to Buyer unaudited monthly financial statements for all months ending at least sixty (60) days prior to the date hereof and any other more recent months which have been closed by the Company’s accounting staff, (H) the Company has discussed any material deviations from the last financial projections of the Company furnished to Buyer pursuant to Section 7(a) of the Purchase Agreement and has updated such financial projections as may be required and provided such revised projections to the Buyer, and (I) no event(s), fact(s), condition(s) or circumstance(s) has occurred which, individually or in the aggregate, make it improbable that the Company will be able to observe or perform in all material respects any of its obligations under the Transaction Agreements.

Capitalized terms used, but not defined herein, shall have the meanings given such terms in the Purchase Agreement.

IN WITNESS WHEREOF, the undersigned has caused this Officer's Certificate to be executed as of the date first written above.

XG SCIENCES, INC.
By:	/s/ Michael R. Knox
	Michael R. Knox, Chief Executive Officer

OFFICER’S CERTIFICATE

The undersigned, Michael R. Knox, certifies that he is the Chief Executive Officer of XG SCIENCES, INC., a Michigan Corporation (the “Company”), and makes this certificate in connection with and pursuant to Section 7.i. of that certain Purchase Agreement dated January 15, 2014 (the “Purchase Agreement”) by and between the Company and XGS II, LLC (“Buyer”), and certifies to Buyer as follows:

All conditions and provisions of Section 7 of the Purchase Agreement are fully satisfied, including receipt by Buyer of all required deliveries thereunder, and the Company has delivered to Buyer all securities owed and issuable to Buyer on or prior to the date hereof under the Transaction Agreements. In furtherance of and without limiting the foregoing, as of the date hereof, (A) the Transaction Agreements, other documents required pursuant thereto, and security interests and liens created thereby, are in full force and effect, (B) each representation and warranty of the Company in the Transaction Agreements is true and correct as if made on and as of the date hereof (except where such representation or warranty is otherwise expressly made as of and limited to a particular date, in which case it is, was or will be true and correct on and as of such other date), before and after giving effect to the consummation of the transactions to be consummated on the date hereof, and as of or since the Initial Closing Date, (C) the Company is in compliance with all, and not in violation, breach or default of any, covenants, agreements and/or other provisions of any of the Transaction Agreements, (D) no breach of, or default or event of default under any of the Transaction Agreements has occurred and is continuing or exists on the date hereof, or would exist after giving effect to the consummation of the transactions to be consummated on the date hereof, or has occurred as of or since the Initial Closing Date, (E) the Company is in compliance with the provisions and covenants of Section 4 of the Purchase Agreement, (F) no Material Adverse Effect has occurred and there are no liabilities or obligations with respect to the Company of any nature whatsoever (whether absolute, accrued, contingent or otherwise and whether or not due) which, individually or in the aggregate, could constitute a Material Adverse Effect, (G) the Company has delivered to Buyer unaudited monthly financial statements for all months ending at least sixty (60) days prior to the date hereof and any other more recent months which have been closed by the Company’s accounting staff, (H) the Company has discussed any material deviations from the last financial projections of the Company furnished to Buyer pursuant to the Purchase Agreement and has updated such financial projections as may be required and provided such revised projections to the Buyer, and (I) no event(s), fact(s), condition(s) or circumstance(s) has occurred which, individually or in the aggregate, make it improbable that the Company will be able to observe or perform in all material respects any of its obligations under the Transaction Agreements.

Capitalized terms used, but not defined herein, shall have the meanings given such terms in the Purchase Agreement.

IN WITNESS WHEREOF, the undersigned has caused this Officer's Certificate to be executed as of the date first written above.

XG SCIENCES, INC.
By:	/s/ Michael R. Knox
	Michael R. Knox, Chief Executive Officer

OFFICER’S CERTIFICATE

The undersigned, Michael R. Knox, certifies that he is the Chief Executive Officer of XG SCIENCES, INC., a Michigan Corporation (the “Company”), and makes this certificate in connection with and pursuant to Section 6.j. of that certain Purchase Agreement dated January 15, 2014 (the “Purchase Agreement”) by and between the Company and SVIC No. 15 New Technology Business Investment L.L.P. (“Buyer”), and certifies to Buyer as follows:

All conditions and provisions of Section 6 of the Purchase Agreement are fully satisfied, including receipt by Buyer of all required deliveries thereunder, and the Company has delivered to Buyer all securities owed and issuable to Buyer on or prior to the date hereof under the Transaction Agreements. In furtherance of and without limiting the foregoing, as of the date hereof, (A) the Transaction Agreements, other documents required pursuant thereto, and security interests and liens created thereby, are in full force and effect, (B) each representation and warranty of the Company in the Transaction Agreements is true and correct as if made on and as of the date hereof (except where such representation or warranty is otherwise expressly made as of and limited to a particular date, in which case it is, was or will be true and correct on and as of such other date), before and after giving effect to the consummation of the transactions to be consummated on the date hereof, and as of or since the Initial Closing Date, (C) the Company is in compliance with all, and not in violation, breach or default of any, covenants, agreements and/or other provisions of any of the Transaction Agreements, (D) no breach of, or default or event of default under any of the Transaction Agreements has occurred and is continuing or exists on the date hereof, or would exist after giving effect to the consummation of the transactions to be consummated on the date hereof, or has occurred as of or since the Initial Closing Date, (E) the Company is in compliance with the provisions and covenants of Section 4 of the Purchase Agreement, (F) no Material Adverse Effect has occurred and there are no liabilities or obligations with respect to the Company of any nature whatsoever (whether absolute, accrued, contingent or otherwise and whether or not due) which, individually or in the aggregate, could constitute a Material Adverse Effect, (G) the Company has delivered to Buyer unaudited monthly financial statements for all months ending at least sixty (60) days prior to the date hereof and any other more recent months which have been closed by the Company’s accounting staff, (H) the Company has discussed any material deviations from the last financial projections of the Company furnished to Buyer pursuant to the Purchase Agreement and has updated such financial projections as may be required and provided such revised projections to the Buyer, and (I) no event(s), fact(s), condition(s) or circumstance(s) has occurred which, individually or in the aggregate, make it improbable that the Company will be able to observe or perform in all material respects any of its obligations under the Transaction Agreements.

Capitalized terms used, but not defined herein, shall have the meanings given such terms in the Purchase Agreement.

IN WITNESS WHEREOF, the undersigned has caused this Officer's Certificate to be executed as of the date first written above.

XG SCIENCES, INC.
By:	/s/ Michael R. Knox
	Michael R. Knox, Chief Executive Officer

SECOND AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT

This Second Amended and Restated Registration Rights Agreement (this “Agreement”), is made and entered into as of January 15, 2014 (the “Effective Date”), by and among XG Sciences, Inc., a Michigan corporation (the “Company”). Aspen Advanced Opportunity Fund, LP, a Delaware limited partnership (“Aspen”), XGS II, LLC, a Florida limited liability company (“XGS II”), SVIC No. 15 New Technology Business Investment L.L.P. (“Samsung”), and any Persons to whom Aspen, XGS II or Samsung may transfer any Registrable Securities hereunder or subsequent transferee Persons of such Aspen, XGS II, or Samsung transferees, each of whom shall be listed on Schedule A hereto which shall be deemed to have been automatically amended upon the transfer of any Registrable Securities hereunder (collectively, the “Investors”, and each individually, an “Investor”, and all together with the Company, the “Parties” and each, a “Party”).

RECITALS

WHEREAS, the Company and Aspen are parties to that certain Purchase Agreement, dated as of March 18, 2013, as amended and restated on July 12, 2013 and as amended and restated a second time on January 15, 2014 (the “Purchase Agreement”), pursuant to which Aspen purchased Securities (as defined below) of the Company; and

WHEREAS, in connection with the consummation of the transactions contemplated by the Purchase Agreement, and pursuant to the terms of the Purchase Agreement, Aspen, XGS II and the Company, on July 12, 2013, amended and restated the original Registration Rights Agreement between the Parties that was dated March 18, 2013 (such agreement as previously amended, the “Original Registration Rights Agreement”); and

WHEREAS, the Company and Samsung entered into a purchase agreement dated January 15, 2014 (the “Samsung Agreement”), pursuant to which Samsung purchased Securities and in connection therewith, the Parties have agreed to further amend and restate the Original Restated Registration Rights Agreement, in order to grant certain registration rights to each of the Investors as set forth herein below.

NOW, THEREFORE, in consideration of the foregoing and the mutual and dependent covenants hereinafter set forth, the Parties agree as follows:

AGREEMENT

1.          Defined Terms. As used in this Agreement, the following terms shall have the following meanings:

“Affiliate” of a Person means any other Person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, such Person. The term “control” (including the terms “controlled by” and “under common control with”) means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise.

“Agreement” has the meaning set forth in the preamble.

“Board” means the board of directors of the Company (and any successor governing body of the Company or any successor of the Company).

“Commission” means the Securities and Exchange Commission or any other federal agency administering the Securities Act and the Exchange Act at the time.

“Common Stock” means the common stock of the Company and any other common equity securities issued by the Company, and any other shares of stock issued or issuable with respect thereto (whether by way of a stock dividend or stock split or in exchange for or upon conversion of such shares or otherwise in connection with a combination of shares, distribution, recapitalization, merger, consolidation or other corporate reorganization).

“Company” has the meaning set forth in the preamble and includes the Company’s successors by merger, acquisition, reorganization or otherwise.

“Demand Registration” has the meaning set forth in Section 2(b).

“Exchange Act” means the Securities Exchange Act of 1934, as amended, or any successor federal statute, and the rules and regulations thereunder, which shall be in effect from time to time.

“Governmental Authority” means any federal, state, local or foreign government or political subdivision thereof, or any agency or instrumentality of such government or political subdivision, or any self-regulated organization or other non-governmental regulatory authority or quasi-govemmental authority (to the extent that the rules, regulations or orders of such organization or authority have the force of law), or any arbitrator, court or tribunal of competent jurisdiction.

“Investor” and “Investors” have the meanings set forth in the preamble.

“IPO” means (i) an initial underwritten public offering of the Common Stock pursuant to an effective Registration Statement filed under the Securities Act, other than pursuant to a Registration Statement on Form S-4, Form S-8 or any similar or successor form; or (ii) the reverse merger of the Company into any corporation that is subject to the reporting requirements of Section 13 or Section 15(d) of the Exchange Act.

“Long-Form Registration” has the meaning set forth in Section2(b).

“Parties” and “Party” have the meaning set forth in the preamble.

“Person” means an individual, corporation, partnership, joint venture, limited liability company, Governmental Authority, unincorporated organization, trust, association or other entity.

“Piggyback Registration” has the meaning set forth in Section 3(a).

“Prospectus” means the prospectus or prospectuses included in any Registration Statement, as amended or supplemented by any prospectus supplement with respect to the terms of the offering of any portion of the Registrable Securities covered by such Registration Statement and by all other amendments and supplements to the prospectus, including post-effective amendments and all material incorporated by reference in such prospectus or prospectuses.

“Purchase Agreement” has the meaning set forth in the Recitals.

“Registrable Securities” means (a) any shares of Common Stock held by the Investors or issuable upon conversion, exercise or exchange of any securities, including the Securities, owned by the Investors at any time, and (b) any shares of Common Stock issued or issuable with respect to any shares described in subsection (a) above by way of a stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization (it being understood that for purposes of this Agreement, a Person shall be deemed to be a holder of Registrable Securities whenever such Person has the right to then acquire or obtain from the Company any Registrable Securities, whether or not such acquisition has actually been effected).

“Registration Statement” means any registration statement of the Company which covers any of the Registrable Securities pursuant to the provisions of this Agreement, including the Prospectus, amendments and supplements to such Registration Statement, including post-effective amendments, all exhibits and all materials incorporated by reference in such Registration Statement.

“Rule 144” means Rule 144 promulgated under the Securities Act or any successor rule thereto or any complementary rule thereto (such as Rule 144A).

“Securities” means the secured notes, shares of Series A Convertible Preferred Stock, warrants and/or any other securities purchased by the Investors under the Purchase Agreement and the Samsung Agreement.

“Securities Act” means the Securities Act of 1933, as amended, or any successor federal statute, and the rules and regulations thereunder, which shall be in effect from time to time.

“Selling Expenses” means all underwriting discounts, selling commissions and stock transfer taxes applicable to the sale of Registrable Securities, and fees and disbursements of counsel for any holder of Registrable Securities, except for the reasonable fees and disbursements of counsel for the holders of Registrable Securities required to be paid by the Company pursuant to Section 6.

“Short-Form Registration” has the meaning set forth in Section 2(b).

2.          Demand Registration.

(a)          At any time after sixty (60) days after an IPO, holders of a majority of the Registrable Securities then outstanding may request registration under the Securities Act of all or any portion of their Registrable Securities on Form S-1 or any successor form thereto (each a “Long- Form Registration”). Each request for a Long-Form Registration shall specify the approximate number of Registrable Securities required to be registered. Upon receipt of such request, the Company shall promptly (but in no event later than ten (10) calendar days following receipt thereof) deliver notice of such request to all other holders of Registrable Securities who shall then have ten (10) calendar days from the date such notice is given to notify the Company in writing of their desire to be included in such registration. The Company shall cause a Registration Statement on Form S-1 (or any successor form) to be filed within sixty (60) days after the date on which the initial request is given and shall use its best efforts to cause such Registration Statement to be declared effective by the Commission as soon as practicable thereafter. The Company shall not be required to effect a Long-Form Registration more than four (4) times for the holders of Registrable Securities as a group; provided, that a Registration Statement shall not count as a Long-Form Registration requested under Section (a). unless and until it has become effective and the holders requesting such registration are able to register and sell at least all (100%) of the Registrable Securities requested to be included in such registration.

(b)          After an IPO, the Company shall use its best efforts to qualify and remain qualified to register securities under the Securities Act pursuant to a Registration Statement on Form S-3 or any successor form thereto. At such time as the Company shall have qualified for the use of a Registration Statement on Form S-3, the holders of Registrable Securities shall have the right to request four (4) registrations of their Registrable Securities on Form S-3 or any similar short-form registration (each a “Short-Form Registration” and, together with each Long-Form Registration, a “Demand Registration”). Each request for a Short-Form Registration shall specify the approximate number of Registrable Securities requested to be registered. Upon receipt of any such request, the Company shall promptly (but in no event later than ten (10) calendar days following receipt thereof) deliver notice of such request to all other holders of Registrable Securities who shall then have ten (10) calendar days from the date such notice is given to notify the Company in writing of their desire to be included in such registration. The Company shall cause a Registration Statement on Form S-3 (or any successor form) to be filed within thirty (30) days after the date on which the initial request is given and shall use its reasonable best efforts to cause such Registration Statement to be declared effective by the Commission as soon as practicable thereafter.

(c)          If the holders of the Registrable Securities initially requesting a Demand Registration elect to distribute the Registrable Securities covered by their request in an underwritten offering, they shall so advise the Company as a part of their request made pursuant to Section (a) or Section (b), and the Company shall include such information in its notice to the other holders of Registrable Securities. The holders of a majority of the Registrable Securities initially requesting the Demand Registration shall select the investment banking firm or firms to act as the managing underwriter or underwriters in connection with such offering.

(d)          The Company shall not include in any Demand Registration any securities which are not Registrable Securities without the prior written consent of the holders of a majority of the Registrable Securities included in such registration, which consent shall not be unreasonably withheld or delayed. If a Demand Registration involves an underwritten offering and the managing underwriter of the requested Demand Registration advises the Company and the holders of Registrable Securities in writing that in its opinion the number of shares of Common Stock proposed to be included in the Demand Registration, including all Registrable Securities and all other shares of Common Stock proposed to be included in such underwritten offering, exceeds the number of shares of Common Stock which can be sold in such underwritten offering and/or the number of shares of Common Stock proposed to be included in such registration would adversely affect the price per share of the Registrable Securities proposed to be sold in such underwritten offering, the Company shall include in such Demand Registration: (i) first, the number of shares of Common Stock that the holders of Registrable Securities propose to sell; and (ii) second, the number of shares of Common Stock proposed to be included therein by any other Persons (including shares of Common Stock to be sold for the account of the Company and/or other holders of Common Stock) allocated among such Persons in such manner as they may agree. If the managing underwriter determines that less than all of the Registrable Securities proposed to be sold can be included in such offering, then the Registrable Securities that are included in such offering shall be allocated pro-rata among the respective holders thereof on the basis of the number of Registrable Securities owned by each such holder.

3.          Piggyback Registration.

(a)          Whenever the Company proposes to register any shares of its Common Stock under the Securities Act (other than a registration effected solely to implement an employee benefit plan or a transaction to which Rule 145 of the Securities Act is applicable, or a Registration Statement on Form S-4, S-8 or any successor form thereto or another form not available for registering the Registrable Securities for sale to the public), whether for its own account or for the account of one or more shareholders of the Company and the form of Registration Statement to be used may be used for any registration of Registrable Securities (a “Piggyback Registration”), the Company shall give prompt written notice to the holders of Registrable Securities of its intention to effect such a registration and, subject to Section (b) and Section (c), shall include in such registration all Registrable Securities with respect to which the Company has received written requests for inclusion from the holders of Registrable Securities within twenty business (20) days after the Company’s notice has been given to each such holder. A Piggyback Registration shall not be deemed a Demand Registration for purposes of Section 2 of this Agreement.

(b)          If a Piggyback Registration is initiated as a primary underwritten offering on behalf of the Company and the managing underwriter advises the Company and the holders of Registrable Securities (if any holders of Registrable Securities have elected to include Registrable Securities in such Piggyback Registration) in writing that in its opinion the number of shares of Common Stock proposed to be included in such registration, including all Registrable Securities and all other shares of Common Stock proposed to be included in such underwritten offering, exceeds the number of shares of Common Stock which can be sold in such offering and/or that the number of shares of Common Stock proposed to be included in any such registration would adversely affect the price per share of the Common Stock to be sold in such offering, the Company shall include in such registration: (i) first, the number of shares of Common Stock that the Company proposes to sell; (ii) second, the number of shares of Common Stock requested to be included therein by holders of Registrable Securities, allocated pro-rata among all such holders on the basis of the number of Registrable Securities owned by each such holder or in such manner as they may otherwise agree; and (iii) third, the number of shares of Common Stock requested to be included therein by holders of Common Stock (other than holders of Registrable Securities), allocated among such holders in such manner as they may agree.

(c)          If a Piggyback Registration is initiated as an underwritten offering on behalf of a holder of Common Stock other than Registrable Securities, and the managing underwriter advises the Company in writing that in its opinion the number of shares of Common Stock proposed to be included in such registration, including all Registrable Securities and all other shares of Common Stock proposed to be included in such underwritten offering, exceeds the number of shares of Common Stock which can be sold in such offering and/or that the number of shares of Common Stock proposed to be included in any such registration would adversely affect the price per share of the Common Stock to be sold in such offering, the Company shall include in such registration: (i) first, the number of shares of Common Stock requested to be included therein by the holder(s) requesting such registration and by the holders of Registrable Securities, allocated pro-rata among such holders on the basis of the number of shares of Common Stock (on a fully diluted, as converted basis) and the number of Registrable Securities, as applicable, owned by all such holders or in such manner as they may otherwise agree; and (ii) second, the number of shares of Common Stock requested to be included therein by other holders of Common Stock, allocated among such holders in such manner as they may agree.

(d)          If any Piggyback Registration is initiated as a primary underwritten offering on behalf of the Company, the Company shall select (subject to the Investors’ written consent) the investment banking firm or firms to act as the managing underwriter or underwriters in connection with such offering.

4.          Lock-up Agreement. Each holder of outstanding Registrable Securities agrees that in connection with an IPO, and upon the request of the managing underwriter in such offering, such holder shall not, without the prior written consent of such managing underwriter, during the period commencing on the effective date of such registration and ending on the date specified by such managing underwriter (such period not to exceed one hundred eighty (180) days), (a) offer, pledge, sell, contract to sell, grant any option or contract to purchase, purchase any option or contract to sell, hedge the beneficial ownership of or otherwise dispose of, directly or indirectly, any shares of Common Stock or any securities convertible into, exercisable for or exchangeable for shares of Common Stock held immediately before the effectiveness of the registration statement for such offering, or (b) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of such securities, whether any such transaction described in clause (a) or (b) above is to be settled by delivery of Common Stock or such other securities, in cash or otherwise. The foregoing provisions of this Section 4 shall not apply to sales of Registrable Securities to be included in such offering pursuant to Section 2(a), Section 2(b), Section 3(a), and shall be applicable to the holders of Registrable Securities only if all officers and directors of the Company and all shareholders owning more than ten percent (10%) of the Company’s outstanding Common Stock are subject to the same restrictions. Each holder of Registrable Securities agrees to execute and deliver such other agreements as may be reasonably requested by the Company or the managing underwriter which are consistent with the foregoing or which are necessary to give further effect thereto. Notwithstanding anything to the contrary contained in this Section 4, each holder of Registrable Securities shall be released, pro-rata, from any lock-up agreement entered into pursuant to this Section 4 in the event and to the extent that the managing underwriter or the Company permit any discretionary waiver or termination of the restrictions of any lock-up agreement pertaining to any officer, director or holder of greater than ten percent (10%) of the outstanding Common Stock.

5.          Registration Procedures. If and whenever the holders of Registrable Securities request that any Registrable Securities be registered pursuant to the provisions of this Agreement, the Company shall use its best efforts to effect the registration and the sale of such Registrable Securities in accordance with the intended method of disposition thereof, and pursuant thereto the Company shall as soon as practicable:

(a)          subject to Section 2(a) and Section 2(b), prepare and file with the Commission a Registration Statement with respect to such Registrable Securities and use its best efforts to cause such Registration Statement to become effective;

(b)          prepare and file with the Commission such amendments, post-effective amendments and supplements to such Registration Statement and the Prospectus used in connection therewith as may be necessary to keep such Registration Statement effective for a period until all of such Registrable Securities have been disposed of and to comply with the provisions of the Securities Act with respect to the disposition of such Registrable Securities in accordance with the intended methods of disposition set forth in such Registration Statement;

(c)          at least ten (10) business days before filing such Registration Statement, Prospectus or amendments or supplements thereto, furnish to one counsel selected by holders of a majority of such Registrable Securities copies of such documents proposed to be filed, which documents shall be subject to the review, comment and approval of such counsel;

(d)          notify each selling holder of Registrable Securities, promptly after the Company receives notice thereof, of the time when such Registration Statement has been declared effective or a supplement to any Prospectus forming a part of such Registration Statement has been filed;

(e)          furnish to each selling holder of Registrable Securities such number of copies of the Prospectus included in such Registration Statement (including each preliminary Prospectus) and any supplement thereto (in each case including all exhibits and documents incorporated by reference therein) and such other documents as such seller may request in order to facilitate the disposition of the Registrable Securities owned by such seller;

(f)          use its best efforts to register or qualify such Registrable Securities under such other securities or “blue sky” laws of such jurisdictions as any selling holder reasonably requests and do any and all other acts and things which may be reasonably necessary or advisable to enable such holders to consummate the disposition in such jurisdictions of the Registrable Securities owned by such holders;

(g)          notify each selling holder of such Registrable Securities, at any time when a Prospectus relating thereto is required to be delivered under the Securities Act, of the happening of any event as a result of which the Prospectus included in such Registration Statement contains an untrue statement of a material fact or omits any fact necessary to make the statements therein not misleading, and, at the request of any such holder, the Company shall prepare a supplement or amendment to such Prospectus so that, as thereafter delivered to the purchasers of such Registrable Securities, such Prospectus shall not contain an untrue statement of a material fact or omit to state any fact necessary to make the statements therein not misleading;

(h)          make available for inspection by any selling holder of Registrable Securities, any underwriter participating in any disposition pursuant to such Registration Statement and any attorney, accountant or other agent retained by any such holder or underwriter (collectively, the “Inspectors”), all financial and other records, pertinent corporate documents and properties of the Company (collectively, the “Records”), and cause the Company’s officers, directors and employees to supply all information reasonably requested by any such Inspector in connection with such Registration Statement;

(i)          provide a transfer agent and registrar (which may be the same entity) for all such Registrable Securities not later than the effective date of such registration;

(j) use its best efforts to cause such Registrable Securities to be listed on each securities exchange on which the Common Stock is then listed or, if the Common Stock is not then listed, on a national securities exchange selected by the holders of a majority of such Registrable Securities;

(k)           in connection with an underwritten offering, enter into such customary agreements (including underwriting and lock-up agreements in customary form) and take all such other customary actions as the holders of such Registrable Securities or the managing underwriter of such offering request in order to expedite or facilitate the disposition of such Registrable Securities (including, without limitation, making appropriate officers of the Company available to participate in “road show” and other customary marketing activities (including one-on-one meetings with prospective purchasers of the Registrable Securities);

(1)           otherwise use its best efforts to comply with all applicable rules and regulations of the Commission and make available to its stockholders an earnings statement (in a form that satisfies the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder) no later than thirty (30) days after the end of the 12-month period beginning with the first day of the Company’s first full fiscal quarter after the effective date of such Registration Statement, which earnings statement shall cover said 12-month period, and which requirement will be deemed to be satisfied if the Company timely files complete and accurate information on Forms 10-Q, 10-K and 8- K under the Exchange Act and otherwise complies with Rule 158 under the Securities Act;

(m)           furnish to each selling holder of Registrable Securities and each underwriter, if any, with: (i) a legal opinion of the Company’s outside counsel, dated the effective date of such Registration Statement (and, if such registration includes an underwritten public offering, dated the date of the closing under the underwriting agreement), in form and substance as is customarily given in opinions of the Company’s counsel to underwriters in underwritten public offerings; and (ii) a “comfort” letter signed by the Company’s independent certified public accountants in form and substance as is customarily given in accountants’ letters to underwriters in underwritten public offerings;

(n)          without limiting Section (f) above, use its best efforts to cause such Registrable Securities to be registered with or approved by such other governmental agencies or authorities as may be necessary by virtue of the business and operations of the Company to enable the holders of such Registrable Securities to consummate the disposition of such Registrable Securities in accordance with their intended method of distribution thereof;

(o)           notify the holders of Registrable Securities promptly of any request by the Commission for the amending or supplementing of such Registration Statement or Prospectus or for additional information;

(p)          advise the holders of Registrable Securities, with one (1) business day after it shall receive notice or obtain knowledge thereof, of the issuance of any stop order by the Commission suspending the effectiveness of such Registration Statement or the initiation or threatening of any proceeding for such purpose and promptly use its best efforts to prevent the issuance of any stop order or to obtain its withdrawal at the earliest possible moment if such stop order should be issued;

(q)          otherwise use its best efforts to take all other steps necessary to effect the registration of such Registrable Securities contemplated hereby.

6.         Expenses. All expenses (other than Selling Expenses) incurred by the Company in complying with its obligations pursuant to this Agreement and in connection with the registration and disposition of Registrable Securities, including, without limitation, all registration and filing fees, underwriting expenses (other than fees, commissions or discounts), expenses of any audits incident to or required by any such registration, fees and expenses of complying with securities and “blue sky” laws, printing expenses, fees and expenses of the Company’s counsel and accountants and reasonable fees and expenses of one counsel for the holders of Registrable Securities participating in such registration as a group (selected by, in the case of a registration under Section 2(a), the holders of a majority of the Registrable Securities initially requesting such registration, and, in the case of all other registrations hereunder, the holders of a majority of the Registrable Securities included in the registration), shall be paid by the Company. All Selling Expenses relating to Registrable Securities registered pursuant to this Agreement shall be borne and paid by the holders of such Registrable Securities, in proportion to the number of Registrable Securities registered for each such holder.

7.         Indemnification.

(a)          The Company shall indemnify and hold harmless, to the fullest extent permitted by law, each holder of Registrable Securities, such holder's officers, directors, managers, members, partners, shareholders and Affiliates, each underwriter, broker or any other Person acting on behalf of such holder of Registrable Securities and each other Person, if any, who controls any of the foregoing Persons within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, against all losses, claims, actions, damages, liabilities and expenses, joint or several, to which any of the foregoing Persons may become subject under the Securities Act or otherwise, insofar as such losses, claims, actions, damages, liabilities or expenses arise out of or are based upon any untrue or alleged untrue statement of a material fact contained in any Registration Statement, Prospectus, preliminary Prospectus, free writing prospectus (as defined in Rule 405 promulgated under the Securities Act) or any amendment thereof or supplement thereto or any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein not misleading, or any violation or alleged violation by the Company of the Securities Act or any other similar federal or state securities laws or any rule or regulation promulgated thereunder applicable to the Company and relating to action or inaction required of the Company in connection with any such registration, qualification or compliance; and shall reimburse such Persons for any legal or other expenses reasonably incurred by any of them in connection with investigating or defending any such loss, claim, action, damage or liability, except insofar as the same are caused by or contained in any information furnished in writing to the Company by such holder expressly for use therein or by such holder’s failure to deliver a copy of the Registration Statement, Prospectus, free- writing prospectus (as defined in Rule 405 promulgated under the Securities Act) or any amendments or supplements thereto (if the same was required by applicable law to be so delivered) after the Company has furnished such holder with a sufficient number of copies of the same prior to any written confirmation of the sale of Registrable Securities.

(b)          In connection with any registration in which a holder of Registrable Securities is participating, each such holder shall furnish to the Company in writing such information and affidavits as the Company reasonably requests for use in connection with any such Registration Statement or Prospectus and, to the extent permitted by law, shall indemnify and hold harmless, the Company, each director of the Company, each officer of the Company who shall sign such Registration Statement, each underwriter, broker or other Person acting on behalf of the holders of Registrable Securities and each Person who controls any of the foregoing Persons within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act against any losses, claims, actions, damages, liabilities or expenses resulting from any untrue or alleged untrue statement of material fact contained in the Registration Statement, Prospectus, preliminary Prospectus, free writing prospectus (as defined in Rule 405 promulgated under the Securities Act) or any amendment thereof or supplement thereto or any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein not misleading, but only to the extent that such untrue statement or omission is contained in any information or affidavit so furnished in writing by such holder; provided, that the obligation to indemnify shall be several, not joint and several, for each holder and shall be limited to the net proceeds (after underwriting fees, commissions or discounts) actually received by such holder from the sale of Registrable Securities pursuant to such Registration Statement.

(c)          Promptly after receipt by an indemnified Party of notice of the commencement of any action involving a claim referred to in this Section 7, such indemnified Party shall, if a claim in respect thereof is made against an indemnifying Party, give written notice to the latter of the commencement of such action. The failure of any indemnified Party to notify an indemnifying Party of any such action shall not (unless such failure shall have a material adverse effect on the indemnifying Party) relieve the indemnifying Party from any liability in respect of such action that it may have to such indemnified Party hereunder. In case any such action is brought against an indemnified Party, the indemnifying Party shall be entitled to participate in and to assume the defense of the claims in any such action that are subject or potentially subject to indemnification hereunder, jointly with any other indemnifying Party similarly notified to the extent that it may wish, with counsel reasonably satisfactory to such indemnified Party, and after written notice from the indemnifying Party to such indemnified Party of its election so to assume the defense thereof, the indemnifying Party shall not be responsible for any legal or other expenses subsequently incurred by the indemnified Party in connection with the defense thereof; provided, that if (i) any indemnified Party shall have reasonably concluded that there may be one or more legal or equitable defenses available to such indemnified Party which are additional to or conflict with those available to the indemnifying Party, or that such claim or litigation involves or could have an effect upon matters beyond the scope of the indemnity provided hereunder, or (ii) such action seeks an injunction or equitable relief against any indemnified Party or involves actual or alleged criminal activity, the indemnifying Party shall not have the right to assume the defense of such action on behalf of such indemnified Party without such indemnified Party’s prior written consent (but, without such consent, shall have the right to participate therein with counsel of its choice) and such indemnifying Party shall reimburse such indemnified Party and any Person controlling such indemnified Party for that portion of the fees and expenses of any counsel retained by the indemnified Party which is reasonably related to the matters covered by the indemnity provided hereunder. If the indemnifying Party is not entitled to, or elects not to, assume the defense of a claim, it shall not be obligated to pay the fees and expenses of more than one counsel for all Parties indemnified by such indemnifying Party with respect to such claim, unless in the reasonable judgment of any indemnified Party a conflict of interest may exist between such indemnified Party and any other of such indemnified Parties with respect to such claim. In such instance, the conflicting indemnified Parties shall have a right to retain one separate counsel, chosen by the holders of a majority of the Registrable Securities included in the registration, at the expense of the indemnifying Party.

(d)          If the indemnification provided for hereunder is held by a court of competent jurisdiction to be unavailable to an indemnified Party with respect to any loss, claim, damage, liability or action referred to herein, then the indemnifying Party, in lieu of indemnifying such indemnified Party hereunder, shall contribute to the amounts paid or payable by such indemnified Party as a result of such loss, claim, damage, liability or action 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 which resulted in such loss, claim, damage, liability or action as well as any other relevant equitable considerations; provided, that the maximum amount of liability in respect of such contribution shall be limited, in the case of each holder of Registrable Securities, to an amount equal to the net proceeds (after underwriting fees, commissions or discounts) actually received by such seller from the sale of Registrable Securities effected pursuant to such registration. 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 or the omission or alleged omission to state 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. The Parties agree that it would not be just and equitable if contribution pursuant hereto were determined by pro rata allocation or by any other method or allocation which does not take account of the equitable considerations referred to herein. No Person guilty or liable of fraudulent misrepresentation shall be entitled to contribution from any Person.

8.         Participation in Underwritten Registrations. No Person may participate in any registration hereunder which is underwritten unless such Person: (a) agrees to sell such Person’s securities on the basis provided in any underwriting arrangements approved by the Person or Persons entitled hereunder to approve such arrangements; and (b) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents required under the terms of such underwriting arrangements; provided, that no holder of Registrable Securities included in any underwritten registration shall be required to make any representations or warranties to the Company or the underwriters (other than representations and warranties regarding such holder, such holder’s ownership of its shares of Common Stock to be sold in the offering and such holder’s intended method of distribution) or to undertake any indemnification obligations to the Company or the underwriters with respect thereto, except as otherwise provided in Section 7 herein.

9.         Rule 144 Compliance. With a view to making available to the holders of Registrable Securities the benefits of Rule 144 under the Securities Act and any other rule or regulation of the Commission that may at any time permit a holder to sell securities of the Company to the public without registration or pursuant to a registration on Form S-3 (or any successor form), the Company shall, at all times after an IPO:

(a)          make and keep public information available, as those terms are understood and defined in Rule 144 under the Securities Act, at all times after the Registration Date;

(b)          use best efforts to 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, at any time after the Company has become subject to such reporting requirements; and

(c)          furnish to any holder so long as the holder owns Registrable Securities, promptly upon request, a written statement by the Company as to its compliance with the reporting requirements of Rule 144 under the Securities Act and of the Securities Act and the Exchange Act, a copy of the most recent annual or quarterly report of the Company, and such other reports and documents so filed or furnished by the Company as such holder may reasonably request in connection with the sale of Registrable Securities without registration.

10.         Preservation of Rights. The Company shall not: (a) grant any registration rights to third-parties which are more favorable than or inconsistent with the rights granted hereunder, or (b) enter into any agreement, take any action, or permit any change to occur, with respect to its securities that violates or subordinates the rights expressly granted to the holders of Registrable Securities in this Agreement.

11.         Termination. This Agreement shall terminate and be of no further force or effect when there shall no longer be any Registrable Securities outstanding; provided, that the provisions of Section 6 and Section 7 shall survive any such termination.

12.         Notices. AH notices, requests, consents, claims, demands, waivers and other communications hereunder shall be in writing and shall be deemed to have been given (a) when delivered by hand (with written confirmation of receipt); (b) when received by the addressee if sent by a nationally recognized overnight courier (receipt requested); (c) on the date sent by facsimile or e-mail of a PDF document (with confirmation of transmission) if sent during normal business hours of the recipient, and on the next business day if sent after normal business hours of the recipient or (d) on the third day after the date mailed, by certified or registered mail, return receipt requested, postage prepaid. Such communications must be sent to the respective Parties at the addresses indicated below (or at such other address for a Party as shall be specified in a notice given in accordance with this Section 12).

If to the Company:	XG Sciences, Inc.
	3101 Grand Oak Drive
	Lansing, MI 48911
	Facsimile: 517.703.1110
	E-mail:
	Attention: Chief Executive Officer
with a copy to:	Matt G. Hrebec
	Foster Swift Collins & Smith P.C.
	313 S. Washington Square
	Lansing, MI 48933
	Facsimile; 517.371.8200
	E-mail: mhrebec@fosterswift.com

If to any Investor, to such Investor’s address as set forth on the signature page hereto.

13.         Entire Agreement. This Agreement, together with the Purchase Agreement, the Samsung Agreement and any related exhibits and schedules thereto, constitutes the sole and entire agreement of the Parties with respect to the subject matter contained herein, and supersedes all prior and contemporaneous understandings and agreements, both written and oral, with respect to such subject matter. Notwithstanding the foregoing, in the event of any conflict between the terms and provisions of this Agreement and those of the Purchase Agreement or the Samsung Agreement, the terms and conditions of this Agreement shall control.

14.         Successor and Assigns. This Agreement shall be binding upon and shall inure to the benefit of the Parties hereto and their respective successors and permitted assigns. Each Investor may assign its rights hereunder to any purchaser or transferee of Registrable Securities; provided, that such purchaser or transferee shall, as a condition to the effectiveness of such assignment, be required to execute a counterpart to this Agreement agreeing to be treated as an Investor whereupon such purchaser or transferee shall have the benefits of, and shall be subject to the restrictions contained in, this Agreement as if such purchaser or transferee was originally included in the definition of an Investor herein and had originally been a Party hereto.

15.         No Third-Party Beneficiaries. This Agreement is for the sole benefit of the Parties hereto and their respective successors and permitted assigns and nothing herein, express or implied, is intended to or shall confer upon any other Person any legal or equitable right, benefit or remedy of any nature whatsoever, under or by reason of this Agreement.

16.         Headings. The headings in this Agreement are for reference only and shall not affect the interpretation of this Agreement.

17.         Amendment, Modification and Waiver. Except as otherwise provided herein, the provisions of this Agreement may only be amended, modified, supplemented or waived with the prior written consent of the Company and the holders of at least seventy-five percent (75%) of the Registrable Securities. No waiver by any Party or Parties shall operate or be construed as a waiver in respect of any failure, breach or default not expressly identified by such written waiver, whether of a similar or different character, and whether occurring before or after that waiver. Except as otherwise set forth in this Agreement, no failure to exercise, or delay in exercising, any right, remedy, power or privilege arising from this Agreement shall operate or be construed as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege.

18.         Severability. If any term or provision of this Agreement is invalid, illegal or unenforceable in any jurisdiction, such invalidity, illegality or unenforceability shall not affect any other term or provision of this Agreement or invalidate or render unenforceable such term or provision in any other jurisdiction. Upon such determination that any term or other provision is invalid, illegal or unenforceable, the Parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the Parties as closely as possible in a mutually acceptable manner in order that the transactions contemplated hereby be consummated as originally contemplated to the greatest extent possible.

19.         Remedies. Each holder of Registrable Securities, in addition to being entitled to exercise all rights granted by law, including recovery of damages, shall be entitled to specific performance of its rights under this Agreement. The Company acknowledges that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Agreement and the Company hereby agrees to waive the defense in any action for specific performance that a remedy at law would be adequate.

20.         Governing Law; Submission to Jurisdiction. This Agreement shall be governed by and construed in accordance with the internal laws of the State of Michigan without giving effect to any choice or conflict of law provision or rule (whether of the State of Michigan or any other jurisdiction) that would cause the application of laws of any jurisdiction other than those of the State of Michigan. Any legal suit, action or proceeding arising out of or based upon this Agreement or the transactions contemplated hereby may be instituted in the federal courts of the United States or the courts of the State of Michigan in each case located in Ingham County, Michigan, and each Party irrevocably submits to the exclusive jurisdiction of such courts in any such suit, action or proceeding. Service of process, summons, notice or other document by mail to such Party’s address set forth herein shall be effective service of process for any suit, action or other proceeding brought in any such court. The Parties irrevocably and unconditionally waive any objection to the laying of venue of any suit, action or any proceeding in such courts and irrevocably waive and agree not to plead or claim in any such court that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum.

21.         Waiver of Jury Trial. Each Party acknowledges and agrees that any controversy which may arise under this Agreement is likely to involve complicated and difficult issues and, therefore, each such Party irrevocably and unconditionally waives any right it may have to a trial by jury in respect of any legal action arising out of or relating to this Agreement or the transactions contemplated hereby. Each Party to this Agreement certifies and acknowledges that (a) no representative of any other Party has represented, expressly or otherwise, that such other Party would not seek to enforce the foregoing waiver in the event of a legal action, (b) such Party has considered the implications of this waiver, (c) such Party makes this waiver voluntarily, and (d) such Party has been induced to enter into this Agreement by, among other things, the mutual waivers and certifications in this Section 21.

22.         Recitals. The Parties acknowledge that the above Recitals are true and correct and are incorporated into this Agreement by this reference.

23.         Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall be deemed to be one and the same agreement. A signed copy of this Agreement delivered by facsimile, e-mail or other means of electronic transmission shall be deemed to have the same legal effect as delivery of an original signed copy of this Agreement.

** SIGNATURE PAGE FOLLOWS **

IN WITNESS WHEREOF, the Parties hereto have executed this Second Amended and Restated Registration Rights Agreement on the Effective Date.

XG SCIENCES, INC.
By:	/s/ Michael R. Knox
Name:	Michael R. Knox
Title:	Chief Executive Officer

ASPEN ADVANCED OPPORTUNITY FUND, LP
By:	/s/ Steven C. Jones
Name:	Steven C. Jones
Title:	Managing Member
	AA XGS, LLC
	The General Partner
Address for Notices:
1740 Persimmon Drive, Suite 100
Naples, FL 34109

XGS II, LLC
By:	/s/ David G. Pendell
Name:	David G. Pendell
Title:	Managing Member
Address for Notices:
XGS II, LLC
5500 Lake Grove Trail
Petoskey, MI 49770

SVIC NO. 15 NEW TECHNOLOGY BUSINESS INVESTMENT L.L.P.
By:	/s/ Seonjong Lee
Name:	SEONJONG LEE
Title:	C.E.O
Address for Notices:
29th Fl., Samsung Electronics Bldg. 1320-10, Seocho2-dong, Seocho-gu Seoul, Korea 137-857

SCHEDULE A

Investors

Aspen Advanced Opportunity Fund, LP

XGS II, LLC 

SVIC No. 15 New Technology Business Investment L.L.P.

XG SCIENCES, INC.

SHAREHOLDER AGREEMENT

This Shareholder Agreement (this “Agreement”)is made and entered into effective as of March ___, 2013, by and among XG SCIENCES, INC., a Michigan corporation (the “Company”), and each of the individual and entity shareholders of the Company that are listed on Exhibit A and each of the individual and entity shareholders of the Company that execute an adoption agreement generally in the form of Exhibit B (collectively, the “Shareholders” and collectively with the Company, the “Parties”).

Recitals

Whereas, the Shareholders who are listed on Exhibit A are the beneficial owners of an aggregate of One Million Eight Thousand Two Hundred Eleven (1,008,211) shares of the Common Stock of the Company;

Whereas, certain of the Shareholders and other persons are the beneficial owners of options and warrants that entitle them to purchase Ninety-Eight Thousand Eight Hundred Ninety-Four (98,894) shares of the Common Stock of the Company (the “Shareholder Options and Warrants”);

Whereas, Aspen Advanced Opportunity Fund, LP (“Aspen”)is purchasing senior secured convertible notes (the “Convertible Notes”)from the Company pursuant to a securities purchase agreement (the “Purchase Agreement”)of the same date as this Agreement (the “Financing”);

Whereas, the Convertible Notes are convertible into Series A convertible preferred stock to be issued by the Company (the “Series A Stock”),and when issued the Series A Stock will be convertible into Common Stock of the Company;

Whereas, the obligations in the Purchase Agreement are conditioned upon the execution and delivery of this Agreement; and

Whereas, in connection with the consummation of the Financing, the Company and the Shareholders have agreed to the provisions of this Agreement.

Agreement

Now, Therefore, in consideration of the recitals and for other good and valuable consideration, the receipt and sufficiency of which are acknowledged, the Parties agree as follows:

1. Definitions.

Capitalized terms that are used in this Agreement but that are not otherwise defined have the following meanings:

1.1           “Shareholder Stock”and “Shareholder’s Stock”mean the shares of Common Stock, Series A Stock, and other capital stock of the Company that are now owned or are subsequently acquired by a Shareholder by gift; conversion of the Convertible Notes, Series A Stock, or other convertible debt or convertible equity securities of the Company; purchase; dividend; exercise of the Shareholder Options and Warrants or any other options, warrants or other security or right of any kind convertible into or exchangeable for Common Stock issued by the Company; or any other means whether or not such securities are only registered in a Shareholder’s name or beneficially or are legally owned by such Shareholder, including any interest of a spouse in any Shareholder Stock, whether that interest is asserted pursuant to marital property laws or otherwise. The number of shares of Shareholder Stock owned by each of the Shareholders as of the date of this Agreement is set forth on Exhibit A, which exhibit may be amended from time to time by the Company to reflect changes in the number of shares of Shareholder Stock owned by the Shareholders, but the failure to so amend shall have noeffect on any Shareholder Stock being subject to this Agreement.

1.2           “Common Stock”means shares of the Company’s common stock and shares of common stock issued or issuable upon conversion of the Convertible Notes, Series A Stock, or other convertible debt or convertible equity securities of the Company or the exercise of the Shareholder Options and Warrants or any other options, warrants or other security or right of any kind convertible into or exchangeable for Common Stock issued by the Company.

1.3           “Full Conversion”means the deemed conversion of any outstanding Convertible Notes into Series A Stock and then into Common Stock, the deemed conversion of any outstanding Series A Stock into Common Stock, and the deemed conversion of all other outstanding convertible debt and convertible equity securities of the Company into Common Stock.

1.4           “Independent Director”meansa director who is not an executive officer or employee of the Company and who does not have a relationship that, in the reasonable opinion of the Company’s board of directors, would interfere with the person’s exercise of independent judgment in carrying out his or her responsibilities as a director. A director nominated by Aspen, POSCO, or Hanwha pursuant to Section 2 is not an Independent Director.

1.5           “Transfer” meansany sale, assignment, conveyance in trust, gift, transfer by request, devise or descent, or other transfer or disposition of any kind, including transfers to receivers, levying creditors, trustees or receivers in bankruptcy proceedings or general assignees for the benefit of creditors, whether voluntary or by operation of law, directly or indirectly, of any Shareholder Stock.

1.6           “Affiliate” and “Affiliated”means, with respect to a Shareholder, any person or entity that, directly or indirectly, controls, is controlled by or is under common control with such Shareholder, including any general partner, member, officer or director of such Shareholder and any venture capital fund now or hereafter existing which is controlled by one or more general partners of, or shares the same management company as, such Shareholder.

2. BOARD OF DIRECTORS.

2.1           Size of the Board. For so long as Aspen or its Affiliates owns 10% or more of the aggregate outstanding Shareholder Stock (assuming Full Conversion), each Shareholder agrees to vote all of the Shareholder’s Stock from time to time in whatever manner is necessary to ensure that the size of the Company’s board of directors is set and remains at seven (7) directors; provided, however, that the number of directors on the board of directors may be increased or decreased with the prior written consent of (a) Aspen and (b) Shareholders (including Aspen) who in the aggregate then own Shareholder Stock representing a majority of the then issued and outstanding voting stock of the Company.

2.2           Composition of Board. Each Shareholder agrees to vote all of the Shareholder’s Stock in the Company from time to time in whatever manner is necessary to ensure that at each annual or special meeting of Shareholders at which an election of directors is held or pursuant to any written consent of the Shareholders of the Company:

(a)          for so long as Aspen owns 10% or more of the aggregate outstanding Shareholder Stock (assuming Full Conversion):

(i)          one person nominated by Aspen is elected to the Company’s board of directors as a director; and

(ii)         two of the members of the board of directors, other than a director who is nominated by Aspen, POSCO, or Hanwha pursuant to this Section 2.2, qualify as Independent Directors;

(b)          for so long as POSCO, a South Korean corporation (“POSCO”)or its Affiliates, owns 10% or more of the aggregate outstanding Shareholder Stock (assuming Full Conversion), one person nominated by POSCO is elected to the Company’s board of directors; and

(c)          for so long as Hanwha Chemical Company, a South Korean corporation (“Hanwha”)or its Affiliates, owns 10% or more of the aggregate outstanding Shareholder Stock (assuming Full Conversion), one person nominated by Hanwha is elected to the Company’s board of directors.

Each of the persons nominated or appointed by one of the foregoing Shareholders shall be reasonably acceptable to the other directors of the Company. If such a Shareholder nominates or appoints a person who is not reasonably acceptable to the other directors of the Company, such Shareholder shall withdraw the nomination or appointment and consult with the other directors of the Company to select a new nominee or appointee who is reasonably acceptable to the remaining directors.

2.3           Removal of Board Members; Vacancies. Each Shareholder agrees to vote all of the Shareholder’s Stock from time to time in whatever manner is necessary to ensure that:

(a)          no director who is elected pursuant to Section 2.2 is removed from office without the consent of the nominating Shareholder, but only for so long as the nominating Shareholder or its Affiliates owns 10% or more of the aggregate outstanding Shareholder Stock (assuming Full Conversion) (the “Minimum Ownership Requirements”);and

(b)          any vacancies created by the resignation, removal, or death of a director who is elected pursuant to Section 2.2 is filled pursuant to the provisions of Section 2.2, subject to the Minimum Ownership Requirements.

2.4           Observer. For so long as Aspen or its Affiliates owns 10% or more of the aggregate outstanding Shareholder Stock (assuming Full Conversion), Aspen, as an intended third party beneficiary of this Agreement, shall have the right to appoint one person to act as a non-voting observer (the “Observer”) at all regular and special meetings of the Company’s board of directors. The Observer will receive all the information a director of the Corporation receives for any regular and special meetings of the Company’s board of directors or in connection with any written consent to be executed by such directors.

2.5           Written Consents. Each of the Shareholders agrees to execute and deliver any written consent that is required to effectuate its obligations under this Section 2, and the Company agrees that at the request of Aspen, POSCO, or Hanwha the Company will call a special meeting of Shareholders for the purpose of electing directors, subject to the Minimum Ownership Requirements.

2.6           Contracts with Affiliated Persons. With the approval of a majority of the Independent Directors in each case, the Company may enter into one or more agreements, leases, contracts or other arrangements for the furnishing to or by the Company of goods, services or space with any officer or director of the Company, any Shareholder or their Affiliates, and may pay compensation thereunder for such goods, services or space, provided in each case the amounts payable thereunder are reasonably comparable to those which would be payable to unaffiliated persons under similar agreements, and if the determination of such amounts is made in good faith it shall be conclusive absent manifest error.

2.7           Certain Approvals. The following actions of the Company shall require the written approval of Aspen (for so long as Aspen or its Affiliates owns 10% or more of the aggregate outstanding Shareholder Stock (assuming Full Conversion)):

(i) Create, obligate itself to create, authorize or issue (by reclassification or otherwise) any new class or classes of securities which has a preference over or being on a parity with the Series A Stock in any respect;

(ii) Sell any material portion of the tangible or intangible assets of the Company that secure the indebtedness to Aspen;

(iii) Incur additional secured indebtedness.

2.8           Incentive Grants. The Shareholders and the Company agree that 15% of the Shareholder Stock as of the date hereof (assuming Full Conversion) shall be reserved for issuance of incentive equity awards as determined by the Independent Directors or the compensation committee of the Company, if it exists.

3. Voluntary Transfer by a Shareholder.

3.1           Notice of Transfer. If a Shareholder (the “Transferring Shareholder”)proposes to voluntarily Transfer any shares of Shareholder Stock (the “Transferring Shareholder’s Stock”) (including pursuant to the provisions of Section 3.5), then the Transferring Shareholder shall promptly give written notice (the “Transfer Notice”)simultaneously to the Company and to each of the other Shareholders and holders of Convertible Notes (collectively, the “Non-Transferring Parties”)at least sixty (60) days prior to the closing of such Transfer. The Transfer Notice shall describe in reasonable detail the proposed Transfer, including the number of shares of the Transferring Shareholder’s Stock to be transferred, the nature of the Transfer, the consideration to be paid, and the name and address of each prospective purchaser or transferee. In the event that the Transfer is being made pursuant to the provisions of Section 3.5, the Notice shall describe in reasonable detail the basis for the claimed exemption from Article 3.

3.2           Company Right of First Refusal.

(a)          Subject to Section 3.5, the Company shall have the right to purchase all or any part of the Transferring Shareholder’s Stock from the Transferring Shareholder for the consideration per share and the terms and conditions specified in the Transfer Notice. The Company may exercise such right by written notice to the Transferring Shareholder delivered no later than fourteen (14) days after receipt of the Transfer Notice.

(b)          In the event that the Company does not exercise its right within such fourteen-day period with respect to all of the Transferring Shareholder’s Stock, the Company shall, by the last day of such fourteen-day period, give written notice of that fact to the Transferring Shareholder and the Non-Transferring Parties (the “Shareholder Transfer Notice”). The Shareholder Transfer Notice shall specify the number of shares of the Transferring Shareholder’s Stock not to be purchased by the Company (the “Remaining Transferring Shareholder’s Stock”).

(c)          In the event that the Company timely exercises its right to purchase all or part of the Transferring Shareholder’s Stock, the closing of such purchase shall take place at the offices of the Company by the date that is twenty-eight (28) days after the expiration of such fourteen-day period. At the closing, the Transferring Shareholder shall deliver to the Company the certificate(s) representing the Transferring Shareholder’s Stock to be purchased by the Company, each certificate to be properly endorsed for transfer.

3.3           Shareholder Right of First Refusal.

(a)          In the event that the Company does not exercise its right pursuant to Section 3.2 with respect to all of the Transferring Shareholder’s Stock within the time period set forth in Section 3.2, each Non-Transferring Party shall, subject to Section 3.5, have the right, exercisable by written notice to the Transferring Shareholder with a copy to the Company delivered no later than fourteen (14) days after receipt of the Shareholder Transfer Notice, to purchase its pro rata share of the Remaining Transferring Shareholder’s Stock on the same terms and conditions specified in the Transfer Notice. Each Non-Transferring Parties’ pro rata share shall be equal to the product obtained by multiplying: (i) the aggregate number of shares of the Remaining Transferring Shareholder’s Stock, by (ii) a fraction, the numerator of which is the number of shares of Common Stock (assuming Full Conversion) owned by the Non-Transferring Party on the date on which the Shareholder Transfer Notice is delivered and the denominator of which is the total number of shares of Common Stock (assuming Full Conversion) owned by all of the Non-Transferring Parties on the date on which the Shareholder Transfer Notice is delivered. Except as set forth in Section 3.3(b), the Non-Transferring Parties who timely exercise their rights (the “Participating Parties”)and the Transferring Shareholder shall effect the purchase of the Remaining Transferring Shareholder’s Stock being purchased by the Participating Parties, including payment of the purchase price, not more than fourteen (14) days after expiration of the fourteen-day period referenced above in this Section 3.3(a), and at such time the Transferring Shareholder shall deliver to the Participating Parties the certificate(s) representing the Remaining Transferring Shareholder’s Stock to be purchased by the Participating Parties, each certificate to be properly endorsed for transfer.

(b)          In the event that not all of the Non-Transferring Parties elect to purchase their respective pro rata shares of the Remaining Transferring Shareholder’s Stock pursuant to their rights under Section 3.3(a) within the time period set forth in Section 3.3(a), the Transferring Shareholder shall, by the last day of such 14-day period, give written notice to each of the Participating Parties, which shall set forth the number of shares of the Remaining Transferring Shareholder’s Stock not subscribed to by the other Non-Transferring Parties, and shall offer such Participating Parties the right to purchase such unsubscribed shares (the “Second Shareholder Notice”).Each Participating Party shall have fourteen (14) days after receipt of the Second Notice to deliver a written notice to the Transferring Shareholder with a copy to the Company of its election to purchase its pro rata share of the unsubscribed shares on the same terms and conditions as set forth in the Transfer Notice. Each Participating Parties’ pro rata share shall be equal to the product obtained by multiplying: (i) the aggregate number of shares of the Remaining Transferring Shareholder’s Stock not subscribed to by the other Non-Transferring Parties, by (ii) a fraction, the numerator of which is the number of shares of Common Stock (assuming Full Conversion) owned by the Participating Party on the date on which the Second Shareholder Notice is delivered and the denominator of which is the total number of shares of Common Stock (assuming Full Conversion) owned by all of the Participating Parties on the date on which the Second Shareholder Notice is delivered. The Participating Parties and the Transferring Shareholder shall then effect the purchase of the Remaining Transferring Shareholder’s Stock to be purchased by such Participating Parties pursuant to this Section 3.3(b), including payment of the purchase price, not more than fourteen (14) days after expiration of the fourteen-day period referenced above in this Section 3.3(b), and at such time, the Transferring Shareholder shall deliver to the Participating Parties the certificates representing the Remaining Transferring Shareholder’s Stock to be purchased by such Participating Parties pursuant to this Section 3.3(b), each certificate to be properly endorsed for transfer. In the event that not all of the Participating Parties elect to purchase their respective pro rata shares of the Remaining Transferring Shareholder’s Stock pursuant to their rights under this Section 3.3(b) within the time period set forth in this Section 3.3(b), the foregoing process shall be repeated with respect to the Participating Parties who did elect to purchase their respective pro rata shares of the Remaining Transferring Shareholder’s Stock pursuant to this Section 3.3(b) until either all of the Remaining Transferring Shareholder’s Stock is subscribed to pursuant to this Section 3.3(b) or no Participating Party desires to subscribe to additional shares of the Remaining Transferring Shareholder’s Stock.

3.4           Right of Co-Sale.

(a)          In the event that the Non-Transferring Parties fail to exercise their respective rights to purchase all of the Remaining Transferring Shareholder’s Stock pursuant to Section 3.3, and that following the exercise or expiration of the rights of purchase set forth in Section 3.3 the Transferring Shareholder proposes to sell shares of Shareholder Stock on the terms and conditions set forth in the Transfer Notice that represent more than five percent (5%) of the shares of Shareholder Stock then outstanding (assuming Full Conversion), then the Transferring Shareholder shall deliver to the Company and to each Non-Transferring Party that is not a Participating Party (a “Co-Sale Right Holder”)written notice (the “Co-Sale Notice”)that each Co-Sale Right Holder shall have the right, exercisable by written notice to the Transferring Shareholder with a copy to the Company (the “Sale Participation Notice”)delivered no later than fourteen (14) days after receipt of the Co-Sale Notice (such fourteen-day period, the “Exercise Period”),to sell shares of the Co-Sale Right Holder’s Shareholder Stock on the same terms and conditions specified in the Transfer Notice (provided that the price set forth in the Transfer Notice with respect to shares of Shareholder Stock shall be appropriately adjusted, if necessary, based on the conversion ratio of any Series A Stock or other preferred stock to be sold). The Sale Participation Notice shall indicate the number of shares of Shareholder Stock such Co-Sale Right Holder wishes to sell (which number shall not exceed the total number of shares of Transferring Shareholder Stock, specified in the Transfer Notice). The Transferring Shareholder shall use commercially reasonable efforts to interest the prospective purchaser of the Transferring Shareholder’s Stock (the “Offeror”)in purchasing, in addition to the Transferring Shareholder’s Stock, the Shareholder Stock that the Co-Sale Right Holders wish to sell.

(b)          If the Offeror does not wish to purchase the Transferring Shareholder’s Stock and allof the Shareholder Stock made available for purchase by the participating Co-Sale Right Holders (the “Co-Sale Participants”),then the Transferring Shareholder shall promptly notify each of the Co-Sale Participants of such fact (the “Proration Notice”),and each of the Co-Sale Participant and the Transferring Shareholder shall be entitled to sell, at the price and on the terms and conditions set forth in the Transfer Notice (provided that the price set forth in the Transfer Notice with respect to shares of Shareholder Stock shall be appropriately adjusted, if necessary, based on the conversion ratio of any Series A Stock or other preferred stock to be sold), a portion of the relevant Shareholder’s Stock being offered for sale to the Offeror, in the same proportion as such Transferring Shareholder’s or Co-Sale Participant’s (as the case may be) ownership of shares of Common Stock (assuming Full Conversion) on the date on which the Proration Notice is delivered bears to the aggregate number of shares of Common Stock (assuming Full Conversion) owned in the aggregate by the Transferring Shareholder and the Co-Sale Participants on the date on which the Proration Notice is delivered. The Proration Notice shall indicate the total number of shares of Shareholder Stock the Offeror is willing to purchase. Each Co-Sale Participant exercise its prorate co-sale rights by delivering written notice to the Transferring Shareholder no later than fourteen (14) days after receipt of the Proration Notice.

(c)          Each Co-Sale Participant shall effect its participation in the Transfer by timely delivering to the Transferring Shareholder, for transfer to the Offeror, one or more certificates, properly endorsed for transfer, which represent:

(i)          the number of shares of Common Stock which such Co-Sale Participant elects to sell; or

(ii)         that number of shares of Series A Stock and other preferred stock which is at such time convertible into the number of shares of Common Stock which such Co-Sale Participant elects to sell; provided, however, that if the Offeror objects to the delivery of preferred stock in lieu of Common Stock, such Co-Sale Participant shall convert such preferred stock into Common Stock pursuant to the relevant provisions of the Company’s Articles of Incorporation and such preferred stock, and deliver Common Stock as provided in Section 3.4(c)(i) above. The Company agrees to make any such conversion concurrent with and contingent upon the actual transfer of such Shareholder Stock to the Offeror.

(d)          The stock certificate or certificates that the Co-Sale Participant delivers to such Transferring Shareholder pursuant to Section 3.4(c) shall be transferred to the Offeror in consummation of the sale of the Common Stock pursuant to the terms and conditions specified in the Co-Sale Notice, and the Transferring Shareholder shall concurrently remit to the Co-Sale Participant that portion of the sale proceeds to which such Co-Sale Participant is entitled by reason of its participation in the sale. To the extent that the Offeror refuses to purchase shares or other securities from a Co-Sale Participant that the Co-Sale Participant has elected to sell pursuant to this Section 3.4, the Transferring Sharehorder shall not sell to the prospective purchaser or purchasers any Shareholder Stock unless and until, simultaneously with the sale, the Transferring Shareholder purchases such shares or other securities from such Co-Sale Participant on the same terms and conditions as are specified in the Co-Sale Notice, subject to the proration required by Section 3.4(b).

(e)          The exercise or non-exercise of the rights of any Co-Sale Right Holder to participate in one or more Transfers of Shareholder Stock made by a Transferring Shareholder will not adversely affect its right to participate in subsequent Transfers of Shareholder Stock pursuant to Article 3, provided that the Shareholder then otherwise meets the requirements of Article 3.

(f)          The transactions contemplated by the Transfer Notice, including the exercise of any right of first refusal and/or co-sale under this Article 3, shall be consummated in any event not later than ninety (90) days after the expiration of the Exercise Period and only on the terms of the Transfer Notice and in compliance with Article 3. Any Transfer after the expiration of such ninety-day period, any proposed Transfer on terms and conditions more favorable than those described in the Transfer Notice, and any subsequent or additional proposed Transfer of any Shareholder Stock by a Transferring Shareholder, shall again be subject to the first refusal and co-sale rights of the Non-Transferring Parties and shall require compliance by the Transferring Shareholder with the procedures described in this Article 3.

3.5           Exempt Transfers.

(a)          Exempt Transfers. Notwithstanding anything to the contrary in this Agreement, the first refusal and co-sale rights of the Shareholders set forth above in this Article 3 shall not apply to any Transfer by a Shareholder that is: (a) a partnership Transferring to its partners or to any other individual or entity that is an Affiliate of such Shareholder or to any beneficial owners of any Affiliates; (b) a corporation Transferring to any Affiliate; (c) a limited liability company Transferring to its members or to any other individual or entity that is an Affiliate of such beneficial owners of any Affiliate; or (d) an individual Transferring to a revocable trust for the benefit of the individual Shareholder or his or her spouse or children; provided that in each case the transferee will agree in writing to be subject to the terms of this Agreement to the same extent as if it were an original Shareholder under this Agreement, and all transferred Shareholder Stock shall remain “Shareholder Stock” under this Agreement, and such transferee shall be treated as a “Shareholder” for purposes of this Agreement.

(b)          Registration Exemption. Notwithstanding anything to the contrary in this Agreement, the provisions of this Article shall not apply to the sale of any Shareholder Stock to the public pursuant to a registration statement filed with, and declared effective by, the Securities and Exchange Commission under the Securities Act of 1933, as amended.

4. Death of a Shareholder.

4.1           Company Right of First Refusal.

(a)          Upon the death of an individual Shareholder (the “Deceased Shareholder”),the Company shall have the right to purchase all or any part of the Shareholder Stock of the Deceased Shareholder (the “Deceased Shareholder Stock”or the “Deceased Shareholder’s Stock”) from the estate (or trust) of the Deceased Shareholder for the purchase price and on the other terms set forth in this Article 4. The Company may exercise such right by written notice to the Deceased Shareholder’s personal representative (or successor trustee) no later than ninety (90) days after the date on which the Company receives notice of the Deceased Shareholder’s death.

(b)          In the event the Company does not exercise its right within such ninety-day period with respect to all of the Deceased Shareholder’s Stock, the Company shall, by the last day of such ninety-day period, give written notice of that fact to the Deceased Shareholder’s personal representative (or successor trustee) and to the Shareholders other than the Deceased Shareholder (the “Decedent Notice”).The Decedent Notice shall specify the number of shares of the deceased Shareholder’s Stock not purchased by the Company (the “Remaining Deceased Shareholder’s Stock”).

(c)          In the event that the Company timely exercises its right to purchase allor part of the Deceased Shareholder’s Stock, the Deceased Shareholder’s personal representative (or successor trustee) will sell such Deceased Shareholder’s Stock to the Company for the purchase price and on the other terms set forth in this Article 4.

4.2           Shareholder Right of First Refusal.

(a)          In the event that the Company does not exercise its right pursuant to Section 4.1 with respect to all of the Deceased Shareholder’s Stock within the time period set forth in Section 4.1, each Shareholder other than the Deceased Shareholder and each holder of Convertible Notes (the “Offeree Parties”) shall have the right, exercisable by written notice to the Deceased Shareholder’s personal representative (or successor trustee) with a copy to the Company delivered no later than thirty (30) days after receipt of the Decedent Notice, to purchase its pro rata share of the Remaining Deceased Shareholder’s Stock, for the purchase price and on the other terms set forth in this Article 4. Each Offeree Party’s pro rata share shall be equal to the product obtained by multiplying: (i) the aggregate number of shares of the Remaining Deceased Shareholder’s Stock, and (ii) a fraction, the numerator of which is the number of shares of Common Stock (assuming Full Conversion) owned by the Offeree Party on the date on which the Decedent Notice is delivered and the denominator of which is the total number of shares of Common Stock (assuming Full Conversion) owned by all of the Offeree Parties on the date on which the Decedent Notice is delivered.

(b)          In the event that not all of the Offeree Parties elect to purchase their respective pro rata shares of the Remaining Deceased Shareholder’s Stock pursuant to their rights under Section 4.2(a) within the time period set forth in Section 4.2(a), the Company shall give written notice to each of the Offeree Parties who did elect to purchase its respective pro rata share of the shares of the Remaining Deceased Shareholder’s Stock (the “Participating Offeree Parties”), which shall set forth the number of Remaining Deceased Shareholder’s Stock not subscribed to by the other Offeree Parties, and shall offer such Participating Offeree Parties the right to purchase such unsubscribed shares (the “Second Decedent Notice”). Each Participating Offeree Party shall have fourteen (14) days after receipt of the Second Decedent Notice to deliver a written notice to the Deceased Shareholder’s personal representative (or successor trustee) with a copy to the Company of its election to purchase its pro rata share of the unsubscribed shares, for the purchase price and on the other terms set forth in this Article 4. Each Participating Offeree Party’s pro rata share shall be equal to the product obtained by multiplying: (i) the aggregate number of shares of the Remaining Deceased Shareholder’s Stock not subscribed to by the other Offeree Parties, by (ii) a fraction, the numerator of which is the number of shares of Common Stock (assuming Full Conversion) owned by the Participating Offeree Party on the date on which the Second Decedent Notice is delivered and the denominator of which is the total number of shares of Common Stock (assuming Full Conversion) owned by all of the Participating Offeree Parties on the date on which the Second Decedent Notice is delivered. In the event that not all of the Participating Offeree Parties elect to purchase their respective pro rata shares of the Remaining Deceased Shareholder’s Stock pursuant to their rights under this Section 4.2(b) within the time period set forth in this Section 4.2(b), the foregoing process shall be repeated with respect to the Participating Offeree Parties who did elect to purchase their respective pro rata shares of the Remaining Deceased Shareholder’s Stock pursuant to this Section 4.2(b) until either all of the Remaining Deceased Shareholder’s Stock is subscribed to pursuant to this Section 4.2(b) or no Participating Offeree Party desires to subscribe to additional shares of the Remaining Deceased Shareholder’s Stock.

4.3           Deceased Shareholder’s Shareholder Stock. For purposes of this Agreement, “Deceased Shareholder’s Stock” means Shareholder Stock owned at the time of the Deceased Shareholder’s death by: (i) the Deceased Shareholder; or (ii) the trustee of a trust settled by the Deceased Shareholder.

4.4           Purchase Price for Deceased Shareholder’s Stock. The purchase price for the Deceased Shareholder’s Stock shall be its fair market value as of the last day of the month that immediately precedes the month in which the Deceased Shareholder died, as determined by the mutual agreement of the purchasing parties (the Company and/or the Participating Offeree Parties) and the Deceased Shareholder’s personal representative (or successor trustee). If the purchasing parties and the Deceased Shareholder’s personal representative (or successor trustee) cannot agree on the fair market value of the Deceased Shareholder’s Stock within sixty (60) days after the earlier of the expiration of the last time period referenced above and the date on which all of the Deceased Shareholder’s Stock has been subscribed to by the Company and/or the Offeree Parties, then the fair market value of the Deceased Shareholder’s Stock shall be determined by appraisal performed by a professional appraiser or certified public accountant qualified by experience and ability to appraise the shares of stock of a closely held company similar to the Company (a “Qualified Appraiser”)who is acceptable to all of the purchasing parties and the Deceased Shareholder’s personal representative (or successor trustee). If all of the purchasing parties and the Deceased Shareholder’s personal representative (or successor trustee) cannot agree on a Qualified Appraiser, then the purchasing parties shall by majority vote (each purchasing party is allowed one vote) select a Qualified Appraiser, and the Deceased Shareholder’s personal representative (or successor trustee) shall select a Qualified Appraiser. If only the purchasing parties, on the one hand, or only the Deceased Shareholder’s personal representative (or successor trustee), on the other hand, select a Qualified Appraiser, that appraiser’s written opinion on the fair market value of the Deceased Shareholder’s Stock shall be conclusive and binding on all of the purchasing parties and the Deceased Shareholder’s personal representative (or successor trustee). If the purchasing parties, on the one hand, and the Deceased Shareholder’s personal representative (or successor trustee), on the other hand, both select a Qualified Appraiser and the two (2) Qualified Appraisers agree on the fair market value of the Deceased Shareholder’s Stock, their written opinion shall be conclusive and binding on all of the purchasing parties and the Deceased Shareholder’s personal representative (or successor trustee). If the two Qualified Appraisers disagree on the fair market value of the Deceased Shareholder’s Stock, they shall appoint a third Qualified Appraiser mutually acceptable to them, and the written opinion of the third Qualified Appraiser shall be conclusive and binding as to the fair market value of the Deceased Shareholder’s Shares on all of the purchasing parties and the Deceased Shareholder’s personal representative (or successor trustee).

4.5           Settlement Date. The settlement date for a purchase under this Article 4 will he such date as may be mutually agreed upon by the parties to the purchase, but in no event later than 270 days after the Deceased Shareholder’s date of death.

4.6           Insurance. The Company may apply for and own policies of insurance on the lives of any or all Shareholders, with the Company named as beneficiary, to provide for part or all of the funds necessary for the Company to discharge its rights under this Agreement. The Company will pay all premiums on any such policies.

4.7           Payment When Insurance Proceeds Equal or Exceed the Purchase Price. Upon the death of a Shareholder, the Company will promptly take all necessary steps to collect any proceeds of insurance on the Deceased Shareholder’s life. If said insurance proceeds equal or exceed the purchase price and the Company exercises its option pursuant to Section 4.1, then the Company will pay the entire purchase price to the Deceased Shareholder’s estate or trust, as the case may be, as soon as possible after the value of the Deceased Shareholder’s Stock has been determined and the insurance proceeds have been collected by the Company.

4.8           Payment When Purchase Price Is In Excess of Insurance, or When There Is No Insurance. If the Company does not hold insurance on the Deceased Shareholder’s life for purposes of buying the Deceased Shareholder’s Stock, if the purchase price for the Deceased Shareholder’s Stock exceeds the proceeds of any insurance on the life of the Deceased Shareholder, or to the extent that the Offeree Parties are purchasing the Deceased Shareholder’s Stock, the following procedure will be used:

(a)          Notice. Within ten (10) days of receiving notice from the Company or the Offeree Parties that one of the conditions in the introduction to this Section 4.8 exists, the legal representative of the Deceased Shareholder (hereinafter called the “Decedent Seller”)will deposit any Deceased Shareholder Stock to be purchased with the Company, and each of the purchasing parties (the Company and/or the Participating Offeree Parties) will pay the down payment to and issue a promissory note to the Seller pursuant to Section 4.8(b) below.

(b)          Payment of Purchase Price. Simultaneously with the deposit of the Deceased Shareholder’s Stock by the Seller with the Company, each purchasing party (the Company and/or the Participating Offeree Parties): (i) will pay to the Seller a down payment equal to ten percent (10%) of the purchase price for the Deceased Shareholder’s Stock being purchased by that purchaser; and (ii) will deposit with the Decedent Seller a promissory note in the amount of the unpaid balance of the purchase price for the Deceased Shareholder’s Stock being purchased by that purchaser. The promissory note will be executed by the purchasing party and delivered to the Decedent Seller, and will provide that the face amount of the promissory note evidencing the unpaid balance of the purchase price will be payable in ten (10) annual installments of principal and interest beginning on the first anniversary of the first day of the month first following the date of the down payment referred to above. The per annum interest rate on the unpaid balance of each of the promissory notes will be 1% plus the “prime rate” as reported in The Wall Street Journal (United States edition) last published before the date on which the note is deposited with the Seller, or if The Wall Street Journal (United States edition) no longer publishes a “prime rate,” the last “prime rate” announced before the date on which the note is deposited with the Seller by the financial institution with which the Company maintains its primary banking relationship. When a promissory note is paid, the Seller will cancel the note so paid and return it to the Company.

4.9           Delivery of Stock. Upon full payment of the purchase price or upon the payment of the down payment and delivery of the proper promissory note(s) for the Deceased Shareholder’s Stock being purchased by a purchaser, the certificate or certificates for the Deceased Shareholder’s Stock being purchased by a purchaser will be duly assigned, transferred and delivered by the holder or holders thereof to the purchaser, together with any and all other documents required to effectuate the transfer of such stock to the purchaser.

4.10         Transfer to Estate or Trust. If, at the end of the option periods described in Sections 4.1 and 4.2, the Company and the Offeree Parties have not purchased all of the Deceased Shareholder’s Stock, then the Deceased Shareholder’s Stock not to be sold to the Company or to the Offeree Parties will transfer to the Shareholder’s heirs or trust, as the case may be; provided that any Shareholder Stock transferred as described above will remain subject to all of the terms of this Agreement.

5. Involuntary Transfers.

5.1           Involuntary Transfer. If any Shareholder Stock becomes subject to a Transfer by operation of law (an “Involuntary Transfer”). such Shareholder (the “Debtor Shareholder”)and the creditor shall give written notice of the Involuntary Transfer (the “Involuntary Transfer Notice”)simultaneously to the Company and to each of the other Shareholders and holders of Convertible Notes (collectively, the “Non-Debtor Parties”) prior to or within ten (10) days after the date on which the Shareholder Stock of the Debtor Shareholder (the “Debtor Shareholder’s Stock”)becomes subject to Involuntary Transfer. An Involuntary Transfer includes, without limitation, any of the following:

(a)          a sale or other disposition of any Shareholder Stock by a trustee or debtor in possession appointed or retained in a bankruptcy case of a Shareholder;

(b)          a sale of any Shareholder Stock at any creditors’ or judicial sale;

(c)          a transfer of any Shareholder Stock arising out of any pledge or security agreement; or

(d)          a transfer or other disposition of any Shareholder Stock in connection with a divorce or separation proceeding (including any property settlement agreement in contemplation of any divorce or separation proceeding).

5.2           Option of the Company.

(a)          Transmittal to the Company of the Involuntary Transfer Notice, which is enforceable by specific performance, will constitute an offer by the Debtor Shareholder and the creditor to sell to the Company all of the Debtor Shareholder’s Stock that is the subject of the Involuntary Transfer at a purchase price per Share and on the other terms of purchase determined pursuant to Article 4as if the Debtor Shareholder had died. The Company may accept such offer as to all or any part of the Debtor Shareholder’s Stock by written notice to the Debtor Shareholder or the creditor, as the case may be, delivered no later than ninety (90) days after receipt of the Involuntary Transfer Notice.

(b)          In the event that the Company does not exercise its right within such ninety-day period with respect to all of the Debtor Shareholder’s Stock that is the subject of the Involuntary Transfer, the Company shall, by the last day of such ninety-day period, give written notice of that fact to the Debtor Shareholder or the creditor, as the case may be, and the Non-Debtor Parties (the “Shareholder Involuntary Transfer Notice”).The Shareholder Involuntary Transfer Notice shall specify the number of shares of the Debtor Shareholder’s Stock that is the subject of the Involuntary Transfer but is not to be purchased by the Company (the “Remaining Debtor Shareholder’s Stock”).

5.3           Options of Non-Debtor Parties.

(a)          If the Company does not exercise its option with respect to all of the Debtor Shareholder’s Stock that is the subject of the Involuntary Transfer in accordance with Section 5.2, then the Debtor Shareholder or the creditor, as the case may be, will be deemed to have offered to sell the Remaining Debtor Shareholder’s Stock to each of the Non-Debtor Parties at the price and upon the terms set forth in Section 5.2. Each Non-Debtor Party shall have the right, exercisable by written notice to the Debtor Shareholder or the creditor, as the case may be, with a copy to the Company delivered no later than thirty (30) days after receipt of the Shareholder Involuntary Transfer Notice, to purchase its pro rata share of the Remaining Debtor Shareholder’s Stock subject to the Shareholder Involuntary Transfer Notice, at a purchase price per Share and on the other terms of purchase determined pursuant to Article 4 as if the Debtor Shareholder had died. Each Non-Debtor Party’s pro rata share shall be equal to the product obtained by multiplying: (i) the aggregate number of shares of the Remaining Debtor Shareholder’s Stock, and (ii) a fraction, the numerator of which is the number of shares of Common Stock (assuming Full Conversion) owned by the Non-Debtor Party on the date on which the Shareholder Involuntary Transfer Notice is delivered and the denominator of which is the total number of shares of Common Stock (assuming Full Conversion) owned by all of the Non-Debtor Parties on the date on which the Shareholder Involuntary Transfer Notice is delivered.

(b)          In the event that not all of the Non-Debtor Parties elect to purchase their respective pro rata shares of the Remaining Debtor Shareholder’s Stock pursuant to their rights under Section 5.3(a) within the time period set forth in Section 5.3(a), the Company shall give written notice to each of the Non-Debtor Parties who did elect to purchase its respective pro rata share of the Remaining Debtor Shareholder’s Stock (the “Participating Non-Debtor Parties”), which shall set forth the number of Remaining Debtor Shareholder’s Stock not subscribed to by the other Non-Debtor Parties, and shall offer such Participating Non-Debtor Parties the right to purchase such unsubscribed shares (the “Second Shareholder Involuntary Transfer Notice”). Each Participating Non-Debtor Party shall have the right, exercisable by written notice to the Debtor Shareholder or the creditor, as the case may be, with a copy to the Company delivered no later than thirty (30) days after receipt of the Second Shareholder Involuntary Transfer Notice, to purchase its pro rata share of the unsubscribed shares, at a purchase price per Share and on the other terms of purchase determined pursuant to Article 4 as if the Debtor Shareholder had died. Each Participating Non-Debtor Party’s pro rata share shall be equal to the product obtained by multiplying: (i) the aggregate number of shares of the Remaining Debtor Shareholder’s Stock not subscribed to by the other Non-Debtor Parties, by (ii) a fraction, the numerator of which is the number of shares of Common Stock (assuming Full Conversion) owned by the Participating Non-Debtor Party on the date on which the Second Shareholder Involuntary Transfer Notice is delivered and the denominator of which is the total number of shares of Common Stock (assuming Full Conversion) owned by all of the Participating Non-Debtor Parties on the date on which the Second Shareholder Involuntary Transfer Notice is delivered. In the event that not all of the Participating Non-Debtor Parties elect to purchase their respective pro rata shares of the Remaining Debtor’s Shareholder’s Stock pursuant to their rights under this Section 5.3(b) within the time period set forth in this Section 5.3(b), the foregoing process shall be repeated with respect to the Participating Non-Debtor Parties who did elect to purchase their respective pro rata shares of the Remaining Debtor Shareholder’s Stock pursuant to this Section 5.3(b) until either all of the Remaining Debtor Shareholder’s Stock is subscribed to pursuant to this Section 5.3(b) or no Participating Non-Debtor Party desires to subscribe to additional shares of the Remaining Deceased Shareholder’s Stock.

5.4           Transfer to Creditor. If, at the end of the option periods described in Sections 5.2 and 5.3, the Company and the Non-Debtor Parties have not purchased all of the Debtor Shareholder’s Stock that is the subject of the Involuntary Transfer, then the Debtor Shareholder’s Stock that is the subject of the Involuntary Transfer and not to be sold to the Company or to the Non-Debtor Parties will transfer to the creditor by operation of law or remain the property of the creditor, as the case may be; provided that any Shareholder Stock transferred as described above will remain subject to all of the terms of this Shareholder Agreement.

6. Prohibited Transfers.

6.1           General Prohibition. Shareholder Stock may not be transferred except as expressly permitted or required by this Agreement.

6.2           Call Option.

(a)          In the event of a Transfer in violation of Section 3.2 and 3.3 (a “Prohibited Transfer”), the Shareholders other than the Shareholder whose Shareholder Stock (the “Breaching Shareholder”) is subject to the Prohibited Transfer and the holders of Convertible Notes (collectively, the “Non-Breaching Parties”) shall have the option to purchase from the purchaser or transferee of the Shareholder Stock transferred in violation of this Agreement, the number of shares that the Non-Breaching Parties would have been entitled to purchase had such Prohibited Transfer been effected in accordance with this Agreement, on the following terms and conditions:

(i)          The price per share at which the shares are to be purchased by the Non-Breaching Parties shall be equal to the lower of the price per share paid to such Breaching Shareholder by the third party purchaser or purchasers of such Shareholder Stock that is subject to the Prohibited Transfer, or a purchase price per Share determined pursuant to Article 4 as if the Breaching Shareholder had died; and

(ii)         The Breaching Shareholder effecting such Prohibited Transfer shall reimburse the Non-Breaching Parties for any expenses, including legal fees and expenses, incurred in effecting such purchase.

6.3           Put Option.

(a)          In the event that a Transferring Shareholder should sell any Shareholder Stock in contravention of the co-sale rights of each Non-Transferring Party under Section 3.4 of this Agreement (a “Prohibited Sale”),each Non-Transferring Party, in addition to such other remedies as may be available at law, in equity or under this Agreement, shall have the put option provided for below, and such Transferring Shareholder shall be bound by the applicable provisions of such option.

(b)          In the event of a Prohibited Sale, each Non-Transferring Party shall have the right to sell to such Transferring Shareholder the type and number of shares of Common Stock that is equal to the number of shares each Non-Transferring Party would have been entitled to Transfer to the purchaser under Section 3.4 had the Prohibited Sale been effected pursuant to and in compliance with the terms of this Agreement. Such sale shall be made on the following terms and conditions:

(i)          The price per share at which the shares are to be sold to the Transferring Shareholder shall be equal to the price per share paid by the purchaser to such Transferring Shareholder in such Prohibited Sale. The Transferring Shareholder shall also reimburse each Non-Transferring Party for any and all fees and expenses, including legal fees and expenses, incurred in connection with the exercise or the attempted exercise of such Non-Transferring Party’s rights under Section 3.4 and this Section 6.3.

(ii)         Within sixty (60) days after the date on which a Non-Transferring Party received notice of the Prohibited Sale or otherwise became aware of the Prohibited Sale, such Non-Transferring Party shall, if exercising the option provided for in this Section 6.3, tender to the Transferring Shareholder the certificate or certificates representing the shares to be sold, each certificate to be properly endorsed for transfer.

(iii)       The Transferring Shareholder shall, upon tender of the certificate or certificates for the shares to be sold by a Non-Transferring Party, pursuant to this Section 6.3, pay the aggregate purchase price and the amount of reimbursable fees and expenses, as specified in Section 6.3(b)(i), in cash or by other means acceptable to the Non-Transferring Party.

7.          Bring-Along Rights

7.1           Bring-Along Transfer. If one or more Shareholders (the “Bring-Along Sellers”)propose to Transfer (in a Transfer consummated in a single Transfer or a series of related Transfers to a single purchaser or a group of purchasers as part of a single transaction or group of related transactions) to a non-Shareholder third Party offeror(s) (a “Third Party”)Shareholder Stock that represents more than fifty percent (50%) of the then-outstanding shares of Common Stock (assuming Full Conversion) (a “Bring Along Transfer”),then the Bring-Along Sellers will have the right (the “Bring Along Right”), but not the obligation, to cause each of the Shareholders who are not Bring-Along Sellers to tender to the Third Party for purchase, at the same price per share and on the same terms of payment and conditions as apply to the Bring-Along Sellers, a number of shares of each class of Shareholder Stock held by the Shareholder that is equal to the product obtained by multiplying: (i) the aggregate number of shares of such class of Shareholder Stock held by the Shareholder, and (ii) a fraction, the numerator of which is the aggregate number of Common Stock (assuming Full Conversion) that the Bring-Along Sellers propose to Transfer to the Third Party and the denominator of which is the aggregate number of shares of Common Stock (assuming Full Conversion) owned by the Bring-Along Sellers. If the Bring-Along Sellers exercise the Bring-Along Right provided for in this Section 7.1, then Article 3 shall not apply to the Transfers by the Bring-Along Sellers or pursuant to the exercise of the Bring-Along Right, and such Transfers shall not be a Prohibited Transfer or a Prohibited Sale.

7.2           Bring-Along Notice. Ifthe Bring-Along Sellers elect to exercise the Bring-Along Right provided for in Section 7.1, then the Bring-Along Sellers shall provide written notice (the “Bring Along Notice”)to the Company and to the other Shareholders and holders of Convertible Notes. Each Bring-Along Notice will set forth (i) the name and address of the Third Party to which the Bring-Along Sellers proposes to transfer Shareholder Stock and the number of shares of each class of Shareholder Stock proposed to be transferred. (ii) the nature of the proposed Transfer, (iii) the proposed amount and form of consideration and terms and conditions of payment offered by the Third Party and any other material terms pertaining to the Transfer (the “Third Party Terms”),and (iv) that the Third Party has been informed of the rights provided for in this Article 7 and has agreed to purchase Shareholder Stock in accordance with the terms of this Article 7. The Bring-Along Notice will be given at least thirty (30) days before settlement of the proposed Transfer.

7.3           Consummation. Upon the giving of a Bring-Along Notice, each Shareholder will be entitled and obligated to sell the number of shares of Shareholder Stock described above to the Third Party on the Third Party Terms; neither the Bring-Along Sellers nor any other Shareholder will be obligated to consummate the sale of any shares of Shareholder Stock pursuant to this Article 7 if the Third Party does not purchase all shares of Shareholder Stock that the Shareholders are entitled and required to sell pursuant to this Article 7.

7.4           Settlement. At the settlement of any transaction completed pursuant to this Article 7, the Third Party will remit to each Shareholder the consideration for the total sales price of the shares of Shareholder Stock such Shareholder sold pursuant to this Article 7, upon delivery by the Shareholder of the certificate(s) representing the Shareholder Stock to be purchased by the Third Party, each certificate to be properly endorsed for transfer.

8.          Preemptive Rights.

8.1           Subsequent Offerings. Subject to applicable securities laws, each Shareholder and holder of Convertible Notes shall have the right to purchase its pro rata share of all Shareholder Stock that the Company may, from time to time, propose to sell, issue, or exchange after the date of this Agreement, other than the Shareholder Stock excluded by Section 8.4. Each Shareholder’s pro rata share shall be equal to the ratio of (i) the aggregate number of shares of the Company's Common Stock (assuming Full Conversion) owned by the Shareholder at the time of the delivery of the Preemptive Rights Notice to (ii) the aggregate number of shares of Common Stock (assuming Full Conversion) owned by all of the Shareholders at the time of the delivery of the Preemptive Rights Notice.

8.2           Exercise of Rights. Ifthe Company proposes to issue, sell or exchange any Shareholder Stock, it shall give each Shareholder and holder of Convertible Notes a written notice (the “Preemptive Rights Notice”)that shall (i) identify and describe the Shareholder Stock being issued, sold or exchanged, (ii) describe the price and other terms upon which it is to be issued, sold or exchanged, and the number or amount of the shares of Shareholder Stock to be issued, sold or exchanged, (iii) identify the persons or entities (if known) to which or with whichthe Shareholder Stock are to be offered, issued, sold or exchanged, and (iv) offer to issue and sell to or exchange with such Shareholder its pro rata share of such Shareholder Stock. Each Shareholder and holder of Convertible Notes shall have thirty (30) days from the giving of the Preemptive Rights Notice to agree to purchase its pro rata share of the Shareholder Stock for the price and upon the terms and conditions specified in the Preemptive Rights Notice by giving written notice to the Company and stating therein the number of shares of Shareholder Stock to be purchased.

8.3           Closing. The parties exercising their preemptive rights and the Company shall effect the purchase of the Shareholder Stock to be issued to such exercising parties pursuant to this Article, including payment of the purchase price, not more than twenty-one (21) days after the expiration of the foregoing option periods, and at such time, the Company shall deliver to the parties exercising their preemptive rights the certificates representing the Shareholder Stock to be purchased by such parties exercising their preemptive rights pursuant to this Article 8. If the Company complies with this Article 8, the Company may issue, sell or exchange on the terms set forth in the Preemptive Rights Notice an amount of Shareholder Stock that was offered to the Shareholders and holders of Convertible Notes free of any additional preemptive rights established by this Article 8.

8.4           Excluded Securities. The preemptive rights established by this Article 8 shall have no application to any of the following Shareholder Stock:

(a)          Shares of Shareholder Stock and/or options, warrants or other Shareholder Stock purchase rights issued to, and the Shareholder Stock issued pursuant to such options, warrants or other purchase rights, employees, officers or directors of, or consultants or advisors to, the Company or any subsidiary, pursuant to stock purchase or stock option plans or other arrangements that are approved by the Company’s board of directors;

(b)          Shareholder Stock issued or issuable pursuant to any rights or agreements, options, warrants, or convertible securities outstanding as of the date of this Agreement, including Shareholder Stock issued upon the conversion of the Convertible Notes or the Series A Stock;

(c)          Shareholder Stock issued pursuant to any convertible securities granted after the date of this Agreement to the extent that the rights of first refusal established by this Article 8 were complied with or were inapplicable pursuant to any provision of this Article 8 with respect to the initial sale, issuance, or exchange by the Company of such convertible securities;

(d)          Any Shareholder Stock issued for consideration other than cash pursuant to a merger, consolidation, acquisition, or similar business combination approved by the board of directors and by a majority of the outstanding shares of Common Stock then held by Shareholders;

(e)          shares of Common Stock issued in connection with any stock split, stock dividendor subdivision by the Company that is approved by the board of directors;

(f)          up to Three Hundred Thousand (300,000) (orsuch greater amount as may be approved by a majority of the outstanding shares of Common Stock then held by Shareholders) shares of any Shareholder Stock issued pursuant to any equipment loan or leasing arrangement, real property leasing arrangement, or debt financing from a bank or similar financial or lending institution approved by the board of directors; and

(g)          any Shareholder Stock issued in connection with strategic transactions involving the Company and other entities, including (i) joint ventures, strategic alliances, manufacturing, marketing or distribution arrangements, and (ii) technology transfer or development arrangements; provided that, in each case, the issuance of shares therein has been approved by the board of directors and a majority of the outstanding shares of Common Stock thenheld by Shareholders.

9.          Covenant Not To Compete; Nonsolicitation.

9.1           Restrictions While a Shareholder. While a Shareholder who is a natural person is a Shareholder of the Company (and while a trust, for the benefit of the natural person or his or her spouse or children, is a Shareholder of the Company), the natural person agrees that he or she will not, directly or indirectly, either alone or in association with others, in any other capacity: (i) conduct, become engaged in, or interested in, any business that competes, directly or indirectly, with the business of the Company or any of its Affiliates worldwide; (ii) solicit, divert or take away or attempt to solicit, divert or take away, directly or indirectly, any of the Company’s or its Affiliates current, prior, or prospective customers; or (iii) solicit or attempt to solicit any person who is employed or engaged to perform services by the Company or its Affiliates to leave his or her employment or engagement with Company or its Affiliates. Notwithstanding anything to the contrary herein, this Section 9.1 shall not be violated, however, by the passive ownership by the natural person of up to 2% of a class of outstanding publicly traded shares of a corporation that is listed or quoted on a national securities exchange, including any such corporation that competes with the business of the Company.

9.2           Restrictions After Disposition of Shareholder Stock. Any natural person who is a Shareholder of the Company and who sells or otherwise transfers or surrenders all of his or her Shareholder Stock (including any natural person who settled a trust, for the benefit of the natural person or his or her spouse or children, that is a Shareholder of the Company and that sells or otherwise transfers or surrenders all of its Shareholder Stock), either to the Company, another Shareholder, or to a third party, agrees that he or she will not, for a period of three (3) years from the date of sale, directly or indirectly, either alone or in association with others, for himself or herself or in any other capacity: (i) conduct, become engaged in, or interested in, any business that competes, directly or indirectly, with the business of the Company or any of its Affiliates worldwide; (ii) solicit, divert or take away or attempt to solicit, divert or take away, directly or indirectly, any of the Company’s or its affiliates current, prior, or prospective customers; or (iii) solicit or attempt to solicit any person who is employed or engaged to perform services by the Company or its affiliates to leave his or her employment or engagement with Company or its Affiliates. Notwithstanding anything to the contrary herein, this Section 9.2 shall not be violated, however, by the passive ownership by the natural person of up to 2% of a class of outstanding publicly traded shares of a corporation that is listed or quoted on a national securities exchange, including any such corporation that competes with the business of the Company.

9.3           Judicial Determination. The Company and the Shareholders agree that the restrictions set forth in this Article 9 are reasonable in light of the nature of the Parties’ business. However, should any court of competent jurisdiction determine that these restrictions are unreasonable, then the Parties agree that the restrictions shall, without further acts of the Parties, be modified or amended to conform to the judgment of the court as to what would be reasonable, with the restrictions of this Article 9 to be limited in accordance with such judgment.

9.4           Remedies. In the event of any breach of this Article 9 by a Shareholder, the Company shall be entitled to the remedies set forth in this Agreement, as well as injunctive relief and damages, together with any reasonable attorneys’ fees or costs incurred as a result of such breach, and awarded by the court. Shareholders shall not have standing to enforce this Article 9.

9.5           Entity Shareholders. Each Shareholder who is not a natural person (and is not a trust for the benefit of a natural person or his or her spouse or children) will enter a nondisclosure agreement on terms that are reasonably acceptable to the Company.

10.        Confidentiality.

10.1         General Restriction. While a Shareholder is a shareholder of the Company and following the transfer or surrender of all of its Shareholder Stock, the Shareholder agrees to keep all information relating to the Company, its Affiliates, and their businesses, however obtained, confidential and not to disclose such information to any person or use such information for his benefit or the benefit of any other person or entity. A Shareholder’s obligations with respect to such information will not include any information that (i) is or becomes part of the public domain without violation of this Agreement, (ii) has been rightfully received by the Shareholder from a third person not under obligation of confidentiality to the Company and without breach of this Agreement, or (iii) is independently developed by the Shareholder without use or access to any such information.

10.2        Judicial Determination. The Company and Shareholders agree that the restrictions set forth in this Article 10 are reasonable in light of the nature of the Parties’ business. However, should any court of competent jurisdiction determine that these restrictions are unreasonable, then the Parties agree that the restrictions shall, without further acts of the Parties, be modified or amended to conform to the judgment of the court as to what would be reasonable, with the restrictions of this Article 10 to be limited in accordance with such judgment.

10.4        Remedies. In the event of any breach of this Article 10 by a Shareholder, the Company shall be entitled to the remedies set forth in this Agreement, as well as injunctive relief and damages, together with any reasonable attorneys’ fees or costs incurred as a result of such breach, and awarded by the court. Shareholders shall not have standing to enforce this Article 10.

11.       Power of Attorney.

11.1        The officers of the Company are hereby appointed as attorney-in-fact to effectuate Transfers of Shareholder Stock that are required by and consummated in compliance with the requirements of this Agreement by entering the required Transfer on the books of the Company. The Parties agree that the officers may exercise their power of attorney to enter such a Transfer of Shareholder Stock on the books of the Company to effectuate Transfers of Shareholder Stock that are required by and consummated incompliance with the requirements of this Agreement regardless of whether a Shareholder tenders its Shareholder Stock to the Company for Transfer.

12.       LEGEND.

12.1        Each certificate representing shares of Shareholder Stock now or hereafter owned by any Shareholder shall be endorsed with the following legend:

THE SALE, OR OTHER TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO THE TERMS AND CONDITIONS OF A CERTAIN SHAREHOLDER AGREEMENT BY AND BETWEEN THE SHAREHOLDER, THE COMPANY AND CERTAIN HOLDERS OF STOCK OF THE COMPANY. COPIES OF SUCH AGREEMENT MAY BE OBTAINED UPON WRITTEN REQUEST TO THE SECRETARY OF THE COMPANY.

12.2       The Shareholders agree that the Company may instruct its transfer agent to impose transfer restrictions on the shares represented by certificates bearing the legend referred to in Section 12.1 above to enforce the provisions of this Agreement and the Company agrees to promptly do so. The legend shall be removed at the request of any Shareholder following termination of this Agreement.

13.       MISCELLANEOUS.

13.1         Conditions to Exercise of Rights. Exercise of the Shareholders' rights under this Agreement shall be subject to and conditioned upon compliance with applicable laws.

13.2         Governing Law. This Agreement shall be governed by and construed under the laws of the State of Michigan, excluding the principles of conflicts of law.

13.3         Amendment and Waiver. This Agreement may be amended or terminated and the observance of any term of this Agreement may be waived with respect to any Party to this Agreement (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of (i) a majority of the Company's board of directors, and (ii) persons holding, in the aggregate, shares of Shareholder Stock representing at least sixty percent (60%) of the voting power of all shares of Shareholder Stock then held by Shareholders and their permitted assignees; provided that Article 2 may not be so amended without the consent of Aspen, POSCO, and Hanwha, subject to the Minimum Ownership Requirements, and provided further that for so long as Aspen owns 10% or more of the aggregate outstanding Shareholder Stock (assuming Full Conversion) no provision of this Agreement may be amended in a manner that would have a material adverse impact on Aspen, in its capacity as a holder of Convertible Notes or a Shareholder, without the written consent of Aspen. The Company shall give prompt written notice of any amendment or termination hereof or waiver hereunder to any Party hereto that did not consent in writing to such amendment, termination or waiver. Any amendment, termination or waiver effected in accordance with this Section 13.3 shall be binding on all Parties hereto, even if they do not execute such consent. No waivers of or exceptions to any term, condition or provision of this Agreement, in any one or more instances, shall be deemed to be, or construed as, a further or continuing waiver of any such term, condition or provision.

13.4         Third Party Beneficiaries. The holders of Convertible Notes are each intendedthird party beneficiaries of the provisions of this Agreement that grant rights to them only, and each holder of Convertible Notes may enforce the provisions of this Agreement that grant rights to it to the extent that such holder complies with the requirements of the provision to be enforced. Pursuant to Section 13.12, the holders of Convertible Notes shall become a party to and shall be bound by this Agreement as a Shareholder party to it upon the conversion of the Convertible Notes into Shareholder Stock. Aspen, in addition to any other rights that it may have under this Agreement, is an intended third party beneficiary of Section 2.4, and may enforce the provisions of Section 2.4, subject to its Minimum Ownership Requirement.

13.5         Successors and Assigns. The provisions of this Agreement shall inure to the benefit of, and be binding upon, the Parties and their respective successors, assigns, heirs, executors and administrators and other legal representatives.

13.6         Term. This Agreement shall continue in full force and effect from the date hereof through the earliest of the following dates, on which date it shall terminate in its entirety:

(a)          the date of the closing of a public offering of the Common Stock pursuant to a registration statement filed with the Securities and Exchange Commission, and declared effective under the Securities Act of 1933, as amended in which the Company receives gross proceeds of at least $10,000,000; or

(b)          the date on which this Agreement is terminated pursuant to Section 13.3.

13.7         Ownership. The Shareholders represent and warrant that each is the sole legal and beneficial owner of those shares of Shareholder Stock set forth opposite such Shareholder's name on Exhibit A, and that no other person has any interest (other than a community property interest) in such shares.

13.8         Notices. All notices required or permitted hereunder shall be in writing and shall be deemed effectively given: (a) upon personal delivery to the Party to be notified, (b) three (3) days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (c) one (1) day after deposit with a nationally recognized overnight courier, specifying next day delivery, with written verification of receipt. All communications shall be sent to the Party to be notified at the address as set forth on the signature page or Exhibits hereof or at such other address as such Party may designate by ten (10) days advance written notice to the other Party hereto.

13.9         Severability. In the event one or more of the provisions of this Agreement should, for any reason, be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality, or unenforceability shall not affect any other provisions of this Agreement, and this Agreement shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein.

13.10       Attorneys' Fees. In the event that any suit or action is instituted under or in relation to this Agreement, including without limitation to enforce any provision in this Agreement, the prevailing Party in such dispute shall be entitled to recover from the losing Party all fees, costs and expenses of enforcing any right of such prevailing Party under or with respect to this Agreement, including without limitation, such reasonable fees and expenses of attorneys and accountants, which shall include, without limitation, all fees, costs and expenses of appeals.

13.11       Termination of Prior Agreements. The following agreements are hereby expressly terminated by the execution of this Agreement by the parties to such agreements: (1) the Stock Redemption Agreement between the Company and Hanwha dated as of December 1, 2010; (2) the Voting Agreement between the Company and Hanwha dated as of December 1, 2010; (3) the Stock Redemption Agreement between the Company and POSCO dated as of June 8, 2011; (4) the Voting Agreement between the Company and POSCO dated as of June 8, 2011; (5) the Stock Redemption Agreement between the Company and certain Shareholders dated as of July 15, 2006; and (6) the Amended and Restated Voting Agreement between the Company and certain Shareholders dated as of January 14, 2009.

13.12       Shares Covered by this Agreement. This Agreement applies to all Shareholder Stock that is now or hereafter registered in the Company's records in a Shareholder's name or beneficiary or are legally owned by such Shareholder, including Shareholder Stock that is subsequently acquired by a Shareholder by gift; conversion of the Convertible Notes, Series A Stock, or other convertible debt or convertible equity securities of the Company; purchase; dividend; exercise of the Shareholder Options and Warrants or any other options, warrants or other security or right of any kind convertible into or exchangeable for Common Stock issued by the Company; or any other means, including through reorganization, recapitalization, stock split-up, combinations of shares, merger, or consolidation. Any individual or entity who is not a Shareholder but who acquires Shareholder Stock in the Company shall be become a party to and shall be bound by this Agreement as a Shareholder party to it, including the holders of Convertible Notes upon the conversion of the Convertible Notes into Shareholder Stock, and the Company shall not issue such Shareholder Stock unless and until such individual or entity executes an adoption agreement generally in the form of Exhibit B.

13.13       Entire Agreement. This Agreement and the exhibits attached to it, along with the Purchase Agreement and the other documents delivered pursuant to the Financing, constitute the full and entire understanding and agreement between the Parties with regard to the subjects hereof and thereof and no Party shall be liable or bound to any other in any manner by any oral or written representations, warranties, covenants and agreements except as specifically set forth herein and therein. Each Party expressly represents and warrants that it is not relying on any oral or written representations, warranties, covenants or agreements outside of this Agreement, the Purchase Agreement and the other Related Agreements (as defined in the Purchase Agreement).

13.14     Construction. References in this Agreement to any gender shall be construed to refer to all genders, and use of a plural or singular form shall be construed to refer to the other.

13.15     Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

[EXHIBITS AND COUNTERPART SIGNATURE PAGES FOLLOW.]

XG SCIENCES, INC.

SHAREHOLDER AGREEMENT

COUNTERPART SIGNATURE PAGE

The foregoing XG SCIENCES, INC. SHAREHOLDER AGREEMENT is hereby executed by the undersigned.

COMPANY:
XG SCIENCES, INC.
Signature:
	Michael R. Knox
	Chief Executive Officer

Date:___________________________________________

XG SCIENCES, INC.

SHAREHOLDER AGREEMENT

COUNTERPART SIGNATURE PAGE

The foregoing XG SCIENCES, INC. SHAREHOLDER AGREEMENT is hereby executed by the undersigned.

COMPANY:
XG SCIENCES, INC.
Signature:	/s/ Michael R. Knox
	Michael R. Knox
	Chief Executive Officer

Date:                            3-18-2013                                   

XG SCIENCES, INC.

SHAREHOLDER AGREEMENT

COUNTERPART SIGNATURE PAGE

The foregoing XG SCIENCES, INC. SHAREHOLDER AGREEMENT is hereby executed by the undersigned.

ENTITY SHAREHOLDER:

Entity Name:

Signature:

Print Name:

Title:

Date:

XG SCIENCES, INC.

SHAREHOLDER AGREEMENT

COUNTERPART SIGNATURE PAGE

The foregoing XG SCIENCES, INC. SHAREHOLDER AGREEMENT is hereby executed by the undersigned.

INDIVIDUAL SHAREHOLDER or

JOINT INDIVIDUAL SHAREHOLDERS:

Signature #1:

Print Name:

Date:

Signature #2:

Print Name:

Date:

Exhibit A

LIST OF SHAREHOLDERS

Name of Shareholder	No. of Shares Owned		Percentage Ownership
Michael R. Knox		121,667		12.068	%
Linnea Van Dyne		5,380		0.534	%
Lawrence T. Drzal Revocable Trust		50,550		5.014	%
Hiroyuki Fukushima		50,000		4.959	%
Inhwan Do		50,000		4.959	%
Michigan State University Foundation		9,543		0.947	%
Mark S. Kerrins and Rosemary Kerrins. JTWROS		32,500		3.224	%
Peter Bosanic and Lisa Kendzioski-Bosanic, JTWROS		2,550		0.253	%
Paul Nordstrom		5,758		0.571	%
Edward J. Demmer		30,000		2.976	%
Kevin B. Miller		2,400		0.238	%
David J. Donovan		16,257		1.612	%
Jeffery A. Wesley		9,005		0.893	%
Stephen J. Linder Trust No. 1		5,251		0.521	%
Mark E. Hooper Revocable Living Trust		3,625		0.360	%
W.D. Hamilton and S.M. Heathfield		7,251		0.719	%
Marjorie E. Frisch		2,087,5		0.207	%
Matthew H. Frisch		2,087,5		0.207	%
Colin D. Cronin		4,570		0.453	%
Ann Arbor SPARK		36,257		3.596	%
Robert Skandalaris		34,977		3.469	%
John W. Dourjalian		2,690		0.267	%
William G. Lutz		1,653		0.164	%
David and Vicky Pendell (JTWROS)		3,157		0.313	%
Reed Shick		880		0.087	%
Gary Griffin		1,500		0.149	%
Robert L. McKellar		592		0.059	%
ASC-XGS, LLC		166,023		16.467	%
Hanwha Chemical Corporation		150,000		14.878	%
POSCO, a South Korean corporation		200,000		19.837	%
TOTALS		1,008,211		100.000	%

Exhibit B

ADOPTION AGREEMENT

This ADOPTION AGREEMENT (this “Adoption Agreement”) is entered into effective as of ___________________ among XG Sciences, Inc., a Michigan corporation (the “Company”);and ___________________ (the “Adopting Shareholder”) pursuant to the terms of the Shareholder Agreement dated as of __________, 2013 among the Company and certain Shareholders of the Company (the “Shareholder Agreement”). Capitalized terms used but not defined in this Adoption Agreement shall have the meanings given to them in the Shareholder Agreement.

1.          Acknowledgement. The Adopting Shareholder acknowledges that the Adopting Shareholder is acquiring the following equity securities of the Company (the “Shares”):_________________________________________________, which Shares are subject to the terms and conditions of the Shareholder Agreement.

2.          Agreement. The Adopting Shareholder (i) agrees that the Shares acquired by the Adopting Shareholder are bound by and subject to the terms of the Shareholder Agreement, (ii) that the Adopting Shareholder hereby agrees to become a party to the Shareholder Agreement as a Shareholder and as such shall be, and the Shares shall be, bound by and subject to the terms of the Shareholder Agreement, and (iii) hereby adopts the Shareholder Agreement with the same force and effect as if Adopting Shareholder were originally a Shareholder party thereto.

ADOPTING SHAREHOLDER:
COMPANY:
	XG Sciences, INC.
	By:
		______________________, President

VOTING AGREEMENT

THIS VOTING AGREEMENT (“Agreement”) is made and entered into effective as of January 15, 2014 (the “Effective Date”), by and among XG Sciences, Inc., a Michigan corporation (the “Company”), certain holders of the Company’s outstanding stock (the “Shareholders”), and SVIC No. 15 New Technology Business Investment L.L.P. (“Samsung”). The Company, the Shareholders, and Samsung are individually referred to as a “Party,” and are collectively referred to as the “Parties.”

RECITALS

WHEREAS, The Company and the Shareholders entered into that certain Shareholder Agreement dated March 18, 2013 (the “Shareholder Agreement”), which among other things provides for the designation of certain directors to the board of directors of the Company (the “Board”);

WHEREAS, concurrently with the execution of this Agreement, the Company and Samsung are entering into a transaction whereby Samsung is purchasing a secured convertible promissory note from the Company.

WHEREAS, notwithstanding anything in the Shareholder Agreement, the purchase agreement that memorializes that transaction requires that the Company use its best efforts to cause Shareholders owning a majority of the Company’s voting securities to enter into this Agreement, pursuant to which Samsung is provided a right to designate a member of the Board.

AGREEMENT

NOW, THEREFORE, in consideration of the recitals and the mutual promises contained in this Agreement, the Parties agree as follows:

1.           Definitions. Capitalized terms that are used in this Agreement but that are not otherwise defined have the following meanings:

1.1           “Common Stock” means shares of the Company’s common stock and shares of common stock issued or issuable upon conversion of the Series A Stock, convertible debt of the Company, or convertible equity securities of the Company or the exercise of warrants, options, or other securities or rights of any kind convertible into or exchangeable for Common Stock issued by the Company.

1.2           “Full Conversion” means the deemed conversion of any outstanding convertible debt into Series A Stock and then into Common Stock, the deemed conversion of any outstanding Series A Stock into Common Stock, and the deemed conversion of all other outstanding convertible equity securities of the Company into Common Stock.

1.3           “Series A Stock” means the Series A Convertible Preferred Stock issued by the Company.

2. Voting Agreement.

2.1           Samsung Director. For so long as Samsung owns 10% or more of the aggregate outstanding Common Stock (assuming Full Conversion, but excluding any shares of Common Stock issuable upon exercise of any warrants held by Samsung) (the “Minimum Ownership Requirement”), each Shareholder agrees to vote all of the Shareholder’s voting securities in the Company (including Common Stock and Series A Stock), whether now owned or hereafter acquired (together the “Shares”), from time to time in whatever manner is necessary to ensure that at each annual or special meeting of the shareholders of the Company at which an election of directors is held or pursuant to any written consent of the shareholders of the Company, one person nominated by Samsung is elected to the Company’s Board as a director (the “Samsung Director”). The Samsung Director shall be reasonably acceptable to the other directors of the Company. If Samsung nominates a person who is not reasonably acceptable to the other directors of the Company, then Samsung shall withdraw the nomination or appoint and consult with the other directors of the Company to select a new nominee or appointee who is reasonably acceptable to the remaining directors. As a condition to election to the Board, the Samsung Director shall sign a non-competition and non-disclosure agreement in such form as is reasonably acceptable to the Company. The Samsung Director shall be automatically recused from discussions by the Company’s Board that relate to customers or potential customers of the Company that are in competition with Samsung or any projects relating to such competitive customers.

2.2           Removal of Board Members; Vacancies. For so long as the Minimum Ownership Requirement is met, each Shareholder agrees to vote all of such Shareholder’s Shares from time to time and at all times in whatever manner as shall be necessary to ensure that: (i) the Samsung Director may not be removed from office without the consent of Samsung; and (ii) any vacancy created by the resignation, removal, or death of the Samsung Director is filled pursuant to the provisions of Section 2.1.

2.3           Written Consents. Each of the Shareholders agrees to execute and deliver any written consent that is required to effectuate its obligations under this Section 2.

3.           Term. The rights granted to Samsung under this Agreement are effective from the Effective Date until, and will terminate upon, the first to occur of: (i) the date on which the Minimum Ownership Requirement is no longer satisfied, (ii) the date on which the Shareholder Agreement is terminated for any reason, or (iii) the date that Samsung agrees in writing to terminate this Agreement.

4.           Specific Enforcement. Each Party acknowledges and agrees that it will be irreparably damaged if any of the provisions of this Agreement are not performed by the Parties in accordance with their specific terms. Accordingly, it is agreed that each of the Company, Samsung, and the Shareholders shall be entitled to specific enforcement of this Agreement in any action instituted in any court of the United States or any state having subject matter jurisdiction, in addition to any other remedy to which the Parties may be entitled at law or in equity.

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5.           Miscellaneous.

5.1 Transfers, Successors and Assigns.

(a)           Samsung and its assignees may not assign their benefits under this Agreement without the written consent of the Company; provided that Samsung may assign its benefits under this Agreement to an affiliate. The terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and permitted assigns of the Parties. Nothing in this Agreement, express or implied, is intended to confer upon any party other than the Parties or their respective successors and permitted assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement.

(b)           Each transferee or assignee of the Shares subject to this Agreement shall continue to be subject to the terms hereof, and, as a condition to the Company’s recognizing such transfer, each transferee or assignee shall agree in writing to be subject to each of the terms of this Agreement by executing and delivering an Adoption Agreement substantially in the form attached hereto as Appendix 1. Upon the execution and delivery of an Adoption Agreement by any transferee, the transferee shall be deemed to be a Party hereto as if the transferee’s signature appeared on the signature page of this Agreement. The Company shall not permit the transfer of the Shares subject to this Agreement on its books or issue a new certificate representing any such Shares unless and until the transferee has complied with the terms of this Section 5.1. Each certificate representing the Shares subject to this Agreement if issued on or after the date of this Agreement shall be endorsed by the Company with the legend set forth in Section 5.8.

5.2           Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the state of Michigan, without regard to its principles of conflicts of laws.

5.3           Counterparts, Signatures. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. A facsimile signature or signature by electronic transmission shall bind the signatory in the same way that an original signature would bind the signatory.

5.4           Titles and Subtitles. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement.

5.5           Notices. All notices and other communications given or made pursuant to this Agreement shall be in writing and shall be deemed effectively given: (a) upon personal delivery to the Party to be notified; (b) when sent by confirmed electronic mail or facsimile if sent during normal business hours of the recipient, and if not so confirmed, then on the next business day; (c) five business days after having been sent by registered or certified mail, return receipt requested, postage prepaid; or (d) one business day after deposit with a nationally recognized overnight courier, specifying next day delivery, with written verification of receipt. All communications shall be sent to the respective Parties at their address on file with the Company or to such email address, facsimile number or address as subsequently modified by written notice given in accordance with this Section 5.5.

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5.6           Amendment. This Agreement may be amended or modified only by a written instrument executed the Parties.

5.7           Severability. The invalidity or unenforceability of any provision hereof shall in no way affect the validity or enforceability of any other provision.

5.8           Legend on Share Certificates. Each certificate representing any Shares shall be endorsed by the Company with a legend reading substantially as follows:

THE SHARES EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO A VOTING AGREEMENT (A COPY OF WHICH MAY BE OBTAINED UPON WRITTEN REQUEST FROM THE COMPANY) AND BY ACCEPTING ANY INTEREST IN SUCH SHARES THE PERSON ACCEPTING SUCH INTEREST SHALL BE DEEMED TO AGREE TO AND SHALL BECOME BOUND BY ALL THE PROVISIONS OF THAT VOTING AGREEMENT.

5.9           Execution by the Company. The Company and the Shareholders agree that they will cause the certificates evidencing the Shares to bear the legend required by Section 5.8 of this Agreement, and it shall supply, free of charge, a copy of this Agreement to any holder of a certificate evidencing Shares. The Parties to this Agreement do hereby agree that the failure to cause the certificates evidencing the Shares to bear the legend required by Section 5.8 herein and the failure of the Company to supply, free of charge, a copy of this Agreement as provided under this Section 5.9 shall not affect the validity or enforcement of this Agreement.

5.10         Stock Splits, Stock Dividends, Etc. In the event of any issuance of Shares of the Company’s voting securities hereafter to any of the Shareholders (including, without limitation, in connection with any stock split, stock dividend, recapitalization, reorganization, or the like), such Shares shall become subject to this Agreement and shall be endorsed with the legend set forth in Section 5.8.

5.11         Manner of Voting; Grant of Proxy. The voting of Shares pursuant to this Agreement may be effected in person, by proxy, by written consent or in any other manner permitted by applicable law. Each Shareholder agrees to vote his Shares as may be necessary or appropriate to effectuate this Agreement and to the extent a Shareholder fails to vote his Shares as required by this Agreement he shall be deemed to have voted his Shares as so required.

5.12         Interpretation. When permitted by the context, each pronoun used in this Agreement shall include the same pronoun in other numbers or another gender, and each noun used in this Agreement includes the same noun in other numbers. As used in this Agreement, the words “include” and “including” and their variants shall not be deemed to be terms of limitation but shall instead be deemed to be followed by the words “without limitation.” Except as otherwise indicated in the context, all references in this Agreement to “Sections”, “Schedules” and “Exhibits” are intended to refer to Sections, Schedules and Exhibits of this Agreement.

[Remainder of this page intentionally left blank.]

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[Signature Page to Voting Agreement]

IN WITNESS WHEREOF, the Parties have executed this Voting Agreement effective as of the Effective Date.

COMPANY:
XG SCIENCES, INC.
By:
	Michael R. Knox, President
SAMSUNG:
SVIC NO. 15 NEW TECHNOLOGY BUSINESS
INVESTMENT L.L.P.
By:	Samsung Venture Investment Corporation, its Partner
By:
Name:
Title:
SHAREHOLDERS:
SEE ATTACHED SIGNATURE PAGES

[Shareholder Signature Page to Voting Agreement]

IN WITNESS WHEREOF, the Shareholder below has executed this Voting Agreement effective as of the Effective Date.

SHAREHOLDER:

Name of Shareholder:

Name and Title of Authorized Signatory:

Signature:

APPENDIX 1

ADOPTION AGREEMENT

This ADOPTION AGREEMENT (this “Adoption Agreement”) is entered into effective as of___________________________ among XG Sciences, Inc., a Michigan corporation (the “Company”); and ____________________ (the “Adopting Shareholder”) pursuant to the terms of the Voting Agreement dated as of January 15, 2014 among the Company, SVIC No. 15 New Technology Business Investment L.L.P. and certain Shareholders of the Company (the “Voting Agreement”). Capitalized terms used but not defined in this Adoption Agreement shall have the meanings given to them in the Voting Agreement.

1.          Acknowledgement. The Adopting Shareholder acknowledges that the Adopting Shareholder is acquiring the following equity securities of the Company (the “Shares”): _________________________________________________, which Shares are subject to the terms and conditions of the Voting Agreement.

2.          Agreement. The Adopting Shareholder (i) agrees that the Shares acquired by the Adopting Shareholder are bound by and subject to the terms of the Voting Agreement, (ii) that the Adopting Shareholder hereby agrees to become a party to the Voting Agreement as a Shareholder and as such shall be, and the Shares shall be, bound by and subject to the terms of the Voting Agreement, and (iii) hereby adopts the Voting Agreement with the same force and effect as if Adopting Shareholder were originally a Shareholder party thereto.

ADOPTING SHAREHOLDER:
COMPANY:
	XG Sciences, INC.
	By:
		_________________, Chief
		Executive Officer

THIS WARRANT AND THE UNDERLYING SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR UNDER THE SECURITIES LAWS OF ANY STATE. THESE SECURITIES MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED EXCEPT AS PERMITTED UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS IN ACCORDANCE WITH APPLICABLE REGISTRATION REQUIREMENTS OR AN EXEMPTION THEREFROM. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE ISSUER THAT SUCH OFFER, SALE, TRANSFER, PLEDGE OR HYPOTHECATION OTHERWISE COMPLIES WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS. THIS WARRANT MUST BE SURRENDERED TO THE COMPANY OR ITS TRANSFER AGENT AS A CONDITION PRECEDENT TO THE SALE, TRANSFER, PLEDGE OR HYPOTHECATION OF ANY INTEREST IN ANY OF THE SECURITIES REPRESENTED HEREBY.

WARRANT TO PURCHASE SHARES OF SERIES A CONVERTIBLE PREFERRED STOCK

of

XG SCIENCES, INC.

Dated as of                 

Void after the date specified in Section 9

Warrant to Purchase

                Shares of

Series A Convertible Preferred Stock

(subject to adjustment)

THIS CERTIFIES THAT, for value received,                   , a                    (“       ”), or its registered assigns (          or its assigns generally referred to herein as the “Holder”), is entitled, subject to the provisions and upon the terms and conditions set forth herein, to purchase from XG Sciences, Inc., a Michigan corporation (the “Company”), shares of the Company’s Series A Convertible Preferred Stock (the “Preferred Stock”) (the “Shares”) in the amounts, at such times and at the price per share set forth in Section 1. The term “Warrant” as used herein shall include this Warrant and any warrants delivered in substitution or exchange therefor as provided herein.

The following is a statement of the rights of the Holder and the conditions to which this Warrant is subject, and to which the Holder, by acceptance of this Warrant, agrees:

1. Number and Price of Shares; Exercise Period.

(a)          Number of Shares. Subject to any previous exercise of this Warrant, the Holder shall have the right to purchase up to              Shares, as may be adjusted pursuant hereto, prior to (or in connection with) the expiration of this Warrant as provided in Section 9.

(b)          Exercise Price. The exercise price per Share shall initially be equal to $ 12.00, subject to adjustment as provided in Section 7 (the “Exercise Price”).

(c)          Exercise Period. This Warrant shall be exercisable on or after the date of grant and prior to (or in connection with) the expiration of this Warrant as set forth in Section 9.

2.          Exercise of the Warrant.

(a)          Exercise. The purchase rights represented by this Warrant may be exercised at the election of the Holder, in whole or in part, but not for less than one hundred (100) Shares at a time (or such lesser number of shares which may then constitute the maximum number purchasable pursuant to Section 1) (such number being subject to adjustment as provided in Section 7, in accordance with Section 1) by:

(i)          the tender to the Company at its principal office (or such other office or agency as the Company may designate) of a notice of exercise in the form of Exhibit A (the “Notice of Exercise”), duly completed and executed by or on behalf of the Holder, together with the surrender of this Warrant; and

(ii)         the payment to the Company of an amount equal to (x) the Exercise Price multiplied by (y) the number of Shares being purchased, by wire transfer or certified, cashier’s or other check acceptable to the Company and payable to the order of the Company; and

(iii)        with respect to the first exercise by the Holder of this Warrant, in whole or in part, delivery of counterpart signature pages to that certain Shareholder Agreement, dated March 18, 2013, by and among the parties thereto and attached as Exhibit B hereto (the “Shareholder Agreement”), and any subsequent amendments thereto, such that as a condition to the first exercise by the Holder of this Warrant, in whole or in part, the Holder shall become a party to, and bound by, the Shareholder Agreement as a “Stockholder” thereunder; provided, however, that Holder will not be required to be bound to any provision of any such amendment to the Shareholder Agreement that creates a material financial obligation for the Holder; it being understood that the Shareholder Agreement as currently in effect does not create any such financial obligations.

(b)          Net Issue Exercise. In lieu of exercising this Warrant pursuant to Section 2(a)(ii), if the fair market value of one Share is greater than the Exercise Price (at the date of calculation as set forth below), the Holder may elect to receive a number of Shares equal to the value of this Warrant (or of any portion of this Warrant being canceled) by surrender of this Warrant at the principal office of the Company (or such other office or agency as the Company may designate) together with a properly completed and executed Notice of Exercise reflecting such election, in which event the Company shall issue to the Holder that number of Shares computed using the following formula:

 

Where:

X	=	The number of Shares to be issued to the Holder
Y	=	The number of Shares purchasable under this Warrant or, if only a portion of the Warrant is being exercised, the portion of the Warrant being exercised (at the date of such calculation)
A	=	The fair market value of one Share (at the date of such calculation)
B	=	The Exercise Price (as adjusted to the date of such calculation)

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For purposes of the calculation above, the fair market value of one Share shall be determined by the Board of Directors of the Company, acting in good faith; provided, however, that;

(i)          where a public market exists for the Common Stock at the time of such exercise, the fair market value per Share shall be based on the average of the closing ask prices of the Common Stock underlying such Shares or the closing price quoted on the national securities exchange on which the Common Stock is listed as published in the Wall Street Journal, as applicable, for the ten (10) trading day period ending five (5) trading days prior to the date of determination of fair market value; and

(ii)         if the Warrant is exercised in connection with the Company’s initial public offering of the Common Stock, the fair market value per Share shall be based on the offering price per share of Common Stock to the public of the Company’s initial public offering.

(c)          Automatic Exercise. If any portion of this Warrant remains unexercised as of the Expiration Date of this Warrant as set forth in Section 9 and the fair market value per share of the Shares as of the Expiration Date is greater than the applicable Exercise Price as of the Expiration Date, then, without further action by the Holder, this Warrant shall be deemed to have been exercised automatically on the date (the “Automatic Exercise Date”) which is the day immediately prior to the close of business on the Expiration Date (or, in the event that the Expiration Date is not a Business Day, the immediately preceding Business Day) as if the Holder had duly given a Notice of Exercise for a Net Issue Exercise as contemplated by Section 2(b) hereof, and the Holder (or such other person or persons as directed by the Holder) shall be treated for all purposes as the holder of record of such Shares as of the close of business on such Automatic Exercise Date. This Warrant shall be deemed to be surrendered to the Company on the Automatic Exercise Date by virtue of this Section 2(c) without any action by the Holder

(d)          Stock Certificates. The rights under this Warrant shall be deemed to have been exercised and the Shares issuable upon such exercise shall be deemed to have been issued immediately prior to the close of business on the date this Warrant is exercised in accordance with its terms, and the person entitled to receive the Shares issuable upon such exercise shall be treated for all purposes as the holder of record of such Shares as of the close of business on such date. As promptly as reasonably practicable on or after such date, and in any event within thirty (30) days thereafter, the Company shall issue and deliver to the person or persons entitled to receive the same a certificate or certificates for that number of shares issuable upon such exercise. In the event that the rights under this Warrant are exercised in part and have not expired, the Company shall execute and deliver a new Warrant reflecting the number of Shares that remain subject to this Warrant.

(e)          No Fractional Shares or Scrip. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of the rights under this Warrant, In lieu of such fractional share to which the Holder would otherwise be entitled, the Company shall make a cash payment equal to the Exercise Price multiplied by such fraction.

(f)          Reservation of Stock. The Company agrees during the term the rights under this Warrant are exercisable to take all reasonable action to reserve and keep available from its authorized and unissued shares of Preferred Stock, and the Common Stock into which such shares of Preferred Stock are convertible, for the purpose of effecting the exercise of this Warrant such number of shares as shall from time to time be sufficient to effect the exercise of the rights under this Warrant; and if at any time the number of authorized but unissued shares of Preferred Stock, and the Common Stock into which such shares of Preferred Stock are convertible, shall not be sufficient for purposes of the exercise of this Warrant in accordance with its terms, without limitation of such other remedies as may be available to the Holder, the Company will use all reasonable efforts to take such corporate action as may, in the opinion of counsel, be necessary to increase its authorized and unissued shares of its Preferred Stock, and the Common Stock into which shares of Preferred Stock are convertible, to a number of shares as shall be sufficient for such purposes. The Company represents and warrants that all shares that may be issued upon the exercise of this Warrant will, when issued in accordance with the terms hereof, be validly issued, fully paid and nonassessable.

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3.          Replacement of the Warrant. Subject to the receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of loss, theft or destruction, on delivery of an indemnity agreement reasonably satisfactory in form and substance to the Company or, in the case of mutilation, on surrender and cancellation of this Warrant, the Company at the expense of the Holder shall execute and deliver, in lieu of this Warrant, a new warrant of like tenor and amount.

4.          Vesting of the Warrant. The Shares subject to this Warrant shall vest immediately.

5.          Transfer of the Warrant.

(a)          Warrant Register. The Company shall maintain a register (the “Warrant Register”) containing the name and address of the Holder or Holders. Until this Warrant is transferred on the Warrant Register in accordance herewith, the Company may treat the Holder as shown on the Warrant Register as the absolute owner of this Warrant for all purposes, notwithstanding any notice to the contrary. Any Holder of this Warrant (or of any portion of this Warrant) may change its address as shown on the Warrant Register by written notice to the Company requesting a change.

(b)           Warrant Agent. The Company may appoint an agent for the purpose of maintaining the Warrant Register referred to in Section 5(a), issuing the Shares or other securities then issuable upon the exercise of the rights under this Warrant, exchanging this Warrant, replacing this Warrant or conducting related activities.

(c)          Transferability of the Warrant. Subject to the provisions of this Warrant with respect to compliance with the Securities Act of 1933, as amended (the “Securities Act”) and limitations on assignments and transfers, including without limitation compliance with the restrictions on transfer set forth in Section 6, title to this Warrant may be transferred by endorsement (by the transferor and the transferee executing the assignment form attached as Exhibit C (the “Assignment Form”) and delivery in the same manner as a negotiable instrument transferable by endorsement and delivery.

(d)          Exchange of the Warrant upon a Transfer. On surrender of this Warrant (and a properly endorsed Assignment Form) for exchange, subject to the provisions of this Warrant with respect to compliance with the Securities Act and limitations on assignments and transfers, the Company shall issue to or on the order of the Holder a new warrant or warrants of like tenor, in the name of the Holder or as the Holder (on payment by the Holder of any applicable transfer taxes) may direct, for the number of shares issuable upon exercise hereof, and the Company shall register any such transfer upon the Warrant Register. This Warrant (and the securities issuable upon exercise of the rights under this Warrant) must be surrendered to the Company or its warrant or transfer agent, as applicable, as a condition precedent to the sale, pledge, hypothecation or other transfer of any interest in any of the securities represented hereby.

(e)          Minimum Transfer. This Warrant may not be transferred in part unless such transfer is to a transferee who, pursuant to such transfer, receives the right to purchase at least one hundred (100) Shares hereunder (as adjusted from time to time in accordance with Section 7).

(f)          Taxes. In no event shall the Company be required to pay any tax which may be payable in respect of any transfer involved in the issue and delivery of any certificate in a name other than that of the Holder, and the Company shall not be required to issue or deliver any such certificate unless and until the person or persons requesting the issue thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid or is not payable.

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6.         Restrictions on Transfer of the Warrant and Shares; Compliance with Securities Laws. By acceptance of this Warrant, the Holder agrees to comply with the following:

(a)          Restrictions on Transfers. Any transfer of the Shares or the Common Stock issuable upon conversion of the Shares (collectively the “Securities”) must be in compliance with all applicable federal and state securities laws. The Holder agrees not to make any sale, assignment, transfer, pledge or other disposition of all or any portion of the Securities, or any beneficial interest therein, unless and until the transferee thereof has agreed in writing for the benefit of the Company to take and hold such Securities subject to, and to be bound by, the terms and conditions set forth in this Warrant to the same extent as if the transferee were the original Holder hereunder, and

(i)          there is then in effect a registration statement under the Securities Act covering such proposed disposition and such disposition is made in accordance with such registration statement, or

(ii)        (A) such Holder shall have given prior written notice to the Company of such Holder’s intention to make such disposition and shall have furnished the Company with a detailed description of the manner and circumstances of the proposed disposition, (B) the transferee shall have confirmed to the satisfaction of the Company in writing, substantially in the form of Exhibit A-1. that the Securities are being acquired (i) solely for the transferee’s own account and not as a nominee for any other party, (ii) for investment and (iii) not with a view toward distribution or resale, and shall have confirmed such other matters related thereto as may be reasonably requested by the Company, and (C) such Holder shall have furnished the Company, at the Holder’s expense, with (i) an opinion of counsel, reasonably satisfactory to the Company, to the effect that such disposition will not require registration of such Securities under the Securities Act or (ii) a “no action” letter from the Securities and Exchange Commission to the effect that the transfer of such Securities without registration will not result in a recommendation by the staff of the Securities and Exchange Commission that action be taken with respect thereto, whereupon such Holder shall be entitled to transfer such Securities in accordance with the terms of the notice delivered by the Holder to the Company; provided, that the requirements of Section 6(a)(ii)(C) hall not apply in the case of permitted transfers under Section 6(b).

(b)          Permitted Transfers. Permitted transfers include (i) a transfer not involving a change in beneficial ownership, or (ii) transactions involving the distribution without consideration of Securities by any Holder to a parent or majority owned subsidiary of the Holder that is a corporation; provided, in each case, that the Holder shall give written notice to the Company of the Holder’s intention to effect such disposition and shall have furnished the Company with a detailed description of the manner and circumstances of the proposed disposition.

(c)          Securities Law Legend. The Securities shall (unless otherwise permitted by the provisions of this Warrant) be stamped or imprinted with a legend substantially similar to the following (in addition to any legend required by state securities laws):

THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR UNDER THE SECURITIES LAWS OF CERTAIN STATES, THESE SECURITIES MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED EXCEPT AS PERMITTED UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS IN ACCORDANCE WITH APPLICABLE REGISTRATION REQUIREMENTS OR AN EXEMPTION THEREFROM. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE ISSUER THAT SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION OTHERWISE COMPLIES WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS. THIS CERTIFICATE MUST BE SURRENDERED TO THE COMPANY OR ITS TRANSFER AGENT AS A CONDITION PRECEDENT TO THE SALE, TRANSFER, PLEDGE OR HYPOTHECATION OF ANY INTEREST IN ANY OF THE SECURITIES REPRESENTED HEREBY.

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(d)          Shareholder Agreement Legend. The Shares issued upon exercise hereof shall also be stamped or imprinted with any and all legends described in the Company’s Shareholder Agreement.

(e)          Instructions Regarding Transfer Restrictions. The Holder consents to the Company making a notation on its records and giving instructions to any transfer agent in order to implement the restrictions on transfer established in Sections 5 and 6. The Company will not be required to (i) transfer on its books or in its Warrant Register any Securities that have been transferred in violation of any provisions of this Warrant or (ii) to treat as owner of such Securities, or accord the right to vote or pay dividends to any purchaser, donee or other transferee to whom such Securities may have been so transferred.

(f)          Removal of Legend. The legend referring to federal and state securities laws identified in Section 6(d) stamped on a certificate evidencing the Shares and the stock transfer instructions and record notations with respect to such securities shall be removed and the Company shall issue a certificate without such legend to the holder of such securities if (i) such securities are registered under the Securities Act, or (ii) such holder provides the Company with an opinion of counsel reasonably acceptable to the Company to the effect that a sale or transfer of such securities may be made without registration or qualification.

7.         Adjustments. Subject to the expiration of this Warrant pursuant to Section 9, the number and kind of shares purchasable hereunder and the Exercise Price therefor are subject to adjustment from time to time after the date first stated herein, as follows;

(a)          Merger or Reorganization. If at any time there shall be any reorganization, recapitalization, merger or consolidation (a “Reorganization”) involving the Company (other than as otherwise provided for herein or as would cause the expiration of this Warrant under Section 9) in which the Preferred Stock are converted into or exchanged for securities, cash or other property, then, as a part of such Reorganization, lawful provision shall be made so that the Holder shall thereafter be entitled to receive upon exercise of this Warrant, the kind and amount of securities, cash or other property of the successor corporation resulting from such Reorganization, equivalent in value to that which a holder of the Shares deliverable upon exercise of this Warrant would have been entitled in such Reorganization if the right to purchase the Shares hereunder had been exercised immediately prior to such Reorganization. In any such case, appropriate adjustment (as determined in good faith by the Board of Directors of the successor corporation) shall be made in the application of the provisions of this Warrant with respect to the rights and interests of the Holder after such Reorganization to the end that the provisions of this Warrant shall be applicable after the event, as near as reasonably may be, in relation to any shares or other securities deliverable after that event upon the exercise of this Warrant.

(b)          Reclassification of Shares. If the securities issuable upon exercise of this Warrant are changed into the same or a different number of securities of any other class or classes by reclassification, capital reorganization or otherwise (other than as otherwise provided for herein) (a “Reclassification”), then, in any such event, in lieu of the number of Shares which the Holder would otherwise have been entitled to receive, the Holder shall have the right thereafter to exercise this Warrant for a number of shares of such other class or classes of stock that a holder of the number of securities deliverable upon exercise of this Warrant immediately before that change would have been entitled to receive in such Reclassification, all subject to further adjustment as provided herein with respect to such other shares.

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(c)          Subdivisions and Combinations. In the event that the outstanding shares of the Preferred Stock are subdivided (by stock split, by payment of a stock dividend or otherwise) into a greater number of shares of such securities, the number of Shares issuable upon exercise of the rights under this Warrant immediately prior to such subdivision shall, concurrently with the effectiveness of such subdivision, be proportionately increased, and the Exercise Price shall be proportionately decreased, and in the event that the outstanding shares of the Preferred Stock are combined (by reclassification or otherwise) into a lesser number of shares of such securities, the number of Shares issuable upon exercise of the rights under this Warrant immediately prior to such combination shall, concurrently with the effectiveness of such combination, be proportionately decreased, and the Exercise Price shall be proportionately increased.

(d)          Notice of Adjustments. Upon any adjustment in accordance with this Section 7, the Company shall give notice thereof to the Holder, which notice shall state the event giving rise to the adjustment, the Exercise Price as adjusted and the number of securities or other property purchasable upon the exercise of the rights under this Warrant, setting forth in reasonable detail the method of calculation of each. The Company shall, upon the written request of any Holder, furnish or cause to be furnished to such Holder a certificate setting forth (i) such adjustments, (ii) the Exercise Price at the time in effect and (iii) the number of securities and the amount, if any, of other property that at the time would be received upon exercise of this Warrant.

8.         Notification of Certain Events. Prior to the expiration of this Warrant pursuant to Section 9, in the event that the Company shall authorize:

(a)          the voluntary liquidation, dissolution or winding up of the Company;

(b)          any transaction resulting in the expiration of this Warrant pursuant to Section 9(b); or

(c)          any cash dividend, stock dividend, property dividend or any other distribution of the Company;

the Company shall send to the Holder of this Warrant at least fifteen (15) days prior written notice of the date on which a record shall be taken for any such action, dividend or distribution specified in clause (a) or (c) or the expected effective date of any such other event specified in clause (b) or (c), as applicable. The notice provisions set forth in this section may be shortened or waived prospectively or retrospectively by the consent of the Holder of this Warrant.

9.         Expiration of the Warrant. This Warrant shall expire and shall no longer be exercisable as of the earlier of (such date, the “Expiration Date”):

(a)          5:00 p.m., Eastern time, on January 15, 2024; or

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(b)          (i) the acquisition of the Company by another entity by means of any transaction or series of related transactions to which the Company is a party (including, without limitation, any stock acquisition, reorganization, merger or consolidation, but excluding any sale of stock for capital raising purposes and any transaction effected primarily for purposes of changing the Company’s jurisdiction of incorporation) other than a transaction or series of related transactions in which the holders of the voting securities of the Company outstanding immediately prior to such transaction or series of related transactions retain, immediately after such transaction or series of transactions, as a result of shares in the Company held by such holders prior to such transaction or series of transactions, at least a majority of the total voting power represented by the outstanding voting securities of the Company or such other surviving or resulting entity (or if the Company or such other surviving or resulting entity is a wholly-owned subsidiary immediately following such acquisition, its parent), or (ii) a sale, lease or other disposition of all or substantially all of the assets of the Company and its subsidiaries taken as a whole by means of any transaction or series of related transactions, except where such sale, lease or other disposition is to a wholly-owned subsidiary of the Company (any of the foregoing events specified in this Section 9(b), referred to generally as a “Change of Control”).

10.         No Rights as a Stockholder. Nothing contained herein shall entitle the Holder to any rights as a stockholder of the Company or to be deemed the holder of any securities that may at any time be issuable on the exercise of the rights hereunder for any purpose nor shall anything contained herein be construed to confer upon the Holder, as such, any right to vote for the election of directors or upon any matter submitted to stockholders at any meeting thereof, or to give or withhold consent to any corporate action (whether upon any recapitalization, issuance of stock, reclassification of stock, change of par value or change of stock to no par value, consolidation, merger, conveyance or otherwise) or to receive notice of meetings, or to receive dividends or subscription rights or any other rights of a stockholder of the Company until the rights under the Warrant shall have been exercised and the Shares purchasable upon exercise of the rights hereunder shall have become deliverable as provided herein.

11.         Representations and Warranties of the Holder. By acceptance of this Warrant, the Holder represents and warrants to the Company as follows:

(a)          No Registration. The Holder understands that the Securities have not been, and will not be, registered under the Securities Act by reason of a specific exemption from the registration provisions of the Securities Act, the availability of which depends upon, among other things, the bona fide nature of the investment intent and the accuracy of the Holder’s representations as expressed herein or otherwise made pursuant hereto.

(b)          Investment Intent. The Holder is acquiring the Securities for investment for its own account, not as a nominee or agent, and not with a view to, or for resale in connection with, any distribution thereof. The Holder has no present intention of selling, granting any participation in, or otherwise distributing the Securities, nor does it have any contract, undertaking, agreement or arrangement for the same.

(c)          Investment Experience. The Holder has substantial experience in evaluating and investing in private placement transactions of securities in companies similar to the Company, and has such knowledge and experience in financial or business matters so that it is capable of evaluating the merits and risks of its investment in the Company and protecting its own interests.

(d)          Speculative Nature of Investment. The Holder understands and acknowledges that the Company has a limited financial and operating history and that its investment in the Company is highly speculative and involves substantial risks. The Holder can bear the economic risk of its investment and is able, without impairing its financial condition, to hold the Securities for an indefinite period of time and to suffer a complete loss of its investment.

(e)          Access to Data. The Holder has had an opportunity to ask questions of officers of the Company, which questions were answered to its satisfaction. The Holder believes that it has received all the information that it considers necessary or appropriate for deciding whether to acquire the Securities. The Holder understands that any such discussions, as well as any information issued by the Company, were intended to describe certain aspects of the Company’s business and prospects, but were not necessarily a thorough or exhaustive description. The Holder acknowledges that any business plans prepared by the Company have been, and continue to be, subject to change and that any projections included in such business plans or otherwise are necessarily speculative in nature, and it can be expected that some or all of the assumptions underlying the projections will not materialize or will vary significantly from actual results.

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(f)          Accredited Investor. The Holder is an “accredited investor” within the meaning of Regulation D, Rule 501(a), promulgated by the Securities and Exchange Commission and agrees to submit to the Company such further assurances of such status as may be reasonably requested by the Company.

(g)          Residency. The residency of the Holder (or, in the case of a partnership or corporation, such entity’s principal place of business) is correctly set forth on the signature page hereto.

(h)          Restrictions on Resales. The Holder acknowledges that the Securities must be held indefinitely unless subsequently registered under the Securities Act or an exemption from such registration is available. The Holder is aware of the provisions of Rule 144 promulgated under the Securities Act, which permit resale of shares purchased in a private placement subject to the satisfaction of certain conditions, which may include, among other things, the availability of certain current public information about the Company; the resale occurring not less than a specified period after a party has purchased and paid for the security to be sold; the number of shares being sold during any three-month period not exceeding specified limitations; the sale being effected through a “broker’s transaction,” a transaction directly with a “market maker” or a “riskless principal transaction” (as those terms are defined in the Securities Act or the Exchange Act, as amended, and the rules and regulations promulgated thereunder); and the filing of a Form 144 notice, if applicable. The Holder acknowledges and understands that the Company may not be satisfying the current public information requirement of Rule 144 at the time the Holder wishes to sell the Securities and that, in such event, the Holder may be precluded from selling the Securities under Rule 144 even if the other applicable requirements of Rule 144 have been satisfied. The Holder acknowledges that, in the event the applicable requirements of Rule 144 are not met, registration under the Securities Act or an exemption from registration will be required for any disposition of the Securities. The Holder understands that, although Rule 144 is not exclusive, the Securities and Exchange Commission has expressed its opinion that persons proposing to sell restricted securities received in a private offering other than in a registered offering or pursuant to Rule 144 will have a substantial burden of proof in establishing that an exemption from registration is available for such offers or sales and that such persons and the brokers who participate in the transactions do so at their own risk.

(i)          No Public Market. The Holder understands and acknowledges that no public market now exists for any of the securities issued by the Company and that the Company has made no assurances that a public market will ever exist for the Company’s securities.

(j)          Brokers and Finders. The Holder has not engaged any brokers, finders or agents in connection with the Securities, and the Company has not incurred nor will incur, directly or indirectly, as a result of any action taken by the Holder, any liability for brokerage or finders’ fees or agents’ commissions or any similar charges in connection with the Securities.

(k)          Legal Counsel. The Holder has had the opportunity to review this Warrant, the exhibits and schedules attached hereto and the transactions contemplated by this Warrant with its own legal counsel. The Holder is not relying on any statements or representations of the Company or its agents for legal advice with respect to this investment or the transactions contemplated by this Warrant.

(l)          Tax Advisors. The Holder has reviewed with its own tax advisors the U.S. federal, state and local and non-U.S. tax consequences of this investment and the transactions contemplated by this Warrant. With respect to such matters, the Holder relies solely on any such advisors and not on any statements or representations of the Company or any of its agents, written or oral. The Holder understands that it (and not the Company) shall be responsible for its own tax liability that may arise as a result of this investment and the transactions contemplated by this Warrant.

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12. Miscellaneous.

(a)          Amendments. Except as expressly provided herein, neither this Warrant nor any term hereof may be amended, waived, discharged or terminated other than by a written instrument referencing this Warrant and signed by the Company and the Holder. Any amendment, waiver, discharge or termination effected in accordance with this Section 12(a) shall be binding upon the Holder, each future holder of such Warrants and the Company.

(b)          Waivers. No waiver of any single breach or default shall be deemed a waiver of any other breach or default theretofore or thereafter occurring.

(c)          Notices. All notices and other communications required or permitted hereunder shall be in writing and shall be mailed by registered or certified mail, postage prepaid, sent by facsimile or electronic mail (if to the Holder) or otherwise delivered by hand, messenger or courier service addressed:

(i)          if to the Holder, to the Holder at the Holder’s address, facsimile number or electronic mail address as shown in the Company’s records, as may be updated in accordance with the provisions hereof, or until any such Holder so furnishes an address, facsimile number or electronic mail address to the Company, then to and at the address, facsimile number or electronic mail address of the last holder of this Warrant for which the Company has contact information in its records; or

(ii)        if to the Company, to the attention of the Chief Executive Officer of the Company at the Company’s address as shown on the signature page hereto, or at such other address as the Company shall have furnished to the Holder.

Each such notice or other communication shall for all purposes of this Warrant be treated as effective or having been given (i) if delivered by hand, messenger or courier service, when delivered, or (ii) if sent by mail, at the earlier of its receipt or 72 hours after the same has been deposited in a regularly maintained receptacle for the deposit of the United States mail, addressed and mailed as aforesaid, or (iii) if sent by facsimile, upon confirmation of facsimile transfer or, if sent by electronic mail, upon confirmation of delivery when directed to the relevant electronic mail address. In the event of any conflict between the Company’s books and records and this Warrant or any notice delivered hereunder, the Company’s books and records will control absent fraud or error.

(d)          Governing Law. This Warrant and all actions arising out of or in connection with this Warrant shall be governed by and construed in accordance with the laws of the State of Michigan, without regard to the conflicts of law provisions of any other state.

(e)          Jurisdiction and Venue. Each of the Holder and the Company irrevocably consents to the exclusive jurisdiction and venue of any court within the Ingham County, State of Michigan, in connection with any matter based upon or arising out of this Warrant or the matters contemplated herein, and agrees that process may be served upon them in any manner authorized by the laws of the State of Florida for such persons.

(f)          Titles and Subtitles. The titles and subtitles used in this Warrant are used for convenience only and are not to be considered in construing or interpreting this Warrant. All references in this Warrant to sections, paragraphs and exhibits shall, unless otherwise provided, refer to sections and paragraphs hereof and exhibits attached hereto.

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(g)          Severability. If any provision of this Warrant becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, portions of such provision, or such provision in its entirety, to the extent necessary, shall be severed from this Warrant, and such illegal, unenforceable or void provision shall be replaced with a valid and enforceable provision that will achieve, to the extent possible, the same economic, business and other purposes of the illegal, unenforceable or void provision. The balance of this Warrant shall be enforceable in accordance with its terms.

(h)          Waiver of Jury Trial. EACH OF THE HOLDER AND THE COMPANY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATED TO THIS WARRANT. If the waiver of jury trial set forth in this paragraph is not enforceable, then any claim or cause of action arising out of or relating to this Warrant shall be settled by judicial reference pursuant to the laws of the State of Michigan before a referee sitting without a jury, such referee to be mutually acceptable to the parties or, if no agreement is reached, by a referee appointed by the state courts of Michigan. This paragraph shall not restrict the Holder or the Company from exercising remedies under the Uniform Commercial Code or from exercising pre- judgment remedies under applicable law.

(i)          Saturdays, Sundays and Holidays. If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall be a Saturday, Sunday or U.S. federal holiday, then such action may be taken or such right may be exercised on the next succeeding day that is not a Saturday, Sunday or U.S. federal holiday (such day a “Business Day”).

(j)Rights and Obligations Survive Exercise of the Warrant. Except as otherwise provided herein, the rights and obligations of the Company and the Holder under this Warrant shall survive exercise of this Warrant.

(k)Entire Agreement. Except as expressly set forth herein, this Warrant (including the exhibits attached hereto) constitutes the entire agreement and understanding of the Company and the Holder with respect to the subject matter hereof and supersedes all prior agreements and understandings relating to the subject matter hereof.

(Signature Page Follows)

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The Company and the Holder sign this Warrant as of the date stated on the first page.

XG SCIENCES, INC.

a Michigan corporation

By:
Name:	Michael R. Knox
Title:	Chief Executive Officer

Address:
3101 Grand Oak Drive Lansing, MI 48911
Telephone:	517.703.1110
Facsimile:	517.703.1113

AGREED AND ACKNOWLEDGED:

By:

Name:

Title:

Address:

Telephone:

Facsimile:

EXHIBIT A

NOTICE OF EXERCISE

TO:	XG Sciences, Inc. (the “Company”)
Attention:	Chief Executive Officer

(1) Exercise. The undersigned elects to purchase the following pursuant to the terms of the attached warrant:

Number of shares:

Type of security:

(2) Method of Exercise. The undersigned elects to exercise the attached warrant pursuant to:

¨ A cash payment, and tenders herewith payment of the purchase price for such shares in full, together with all applicable transfer taxes, if any.

¨ The net issue exercise provisions of Section 2(b) of the attached warrant.

(3) Stock Certificate. Please issue a certificate or certificates representing the shares in the name of:

¨ The undersigned

¨	Other—Name:
	Address:

(4) Unexercised Portion of the Warrant. Please issue a new warrant for the unexercised portion of the attached warrant in the name of:

¨	The undersigned
¨	Other—Name:
	Address:
¨	Not applicable

(5) Investment Intent. The undersigned represents and warrants that the aforesaid shares are being acquired for investment for its own account, not as a nominee or agent, and not with a view to, or for resale in connection with, the distribution thereof, and that the undersigned has no present intention of selling, granting any participation in, or otherwise distributing the shares, nor does it have any contract, undertaking, agreement or arrangement for the same, and all representations and warranties of the undersigned set forth in Section 11 of the attached warrant are true and correct as of the date hereof.

(Signature page to the Notice of Exercise)

A-1

(6) Investment Representation Statement. The undersigned has executed, and delivers herewith, an Investment Representation Statement in a form substantially similar to the form attached to the warrant as Exhibit A-1.

(Print name of the warrant holder)

(Signature)

(Name and title of signatory, if applicable)

(Date)

(Fax number)

(Email address)

(Signature page to the Notice of Exercise)

A-2

EXHIBIT A-l

INVESTMENT REPRESENTATION STATEMENT

INVESTOR:

COMPANY:	XG Sciences, Inc., a Michigan corporation
SECURITIES:	THE WARRANT ISSUED ON                 (THE “WARRANT”) AND THE SECURITIES ISSUED OR ISSUABLE UPON EXERCISE THEREOF

DATE:

In connection with the purchase or acquisition of the above-listed Securities, the undersigned Investor represents and warrants to, and agrees with, the Company as follows:

1.          No Registration. The Investor understands that the Securities have not been, and will not be, registered under the Securities Act of 1933, as amended (the “Securities Act’), by reason of a specific exemption from the registration provisions of the Securities Act, the availability of which depends upon, among other things, the bona fide nature of the investment intent and the accuracy of the Investor’s representations as expressed herein or otherwise made pursuant hereto.

2.          Investment Intent. The Investor is acquiring the Securities for investment for its own account, not as a nominee or agent, and not with a view to, or for resale in connection with, any distribution thereof. The Investor has no present intention of selling, granting any participation in, or otherwise distributing the Securities, nor does it have any contract, undertaking, agreement or arrangement for the same.

3.          Investment Experience. The Investor has substantial experience in evaluating and investing in private placement transactions of securities in companies similar to the Company, and has such knowledge and experience in financial or business matters so that it is capable of evaluating the merits and risks of its investment in the Company and protecting its own interests.

4.          Speculative Nature of Investment. The Investor understands and acknowledges that its investment in the Company is highly speculative and involves substantial risks. The Investor can bear the economic risk of its investment and is able, without impairing its financial condition, to hold the Securities for an indefinite period of time and to suffer a complete loss of its investment.

5.          Access to Data. The Investor has had an opportunity to ask questions of officers of the Company, which questions were answered to its satisfaction. The Investor understands that any such discussions, as well as any information issued by the Company, were intended to describe certain aspects of the Company’s business and prospects, but were not necessarily a thorough or exhaustive description. The Investor acknowledges that any business plans prepared by the Company have been, and continue to be, subject to change and that any projections included in such business plans or otherwise are necessarily speculative in nature, and it can be expected that some or all of the assumptions underlying the projections will not materialize or will vary significantly from actual results.

6.         Accredited Investor. The Investor is an “accredited investor” within the meaning of Regulation D, Rule 501(a), promulgated by the Securities and Exchange Commission and agrees to submit to the Company such further assurances of such status as may be reasonably requested by the Company.

A-1-1

7.         Residency. The residency of the Investor (or, in the case of a partnership or corporation, such entity’s principal place of business) is correctly set forth on the signature page hereto.

8.         Restrictions on Resales. The Investor acknowledges that the Securities must be held indefinitely unless subsequently registered under the Securities Act or an exemption from such registration is available. The Investor is aware of the provisions of Rule 144 promulgated under the Securities Act, which permit resale of shares purchased in a private placement subject to the satisfaction of certain conditions, which may include, among other things, the availability of certain current public information about the Company; the resale occurring not less than a specified period after a party has purchased and paid for the security to be sold; the number of shares being sold during any three-month period not exceeding specified limitations; the sale being effected through a “broker’s transaction,” a transaction directly with a “market maker” or a “riskless principal transaction” (as those terms are defined in the Securities Act or the Exchange Act (as defined below), as amended, and the rules and regulations promulgated thereunder); and the filing of a Form 144 notice, if applicable. The Investor acknowledges and understands that the Company may not be satisfying the current public information requirement of Rule 144 at the time the Investor wishes to sell the Securities and that, in such event, the Investor may be precluded from selling the Securities under Rule 144 even if the other applicable requirements of Rule 144 have been satisfied. The Investor understands and acknowledges that, in the event the applicable requirements of Rule 144 are not met, registration under the Securities Act or an exemption from registration will be required for any disposition of the Securities. The Investor understands that, although Rule 144 is not exclusive, the Securities and Exchange Commission has expressed its opinion that persons proposing to sell restricted securities received in a private offering other than in a registered offering or pursuant to Rule 144 will have a substantial burden of proof in establishing that an exemption from registration is available for those offers or sales and that those persons and the brokers who participate in the transactions do so at their own risk.

9.         No Public Market. The Investor understands and acknowledges that no public market now exists for any of the securities issued by the Company and that the Company has made no assurances that a public market will ever exist for the Company’s securities.

10.         Brokers and Finders. The Investor has not engaged any brokers, finders or agents in connection with the Securities, and the Company has not incurred nor will incur, directly or indirectly, as a result of any action taken by the Investor, any liability for brokerage or finders’ fees or agents’ commissions or any similar charges in connection with the Securities.

11.         Legal Counsel. The Investor has had the opportunity to review the Warrant, the exhibits and schedules attached thereto and the transactions contemplated by the Warrant with its own legal counsel. The Investor is not relying on any statements or representations of the Company or its agents for legal advice with respect to this investment or the transactions contemplated by the Warrant.

12.         Tax Advisors. The Investor has reviewed with its own tax advisors the U.S. federal, state and local and non-U.S. tax consequences of this investment and the transactions contemplated by the Warrant. With respect to such matters, the Investor relies solely on such advisors and not on any statements or representations of the Company or any of its agents, written or oral. The Investor understands that it (and not the Company) shall be responsible for its own tax liability that may arise as a result of this investment or the transactions contemplated by the Warrant.

A-1-2

The Investor is signing this Investment Representation Statement on the date First written above.

INVESTOR

[                                   ]

(Print name of the investor)

(Signature)

(Name and title of signatory, if applicable)

(Street address)

(City, state and ZIP)

A-1-3

EXHIBIT B

[Shareholder Agreement]

B-1

EXHIBIT C

ASSIGNMENT FORM

ASSIGNOR:
COMPANY:	XG SCIENCES, INC.
WARRANT:	THE WARRANT TO PURCHASE SHARES OF SERIES A CONVERTIBLE PREFERRED STOCK ISSUED ON                 , 2013 (THE “WARRANT”)
DATE:

(1) Assignment. The undersigned registered holder of the Warrant (“Assignor”) assigns and transfers to the assignee named below (“Assignee”) all of the rights of Assignor under the Warrant, with respect to the number of shares set forth below:

Name of Assignee:

Address of Assignee:

Number of Shares Assigned:

and does irrevocably constitute and appoint                                        as attorney to make such transfer on the books of XG Sciences, Inc., maintained for the purpose, with full power of substitution in the premises.

(2) Obligations of Assignee. Assignee agrees to take and hold the Warrant and any shares of stock to be issued upon exercise of the rights thereunder (the “Securities”) subject to, and to be bound by, the terms and conditions set forth in the Warrant to the same extent as if Assignee were the original holder thereof.

(3) Investment Intent. Assignee represents and warrants that the Securities are being acquired for investment for its own account, not as a nominee or agent, and not with a view to, or for resale in connection with, the distribution thereof, and that Assignee has no present intention of selling, granting any participation in, or otherwise distributing the shares, nor does it have any contract, undertaking, agreement or arrangement for the same, and all representations and warranties set forth in Section 11 of the Warrant are true and correct as to Assignee as of the date hereof.

(4) Investment Representation Statement. Assignee has executed, and delivers herewith, an Investment Representation Statement in a form substantially similar to the form attached to the Warrant as Exhibit A-l.

C-2

Assignor and Assignee are signing this Assignment Form on the date first set forth above.

ASSIGNOR	ASSIGNEE
(Print name of Assignor)	(Print name of Assignee)
(Signature of Assignor)	(Signature of Assignee)
(Print name of signatory, if applicable)	(Print name of signatory, if applicable)
(Print title of signatory, if applicable)	(Print title of signatory, if applicable)
Address:	Address:

C-3

XG SCIENCES, INC.

PURCHASE AGREEMENT

BETWEEN

XG SCIENCES, INC.

AND 

SVIC NO. 15 NEW TECHNOLOGY BUSINESS INVESTMENT L.L.P.

ANNEX VII

DISCLOSURE ANNEX

January 15, 2014

This Disclosure Annex is arranged in sections corresponding to the identified Sections of the Purchase Agreement between XG Sciences, Inc. and SVIC No. 15 New Technology Business Investments L.L.P. to which it is attached as Annex VII (the “Agreement”), but the disclosure in any such Section shall qualify other provisions in the Agreement, as well as all disclosures in any of the other Transaction Agreements, to the extent that it would be readily apparent to an informed reader from a reading of such Section and the other Transaction Agreements that such disclosure is also relevant to other provisions of the Agreement or any of the other Transaction Agreements.

Capitalized terms that are used but not defined in this Disclosure Annex shall have the meanings set forth in the Agreement.

Section 3.a.

The following agreements grant preemptive rights to stockholders of the Company with respect to the Company’s Common Stock: (1) Stock Redemption Agreement dated July 15, 2006 (superseded by Shareholder Agreement); (2) Stock Redemption Agreement dated December 1, 2010 with Hanwha Chemical Corporation (superseded by Shareholder Agreement); (3) Stock Redemption Agreement dated June 8, 2011 with POSCO (superseded by Shareholder Agreement); (4) the Shareholder Agreement; (5) Section 4.n of the Amended and Restated Purchase Agreement dated July 12, 2013 between the Company and Aspen Advanced Opportunity Fund, LP, as amended on the Closing Date; (6) Section 4.n of the Purchase Agreement dated July 12, 2013 between the Company and XGS II, LLC, as amended on the Closing Date; and (7) Section 4.m. of the Agreement.

Michigan State University has tag-along and “piggy-back” registration rights under the Restated and Amended Exclusive License Agreement between MSU and the Company.

Section 3.c.(i).

Outstanding Common Stock

Name of Holder of Common Stock	Shares of Common Stock
Michael R. Knox (and Linn Van Dyne)	127,047.0
Lawrence T. Drzal, Trustee of Drzal Revocable Trust	50,550.0
Hiroyuki Fukushima	50,000.0
Inhwan Do	50,000.0
Ann Arbor SPARK	36,257.0
Robert Skandalaris	34,977.0
Edward J. Demmer	30,000.0
Mark S. Kerrins & Rosemary Kerrins (JTWROS)	32,500.0
David J. Donovan	16,257.0
Michigan State University Foundation	9,543.0
W. D. Hamilton and S.M Heathfield	7,251.0
Paul Nordstrom	3,637.0
Colin D. Cronin	2,803.0
Stephen J. Linder trust No 1	5,251.0
Matthew H. Frisch	2,087.5
Jeffery A. Wesley	9,005.0
Mark E. Hooper Revocable Living Trust	3,625.0
Peter S. Bosanic & Lisa Kendzioski Bosanic (JTWROS)	1,925.0
Kevin B. Miller	2,400.0
William G. Lutz	1,653.0
John W. Dourjalian	1,649.0
Reed Shick	880.0
Gary Griffin	1,500.0
Robert L. McKellar	592.0
Hanwha Chemical	150,000.0
POSCO	200,000.0
Marjorie E. Frisch	2,087.5
Total Common Stock Issued and Outstanding	833,477.0

Outstanding Series A Convertible Preferred Stock

Name of Holder of Series A Convertible Preferred Stock	Shares of Series A Convertible Preferred Stock
Paul Nordstrom	6,363.0
Colin D. Cronin	5,300.0
Peter S. Bosanic & Lisa Kendzioski Bosanic (JTWROS)	1,875.0
John W. Dourjalian	3,123.0
Dave and Vicky Pendell	3,157.0
ASC-XGS, LLC	166,023.0
Total Series A Convertible Preferred Stock Issued and Outstanding	185,841.0
Total Common Stock and Series A Convertible Preferred Stock Issued and Outstanding	1,019,318

Note: The Corporation is authorized to issue: (A) 25,000,000 shares of Common Stock, and (B) 8,000,000 shares of Series A Convertible Preferred Stock.

Outstanding Warrants and Options
Holder	Issue Date	Shares Subject to Warrant*			Shares Subject to Option		Expiration Date	Exercise Price
Scott Murray	12/1/2007		0			10,000	12/1/2017	$	8.00
William Lutz	7/31/2009		1,650			0	7/31/2014	$	15.00
Michael R. Knox	3/15/2009		0			12,500	3/15/2014	$	12.00
Michael R. Knox	7/1/2009		6,000			0	7/1/2019	$	8.00
William Lutz	4/1/2010		5,000			0	4/1/2015	$	10.00
ASC-XGS LLC	7/16/2010		21,044			0	7/16/2014	$	10.00
Jihyun Chung	7/12/2011		4,000			0	7/31/2015	$	20.00
Michael R. Knox	10/8/2012		5,000			0	10/8/2027	$	12.00
Aspen Advanced Opportunity Fund, LP	3/18/2013		208,333			0	3/18/2023	$	12,00
Arnold Allemang	6/1/2013		0			3,750	6/1/2021	$	12.00
Iris Linder	6/1/2013		0			3,750	6/1/2021	$	12.00
Steven Jones	6/1/2013		0			2,500	6/1/2021	$	12.00
Scott Murray	6/1/2013		0			10,000	6/1/2021	$	12.00
Robert Privette	6/1/2013		0			20,000	6/1/2021	$	12.00
Liya Wang	6/1/2013		0			30,000	6/1/2021	$	12.00
Michael R. Knox	6/1/2013		0			50,000	6/1/2021	$	13.20
Corinne Lyon	6/1/2013		0			10,000	6/1/2021	$	12.00
Aspen Advanced Opportunity Fund, LP	7/12/2013		208,333	*		0	7/12/2023	$	12.00
XGS II, LLC	7/12/2013		31,250	*		0	7/12/2023	$	12.00
			490,610	*		152,500

*On the Closing Date, the Company will cancel the warrants issued to each of Aspen Advanced Opportunity Fund, LP and XGS II, LLC; issue a restated warrant to Aspen Advanced Opportunity Fund, LP for 833,333 shares; issue a restated warrant to XGS II, LLC for 83,333 shares; issue a warrant to SVIC No. 15 New Technology Business Investment L.L.P. for 100,000; and issue warrants to each of the shareholders who participated in the preemptive rights offering that ended October 31, 2013 (2,121 to Paul Nordstrom, 1,767 to Colin D. Cronin, 625 to Peter S. Bosanic & Lisa Kendzioski Bosanic (JTWROS), and 1,041 to John W. Dourjalian).

Section 3.c.(ii).

• The $603,846,58 secured convertible promissory note dated March 18, 2013 to Aspen Advanced Opportunity Fund, LP.** The note is convertible into Series A Stock and then Common Stock.

• The $250,000.00 secured convertible promissory note dated April 3, 2013 to Aspen Advanced Opportunity Fund, LP.** The note is convertible into Series A Stock and then Common Stock.

• The $250,000.00 secured convertible promissory note dated April 12, 2013 to Aspen Advanced Opportunity Fund, LP.** The note is convertible into Series A Stock and then Common Stock.

• The $1,400,000.00 secured convertible promissory note dated April 26, 2013 to Aspen Advanced Opportunity Fund, LP.** The note is convertible into Series A Stock and then Common Stock.

• The $800,000.00 secured convertible promissory note dated July 29, 2013 to Aspen Advanced Opportunity Fund, LP, of which $490,575 will be transferred to the benefit of XGS II, LLC on the Closing Date .** The note is convertible into Series A Stock and then Common Stock.

• The $200,000.00 secured convertible promissory note dated September 30, 2013 to Aspen Advanced Opportunity Fund, LP.** The note is convertible into Series A Stock and then Common Stock.

• The $300,000.00 secured convertible promissory note dated October 15, 2013 to Aspen Advanced Opportunity Fund, LP.** The note is convertible into Series A Stock and then Common Stock.

• The $500,000.00 secured convertible promissory note dated December 2, 2013 to Aspen Advanced Opportunity Fund, LP.** The note is convertible into Series A Stock and then Common Stock.

• The $100,000.00 secured convertible promissory note dated January 7, 2014 to Aspen Advanced Opportunity Fund, LP.** The note is convertible into Series A Stock and then Common Stock,

• The $700,000.00 secured convertible promissory note dated March 18, 2013 to Michael Knox. *** The note is convertible into Series A Stock and then Common Stock.

• The $200,000.00 secured convertible promissory note dated October 15, 2013 to XGS II, LLC, to which $490,575 will be transferred to the benefit of XGS II, LLC on the Closing Date.*** The note is convertible into Series A Stock and then Common Stock.

• The Options and Warrants set forth in Section 3.c.(i) of this Disclosure Annex.

**  On the Closing Date, this note will be restated and consolidated with all other notes issued by the Company to Aspen Advanced Opportunity Fund, LP. The restated note will include capitalized interest through the Closing Date.

***  On the Closing Date, this note will be restated. The restated note will include capitalized interest through the Closing Date.

Section 3.g.(i).

The Company issued the secured convertible promissory notes that are described above to and entered into the related transaction documents with each of Aspen Advanced Opportunity Fund, LP, Michael Knox, and XGS II, LLC.

Section 3.g.(vii).

The Company is engaged in litigation with a former employee, Heather Sommers. Heather Sommers signed a separation agreement with the Company on July 27, 2012. On October 22, 2012, the Company received a complaint and demand for jury trial alleging wrongful termination, breach of implied employment contract, discharge against public policy, violations of civil rights laws, violations of the whistleblower protection act, and other claims. The Company’s insurer has reviewed the claim and advised the Company that the claim is covered by the Company’s standard officers and directors’ insurance policy. The insurer has assumed the defense of the claim. On September 24, 2013, the Circuit Court for the County of Ingham granted Defendant’s Motion for Summary Disposition, resolving all pending claims and closing the case. On October 30, 2013 the same court denied Plaintiffs Motion for Reconsideration.

Section 3.h.

In November of 2011, the Company entered into a license agreement between the Company and Cabot Corporation (“Cabot”), a copy of which has been supplied to the Buyer (the “License Agreement”). Subsequent to the execution of the License Agreement, Michigan State University (“MSU”) expressed concern regarding the form of the License Agreement, including whether any MSU technology might have been included in the License Agreement. After discussions among Cabot, MSU, and the Company, Cabot drafted a First Amendment to the License Agreement Between Cabot and the Company (the “Amendment”). The Amendment contains warranties, attested by both the Company and its Chief Scientist, Dr. Lawrence Drzal, asserting that no MSU technology had been improperly transferred to Cabot. The Company executed the Amendment on January 29, 2013, and has provided a copy to the Buyer. The Company understood that this matter was closed when it provided the Amendment to the Buyer. However, the Company subsequently learned that Cabot has not yet signed the Amendment because a new Vice President had been appointed. Additionally, the Company received a letter from MSU dated March 20, 2013 stating that MSU wanted to review this issue. The Company, Cabot, and MSU have been renegotiating the Amendment. MSU is currently engaged in an audit of the technology transfer package associated with the Cabot License Agreement.

Section 3.i.

The Company is engaged in litigation with a former employee, Heather Sommers. Heather Sommers signed a separation agreement with the Company on July 27, 2012. On October 22, 2012, the Company received a complaint and demand for jury trial alleging wrongful termination, breach of implied employment contract, discharge against public policy, violations of civil rights laws, violations of the whistleblower protection act, and other claims. The Company’s insurer has reviewed the claim and advised the Company that the claim is covered by the Company’s standard officers and directors’ insurance policy. The insurer has assumed the defense of the claim. On September 24, 2013, the Circuit Court for the County of Ingham granted Defendant’s Motion for Summary Disposition, resolving all pending claims and closing the case. On October 30, 2013, the same court denied Plaintiff’s Motion for Reconsideration.

Section 3.o.

The Company is obligated to pay Buyer’s transaction fees, up to $65,000, in connection with the transactions contemplated by the Agreement.

The Company is obligated to pay Aspen Advanced Opportunity Fund and XGS II, LLC’s transaction fees, up to $150,000 and $25,000, respectively, in connection with the transactions contemplated by the purchase agreements between each of them and the Company, as amended effective as of the Closing Date.

Section 3.s.

The warrant to purchase 5,000 shares issued to Michael R. Knox contains an exercise price reset mechanism triggered by subsequent offerings of Common Stock. Pursuant to that mechanism, the price was reset from $20 to $12 on August 21, 2013.

The Company’s options and warrants contain anti-dilution protection with respect to stock splits, stock dividends, and other recapitalizations.

EX-10.38

Exhibit 10.38

XG SCIENCES, INC.

FIRST AMENDMENT TO SHAREHOLDER AGREEMENT

This First Amendment to Shareholder Agreement (“Amendment”) is made and entered into effective as set forth herein by and among XG Sciences, Inc., a Michigan corporation (the “Company”), and each current individual and entity shareholder of the Company (collectively, the “Shareholders”).

Recitals

Whereas, the Company and certain Shareholders entered into a shareholder agreement dated March 18, 2013 (the “Shareholder Agreement”), and the Company’s remaining Shareholders adopted the Shareholder Agreement by executing adoption agreements;

Whereas, Section 13.3 of the Shareholder Agreement provides, among other things, that the Shareholder Agreement may be amended with the written consent of: (i) a majority of the Company’s board of directors, and (ii) persons holding, in the aggregate, shares of Shareholder Stock representing at least sixty percent (60%) of the voting power of all shares of Shareholder Stock then held by Shareholders and their permitted assignees; provided that certain provisions of the Shareholder Agreement may not be amended without the consent of certain Shareholders subject to certain minimum ownership requirements (collectively, the “Amendment Conditions”);

Whereas, Section 13.3 of the Shareholder Agreement further provides that any amendment effected in accordance with the Amendment Conditions is binding on all Shareholders, including Shareholders who do not consent to the amendment; and

Whereas, the Company with the written consent of its board of directors and the Shareholders who execute this Amendment desire to amend the Shareholder Agreement in accordance with the terms of this Amendment effective upon the first date on which both of the following conditions precedent are satisfied: (A) the Amendment Conditions are satisfied, and (b) a registration statement registering shares of the Company’s Common Stock is filed with the Securities and Exchange Commission and declared effective under the Securities Act of 1933, as amended.

Amendment

1. The following sentence is added to the introductory paragraph.

An individual who holds Excluded Stock is not a Shareholder within the meaning of this Agreement unless the individual also holds Shareholder Stock that is not Excluded Stock.

2. The following sentence is added to the end of Section 1.1.

Shareholder Stock excludes Excluded Stock.

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3. The following Section 1.7 is added.

1.7           “Excluded Stock” means shares of Common Stock the offer and sale by the Company of which is subject to a registration statement that: (a) has been filed with the Securities and Exchange Commission, and (b) has been declared effective under the Securities Act of 1933, as amended.

4. Section 8.4 is amended to add the following subsection (h).

(h)          and Excluded Stock.

5. Section 13.6 is amended to add the following subsection (c).

(c)          or the date on which the Company’s Common Stock is listed on the NASDAQ Stock Market or the New York Stock Exchange.

6. The following sentence is added to the end of Section 13.12.

For the avoidance of doubt, this Agreement does not apply to Excluded Stock, including without limitation Excluded Stock that is held by or for the benefit of a Shareholder.

7.            This Amendment will amend the Shareholder Agreement in accordance with Section 13.3 of the Shareholder Agreement effective upon the first date on which both of the following conditions precedent are satisfied (the “Effective Date”): (A) the Amendment Conditions are satisfied, and (b) a registration statement registering shares of the Company’s Common Stock is filed with the Securities and Exchange Commission and declared effective under the Securities Act of 1933, as amended. The Shareholder Agreement will remain in effect until the Effective Date, upon which this Amendment will become effective to amend the Shareholder Agreement.

8. All other terms and provisions of the Shareholder Agreement remain in full force and effect.

[Signature Page Follows]

2

IN WITNESS WHEREOF, the parties hereto make and execute this Amendment effective upon the Effective Date.

COMPANY AND ITS BOARD OF DIRECTORS:
XG SCIENCES, INC.
By:	/s/ Philip L. Rose
	Philip L. Rose, as President and on behalf of the Board of Directors
Date: 2/24/2016

SHAREHOLDERS:
ASC-XGS, LLC		Aspen Advanced Opportunity Fund, LP
Signature:	/s/ David G. Pendell	Signature:	/s/ Steve Jones
Print Name:	David G. Pendell	Print Name:	Steve Jones
Title:	General Partner	Title:	Authorized Signatory
Date: 2/24/2016		Date: 2/26/2016
XGS II, LLC		SVIC No. 15 New Technology Business Investment, L.L.P.
Signature:	/s/ David G. Pendell	Signature:	/s/ Michael Pachos
Print Name:	David G. Pendell	Print Name:	Michael Pachos
Title:	General Partner	Title:	Director
Date: 2/24/2016		Date: 2/24/2016

[Signature Page to First Amendment to Shareholder Agreement]

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EX-21.1

Exhibit 21

Subsidiary of XG Sciences, Inc.

Name of Subsidiary	State of Organization
XG Sciences, IP, LLC	Michigan

EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the use in this Registration Statement on Form S-1 of our report dated February 29, 2016, with respect to the consolidated financial statements as of and for the year ended December 31, 2015 of XG Sciences, Inc. which appears in such Registration Statement.

We also consent to the reference to us under the heading “Experts” in such Registration Statement.

/s/ Frazier & Deeter, LLC

Frazier & Deeter, LLC

Tampa, Florida

March 1, 2016

EX-24.2

Exhibit 24.2

POWER OF ATTORNEY

I, the undersigned as Controller of and in my other capacities for XG Sciences, Inc., hereby constitute and appoint Philip L. Rose, my true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution for him and in his name, place and stead, and in any and all capacities, to sign any and all amendments (including post-effective amendments) to the Registration Statement on Form S-l filed by XG Sciences, Inc. with the Securities and Exchange Commission on January 26, 2016 (or any other Registration Statement for the same offering that is to be effective upon filing pursuant to Rule 462(b) under the Securities Act) (the “Registration Statement”) and all documents relating to the Registration Statement, and to file and deliver the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission and any other counterparties, granting unto said attorney-in-fact and agent, full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises, as full to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent or his substitute or substitutes may lawfully do or cause to be done by virtue hereof.

Date:	2/19/2016	/s/ Corinne Lyon
		Corinne Lyon, Controller, XG Sciences, Inc.

EX-99.1

Exhibit 99.1

Company

XG Sciences, Inc. (“XGS”), formed in May 2006, is a first mover and market leader in the design and manufacture of graphene nanoplatelets. Graphene nanoplatelets are particles consisting of multiple layers of graphene and are considered a game changer for numerous industries. XGS’ graphene nanoplatelets, trademarked under the name xGnP®, have demonstrated performance impacting multi-billion dollar markets and have unique capabilities for energy storage, thermal conductivity, electrical conductivity, barrier properties and the ability to impart strength when incorporated into plastics or other matrices. XGS has sold products to over 1,000 customers in 47 countries who are in various stages of trialing its products for numerous applications. XGS has also licensed elements of its technology to leading supply chain and distribution partners, such as Cabot Corp and POSCO. Headquartered in Lansing, Michigan, the Company has raised $32 million to date and has 23 full-time employees.

Lux Research says:

XG Sciences – Positive – Advanced Materials. Top Ten Innovative Companies.

“Despite increasing competition from a handful of new entrants to the graphene space, XG remains the low cost leader and also boasts the most impressive business execution to date.”

XG Sciences Well Positioned for Success

- Significant Customer Traction: 1,000+ in 40+ countries since inception. Strong portfolio of customer engagements in end-use markets ranging from polymer composites, energy storage, electrically conductive films and thermal management.

- Revenue Traction: Commercial sales started in multiple applications and gaining momentum. $5-10 million in estimated 2016 revenue.

- Proven Technology: Significant IP in the form of patents, trade secrets and know-how. XG SiG™ Composite with 3-5x the energy storage capacity versus today’s LiB anode technology. XG Leaf® with one-third the density of copper films, 50% more thermally conductive than copper and more than 2x that of aluminum.  Formulated water- and solvent-based inks with conductivity approaching 1 W/o at 1 mil thickness. Industry-leading performance available in bulk powders and dispersions.

- Positioned To Grow: Technology, partners and management positions XG for substantial growth. Proven manufacturing technology and strong customer channel to deliver on success. Moved beyond proof of concept into commercialization phase.

- Strategic Partners: Well positioned with world class strategic partners, Investors and licensees. Investors: Aspen Advanced Opportunity Fund, Hanwha, POSCO and Samsung Ventures. Licensees: Cabot and POSCO.

Graphene: The “Miracle Material”

First discovered in 2004, graphene is the thinnest material known - a single layer of carbon atoms configured in an atomic-scale honeycomb lattice, and is noted for its strength, density, impermeability, light weight, and both electrical and thermal conductivity. Among many noted properties, graphene is harder than diamonds, lighter than steel but significantly stronger, conducts electricity better than copper and one of the most thermally conductive materials available today. 

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Markets

XGS is a “platform play” in advanced materials where the Company’s proprietary processes produce varying grades of graphene nanoplatelets which can be mapped to a variety of applications in many market segments.  The Company’s primary focus markets are Energy Storage and Thermal Management where they currently have a portfolio of products undergoing design-in with a range of marquee customers.  They also target the Inks & Coatings market with products in development and are engaged in commercial and development activities for the Composites market. 

XGS Market/Application Focus Areas & 2018 Market Size

XG SiG™ in Lithium-ion Battery Markets

The global LiB market is large and growing rapidly. According to Avicenne Energy¹, the 2014 LiB market is $13.6B and growing to $26.5B in 2018, driven by the rapid proliferation of tablets, smart phones, electric vehicles, and grid storage applications. The portion of the market that XGS addresses is the anode materials segment, which Avicenne values at about $850 million in 2014 and expects to grow to $1.3-1.4B by 2018.

¹ Avicenne Energy, "The Worldwide Rechargeable Battery Market 2014 - 2025", 24th Edition - V3, July 2015.

² Avicenne Energy, "The Worldwide Rechargeable Battery Market 2014 - 2025", 24th Edition - V3, July 2015 & Internal Estimates.

³ ArcActive via Nanalyze, April 3, 2015.

⁴ ArcActive via Nanalyze, April 3, 2015 & Internal Estimates.

⁵ Future Markets Insights, "Consumer Electronics Market: Global Industry Analysis and opportunity Assessment 2015 - 2020", May 8, 2015.

⁶ Prismark, "Market Assessment: Thin Carbon-Based Heat Spreaders", August 2014.

⁷ Reporterlink.com, "Semiconductor & IC Packaging Materials Market…", May 2014.

⁸ Prismark, 2015.

⁹ Grand View Research, "Global Plastics Market Analysis…", August 2014.

¹⁰ From (9) and internal estimates: 2018 = 305 million tons of plastic, if 10% of the market adopted xGnP to enhance their properties, and at only 1% by weight as an additive, then in 2018 305,000 tons or 305,000,000 kilos of xGnP would be required. At $30 a Kg - the value is $9.1 Bn per year.

 

2

 

XG Leaf® in Portable Electronics

XG Leaf® can be used for a variety of applications such as heat dissipation in electronics, electromagnetic interference (EMI) shielding, and resistive heating. Among these, thermal application has the biggest apparent market potential especially in consumer electronics. According to a private client study by Prismark Partners, LLC, a leading electronics industry consulting firm specializing in advanced materials, the 2014 market for finished graphitic heat spreaders as sold to the OEM and EMS companies with adhesive, PET, and/or copper backing for selected portable applications, is $600 million, and is expected to reach $900 million in 2018. The market is currently in a significant expansion period driven by the demand for portable devices.

Other Markets

- Energy Storage: lead acid batteries, supercapacitor electrodes, lithium-ion battery cathodes, lithium-ion anodes;

- Thermal Management: circuit boards, portable electronic devices, such as cell phones and tablets, thermal management systems for battery packs used in electric vehicles; inks, coatings, polymer composites and greases; cooling liquids / fluids;

- Electrical Conductivity: aqueous and solvent-based formulations to print conductive circuits using flexo, gravure, off-set and screen-printing processes on flexible and rigid substrates;

- Composites: polymers (urethanes, polycarbonate, Teflon, rubber, polypropylene, thermoplastic polyolefin and nylon), polymer processes (e.g., thermoset, solvent cast and thermoplastic) and cement; and

- Lubricity: oil and grease additives.

XGS Products

xGnP® Graphene Nanoplatelets

xGnP® graphene nanoplatelets consist of ultrathin particles of graphite that are short stacks of graphene. They are produced in various grades, which vary by average particle thickness, and average particle diameters. xGnP® graphene nanoplatelets are especially applicable for use as additives in polymeric or metallic composites, or in coatings or other formulations where particular electrical, thermal or barrier applications are desired by our customers.

XG Leaf®

XG Leaf® is a family of sheet products suited for use in industrial, electronics, and automotive markets. These sheets are made using special formulations of xGnP® graphene nanoplatelets as precursors, along with other materials for specific applications. There are several different types of XG Leaf™ available in various thicknesses (20 to 120 microns), depending on the end-use requirements for thermal conductivity, electrical conductivity, or resistive heating.

XG SiG™ Li-ion Battery Anode Materials

XG SiG™ is a composite of silicon and graphene nanoplatelets designed to deliver 3-5 times the energy storage capacity of today’s graphite-based LiB anodes. Anode capacity is a key driver for extended battery runtime in applications such as portable electronics, power tools and electric vehicles (“EV”). Silicon has 10x the storage capacity of graphite and has been targeted as the next-generation material to replace graphite. However, silicon suffers from poor cyclability limiting its adoption in LiB anodes. XGS’ breakthrough is the creation of a SiG composite that allows the use of silicon as an active component in anodes, delivering on the industry need for long battery cycle life, high efficiency and at a cost and scale that meets industry targets. Product design-in is underway with battery manufacturers targeting early commercialization performance requirements. The combination of performance, cost and manufacturability positions XG SiG™ and XGS as a leader in high energy density LiB materials.

 

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Strategic Investors and License Agreements

The Company has partnered with leading global companies as manufacturing, technology and distribution partners as a way to accelerate XGS’ customer and manufacturing reach. Each of these partners has spent significant time with XGS to validate the technology and market need.

Mar 2014	POSCO	$1.2M investment exercising certain pre-emptive rights
Jan 2014	Samsung Ventures	$3M investment + Joint Development Program ongoing with Samsung SDI for next gen Li-Ion batteries
Nov 2011	Cabot Corp	$licensing agreement + royalties
Jun 2011	POSCO	$4M investment with licensing agreement + royalties
Dec 2010	Hanwha Chemical	$3M investment

Customer Traction

- Year-on-year addition of new customers in a range of end-use applications.

- Track record of annual order growth as well as repeat customers underlying commercial traction with multiple customers and markets.

Cumulative Customers, by Year	Total Orders, by year and Customer Type

 

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Management Team

Dr. Philip Rose, CEO

- President, Hitech, Sigma Aldrich (2010 to 2013)

- General Management, M&A, Business Development and Marketing, Rohm and Haas (1989-2010)

Dr. Liya Wang, VP R&D

- Renowned expert in the field of batteries and advanced materials

- Former Principal Scientific Director for Spain’s CIC Energigune and Director for emerging technologies at A123

Rob Privette, VP Energy Markets

- 25 years of experience in technology development and commercialization of fuel cells, batteries, and other energy related devices

- Former Director for Product Development at Energy Conversion Devices and Director of US Fuel Cell Development at Umicore with experience at the US DOE, DARPA, the US Army and US Navy.

Dr. Hiroyuki Fukushima, Technical Director

- Founding shareholder and inventor of xGnP® production processes

Scott Murray, VP Operations

- Seasoned professional with 30 years as a senior operations executive

- Formerly Founder and CEO of Uretech International Inc., Director of Development for McKechnie Automotive and various positions with Motor Wheel Corporation

Board of Directors

Dr. Philip Rose, CEO, President, Treasurer and Director

Arnold A. Allemang, Director, Chairman and Audit Committee member. Retired Board member, Dow Chemical, former Operating Officer of Dow

Ravi Shanker, General Manager, Lightweighting Platform, Dow Chemical

Steven C. Jones, Director and Audit Committee Chairman. Chairman, Aspen Capital Group LLC. President, Aspen Capital Advisors, LLC

Wonil Kim, Director. Advanced Materials Investment & Technology Group, POSCO

Michael Pachos, Director and Audit Committee member. Principal, Samsung Ventures

Dave Pendell, Director. Owns and operates AdvancedStage Capital LLC, ASC Lease Income, and is a general partner in Veterans Capital Fund.

 

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Company Overview Presentation 1

Forward - looking Statements This presentation contains statements which constitute forward - looking statements within the meaning of Section 27A of the Securities Act, as amended; Section 21E of the Securities Exchange Act of 1934; and the Private Securities Litigation Reform Act of 1995. The words “may”, “would”, “could”, “will”, “expect”, “estimate”, “anticipate”, “believe”, “intend”, “plan”, “goal”, and similar expressions and variations thereof are intended to specifically identify forward - looking statements. All statements that are not statements of historical fact are forward - looking statements. Investors and prospective investors are cautioned that any such forward - looking statements are not guarantees of future performance and involve risks and uncertainties, and that actual results may differ materially from those projected in the forward - looking statements as a result of various factors. The risks that might cause such differences are identified in our private placement memorandum. We undertake no obligation to publicly update or revise the forward looking statements made in this presentation to reflect events or circumstances after the date of this presentation or to reflect the occurrence of unanticipated events.

The Carbon Revolution – A New Materials World 3 DATE 100,000 BC 10,000 BC 1,000 BC 0 BC/AD 500 AD 1000 AD 1500 AD 1800 AD 1850 AD 1900 AD 1920 AD 1940 AD 1960 AD 1980 AD 2000 AD Stone Age Copper Age Bronze Age Iron Age Age of Steel Age of Polymers Age of Silicon The Nano Age Carbon Black Carbon Fiber Fullerene Carbon Nano - Tube Graphite • Tightly bonded carbon atoms arranged in a hexagonal lattice • 2 00x stronger than steel, yet… • Like rubber that can stretch up to 25% of its original length • More electrically conductive than Copper • Better at conducting heat than any material • Optically Transparent • Atomic - level barrier properties Graphene If the 20 th century was the age of plastics, then the 21 st century seems set to become the age of Graphene! Graphene

Potential Future is Endless? 4 It is currently only limited based on your imagination! • Flexible, wearable electronics • Stronger and lighter airplanes • More efficient solar panels • Energy Savings power systems • Longer battery life time • More storage memory in portable electronics • Supercapacitors charged in seconds • Desalination

Investment Highlights XG Sciences has significant market momentum taking shape Revenue Traction : Significant customer engagements, 1,000+ in 40+ countries since inception • C ommercial revenue started and gaining momentum • $5 - 10 million of revenue estimated for 2016 • Actively engaged with multiple customers and across a range of end - use markets • S trong and robust customer pipeline to sustain growth into the future Proven Technology : Significant IP in the form of patents, trade secrets and know - how • Demonstrated value proposition in commercial and development relationships • Technology validated by licensees ( Cabot and POSCO) and strategic investors • Deep know - how from 10 years of technology development Positioned To Grow : Technology, partners and management positions XG for substantial growth • Management Team with over 100 years combined experience commercializing new products into new markets • Seasoned Board , governance processes and procedures in place • Investors: Aspen Advanced Opportunity Fund , Hanwha, POSCO and Samsung Ventures . $32 million of funded capital since inception. • Targeting $24 million in this raise for full - scale commercialization Manufacturing : Low - cost, world - scale manufacturing capabilities • > 100 Tons of capacity across commercial product families 5

6 Source: Lux Research, July, 2015 1.0 – 1.9 2.0 – 2.9 3.0 – 3.9 4.0 – 3.9 5.0 Maturity Lux Take Strong Positive Positive Wait and See Caution Strong Caution Dominant Undistinguished Long - shot Technical Value 1 1 5 XG Sciences Vorbeck Materials Sixth Element Angstron Materials Incubation Alliance Grafoid Graphenix Development Ningbo Morsh Xolve Avanzare Grafen Graphene Platform Haydale R.S. Group Knano Graphenea Times N ano NUS Bluestone AGM DCT Rushford Cambridge Nanosystems Graphene Frontiers NanoIntegris Directa Plus Graphene Labs G T LeaderNano Ugent Tech NanoCarbon CNM Anderlab Grafentek Gelanfong Absolute Nano National Nano Materials Graphene 3D Lab Innophene Business Execution 3 3 5 High - Potential XG Science Market Leadership

Significant Accomplishments 7 2006 2010 2011 2012 2013 • Hanwha Chemical – Investment • Shipping sample materials since early 2010 • Cabot Corp - L icensing agreement + royalties • POSCO - I nvestment with licensing agreement + royalties • Demonstrated 4x energy storage capacity vs. traditional Li - ion anode materials • Samsung - I nvestment + Joint Development Program with Samsung SDI for next gen Li - Ion batteries • POSCO - I nvestment exercising certain pre - emptive right 2014 • Company Founded • Aspen Advanced Opportunity Fund investment • Launch of XG Leaf® pilot production line • Rapid progress towards commercialization of XG SiG™ products • $1M DOE grant to further develop XG SiG™ • Completed large - scale xGnP® production facility 2015 • Commercial penetration into multiple markets • Large Scale commercialization planning • Additional capital raise

Two forms of “Graphene” • A single layer of carbon atoms , or “an atomic - scale honeycomb lattice of carbon atoms”. • Produced by vapor deposition on foils or wafers – expensive, requires exquisite control, engineering not yet perfected. • A particle produced by splitting natural graphite into ultra - thin pieces (10,000 times thinner than a human hair). • XGS has developed two proprietary, low cost, high efficiency production methods. • XGS ’s low - defect material provides higher strength and conductivity compared to other graphene nanoplatelet processes. 8 Graphene Graphene NanoPlatelet, xGnP ®

Properties are Enabling for Many Applications 9 M - Grade C - Grade H - Grade XGS Control Material Attribute Property Function Application Customer Performance

Key Customer Portfolio (1) • Energy Storage – Lithium Ion Battery (LiB) • Anode Replacement • Cathode Conductive Additive – Lead - Carbon Anode Additive • Thermal – XG Leaf • Portable Electronics • LiB Pack Thermal Management – Adhesives – Thermal Interface Materials – Consumer Products – Clothing • Composites – Sporting Goods – Automotive – Office Automation – Packaging – Construction Materials – Wear Parts 10 Energy Storage Thermal Management Composites Lubrication Electrical Conductivity (1) Total Customer pipeline includes opportunities with over 75 customers.

Key End Markets 11 Key Markets Composites Lithium Ion Battery Lithium Ion Battery Pb-Carbon Battery Portable Electronics Semi Packaging Specialty Plastics Next-Generation Anode Cathode Conductive Additive Anode Slurry Additive Heat Management Powders/Film Heat Management Paste/Adhesive Multi-Function Performance Additive Performance Driver Higher Energy Storage Capacity Increased Rate Performance Longer Cycle Life, Faster Charge Acceptance Lower and More Stable Operating Temperatures Improved Heat Transfer Improved Thermal, Electrical and Physical Properties Business Model Silicon Graphene Composite ("XG SiG®") Sales xGnP® Powder Sales xGnP® Powder Sales xGnP® Powder & Graphene Paper Sales ("XG Leaf®") Formulated Products Sales xGnP® Powder Sales Timing Near Term to Medium Term Near Term Near Term Near Term to Medium Term Near Term to Medium Term Medium Term to Longer Term Potential Market Size $26.5 Bn (Li-ion Battery Cell - 2020) 1 $5.2 Bn (LiB Cathode Active Materials - 2020) 1 $9-$12 Bn (Start-Stop Batteries - 2020) 3 $2,976 Bn (Consumer Electronics - 2020) 5 $28 Bn (Semiconductor Packaging - 2020) 7 $654 Bn (Worldwide Plastics Market - 2020) 9 Anticipated Addressable Market Size $1.3 Bn (LiB Anode Materials - 2018) 1 $200 Mn (LiB Cathode Additives - 2018) 2 $140 Mn (Anode Slurry Additives - 2018) 4 $900 Mn (Graphitic Heat Spreaders - 2018) 6 $780 Mn (Polymeric Thermal Interface - 2018) 8 $9.1 Bn (Composite Additives - 2018) 10 (1) Avicenne Energy, "The Worldwide Rechargeable Battery Market 2014 - 2025", 24th Edition - V3, July 2015. (2) Avicenne Energy, "The Worldwide Rechargeable Battery Market 2014 - 2025", 24th Edition - V3, July 2015 & Internal Estimates. (3) ArcActive via Nanalyze, April 3, 2015. (4) ArcActive via Nanalyze, April 3, 2015 & Internal Estimates. (5) Future Markets Insights, "Consumer Electronics Market: Global Industry Analysis and opportunity Assessment 2015 - 2020", May 8, 2015. (6) Prismark, "Market Assessment: Thin Carbon-Based Heat Spreaders", August 2014. (7) Reporterlink.com, "Semiconductor & IC Packaging Materials Market…", May 2014. (8) Prismark, 2015. (9) Grand View Research, "Global Plastics Market Analysis…", August 2014. (10) From (9) and internal estimates: 2018 = 305 million tons of plastic, if 10% of the market adopted xGnP to enhance their properties, and at only 1% by weight as an additive, then in 2018 305,000 tons or 305,000,000 kilos of xGnP would be required. At $30 a Kg - the value is $9.1 Bn per year. Application Energy Storage Thermal Management

Value Creation Business Model xGnP® Graphene Nanoplatelets Designing and manufacturing graphene nanoplatelets for specific applications and customers xGnP® + Binder System Formulating functional inks and coatings to enable performance in customer coating processes xGnP® Enabled Products High - value products enabled by graphene nanoplatelets Manufacturing Services Leveraging unique manufacturing processes to tailor other 2 - D materials XG Ink XG TIM XG SiG® XG Leaf® Grades H, M & R Grade C 12

Customer Growth and Repeat Order Traction 13 Cumulative Customers, by Year Total Orders, by Year and Customer Type 81 111 233 381 400 456 476 536 New Customer Repeat Customer 2008 2009 2010 2011 2012 2013 2014 2015 2008 2009 2010 2011 2012 2013 2014 2015

Sample Customer Commercialization Pipeline (1) 14 (1) Total Customer pipeline includes opportunities with over 75 customers. (2) $5 - 10 million in estimated 2016 revenue. Estimate of sales based on customer commitments, customer forecasts and management es timates. 1H 2016 2H 2016 2017 Fiberglass Rebar Composite C-750 x Construction Materials C-300 x Chemical Additive, Oil and Gas M-5 x Sporting Equipment M-15 x Scratch Resistant Coating C-300 x Resistive Heating M-15 x Pb-Acid Battery, Anode Additive C-300 x Composite, Elastomer C-300 x Heat Spreading, Seating xGnP® x Composite, Office Automation R-10 x Down-Hole Oil Field Services M-25 x Wear Part C-500 x Engine Oil Additive C-500 x LED Packaging XG TIM™ x LiB Anode XG SiG™ x LiB Cathode Conductive Additive R-10 x Polymer Composite, Thermal R-100 x Electrostatic Dissipation, Packaging R-10 x Sporting Equipment xGnP® x Thermal Transfer Fluid R-25 x Sensor Calibration XG Leaf® x Consumer Products, Thermal R-10 x LiB Cathode Conductive Additives C-150/300 x Thermal Adhesive xGnP® x High-Voltage Cable Coating xGnP® x Sporting Equipment xGnP® x Thermal Transfer Fluid xGnP® x Auto Composites, Interior & Under Hood xGnP® x Auto Transmission, Thermal Mgmt xGnP® x TIM, Electrical Inks xGnP® x Electrical Inks, LiB Anode xGnP®, XG SiG™ x Customer Validation Commercial Launch Anticipated Revenue (2)Application Product R&D Technical Validation Pilot Production

Management Team Board of Directors Dr. Philip Rose, CEO: More than 20 years managing and growing businesses based on advanced materials in technical applications and markets – lived in Japan/Korea for ~8 years . Dr . Liya Wang, VP R&D: Renowned expert in the field of batteries and advanced materials. Former Principal Scientific Director for Spain’s CIC Energigune and Director for emerging technologies at A123 . Rob Privette, VP Energy Markets: 25 years of experience in technology development and commercialization of fuel cells, batteries, and other energy related devices . Dr. Hiroyuki Fukushima, Technical Director : Founding shareholder and inventor of xGnP® production processes . Scott Murray, VP Operations: Seasoned professional with 30 years as a senior operations executive . 15 Dr. Philip Rose , CEO, President, Treasurer & Director Arnold A. Allemang , Director, Chairman and Audit Committee Member: Former member , Board of Directors, Dow Chemical Company (NYSE: DOW); former Chief Operating Officer of Dow. Dr. Ravi Shanker , Director: General Manager, Lightweighting Platform, Dow Chemical Company. Steven C. Jones , Director and Audit Committee Member : Chairman of Aspen Capital Group, Member Board of Directors, NeoGenomics (NASDAQ: NEO) and various other private companies. Wonil Kim , Director : Director of the Advanced Materials Investment & Technology Group, POSCO. Michael Pachos , Director and Audit Committee Member : Principal, Samsung Ventures focused on Consumer, Display and Energy related investments. Dave Pendell , Director: Owns and operates AdvancedStage Capital LLC, ASC Lease Income, and is a general partner in Veterans Capital Fund.

Offering • Targeting to raise Gross Proceeds of $24 million – Shares Offered: 3 million of Common Stock – $8.00 per share • Implied Pre - Money Valuation: Insert Table • The offering will remain open until all shares are sold or ____________________ • Use of Proceeds: 16 *Assumes 1.5 million shares sold through a sales agent at 8% commission If 25% of Primary Shares are Sold If 50% of Primary Shares are Sold If 75% of Primary Shares are Sold If 100% of Primary Shares are Sold GROSS PROCEEDS $ 6,000,000 $ 12,000,000 $ 18,000,000 $ 24,000,000 Offering Expenses $ 100,000 $ 100,000 $ 100,000 $ 100,000 Offering Expenses Attributable to Sales Agent* $ 240,000 $ 480,000 $ 720,000 $ 960,000 NET PROCEEDS $ 5,660,000 $ 11,420,000 $ 17,180,000 $ 22,940,000 Capital Expenditures $ 500,000 $ 4,000,000 $ 7,000,000 $ 7,000,000 Working Capital $ 500,000 $ 2,000,000 $ 3,500,000 $ 3,500,000 Intellectual Property $ - $ 250,000 $ 500,000 $ 1,000,000 General Corporate Expenses $ 4,660,000 $ 5,170,000 $ 6,180,000 $ 11,440,000

Summary • Recognized leader in disruptive, emerging advanced materials • Robust competitive advantages with diverse applications • Broad customer base with multiple design - in relationships • Revenue ramp starting • World class investors and licensees • Significant IP position • Low cost, scalable manufacturing capabilities • Strong Management Team with outstanding industry experience 17

Thank You Philip Rose, Ph.D. Chief Executive Officer +1 517 999 5453 p.rose@xgsciences.com 18

Introduction to Graphene a nd XG Sciences 1

Forward - looking Statements This presentation contains statements which constitute forward - looking statements within the meaning of Section 27A of the Securities Act, as amended; Section 21E of the Securities Exchange Act of 1934; and the Private Securities Litigation Reform Act of 1995. The words “may”, “would”, “could”, “will”, “expect”, “estimate”, “anticipate”, “believe”, “intend”, “plan”, “goal”, and similar expressions and variations thereof are intended to specifically identify forward - looking statements. All statements that are not statements of historical fact are forward - looking statements. Investors and prospective investors are cautioned that any such forward - looking statements are not guarantees of future performance and involve risks and uncertainties, and that actual results may differ materially from those projected in the forward - looking statements as a result of various factors. The risks that might cause such differences are identified in our private placement memorandum. We undertake no obligation to publicly update or revise the forward looking statements made in this presentation to reflect events or circumstances after the date of this presentation or to reflect the occurrence of unanticipated events.

The Carbon Revolution – A New Materials World 3 DATE 100,000 BC 10,000 BC 1,000 BC 0 BC/AD 500 AD 1000 AD 1500 AD 1800 AD 1850 AD 1900 AD 1920 AD 1940 AD 1960 AD 1980 AD 2000 AD Stone Age Copper Age Bronze Age Iron Age Age of Steel Age of Polymers Age of Silicon The Nano Age Carbon Black Carbon Fiber Fullerene Carbon Nano - Tube Graphite • Tightly bonded carbon atoms arranged in a hexagonal lattice • 2 00x stronger than steel, yet… • Like rubber that can stretch up to 25% of its original length • More electrically conductive than Copper • Better at conducting heat than any material • Optically Transparent • Atomic - level barrier properties Graphene If the 20 th century was the age of plastics, then the 21 st century seems set to become the age of Graphene! Graphene

Potential Future is Endless? 4 It is currently only limited based on your imagination! • Flexible, wearable electronics • Stronger and lighter airplanes • More efficient solar panels • Energy Savings power systems • Longer battery life time • More storage memory in portable electronics • Supercapacitors charged in seconds • Desalination

5 Source: Lux Research, July, 2015 1.0 – 1.9 2.0 – 2.9 3.0 – 3.9 4.0 – 3.9 5.0 Maturity Lux Take Strong Positive Positive Wait and See Caution Strong Caution Dominant Undistinguished Long - shot Technical Value 1 1 5 XG Sciences Vorbeck Materials Sixth Element Angstron Materials Incubation Alliance Grafoid Graphenix Development Ningbo Morsh Xolve Avanzare Grafen Graphene Platform Haydale R.S. Group Knano Graphenea Times N ano NUS Bluestone AGM DCT Rushford Cambridge Nanosystems Graphene Frontiers NanoIntegris Directa Plus Graphene Labs G T LeaderNano Ugent Tech NanoCarbon CNM Anderlab Grafentek Gelanfong Absolute Nano National Nano Materials Graphene 3D Lab Innophene Business Execution 3 3 5 High - Potential XG Sciences Market Leadership

Two forms of “Graphene” • A single layer of carbon atoms , or “an atomic - scale honeycomb lattice of carbon atoms”. • Produced by vapor deposition on foils or wafers – expensive, requires exquisite control, engineering not yet perfected. • A particle produced by splitting natural graphite into ultra - thin pieces (10,000 times thinner than a human hair). • XGS has developed two proprietary, low cost, high efficiency production methods. • XGS ’s low - defect material provides higher strength and conductivity compared to other graphene nanoplatelet processes. 6 Graphene Graphene NanoPlatelet, xGnP ®

XG Sciences’ Key Customer Portfolio (1) • Energy Storage – Lithium Ion Battery (LiB) • Anode Replacement • Cathode Conductive Additive – Lead - Carbon Anode Additive • Thermal – XG Leaf • Portable Electronics • LiB Pack Thermal Management – Adhesives – Thermal Interface Materials – Consumer Products – Clothing • Composites – Sporting Goods – Automotive – Office Automation – Packaging – Construction Materials – Wear Parts 7 Energy Storage Thermal Management Composites Lubrication Electrical Conductivity (1) Total Customer pipeline includes opportunities with over 50 customers. Full details of customer pipeline available upon exe cution of a non - disclosure agreement.

Summary • Recognized leader in disruptive, emerging advanced materials • Robust competitive advantages with diverse applications • Broad customer base with multiple design - in relationships • Revenue ramp starting • World class investors and licensees • Significant IP position • Low cost, scalable manufacturing capabilities • Strong Management Team with outstanding industry experience 8

Thank You Philip Rose, Ph.D. Chief Executive Officer +1 517 999 5453 p.rose@xgsciences.com 9

Sample Customer Pipeline Summaries

On the Ramp

The following customers represent a sub-set of our portfolio where XG Sciences value proposition as it relates to price and performance is clear, our customer has developed a product concept in response to their customer’s need, our customer has confirmed they can manufacture such a product, there are no technical barriers to the commercial launch of their product and they have started to market their product to one or more customers.

1. Sporting goods equipment manufacturer with an emphasis in netball, cricket, rugby and field hockey. Introduced XGS’ product in late 2015 in composite for field hockey sticks. Top of the line models are priced at £400 and are described as: “Graphene fibre matrix construction formulae with fully integrated carbon, aramid & graphene resin system”, “Improved control performance provided by energy absorbing basalt” and “Excellent energy transfer when hitting”. Initial production order of 30Kg filled and waiting on customer response before providing further 2016 forecasts. Informed customer intends to extend to two additional product families within their portfolio.

2. Custom-tailored formulations and oilfield chemicals company. Stock item for oilfield chemicals incorporating XGS’ graphene nanoplatelets. Introduced in late 2014. Ordered in 2015 to refill inventory as needed. Expect to see increased demand in 2016. Forecast 100-200 Kgs in 2016.

3. European construction materials company specializing in composites for rebar, road signs, pipes and seawalls. Introduced XGS’ C-series product into their fiberglass rebar product in late 2014. Improved flexural strength. Ordered regular quantities throughout 2015. Introduced XGS’ C-series product into a second application in late 2015. Forecast 5 to 10 Tons in 2016. First order received. Looking for additional opportunities to extend into other parts of their product portfolio.

4. European technology company based in Spain. Developed a novel scratch-resistant coating incorporating C-300 and targeted to protect the screens of portable electronics, watches, sunglasses and in automotive applications. Demonstrated the technology in late 2014, filed IP and finalized the formulation(s) in 2015. Actively marketing beginning in January, 2016. Waiting to see response before providing “volume” forecast.

5. Korean specialty chemical company specializing in unique metal composites and metal forming processing. Licensed formulation and use IP from the Korean Electronics Technology Institute for resistive heating where XGS’ graphene nanoplatelets are an enabling component of the composition. Marketing activities starting in late 2014. Target markets include office automation, automotive (seat heating, steering wheel heating), in-floor heating and other consumer and industrial heating applications. The office automation opportunity has demonstrated shorter startup time, 30% energy savings and improved lifetime for laser printers. The company has quoted multiple customers in multiple markets. Expects adoption in the first half of 2016 and ramping into the second half and into 2017. Forecast 500Kg to 1T in 2016.

6. US-based, international specialty material company with broad product offering for specialty carbon-based materials with a strategic interest in graphene nanoplatelets and XGS licensee. Have been working with XGS materials for over 5 years. Focus on energy storage (lead acid anode additive and lithium ion cathode conductive additive) and elastomers. Demonstrated performance for lead-acid batteries in auto and telecommunications applications and delivering improved cycle life and dynamic charge acceptance. Multiple customers in major scale testing. Demonstrated performance for both LiB cathode conductive additives and elastomeric composites meeting customer needs to win the business. Forecast is 10-50T in 2016 for the lead acid application, 5-10T in elastomers and if the LiB testing proceeds according to plan, it represents a 200-400T/yr industry-wide opportunity, about 1/3 of which is coming from one lead customer. However, no 2016 forecast has been provided for this application.

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7. US-based, international oilfield services company. Demonstrated efficacy for target performance in a down-hole testing application. Customer has told us that they have run every test they can think of and the fluid with XGS graphene nanoplatelets outperforms their existing fluid and they cannot make it fail in any of their tests. Stated desire to move to field testing in 2016 with demand for field trials between 5 and 15 Tons. Currently targeting completing of an intermediate yard test by the end of Q1 before deciding how to move forward. Oil prices negatively impacting adoption timing. Risk for delays in product qualification.

8. UK-based, international supplier of engineered materials for applications ranging from medical instruments, aerospace, power generation and satellite communications, to body armor, trains and fire protection systems. Demonstrated efficacy for improved wear resistance of carbon-based wear components when incorporating XGS graphene nanoplatelets. Intent to commercialize in the second half of 2016. No forecast at this time.

Product Confirmation Pending

The following customers represent a sub-set of our portfolio where XG Sciences value proposition as it relates to price and performance is clear, our customer has developed a product concept in response to their customer’s need and our customer has confirmed they can manufacture such a product. However, they have not finalized the product formulation and are completing engineering work and expect to launch commercially in 2016.

9. Korean specialty chemical company focusing on electronic materials and with a commercial presence in other industrial markets and applications. Introduced in late 2014 an electrostatic dissipation coating for consumer electronics and automotive packaging. In late stage qualification and expect orders in late Q1/early Q2. Forecast from 100 to 200 Kg in 2016.

10. Korean specialty chemical company specializing in oil additives. Demonstrated improvement in wear properties for lubrication application when incorporating XGS’ graphene nanoplatelets. Targeting improved dispersion and 2016 product launch.

11. Sporting goods equipment manufacturer with emphasis in lacrosse, ice hockey and field hockey. Desire to incorporate graphene nanoplatelets in lacrosse stick heads to improve strength at lower weight. Samples under testing within customers manufacturing infrastructure. First target application at 400,000 pieces. Market reputation for innovation leader and stated desire to move quickly. Lab testing expected to be complete in Q1, followed by 4-6 month field trial and then commercial launch.

12. US-based manufacturer of refrigeration equipment. Actively working towards validation of the value of XGS’ products in heat transfer fluids in their equipment. Independent verification of the efficacy of XGS’ technology from Argonne National Labs. Further validation within XGS laboratories. Active engagement with this customer and extending to two other customers. Expecting target insertion within 2016 but no firm timeline established until after product validation – expected within first half 2016.

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13. World leader in the development, design, manufacture and distribution of manual and powered wheelchairs, mobility scooters and both standard and customized seating and positioning systems. Use of XGS’ product in gel packs in seat cushions achieved 30% improvement in distribution of heat, although some developmental work will likely be required to optimize the chemistry of customer’s gel packs. Tentative implementation timing. Targeting second half of 2016.

14. US-based leader in the development of wet friction technology used in powertrain components and system solutions. Seeking improved thermal performance for a friction component of a transmission part. Have manufactured prototype composite films including XGS’ graphene nanoplatelets. Exploring coated solutions to down-select to the best option. Revenue likely to begin in 2017.

15. The global leader in lighting technology solutions. The company develops, manufactures and distributes groundbreaking LEDs and automotive lighting products. Sampled thermal interface grease in China for use in LED packaging. Feedback indicates initial samples are close to the best they are using in production and they will recommend our product to their suppliers. XGS will need to engage with their suppliers but having validation and a recommendation from the customer is a very positive development. No timing yet established for commercial adoption.

16. Japanese company involved in the manufacture of composite plastic parts for multiple industries (among other initiatives). Interested in improved thermal stability for PEEK plastics for office automation parts. Demonstrated efficacy using XGS’ products. Will begin in late 2016 at 100Kg per quarter and ramp to 2 Tons per year. Very performance driven, not highly price sensitive.

17. Family-owned business of high-end professional styling equipment. Use of XGS’ coating provides more uniform temperature than the standard material. Customer is motivated to move quickly and has involved their supply chain in the evaluation. Getting volume estimates and confirming manufacturing parameters in Korean plant. Expect to ramp in mid 2016.

Development Engagements

The following customers represent a sub-set of our portfolio where XG Sciences value proposition as it relates to price and performance is defined, our customer has identified a product concept in response to their customer’s need and are highly motivated to work with XG Sciences to define a solution.

18. Specialty materials company operating worldwide with leading brands and technologies in three business areas: Laundry & Home Care, Beauty Care and Adhesive Technologies. Engaged with 2 groups in their Electronic Materials unit interested in conductive inks, thermal interface materials and heat spreaders. XGS has demonstrated value propositions in each area and the customer is eager to reproduce the results in their labs. No commercial timing established at this phase.

19. One of the world's leading suppliers in the additives and instruments for the quality control of color, appearance and physical properties. Have identified numerous areas of synergy (dispersion of nanomaterials, coatings, rheology modification, composites and lithium ion battery conductive additives). The customer’s key coating accounts have graphene projects that they are interested in pursuing and are encouraging the customer to get involved in graphene. Began brainstorming session in February to define specific customer and product targets.

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20. Boston Power: Formal joint development agreement signed in December targeting customizing XG Sciences’ silicon-graphene anode materials for use in Boston-Power’s lithium-ion battery products. Work statement details plans to optimize electrochemical and microstructural electrode performance, as well as developing electrode and battery manufacturing techniques using the two companies’ proprietary materials. The companies see a real synergy between Boston-Power’s battery engineering and design capabilities and the new XG-SiG anode materials. Boston-Power has the ability to design and manufacture the battery, while XG Sciences has the ability to customize the anode materials to best fit the Boston-Power system.

21. Large Korean LiB manufacturer. Formerly working under joint development agreement targeting next-generation lithium ion batteries for consumer electronics and other devices. Currently engaged on meeting their needs for lithium ion battery cathode and anode conductive additives. Not expected to commercialize in 2016.

22. China-based lithium ion battery manufacturer. Eager to adopt graphene nanoplatelets for use as conductive additives in cathode formulations. Currently using carbon nanotubes (CNT). XGS internal data demonstrates that a significant portion of the CNT can be replaced with xGnP and retain the high rate discharge capacity from 100% CNT and with the benefits of low cost, reduced spring back and high pressed density. Current CNT costs of $125/Kg on a dry powder basis. Customer has agreed to fast-track 25Ah battery tests using our materials. Potential demand in the multiple tons per month.

23. Korean specialty chemical company focusing on electronic materials and with a commercial presence in other industrial markets and applications. Business model to sell resin loaded XGS’ graphene nanoplatelets. Demonstrated good dispersion and performance acceptable for market entry. CEO is positioning the company as leading manufacturer of graphene-based composites. Targeting initially camera housing and CD-Disc covers with eventual target of automotive parts. Forecast 10-30 Kg per month through first 3 quarters of 2016 as they progress toward late 2016 commercial launch.

24. Large consumer electronics company not wishing to be identified. Working closely to develop thermal heat spreading solution using XGS’ proprietary XG Leaf technology. Forecast for low 1,000’s of sheets in 2016.

25. Carbon nanotube company based in the US with production and R&D in China. Demonstrated efficacy for use of XGS’ products in combination with customer’s carbon nanotubes for use as a cathode conductive additive in lithium ion batteries. Improved energy density and process yield using XGS products. Marketing formulations to customers in China. Forecasting the potential for up to 5T in 2016 but do not currently have orders. Successful adoption up to 5T per month.

26. Korean-based lead acid battery manufacturer. Engaged in two programs to use our materials to improve performance for 1) start stop application and 2) high temperature geographies. Successful demonstration of target 1) but need improvement in water loss performance. Active sample for target 2) with initial positive feedback. Customer would like to scale up in 2016 pending completion of development efforts. No firm volume commitments at this time. First application likely 1 to 2T per year and can grow to 5T within 2 years. Volume for second application dependent upon nature of product offering (dry powder versus formulated coating).

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27. Korean-based specialty tape and adhesive supplier. Their customer in need of improved thermal adhesive for high-brightness LED TV. Wishes to work with mid-tier, Korean-based supplier. XGS working with our customer to supply XGS precursors for use in a thermal adhesive tape and for supply to their customer. Targeting late Q1/early Q2 for qualification and initial production in late 2016. Initial coating results validating value proposition. No volume estimates at this time.

28. Large Korean-based supplier of PET films and specialty chemicals. Working to define product and technical solutions using XGS’ product portfolio. Initially target thermally conductive adhesives and coatings. Also pursuing options for XG Leaf integration.

29. Korean-based specialty materials provider. Working closely with cable companies in Korea to develop semi-conductive coating materials for ultra-high voltage cables. Incorporation of XGS’ product improves the coating mechanical performance and the mechanical stability during heat shock and shrinkage in the ultra-high voltage cable application. Commercial timing is mid to late 2017. Potential volume is given to XGS as 1 to 20T per year.

30. World leader in rolled aluminum products, delivering unique solutions for the most demanding global applications, such as beverage cans, automobiles, architecture and consumer electronics. Applying XGS technology to aluminum processing and expecting results in Q1. No timing yet defined for commercial launch. Unlikely to be in 2016.

31. Recognized as the world's leading provider of lubricant solutions offering a range of advanced automotive motor oil, including synthetic, synthetic blend, high mileage, conventional and diesel oils. Engaged for well over a year on use of XGS products as an oil additive to improve friction and wear, particularly for gear box applications. Demonstrated benefits for high gear load applications (i.e., drivetrains). Also interested in nanofluid with thermal transfer properties for cooling of cutting tools. Exploring options to better move these projects forward.

32. Technology and innovation leader specializing in defense, civil and cybersecurity markets throughout the world. Specified use of XGS product for sensor calibration in multi-layered system. Have validated efficacy for thermal heat transfer and are completing integration design efforts. Small volume application.

Sampling Examples

An additional >30 customers represent a sub-set of our portfolio where XG Sciences value proposition as it relates to price and performance is theorized but not yet demonstrated and where we are sampling products and formulations against a defined market need but have not yet entered into a collaborative development effort.

Transformational Customers

The following customers represent a sub-set of our portfolio where success can drive significant commercial volume and subsequent value for XGS shareholders. These customers are specifically managed at the account level while we actively engage in development and commercialization efforts.

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33. International auto manufacturer. Actively engaged with the group having a mandate to explore opportunities for graphene. Currently focusing on two applications that we are not at liberty to disclose. They have demonstrated a compelling value proposition in the lab and we have started working with their supply chain partners, upon the request of our customer, in multiple applications. Target is to have graphene in a car on the road in 2017. They have alignment up to the VP of R&D and out into the relevant business groups. They have indicated that they believe XGS is the only commercially viable supplier of graphene nanoplatelets. Specific feedback on the value proposition includes “substantial property enhancements at much lower loadings” compared to other types of additives for composite applications and “increased both tensile and flexural moduli and strength” and “enhanced thermal stability”. Only forecast data thus far is for a target application requiring 25T of XGS’ product starting in 2018.

34. US-based coatings company. Engaged with multiple businesses to exploit the properties of graphene nanoplatelets for barrier, thermal transfer and structural components in paint. Initial samples weren’t compelling but customer admits were cursory and not likely definitive with regard to the potential for performance. Held a technical face-to-face to define next steps in collaboration. Initial dispersions were prepared without knowledge of the customer’s chemistry. Knowledge of the chemistry will allow for tailored formulations. Engagement supported at program director level. Strong desire on the part of the customer to see graphene nanoplatelets adopted and have represented their view of XGS as a leading supplier in the industry.

35. Global sporting goods manufacturer. Engaged in multiple projects being sponsored by the golf division. One such project is an injection molded composite for a club head, targeting improved strength and modulus. Working directly with customer’s supplier. A second project is for club shafts and we are working directly with the customer’s supplier. We are expecting an on-going engagement to validate efficacy. Success would support brand recognition efforts and provide additional validation of our broad value proposition.

36. International chemical company. Engaged in multiple R&D efforts. XGS technology has broad appeal within the customer’s business units. Two projects are progressing through their stage gage process: thermal transfer fluids and composites. Customer is projecting up to 2,000 Tons of annual demand for XGS’ product by 2020, assuming successful product development and market launch efforts. Broader success would drive significant demand for XGS’ products and commensurate shareholder value.

Lithium Ion Battery Anode Replacement

XG Sciences has developed an advanced Silicon-based anode that, as a critical battery component, can potentially enable high energy cells for future generation batteries, enabling longer battery life and/or more functional performance for portable electronics. Silicon (Si) is considered the most promising anode material due to its high capacity and proper working voltage. Theoretically, Si can provide up to 4,200 mAh/g of Lithium storage capacity, which is more than 10 times that of graphite. It can be lithiated in the potential range of 0.0 ~ 0.4 V, which enables a high energy density battery when paired with an appropriate cathode. The global market for lithium ion anode materials is estimated to be $1.3 Billion in 2018.

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Two major barriers have hindered the development of Si-based anodes for commercial applications, especially for use in EV batteries: poor cycle life and high synthesis costs. XGS’ Si/graphene (SiG) composite anode is based on a unique nano-structure design and an innovative compositing process that utilizes graphene to mitigate cycling stability issues of Si particles during cycling. Graphene creation and SiG compositing is achieved in a single unit process using an existing manufacturing process and low cost industrial precursors. Unlike other Si/graphene based materials where graphene is often produced separately and Si is deposited onto the graphene using exotic methods, XGS’ one-pot process allows to produce the SiG material at high volume and low cost.

XG Sciences technology is widely considered as a leading candidate for next generation anode materials. XGS received a $1.2MM grant from the DOE to further develop this technology. Samsung Ventures invested in XGS and we entered into a joint development program with Samsung SDI, the world’s leading lithium ion battery manufacturer. The company developed its technology to a level that allows it to aggressively pursue commercial efforts in applications requiring high energy storage and with cycle life up to 250 cycles. The company is pursuing commercialization in those applications. In parallel, the company has formed, and are seeking additional development relationships that will advance its technology, making it more amenable to a broad industry adoption. The company announced in December a joint development relationship with Boston Power. The company was recently awarded a funded development contract under which it will work with a cell manufacturer and a cathode material supplier to pair its silicon graphene composite and demonstrate performance against a commercial need. The customer funding the work wishes to not be named. The company is currently in active discussions with a other parties to form additional joint development arrangements targeting both technology development and specific commercial implementation. It is anticipated that these efforts may result in up to $1 million of development revenue in 2016 and target product revenue in 2017 and beyond.

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Frequently Asked Questions

1. Who are XG Sciences competitors?

Graphene suppliers are first segmented on whether they are a producer of graphene monolayer or of graphene nanoplatelets. XG Sciences does not manufacture graphene monolayer. Furthermore, the applications for each form of graphene do not compete, for the vast majority of projected applications, with one another. Therefore, XGS does not compete with graphene monolayer developers or manufacturers. Graphene nanoplatelet manufacturers will begin to segment by the process(es) used to manufacture graphene nanoplatelets. In the US, there are at least two companies producing graphene nanoplatelets. One leverages their nanoplatelet know-how to make conductive inks and sensors and is considered by many to be a sensor company. XGS is not actively targeting the sensor market. A second follows a technology license model and will typically work under development and license agreements for specific applications. XGS is a solutions provider and produces graphene nanoplatelets and products containing graphene nanoplatelets, principally for end-market needs in Energy Storage, Thermal Management, Composites, Lubrication and Electrically Conductive Coatings. There are also emerging producers in China that are likely to become more active as time progress.

2. What are XG Sciences competitive Advantages?

Our strategy is to compete with other companies on the basis of our intellectual property, our business model, our manufacturing techniques, our management team, our scientific credibility, and our customer relationships. Recognizing that the worldwide market for products and materials similar to ours is developing very rapidly and will be quite large, we intend to compete vigorously on a worldwide basis by:

· Implementing strategic partnerships with customers and other partners in many different geographic localities as well as specialized markets.

· Focusing our resources on remaining a low-cost supplier of high-quality materials with sufficient production capacity to meet the needs of large, global customers.

· Developing “value-added” products like XG Leaf®, XG SiG™ battery anode materials, inks and coatings, and similar specialized products for specific markets.

· Investing in intellectual property, especially in areas covering novel formulations of our products and use of our products in end-use applications.

3. What are XG Sciences competitive strengths?

We believe that we are a world leader in the emerging global market for graphene nanoplatelets. The following competitive strengths distinguish us in our industry:

The strength of our intellectual property. Because of our focus on manufacturing process development, we believe we have one of the world’s strongest internal knowledge bases in graphene nanoplatelet manufacturing, with most of our proprietary knowledge maintained as trade secrets to avoid the disclosures required by patenting. The 21 domestic patents/applications (with additional foreign filings) we are currently managing add value by protecting specific equipment, or high-value end-user product applications. The fact that two global companies have evaluated and licensed our production technology provides independent evidence of our technology’s effectiveness.

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The breadth of our product offering. As far as we are aware, we have the broadest product offering in our industry. In addition to offering three standard particle sizes in three different grades of bulk materials, we offer four different grades of XG Leaf® in multiple thicknesses, two different grades of silicon-graphene composite materials, three standard ink formulations, and optional custom dispersions and formulations of our bulk materials. We have other products, and formulated products, in development. We are the only company we are aware of that has successfully scaled an intercalation process. We are also the only company we are aware of that has developed and scaled a mechanical process. These processes provide us with the widest product portfolio among all emerging entrants.

The low-cost nature of our manufacturing processes. As far as we are aware, our manufacturing processes have the potential to be among the lowest-cost approaches to the manufacture of graphene nanoplatelets (subject to economies of scale) based on our internal modelling of competitive processes as well as our analysis of alternative technologies.

Our corporate and strategic partners. Three global corporations have made investments in XGS, giving us a significant global reach as well as the ability to leverage the assets of our partners:

The number of development partners that are working with our materials. As of December 31, 2015, we have supplied materials to over 1,000 customers, including industrial, universities or government laboratories, in 40 different countries around the world. We shipped over 500 orders in 2015. We have more than 75 ongoing commercial and/or customer design-in relationships in a range of other application areas.

Our know-how and ability to tailor our products for use in multiple applications. Many of our products and product-development activities target use of our xGnP® graphene nanoplatelets in various matrices to form composite products that are then used by our customers. We have extensive knowledge of how to tailor our products to deliver performance as composite products in various applications and we also have knowledge of how to tailor other components of a composite to adjust the performance of the composite for use in various applications.

4. What is XG Sciences IP strategy?

We believe that our intellectual property (“IP”) is an important asset. Our strategy is to keep some aspect of our production processes as legally defined and protected trade secrets rather than to patent them. We believe that by patenting our processes, we would simply be teaching others how to produce materials like ours. In addition, it would be difficult or impossible to detect infringement. Therefore, our basic intercalation and exfoliation processes are not patented. We have, however, patented some of the equipment used in these processes. Other processes we have chosen to patent and have been granted a patent for our mechanical process for producing graphene nanoplatelets.

Our intellectual property consists of four main types of assets:

· Employee knowledge and skills

· Corporate “trade-secrets” and processing know-how

· Exclusive license from Michigan State University on certain inventions

· Patents and trademarks owned by the Company

In January 2014 in connection with the Samsung Ventures investment, we transferred all of our intellectual property into a newly created, wholly owned subsidiary of the Company called XG Sciences IP, LLC, a Michigan limited liability company.

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5. What patents and applications does XG Sciences hold?

As of December 31, 2015 the following technologies were included in the MSU License Agreements with XGS and were being actively prosecuted at the U.S. Patent Office:

· U.S. Patent Application No. 12/587,645. “Electrically Conductive, Optically Transparent Films of Exfoliated Graphite NanoParticles & Methods of Making the Same”

· U.S. Patent Application No. 13/199,086. “PI Coupling Agents for Dispersion of Graphene NanoPlatelets in Polymers”, allowed but not yet granted

· U.S. Patent 8,834,959. “Method for the Preparation of Doped Single Graphene Sheets.”

In addition to the patent applications related to MSU technology, we also file for patents on some of our own inventions. As of December 31, 2015 the following patents and patent applications were being managed by us and our patent attorneys:

· U.S. Patent Application No. 13/474,860. “Process of Dry Milling Particulate Materials”

· U.S. Patent Application No. 13/686,961. “Single Mode Microwave Device for Producing Exfoliated Graphite”

· U.S. Patent Application No. 61/786,735. “Graphene Carbon Compositions”

· U.S. Patent Application No. 61/786,745. “Electrodes for Capacitors from Mixed Carbon Compositions”

· U.S. Patent Application No. 13/858,149. “xGnP as conductive filler for resistor materials”

· U.S. Patent Application No. 61/879,225. “Flexible Resin-Free Composites Containing Graphite & Fillers”

· U.S. Patent Application No. 14/079,057. “Silicon-Graphene Nanocomposites for Electrochemical Applications”

· U.S. Patent Application No. 62/060,319. “LiF-Embedded SiG Powder for Lithium-Ion Battery”

· U.S. Patent Application No. 62/284,797. “Thermal Interface Materials using Graphene Coated Fillers”

· U. S. Patent Application No. 62/244,927. “Heat Exchanger Elements and Devices”

· U.S. Patent 9,206,051. “Mechanical Exfoliation Apparatus”

· U.S. Patent 8,715,720. “A Cloud Mixer and Method of Minimizing Agglomeration of Particles”

· U.S. Patent 9,061,259 B2. “A Cloud Mixer and Method of Minimizing Agglomeration of Particles”

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· U.S. Patent Application No. 14/931,236. “Mechanical Exfoliation Apparatus - Divisional”

· U.S. Patent Application No. 14/938,969. “Single Mode Microwave Device for Producing Exfoliated Graphite.”

6. Does XG Sciences seek foreign patent coverage?

Yes. For each patent application filed in the US, we make a determination on the nature and value of the patent. For many of the applications filed in the US, additional filings are made in other countries such as the European Union, Japan, South Korea, China, Taiwan or other applicable countries. These filings and analyses are made on a case-by-case basis. Typically, patents that are defensive in nature are not filed abroad, while those that are protective of active XGS products or application areas are filed in relevant countries abroad.

7. Does XG Sciences have any Trademarks?

Yes. We have filed for or been granted registered trademarks as follows:

· “xGnP^®,” which is the brand name by which we designate our graphene nanoplatelets.

· The corporate logo “XG Sciences” (design logo plus words)

· The tag line “The Material Difference” which is used in conjunction with the corporate logo

· The product designation “XG Leaf^®”, which is the brand name for our family of sheet products.

· The product designation “XG SiG™”, which is the brand name for our battery anode materials.

· The product designation “XG TIM™”, which is the brand name for our thermal interface materials.

8. Why does Lux Research consider XG Sciences to be the highest ranked company in the graphene space?

There is no way to definitively answer this question, other than to put it directly to Lux Research. However, we can speculate on the reasons. Lux’s July 2015 data, for which we remain the highest ranked company, contain both graphene monolayer and graphene nanoplatelet suppliers. These data also include Universities. It is our belief that Lux is biased toward organizations demonstrating the potential for commercial success and rates them more highly as a result. XG Sciences is fairly unique in our ability to attract a range of strategic investors such as POSCO, Hanwha and Samsung Ventures. We have licensed some aspect of our know-how to both POSCO and Cabot. We speculate that Lux sees this as early validation of our value proposition and as a differentiating factor in building a sound business model. We further speculate that we are differentiated having demonstrated scale in our manufacturing process. We further speculate that we are differentiated by having two distinct graphene nanoplatelet production processes that provide a broad capability to meet a range of end-use market requirements. We don’t provide customer-specific information to Lux but we further speculate that through our press releases, Lux’s own patent citation searches and customer interviews, they believe we are positioned with leaders in multiple industries.

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9. Are there any filed or known pending law suits against XG Sciences?

No.

10. What is the average sales cycle? Can you explain a typical customer interaction?

There probably isn’t any “average” cycle. However, it is safe to generalize in that all commercialization efforts are a process. They almost always start with our own internal R&D to validate performance for an identified market or customer-specific need. I say, almost always, as we have examples where customers have ordered our materials, done their own work and then commercialized their product, all without further consultation with XG Science. In the more typical route, following our internal work, we will engage with customers to validate efficacy for their application. This can be an iterative process of data exchange and sampling to further improve performance for a specific application. Once the performance has been validated, our customers may then determine that our products fit with their manufacturing. This is initially done at the pilot scale. Sometimes this is done in parallel with their product development activities or assessed prior to investing resources in product development. Our customers will then introduce their product to their customer(s) to validate performance. After their customer’s validation, our customers will move to commercial scale production. Every customer goes through the same basic process, but will do so at varying speed, depending on the customer, the product and the end-use market. From first engagement, a commercialization effort can be a short as 6 months and as long as 2 years, and even longer. The automotive industry, for example, is well known to have a 5-year commercialization time line.

11. What is XG Sciences manufacturing footprint strategy?

It probably makes the most sense to answer this question in the context of the broader strategic plan. It is our intent to make and sell advanced materials. Specifically, graphene nanoplatelets and products containing graphene nanoplatelets. While we may entertain other material sets over time, for the foreseeable future, we will develop and produce graphene nanoplatelets and value-added products containing graphene nanoplatelets. It is our intent to maintain a presence in Lansing, also for the foreseeable future. We currently have just over 100 T of annual capacity in Lansing. In the next 6 to 12 months we intend to debottleneck existing capacity and add other incremental capacity in Lansing, allowing us to meet our business plan over the next 1-2 years. The role for our Lansing facilities will be to serve as a base for production as well as a center of excellence for R&D, applications engineering and new manufacturing process development. Additional capacity expansions needed beyond those already defined above, will likely be done in partnership as we localize production in Asia or install customer-specific capacity, wherever it may be needed. We believe this strategy will reduce the risk to our shareholders and customers. XG Sciences is too small, currently, to undertake any significant International capacity expansions by ourselves.

12. What keeps Philip Rose up at night?

I get this question fairly often so I offer it here for your consideration. Other than the usual on-going balance of shareholders, customers and employees, the primary issues that keeps me up at night are the probability of revenue generation on a customer-specific basis and their adoption timing. I suppose the two are intimately related, but I do see them slightly differently. Probability relates to the robustness of our customer pipeline. We have a great customer pipeline. However, the finite probability of turning each engagement into a sale is the test of the true value of any pipeline. The priority of our product within each customer is not always transparent to XGS. A lack of real transparency is a source of my frustration. I feel I could a better job of communicating to shareholders the timing and magnitude of the revenue ramp with more transparency into the probability of going from development efforts to commercial sales. I’ve culled out adoption timing as a separate cause for frustration. Even in those instances where it is clear we are strategically aligned with our customer(s), and we have a clear signal for technical and commercial success, there is still less clarity on the timing for commercial ramp. This relates mainly to the fact that graphene nanoplatelets are new materials and we find that our customers often deviate from “standard commercialization processes” given the non-standard nature of new-to-the-world materials.

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13. What is the current burn rate and when does the company expect to hit cash-flow positive?

The current burn rate, with no offset from product or license revenue, is approximately $400K per month, or ~$5 million per year. We expect to see that offset by increased revenue, but we will need to increase headcount in operations to deliver the higher output requirements. We expect to reach the breakeven point towards the second half of 2017.

14. What are the use of proceeds from this $18-24MM capital raise?

$5-7 million will be used to debottleneck and add incremental capacity in Lansing. The company’s assets are currently capable of supporting from $5-10 million in annual revenue, depending on product mix. The $5 million capital will allow us to achieve from $15-$25 million in annual revenue. The additional capital will be used for increased working capital and to cover the projected burn rate through to cash positive. We also intend to invest to expand our patent portfolio and increase our capability in applications engineering and technical service in support of customer selling activities. We also intend to increase spending on commercial headcount (sales and technical sales) to improve our rate of conversion from development activities to commercialization.

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