NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY 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 APPLICABLE STATE SECURITIES LAWS, AND, ACCORDINGLY, MAY NOT BE OFFERED OR
SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT
TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH
APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO
THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY
ACCEPTABLE TO THE COMPANY. TO THE EXTENT PERMITTED BY APPLICABLE SECURITIES
LAWS, THIS SECURITY AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS SECURITY
MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN
SECURED BY SUCH SECURITIES.

  

Original Issue Date: ________, 2012

Original Conversion Price  - $0.20 per share

  

$_________

  

No: -2012-__

  

10% CONVERTIBLE DEBENTURE

DUE _________, 2014

  

  

THIS 10% CONVERTIBLE DEBENTURE is one of a series of duly authorized and validly
issued 10% Convertible Debentures of Blue Calypso, Inc., a Delaware corporation
(the “Company”), having its principal place of business at 19111 North Dallas
Parkway, Suite 200, Dallas, Texas 75287, designated as its 10% Convertible
Debenture due ________, 2014 (this debenture, this “Debenture” and, collectively
with the other debentures of such series, the “Debentures”). 

  

FOR VALUE RECEIVED, the Company promises to pay to _________ or its registered
assigns (the “Holder”), or shall have paid pursuant to the terms hereunder, the
principal sum of $________ or, if less, the then outstanding principal amount of
this Debenture on _______, 2014 (the “Maturity Date”) or such earlier date as
this Debenture is required or permitted to be repaid as provided hereunder, and
to pay interest to the Holder on the then outstanding principal amount of this
Debenture in accordance with the provisions hereof. This Debenture is subject to
the following additional provisions:

  

Section 1.              Definitions. For the purposes hereof, in addition to the
terms defined elsewhere in this Debenture, (a) capitalized terms not otherwise
defined herein shall have the meanings set forth in the Purchase Agreement and
(b) the following terms shall have the following meanings:

  

“Alternate Consideration” shall have the meaning set forth in Section 5(c).

  

“Bankruptcy Event” means any of the following events: (a) the Company or any
Significant Subsidiary (as such term is defined in Rule 1-02(w) of Regulation
S-X) thereof commences a case or other proceeding under any bankruptcy,
reorganization, arrangement, adjustment of debt, relief of debtors, dissolution,
insolvency or liquidation or similar law of any jurisdiction relating to the
Company or any Significant Subsidiary thereof, as the case may be, (b) there is
commenced against the Company or any Significant Subsidiary thereof any such
case or proceeding that is not dismissed within 60 days after commencement, (c)
the Company or any Significant Subsidiary thereof is adjudicated insolvent or
bankrupt or any order of relief or other order approving any such case or
proceeding is entered, (d) the Company or any Significant Subsidiary thereof
suffers any appointment of any custodian or the like for it or any substantial
part of its property that is not discharged or stayed within 60 calendar days
after such appointment, (e) the Company or any Significant Subsidiary thereof
makes a general assignment for the benefit of creditors, (f) the Company or any
Significant Subsidiary thereof calls a meeting of its creditors with a view to
arranging a composition, adjustment or restructuring of its debts or (g) the
Company or any Significant Subsidiary thereof, by any act or failure to act,
expressly indicates its consent to, approval of or acquiescence in any of the
foregoing or takes any corporate or other action for the purpose of effecting
any of the foregoing.

 

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“Beneficial Ownership Limitation” shall have the meaning set forth in Section
4(d).

  

“Business Day” means any day except any Saturday, any Sunday, any day which is a
federal legal holiday in the United States or any day on which banking
institutions in the State of New York are authorized or required by law or other
governmental action to close.

 

“Conversion” shall have the meaning ascribed to such term in Section 4.

  

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

  

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

  

“Conversion Schedule” means the Conversion Schedule in the form of Schedule 1
attached hereto.

  

“Conversion Shares” means, collectively, the shares of Common Stock issuable
upon conversion of this Debenture in accordance with the terms hereof.

  

“Debenture Register” shall have the meaning set forth in Section 2(b).

  

“Deemed Liquidation Event” shall mean:  (i) a merger or consolidation in which
the Corporation is a constituent party or a subsidiary of the Corporation is a
constituent party and the Corporation issues shares of its capital stock
pursuant to such merger or consolidation, except any such merger or
consolidation involving the Corporation or a subsidiary in which the shares of
capital stock of the Corporation outstanding immediately prior to such merger or
consolidation continue to represent, or are converted into or exchanged for
shares of capital stock that represent, immediately following such merger or
consolidation, at least a majority, by voting power, of the capital stock of the
surviving or resulting corporation or if the surviving or resulting corporation
is a wholly owned subsidiary of another corporation immediately following such
merger or consolidation, the parent corporation of such surviving or resulting
corporation; or (ii) the sale, lease, transfer, exclusive license or other
disposition, in a single transaction or series of related transactions, by the
Corporation or any subsidiary of the Corporation of all or substantially all the
assets of the Corporation and its subsidiaries taken as a whole,  or the sale or
disposition (whether by merger or otherwise) of one or more subsidiaries of the
Corporation if substantially all of the assets of the Corporation and its
subsidiaries taken as a whole are held by such subsidiary or subsidiaries,
except where such sale, lease, transfer, exclusive license or other disposition
is to a wholly owned subsidiary of the Corporation.

 

“Event of Default” shall have the meaning set forth in Section 7(a).

  

“Fundamental Transaction” shall have the meaning set forth in Section 5(c).

  

“Late Fees” shall have the meaning set forth in Section 2(c).

  

“Mandatory Default Amount” means the sum of (a) the greater of (i) the
outstanding principal amount of this Debenture divided by the Conversion Price
on the date the Mandatory Default Amount is either (A) demanded (if demand or
notice is required to create an Event of Default) or otherwise due or (B) paid
in full, whichever has a lower Conversion Price, multiplied by the VWAP on the
date on which the Mandatory Default Amount is either (x) demanded or otherwise
due or (y) paid in full, whichever has a higher VWAP, plus all accrued and
unpaid interest hereon, or (ii) 130% of the outstanding principal amount of this
Debenture, plus 100% of accrued and unpaid interest hereon, and (b) all other
amounts, costs, expenses and liquidated damages due in respect of this
Debenture.

 

“Notice of Conversion” shall have the meaning set forth in Section 4(a).

  

“Original Issue Date” means the date of the first issuance of the Debentures,
regardless of any transfers of any Debenture and regardless of the number of
instruments which may be issued to evidence such Debentures.

 

“Purchase Agreement” means the Securities Purchase Agreement, dated as of the
date hereof among the Company and the original Holders, as amended, modified or
supplemented from time to time in accordance with its terms.

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“Required Holders” means Holders of at least a majority in principal amount of
the then outstanding Debentures (taken as a whole).

  

“Securities Act” means the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder.

 

“Successor Entity” shall have the meaning set forth in Section 5(c).

  

                “Texas Courts” shall have the meaning set forth in Section 9(d).

 

“Trading Day” means a day on which the principal Trading Market is open for
trading.

  

“Trading Market” means any of the following markets or exchanges on which the
Common Stock is listed or quoted for trading on the date in question: the NYSE
MKT, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global
Select Market, the New York Stock Exchange or the OTC Bulletin Board (or any
successors to any of the foregoing).

  

“VWAP” means, for any date, the price determined by the first of the following
clauses that applies: (a) if the Common Stock is then listed or quoted on a
Trading Market, the daily volume weighted average price of the Common Stock for
such date (or the nearest preceding date) on the Trading Market on which the
Common Stock is then listed or quoted as reported by Bloomberg L.P. (based on a
Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City
time)), (b) if the OTC Bulletin Board is not a Trading Market, the volume
weighted average price of the Common Stock for such date (or the nearest
preceding date) on the OTC Bulletin Board, (c) if the Common Stock is not then
listed or quoted for trading on the OTC Bulletin Board and if prices for the
Common Stock are then reported in the “Pink Sheets” published by Pink OTC
Markets, Inc. (or a similar organization or agency succeeding to its functions
of reporting prices), the most recent bid price per share of the Common Stock so
reported, or (d) in all other cases, the fair market value of a share of Common
Stock as determined by an independent appraiser selected in good faith by the
Holders of a majority in interest of the Debentures and the Other Debentures
then outstanding and reasonably acceptable to the Company, the fees and expenses
of which shall be paid by the Company; provided, however, if such Holders have
not selected an independent appraiser within 20 calendar days of the date
required to select such independent appraiser, such failure will not result in
an Event of Default.

 

Section 2.              Interest. 

  

a)            Payment of Interest in Cash or Kind. The Company shall pay
interest to the Holder on the then outstanding principal amount of this
Debenture at the rate of 10% per annum, payable semi-annually, in cash or, at
the Holder’s option, in duly authorized, validly issued, fully paid and
non-assessable shares of Common Stock at the Conversion Price.

  

b)           Interest Calculations. Interest shall be calculated on the basis of
a 360-day year, consisting of twelve 30 calendar day periods, and shall accrue
daily commencing on the Original Issue Date until payment in full of the
outstanding principal, together with all accrued and unpaid interest, liquidated
damages and other amounts which may become due hereunder, has been made.
Interest shall cease to accrue with respect to any principal amount converted,
provided that, the Company actually delivers the Conversion Shares within the
time period required by Section 4(c)(ii) herein.. Interest hereunder will be
paid to the Person in whose name this Debenture is registered on the records of
the Company regarding registration and transfers of this Debenture (the
“Debenture Register”). 

  

c)            Late Fee. All overdue accrued and unpaid interest to be paid
hereunder shall entail a late fee at an interest rate equal to the lesser of 16%
per annum or the maximum rate permitted by applicable law (the “Late Fees”)
which shall accrue daily from the date such interest is due hereunder through
and including the date of actual payment in full.

  

d)           Prepayment. Subject to Section 4(a) below, the Company may, upon
ten (10) days written notice to Holder, prepay any portion of the principal
amount of this Debenture without premium or penalty.

  

Section 3.               Registration of Transfers and Exchanges. 

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a)            Different Denominations. This Debenture is exchangeable for an
equal aggregate principal amount of Debentures of different authorized
denominations, as requested by the Holder surrendering the same. No service
charge will be payable for such registration of transfer or exchange.

  

b)           Investment Representations. This Debenture has been issued subject
to certain investment representations of the original Holder set forth in the
Purchase Agreement and this Debenture and the securities issued or issuable upon
conversion hereof may be transferred or exchanged only in compliance with the
Purchase Agreement and applicable Securities Laws.

  

c)            Reliance on Debenture Register. Prior to due presentment for
transfer to the Company of this Debenture, the Company and any agent of the
Company may treat the Person in whose name this Debenture is duly registered on
the Debenture Register as the owner hereof for the purpose of receiving payment
as herein provided and for all other purposes, whether or not this Debenture is
overdue, and neither the Company nor any such agent shall be affected by notice
to the contrary. In the event of an assignment or transfer of this Debenture,
the assignee or transferee shall be deemed a registered holder hereunder and a
permitted assign pursuant to the Purchase Agreement on the date the notice of
assignment and/or transfer is delivered to the Company in accordance with the
terms hereunder and the Purchase Agreement.

  

Section 4.               Conversion. 

  

a)            Voluntary Conversion. At any time after the Original Issue Date
until this Debenture is no longer outstanding, the principal of this Debenture
shall be convertible, in whole or in part, into shares of Common Stock at the
option of the Holder, at any time and from time to time (subject to the
conversion limitations set forth in Section 4(d) hereof). The Holder shall
effect conversions by delivering to the Company a Notice of Conversion, the form
of which is attached hereto as Annex A (each, a “Notice of Conversion”),
specifying therein the principal amount of this Debenture to be converted and
the date on which such conversion shall be effected (such date, the “Conversion
Date”). If no Conversion Date is specified in a Notice of Conversion, the
Conversion Date shall be the date that such Notice of Conversion is deemed
delivered hereunder. To effect conversions hereunder, the Holder shall not be
required to physically surrender this Debenture to the Company unless the entire
principal amount of this Debenture has been so converted. Conversions hereunder
shall have the effect of lowering the outstanding principal amount of this
Debenture in an amount equal to the principal amount converted. The Holder and
the Company shall maintain records showing the principal amount(s) converted and
the date of such conversion(s). The Company may deliver an objection to any
Notice of Conversion within two (2) Business Days of delivery of such Notice of
Conversion. The Holder, and any assignee by acceptance of this Debenture,
acknowledge and agree that, by reason of the provisions of this paragraph,
following conversion of a portion of this Debenture, the unpaid principal amount
of this Debenture may be less than the amount stated on the face hereof.

  

b)           Conversion Price. The conversion price in effect on any Conversion
Date shall be equal to $0.20 per share,  subject to adjustment herein (the
“Conversion Price”). 

  

c)            Mechanics of Conversion. 

  

i.             Conversion Shares Issuable Upon Conversion of Principal Amount.
The number of Conversion Shares issuable upon a conversion hereunder shall be
determined by the quotient obtained by dividing (x) the outstanding principal
amount of this Debenture to be converted by (y) the Conversion Price.

  

ii.            Delivery of Certificate Upon Conversion. Within a reasonable
period of time following each Conversion Date, the Company shall deliver, or
cause to be delivered, to the Holder (A) a certificate or certificates
representing the Conversion Shares which, on or after the earlier of (i) the six
month anniversary of the Original Issue Date or (ii) the date on which a
registration statement covering the Conversion Shares has been declared
effective by the SEC, shall be free of restrictive legends and trading
restrictions (other than those which may then be required by the Purchase
Agreement) representing the number of Conversion Shares being acquired upon the
conversion of this Debenture and (B) a check in the amount of accrued and unpaid
interest on the principal amount so converted. Certificates for Conversion
Shares shall be transmitted by the Transfer Agent to the Holder by crediting the
account of the Holder’s prime broker with The Depository Trust Company through
its Deposit or Withdrawal at Custodian system (“DWAC”) if the Company is then a
participant in such system and either (A) there is an effective registration
statement permitting the issuance of the Conversion Shares to or resale of the
Conversion Shares by the Holder or (B) the shares are eligible for resale by the
Holder without volume or manner-of-sale limitations pursuant to Rule 144, and
otherwise by physical delivery to the address specified by the Holder in the
Notice of Conversion.

 

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iii.           Failure to Deliver Certificates. If, in the case of any Notice of
Conversion, such certificate or certificates are not delivered to or as directed
by the applicable Holder by the Share Delivery Date, the Holder shall be
entitled to elect by written notice to the Company at any time on or before
delivery of such certificate or certificates, to rescind such Conversion, in
which event the Company shall promptly return to the Holder this original
Debenture, if theretofore delivered to the Company, and the Holder shall
promptly return to the Company the certificates issued to such Holder pursuant
to the rescinded Conversion Notice and repay the interest paid to the Holder on
such conversion.

 

iv.           Reservation of Shares Issuable Upon Conversion. The Company
covenants that it will at all times reserve and keep available out of its
authorized and unissued shares of Common Stock for the sole purpose of issuance
upon conversion of the Debentures and the Other Debentures, each as herein
provided, free from preemptive rights or any other actual contingent purchase
rights of Persons other than the Holder (and the other holders of the Debentures
and the Other Debentures), not less than such aggregate number of shares of the
Common Stock as shall (subject to the terms and conditions set forth in the
Purchase Agreement) be issuable (taking into account the adjustments and
restrictions of Section 5) upon the conversion of the then outstanding principal
amount of the Debentures and the Other Debentures. The Company covenants that
all shares of Common Stock that shall be so issuable shall, upon issue, be duly
authorized, validly issued, fully paid and nonassessable.

  

v.          Fractional Shares. No fractional shares or scrip representing
fractional shares shall be issued upon the conversion of this Debenture. As to
any fraction of a share which the Holder would otherwise be entitled to purchase
upon such conversion, the Company shall at its election, either pay a cash
adjustment in respect of such final fraction in an amount equal to such fraction
multiplied by the Conversion Price or round up to the next whole share.

  

vi.         Transfer Taxes. The issuance of certificates for shares of the
Common Stock on conversion of this Debenture shall be made without charge to the
Holder hereof for any documentary stamp or similar taxes that may be payable in
respect of the issue or delivery of such certificates, provided that, the
Company shall not be required to pay any tax that may be payable in respect of
any transfer involved in the issuance and delivery of any such certificate upon
conversion in a name other than that of the Holder of this Debenture so
converted and the Company shall not be required to issue or deliver such
certificates unless or until the Person or Persons requesting the issuance
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.

  

d)           Holder’s Conversion Limitations. The Company shall not effect any
conversion of this Debenture, and a Holder shall not have the right to convert
any portion of this Debenture, to the extent that after giving effect to the
conversion set forth on the applicable Notice of Conversion, the Holder
(together with the Holder’s affiliates, and any Persons acting as a group
together with the Holder or any of the Holder’s affiliates) would beneficially
own in excess of the Beneficial Ownership Limitation (as defined below). For
purposes of the foregoing sentence, the number of shares of Common Stock
beneficially owned by the Holder and its affiliates shall include the number of
shares of Common Stock issuable upon conversion of this Debenture with respect
to which such determination is being made, but shall exclude the number of
shares of Common Stock which are issuable upon (i) conversion of the remaining,
unconverted principal amount of this Debenture beneficially owned by the Holder
or any of its affiliates and (ii) exercise or conversion of the unexercised or
unconverted portion of any other securities of the Company subject to a
limitation on conversion or exercise analogous to the limitation contained
herein beneficially owned by the Holder or any of its affiliates. Except as set
forth in the preceding sentence, for purposes of this Section 4(d), beneficial
ownership shall be calculated in accordance with Section 13(d) of the Exchange
Act and the rules and regulations promulgated thereunder. To the extent that the
limitation contained in this Section 4(d) applies, the determination of whether
this Debenture is convertible (in relation to other securities owned by the
Holder together with any affiliates) and of which principal amount of this
Debenture is convertible shall be in the sole discretion of the Holder, and the
submission of a Notice of Conversion shall be deemed to be the Holder’s
determination of whether this Debenture may be converted (in relation to other
securities owned by the Holder together with any affiliates) and which principal
amount of this Debenture is convertible, in each case subject to the Beneficial
Ownership Limitation. To ensure compliance with this restriction, the Holder
will be deemed to represent to the Company each time it delivers a Notice of
Conversion that such Notice of Conversion has not violated the restrictions set
forth in this paragraph and the Company shall have no obligation to verify or
confirm the accuracy of such determination. In addition, a determination as to
any group status as contemplated above shall be determined in accordance with
Section 13(d) of the Exchange Actand the rules and regulations promulgated
thereunder.   For purposes of this Section 4(d), in determining the number of
outstanding shares of Common Stock, the Holder may rely on the number of
outstanding shares of Common Stock as stated in the most recent of the
following: (i) the Company’s most recent periodic or annual report filed with
the Commission, as the case may be, (ii) a more recent public announcement by
the Company, or (iii) a more recent written notice by the Company or the
Company’s transfer agent setting forth the number of shares of Common Stock
outstanding. Upon the written or oral request of a Holder, the Company shall
within two Trading Days confirm orally and in writing to the Holder the number
of shares of Common Stock then outstanding. In any case, the number of
outstanding shares of Common Stock shall be determined after giving effect to
the conversion or exercise of securities of the Company, including this
Debenture, by the Holder or its affiliates since the date as of which such
number of outstanding shares of Common Stock was reported. The “Beneficial
Ownership Limitation” shall be 4.99% of the number of shares of the Common Stock
outstanding immediately after giving effect to the issuance of shares of Common
Stock issuable upon conversion of this Debenture held by the Holder. The Holder,
upon not less than 61 days’ prior notice to the Company, may increase or
decrease the Beneficial Ownership Limitation provisions of this Section 4(d),
provided that the Beneficial Ownership Limitation in no event exceeds 9.99% of
the number of shares of the Common Stock outstanding immediately after giving
effect to the issuance of shares of Common Stock upon conversion of this
Debenture held by the Holder and the Beneficial Ownership Limitation provisions
of this Section 4(d) shall continue to apply. Any such increase or decrease will
not be effective until the 61st day after such notice is delivered to the
Company. The Beneficial Ownership Limitation provisions of this paragraph shall
be construed and implemented in a manner otherwise than in strict conformity
with the terms of this Section 4(d) to correct this paragraph (or any portion
hereof) which may be defective or inconsistent with the intended Beneficial
Ownership Limitation contained herein or to make changes or supplements
necessary or desirable to properly give effect to such limitation.The
limitations contained in this paragraph shall apply to a successor holder ofthis
Debenture. 

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Section 5.              Certain Adjustments. 

  

a)            Stock Dividends and Stock Splits. If the Company, at any time
while this Debenture is outstanding: (i) pays a stock dividend or otherwise
makes a distribution or distributions payable in shares of Common Stock on
shares of Common Stock or any Common Stock Equivalents (which, for avoidance of
doubt, shall not include any shares of Common Stock issued by the Company upon
conversion of the Debentures, the Other Debentures or the exercise of the
Warrants), (ii) subdivides outstanding shares of Common Stock into a larger
number of shares, (iii) combines (including by way of a reverse stock split)
outstanding shares of Common Stock into a smaller number of shares or (iv)
issues, in the event of a reclassification of shares of the Common Stock, any
shares of capital stock of the Company, then the Conversion Price shall be
multiplied by a fraction of which the numerator shall be the number of shares of
Common Stock (excluding any treasury shares of the Company) outstanding
immediately before such event, and of which the denominator shall be the number
of shares of Common Stock outstanding immediately after such event. Any
adjustment made pursuant to this Section shall become effective immediately
after the record date for the determination of stockholders entitled to receive
such dividend or distribution (provided that if the declaration of such dividend
or distribution is rescinded or otherwise cancelled, then such adjustment shall
be reversed upon notice to the Holder of the termination of such proposed
declaration or distribution as to any unconverted principal amount at the time
of such rescission or cancellation) and shall become effective immediately after
the effective date in the case of a subdivision, combination or
re-classification.

 

b)           Pro Rata Distributions. If the Company, at any time while this
Debenture is outstanding, distributes to all holders of Common Stock (and not to
the Holders) evidences of its indebtedness or assets (including cash and cash
dividends) or rights or warrants to subscribe for or purchase any security, then
in each such case the Conversion Price shall be adjusted by multiplying such
Conversion Price in effect immediately prior to the record date fixed for
determination of stockholders entitled to receive such distribution by a
fraction of which the denominator shall be the VWAP determined as of the record
date mentioned above, and of which the numerator shall be such VWAP on such
record date less the then fair market value at such record date of the portion
of such assets or evidence of indebtedness or rights or warrants so distributed
applicable to one outstanding share of the Common Stock as determined by the
Board of Directors of the Company in good faith. In either case the adjustments
shall be described in a statement delivered to the Holder describing the portion
of assets or evidences of indebtedness so distributed or such subscription
rights applicable to one share of Common Stock. Such adjustment shall be made
whenever any such distribution is made and shall become effective immediately
after the record date mentioned above (provided that if such distribution is not
in fact made, then such adjustment shall be reversed upon notice to theHolder of
the termination of such proposed distribution as to any unconverted principal
amount at the time of such cancellation of such distribution).

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c)            Fundamental Transaction. If, at any time while this Debenture is
outstanding, (i) the Company, directly or indirectly, in one or more related
transactions effects any merger or consolidation of the Company with or into
another Person, (ii) the Company, directly or indirectly, effects any sale,
lease, license, assignment, transfer, conveyance or other disposition of all or
substantially all of its assets in one or a series of related transactions,
(iii) any, direct or indirect, purchase offer, tender offer or exchange offer
(whether by the Company or another Person) is completed pursuant to which
holders of Common Stock are permitted to sell, tender or exchange their shares
for other securities, cash or property and has been accepted by the holders of
50% or more of the outstanding Common Stock, (iv) the Company, directly or
indirectly, in one or more related transactions effects any reclassification,
reorganization or recapitalization of the Common Stock or any compulsory share
exchange pursuant to which the Common Stock is effectively converted into or
exchanged for other securities, cash or property, (v) the Company, directly or
indirectly, in one or more related transactions consummates a stock or share
purchase agreement or other business combination (including, without limitation,
a reorganization, recapitalization, spin-off or scheme of arrangement) with
another Person whereby such other Person acquires more than 50% of the
outstanding shares of Common Stock (not including any shares of Common Stock
held by the other Person or other Persons making or party to, or associated or
affiliated with the other Persons making or party to, such stock or share
purchase agreement or other business combination) (each a “Fundamental
Transaction”), then, upon any subsequent conversion of this Debenture, the
Holder shall have the right to receive, for each Conversion Share that would
have been issuable upon such conversion immediately prior to the occurrence of
such Fundamental Transaction (without regard to any limitation in Section 4(d)
on the conversion of this Debenture), the number of shares of Common Stock of
the successor or acquiring corporation or of the Company, if it is the surviving
corporation, and any additional consideration (the “Alternate Consideration”)
receivable as a result of such Fundamental Transaction by a holder one share of
Common Stock. For purposes of any such conversion, the determination of the
Conversion Price shall be appropriately adjusted to apply to such Alternate
Consideration based on the amount of Alternate Consideration issuable in respect
of one (1) share of Common Stock in such Fundamental Transaction, and the
Company shall apportion the Conversion Price among the Alternate Consideration
in a reasonable manner reflecting the relative value of any different components
of the Alternate Consideration. If holders of Common Stock are given any choice
as to the securities, cash or property to be received in a Fundamental
Transaction, then the Holder shall be given the same choice as to the Alternate
Consideration it receives upon any conversion of this Debenture following such
Fundamental Transaction. The Company shall cause any successor entity in a
Fundamental Transaction in which the Company is not the survivor (the “Successor
Entity”) to assume in writing all of the obligations of the Company under this
Debenture and the other Transaction Documents (as defined in the Purchase
Agreement) in accordance with the provisions of this Section 5(c) pursuant to
written agreements in form and substance reasonably satisfactory to the Holder
and approved by the Holder (without unreasonable delay) prior to such
Fundamental Transaction and shall, at the option of the Holder of this
Debenture, deliver to the Holder in exchange for this Debenture a security of
the Successor Entity evidenced by a written instrument substantially similar in
form and substance to this Debenture which is convertible for a corresponding
number of shares of capital stock of such Successor Entity (or its parent
entity) equivalent to the shares of Common Stock acquirable and receivable upon
conversion of this Debenture (without regard to any limitations on the
conversion of this Debenture) prior to such Fundamental Transaction, and with a
conversion price which applies the conversion price hereunder to such shares of
capital stock (but taking into account the relative value of the shares of
Common Stock pursuant to such Fundamental Transaction and the value of such
shares of capital stock, such number of shares of capital stock and such
conversion price being for the purpose of protecting the economic value of this
Debenture immediately prior to the consummation of such Fundamental
Transaction), and which is reasonably satisfactory in form and substance to the
Holder. Upon the occurrence of any such Fundamental Transaction, the Successor
Entity shall succeed to, and be substituted for (so that from and after the date
of such Fundamental Transaction, the provisions of this Debenture and the other
Transaction Documents referring to the “Company” shall refer instead to the
Successor Entity), and may exercise every right and power of the Company and
shall assume all of the obligations of the Company under this Debenture and the
other Transaction Documents with the same effect as if such Successor Entity had
been named as the Company herein.

  

d)            Calculations. All calculations under this Section 5 shall be made
to the nearest cent or the nearest 1/100th of a share, as the case may be. For
purposes of this Section 5, the number of shares of Common Stock deemed to be
issued and outstanding as of a given date shall be the sum of the number of
shares of Common Stock (excluding any treasury shares of the Company) issued and
outstanding.

  

e)           Notice to the Holder. 

7

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i.             Adjustment to Conversion Price. Whenever the Conversion Price is
adjusted pursuant to any provision of this Section 5, the Company shall promptly
deliver to the Holder a notice setting forth the Conversion Price after such
adjustment and setting forth a brief statement of the facts requiring such
adjustment.

  

ii.            Notice to Allow Conversion by Holder. If (A) the Company shall
declare a dividend (or any other distribution in whatever form) on the Common
Stock, (B) the Company shall declare a special nonrecurring cash dividend on or
a redemption of the Common Stock, (C) the Company shall authorize the granting
to all holders of the Common Stock of rights or warrants to subscribe for or
purchase any shares of capital stock of any class or of any rights, (D) the
approval of any stockholders of the Company shall be required in connection with
any reclassification of the Common Stock, any consolidation or merger to which
the Company is a party, any sale or transfer of all or substantially all of the
assets of the Company, or any compulsory share exchange whereby the Common Stock
is converted into other securities, cash or property or (E) the Company shall
authorize the voluntary or involuntary dissolution, liquidation or winding up of
the affairs of the Company, then, in each case, the Company shall cause to be
filed at each office or agency maintained for the purpose of conversion of this
Debenture, and shall cause to be delivered to the Holder at its last address as
it shall appear upon the Debenture Register, at least ten (10) calendar days
prior to the applicable record or effective date hereinafter specified, a notice
stating (x) the date on which a record is to be taken for the purpose of such
dividend, distribution, redemption, rights or warrants, or if a record is not to
be taken, the date as of which the holders of the Common Stock of record to be
entitled to such dividend, distributions, redemption, rights or warrants are to
be determined or (y) the date on which such reclassification, consolidation,
merger, sale, transfer or share exchange is expected to become effective or
close, and the date as of which it is expected that holders of the Common Stock
of record shall be entitled to exchange their shares of the Common Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer or share exchange, provided that the
failure to deliver such notice or any defect therein or in the delivery thereof
shall not affect the validity of the corporate action required to be specified
in such notice. To the extent that any notice provided hereunder constitutes, or
contains, material, non-public information regarding the Company or any of the
Subsidiaries, the Company shall simultaneously file such notice with the
Commission pursuant to a Current Report on Form 8-K. The Holder shall remain
entitled to convert this Debenture during the 10-day period commencing on the
date of such notice through the effective date of the event triggering such
notice except as may otherwise be expressly set forth herein.

  

Section 6.              Negative Covenants. As long as any portion of this
Debenture remains outstanding, unless the Required Holders shall have otherwise
given prior written consent, the Company shall not, and shall not permit any of
the Subsidiaries to, directly or indirectly:

 

a)            amend its charter documents, including, without limitation, its
certificate of incorporation and bylaws, in any manner that materially and
adversely affects any rights of the Holder;

  

b)           repay, repurchase or offer to repay, repurchase or otherwise
acquire more than a de  minimis  number of shares of its Common Stock or Common
Stock Equivalents;

  

c)            pay cash dividends or distributions on any equity securities of
the Company;

  

d)            liquidate, dissolve, or wind-up the business and affairs of the
Corporation or effect any Deemed Liquidation Event; or

  

e)           enter into any agreement with respect to any of the foregoing.

  

Section 7.              Events of Default. 

  

a)            “Event of Default” means, wherever used herein, any of the
following events (whatever the reason for such event and whether such event
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 (A) the principal amount of any
Debenture or (B) interest, liquidated damages and other amounts owing to a
Holder on any Debenture, as and when the same shall become due and payable
(whether on a Conversion Date or the Maturity Date or by acceleration or
otherwise) which default, solely in the case of an interest payment or other
default under clause (B) above, is not cured within 3 Trading Days;

 

8 

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ii.            the Company shall fail to observe or perform any other covenant
or agreement contained in the Debentures (other than a breach by the Company of
its obligations to deliver shares of Common Stock to the Holder upon conversion,
which breach is addressed in clause (ix) below) which failure is not cured, if
possible to cure, within the earlier to occur of (A) 5 Trading Days after notice
of such failure sent by the Holder or by any other Holder to the Company and (B)
10 Trading Days after the Company has become or should have become aware of such
failure;

  

iii.            a default or event of default (subject to any grace or cure
period provided in the applicable agreement, document or instrument) shall occur
under (A) any of the Transaction Documents or (B) any (other material agreement,
lease, document or instrument to which the Company or any Subsidiary is
obligated (and not covered by clause (vi) below );

  

iv.            any representation or warranty made in this Debenture, any other
Transaction Documents, any written statement pursuant hereto or thereto or any
other report, financial statement or certificate made or delivered to the Holder
or any other Holder shall be untrue or incorrect in any material respect as of
the date when made or deemed made;

  

v.             the Company or any Significant Subsidiary (as such term is
defined in Rule 1-02(w) of Regulation S-X) shall be subject to a Bankruptcy
Event;

  

vi.            the Company or any Significant Subsidiary (as such term is
defined in Rule 1-02(w) of Regulation S-X) shall default on any of its
obligations under any mortgage, credit agreement or other facility, indenture
agreement, factoring agreement or other instrument under which there may be
issued, or by which there may be secured or evidenced, any indebtedness for
borrowed money or money due under any long term leasing or factoring arrangement
that (a) involves an obligation greater than $25,000, whether such indebtedness
now exists or shall hereafter be created, and (b) results in such indebtedness
becoming or being declared due and payable prior to the date on which it would
otherwise become due and payable;

  

vii.           the Common Stock shall not be eligible for listing or quotation
for trading on a Trading Market and shall not be eligible to resume listing or
quotation for trading thereon within five Trading Days; or

  

xi.            the Company does not meet the current public information
requirements under Rule 144 in respect of the Underlying Shares.

 

b)            Remedies Upon Event of Default. If any Event of Default occurs,
the outstanding principal amount of this Debenture, plus accrued but unpaid
interest, liquidated damages and other amounts owing in respect thereof through
the date of acceleration, shall become, at the Holder’s election, immediately
due and payable in cash at the Mandatory Default Amount. Commencing 5 days after
the occurrence of any Event of Default that results in the eventual acceleration
of this Debenture, the interest rate on this Debenture shall accrue at an
interest rate equal to the lesser of 16% per annum or the maximum rate permitted
under applicable law. Upon the payment in full of the Mandatory Default Amount,
the Holder shall promptly surrender this Debenture to or as directed by the
Company. In connection with such acceleration described herein, the Holder need
not provide, and the Company hereby waives, any presentment, demand, protest or
other notice of any kind, and the Holder may immediately and without expiration
of any grace period enforce any and all of its rights and remedies hereunder and
all other remedies available to it under applicable law. Such acceleration may
be rescinded and annulled by Holder at any time prior to payment hereunder and
the Holder shall have all rights as a holder of the Debenture until such time,
if any, as the Holder receives full payment pursuant to this Section 7(b). No
such rescission or annulment shall affect any subsequent Event of Default or
impair any right consequent thereon.

 

Section 8.                Miscellaneous. 

  

a)             Notices. Any and all notices or other communications or
deliveries to be provided by the Holder hereunder, including, without
limitation, any Notice of Conversion, shall be in writing and delivered
personally, by facsimile, provided confirmation of transmission is mechanically
or electronically generated and kept on file by the Holder, or email, or sent by
a nationally recognized overnight courier service, addressed to the Company, at
the address set forth in the Purchase Agreement, or suchother facsimile number,
email address or address as the Company may specify for such purposes by notice
to the Holder delivered in accordance with this Section 9(a). Any and all
notices or other communications or deliveries to be provided by the Company
hereunder shall be in writing and delivered personally, by facsimile, provided
confirmation of transmission is mechanically or electronically generated and
kept on file by the Company, or email, or sent by a nationally recognized
overnight courier service addressed to each Holder at the facsimile number,
email address or address of the Holder appearing on the books of the Company, or
if no such facsimile number, email address or address appears on the books of
the Company, at the principal place of business of such Holder, as set forth in
the Purchase Agreement. Any notice or other communication or deliveries
hereunder shall be deemed given and effective on the earliest of (i) the date of
transmission, if such notice or communication is delivered via facsimile or
email at the facsimile number or email address set forth on the signature pages
attached hereto prior to 5:30 p.m. (New York City time) on any date, (ii) the
next Trading Day after the date of transmission, if such notice or communication
is delivered via facsimile or email at the facsimile number or email address set
forth on the signature pages attached hereto on a day that is not a Trading Day
or later than 5:30 p.m. (New York City time) on any Trading Day, (iii) the
second Trading Day following the date of mailing, if sent by U.S. nationally
recognized overnight courier service or (iv) upon actual receipt by the party to
whom such notice is required to be given.

9

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b)            Absolute Obligation. Except as expressly provided herein, no
provision of this Debenture shall alter or impair the obligation of the Company,
which is absolute and unconditional, to pay the principal of, liquidated
damages, if any, and accrued interest, as applicable, on this Debenture at the
time, place, and rate, and in the coin or currency, herein prescribed. This
Debenture is a direct debt obligation of the Company. This Debenture ranks pari 
passu  with all other Debentures and the Other Debentures now or hereafter
issued under the terms set forth herein.

  

c)             Lost or Mutilated Debenture. If this Debenture shall be
mutilated, lost, stolen or destroyed, the Company shall execute and deliver, in
exchange and substitution for and upon cancellation of a mutilated Debenture, or
in lieu of or in substitution for a lost, stolen or destroyed Debenture, a new
Debenture for the outstanding principal amount of this Debenture so mutilated,
lost, stolen or destroyed, but only upon receipt of evidence of such loss, theft
or destruction of such Debenture, and of the ownership hereof, and, in case of
loss, theft or destruction, of indemnity or security (which shall not include
the posting of any bond), in each case reasonably satisfactory to the Company.

  

d)            Governing Law. All questions concerning the construction,
validity, enforcement and interpretation of this Debenture shall be governed by
and construed and enforced in accordance with the internal laws of the State of
Delaware, without regard to the principles of conflict of laws thereof. Each
party agrees that all legal proceedings concerning the interpretation,
enforcement and defense of the transactions contemplated by any of the
Transaction Documents (whether brought against a party hereto or its respective
affiliates, directors, officers, shareholders, employees or agents) shall be
commenced in the state and federal courts sitting in Dallas, Texas (the “Texas
Courts”). Each party hereto hereby irrevocably submits to the exclusive
jurisdiction of the Texas Courts for the adjudication of any dispute hereunder
or in connection herewith or with any transaction contemplated hereby or
discussed herein (including with respect to the enforcement of any of the
Transaction Documents), and hereby irrevocably waives, and agrees not to assert
in any suit, action or proceeding, any claim that it is not personally subject
to the jurisdiction of such Texas Courts, or such Texas Courts are improper or
inconvenient venue for such proceeding. Each party hereby irrevocably waives
personal service of process and consents to process being served in any such
suit, action or proceeding by mailing a copy thereof via registered or certified
mail or overnight delivery (with evidence of delivery) to such party at the
address in effect for notices to it under this Debenture and agrees that such
service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any other manner permitted by applicable law. Each party
hereto hereby irrevocably waives, to the fullest extent permitted by applicable
law, any and all right to trial by jury in any legal proceeding arising out of
or relating to this Debenture or the transactions contemplated hereby. If any
party shall commence an action or proceeding to enforce any provisions of this
Debenture, then the prevailing party in such action or proceeding shall be
reimbursed by the other party for its attorneys fees and other costs and
expenses incurred in the investigation, preparation and prosecution of such
action or proceeding.

  

e)             Amendment; Waiver. No provision of the Debentures or the Other
Debentures may be waived, modified, supplemented or amended except in a written
instrument signed by the Company and Required Holders. Any waiver by the Company
or the Required Holders of a breach of any provision of this Debenture 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 Debenture. The failure of the
Company or the Required Holders to insist upon strict adherence to any term of
this Debenture 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 Debenture on any other occasion. Any waiver
by the Company or the Required Holders must be in writing.

10

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f)             Severability. If any provision of this Debenture is invalid,
illegal or unenforceable, the balance of this Debenture 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
violates the applicable law governing usury, the applicable rate of interest due
hereunder shall automatically be lowered to equal the maximum rate of interest
permitted under applicable law. The Company 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 Company from
paying all or any portion of the principal of or interest on this Debenture as
contemplated herein, wherever enacted, now or at any time hereafter in force, or
which may affect the covenants or the performance of this Debenture, and the
Company (to the extent it may lawfully do so) hereby expressly waives all
benefits or advantage of any such law, and covenants that it will not, by resort
to any such law, hinder, delay or impede the execution of any power herein
granted to the Holder, but will suffer and permit the execution of every such as
though no such law has been enacted.

  

g)            Next Business Day. 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.

  

h)            Headings. The headings contained herein are for convenience only,
do not constitute a part of this Debenture and shall not be deemed to limit or
affect any of the provisions hereof.

  

 

*********************

  

(Signature Page Follows)

  

 

 

11

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IN WITNESS WHEREOF, the Company has caused this Debenture to be duly executed by
a duly authorized officer as of the date first above indicated.

  

 

BLUE CALYPSO, INC.

 

 

 

 

 

 

By:

 

 

 

 

Name: Bill Ogle

 

 

 

Title: Chief Executive Officer

 

 

Facsimile No. for delivery of Notices:

 

  

 

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ANNEX A

  

NOTICE OF CONVERSION

  

The undersigned registered holder hereby elects to convert principal under the
10% Convertible Debenture due _______, 2014 of Blue Calypso, Inc., a Delaware
corporation (the “Company”), No. [______] (the “Debenture”) into shares of
common stock (the “Common Stock”) of the Company in accordance with the terms
and conditions of the Debenture, as of the date written below. If shares of
Common Stock are to be issued in the name of a person other than the
undersigned, the undersigned will pay all transfer taxes payable with respect
thereto and is delivering herewith such certificates and opinions as reasonably
requested by the Company in accordance therewith. No fee will be charged to the
undersigned registered holder of the Debenture for any conversion, except for
such transfer taxes, if any.

  

By the delivery of this Notice of Conversion the undersigned represents and
warrants to the Company that its ownership of the Common Stock does not exceed
the amounts specified under Section 4 of this Debenture, as determined in
accordance with Section 13(d) of the Exchange Act.

  

The undersigned agrees to comply with the prospectus delivery requirements under
the applicable Securities Laws in connection with any transfer of the aforesaid
shares of Common Stock.

  

Conversion calculations:

 

 

 

Date to Effect Conversion:

 

 

 

 

Principal Amount of Debenture to be Converted:

 

 

 

 

 

 

Number of shares of Common Stock to be issued:

 

 

 

 

 

 

Signature:

 

 

 

 

Name:

 

 

 

 

Address for Delivery of Common Stock Certificates:

 

 

 

 

Or

 

 

 

 

DWAC Instructions:

 

 

 

 

Broker No:

 

 

Account No:

 

 

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Schedule 1

  

CONVERSION SCHEDULE

  

The 10% Convertible Debenture due on ________, 2014 No. [______]  in the
original principal amount of $[________] is issued by Blue Calypso, Inc., a
Delaware corporation. This Conversion Schedule reflects conversions made under
Section 4 of the above referenced Debenture.

  

Dated:

  

Date of Conversion

(or for first entry,

Original Issue Date)

 

 

Amount of

Converted

Principal

 

 

Aggregate

Principal

Amount

Remaining

Subsequent to

Conversion

(or original

Principal

Amount)

 

 

Company Attest

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

 

 

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