Exhibit
4.1


  


NEITHER
THIS DEBENTURE NOR THE SECURITIES INTO WHICH THIS DEBENTURE IS CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE. THESE SECURITIES HAVE BEEN SOLD 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,
THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS.


 


KRAIG
BIOCRAFT LABORATORIES, INC.


 


Secured
Convertible Debenture


 


	Issuance
    Date: March 25, 2021	Original
    Principal Amount:	$500,000
	No.
    KBLB 2 1-3	 	 


 


FOR
VALUE RECEIVED, KRAIG BIOCRAFT LABORATORIES, INC., a Wyoming corporation (the “Company”), hereby promises
to pay to the order of YAII PN, LTD. or registered assigns (the “Holder”) the amount set out above as the Original
Principal Amount (as reduced pursuant to the terms hereof pursuant to redemption, conversion or otherwise, the “Principal”)
when due, on the Maturity Date (as defined below), acceleration, redemption or otherwise (in each case in accordance with the
terms hereof) and to pay interest (“Interest”) on any outstanding Principal at the applicable Interest Rate
from the date set out above as the Issuance Date (the “Issuance Date”) until the same becomes due and payable,
whether upon the Maturity Date or acceleration, conversion, redemption or otherwise (in each case in accordance with the terms
hereof). This Secured Convertible Debenture (including all Secured Convertible Debentures issued in exchange, transfer or replacement
hereof, this “Debenture”) is issued pursuant to the Securities Purchase Agreement. Certain capitalized terms
used herein are defined in Section 17.


 


(1)
GENERAL TERMS


 


(a)
Payment of Principal. On the Maturity Date, the Company shall pay to the Holder an amount in cash representing all outstanding
Principal, accrued and unpaid Interest. The “Maturity Date” shall be March 25, 2022, as may be extended at
the option of the Holder (i) in the event that, and for so long as, an Event of Default (as defined below) shall have occurred
and be continuing on the Maturity Date (as may be extended pursuant to this Section 1) or any event shall have occurred and be
continuing on the Maturity Date (as may be extended pursuant to this Section 1) that with the passage of time and the failure
to cure would result in an Event of Default. Provided however upon written notice to the Holder the Company shall be entitled
to make such payment of all outstanding Principal, accrued and unpaid Interest to the Holder as required herein within 30 calendar
days of the Maturity Date. Notwithstanding the foregoing during such 30 day calendar day period Interest shall continue to accrue.
Other than as specifically permitted by this Debenture, the Company may not prepay or redeem any portion of the outstanding Principal
without the prior written consent of the Holder.


 




    	 



    	 



    

 


(b)
Interest. Interest shall accrue on the outstanding principal balance hereof at an annual rate equal to 10% (“Interest
Rate”). Interest shall be calculated on the basis of a 365-day year and the actual number of days elapsed, to the extent
permitted by applicable law. Interest hereunder shall be paid on the Maturity Date (or sooner as provided herein) to the Holder
or its assignee in whose name this Debenture is registered on the records of the Company regarding registration and transfers
of Debentures at the option of the Company in cash, or, provided that the Equity Conditions are then satisfied converted into
Common Stock at the Market Conversion Price on the Trading Day immediately prior to the date paid.


 


(c)
Security and Guaranty. This Debenture is secured by (i) a security interest in all of the assets of the Company and of
each of the Company’s subsidiaries pursuant to the Security Agreement by and among the Company, its wholly owned subsidiaries
and the Investor dated the date hereof (all such security agreements shall be referred to as the “Security Agreement”)
and (ii) subject to a global guarantee pursuant to the Global Guaranty by and among each of the Company’s wholly owned subsidiaries
and the Investor dated the date hereof and the intellectual property security agreement by and between the Investor, the Company
and the Company’s subsidiaries referenced therein dated the date hereof (all such security agreements shall be referred
to as the “IP Security Agreement”) (the “Guaranty” and collectively with the Security Agreement
and the IP Security Agreement shall be referred to as the “Security Documents”).


 


(2)
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)
the Company’s failure to pay to the Holder any amount of Principal, Interest, or other amounts when and as due under this
Debenture (including, without limitation, the Company’s failure to pay any redemption payments or amounts hereunder) or
any other Transaction Document;


 




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(ii)
The Company or any subsidiary of the Company shall commence, or there shall be commenced against the Company or any subsidiary
of the Company under any applicable bankruptcy or insolvency laws as now or hereafter in effect or any successor thereto, or the
Company or any subsidiary of the Company commences 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 Company or any subsidiary of the Company or there is commenced against the Company or any subsidiary of the Company
any such bankruptcy, insolvency or other proceeding which remains undismissed for a period of 61 days; or the Company or any subsidiary
of the Company is adjudicated insolvent or bankrupt; or any order of relief or other order approving any such case or proceeding
is entered; or the Company or any subsidiary of the Company 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 undischarged or unstayed for a period of 61
days; or the Company or any subsidiary of the Company makes a general assignment for the benefit of creditors; or the Company
or any subsidiary of the Company 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 Company or any subsidiary of the Company shall call a meeting of its creditors with a view
to arranging a composition, adjustment or restructuring of its debts; or the Company or any subsidiary of the Company 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 Company or any subsidiary of the Company for the purpose of effecting any of the foregoing;


 


(iii)
The Company or any subsidiary of the Company shall default in any of its obligations under any other debenture or 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 of the Company or any subsidiary of the Company in an amount exceeding $100,000, whether such indebtedness
now exists or shall hereafter be created and such default shall result in such indebtedness becoming or being declared due and
payable prior to the date on which it would otherwise become due and payable;


 


(iv)
If the Common Stock ceases to be so quoted or listed for trading and shall not again be quoted or listed for trading on the OTCQB-MKT
(the “Primary Market”) within 5 Trading Days of such delisting, unless such cessation is the result of the
Common Stock being listed on the Nasdaq Capital Markets or a similar exchange;


 


(v)
The Company or any subsidiary of the Company shall be a party to any Change of Control Transaction (as defined in Section 6) unless
in connection with such Change of Control Transaction this Debenture is retired;


 


(vi)
the Company’s (A) failure to cure a Conversion Failure by delivery of the required number of shares of Common Stock within
3 Business Days after the applicable Conversion Failure or (B) notice, written or oral, to any holder of the Debenture, including
by way of public announcement, at any time, of its intention not to comply with a request for conversion of the Debenture into
shares of Common Stock that is tendered in accordance with the provisions of the Debentures, other than pursuant to Section 4(e);


 


(vii)
The Company shall fail for any reason to deliver the payment in cash pursuant to a Buy-In (as defined herein) within 3 Business
Days after such payment is due;


 




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(viii)
The Company shall fail to observe or perform any other covenant, agreement or warranty contained in, or otherwise commit any breach
or default of any provision of this Debenture (except as may be covered by Section 2(a)(i) through 2(a)(vii) hereof) or any Transaction
Documents (as defined in Section 17) which is not cured within the time prescribed.


 


(ix)
any Event of Default occurs with respect to any Transaction Document, which is not cured within any applicable cure period set
forth therein.


 


(b)
During the time that any portion of this Debenture is outstanding, if any Event of Default has occurred, the full unpaid Principal
amount of this Debenture, together with interest and other amounts owing in respect thereof, to the date of acceleration shall
become at the Holder’s election, immediately due and payable in cash; provided however, the Holder may request (but shall
have no obligation to request) payment of such amounts in Common Stock of the Company. If an Event of Default occurs and for so
long as such Event of Default remains uncured, the Interest Rate on this Debenture shall immediately become 15% per annum and
shall remain at such increased interest rate until the applicable Event of Default is cured. Furthermore, in addition to any other
remedies, the Holder shall have the right (but not the obligation) to convert this Debenture at any time after (x) an Event of
Default at the Market Conversion Price. The Holder need not provide and the Company hereby waives any presentment, demand, protest
or other notice of any kind, (other than required notice of conversion) 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 declaration may be rescinded and annulled by Holder at any time prior to payment hereunder. No such rescission or annulment
shall affect any subsequent Event of Default or impair any right consequent thereon.


 


(3)
COMPANY REDEMPTION.


 


(a)
Company’s Cash Redemption. The Company at its option shall have the right to redeem (a “Redemption”),
in part or in whole, outstanding Principal and Interest under this Debenture prior to the Maturity Date. The Company shall pay
an amount equal to the principal amount being redeemed plus a redemption premium (“Redemption Premium”) equal
to 15% of the outstanding Principal Amount plus outstanding and accrued Interest. In order to make a Redemption pursuant to this
Section, the Company shall first provide 15 business days advanced written notice to the Holder of its intention to make a redemption
(the “Redemption Notice”) setting forth the amount of Principal and Interest it desires to redeem plus the
applicable Redemption Premium (the “Redemption Amount”). After receipt of the Redemption Notice the Holder
shall have 15 Business Days to elect to convert all or any portion of this Debenture, subject to the limitations set forth in
Section 3(e). On the 16th Business Day after the Redemption Notice, the Company shall deliver to the Holder via wire
transfer of immediately available funds the Redemption Amount with respect to the Principal Amount and Interest redeemed after
giving effect to conversions by the Holder effected during the 15 Business Day period.


 




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(4)
CONVERSION OF DEBENTURE. This Debenture shall be convertible into shares of the Company’s Common Stock, on the terms
and conditions set forth in this Section 4.


 


(a)
Conversion Right. Subject to the provisions of Section 4(e), at any time or times on or after the Issuance Date as provided
for in Section 4(d), the Holder shall be entitled to convert any portion of the outstanding and unpaid Conversion Amount (as defined
below) into fully paid and nonassessable shares of Common Stock in accordance with Section 4(e)(i), at the Market Conversion Price.
The number of shares of Common Stock issuable upon conversion of any Conversion Amount pursuant to this Section 4(a) shall be
determined by dividing (x) such Conversion Amount by (y) the Market Conversion Price (the “Conversion Rate”).
The Company shall not issue any fraction of a share of Common Stock upon any conversion. If the issuance would result in the issuance
of a fraction of a share of Common Stock, the Company shall round such fraction of a share of Common Stock up to the nearest whole
share. The Company shall pay any and all transfer, stamp and similar taxes that may be payable with respect to the issuance and
delivery of Common Stock upon conversion of any Conversion Amount.


 


(b)
“Conversion Amount” means the portion of the Principal and accrued Interest to be converted, redeemed or otherwise
with respect to which this determination is being made.


 


(c)
“Market Conversion Price” means, as of any Conversion Date (as defined below) or other date of determination,
80% of the lowest VWAP of the Company’s Common Stock during the 10 Trading Days immediately preceding the Conversion Date.
All such determinations to be appropriately adjusted for any stock split, stock dividend, stock combination or other similar transaction.
In that event that the Company’s Common Stock is uplisted to the Nasdaq as the Primary Market the Market Conversion Price
shall not be less than 20% of the Market Conversion Price for the first conversion hereunder (the “Nasdaq Floor Price”).


 


(d)
Mechanics of Conversion.


 


(i)
Optional Conversion. To convert any Conversion Amount into shares of Common Stock on any date (a “Conversion Date”),
the Holder shall (A) transmit by electronic mail (or otherwise deliver), for receipt on or prior to 5:00 p.m., New York Time,
on such date, a copy of an executed notice of conversion in the form attached hereto as Exhibit I (the “Conversion
Notice”) to the Company and (B) if required by Section 4(d)(iv), surrender this Debenture to a nationally recognized
overnight delivery service for delivery to the Company (or an indemnification undertaking reasonably satisfactory to the Company
with respect to this Debenture in the case of its loss, theft or destruction). On or before the 3rd Business Day following the
date of receipt of a Conversion Notice (the “Share Delivery Date”), the Company shall (X) if legends are not
required to be placed on certificates of Common Stock pursuant to the Securities Purchase Agreement and provided that the Transfer
Agent is participating in the Depository Trust Company’s (“DTC”) Fast Automated Securities Transfer Program,
credit such aggregate number of shares of Common Stock to which the Holder shall be entitled to the Holder’s or its designee’s
balance account with DTC through its Deposit Withdrawal Agent Commission system or (Y) if the Transfer Agent is not participating
in the DTC Fast Automated Securities Transfer Program, issue and deliver to the address as specified in the Conversion Notice,
a certificate, registered in the name of the Holder or its designee, for the number of shares of Common Stock to which the Holder
shall be entitled which certificates shall not bear any restrictive legends unless required pursuant to Section 2(g) of the Securities
Purchase Agreement. If this Debenture is physically surrendered for conversion and the outstanding Principal of this Debenture
is greater than the Principal portion of the Conversion Amount being converted, then the Company shall as soon as practicable
and in no event later than 3 Business Days after receipt of this Debenture and at its own expense, issue and deliver to the holder
a new Debenture representing the outstanding Principal not converted. The Person or Persons entitled to receive the shares of
Common Stock issuable upon a conversion of this Debenture shall be treated for all purposes as the record holder or holders of
such shares of Common Stock upon the transmission of a Conversion Notice pursuant to this Section 4(e)(i).


 




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(ii)
Company’s Failure to Timely Convert. If within 3 Trading Days after the Company’s receipt by electronic mail
of a copy of a Conversion Notice the Company shall fail to issue and deliver a certificate to the Holder or credit the Holder’s
balance account with DTC for the number of shares of Common Stock to which the Holder is entitled upon such conversion of any
Conversion Amount (a “Conversion Failure”), and if on or after such Trading Day the Holder purchases (in an
open market transaction or otherwise) Common Stock to deliver in satisfaction of a sale by the Holder of Common Stock issuable
upon such conversion that the Holder anticipated receiving from the Company (a “Buy-In”), then the Company
shall, within 3 Business Days after the Holder’s request and in the Holder’s discretion, either (i) pay cash to the
Holder in an amount equal to the Holder’s total purchase price (including brokerage commissions and other out of pocket
expenses, if any) for the shares of Common Stock so purchased (the “Buy-In Price”), at which
point the Company’s obligation to deliver such certificate (and to issue such Common Stock) shall terminate, or (ii) promptly
honor its obligation to deliver to the Holder a certificate or certificates representing such Common Stock and pay cash to the
Holder in an amount equal to the excess (if any) of the Buy-In Price over the product of (A) such number of shares of Common Stock,
times (B) the Closing Bid Price on the Conversion Date.


 


(iii)
Book-Entry. Notwithstanding anything to the contrary set forth herein, upon conversion of any portion of this Debenture
in accordance with the terms hereof, the Holder shall not be required to physically surrender this Debenture to the Company unless
(A) the full Conversion Amount represented by this Debenture is being converted or (B) the Holder has provided the Company with
prior written notice (which notice may be included in a Conversion Notice) requesting reissuance of this Debenture upon physical
surrender of this Debenture. The Holder and the Company shall maintain records showing the Principal and Interest converted and
the dates of such conversions or shall use such other method, reasonably satisfactory to the Holder and the Company, so as not
to require physical surrender of this Debenture upon conversion.


 




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(e)
Limitations on Conversions.


 


(i)
Beneficial Ownership. The Company shall not affect any conversions of this Debenture and the Holder shall not have the
right to convert any portion of this Debenture or receive shares of Common Stock as payment of interest hereunder to the extent
that after giving effect to such conversion or receipt of such interest payment, the Holder, together with any affiliate thereof,
would beneficially own (as determined in accordance with Section 13(d) of the Exchange Act and the rules promulgated thereunder)
in excess of 4.99% of the number of shares of Common Stock outstanding immediately after giving effect to such conversion or receipt
of shares as payment of interest. Since the Holder will not be obligated to report to the Company the number of shares of Common
Stock it may hold at the time of a conversion hereunder, unless the conversion at issue would result in the issuance of shares
of Common Stock in excess of 4.99% of the then outstanding shares of Common Stock without regard to any other shares which may
be beneficially owned by the Holder or an affiliate thereof, the Holder shall have the authority and obligation to determine whether
the restriction contained in this Section will limit any particular conversion hereunder and to the extent that the Holder determines
that the limitation contained in this Section applies, the determination of which portion of the principal amount of this Debenture
is convertible shall be the responsibility and obligation of the Holder. If the Holder has delivered a Conversion Notice for a
principal amount of this Debenture that, without regard to any other shares that the Holder or its affiliates may beneficially
own, would result in the issuance in excess of the permitted amount hereunder, the Company shall notify the Holder of this fact
and shall honor the conversion for the maximum principal amount permitted to be converted on such Conversion Date in accordance
with Section 4(a) and, any principal amount tendered for conversion in excess of the permitted amount hereunder shall remain outstanding
under this Debenture. The provisions of this Section may be waived by a Holder (but only as to itself and not to any other Holder)
upon not less than 65 days prior notice to the Company. Other Holders shall be unaffected by any such waiver.


 


(f)
Other Provisions.


 


(i)
The Company shall at all times reserve and keep available out of its authorized Common Stock the full number of shares of Common
Stock issuable upon conversion of all outstanding amounts under this Debenture; and within 3 Business Days following the receipt
by the Company of a Holder’s notice that such minimum number of Underlying Shares is not so reserved, the Company shall
promptly reserve a sufficient number of shares of Common Stock to comply with such requirement.


 


(ii)
All calculations under this Section 4 shall be rounded to the nearest $0.0001 or whole share.


 


(iii)
The Company covenants that it will at all times reserve and keep available out of its authorized and unissued shares of Common
Stock solely for the purpose of issuance upon conversion of this Debenture and payment of interest on this Debenture, each as
herein provided, free from preemptive rights or any other actual contingent purchase rights of persons other than the Holder,
not less than such number of shares of the Common Stock as shall (subject to any additional requirements of the Company as to
reservation of such shares set forth in this Debenture or in the Transaction Documents) be issuable (taking into account the adjustments
and restrictions set forth herein) upon the conversion of the outstanding principal amount of this Debenture and payment of interest
hereunder. The Company covenants that all shares of Common Stock that shall be so issuable shall, upon issue, be duly and validly
authorized, issued and fully paid, nonassessable and, if a registration statement has been declared and remains effective under
the Securities Act, registered for public sale in accordance with such registration statement.


 




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(iv)
Nothing herein shall limit a Holder’s right to pursue actual damages or declare an Event of Default pursuant to Section
2 herein for a Conversion Failure and such Holder shall have the right to pursue all remedies available to it at law or in equity
including, without limitation, a decree of specific performance and/or injunctive relief, in each case without the need to post
a bond or provide other security. The exercise of any such rights shall not prohibit the Holder from seeking to enforce damages
pursuant to any other Section hereof or under applicable law.


 


(5)
Purchase Rights.


 


(a)
Purchase Rights. If at any time the Company grants, issues or sells any Options, Convertible Securities or rights to purchase
stock, warrants, securities or other property, other than Excluded Securities, pro rata to the record holders of any class of
Common Stock (the “Purchase Rights”), then the Holder will be entitled to acquire, upon the terms applicable
to such Purchase Rights, the aggregate Purchase Rights which the Holder could have acquired if the Holder had held the number
of shares of Common Stock acquirable upon complete conversion of this Debenture (without taking into account any limitations or
restrictions on the convertibility of this Debenture) immediately before the date on which a record is taken for the grant, issuance
or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of Common Stock are to
be determined for the grant, issue or sale of such Purchase Rights.


 


(b)
Other Events. If any event occurs of the type contemplated by the provisions of this Section 4 but not expressly provided
for by such provisions (including, without limitation, the granting of stock appreciation rights, phantom stock rights or other
rights with equity features, other than Excluded Securities), then the Company’s Board of Directors will make an appropriate
adjustment in the Conversion Price so as to protect the rights of the Holder under this Debenture; provided that no such adjustment
will increase the Conversion Price as otherwise determined pursuant to this Section 5.


 


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


 




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(d)
In case of any (1) merger or consolidation of the Company or any subsidiary of the Company with or into another Person, or (2)
sale by the Company or any subsidiary of the Company of more than one-half of the assets of the Company in one or a series of
related transactions, a Holder shall have the right to (A) exercise any rights under Section 2(b), (B) convert the aggregate amount
of this Debenture then outstanding into the shares of stock and other securities, cash and property receivable upon or deemed
to be held by holders of Common Stock following such merger, consolidation or sale, and such Holder shall be entitled upon such
event or series of related events to receive such amount of securities, cash and property as the shares of Common Stock into which
such aggregate principal amount of this Debenture could have been converted immediately prior to such merger, consolidation or
sale would have been entitled, or (C) in the case of a merger or consolidation, require the surviving entity to issue to the Holder
a convertible Debenture with a principal amount equal to the aggregate principal amount of this Debenture then held by such Holder,
plus all accrued and unpaid interest and other amounts owing thereon, which such newly issued convertible Debenture shall have
terms identical (including with respect to conversion) to the terms of this Debenture, and shall be entitled to all of the rights
and privileges of the Holder of this Debenture set forth herein and the agreements pursuant to which this Debentures were issued.
In the case of clause (C), the conversion price applicable for the newly issued shares of convertible preferred stock or convertible
Debentures shall be based upon the amount of securities, cash and property that each share of Common Stock would receive in such
transaction and the Market Conversion Price, (in the event a conversion utilizing the Market Conversion Price hereunder is pending),
as applicable, in effect immediately prior to the effectiveness or closing date for such transaction. The terms of any such merger,
sale or consolidation shall include such terms so as to continue to give the Holder the right to receive the securities, cash
and property set forth in this Section upon any conversion or redemption following such event. This provision shall similarly
apply to successive such events.


 


(6)
REISSUANCE OF THIS DEBENTURE.


 


(a)
Transfer. If this Debenture is to be transferred, the Holder shall surrender this Debenture to the Company, whereupon the
Company will, subject to the satisfaction of the transfer provisions of the Securities Purchase Agreement, forthwith issue and
deliver upon the order of the Holder a new Debenture (in accordance with Section 6(d)), registered in the name of the registered
transferee or assignee, representing the outstanding Principal being transferred by the Holder and, if less than the entire outstanding
Principal is being transferred, a new Debenture (in accordance with Section 6(d)) to the Holder representing the outstanding Principal
not being transferred. The Holder and any assignee, by acceptance of this Debenture, acknowledge and agree that, by reason of
the provisions of Section 4(b)(iii) following conversion or redemption of any portion of this Debenture, the outstanding Principal
represented by this Debenture may be less than the Principal stated on the face of this Debenture.


 




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(b)
Lost, Stolen or Mutilated Debenture. Upon receipt by the Company of evidence reasonably satisfactory to the Company of
the loss, theft, destruction or mutilation of this Debenture, and, in the case of loss, theft or destruction, of any indemnification
undertaking by the Holder to the Company in customary form and, in the case of mutilation, upon surrender and cancellation of
this Debenture, the Company shall execute and deliver to the Holder a new Debenture (in accordance with Section 6(d)) representing
the outstanding Principal.


 


(c)
Debenture Exchangeable for Different Denominations. This Debenture is exchangeable, upon the surrender hereof by the Holder
at the principal office of the Company, for a new Debenture or Debentures (in accordance with Section 6(d)) representing in the
aggregate the outstanding Principal of this Debenture, and each such new Debenture will represent such portion of such outstanding
Principal as is designated by the Holder at the time of such surrender.


 


(d)
Issuance of New Debentures. Whenever the Company is required to issue a new Debenture pursuant to the terms of this Debenture,
such new Debenture (i) shall be of like tenor with this Debenture, (ii) shall represent, as indicated on the face of such new
Debenture, the Principal remaining outstanding (or in the case of a new Debenture being issued pursuant to Section 6(a) or Section
6(c), the Principal designated by the Holder which, when added to the principal represented by the other new Debentures issued
in connection with such issuance, does not exceed the Principal remaining outstanding under this Debenture immediately prior to
such issuance of new Debentures), (iii) shall have an issuance date, as indicated on the face of such new Debenture, which is
the same as the Issuance Date of this Debenture, (iv) shall have the same rights and conditions as this Debenture, and (v) shall
represent accrued and unpaid Interest from the Issuance Date.


 


(7)
NOTICES. Any notices, consents, waivers or other communications required or permitted to be given under the terms of this
Agreement must be in writing and will be deemed to have been delivered upon: (i) receipt, when delivered personally, (ii) 1 Business
Day after deposit with an overnight courier service with next day delivery specified, in each case, properly addressed to the
party to receive the same, or (iii) receipt, when sent by electronic mail (provided that the electronic mail transmission is not
returned in error or the sender is not otherwise notified of any error in transmission. The addresses and e-mail addresses for
such communications shall be:


 


	If
    to the Company, to:	Kraig
    Biocraft Laboratories, Inc.
	 	2723
    South State Street – Suite 150 
	 	Ann
    Arbor, MI 48104
	 	Attention:
                                         Kim Thompson

        Telephone:
        (734) 619-8066

	 	Email:

         
	Thompson@kraiglabs.com

        Jon.Rice@kraiglabs.com

	 	 	 
	With
    a copy (which shall not constitute notice) to: 	Hunter
                                         Taubman Fischer & Li LLC

        800
        Third Avenue, Suite 2800

        New
        York, NY 10023

	 	Attention:
    Louis Taubman, Esq.
	 	Telephone:
    (917)512-0827
	 	Email:
     	ltaubman@htflawyers.com


 




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	If
    to the Holder:	YAII
                                         PN, Ltd.

        c/o
        Yorkville Advisors Global, LP

	 	1012
    Springfield Avenue
	 	Mountainside,
    NJ 07092
	 	Attention:Mark
                                         Angelo

        Telephone:
        (201) 536-5114

	 	Email:
    mangelo@yorkvilleadvisors.com
	 	 
	With
    a copy to:	David
    Gonzalez, Esq. 
	 	1012
    Springfield Avenue
	 	Mountainside,
    NJ 07092
	 	Telephone:(201)
    536-5109
	 	Email:dgonzalez@yorkvilleadvisors.com
    


 


or
at such other address and/or electronic email address and/or to the attention of such other person as the recipient party has
specified by written notice given to each other party 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 computer containing the time, date, recipient’s electronic mail address and the text of
such electronic mail or (iii) provided by a nationally recognized overnight delivery service, shall be rebuttable evidence of
personal service, receipt by electronic mail or receipt from a nationally recognized overnight delivery service in accordance
with clause (i), (ii) or (iii) above, respectively.


 


(8)
Except as expressly provided herein, no provision of this Debenture shall alter or impair the obligations of the Company, which
are absolute and unconditional, to pay the principal of, interest and other charges (if any) on, this Debenture at the time, place,
and rate, and in the coin or currency, herein prescribed. This Debenture is a direct obligation of the Company. As long as this
Debenture is outstanding, the Company shall not and shall cause their subsidiaries not to, without the consent of the Holder,
(i) amend its certificate of incorporation, bylaws or other charter documents so as to adversely affect any rights of the Holder
(which shall include combining (by way of reverse stock split) outstanding shares of Common Stock into a smaller number of shares);
(ii) repay, repurchase or offer to repay, repurchase or otherwise acquire shares of its Common Stock or other equity securities
other than as to the Underlying Shares to the extent permitted or required under the Transaction Documents; or (iii) enter into
any agreement with respect to any of the foregoing. Notwithstanding the foregoing, the Company shall be permitted to affect a
reverse stock split in order to comply with the initial listing requirements of Nasdaq.


 




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(9)
This Debenture shall not entitle the Holder to any of the rights of a stockholder of the Company, 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 Company, unless and to the extent converted into shares of Common Stock in accordance with the
terms hereof.


 


(10)
No indebtedness of the Company is senior to this Debenture in right of payment, whether with respect to interest, damages or upon
liquidation or dissolution or otherwise. Without the Holder’s consent, the Company will not and will not permit any of their
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
there from that is senior in any respect to the obligations of the Company under this Debenture.


 


(11)
This Debenture shall be governed by and construed in accordance with the laws of the State of New Jersey, without giving effect
to conflicts of laws thereof. Each of the parties consents to the jurisdiction of the Superior Courts of the State of New Jersey
sitting in Union County, New Jersey and the U.S. District Court for the District of New Jersey sitting in Newark, New Jersey in
connection with any dispute arising under this Debenture 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.


 


(12)
If the Company fails to strictly comply with the terms of this Debenture, then the Company shall reimburse the Holder promptly
for all reasonable fees, costs and expenses, including, without limitation, attorneys’ fees and expenses incurred by the
Holder in any action in connection with this Debenture, including, without limitation, those incurred: (i) during any workout,
attempted workout, and/or in connection with the rendering of legal advice as to the Holder’s rights, remedies and obligations,
(ii) collecting any sums which become due to the Holder, (iii) defending or prosecuting any proceeding or any counterclaim to
any proceeding or appeal; or (iv) the protection, preservation or enforcement of any rights or remedies of the Holder.


 


(13)
Any waiver by the Holder 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 Holder 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. Any waiver must
be in writing.


 


(14)
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 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 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
indenture, 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 impeded 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.


 




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(15)
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.


 


(16)
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 VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY. THIS PROVISION IS A MATERIAL
INDUCEMENT FOR THE PARTIES’ ACCEPTANCE OF THIS AGREEMENT.


 


(17)
CERTAIN DEFINITIONS For purposes of this Debenture, the following terms shall have the following meanings:


 


(a)
“Approved Stock Plan” means a stock plan, that has been approved by the Board of Directors of the Company,
pursuant to which the Company’s securities may be issued only to any employee, officer, or director or third party service
providers in the normal course of business, for services provided to the Company.


 


(b)
“Bloomberg” means Bloomberg Financial Markets.


 


(c)
“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.


 


(d)
“Change of Control Transaction” means the occurrence of (a) an acquisition after the date hereof by an individual
or legal entity or “group” (as described in Rule 13d-5(b)(1) promulgated under the Exchange Act) of effective control
(whether through legal or beneficial ownership of capital stock of the Company, by contract or otherwise) of in excess of fifty
percent (50%) of the voting securities of the Company (except that the acquisition of voting securities by the Holder or any other
current holder of convertible securities of the Company shall not constitute a Change of Control Transaction for purposes hereof),
(b) a replacement at one time or over time of more than one-half of the members of the board of directors of the Company which
is not approved by a majority of those individuals who are members of the board of directors on the date hereof (or by those individuals
who are serving as members of the board of directors on any date whose nomination to the board of directors was approved by a
majority of the members of the board of directors who are members on the date hereof), (c) the merger, consolidation or sale of
fifty percent (50%) or more of the assets of the Company or any subsidiary of the Company in one or a series of related transactions
with or into another entity, or (d) the execution by the Company of an agreement to which the Company is a party or by which it
is bound, providing for any of the events set forth above in (a), (b) or (c).


 




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(e)
“Closing Bid Price” means the price per share in the last reported trade of the Common Stock on a Primary Market
or on the exchange on which the Common Stock is then listed as quoted by Bloomberg.


 


(f)
“Convertible Securities” means any stock or securities (other than Options) directly or indirectly convertible
into or exercisable or exchangeable for Common Stock.


 


(g)
“Commission” means the Securities and Exchange Commission.


 


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


 


(i)
“Equity Conditions” means that each of the following conditions is satisfied: (i) on each day during the period
beginning 2 weeks prior to the applicable date of determination and ending on and including the applicable date of determination
(the “Equity Conditions Measuring Period”), all applicable shares of Common Stock to be issued in connection
with the event requiring determination shall be eligible for sale without restriction and without the need for registration under
any applicable federal or state securities laws; (ii) on each day during the Equity Conditions Measuring Period, the Common Stock
is designated for quotation on the Principal Market and shall not have been suspended from trading on such exchange or market
nor shall delisting or suspension by such exchange or market been threatened or pending either (A) in writing by such exchange
or Principal Market or (B) by falling below the then effective minimum listing maintenance requirements of such exchange or Principal
Market; (iii) during the Equity Conditions Measuring Period, the Company shall have delivered Conversion Shares with respect to
any prior conversions of the Debenture, if any, to the Holder on a timely basis as set forth in Section 4(e)(ii) hereof; (iv)
any applicable shares of Common Stock to be issued in connection with the event requiring determination may be issued in full
without violating Section 4(f) hereof and the rules or regulations of the Primary Market; (v) during the Equity Conditions Measuring
Period, there shall not have occurred either (A) an Event of Default or (B) an event that with the passage of time or giving of
notice would constitute an Event of Default; and (vii) the Company shall have no knowledge of any fact that would cause any applicable
shares of Common Stock to be issued in connection with the event requiring determination not to be eligible for sale without restriction
and without the need for registration under any applicable federal or state securities laws.


 


(j)
“Equity Conditions Failure” means that on any applicable date the Equity Conditions have not been satisfied
(or waived in writing by the Holder).


 


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


 




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(l)
“Excluded Securities” means, (a) shares issued or deemed to have been issued by the Company pursuant to an
Approved Stock Plan, (b) warrants and options existing and issued as of the Issuance Date and shares issued pursuant to the exercise
of said warrants and option, (c) the shares of Common Stock issued or deemed to be issued by the Company upon conversion of this
Debenture or the Warrant issued pursuant to the Securities Purchase Agreement, (d) shares of Common Stock or other securities
issued in connection with a strategic acquisition, intellectual property licensing agreement or other similar transaction not
initiated for the purpose of capital raising and (e) any securities of the Company registered in registration statement No. 333-238883
currently on file with the SEC.


 


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


 


(n)
“Issuance Date” means the date of the first issuance of this Debenture regardless of the number of transfers
and regardless of the number of instruments, which may be issued to evidence such Debenture.


 


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


 


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


 


(q)
“Securities Purchase Agreement” means the Securities Purchase Agreement dated the date hereof by and among
the Company and the Investor.


 


(r)
“Trading Day” means a day on which the shares of Common Stock are quoted on the Primary Market on which the
shares of Common Stock are then quoted or listed; provided, that in the event that the shares of Common Stock are not listed or
quoted, then Trading Day shall mean a Business Day.


 


(s)
“Transaction Documents” means the Securities Purchase Agreement or any other agreement delivered in connection
with the Securities Purchase Agreement, including, without limitation, the Irrevocable Transfer Agent Instructions, and the Warrant.


 


(t)
“Underlying Shares” means the shares of Common Stock issuable upon conversion of this Debenture or as payment
of interest in accordance with the terms hereof.


 


(u)
“VWAP” means, for any security as of any date, the daily dollar volume-weighted average price for such security
as reported by Bloomberg, LP through its “Historical Price Table Screen (HP)” with Market: Weighted Ave function selected,
or, if no dollar volume-weighted average price is reported for such security by Bloomberg, the average of the highest closing
bid price and the lowest closing ask price of any of the market makers for such security as reported in the “pink sheets”
by Pink Sheets LLC.


 


(v)
“Warrant” has the meaning ascribed to such term in the Securities Purchase Agreement, and shall include all
warrants issued in exchange therefor or replacement thereof.


 


[Signature
Page Follows]


 




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


 


	 	COMPANY:
	 	KRAIG
    BIOCRAFT LABORATORIES, INC.
	 	 	 
	 	By:	 
	 	Name:	Kim
    Thompson
	 	Title:	CEO


 




    	 



    	 



    

 


EXHIBIT
I

CONVERSION NOTICE


 


(To
be executed by the Holder in order to Convert the Debenture)


 


TO:



 


The
undersigned hereby irrevocably elects to convert $____________________________ of the principal amount of Debenture No. KBLB 2 1-3 into Shares of Common Stock
of KRAIG BIOCRAFT LABORATORIES, INC., according to the conditions stated therein, as of the Conversion Date written below.


 


	Conversion
    Date:	 	 
	 	 	 
	Conversion
    Amount to be converted:	 	$	 
	 	 	 	 
	Conversion
    Price:	 	$	 
	 	 	 	 
	Number
    of shares of Common Stock to be issued:	 	 
	Amount
    of Debenture Unconverted:	 	$	 


 


Please
issue the shares of Common Stock in the following name and to the following address:


 


	Issue
    to:	 	 
	 	 	 
	 	 	 
	Authorized
    Signature:	 	 
	 	 	 
	Name:	 	 
	 	 	 
	Title:	 	 
	 	 	 
	Broker
    DTC Participant Code:	 	 
	 	 	 
	Account
    Number: