Exhibit 10.3


 





 


 


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, 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. 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: June 27, 2012


Original Conversion Price (subject to adjustment
herein): $0.21


 


$1,000,000


 


 


16%
SENIOR SECURED CONVERTIBLE DEBENTURE


DUE
June 27, 2014


 


THIS 16% SENIOR SECURED
CONVERTIBLE DEBENTURE is one of a series of duly authorized and validly issued 16% Senior Secured Convertible Debentures of Genius
Brands International, Inc., a Nevada corporation, (the “Company”), having its principal place of business at
5820 Oberlin Dr., Suite 203, San Diego, CA 92121, designated as its 16% Senior Secured Convertible Debenture due June 27, 2014
(this debenture, the “Debenture” and, collectively with the other debentures of such series, the “Debentures”).


 


FOR VALUE RECEIVED, the
Company promises to pay to Hillair Capital Investments LP or its registered assigns (the “Holder”), or shall
have paid pursuant to the terms hereunder, the principal sum of $1,000,000 on June 27, 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 aggregate unconverted and 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:



    	1



    	 



    

 


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


 


“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, (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.


 


“Base
Conversion Price” shall have the meaning set forth in Section 5(b).


 


“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.


 


“Buy-In”
shall have the meaning set forth in Section 4(c)(v).


 


“Change
of Control Transaction” means the occurrence after the date hereof of any 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 33% of the voting securities of the Company (other than by means of conversion or exercise of the Debentures and the
Securities issued together with the Debentures), (b) the Company merges into or consolidates with any other Person, or any Person
merges into or consolidates with the Company and, after giving effect to such transaction, the stockholders of the Company immediately
prior to such transaction own less than 66% of the aggregate voting power of the Company or the successor entity of such transaction,
(c) the Company sells or transfers all or substantially all of its assets to another Person and the stockholders of the Company
immediately prior to such transaction own less than 66% of the aggregate voting power of the acquiring entity immediately after
the transaction, (d) a replacement at one time or within a three year period of more than one-half of the members of the Board
of Directors which is not approved by a majority of those individuals who are members of the Board of Directors on the Original
Issue Date (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), or (e) 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 in clauses (a) through (d) above.



    	2



    	 



    

 


“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(c).


 


“Dilutive
Issuance” shall have the meaning set forth in Section 5(b).


 


“Dilutive
Issuance Notice” shall have the meaning set forth in Section 5(b).


 


“Effectiveness
Period” shall have the meaning set forth in the Registration Rights Agreement.


 


“Equity
Conditions” means, during the period in question, (a) the Company shall have duly honored
all conversions and redemptions scheduled to occur or occurring by virtue of one or more Notices of Conversion of the Holder, if
any, (b) the Company shall have paid all liquidated damages and other amounts owing to the Holder in respect of this Debenture,
(c)(i) there is an effective Registration Statement pursuant to which the Holder is permitted to utilize the prospectus
thereunder to resell all of the shares of Common Stock issuable pursuant to the Transaction Documents (and the Company believes,
in good faith, that such effectiveness will continue uninterrupted for the foreseeable future) or (ii) all of the Conversion Shares
issuable pursuant to the Transaction Documents (and shares issuable in lieu of cash payments of interest) may be resold pursuant
to Rule 144 without volume or manner-of-sale restrictions or current public information requirements as determined by the counsel
to the Company as set forth in a written opinion letter to such effect, addressed and acceptable to the Transfer Agent and the
Holder, (d) the Common Stock is trading on a Trading Market and all of the shares issuable pursuant to the Transaction Documents
are listed or quoted for trading on such Trading Market (and the Company believes, in good faith, that trading of the Common Stock
on a Trading Market will continue uninterrupted for the foreseeable future), (e) there is a sufficient number of authorized but
unissued and otherwise unreserved shares of Common Stock for the issuance of all of the shares then issuable pursuant to the Transaction
Documents, (f) there is no existing Event of Default and no existing event which, with the passage of time or the giving of notice,
would constitute an Event of Default, (g) the issuance of the shares in question (or, in the case of an Optional Redemption or
Required Redemption, the shares issuable upon conversion in full of the Optional Redemption Amount or Required Redemption Amount)
to the Holder would not violate the limitations set forth in Section 4(d)
herein, (h) there has been no public announcement of a pending or proposed Fundamental Transaction or
Change of Control Transaction that has not been consummated, (i) the applicable Holder is not in possession of any information
provided by the Company that constitutes, or may constitute, material non-public information and (j) with respect to Sections 2
and 6(d), the number of shares of Common Stock proposed to be issued in respect of such interest payments or upon conversion in
full of the aggregate Forced Conversion Amount at issue, in each case as attributable to all holders of Debentures is less than
20% of the aggregate volume of the number of shares of Common Stock traded on the principal Trading Market during the 20 Trading
Days immediately prior to such Interest Payment Date or Forced Conversion, as applicable.



    	3



    	 



    

 


“Event
of Default” shall have the meaning set forth in Section 8(a).


 


“Forced
Conversion” shall have the meaning set forth in Section 6(d).


 


“Forced
Conversion Date” shall have the meaning set forth in Section 6(d).


 


“Forced
Conversion Notice” shall have the meaning set forth in Section 6(d).


 


“Forced
Conversion Notice Date” shall have the meaning set forth in Section 6(d).


 


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


 


“Interest
Conversion Rate” means the lesser of (a) the Conversion Price or (b) 90% of the lesser
of (i) the average of the VWAPs for the 20 consecutive Trading Days ending on the Trading Day that is immediately prior to the
applicable Interest Payment Date or (ii) the average of the VWAPs for the 20 consecutive Trading Days ending on the Trading Day
that is immediately prior to the date the applicable Interest Conversion Shares are issued and delivered if such delivery is after
the Interest Payment Date (provided, however, in the case of clause (b) the Interest Conversion Rate shall be at least a $.01 discount
to the VWAP on the Trading Day immediately preceding such payment date).



    	4



    	 



    

 


“Interest
Conversion Shares” shall have the meaning set forth in Section 2(a).


 


“Interest
Notice Period” shall have the meaning set forth in Section 2(a).


 


“Interest
Payment Date” shall have the meaning set forth in Section 2(a).


 


“Interest
Share Amount” shall have the meaning set forth in Section 2(a).


 


 


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


 


“Mandatory
Default Amount” means the sum of (a) the greater of (i) the outstanding principal amount of this Debenture, plus all
accrued and unpaid interest hereon, 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 the Mandatory Default Amount is either (x) demanded or otherwise due or (y) paid in full,
whichever has a higher VWAP, 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.


 


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


 


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


 


“Optional
Redemption” shall have the meaning set forth in Section 6(a).


 


“Optional
Redemption Amount” means the sum of (a) 115% of the then outstanding principal amount of the Debenture, (b) accrued but
unpaid interest and (c) all liquidated damages and other amounts due in respect of the Debenture.


 


“Optional
Redemption Date” shall have the meaning set forth in Section 6(a).


 


“Optional
Redemption Notice” shall have the meaning set forth in Section 6(a).


 


“Optional
Redemption Notice Date” shall have the meaning set forth in Section 6(a).


 


“Optional
Redemption Period” shall have the meaning set forth in
Section 6(a).



    	5



    	 



    

 


“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.


 


“Permitted
Indebtedness” means (a) the indebtedness evidenced by the Debentures, (b) lease obligations and purchase money indebtedness
of up to $300,000, in the aggregate, incurred in connection with the acquisition of capital assets and lease obligations with respect
to newly acquired or leased assets and (c) the indebtedness existing on the Closing Date and set forth on Schedule 3.1(aa)
to the Purchase Agreement.


 


“Permitted
Lien” means the individual and collective reference to the following: (a) Liens for taxes, assessments and other governmental
charges or levies not yet due or Liens for taxes, assessments and other governmental charges or levies being contested in good
faith and by appropriate proceedings for which adequate reserves (in the good faith judgment of the management of the Company)
have been established in accordance with GAAP, (b) Liens imposed by law which were incurred in the ordinary course of the Company’s
business, such as carriers’, warehousemen’s and mechanics’ Liens, statutory landlords’ Liens, and other
similar Liens arising in the ordinary course of the Company’s business, and which (x) do not individually or in the aggregate
materially detract from the value of such property or assets or materially impair the use thereof in the operation of the business
of the Company and its consolidated Subsidiaries or (y) are being contested in good faith by appropriate proceedings, which proceedings
have the effect of preventing for the foreseeable future the forfeiture or sale of the property or asset subject to such Lien,
(c) Liens incurred in connection with Permitted Indebtedness under clauses (a), and (b) Liens incurred in connection with Permitted
Indebtedness under clause (b) thereunder, provided that such Liens are not secured by assets of the Company or its Subsidiaries
other than the assets so acquired or leased.


“Permitted
Payment” (a) interest of 6% per annum payable quarterly on existing indebtedness owed to directors and employees of the
Company (the “Officer Indebtedness”) as set forth on Schedule 3.1(aa) of the Purchase Agreement, or (b) Officer
Indebtedness in an aggregate amount not to exceed 50% of the net proceeds in excess of $400,000 from any equity financings, which
such financings shall be at an effective per share purchase price equal to at least $0.20, consummated by the Company during the
Term of this Debenture. By way of an example, if the Company consummates equity financings with net proceeds of $750,000, then
$175,000 of such net proceeds could be used to pay the existing indebtedness described in the prior sentence ($750,000 - $400,000
= $350,000/2 = $175,000).


 


“Pre-Redemption
Conversion Shares” shall have the meaning set forth in Section 6(b) hereof.



    	6



    	 



    

 


“Purchase
Agreement” means the Securities Purchase Agreement, dated as of June 27, 2012 among the Company and the original Holders,
as amended, modified or supplemented from time to time in accordance with its terms.


 


“Registration
Statement” means a registration statement covering the resale of the Underlying Shares by each Holder.


 


“Required
Conversion Period” shall have the meaning set forth in Section 6(b) hereof.


 


“Required
Conversion Price” shall have the meaning set forth in Section 6(b) hereof.


 


“Required
Redemption” means the redemption of this Debenture pursuant to Section 6(b) hereof.


 


“Required
Redemption Amount” means, as to a Required Redemption on December 27, 2013 and March 27, 2014, $250,000, and, as to a
Required Redemption on June 27, 2014, $500,000, in each instance, plus accrued but unpaid interest, liquidated damages and any
other amounts then owing to the Holder in respect of this Debenture.


 


“Required
Redemption Date” means each of (i) December 27, 2013 (ii) March 27, 2014 and (iii) June 27, 2014.


 


“Required
Redemption Notice” shall have the meaning set forth in Section 6(b) hereof.


 


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


 


“Share
Delivery Date” shall have the meaning set forth in Section 4(c)(ii).


 


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


 


“Threshold
Period” shall have the meaning set forth in Section 6(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).



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“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 Securities then outstanding and reasonably acceptable to the Company, the fees
and expenses of which shall be paid by the Company.


 


Section 2.Interest.


 


a)Payment
of Interest in Cash or Kind. The Company shall pay interest to the Holder on the aggregate unconverted and then outstanding
principal amount of this Debenture at the rate of 16% per annum, payable quarterly on February 1, May 1, August 1 and November
1, beginning on November 1, 2012, on each Required Redemption Date (as to that principal amount then being redeemed), on each Conversion
Date (as to that principal amount then being converted), on each Optional Redemption Date (as to that principal amount then being
redeemed) and on the Maturity Date (each such date, an “Interest Payment Date”) (if any Interest Payment Date
is not a Business Day, then the applicable payment shall be due on the next succeeding Business Day), in cash or, at the Company’s
option, in duly authorized, validly issued, fully paid and non-assessable shares of Common Stock at the Interest Conversion Rate
(the dollar amount to be paid in shares, the “Interest Share Amount”) or a combination thereof; provided,
however, that payment in shares of Common Stock may only occur if (i) all of the Equity Conditions have been met (unless
waived by the Holder in writing) during the 20 Trading Days immediately prior to the applicable Interest Payment Date (the “Interest
Notice Period”) and through and including the date such shares of Common Stock are actually issued to the Holder, (ii)
the Company shall have given the Holder notice in accordance with the notice requirements set forth below and (iii) as to such
Interest Payment Date, prior to such Interest Notice Period (but not more than five (5) Trading Days prior to the commencement
of such Interest Notice Period), the Company shall have delivered to the Holder’s account with The Depository Trust Company
a number of shares of Common Stock to be applied against such Interest Share Amount equal to the quotient of (x) the applicable
Interest Share Amount divided by (y) the lesser of the (i) then Conversion Price and (ii) the Interest Conversion Rate assuming
for such purposes that the Interest Payment Date is the Trading Day immediately prior to the commencement of the Interest Notice
Period (the “Interest Conversion Shares”).


 



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b)Company’s
Election to Pay Interest in Cash or Kind. Subject to the terms and conditions herein, the decision whether to pay interest
hereunder in cash, shares of Common Stock or a combination thereof shall be at the sole discretion of the Company. Prior to the
commencement of any Interest Notice Period, the Company shall deliver to the Holder a written notice of its election to pay interest
hereunder on the applicable Interest Payment Date either in cash, shares of Common Stock or a combination thereof and the Interest
Share Amount as to the applicable Interest Payment Date, provided that the Company may indicate in such notice that the election
contained in such notice shall apply to future Interest Payment Dates until revised by a subsequent notice. During any Interest
Notice Period, the Company’s election (whether specific to an Interest Payment Date or continuous) shall be irrevocable as
to such Interest Payment Date. Subject to the aforementioned conditions, failure to timely deliver such written notice to the Holder
shall be deemed an election by the Company to pay the interest on such Interest Payment Date in cash. At any time the Company delivers
a notice to the Holder of its election to pay the interest in shares of Common Stock, and if there shall be an Effective Registration
Statement, the Company shall timely file a prospectus supplement pursuant to Rule 424 disclosing such election. The aggregate number
of shares of Common Stock otherwise issuable to the Holder on an Interest Payment Date shall be reduced by the number of Interest
Conversion Shares previously issued to the Holder in connection with such Interest Payment Date.


 


c)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. Payment of interest
in shares of Common Stock (other than the Interest Conversion Shares issued prior to an Interest Notice Period) shall otherwise
occur pursuant to Section 4(c)(ii) herein and, solely for purposes of the payment of interest in shares, the Interest Payment Date
shall be deemed the Conversion Date. 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”). Except as otherwise provided herein, if at any time
the Company pays interest partially in cash and partially in shares of Common Stock to the holders of the Debentures, then such
payment of cash shall be distributed ratably among the holders of the then-outstanding Debentures based on their (or their predecessor’s)
initial purchases of Debentures pursuant to the Purchase Agreement.


 


d)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 18% 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. Notwithstanding anything
to the contrary contained herein, if, on any Interest Payment Date the Company has elected to pay accrued interest in the form
of Common Stock but the Company is not permitted to pay accrued interest in Common Stock because it fails to satisfy the conditions
for payment in Common Stock set forth in Section 2(a) herein, then, at the option of the Holder, the
Company, in lieu of delivering either shares of Common Stock pursuant to this Section 2 or paying the regularly scheduled interest
payment in cash, shall deliver, within three (3) Trading Days of each applicable Interest Payment Date, an amount in cash equal
to the product of (x) the number of shares of Common Stock otherwise deliverable to the Holder in connection with the payment of
interest due on such Interest Payment Date multiplied by (y) the highest VWAP during the period commencing on the Interest Payment
Date and ending on the Trading Day prior to the date such payment is actually made. If any Interest Conversion Shares are issued
to the Holder in connection with an Interest Payment Date and are not applied against an Interest Share Amount, then the Holder
shall promptly return such excess shares to the Company.


 



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e)Prepayment.
Except as otherwise set forth in this Debenture, the Company may not prepay any portion of the principal amount of this Debenture
without the prior written consent of the Holder.


 


Section 3.Registration
of Transfers and Exchanges.


 


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 may be transferred or exchanged only in compliance with the Purchase Agreement and applicable federal
and state securities laws and regulations.


 


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.


 


Section 4.Conversion.


 


a)Voluntary
Conversion. At any time after the Original Issue Date until this Debenture is no longer outstanding, 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,
plus all accrued and unpaid interest thereon, 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 applicable conversion. 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 one (1) Business Day of delivery of such Notice of Conversion. In the event of any dispute or
discrepancy, the records of the Holder shall be controlling and determinative in the absence of manifest error. 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 and unconverted principal amount of this Debenture may be less than the amount
stated on the face hereof.


 



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b)Conversion
Price. The conversion price in effect on any Conversion Date shall be equal to $0.21, 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. Not later than three (3) Trading Days after each Conversion Date (the “Share Delivery
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 Effective
Date, 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 (including, if the
Company has given continuous notice pursuant to Section 2(b) for payment of interest in shares of Common Stock at least 20 Trading
Days prior to the date on which the Notice of Conversion is delivered to the Company, shares of Common Stock representing the payment
of accrued interest otherwise determined pursuant to Section 2(a) but assuming that the Interest Notice Period is the 20 Trading
Days period immediately prior to the date on which the Notice of Conversion is delivered to the Company and excluding for such
issuance the condition that the Company deliver Interest Conversion Shares as to such interest payment prior to the commencement
of the Interest Notice Period) and (B) a bank check in the amount of accrued and unpaid interest (if the Company has elected or
is required to pay accrued interest in cash). On or after the earlier of (i) the six month anniversary of the Original Issue Date
or (ii) the Effective Date, the Company shall use its best efforts to deliver any certificate or certificates required to be delivered
by the Company under this Section 4(c) electronically through the Depository Trust Company or another established clearing corporation
performing similar functions, if the Company is then a participant in any such system, 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 its receipt of such certificate or certificates, to rescind such Conversion, in which event
the Company shall promptly return to the Holder any original Debenture delivered to the Company and the Holder shall promptly return
to the Company the Common Stock certificates issued to such Holder pursuant to the rescinded Conversion Notice.


 


iv.Obligation
Absolute; Partial Liquidated Damages. The Company’s obligations to issue and deliver the Conversion Shares upon conversion
of this Debenture in accordance with the terms hereof are absolute and unconditional, irrespective of any action or inaction by
the Holder to enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any judgment against
any Person or any action to enforce the same, or any setoff, counterclaim, recoupment, limitation or termination, or any breach
or alleged breach by the Holder or any other Person of any obligation to the Company or any violation or alleged violation of law
by the Holder or any other Person, and irrespective of any other circumstance which might otherwise limit such obligation of the
Company to the Holder in connection with the issuance of such Conversion Shares; provided, however, that such delivery
shall not operate as a waiver by the Company of any such action the Company may have against the Holder. In the event the Holder
of this Debenture shall elect to convert any or all of the outstanding principal amount hereof, the Company may not refuse conversion
based on any claim that the Holder or anyone associated or affiliated with the Holder has been engaged in any violation of law,
agreement or for any other reason, unless an injunction from a court, on notice to Holder, restraining and or enjoining conversion
of all or part of this Debenture shall have been sought and obtained, and the Company posts a surety bond for the benefit of the
Holder in the amount of 150% of the outstanding principal amount of this Debenture, which is subject to the injunction, which bond
shall remain in effect until the completion of arbitration/litigation of the underlying dispute and the proceeds of which shall
be payable to the Holder to the extent it obtains judgment. In the absence of such injunction, the Company shall issue Conversion
Shares or, if applicable, cash, upon a properly noticed conversion. If the Company fails for any reason to deliver to the Holder
such certificate or certificates pursuant to Section 4(c)(ii) by the Share Delivery Date, the Company shall pay to the Holder,
in cash, as liquidated damages and not as a penalty, for each $1,000 of principal amount being converted, $10 per Trading Day (increasing
to $20 per Trading Day on the fifth (5th) Trading Day after such liquidated damages begin to accrue) for each Trading
Day after such Share Delivery Date until such certificates are delivered or Holder rescinds such conversion. Nothing herein shall
limit a Holder’s right to pursue actual damages or declare an Event of Default pursuant to Section 8 hereof for the Company’s
failure to deliver Conversion Shares within the period specified herein and the Holder shall have the right to pursue all remedies
available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive
relief. 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.



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v.Compensation
for Buy-In on Failure to Timely Deliver Certificates Upon Conversion. In addition to any other rights available to the Holder,
if the Company fails for any reason to deliver to the Holder such certificate or certificates by the Share Delivery Date pursuant
to Section 4(c)(ii), and if after such Share Delivery Date the Holder is required by its brokerage firm to purchase (in an open
market transaction or otherwise), or the Holder’s brokerage firm otherwise purchases, shares of Common Stock to deliver in
satisfaction of a sale by the Holder of the Conversion Shares which the Holder was entitled to receive upon the conversion relating
to such Share Delivery Date (a “Buy-In”), then the Company shall (A) pay in cash to the Holder (in addition
to any other remedies available to or elected by the Holder) the amount, if any, by which (x) the Holder’s total purchase
price (including any brokerage commissions) for the Common Stock so purchased exceeds (y) the product of (1) the aggregate number
of shares of Common Stock that the Holder was entitled to receive from the conversion at issue multiplied by (2) the actual sale
price at which the sell order giving rise to such purchase obligation was executed (including any brokerage commissions) and (B)
at the option of the Holder, either reissue (if surrendered) this Debenture in a principal amount equal to the principal amount
of the attempted conversion (in which case such conversion shall be deemed rescinded) or deliver to the Holder the number of shares
of Common Stock that would have been issued if the Company had timely complied with its delivery requirements under Section 4(c)(ii).
For example, if the Holder purchases Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an
attempted conversion of this Debenture with respect to which the actual sale price of the Conversion Shares (including any brokerage
commissions) giving rise to such purchase obligation was a total of $10,000 under clause (A) of the immediately preceding sentence,
the Company shall be required to pay the Holder $1,000. The Holder shall provide the Company written notice indicating the amounts
payable to the Holder in respect of the Buy-In and, upon request of the Company, evidence of the amount of such loss. Nothing herein
shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without
limitation, a decree of specific performance and/or injunctive relief with respect to the Company’s failure to timely deliver
certificates representing shares of Common Stock upon conversion of this Debenture as required pursuant to the terms hereof.



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vi.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 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 (and the other holders of the 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 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 authorized,
validly issued, fully paid and nonassessable and, if the Registration Statement is then effective under the Securities Act, shall
be registered for public resale in accordance with such Registration Statement.


 


vii.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.


 


viii.Transfer
Taxes and Expenses. 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. The Company shall pay all Transfer Agent fees required for same-day processing of any
Notice of Conversion.



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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 (including, without limitation, any other Debentures or
the Warrants) 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 Act and 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 of this
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, or payment
of interest on, the Debentures), (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 and shall become
effective immediately after the effective date in the case of a subdivision, combination or re-classification.



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b)Subsequent
Equity Sales. If, at any time while this Debenture is outstanding, the Company or any Subsidiary, as applicable, sells or grants
any option to purchase or sells or grants any right to reprice, or otherwise disposes of or issues (or announces any sale, grant
or any option to purchase or other disposition), any Common Stock or Common Stock Equivalents entitling any Person to acquire shares
of Common Stock at an effective price per share that is lower than the then Conversion Price (such lower price, the “Base
Conversion Price” and such issuances, collectively, a “Dilutive Issuance”) (if the holder of the Common
Stock or Common Stock Equivalents so issued shall at any time, whether by operation of purchase price adjustments, reset provisions,
floating conversion, exercise or exchange prices or otherwise, or due to warrants, options or rights per share which are issued
in connection with such issuance, be entitled to receive shares of Common Stock at an effective price per share that is lower than
the Conversion Price, such issuance shall be deemed to have occurred for less than the Conversion Price on such date of the Dilutive
Issuance), then the Conversion Price shall be reduced to equal the Base Conversion Price. Such adjustment shall be made whenever
such Common Stock or Common Stock Equivalents are issued. Notwithstanding the foregoing, no adjustment
will be made under this Section 5(b) in respect of an Exempt Issuance. If the Company enters into a Variable Rate Transaction,
despite the prohibition set forth in the Purchase Agreement, the Company shall be deemed to have issued Common Stock or Common
Stock Equivalents at the lowest possible conversion price at which such securities may be converted or exercised. The Company shall
notify the Holder in writing, no later than the Trading Day following the issuance of any Common Stock or Common Stock Equivalents
subject to this Section 5(b), indicating therein the applicable issuance price, or applicable reset price, exchange price, conversion
price and other pricing terms (such notice, the “Dilutive Issuance Notice”). For purposes of clarification,
whether or not the Company provides a Dilutive Issuance Notice pursuant to this Section 5(b), upon the occurrence of any Dilutive
Issuance, the Holder is entitled to receive a number of Conversion Shares based upon the Base Conversion Price on or after the
date of such Dilutive Issuance, regardless of whether the Holder accurately refers to the Base Conversion Price in the Notice of
Conversion.


c)Subsequent
Rights Offerings. In addition to any adjustments pursuant to the other subsections of this Section
5, if at any time the Company grants, issues or sells any Common Stock Equivalents or rights to purchase stock, warrants, securities
or other property pro rata to the record holders of any class of shares 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 regard to any limitations on exercise hereof, including without limitation, the Beneficial Ownership
Limitation) 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 shares of Common Stock are to be determined for the grant,
issue or sale of such Purchase Rights (provided, however, to the extent that the Holder’s right to participate in any such
Purchase Right would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled
to participate in such Purchase Right to such extent (or beneficial ownership of such shares of Common Stock as a result of such
Purchase Right to such extent) and such Purchase Right to such extent shall be held in abeyance for the Holder until such time,
if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).



    	17



    	 



    

d)Pro
Rata Distributions. During such time as this Debenture is outstanding, if the Company shall declare or make any dividend or
other distribution of its assets (or rights to acquire its assets) to holders of shares of Common Stock, by way of return of capital
or otherwise (including, without limitation, any distribution of cash, stock or other securities, property or options by way of
a dividend, spin off, reclassification, corporate rearrangement, scheme of arrangement or other similar transaction) (a "Distribution"),
at any time after the issuance of this Debenture, then, in each such case, the Holder shall be entitled to participate in such
Distribution to the same extent that the Holder would have participated therein if the Holder had held the number of shares of
Common Stock acquirable upon complete exercise of this Debenture (without regard to any limitations on exercise hereof, including
without limitation, the Beneficial Ownership Limitation) immediately before the date of which a record is taken for such Distribution,
or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the
participation in such Distribution (provided, however, to the extent that the Holder's right to participate in any
such Distribution would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled
to participate in such Distribution to such extent (or in the beneficial ownership of any shares of Common Stock as a result of
such Distribution to such extent) and the portion of such Distribution shall be held in abeyance for the benefit of the Holder
until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).



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e)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 of the number of shares of Common Stock for which this Debenture is convertible immediately
prior to such Fundamental Transaction (without regard to any limitation in Section 4(d) on the conversion of this Debenture). 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(e) 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.



    	19



    	 



    

f)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.


 


g)Notice
to the Holder.


 


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 each 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 twenty (20) 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 20-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.



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Section 6.Redemption
and Forced Conversion.


 


a)Optional
Redemption at Election of Company. Subject to the provisions of this Section 6(a), at any time after
the Closing Date the Company may deliver a notice to the Holder (an “Optional Redemption Notice” and the date
such notice is deemed delivered hereunder, the “Optional Redemption Notice Date”) of its irrevocable election
to redeem all of the then outstanding principal amount of this Debenture for cash in an amount equal to the Optional Redemption
Amount on the 10th Trading Day following the Optional Redemption Notice Date (such date, the “Optional Redemption
Date”, such 10 Trading Day period, the “Optional Redemption Period” and such redemption, the “Optional
Redemption”). The Optional Redemption Amount is payable in full on the Optional Redemption Date. The Company may only
effect an Optional Redemption if each of the Equity Conditions shall have been met (unless waived in writing by the Holder) on
each Trading Day during the period commencing on the Optional Redemption Notice Date through to the Optional Redemption Date and
through and including the date payment of the Optional Redemption Amount is actually made in full. If
any of the Equity Conditions shall cease to be satisfied at any time during the Optional Redemption Period, then the Holder may
elect to nullify the Optional Redemption Notice by notice to the Company within 3 Trading Days after the first day on which any
such Equity Condition has not been met (provided that if, by a provision of the Transaction Documents, the Company is obligated
to notify the Holder of the non-existence of an Equity Condition, such notice period shall be extended to the third Trading Day
after proper notice from the Company) in which case the Optional Redemption Notice shall be null and void, ab initio.
The Company covenants and agrees that it will honor all Notices of Conversion tendered from the time of delivery of the Optional
Redemption Notice through the date all amounts owing thereon are due and paid in full. The Company’s determination
to pay an Optional Redemption in cash shall be applied ratably to all of the holders of the then outstanding Debentures based on
their (or their predecessor’s) initial purchases of Debentures pursuant to the Purchase Agreement.



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b)Required
Redemption. On each Required Redemption Date, the Company shall redeem the Required Redemption Amount (the “Required
Redemption”). The Required Redemption Amount payable on each Required Redemption Date shall be paid in cash; provided,
however, as to any Required Redemption and upon 20 Trading Days’ prior written irrevocable notice (the “Required
Redemption Notice”), in lieu of a cash redemption payment the Company may elect to pay all or part of a Required Redemption
Amount in Conversion Shares based on a conversion price equal to the lesser of (i) the then Conversion Price and (ii) 90% of the
average of the VWAPs for the 20 consecutive Trading Days ending on the Trading Day that is immediately prior to the applicable
Required Redemption Date (subject to adjustment for any stock dividend, stock split, stock combination or other similar event affecting
the Common Stock during such 20 Trading Day period, provided, however, in the case of this clause (ii) the conversion price shall
be equal to at least a $.01 discount the VWAP on the Trading Day immediately prior to the applicable Required Redemption Date)
(the price calculated during the 20 Trading Day period immediately prior to the Required Redemption Date, the “Required
Conversion Price” and such 20 Trading Day period, the “Required Conversion Period”); provided,
further, that the Company may not pay the Required Redemption Amount in Conversion Shares unless (y) from the date the Holder
receives the duly delivered Required Redemption Notice through and until the date such Required Redemption is paid in full, the
Equity Conditions have been satisfied, unless waived in writing by the Holder, and (z) as to such Required Redemption, prior to
such Required Conversion Period (but not more than 5 Trading Days prior to the commencement of the Required Conversion Period),
the Company shall have delivered to the Holder’s account with The Depository Trust Company a number of shares of Common Stock
to be applied against such Required Redemption Amount equal to the quotient of (x) the applicable Required Redemption Amount divided
by (y) the lesser of (A) the Conversion Price and (B) 90% of the average of the 20 VWAPs during the period ending on the 3rd
Trading Day immediately prior to the date of the Required Redemption Notice (the “Pre-Redemption Conversion Shares”).
The Holder may convert, pursuant to Section 4(a), any principal amount of this Debenture subject to a Required Redemption at any
time prior to the date that the Required Redemption Amount, plus accrued but unpaid interest, liquidated damages and any other
amounts then owing to the Holder are due and paid in full. Unless otherwise indicated by the Holder in the applicable Notice of
Conversion, any principal amount of this Debenture converted during the applicable Required Conversion Period until the date the
Required Redemption Amount is paid in full shall be first applied to the principal amount subject to the Required Redemption Amount
payable in cash and then to the Required Redemption Amount payable in Conversion Shares. Any principal amount of this Debenture
converted during the applicable Required Conversion Period in excess of the Required Redemption Amount shall be applied against
the last principal amount of this Debenture scheduled to be redeemed hereunder, in reverse time order from the Maturity Date; provided,
however, if any such conversion is applied against such Required Redemption Amount, the Pre-Redemption Conversion Shares,
if any were issued in connection with such Required Redemption or were not already applied to such conversions, shall be first
applied against such conversion. The Company covenants and agrees that it will honor all Notices of Conversion tendered up until
such amounts are paid in full. The Company’s determination to pay a Required Redemption in cash, shares of Common Stock or
a combination thereof shall be applied ratably to all of the holders of the then outstanding Debentures based on their (or their
predecessor’s) initial purchases of Debentures pursuant to the Purchase Agreement. At any time the Company delivers a notice
to the Holder of its election to pay the Required Redemption Amount in shares of Common Stock, and if there shall be an effective
Registration Statement, the Company shall file a prospectus supplement pursuant to Rule 424 disclosing such election.



    	22



    	 



    

c)Redemption
Procedure. The payment of cash or issuance of Common Stock, as applicable, pursuant to an Optional Redemption or a Required
Redemption shall be payable on the Optional Redemption Date or Required Redemption Date, as applicable. If any portion of the payment
pursuant to an Optional Redemption or Required Redemption shall not be paid by the Company by the applicable due date, interest
shall accrue thereon at an interest rate equal to the lesser of 18% per annum or the maximum rate permitted by applicable law until
such amount is paid in full. Notwithstanding anything herein contained to the contrary, if any portion of the Optional Redemption
Amount or Required Redemption Amount remains unpaid after such date, the Holder may elect, by written notice to the Company given
at any time thereafter, to invalidate such Optional Redemption or Required Redemption, ab initio, and, with
respect to the Company’s failure to honor the Optional Redemption, the Company shall have no further right to exercise such
Optional Redemption. Notwithstanding anything to the contrary in this Section 6, the Company’s determination to redeem in
cash or its elections under Section 6(b) shall be applied ratably among the Holders of Debentures. The
Holder may elect to convert the outstanding principal amount of the Debenture pursuant to Section 4 prior to actual payment in
cash for any redemption under this Section 6 by the delivery of a Notice of Conversion to the Company.


 


d)Forced
Conversion. Notwithstanding anything herein to the contrary, if after the 6 month anniversary of the Closing Date, the VWAP
for each of any 10 consecutive Trading Days, which period shall have commenced only after the 6 month anniversary of the Closing
Date (such period the “Threshold Period”), exceeds $0.42 (subject to adjustment for reverse and forward stock
splits, stock dividends, stock combinations and other similar transactions of the Common Stock that occur after the Original Issue
Date), the Company may, within 1 Trading Day after the end of any such Threshold Period, deliver a written notice to the Holder
(a “Forced Conversion Notice” and the date such notice is delivered to the Holder, the “Forced Conversion
Notice Date”) to cause the Holder to convert all or part of $500,000 (the “Initial Forced Conversion Amount”)
of the principal amount of this Debenture plus, if so specified in the Forced Conversion Notice, accrued but unpaid interest, liquidated
damages and other amounts owing to the Holder under this Debenture, it being agreed that the “Conversion Date” for
purposes of Section 4 shall be deemed to occur on the third Trading Day following the Forced Conversion Notice Date (such third
Trading Day, the “Forced Conversion Date”). In addition, after Forced Conversions aggregating the initial Forced
Conversion Amount have been effected, as described above, if after such Forced Conversion(s), the VWAP for each of any 10 consecutive
Trading Day period, which 10 consecutive Trading Day period shall have commenced only after initial Forced Conversion Date (“Second
Forced Conversion Threshold Period”), exceeds $0.52 (subject to adjustment for reverse and forward stock splits,
stock dividends, stock combinations and other similar transactions of the Common Stock that occur after the Original Issue Date),
the Company may, within 1 Trading Day after the end of any such Second Forced Conversion Threshold Period, deliver a written notice
to the Holder (a “Second Forced Conversion Notice” and the date such notice is delivered to Holder, the “Second
Forced Conversion Notice Date”) to cause the Holder to convert all or part of $500,000 of the principal amount of this
Debenture plus, if so specified in the Forced Conversion Notice, accrued but unpaid interest, liquidated damages and other amounts
owing to the Holder under this Debentures, it being agreed that the “Conversion Date” for purposes of Section 4 shall
be deemed to occur on the third Trading Day following the Forced Conversion Notice Date (such third Trading Day, the “Second
Forced Conversion Date”). The Company may not deliver a Forced Conversion or Second Forced Conversion Notice, and any
Forced Conversion and Second Forced Conversion Notice delivered by the Company shall not be effective, unless all of the Equity
Conditions have been met on each Trading Day during the applicable Threshold Period and Second Forced Conversion Threshold Period
through and including the later of the applicable Forced or Second Forced Conversion Date and the Trading Day after the date that
the Conversion Shares issuable pursuant to such conversion are actually delivered to the Holder pursuant to the Forced Conversion
or Second Forced Conversion Notice, as applicable. Any Forced Conversion and Second Forced Conversion shall be applied ratably
to all Holders based on their initial purchases of Debentures pursuant to the Purchase Agreement, provided that any voluntary conversions
at any time prior to a Forced Conversion Date or Second Forced Conversion Date by a Holder shall be applied against the Holder’s
pro rata allocation, thereby decreasing the aggregate amount forcibly converted hereunder if only a portion of this Debenture is
forcibly converted. For purposes of clarification, a Forced Conversion and Second Forced Conversion shall be subject to all of
the provisions of Section 4, including, without limitation, the provision requiring payment of liquidated damages and limitations
on conversions.



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Section 7.Negative
Covenants. As long as any portion of this Debenture remains outstanding, unless the holders of at least 67% in principal amount
of the then outstanding Debentures shall have otherwise given prior written consent, the Company shall not, and shall not permit
any of the Subsidiaries to, directly or indirectly:


 


a)other than
Permitted Indebtedness, enter into, create, incur, assume, guarantee or suffer to exist any indebtedness for borrowed money of
any kind, including, but not limited to, a guarantee, on or with respect to any of its property or assets now owned or hereafter
acquired or any interest therein or any income or profits therefrom;



    	24



    	 



    

b)other than
Permitted Liens, enter into, create, incur, assume or suffer to exist any Liens of any kind, on or with respect to any of its property
or assets now owned or hereafter acquired or any interest therein or any income or profits therefrom;


 


c)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;


 


d)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 other than as to (i) the Conversion Shares or Warrant Shares as permitted or required under the
Transaction Documents and (ii) repurchases of Common Stock or Common Stock Equivalents of departing officers and directors of the
Company, provided that such repurchases shall not exceed an aggregate of $100,000 for all officers and directors during the term
of this Debenture;


 


e)repay,
repurchase or offer to repay, repurchase or otherwise acquire any Indebtedness, other than (i) the Debentures if on a pro-rata
basis or (ii) a Permitted Payment;


 


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


 


g)enter into
any transaction with any Affiliate of the Company which would be required to be disclosed in any public filing with the Commission,
unless such transaction is made on an arm’s-length basis and expressly approved by a majority of the disinterested directors
of the Company (even if less than a quorum otherwise required for board approval); or


 


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


 


Section 8.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;


 


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
(x) 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 Subsidiary 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
$150,000, 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;



    	25



    	 



    

viii.the Company
shall be a party to any Change of Control Transaction or Fundamental Transaction or shall agree to sell or dispose of all or in
excess of 33% of its assets in one transaction or a series of related transactions (whether or not such sale would constitute a
Change of Control Transaction);


 


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


 


x.the Company
shall fail for any reason to deliver certificates to a Holder prior to the fifth Trading Day after a Conversion Date pursuant to
Section 4(c) or any Forced Conversion Date pursuant to Section 6(d) or the Company shall provide at any time notice to the Holder,
including by way of public announcement, of the Company’s intention to not honor requests for conversions of any Debentures
in accordance with the terms hereof; or


 


xi.any monetary
judgment, writ or similar final process shall be entered or filed against the Company, any subsidiary or any of their respective
property or other assets for more than $150,000, and such judgment, writ or similar final process shall remain unvacated, unbonded
or unstayed for a period of 45 calendar days.


 


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 18% 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 8(b). No such rescission
or annulment shall affect any subsequent Event of Default or impair any right consequent thereon.


 


Section 9.Miscellaneous.



    	26



    	 



    

 


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, or sent by a nationally recognized overnight
courier service, addressed to the Company, at the address set forth above, or such other facsimile number 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,
or sent by a nationally recognized overnight courier service addressed to each Holder at the facsimile number or address of the
Holder appearing on the books of the Company, or if no such facsimile number 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 at the facsimile number 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 at the facsimile number 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.


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 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 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 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, 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 New York, 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 the City
of New York, Borough of Manhattan (the “New York Courts”). Each party hereto hereby irrevocably submits to the
exclusive jurisdiction of the New York 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 New York Courts, or such New York 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.



    	27



    	 



    

e)Waiver.
Any waiver by the Company or 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
Company or 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
on any other occasion. Any waiver by the Company or the Holder must be in writing.


 


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.



    	28



    	 



    

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.


 


i)Secured
Obligation. The obligations of the Company under this Debenture are secured by all assets of the Company and each Subsidiary
pursuant to the Security Agreement, dated as of June 27, 2012 between the Company, the Subsidiaries of the Company and the Secured
Parties (as defined therein).


 


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


 


 


(Signature
Pages Follow)



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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.


 


 


	
        genius brands international,
        inc.

         

        

	
        By: /s/ Jeanene Morgan

        Name: Jeanene Morgan

        Title: Chief Financial Officer

        Facsimile No. for delivery of Notices: 858-450-2907

	 
	 


 



    	30



    	 



    

ANNEX A


 


NOTICE OF CONVERSION


 


 


The undersigned hereby
elects to convert principal under the 16% Senior Secured Convertible Debenture due June 27, 2014 of Genius Brands International,
Inc., a Nevada corporation (the “Company”), into shares of common stock (the “Common Stock”),
of the Company according to the conditions hereof, 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 holder 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.


 


If there shall be an effective
Registration Statement, 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:
	 	 
	 	Payment of Interest in Common Stock __ yes  __ no
	 	If yes, $_____ of Interest Accrued on Account of Conversion at Issue.
	 	 
	 	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:__________________







 


 


 


 


 






    	31



    	 



    

 


Schedule 1


 


CONVERSION SCHEDULE


 


The 16% Senior Secured Convertible Debenture
due on June 27, 2014 in the original principal amount of $1,000,000 is issued by Genius Brands International, Inc., a Nevada 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 Conversion
	
         

        Aggregate Principal Amount Remaining Subsequent
        to Conversion

        (or original Principal Amount)
	
         

        Company Attest

	
         

         
	
         

         
	
         

         
	
         

         

	
         

         
	
         

         
	
         

         
	
         

         

	
         

         
	
         

         
	
         

         
	
         

         

	
         

         
	
         

         
	
         

         
	
         

         

	
         

         
	
         

         
	
         

         
	
         

         

	
         

         
	
         

         
	
         

         
	
         

         

	
         

         
	
         

         
	
         

         
	
         

         

	
         

         
	
         

         
	
         

         
	
         

         

	
         

         
	
         

         
	
         

         
	
         

         



 


 


 








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