Exhibit 4.1


 


Execution
Copy


 


THIS NOTE AND ANY SECURITIES INTO WHICH THIS NOTE IS CONVERTIBLE
HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR QUALIFIED UNDER
ANY STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR QUALIFICATION
OR AN EXEMPTION THEREFROM UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS.


 


THIS NOTE AND ANY SECURITIES INTO WHICH THIS NOTE IS CONVERTIBLE
ARE SUBJECT TO THE TERMS OF A SUBORDINATION AGREEMENT DATED AS OF DECEMBER 27, 2017, IN FAVOR OF GUARANTY BANK AND TRUST COMPANY,
A COLORADO BANK, WHICH AGREEMENT (AS AMENDED IN ACCORDANCE WITH ITS TERMS) IS INCORPORATED HEREIN BY REFERENCE.


 


CONVERTIBLE SENIOR SUBORDINATED SECURED
LOAN NOTE


 


	$[__________]	December 28, 2017


 


FOR VALUE RECEIVED, BIRNER DENTAL MANAGEMENT SERVICES, INC.,
a Colorado corporation (the “Company”), hereby promises to pay to the order of [______], a [form of
organization], or its registered successors and assigns (the “Holder”), the principal amount of [_________________________________]
DOLLARS ($[_________]) together with interest thereon calculated from the date hereof in accordance with the provisions of this
Convertible Senior Subordinated Secured Loan Note (this “Note”). This Note is one of an issue of Convertible
Senior Subordinated Secured Loan Notes issued pursuant to the Securities Purchase Agreement (the “Securities Purchase
Agreement”), dated as of the date hereof, by and among the Company and the Holders (such other Convertible Senior Subordinated
Secured Loan Notes, the “Other Notes”). Certain capitalized terms used herein are defined in Section 12.


 


This Note and the indebtedness evidenced hereby are subordinate
in the manner and to the extent set forth in that certain Subordination Agreement, dated as of December 27, 2017, entered into
by the Company and each holder of this Note and the Other Notes in favor of the Bank (as amended, restated, supplemented, or otherwise
modified from time to time, the “Subordination Agreement”).


 




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1.       Interest.


 


(a)       Interest
Accrual. Interest shall accrue on a quarterly basis at (A) an initial rate of 5% per annum (calculated on the basis of a 360-day
year comprised of twelve 30-day months), and (B) following the third anniversary date of the Issuance Date, a rate set forth pursuant
to Section 1(c), on the unpaid principal balance of this Note outstanding from time to time, or (if less) at the highest
rate then permitted by applicable law. The Company shall pay to the Person who is the Holder of record on the applicable Interest
Payment Date all accrued and unpaid interest on the Interest Payment Dates, beginning March 31, 2018, (i) by increasing the principal
amount of this Note by the amount of such accrued and unpaid interest (“PIK Interest”) pursuant to Section
1(b) below or (ii) in cash, at the option of the Company, subject in the case of payment in cash to the terms of the Subordination
Agreement. All accrued interest which for any reason has not theretofore been paid shall be paid in full on the date on which the
final principal payment on this Note is made. Interest shall accrue on any principal payment due under this Note and, to the extent
permitted by applicable law, on any interest which has not been paid on the date on which it is due and payable until such time
as payment therefor is actually delivered to the Holder. Upon the conversion of all or part of the amounts outstanding under this
Note into Series B Convertible Preferred Stock of the Company (“Series B Preferred Stock”) pursuant to Section
6, interest will cease to accrue with respect to any such amounts converted into Series B Preferred Stock.


 


(b)       PIK
Interest; Capitalization of Interest. Except for interest that is paid pursuant to Section 1(a)(ii), all interest which
accrues on or before any Interest Payment Date (the “Capitalization Date”) shall be deemed to be paid in kind
and added to the principal amount outstanding hereunder, in each case, as of the Capitalization Date. Except as expressly provided
herein, the term “Note” shall include all PIK Interest deemed to be added to the principal amount outstanding hereunder
pursuant to this Section 1(b).


 


(c)       VWAP
Measurement. Following the third anniversary date of the Issuance Date, interest shall accrue on a quarterly basis at a rate
(calculated on the basis of a 360-day year comprised of twelve 30-day months) of (i) 5% per annum if the VWAP for each of any 30
consecutive Trading Days during the immediately preceding quarter is less than $15 per share of Common Stock, (ii) 2.5% per annum
if the VWAP for each of any 30 consecutive Trading Days during the immediately preceding quarter is equal to or greater than $15
per share of Common Stock and equal to or less than $20 per share of Common Stock, and (iii) 0% if the VWAP for each of any 30
consecutive Trading Days during the immediately preceding quarter exceeds $20 per share of Common Stock. Following the third anniversary
date of the Issuance Date, the Company shall apply this VWAP measurement test quarterly, in arrears.


 


2.       Principal.


 


(a)       Maturity
Date. On September 30, 2023 (the “Maturity Date”), the Company shall pay the entire unpaid principal amount
of this Note then outstanding to the Holder, together with all accrued and unpaid interest thereon, subject to the terms of the
Subordination Agreement.


 


(b)       Mandatory
Prepayment / Acceleration by Company Upon Fundamental Transaction. Subject to the terms of the Subordination Agreement and
the Holder’s right to convert this Note pursuant to Section 6, upon the occurrence of a Fundamental Transaction, the
Company shall repay this Note in full at a price equal to the unpaid principal amount of the Note, plus an amount equal to all
accrued and unpaid interest and the interest that the Holder would have received for the period from the date of such repayment
to the Maturity Date had the Notes been held by the Holder to the Maturity Date. Except as provided in the foregoing sentence,
this Note may not be prepaid by the Company without the consent of the Majority Note Holders.


 




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(c)       Replacement
Notes. The Holder may, but shall not be obligated to, request the issuance of replacement notes to evidence any increases in
the principal amount of this Note with such replacement notes being identical in form and substance in all respects to this Note,
except that any such replacement Note shall be dated as of the day following the date to which interest had been paid on the replaced
Note. Upon any such request, the Company shall issue such replacement notes and the holder(s) of this Note or such replacement
notes shall return such notes to be replaced to the Company, in each case marked “cancelled”, or deliver to the Company
a lost note indemnity in form and substance reasonably satisfactory to the Company. The replacement and cancellation of notes pursuant
to this Section 2(c) shall in no way be a novation of the indebtedness evidenced by the Notes being replaced and cancelled
nor shall the security interests granted pursuant to any Senior Subordinated Note Document be released, terminated or otherwise
impaired by such replacement and cancellation.


 


(d)       Note
Exchangeable for Different Denominations. This Note is exchangeable, upon the surrender hereof by the Holder at the principal
office of the Company, for a new Note or Notes (in principal amounts of at least $1,000) representing in the aggregate the outstanding
principal of this Note, and each such new Note will represent such portion of such outstanding principal as is designated by the
Holder at the time of such surrender. Any Note issued pursuant to this Section 2(d) shall bear the date of the Note for
which it was exchanged.


 


(e)       Application
of Principal Payments and Reductions. All payments and prepayments of principal on this Note and all principal reductions effected
in accordance with the terms of this Note shall be applied first, to the accrued and unpaid interest due under this Note,
and second, to the unpaid principal balance of this Note then outstanding (including principal attributable to the capitalization
of PIK Interest in accordance with Section 1(b)).


 


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


 




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3.       Representations
and Warranties.


 


(a)       Representations
and Warranties of the Company. The Company hereby represents and warrants to the Holder that each of the representations and
warranties set forth in the Securities Purchase Agreement are true and correct as of the date hereof, and each such representation
and warranty is incorporated mutatis mutandis as if set forth fully in this Note and as if applicable to the Holder and
the Senior Subordinated Note Documents. The Company further represents and warrants to the Holder that (a) the execution, delivery
and performance of the Senior Subordinated Note Documents to which the Company is a party have been duly authorized by the Company,
(b) the Senior Subordinated Note Documents constitute a valid and binding obligation of the Company, enforceable in accordance
with their terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium, or other laws
affecting creditors’ rights generally and limitations on the availability of equitable remedies, and (c) the execution and
delivery by the Company of the Senior Subordinated Note Documents to which the Company is a party, and the fulfillment of and compliance
with the respective terms hereof and thereof by the Company, do not and shall not (i) conflict with or result in a breach of the
terms of the terms, conditions or provisions of, (ii) constitute a default under, (iii) result in the creation of any lien, security
interest, charge, or encumbrance upon the Company’s capital stock or assets pursuant to, (iv) give any third party the right
to modify, accelerate or accelerate any obligation under, (v) result in a violation of, or (vi) require any authorization, consent,
approval, exemption, or other action by or notice to any court or administrative or governmental body pursuant to, its articles
of incorporation or bylaws or any material law, statute, rule or regulation, including the rules of any Trading Market, to which
the Company is subject, or any material agreement, instrument, order, judgment or decree to which the Company is subject, except
where any such condition would not have a material adverse effect on the Company.


 


(b)       Representations
and Warranties of the Holder. The Holder hereby represents and warrants to the Company that the Holder qualifies as an “accredited
investor” under Regulation D under the Securities Act. The Holder acknowledges that this Note and the securities into which
this Note is convertible are “restricted securities” under the federal securities laws inasmuch as they are being acquired
from the Company in transactions not involving a public offering and that under such laws these securities may be resold without
registration under the Securities Act only in limited circumstances. The Holder represents and warrants to the Company that the
Holder is acquiring these securities for investment, and not with a view to the resale or distribution of any part thereof, and
the Holder has no present intention of selling, granting any participation in, or otherwise distributing this Note or the securities
into which this Note is convertible. Any successor Holder shall be deemed, by becoming such Holder, to have made the same representations
to the Company.


 


4.       Covenants.


 


(a)       Rank.
All payments due under this Note (a) shall rank pari passu with all Other Notes and (b) shall be senior to all other Indebtedness
of the Company, other than Senior Indebtedness. The Holder, and each Person holding this Note, whether upon original issue or upon
registration of transfer, assignment or exchange hereof, agrees for the benefit of all holders of Senior Indebtedness, whether
outstanding on the date of this Note or thereafter incurred, and such agreement shall be a continuing offer to all holders of Senior
Indebtedness, that the payment of all amounts, expenses, fees, principal, premium, interest, late charges and any and all other
obligations of any kind of the Company owed in connection with this Note shall be subordinated to the prior payment in full in
cash of all amounts owing in connection with such Senior Indebtedness. No payment shall be made with respect to this Note in the
event of any failure of the Company to make any scheduled payment on Senior Indebtedness, unless and until such failure is cured
or waived.


 




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(b)       Incurrence
of Indebtedness. For so long as any amount remains due and outstanding under this Note, the Company shall not, and the Company
shall not permit any of its Subsidiaries or its Managed PCs to, directly or indirectly, incur, guarantee, or assume any Indebtedness,
other than (i) the Indebtedness evidenced by this Note and the Other Notes and (ii) Permitted Indebtedness.


 


(c)       Existence
of Liens. For so long as any amount remains due and outstanding under this Note, other than Permitted Liens, the Company shall
not, and the Company shall not permit any of its Subsidiaries or its Managed PCs to, directly or indirectly, allow or suffer to
exist any mortgage, lien, pledge, charge, security interest or other encumbrance upon or in any property or assets (including accounts
and contract rights) owned by the Company or any of its Subsidiaries or its Managed PCs (collectively, “Liens”),
to the extent such Lien is upon or in a material portion of (x) the Company’s property and assets or (y) the property and
assets of the Company and its Subsidiaries and Managed PCs taken as a whole on a consolidated basis; unless, all payment obligations
under the Notes are secured on an equal and ratable basis as the obligations secured by such Lien until such time as such obligations
are no longer secured by a Lien;


 


(d)       Restricted
Payments. For so long as any amount remains due and outstanding under this Note, the Company shall not, and the Company shall
not permit any of its Subsidiaries or its Managed PCs to, directly or indirectly, redeem, defease, repurchase, repay or make any
payments in respect of, by the payment of cash or cash equivalents (in whole or in part, whether by way of open market purchases,
Tender Offers, private transactions or otherwise), all or any portion of any Permitted Indebtedness (other than the Senior Indebtedness),
whether by way of payment in respect of principal of (or premium, if any) or interest on, such Indebtedness if at the time such
payment is due or is otherwise made or, after giving effect to such payment, an event constituting, or that with the passage of
time and without being cured would constitute, an Event of Default has occurred and is continuing.


 


(e)       Dilutive
Issuances. For so long as any amount remains due and outstanding under this Note, other than pursuant to any Approved Stock
Plan and except for the issuance of Excluded Securities, the Company shall not, in any manner, issue or sell any Common Stock or
Common Stock Equivalents unless the purchase, conversion, exchange or exercise price, as applicable, of any such security cannot
be less than the then applicable conversion price of Conversion Stock. For so long as any amount remains due and outstanding under
this Note, the Company shall not, in any manner, enter into or affect any Dilutive Issuance if the effect of such Dilutive Issuance
is to cause the Company to be required to issue upon conversion of any Note (assuming its conversion into Series B Preferred Stock)
any shares of Common Stock in excess of that number of shares of Common Stock which the Company may issue upon conversion of the
Notes and Series A Preferred Stock (assuming their conversion into Series B Preferred Stock in full) without breaching the Company’s
obligations under the rules or regulations of the Trading Market on which the Common Stock is then listed or quoted.


 


(f)       Additional
Issuances of Preferred Stock or Convertible Notes. For so long as any amount remains due and outstanding under this Note, the
Company shall not issue, designate or authorize the issuance of any Common Stock Equivalents having rights, preferences or privileges
senior to or on parity with the Common Stock, other than in connection with the conversion by the Holder of this Note, the issuance
of any such Series A Preferred Stock or Series B Preferred Stock pursuant to the terms of the Securities Purchase Agreement, or
the conversion of any such Series A Preferred Stock or Series B Preferred Stock pursuant to the terms of the Securities Purchase
Agreement.


 




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(g)       Distributions.
For so long as any amount remains due and outstanding under this Note, the Company shall not declare or pay any dividends or make
any distribution of any kind on the Company’s capital stock other than dividends on the Series A Preferred Stock and the
Series B Preferred Stock, or purchase, redeem or otherwise acquire, directly or indirectly, any shares of the Company’s capital
stock, any options, any convertible securities or other rights to acquire shares of capital stock of the Company, except for the
repurchase of such securities from employees or consultants to the Company at the original issue price paid therefor pursuant to
contractual rights of the Company upon the termination of such employees’ or consultants’ employment by or provision
of service to the Company, provided that (A) the Company has a repurchase right with respect to such securities, (B) no Event of
Default exists either immediately prior to or after giving effect to such repurchase, and (C) the total amount paid in connection
therewith by the Company does not exceed $50,000 in any Fiscal Year.


 


(h)       Sale
of Subsidiary or Managed PC. For so long as any amount remains due and outstanding under this Note, without prior approval
of the Majority Note Holders, the Company shall not, and shall not permit any of its direct or indirect Subsidiaries or its Managed
PCs to, sell, transfer, cause to be sold or transferred, or otherwise dispose of, any interest in a Subsidiary or Managed PC of
any Person (including through merger, spin-off or consolidation) that is greater in the aggregate than 10% of the Company’s
market capitalization as of the date thereof. Notwithstanding the foregoing, interests in the Managed PCs may be sold or transferred
in the ordinary course of business in connection with the retirement, termination or other transition of dentists of the Managed
PCs who own such interests.


 


(i)       Sale
of Assets. For so long as any amount remains due and outstanding under this Note, without prior approval of the Majority Note
Holders, the Company shall not, and shall not permit any of its direct or indirect Subsidiaries or its Managed PCs to, sell, license,
transfer or otherwise dispose of any interest in any of such Person’s assets (including through merger, spin-off or consolidation),
except for sales of inventory in the ordinary course of business, licenses or sublicenses of rights in intellectual property on
a non-exclusive or other limited basis in the ordinary course of business and sales of obsolete equipment, other than for sales
in the aggregate for less 10% of the Company’s market capitalization as of the date thereof.


 


(j)       Transaction
with Affiliates. For so long as any amount remains due and outstanding under this Note, the Company shall not, and shall not
permit any of its direct or indirect Subsidiaries or its Managed PCs to, transfer, sell, assign or otherwise dispose of any of
its assets to any Affiliate or enter into any transaction directly or indirectly with or for the benefit of any Affiliate unless
the monetary or business consideration arising therefrom would be as advantageous to the Company or, as applicable, such Subsidiary
or Managed PC, as the Company or such Subsidiary or Managed PC would obtain in a comparable arm’s length transaction with
a Person not an Affiliate.


 




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(k)       Changes
in Business. For so long as any amount remains due and outstanding under this Note, the Company shall not enter into or engage
in any business other than that (i) carried on (or contemplated to be carried on) as of the date hereof or (ii) substantially similar
and related to the business of the Company carried on as of the date hereof.


 


(l)       Maintenance
of the Company’s Business. For so long as any amount remains due and outstanding under this Note, the Company will, and
will cause each of its Subsidiaries and Managed PCs to: (i) at all times cause to be done all things necessary to maintain, preserve
and renew its corporate existence and all material licenses, authorizations and permits necessary to the conduct of its businesses;
(ii) maintain and keep its properties in good repair, working order and condition, and from time to time make all necessary or
desirable repairs, renewals and replacements, so that its businesses may be properly and advantageously conducted in all material
respects at all times; (iii) pay and discharge when payable all taxes, assessments and governmental charges imposed upon its properties
or upon the income or profits therefrom (in each case before the same becomes delinquent and before penalties accrue thereon) and
all claims for labor, materials or supplies to the extent to which the failure to pay or discharge such obligations would reasonably
be expected to have a material adverse effect upon the financial condition, operating results, assets, operations or business prospects
of the Company and its Subsidiaries and Managed PCs taken as a whole, unless and to the extent that the same are being contested
in good faith and by appropriate proceedings and adequate reserves (as determined in accordance with GAAP) have been established
on its books and financial statements with respect thereto; (iv) comply with all other obligations which it incurs pursuant to
any contract or agreement, whether oral or written, express or implied, as such obligations become due to the extent to which the
failure to so comply would reasonably be expected to have a material adverse effect upon the financial condition, operating results,
assets, operations or business prospects of the Company and its Subsidiaries and Managed PCs taken as a whole, unless and to the
extent that the same are being contested in good faith and by appropriate proceedings and adequate reserves (as determined in accordance
with GAAP) have been established on its books and financial statements with respect thereto; (v) comply with all applicable laws,
rules and regulations of all Governmental Authorities, the violation of which would reasonably be expected to have a material adverse
effect upon the financial condition, operating results, assets, operations or business prospects of the Company and its Subsidiaries
and its Managed PCs taken as a whole; (vi) apply for and continue in force with good and responsible insurance companies adequate
insurance covering risks of such types and in such amounts as are customary for companies of similar size engaged in similar lines
of business; and (vii) maintain proper books of record and account which present fairly in all material respects its financial
condition and results of operations and make provisions on its financial statements for all such proper reserves as in each case
are required in accordance with GAAP.


 


(m)       Asset
Acquisitions. For so long as any amount remains due and outstanding under this Note, without prior approval of the Majority
Note Holders, the Company will not, and will cause each of its direct or indirect Subsidiaries and its Managed PCs not to, acquire
any assets with an aggregate value in excess of $1,000,000.


 




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(n)       Accounting
Changes. For so long as any amount remains due and outstanding under this Note, the Company shall not change its Fiscal Year
or make or permit any material change in accounting policies or reporting practices, except as permitted or required by GAAP.


 


(o)       Amendment
of Governing Documents. For so long as any amount remains due and outstanding under this Note, except as provided in the Securities
Purchase Agreement, the Company shall not amend, supplement, or otherwise modify any of the provisions of the Company’s Governing
Documents in a manner that would be materially adverse to the Holder and shall not amend, alter, modify or change the rights, preferences
or privileges of Common Stock.


 


(p)       Board
Size and Investor Directors.


 


(i)       At
or prior to the Closing Date (as defined in the Securities Purchase Agreement), the board of directors of the Company shall take
all actions necessary to cause and accept the resignation of two of its current directors and to cause two individuals designated
by the initial Investors (as defined in the Securities Purchase Agreement) (in such capacity, each, an “Investor Director”
and together with any successors or other directors designated by the Investors pursuant to Section 5.1(o) of the Securities
Purchase Agreement, the “Investor Directors”) to be appointed to the board of directors of the Company.


 


(ii)       From
and after the Closing Date, as long as any amount remains due and outstanding under this Note and the Other Notes or any shares
of Series A Preferred Stock or Series B Preferred Stock remain outstanding, the holders of a majority of the total number of outstanding
shares of Common Stock (on an “as-converted basis”), issued or issuable upon conversion of the Notes and Series A Preferred
Stock (assuming conversion of (i) the Notes and Series A Preferred Stock into Series B Preferred Stock and (ii) Series B Preferred
Stock into Common Stock), held by the initial Investors (and any subsequent Investor designated by the initial Investors) (the
“Approved Holder Majority”) have the exclusive right (but not the obligation), voting separately as a class,
to designate to the board of directors of the Company two Investor Directors (subject to increase as set forth in the following
sentence). Additionally, if the Company fails to meet the Performance Targets, the Approved Holder Majority shall have the exclusive
right (but not the obligation), voting separately as a class, to designate to the board of directors of the Company a third Investor
Director, and the board of directors of the Company shall take all actions necessary to cause and accept the resignation of one
additional current director and cause such third Investor Director to be appointed as a director on the board of directors of the
Company. If the Company fails to meet any of the Modified Performance Targets, the board of directors of the Company shall immediately
form a special committee of the board of directors, chaired by one of the Investor Directors and consisting solely of independent
directors, with (i) the power to initiate searches for, and to recruit, retain or replace the Chief Executive Officer, Chief Financial
Officer and Chief Operating Officer of the Company, (ii) the ability to retain an executive search firm, at the Company’s
expense, to manage any search for Chief Executive Officer, Chief Financial Officer and Chief Operating Officer initiated by the
Search Committee, and (iii) the ability to engage such advisors, at the Company’s expense, as necessary to assist with the
Search Committee’s efforts. The foregoing shall not in any way abrogate the Investor Directors’ fiduciary duties to
act in the best interest of all shareholders of the Company.


 




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(iii)       The
Company and its board of directors shall designate at least one Investor Director to each committee of its board of directors,
whether now existing or formed at any time in the future, to the extent permitted by applicable SEC and Trading Market requirements.


 


(iv)       The
Company shall take all actions necessary to cause any Investor Directors whose terms are expiring to be included in the slate of
nominees recommended by the board of directors of the Company to the Company’s shareholders for election as directors at
each meeting of the Company’s shareholders called for the purpose of electing directors (and/or in connection with any election
by written consent), and the Company shall use its best efforts to cause the election of each such Investor Directors, including
(i) voting or providing a written consent or proxy and soliciting proxies in favor of the election of such nominees, (ii) causing
the adoption of shareholders’ resolutions and amendments to the Governing Documents, (iii) executing required agreements
and instruments, (iv) making, or causing to be made, with Governmental Authorities, all filings, registrations or similar actions
that are required to achieve such result, and (v) as long as the Investors have the rights described under Section 5.1(o)
of the Securities Purchase Agreement, not nominating or recommending the election of any other candidates against or in replacement
of such Investor Directors.


 


(v)       Each
Investor Director shall serve until his or her successor is designated or his or her earlier death, disability, resignation or
removal; any vacancy or newly created directorship in the position of an Investor Director may be filled only by the Approved Holder
Majority; and each Investor Director may, during his or her term of office, be removed at any time, without cause, by and only
by the Approved Holder Majority.


 


(vi)       At
all times while an Investor Director is serving as a member of the board of directors of the Company, and following any such Investor
Director’s death, disability, resignation or removal, such Investor Director shall be entitled to all rights to indemnification
and exculpation as are then made available to any other member of the board of directors of the Company. The Company or any successor
to the Company shall maintain, at its own expense, directors’ and officers’ liability insurance providing coverage
to the Investor Directors on terms that are no less favorable than the coverage provided to other directors of the Company.


 


(vii)       If,
following such time when no amount remains due and outstanding under the Notes and no shares of Series A Preferred Stock and Series
B Preferred Stock remain outstanding, the Investors beneficially own at least 10% of the total number of outstanding shares of
the Company’s Common Stock, the Investors may request the Company to enter into a stockholders’ agreement reflecting
the rights set forth in this Section 4(p), which the Company and the Investors shall enter into as promptly as practicable
after such request (but, in any event, no later than 30 days after such request).


 


(viii)       Without
prior approval of the Majority Note Holders, (A) the Company shall not modify the size of its board of directors, and (B) the size
of the board, including the Investor Directors, shall not exceed seven total directors.  


 




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(q)       Search
Committee. For as long as any Notes or any shares of Series A Preferred Stock or Series B Preferred Stock are outstanding,
if a Failed Financial Covenant (as defined in the Fifth Amendment) occurs under the Guaranty Bank Agreement, the board of directors
of the Company shall immediately establish and maintain the existence of a special committee of the board of directors, with the
Investor Directors constituting a majority of the members of the Committee, with (i) the power to initiate searches for, and to
recruit, retain and replace the Chief Executive Officer, Chief Financial Officer and Chief Operating Officer of the Company, (ii)
the ability to retain an executive search firm, at the Company’s expense, to manage any search for Chief Executive Officer,
Chief Financial Officer and Chief Operating Officer initiated by the Search Committee and (iii) the ability to engage such advisors,
at the Company’s expense, as necessary to assist with the Search Committee’s efforts. The foregoing shall not in any
way abrogate the Investor Directors’ fiduciary duties to act in the best interest of all shareholders of the Company.


 


(r)     SEC
Filings. Until such time that this Note has been converted or repaid in full, the Company covenants to timely file (or obtain
extensions in respect thereof and file within the applicable grace period) all reports required to be filed by the Company after
the date hereof pursuant to the Securities Exchange Act of 1934, as amended (the “Securities Exchange Act”),
even if the Company is not then subject to the reporting requirements of the Securities Exchange Act, except in the event of a
merger or acquisition transaction approved by the board of directors that results in the Company not being subject to such reporting
requirements. 


 


(s)       Audited
Financial Statements. For so long as any amount remains due and outstanding under this Note, the Company shall deliver, or
cause to be delivered, to the Holder the Audited Financial Statements for each Fiscal Year substantially simultaneously with the
delivery thereof to the lenders of the Senior Indebtedness.


 


(t)       Notice
of Defaults on Senior Indebtedness. For so long as any amount remains due and outstanding under this Note, as soon as practicable
and in event within two Business Days after giving or receiving any notice that a default or event of default has occurred under
the Senior Indebtedness, the Company shall deliver to the Holder a copy of any such notice.


 


(u)       Notice
of Defaults and Events of Defaults. For so long as any amount remains due and outstanding under this Note, the Company shall
provide to the Holder, as soon as possible and in any event within five Business Days after the occurrence thereof, with written
notice of each event which either (i) is an Event of Default, or (ii) with the giving of notice or lapse of time or both would
constitute an Event of Default, in each case setting forth the details of such event and the action which is proposed to be taken
by the Company with respect thereto.


 


(v)       Notice
of Litigation. For so long as any amount remains due and outstanding under this Note, the Company shall provide to the Holder
promptly after the commencement thereof, notice of all actions, suits, and proceedings before any court or Governmental Authority
affecting the Company or any of its Subsidiaries or its Managed PCs, which, if determined adversely to the Company, could have
a material adverse effect upon the financial condition, operating results, assets, operations or business prospects of the Company
and its Subsidiaries and its Managed PCs taken as a whole.


 




    	 	10	 



     


    

 


(w)       Post-Closing
Covenant. The Company shall (i) repay a portion of the Senior Indebtedness of the Company as, and within the period, contemplated
in the Guaranty Bank Agreement, and (ii) reduce outstanding accounts payable and past due payroll taxes, pursuant to Section
19.


 


(x)       Collateral.
The Company shall deliver, or cause to delivered, such security agreement, guarantees, mortgages and other collateral documents
as are necessary to provide the Holder with guarantees by the same entities and security interests in the same assets as the guarantees
and collateral documents delivered pursuant to the Guaranty Bank Agreement, together with such opinions, title insurance policies,
endorsements, financing statements, control agreements and other agreements, documents and instruments in furtherance of such guarantees
and collateral arrangements as the Holder may from time to time reasonably request.


 


(y)       Liquidation.
Without prior approval of the Majority Note Holders, the Company shall not liquidate or dissolve the Company or any of its material
Subsidiaries or material Managed PCs.


 


(z)       Management.
Without prior approval of the Majority Note Holders, the Company shall not hire or terminate the Chief Executive Officer, Chief
Financial Officer or Chief Operating Officer.


 


5.       Events
of Default; Remedies.


 


(a)       Events
of Default. The term “Event of Default” as used herein means the occurrence or happening, at any time and
from time to time, any of the following:


 


(i)       the
failure of the Company to pay when due and payable (whether at maturity, upon the occurrence of a Fundamental Transaction or otherwise)
the full amount of interest then accrued on this Note (including any PIK Interest) and the full amount of any principal payment
on this Note;


 


(ii)       the
occurrence of an Insolvency Event;


 


(iii)       the
failure of the Company to deliver any shares of Conversion Stock required to be delivered by the Company upon conversion of this
Note pursuant to Section 6, which failure is not remedied within two Trading Days of the Holder’s conversion of this
Note (or Series B Preferred Stock, as applicable);


 


(iv)       the
failure of the Company to comply with any covenant or agreement contained in any of the Senior Subordinated Note Documents, which
non-compliance is not cured within 15 calendar days after receipt of written notice from the Holder;


 




    	 	11	 



     


    

 


(v)       (A)
the failure of the Company or any of its Subsidiaries or its Managed PCs to pay in full any principal of or interest or premium
on any of its Indebtedness (excluding the obligations hereunder) to the extent that the aggregate principal amount of all such
Indebtedness exceeds $1,000,000 when due (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise)
and such failure shall continue after any applicable grace period, if any, specified in the agreement or instrument relating to
such Indebtedness, or (B) any other default under any agreement or instrument relating to any such Indebtedness, or any other event,
shall occur and shall continue after the applicable grace period, if any, specified in such agreement or instrument, if the effect
of such other default or event is to accelerate the maturity of such Indebtedness;


 


(vi)       a
judgment in excess of $1,000,000 is rendered against the Company or any Subsidiary or Managed PC and, within 60 days after entry
thereof, such judgment is not discharged in full or execution thereof stayed pending appeal, or within 60 days after the expiration
of any such stay, such judgment is not discharged in full;


 


(vii)       any
representation or warranty made or deemed made by or on behalf of Company or by any officer of the foregoing under or in connection
with the Note, the Senior Subordinated Note Documents or under or in connection with any report, certificate, or other document
delivered to any Holder shall have been incorrect in any material respect when made or deemed made;


 


(viii)       any
material provision of this Note or any other Senior Subordinated Note Document shall at any time for any reason (other than pursuant
to the express terms thereof) cease to be valid and binding on or enforceable against the Company, or the validity or enforceability
thereof shall be contested by the Company, or a proceeding shall be commenced by the Company or any Governmental Authority having
jurisdiction over any of them, seeking to establish the invalidity or unenforceability thereof, or the Company shall deny in writing
that it has any liability or obligation purported to be created under this Note, or any other Senior Subordinated Note Document;
or


 


(ix)       any
security agreement, any mortgage or any other security document, after delivery thereof pursuant hereto, shall for any reason fail
or cease to create a valid and perfected lien in favor of the Holder on any Collateral purported to be covered thereby.


 


(b)       Remedies.


 


(i)       Subject
to the Subordination Agreement, upon the occurrence of an Event of Default, the Majority Note Holders may declare all or any portion
of the unpaid Obligations to be immediately due and payable (provided, however, that if an Event of Default specified in
Section 5(a)(ii) occurs, the entire unpaid Obligations shall forthwith become and be immediately due and payable without
any declaration or other act on the part of the Majority Note Holders).


 


(ii)       Subject
to the Subordination Agreement, upon the occurrence of any Event of Default and for so long as any Event of Default is continuing,
the interest rate on this Note shall increase immediately by an increment of two percentage points to the extent permitted by law.
Any increase of the interest rate resulting from the operation of this Section 5(b)(ii) shall terminate as of the close
of business on the date on which no Events of Default exist (subject to subsequent increases pursuant to this Section 5(b)(ii)).
All additional interest accrued pursuant to this Section 5(b)(ii) shall be capitalized on any relevant Capitalization Date
in accordance with Section 1(b).


 




    	 	12	 



     


    

 


(iii)       Each
Holder shall also have any other rights which such Holder may have been afforded under any contract or agreement at any time and
any other rights which such Holder may have pursuant to applicable law.


 


6.       Conversion.


 


(a)       Conversion
Procedure.


 


(i)       Subject
to Section 2(b), at any time and from time to time prior to the payment of this Note in full, at the Holder’s option,
the Holder may convert all or any portion of the principal amount (in the denominations of $1,000 in the principal amount) and
accrued and unpaid interest outstanding under this Note into such number of fully paid and nonassessable shares of the Conversion
Stock, as is determined by dividing the principal amount of this Note, plus all accrued and unpaid interest, by $5 (the “Conversion
Price”).


 


(ii)       Except
as otherwise expressly provided herein, each conversion of this Note shall be deemed to have been effected as of the close of business
on the date on which this Note has been surrendered for conversion at the principal office of the Company. At such time as such
conversion has been effected, the rights of the Holder as the holder of this Note to the extent of the conversion shall cease,
and the Person or Persons in whose name or names any certificate or certificates for shares of Conversion Stock are to be issued
upon such conversion shall be deemed to have become the holder or holders of record of the shares of Conversion Stock represented
thereby.


 


(iii)       As
soon as possible after a conversion has been effected (but in any event within two Trading Days in the case of clause (A) below),
the Company shall deliver to the converting Holder:


 


(A)       a
certificate or certificates representing the number of shares of Conversion Stock issuable by reason of such conversion in such
name or names and such denomination or denominations as the converting Holder has specified; and


 


(B)       a
new Note representing any portion of the principal amount or accrued and unpaid interest which was represented by the Note surrendered
to the Company in connection with such conversion but which was not converted.


 


(iv)       Any
fractional shares of Conversion Stock shall be issued as fractional shares and not paid in cash.


 


(v)       The
issuance of certificates for shares of Conversion Stock upon conversion of this Note shall be made without charge to the Holder
hereof for any issuance tax in respect thereof or other cost incurred by the Company in connection with such conversion and the
related issuance of shares of Conversion Stock. Upon conversion of this Note, the Company shall take all such actions as are necessary
in order to insure that the Conversion Stock issuable with respect to such conversion shall be validly issued, fully paid and nonassessable.


 




    	 	13	 



     


    

 


(vi)       The
Company shall not close its books against the transfer of Conversion Stock issued or issuable upon conversion of this Note in any
manner which interferes with the timely conversion of this Note. The Company shall assist and cooperate with any Holder required
to make any governmental filings or obtain any governmental approval prior to or in connection with the conversion of this Note
(including, without limitation, making any filings required to be made by the Company).


 


(vii)       The
Company shall at all times reserve and keep available out of its authorized but unissued shares of Conversion Stock, solely for
the purpose of issuance upon the conversion of the Note, such number of shares of Conversion Stock issuable upon the conversion
of all outstanding Notes and Series A Preferred Stock. All shares of Conversion Stock which are so issuable shall, when issued,
be duly and validly issued, fully paid and nonassessable and free from all taxes, liens and charges. The Company shall take all
such actions as may be necessary to assure that all such shares of Conversion Stock may be so issued without violation of any applicable
law or governmental regulation or any requirements of any domestic securities exchange upon which shares of Conversion Stock may
be listed (except for official notice of issuance which shall be immediately delivered by the Company upon each such issuance).


 


(viii)       The
Company shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the
purpose of issuance upon the conversion of the Series B Preferred Stock, such number of shares of Common Stock issuable upon the
conversion of all outstanding Series B Preferred Stock. All shares of Common Stock which are so issuable shall, when issued, be
duly and validly issued, fully paid and nonassessable and free from all taxes, liens and charges. The Company shall take all such
actions as may be necessary to assure that all such shares of Common Stock may be so issued without violation of any applicable
law or governmental regulation or any requirements of any domestic securities exchange upon which shares of Common Stock may be
listed (except for official notice of issuance which shall be immediately delivered by the Company upon each such issuance).


 


(b)       Notices.
If (A) the Company engages in a Fundamental Transaction or (B) there is a dissolution or liquidation of the Company, the Company
shall notify holders of the Notes, Series A Preferred Stock and Series B Preferred Stock of the proposed record or effective date,
as the case may be, at least 10 days before such date.


 


7.       Liquidating
Dividends. If the Company declares a dividend upon the Common Stock payable otherwise than in cash out of earnings or earned
surplus (determined in accordance with GAAP) except for a stock dividend payable in shares of Common Stock (a “Liquidating
Dividend”), then the Company shall pay to the Holder at the time of payment thereof the Liquidating Dividend which would
have been paid to the Holder on the Conversion Stock (and Common Stock) had this Note, Series A Preferred Stock and Series B Preferred
Stock been fully converted immediately prior to the date on which a record is taken for such Liquidating Dividend, or, if no record
is taken, the date as of which the record holders of Common Stock entitled to such dividends are to be determined.


 




    	 	14	 



     


    

 


8.       Purchase
Rights. Except with respect to Excluded Securities, 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 Common Stock
(the “Purchase Rights”), then each Holder shall be entitled to acquire, upon the terms applicable to such Purchase
Rights, the aggregate Purchase Rights which such Holder could have acquired if such Holder had held the number of shares of Common
Stock acquirable upon conversion of such Holder’s Series B Preferred Stock (acquirable upon conversion of such Holder’s
Note) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no
such record is taken, the date as of which the record holders of Common Stock are to be determined for the grant, issue or sale
of such Purchase Rights.


 


9.       Intentionally
Omitted.


 


10.     Registration
Agreement. The Company and the Holder agree and acknowledge that the shares of Common Stock issuable by the Company upon conversion
of this Note and Series A Preferred Stock are “Registrable Securities” pursuant to and as defined in that certain Registration
Rights Agreement, dated as of the date hereof, by and among the Company, the Holder and the other parties signatory thereto (the
“Registration Rights Agreement”); provided, that if this Note is assigned pursuant to Section 14 of this
Note to any Person, such assignee will be deemed a party to such Registration Rights Agreement and the shares of Common Stock issuable
by the Company upon conversion of this Note and Series A Preferred Stock shall be “Registrable Securities” pursuant
to such Registration Rights Agreement.


 


11.     Amendment
or Waiver. Except as otherwise expressly provided herein and except as otherwise expressly provided in the Subordination Agreement,
the provisions of this Note may be amended or waived and the Company may take any action herein prohibited, or omit to perform
any act herein required to be performed by it, only if the Company has obtained the written consent of the Majority Note Holders;
provided, that, except to the extent specifically provided for herein, no such action shall change (i) the rate at which
or the manner in which interest accrues on this Note or the times at which such interest becomes payable, (ii) any provision relating
to the scheduled payments or prepayments of principal on this Note, (iii) the Conversion Price of this Note or the number of shares
or the class of stock into which this Note is convertible, or (iv) any provision of this Section 11, without the written
consent of 100% of the Holders.


 


12.      Definitions.
For purposes of this Note, the following capitalized terms have the following meaning:


 


“Affiliate” means with
respect to any Person, any other Person (i) which directly or indirectly through one or more intermediaries Controls, or is Controlled
by, or is under common Control with, such first Person, (ii) which beneficially owns or holds 10% or more of any class of the voting
stock of such first Person, or (iii) whereby 10% or more of the voting stock (or in the case of a Person which is not a corporation,
10% or more of the equity interest) of such other Person is beneficially owned or held by such first Person or by a Subsidiary
(or Managed PC, as applicable) of such first Person.


 


“Approved Holder Majority”
has the meaning ascribed to such term in Section 4(p).


 




    	 	15	 



     


    

 


“Approved Stock Plan”
means any employee benefit plan that has been approved by the board of directors of the Company, pursuant to which the Company’s
securities may be issued to any employee, consultant or director for services provided to the Company.


 


“as-converted basis”
means, with respect to the outstanding shares of Common Stock, all outstanding shares of Common Stock calculated on a basis in
which all shares of Common Stock issuable upon conversion of the Series B Preferred Stock that is either (x) then outstanding or
(y) issuable upon conversion of this Note, the Other Notes and Series A Preferred Stock then outstanding, as adjusted to appropriately
reflect any stock split, combination, reclassification, recapitalization or similar transaction, are assumed to be then outstanding.


 


“Audited Financial Statements”
means, with respect to any Fiscal Year, the consolidated balance sheets, statements of operations and retained earnings and statements
of cash flows of the Company and its Subsidiaries and Managed PCs as of the end of such Fiscal Year, together with the report and
opinion of the independent certified public accountants for such entities.


 


“Bank” means Guaranty
Bank and Trust Company, a Colorado bank.


 


“Business Day” means
each day other than a Saturday, Sunday or a day that it is not a Trading Day.


 


“Capitalization Date”
is defined in Section 1(b) of this Note.


 


“Collateral” means all
of the property and assets and all interests therein and proceeds thereof now owned or hereafter acquired by any Person upon which
a lien or security interest is granted or purported to be granted by such Person as security for all or any part of the Obligations
under this Note or the other Senior Subordinated Note Documents.


 


“Common Stock” means
the common stock, without par value, of the Company as constituted on the date hereof and any stock into which any such common
stock is changed or any stock resulting from any stock split, stock dividend or other recapitalization or reclassification of any
such common stock.


 


“Common Stock Equivalent”
means any security or obligation which is by its terms, directly or indirectly, convertible into or exchangeable or exercisable
for shares of Common Stock (other than such instruments issued pursuant to a dividend reinvestment plan or share purchase plan
or similar plans), including, without limitation, any option, warrant or other subscription or purchase right with respect to Common
Stock, note or other evidence of indebtedness that is convertible into or exchangeable or exercisable for shares of Common Stock.


 


“Company” is defined
in the first introductory paragraph of this Note.


 




    	 	16	 



     


    

 


“Contingent Liabilities”
means each obligation and liability of the Company and all such obligations and liabilities of the Company incurred pursuant to
any agreement, undertaking or arrangement by which the Company: (a) guarantees, endorses or otherwise becomes or is contingently
liable upon (by direct or indirect agreement, contingent or otherwise, to provide funds for payment, to supply funds to, or otherwise
to invest in, a debtor, or otherwise to assure a creditor against loss) the indebtedness, dividend, obligation or other liability
of any other Person in any manner (other than by endorsement of instruments in the course of collection), including any indebtedness,
dividend or other obligation which may be issued or incurred at some future time; (b) guarantees the payment of dividends or other
distributions upon the shares or ownership interest of any other Person; (c) undertakes or agrees (whether contingently or otherwise):
(i) to purchase, repurchase or otherwise acquire any indebtedness, obligation or liability of any other Person or any property
or assets constituting security therefor, (ii) to advance or provide funds for the payment or discharge of any indebtedness, obligation
or liability of any other Person (whether in the form of loans, advances, stock purchases, capital contributions or otherwise),
or to maintain solvency, assets, level of income, working capital or other financial condition of any other Person, or (iii) to
make payment to any other Person other than for value received; (d) agrees to lease property or to purchase securities, property
or services from such other Person with the purpose or intent of assuring the owner of such indebtedness or obligation of the ability
of such other Person to make payment of the indebtedness or obligation; (e) undertakes or agrees to induce the issuance of, or
in connection with the issuance of, any letter of credit for the benefit of such other Person; or (f) undertakes or agrees otherwise
to assure a creditor against loss.


 


“Control” means the possession,
directly or indirectly, of the power to direct or cause the direction of the management or policies of a person, whether through
the ownership of voting securities, by contract or otherwise, and the terms “Controlling” and “Controlled”
(and the lower-case versions of the same) have meanings correlative thereto.


 


“Conversion Price” has
the meaning ascribed to such term in Section 6(a) of this Note.


 


“Conversion Stock” means
shares of the Company’s authorized but unissued Series B Preferred Stock; provided, that if there is a change such
that the securities issuable upon conversion of the Notes are issued by an entity other than the Company or there is a change in
the class of securities so issuable, then the term “Conversion Stock” shall mean one share of the security issuable
upon conversion of this Note if such security is issuable in shares, or shall mean the smallest unit in which such security is
issuable if such security is not issuable in shares.


 


“Default” means an Event
of Default or an event or condition which with notice or lapse of time or both would constitute an Event of Default.


 


“Dilutive Issuance” means
any issuance or sale by the Company of any shares of Common Stock or Common Stock Equivalents (including the issuance or sale of
shares of Common Stock owned or held by or for the account of the Company, but excluding shares of Common Stock deemed to have
been issued or sold by the Company in connection with any Excluded Security) for a consideration per share less than a price equal
to the conversion price of Conversion Stock in effect immediately prior to such issue or sale.


 


“Disclosure Schedule”
means that certain Disclosure Schedule, dated as of the date hereof, containing certain disclosure schedules, executed by the Company
and delivered to the Holder pursuant to the Securities Purchase Agreement.


 




    	 	17	 



     


    

 


“EBITDA” means for any
period, an amount equal to the sum of (a) consolidated net income for such period plus (b) the following to the extent deducted
in calculating such consolidated net income: (i) interest charges for such period, (ii) federal, state and local income taxes for
such period, (iii) depreciation and amortization expense for such period, (iv) non-cash stock compensation expense for such period,
(v) all other non-recurring charges (including, without limitation, location closure costs, proxy contest costs and legal costs)
approved in advance by Bank, in its reasonable discretion, and (vi) losses for such period from the sale or other disposition of
property less (c) the following to the extent included in calculating such consolidated net income: (i) non-cash gains for
such period and (ii) gains for such period from the sale or other disposition of property.


 


“Event of Default” has
the meaning ascribed to such term in Section 5(a) of this Note.


 


“Excluded Securities”
means any Common Stock issued or issuable: (i) in connection with or pursuant to any Approved Stock Plan; (ii) upon conversion
of the Notes, Series A Preferred Stock or Series B Preferred Stock; and (iii) upon conversion of any Common Stock Equivalents that
are outstanding on the day immediately preceding the date hereof, provided that the terms of such Common Stock Equivalents are
not amended, modified or changed in any manner adverse to the Holder on or after the date hereof.


 


“Fifth Amendment” means
the Fifth Amendment, dated as of December 27, 2017, to the Guaranty Bank Agreement.


 


“Fiscal Year” means the
fiscal year ending on December 31 of each year.


 


“Fundamental Transaction”
means that the Company shall, directly or indirectly, in one or more related transactions, (i) consolidate or merge with or into
(whether or not the Company is the surviving corporation) another Person, or (ii) sell, assign, transfer, convey or otherwise dispose
of all or substantially all of the properties or assets of the Company to another Person, or (iii) allow another Person to make
a purchase, Tender Offer or exchange offer that is accepted by such number of holders of outstanding shares of Common Stock resulting
in such Person (together with any Affiliates of such Person) holding more than 50% of the outstanding Common Stock of the Company
following such purchase, Tender Offer or exchange offer, or (iv) consummate a stock purchase agreement or other business combination
(including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with another Person resulting
in such other Person (together with any Affiliates of such person) holding more than 50% of the outstanding Common Stock of the
Company following such stock purchase agreement or other business combination, or (v) reorganize, recapitalize or reclassify its
Common Stock, except for stock splits and stock dividends that do not affect the relative ownership of the shareholders of the
Company and for which adjustments are made under the conversion and other applicable provisions of the Transaction Documents (as
defined in the Securities Purchase Agreement), or (vi) an event where a person, or a group of persons acting together acquires
more than 50% of the Common Stock of the Company, measured by total voting power, or (vii) the Company is liquidated or dissolved,
or (viii) during any 12-month period, a majority of the board of directors of the Company ceases to be comprised of existing board
members at the beginning of the period and any new directors whose election was approved by at least two-thirds of the directors
then still in office; provided that, for purposes of Section
2(b), following such transaction the holders of Common Stock immediately prior to such transaction do not own more than
50% of the common equity of the company surviving such business combination transaction or to which such assets are transferred
or do not own the common equity in the company surviving such business combination substantially in the same relative proportions
as their respective interests in the Common Stock prior to such transaction.


 




    	 	18	 



     


    

 


“GAAP” means generally
accepted accounting principles set forth from time to time in the opinions and pronouncements of the Accounting Principles Board
and the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards
Board (or agencies with similar functions of comparable stature and authority within the U.S. accounting profession), which are
applicable to the circumstances as of the date of determination, provided, however, that interim financial statements or reports
shall be deemed in compliance with GAAP despite the absence of footnotes and fiscal year-end adjustments as required by GAAP.


 


“Governing Document”
means, relative to any Person, its articles or certificate of incorporation, or certificate of limited partnership or formation,
its certificate of designation(s) of preferred stock, its bylaws, partnership or operating agreement or other organizational documents,
and all shareholders agreements, voting trusts and similar arrangements applicable to any of its capital stock, partnership interests
or other ownership interests.


 


“Governmental Authority”
shall mean any federal, state, local or other governmental department, commission, board, bureau, agency or other instrumentality
or authority, domestic or foreign, exercising executive, legislative, judicial, regulatory or administrative authority or functions
of or pertaining to government.


 


“Guaranty Bank Agreement”
means the Loan and Security Agreement, by and between the Company and the Bank, including the Fifth Amendment, as amended, restated,
supplemented or otherwise modified from time to time.


 


“Holder” is defined in
the first introductory paragraph of this Note.


 


“Indebtedness” (and the
lower-case version of the same) means, with respect to any Person, all liabilities, obligations and indebtedness of such Person
of every kind and nature, including, without limitation: (i) indebtedness or liability for borrowed money, or for the deferred
purchase price of property or services (including trade obligations); (ii) obligations as lessee under any leases (including under
any capital leases); (iii) any reimbursement or other obligations under any performance or surety bonds or any letters of credit
issued for the account of such Person; (iv) all net obligations in respect of any derivative products; (v) all guaranties, endorsements
(other than for collection or deposit in the ordinary course of business), and other contingent obligations to purchase, to provide
funds for payment, to supply funds to invest in any other Person, or otherwise to assure a creditor against loss; and (vi) obligations
secured by any Lien on property owned by such Person, whether or not the obligations have been assumed.


 


“Insolvency Event” means
the occurrence of any of the following: (i) the Company or any of its Subsidiaries or Managed PCs makes a general assignment for
the benefit of creditors; (ii) an order, judgment or decree is entered adjudicating the Company or any of its Subsidiaries or Managed
PCs bankrupt or insolvent; (iii) any order for relief with respect to the Company or any of its Subsidiaries or Managed PCs is
entered under the Federal Bankruptcy Code; (iv) the Company or any of its Subsidiaries or Managed PCs petitions or applies to any
tribunal for the appointment of a custodian, trustee, receiver or liquidator of the Company or any of its Subsidiaries or Managed
PCs or of any substantial part of the assets of the Company or any of its Subsidiaries or Managed PCs, or commences any proceeding
relating to the Company or any of its Subsidiaries or Managed PCs under any bankruptcy, reorganization, arrangement, insolvency,
readjustment of debt, dissolution or liquidation law of any jurisdiction; or (v) any such petition or application is filed, or
any such proceeding is commenced, against the Company or any of its Subsidiaries or Managed PCs and not dismissed or stayed within
60 calendar days after the commencement thereof.


 




    	 	19	 



     


    

 


“Interest Payment Date”
means March 31, June 30, September 30 and December 31.


 


“Issuance Date” means
the date hereof.


 


“Investor Director(s)”
has the meaning ascribed to such term in Section 4(p).


 


“Legend” is defined in
Section 15(a) of this Note.


 


“Leverage Ratio” means,
on a consolidated basis, the ratio of (a) Indebtedness (as of the end of the most recently completed calendar quarter), other than
Indebtedness under the Notes, Series A Preferred Stock and Series B Preferred Stock, to (b) EBITDA (for the most recently completed
four calendar quarters).


 


“Lien” is defined in
Section 4(c) of this Note.


 


“Liquidating Dividend”
is defined in Section 7 of this Note.


 


“Majority Holders” means
the holders of a majority of the then-outstanding shares of Common Stock issued or issuable upon conversion of the Notes and Series
A Preferred Stock (assuming conversion of (i) the Notes and Series A Preferred Stock into Series B Preferred Stock and (ii) Series
B Preferred Stock into Common Stock).


 


“Majority Note Holders”
means the holders of a majority of then outstanding principal amount of this Note, the Other Notes and any additional notes issued
in connection with assignments and transfers permitted by Section 14.


 


“Managed PC” means a
professional corporation or comparable entity professional corporation or comparable entity engaged in the practice of dentistry
for which the Company provides administrative, business and/or marketing support and advice pursuant to a Management Agreement.


 


“Management Agreement”
means a written agreement pursuant to which the Company provides administrative, business and/or marketing support and advice to
a Managed PC.


 


“Maturity Date” is defined
in Section 2(a) of this Note.


 


“Modified Performance Targets”
means the following performance targets for the Company: (a) The Company shall achieve a trailing 12-month EBITDA of (i) $2,040,000
by June 30, 2018, (ii) $2,762,500 by December 31, 2018, (iii) $3,612,500 by June 30, 2019, and (iv) $4,675,000 by June 30, 2020;
and (b) the Company shall maintain the following maximum Leverage Ratio: (i) 3.75:1 by June 30, 2018 and (ii) 2.5:1 by June 30,
2019 and thereafter.


 




    	 	20	 



     


    

 


“Note” is defined in
the first introductory paragraph of this Note.


 


“Obligations” means all
obligations, liabilities or sums due or to become due by the Company under this Note or any other Senior Subordinated Note Document.


 


“Other Notes” is defined
in the first introductory paragraph of this Note.


 


“Performance Targets”
means the following performance targets for the Company: (a) The Company shall achieve a trailing 12-month EBITDA of (i) $2,400,000
by June 30, 2018, (ii) $3,250,000 by December 31, 2018, (iii) $4,250,000 by June 30, 2019, and (iv) $5,500,000 by June 30, 2020;
and (b) the Company shall maintain the following maximum Leverage Ratio: (i) 3:1 by June 30, 2018 and (ii) 2:1 by June 30, 2019
and thereafter.


 


“Permitted Indebtedness”
means (A) Indebtedness to the Bank not to exceed $9,350,000; (B) Indebtedness incurred by the Company that is made expressly subordinate
in right of payment to the Indebtedness evidenced by the Notes, as reflected in a written agreement acceptable to the Holder and
approved by the Majority Holders in writing, and which Indebtedness does not provide at any time for (1) the payment, prepayment,
repayment, repurchase or defeasance, directly or indirectly, of any principal or premium, if any, thereon until 91 days after the
Maturity Date (as defined in the Notes) or later and (2) total interest and fees at a rate in excess of 3% over the greater of
the interest rate for the Notes and the rate for U.S. treasury notes with comparable maturity per annum; (C) Indebtedness existing
as of the Issuance Date (as defined in the Notes) and set forth in the Disclosure Schedule; (D) Indebtedness issued in exchange
for, or the net proceeds of which are used to extend, refund, renew, refinance, defease or replace Permitted Indebtedness, provided,
however, that (i) such extension, refund, renewal, refinancing, defeasance or replacement is pursuant to terms that are not
materially less favorable to the Company, its Subsidiaries, its Managed PCs or the Holder than the terms of the Indebtedness being
extended, refinanced or modified and (ii) after giving effect to such extension, refund, renewal, refinancing, defeasance or replacement,
the amount of such indebtedness is not greater than the amount of Indebtedness outstanding immediately prior to such refund, renewal,
refinancing, defeasance or replacement; (E) intercompany indebtedness among the Company and its Subsidiaries and/or its Managed
PCs, provided that if issued by the Company, the intercompany indebtedness is subordinated in right of payment to the Notes; (F)
obligations of the Company for taxes, assessments, municipal or other governmental charges; (G) obligations of the Company for
accounts payable, other than for money borrowed, incurred in the ordinary course of business; (H) Indebtedness incurred solely
in respect of letters of credit and performance bonds (to the extent that such incurrence does not result in the incurrence of
any obligation to repay any obligation relating to borrowed money or other Indebtedness), all in the ordinary course of business
in amounts and for the purposes customary in the Company’s industry; (I) Contingent Liabilities existing as of the date hereof
and disclosed in writing to the Holders, or as otherwise approved in writing by the Majority Note Holders; and (J) purchase money
indebtedness which, if secured by a purchase money security interest, is or would be a Permitted Lien, and which is incurred for
the purchase of equipment necessary or appropriate for the conduct of the Company’s business in the ordinary course of business.


 




    	 	21	 



     


    

 


“Permitted Liens” means:
(i) Liens granted to the Bank; (ii) any Lien for taxes, assessments or governmental charges or claims not yet due or delinquent
or being contested in good faith by appropriate proceedings for which adequate reserves have been established in accordance with
GAAP; (iii) any statutory Lien arising in the ordinary course of business by operation of law with respect to a liability that
is not yet due or delinquent; (iv) any Lien imposed by law or created by operation of law, including, without limitation, materialmen’s
mechanics’, landlords’, carriers’, warehousemen’s, suppliers’ and vendors’ Liens, Liens for
master’s and crew’s wages and other similar Liens, arising in the ordinary course of business with respect to a liability
that is not yet due or delinquent or that are being contested in good faith by appropriate proceedings; (v) Liens incurred or deposits
and pledges made in connection with (1) obligations incurred in respect of workers’ compensation, unemployment insurance
or other forms of governmental insurance or benefits or legislation, (2) the performance of letters of credits, bids, tenders,
leases, contracts (other than for the payment of money) and statutory obligations or (3) obligations on surety or appeal bonds,
but only to the extent such deposits or pledges are made or otherwise arise in the ordinary course of business and secure obligations
not past due; (vi) reservations, exceptions, encroachments, rights-of-way, covenants, conditions, easements, restrictions and similar
encumbrances or charges on real property and minor irregularities in the title thereto that do not (1) secure obligations for the
payment of money or (2) materially impair the value of such property or its use by the Company or any of its Subsidiaries or its
Managed PCs in the normal conduct of such Person’s business; (vii) any Lien incurred to secure Senior Indebtedness; (viii)
Liens securing the Company’s obligations under the Notes; (ix) Liens in favor of the Company or any of its Subsidiaries or
Managed PCs; (x) Liens (in addition to the other Liens permitted herein) securing Indebtedness not to exceed $100,000 in the aggregate;
(xi) Liens to secure any extension, renewal, refinancing or refunding (or successive extensions, renewals, refinancings or refundings),
in whole or in part, of any Indebtedness secured by Liens referred to in the foregoing clause (xi) hereof; provided that such Liens
do not extend to any other property of the Company or any of its Subsidiaries or its Managed PCs and the principal amount of the
Indebtedness secured by such Lien is not increased; (xii) Liens securing reimbursement obligations with respect to commercial letters
of credit which encumber documents and other property relating to such letters of credit and products and proceeds thereof; (xiii)
Liens arising out of consignment or similar arrangements for the sale of goods in the ordinary course of business; (xiv) Liens
securing Indebtedness permitted to be incurred pursuant to clause (D) of the definition of Permitted Indebtedness, provided that
such Liens do not extend to any other property of the Company or its Subsidiaries or its Managed PCs and the principal amount of
the Indebtedness secured by such Lien is not increased; (xv) Liens in the form of pledges by dentists of Managed PCs of interests
in such Managed PCs; (xvi) Liens that constitute purchase money security interests on any property securing Indebtedness incurred
for the purpose of financing all or any part of the cost of acquiring such property, provided that any such Lien attaches to such
property within 20 days of the acquisition thereof and attaches solely to the property so acquired; and (xvii) Liens in favor of
the Company under the Management Agreements.


 


“Person” means an individual,
a partnership, a corporation, a limited liability company, an association, a joint stock company, a trust, a joint venture, an
unincorporated organization and a governmental entity or any department, agency or political subdivision thereof.


 


“PIK Interest” is defined
in Section 1(a) of this Note.


 




    	 	22	 



     


    

 


 


“Purchase Rights” is
defined in Section 8 of this Note.


 


“Registration Rights Agreement”
is defined in Section 10 of this Note.


 


“Restricted Security”
means this Note, all Conversion Stock issuable pursuant to Section 6 of this Note, all Common Stock issuable upon conversion
of Series B Preferred Stock, and any securities issuable by way of a stock split, stock dividend or other recapitalization with
respect to the Common Stock issuable pursuant to Section 6 of this Note. As to any particular Restricted Securities, such
securities shall cease to be Restricted Securities when they have (a) been effectively registered under the Securities Act and
disposed of in accordance with the registration statement covering them, (b) been distributed to the public through a broker, dealer
or market Company pursuant to Rule 144 (or any similar provision then in force) under the Securities Act or (c) been otherwise
transferred and, if such Restricted Securities have been certificated, new certificates for them not bearing the Securities Act
Legend set forth in Section 15 have been delivered by the Company in accordance with Section 15. Whenever any particular
securities of the Company cease to be Restricted Securities, the holder thereof shall be entitled to receive from the Company,
without expense, to the extent such Restricted Security was certificated, new securities of like tenor not bearing a Securities
Act Legend of the character set forth in Section 15.


 


“Securities Act” means
the Securities Act of 1933, as amended.


 


“Securities Exchange Act”
is defined in Section 4(r) of this Note.


 


“Securities Purchase Agreement”
is defined in the first introductory paragraph of this Note.


 


“Senior Indebtedness”
means the principal of (and premium, if any), interest (including any interest accruing subsequent to the commencement of any bankruptcy
or similar proceeding, whether or not a claim for post-petition interest is an allowable claim in such proceeding) on, and all
fees and other amounts (including, without limitation, any reasonable out-of-pocket costs, enforcement expenses (including reasonable
out-of-pocket legal fees and disbursements), collateral protection expenses and other reimbursement or indemnity obligations relating
thereto and all reimbursement or payment obligations with respect to letters of credit) payable by Company under or in connection
with any indebtedness (including any deferrals, renewals, extensions, refinancing, amendments, reclassifications or supplements
thereto) of the Company which by its terms expressly does not provide that it ranks pari passu or junior in right of payment
to the Notes. Senior Indebtedness shall not, however, include the Notes, or any Indebtedness of the Company to any Subsidiary or
Managed PC of the Company. Senior Indebtedness expressly includes the Company’s Indebtedness to the Bank under the Guaranty
Bank Agreement.


 


“Senior Subordinated Note Documents”
means this Note, the security agreement for this Note, and any other agreement, document or instrument delivered to or in favor
of Holder or any holder in connection with any of the foregoing (to the extent permitted by the Subordination Agreement).


 




    	 	23	 



     


    

 


“Series A Preferred Stock”
means Series A Convertible Preferred Stock of the Company as provided for in the Securities Purchase Agreement.


 


“Series B Preferred Stock”
is defined in Section 1(a) of this Note.


 


“Subordination Agreement”
is defined in the second introductory paragraph of this Note.


 


“Subsidiary” of any specified
Person means any corporation, partnership, limited liability company, joint venture, association or other business entity, whether
now existing or hereafter organized or acquired, (i) in the case of a corporation, of which more than 50% of the total voting power
of the capital stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, officers
or trustees thereof is held by such first-named Person or any of its Subsidiaries, or (ii) in the case of a partnership, limited
liability company, joint venture, association or other business entity, with respect to which such first-named Person or any of
its Subsidiaries has the power to direct or cause the direction of the management and policies of such entity by contract or otherwise
or if in accordance with GAAP such entity is consolidated with the first-named Person for financial statement purposes. “Subsidiary”
expressly excludes the Managed PCs.


 


“Tender Offer” means
a broad solicitation by a Person to purchase a substantial percentage of a company’s equity securities.


 


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


 


“Trading Market” means
the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date in question: the New York
Stock Exchange, the Nasdaq Stock Market, the NYSE American or the OTC Markets.


 


“Transfer” is defined
in Section 14 of this Note.


 


“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 OTCBB, OTCQB or OTCQX is not a Trading Market (and
the daily volume weighted average price of the Common Stock is not reported by Bloomberg L.P.), the volume weighted average price
of the Common Stock for such date (or the nearest preceding date) on OTCBB, OTCQB or OTCQX, as applicable, (c) if the Common Stock
is not then listed or quoted for trading on OTCBB, OTCQB or OTCQX and if prices for the Common Stock are then reported in the “Pink
Sheets” published by 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 in good faith by the Majority Holders and reasonably acceptable to the board of directors of the
Company. If such parties are unable to reach agreement within a reasonable period of time, an appraiser jointly selected by the
Majority Holders and reasonably acceptable to the board of directors of the Company shall determine such fair value. The determination
of such appraiser shall be final and binding upon the parties. The Company shall pay the fees and expenses of such appraiser.


 




    	 	24	 



     


    

 


13.       Cancellation.
Immediately after all principal and accrued interest at any time owed on this Note has been paid in full (including by the conversion
of 100% of the amounts outstanding under this Note into shares of Series B Preferred Stock, which shares are validly authorized
and issued to the Holder), this Note shall be automatically cancelled and the Holder shall immediately surrender this Note and
shares of Series A Preferred Stock (after the conversion thereof) to the Company for cancellation and retirement, as applicable.
After cancellation of this Note, this Note shall not be reissued.


 


14.       Assignment.
The rights and obligations of the Company may not be assigned by the Company without the prior written consent of the Majority
Note Holders, which consent may be granted or withheld in the Majority Note Holders’ sole discretion. The Holder may assign
at any time this Note to any of its affiliates, any financial institutions or any other Person, in which event, the assignee shall
have, to the extent of such assignment, the same rights and benefits as it would have if it were the Holder, except as otherwise
provided by the terms of such assignment or participation. Upon a valid assignment of a party’s rights and obligations under
this Note, this Note shall inure to the benefit of and be binding upon the successors and permitted assigns and transferees of
the Company and the Holder; provided that in no event shall the sale, exchange, assignment, pledge, hypothecation, transfer
or other disposition (each, a “Transfer”) of this Note relieve the Company of its obligations hereunder or under
any other Senior Subordinated Note Documents to which it is a party. In the event of any permitted assignment hereunder, (i) the
prospective Holder shall be, and shall provide a representation that it is, entering into such Transfer for its own account and
not with a view to, or for sale in connection with, any subsequent distribution, and (ii) the prospective Holder shall become a
party to this Note (or any replacement hereof) and the Subordination Agreement. Shares of Series A Preferred Stock may only be
purchased, sold or otherwise transferred together with this Note. The prospective Holder shall provide notice of such Holder’s
interest in the Note within five Business Days after the Transfer.


 


15.       Securities
Law Restrictions.


 


(a)       Each
certificate or instrument representing Restricted Securities, if any, shall be imprinted with a legend in substantially the following
form (the “Legend”):


 


THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY COMPARABLE STATE SECURITIES LAW, AND MAY NOT BE SOLD, ASSIGNED, TRANSFERRED,
PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF UNLESS THE SAME IS REGISTERED UNDER SAID ACT AND APPLICABLE STATE SECURITIES LAWS
OR UNLESS AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE.


 


(b)       The
Company shall remove such Legends pursuant to the procedures set forth in the Securities Purchase Agreement.


 




    	 	25	 



     


    

 


16.       Payments;
Place of Payment. All payments to be made to the Holder shall be made in the lawful money of the United States of America in
immediately available funds.


 


17.       Place
of Payments. Payments of principal and interest shall be delivered as directed by prior written notice by the Holder to the
Company or, if not specified by such Holder, then to such Holder, at the address of such Holder set forth on the Company’s
records or at such other address as is specified by prior written notice by such Holder to the Company.


 


18.       Notices.
Except as may be otherwise provided herein, all notices, requests, waivers and other communications made pursuant to this Note
shall be in writing and shall be conclusively deemed to have been duly given (a) when hand delivered to the other party; (b) when
sent by electronic transmission to the email address set forth below if sent between 8:00 a.m. and 5:00 p.m. recipient’s
local time on a Business Day, or on the next Business Day if sent by electronic transmission to the email address set forth below
if sent other than between 8:00 a.m. and 5:00 p.m. recipient’s local time on a Business Day; (c) three Business Days after
deposit in the U.S. mail with first class or certified mail receipt requested postage prepaid and addressed to the other party
as follows (if to the Company, Birner Dental Management Services, Inc., 1777 S. Harrison Street, Suite 1400, Denver, Colorado 80210,
attention: Fred Birner, email: fbirner@birnerdental.com, or such other address and email address as the Company shall designate
from time-to-time as its principal office and main email address, and if to any Holder, to such address designated by such Holder
in writing to the Company); (d) the next Business Day after deposit with a national overnight delivery service, postage prepaid,
addressed to the parties as set forth above with next Business Day delivery guaranteed, provided that the sending party receives
a confirmation of delivery from the delivery service provider; or (e) when received by another party. A party may change or supplement
the addresses given above, or designate additional addresses (or electronic addresses for electronic transmissions), for purposes
of this Section 18 by giving the other party written notice of the new address in the manner set forth above.


 


19.       Use
of Proceeds. The Company shall use the proceeds from this Note as follows: (a) a portion of the proceeds of this Note and the
Other Notes shall be used to reduce outstanding accounts payable and to pay past due payroll taxes, in each case as set forth the
Fifth Amendment; (b) up to $1,500,000 in the proceeds of this Note and the Other Notes shall be used to make payments on the term
loan under the Fifth Amendment and outstanding letters of credit; and (c) the balance of the proceeds of this Note and the Other
Notes shall be used for general corporate purposes.


 


20.       Governing
Law. All questions concerning the construction, validity and interpretation of this Note will be governed by and construed
in accordance with the domestic laws of the State of Colorado, without giving effect to any choice of law or conflict of law provision
or rule (whether of the State of Colorado or any other jurisdiction) that would cause the application of the laws of any jurisdiction
other than the State of Colorado.


 


21.       Waiver
of Presentment, Demand and Dishonor. The Company hereby waives presentment for payment, protest, demand, notice of protest,
notice of nonpayment and diligence with respect to this Note, and waives and renounces all rights to the benefits of any statute
of limitations or any moratorium, appraisement, exemption, or homestead now provided or that hereafter may be provided by any federal
or applicable state statute, including but not limited to exemptions provided by or allowed under the Federal Bankruptcy Code,
both as to itself and as to all of its property, whether real or personal, against the enforcement and collection of the Obligations
and any and all extensions, renewals, and modifications hereof.


 




    	 	26	 



     


    

 


22.       Business
Days. If any payment is due, or any time period for giving notice or taking action expires, on a day which is not a Business
Day, the payment shall be due and payable on, and the time period shall automatically be extended to, the immediately following
Business Day, and interest shall continue to accrue at the required rate hereunder until any such payment is made.


 


23.       Waiver
of Jury Trial. EACH OF THE COMPANY AND THE HOLDER OF THIS NOTE, BY ISSUING OR ACCEPTING THIS NOTE, AS APPLICABLE, AGREES THAT
IT HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY RIGHT TO JURY TRIAL OF ANY CLAIM, DEMAND, ACTION, OR CAUSE OF ACTION
(A) ARISING UNDER THIS NOTE OR (B) IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS IN RESPECT OF THIS NOTE,
IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER IN CONTRACT, TORT, EQUITY, OR OTHERWISE. Each of the Company
and the Holder, by accepting this Note, hereby agrees and consents that any such claim, demand, action, or cause of action shall
be decided by court trial without a jury and that each Holder and the Company may file an original counterpart of a copy of this
Note with any court as written evidence of the consent of the Holder or the Company to the waiver of the Holder’s right to
trial by jury.


 


24.       No
Waiver. The rights and remedies of the Holder expressly set forth in this Note are cumulative and in addition to, and not exclusive
of, all other rights and remedies available at law, in equity or otherwise. No failure or delay on the part of the Holder in exercising
any right, power or privilege shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, power
or privilege preclude any other or further exercise thereof or the exercise of any other right, power or privilege or be construed
to be a waiver of any Event of Default. No course of dealing between the Company and the Holder or their agents or employees shall
be effective to amend, modify or discharge any provision of this Note or to constitute a waiver of any Event of Default. No notice
to or demand upon Company in any case shall entitle Company to any other or further notice or demand in similar or other circumstances
or constitute a waiver of the right of the Holder to exercise any right or remedy or take any other or further action in any circumstances
without notice or demand.


 


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


 


26.       Facsimile
Transmission of Signature Page. The delivery of any executed signature page to this Note by telecopy or other electronic imaging
means shall be effective as delivery of a manually executed signature page to this Note.


 




    	 	27	 



     


    

 


27.       Construction.
The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined. Whenever the context
may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words “include,”
“includes” and “including” shall be deemed to be followed by the phrase “without limitation,”
whether or not so expressly stated in each such instance and the term “or” has, except where otherwise indicated, the
inclusive meaning represented by the phrase “and/or.” The word “will” shall be construed to have the same
meaning and effect as the word “shall.” Unless the context requires otherwise, (a) any definition of or reference to
any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document
as from time to time amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or
modifications set forth herein), (b) any reference herein to any Person shall be construed to include such Person’s successors
and assigns, (c) the words “herein,” “hereof” and “hereunder,” and words of similar import,
shall be construed to refer to this Note in its entirety and not to any particular provision hereof, (d) all references herein
to Sections shall be construed to refer to Sections of this Note, and (e) the words “asset” and “property”
shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties,
including cash, securities, accounts and contract rights. Unless otherwise expressly provided herein, each accounting term used
herein shall have the meaning given it under GAAP.


 


28.       Excessive
Interest. Notwithstanding any other provision herein to the contrary, this Note is hereby expressly limited so that the interest
rate charged hereunder shall at no time exceed the maximum rate permitted by applicable law. If, for any circumstance whatsoever,
the interest rate charged exceeds the maximum rate permitted by applicable law, the interest rate shall be reduced to the maximum
rate permitted, and if the Holder shall have received an amount that would cause the interest rate charged to be in excess of the
maximum rate permitted, such amount that would be excessive interest shall be applied to the reduction of the principal amount
owing hereunder (without charge for prepayment) and not to the payment of interest, or if such excessive interest exceeds the unpaid
balance of principal, such excess shall be refunded to the Company.


 


* * * * *


 




    	 	28	 



     


    

 


IN WITNESS WHEREOF, the Company has duly
executed and delivered this Convertible Senior Subordinated Secured Loan Note on the date first above written.


 


	 	BIRNER DENTAL MANAGEMENT SERVICES, INC.
	 	 
	 	By:	/s/ Dennis N. Genty
	 	Name: Dennis N. Genty
	 	Title: Chief Financial Officer


 


[Signature Page to Convertible Senior Subordinated
Secured Loan Note]