Exhibit 4.2


 





THE ISSUANCE AND SALE OF THE SECURITY
REPRESENTED BY THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS.
THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT
FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL TO THE HOLDER (IF REQUESTED BY THE
COMPANY), IN A FORM REASONABLY ACCEPTABLE TO THE COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD
OR ELIGIBLE TO BE SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED
IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.


 


THIS NOTE HAS BEEN ISSUED WITH ORIGINAL
ISSUE DISCOUNT (“OID”). PURSUANT TO TREASURY REGULATION §1.1275-3(b)(1), STEVE LAUMAS, A REPRESENTATIVE OF THE
COMPANY HEREOF WILL, BEGINNING TEN DAYS AFTER THE ISSUANCE DATE OF THIS NOTE, PROMPTLY MAKE AVAILABLE TO THE HOLDER UPON REQUEST
THE INFORMATION DESCRIBED IN TREASURY REGULATION §1.1275-3(b)(1)(i). MR. LAUMAS MAY BE REACHED AT TELEPHONE NUMBER (919) 275-1933.


 


Innovate
Biopharmaceuticals Inc.


 


Senior
Note


 


	Issuance Date:  January 29, 2018	Original Principal Amount: 

U.S. $4,800,000


 


FOR VALUE RECEIVED,
Innovate Biopharmaceuticals Inc., a Delaware corporation (the “Company”), hereby promises to pay to the order
of Gustavia Capital Partners LLC or its registered assigns (“Holder”), the amount set forth above as the Original
Principal Amount (as reduced pursuant to the terms hereof pursuant to redemption or otherwise, the “Principal”)
when due, whether upon the Maturity Date (as defined below), acceleration, redemption or otherwise (in each case in accordance
with the terms hereof) and to pay interest (“Interest”) on any outstanding Principal at a rate per annum equal
to the Interest Rate (as defined below), from the date set out above as the Issuance Date (the “Issuance Date”)
until the same becomes due and payable, whether upon an Interest Date (as defined below), the Maturity Date, acceleration, redemption
or otherwise (in each case in accordance with the terms hereof). This Senior Note (including all Senior Notes issued in exchange,
transfer or replacement hereof, this “Note”) is one of an issue of Senior Notes issued pursuant to the Note
Purchase Agreement, dated as of January 29, 2018 (the “Subscription Date”), by and among the Company and the
investors (the “Buyers”) referred to therein, as amended from time to time (collectively, the “Notes,”
and such other Senior Notes, the “Other Notes”). Certain capitalized terms used herein are defined in Section
25.


 


1.  PAYMENTS
OF PRINCIPAL. On the Maturity Date, the Company shall pay to the Holder an amount in cash representing 105% of all outstanding
Principal, accrued and unpaid Interest, and accrued and unpaid Late Charges (as defined in Section 18(c)) on such Principal and
Interest. Other than as specifically permitted by this Note, the Company may not prepay any portion of the outstanding Principal,
accrued and unpaid Interest or accrued and unpaid Late Charges on Principal and Interest, if any.


 






     

     


    

 


2.  INTEREST;
INTEREST RATE.


 


(a)  Interest
on this Note shall commence accruing on the Issuance Date and shall be computed on the basis of a 360-day year and twelve 30-day
months and shall be payable in arrears on each Interest Date, with the first Interest Date on March 30, 2018, and shall compound
each calendar quarter and shall be payable in accordance with the terms of this Note. Interest shall be payable on each Interest
Date, to the record holder of this Note on the applicable Interest Date, in cash.


 


(b)  From
and after the occurrence and during the continuance of any Event of Default, the Interest Rate shall automatically be increased
to eighteen percent (18.0%) per annum. In the event that such Event of Default is subsequently cured, the adjustment referred to
in the preceding sentence shall cease to be effective as of the calendar day immediately following the date of such cure; provided
that the Interest as calculated and unpaid at such increased rate during the continuance of such Event of Default shall continue
to apply to the extent relating to the days after the occurrence of such Event of Default through and including the date of such
cure of such Event of Default.


 


3.  RIGHTS
UPON EVENT OF DEFAULT.


 


(a)  Event
of Default. Each of the following events shall constitute an “Event of Default” and each of the events in
clauses (iii), (iv) and (v) shall constitute a “Bankruptcy Event of Default”:


 


(i)  the
Company’s or any Subsidiary’s failure to pay to the Holder any amount of Principal, Interest, Late Charges or other
amounts when and as due under this Note (including, without limitation, the Company’s or any Subsidiary’s failure to
pay any redemption payments or amounts hereunder) or any other Transaction Document (as defined in the Note Purchase Agreement)
or any other agreement, document, certificate or other instrument delivered in connection with the transactions contemplated hereby
and thereby, except, in the case of a failure to pay Interest and Late Charges when and as due, in which case only if such failure
remains uncured for a period of at least two (2) Business Days;


 


(ii)  the
occurrence of any default under, redemption of or acceleration prior to maturity of at least an aggregate of $100,000 of Indebtedness
(as defined in the Note Purchase Agreement) of the Company or any of its Subsidiaries, other than with respect to any Other Notes;


 


(iii)  bankruptcy,
insolvency, reorganization or liquidation proceedings or other proceedings for the relief of debtors shall be instituted by or
against the Company or any Subsidiary and, if instituted against the Company or any Subsidiary by a third party, shall not be dismissed
within thirty (30) days of their initiation;


 






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(iv)  the
commencement by the Company or any Subsidiary of a voluntary case or proceeding under any applicable federal, state or foreign
bankruptcy, insolvency, reorganization or other similar law or of any other case or proceeding to be adjudicated a bankrupt or
insolvent, or the consent by it to the entry of a decree, order, judgment or other similar document in respect of the Company or
any Subsidiary in an involuntary case or proceeding under any applicable federal, state or foreign bankruptcy, insolvency, reorganization
or other similar law or to the commencement of any bankruptcy or insolvency case or proceeding against it, or the filing by it
of a petition or answer or consent seeking reorganization or relief under any applicable federal, state or foreign law, or the
consent by it to the filing of such petition or to the appointment of or taking possession by a custodian, receiver, liquidator,
assignee, trustee, sequestrator or other similar official of the Company or any Subsidiary or of any substantial part of its property,
or the making by it of an assignment for the benefit of creditors, or the execution of a composition of debts, or the occurrence
of any other similar federal, state or foreign proceeding, or the admission by it in writing of its inability to pay its debts
generally as they become due, the taking of corporate action by the Company or any Subsidiary in furtherance of any such action
or the taking of any action by any Person to commence a Uniform Commercial Code foreclosure sale or any other similar action under
federal, state or foreign law;


 


(v)  the
entry by a court of (i) a decree, order, judgment or other similar document in respect of the Company or any Subsidiary of a voluntary
or involuntary case or proceeding under any applicable federal, state or foreign bankruptcy, insolvency, reorganization or other
similar law or (ii) a decree, order, judgment or other similar document adjudging the Company or any Subsidiary as bankrupt or
insolvent, or approving as properly filed a petition seeking liquidation, reorganization, arrangement, adjustment or composition
of or in respect of the Company or any Subsidiary under any applicable federal, state or foreign law or (iii) a decree, order,
judgment or other similar document appointing a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar
official of the Company or any Subsidiary or of any substantial part of its property, or ordering the winding up or liquidation
of its affairs, and the continuance of any such decree, order, judgment or other similar document or any such other decree, order,
judgment or other similar document unstayed and in effect for a period of thirty (30) consecutive days;


 


(vi)  a
final judgment or judgments for the payment of money aggregating in excess of $100,000 are rendered against the Company and/or
any of its Subsidiaries and which judgments are not, within thirty (30) days after the entry thereof, bonded, discharged, settled
or stayed pending appeal, or are not discharged within thirty (30) days after the expiration of such stay; provided, however, any
judgment which is covered by insurance or an indemnity from a credit worthy party shall not be included in calculating the $100,000
amount set forth above so long as the Company provides the Holder a written statement from such insurer or indemnity provider (which
written statement shall be reasonably satisfactory to the Holder) to the effect that such judgment is covered by insurance or an
indemnity and the Company or such Subsidiary (as the case may be) will receive the proceeds of such insurance or indemnity within
thirty (30) days of the issuance of such judgment;


 






    	 	3	 



     


    

 


(vii)  the
Company and/or any Subsidiary, individually or in the aggregate, either (i) fails to pay, when due, or within any applicable grace
period, any payment with respect to any Indebtedness in excess of $100,000 due to any third party (other than, with respect to
unsecured Indebtedness only, payments contested by the Company and/or such Subsidiary (as the case may be) in good faith by proper
proceedings and with respect to which adequate reserves have been set aside for the payment thereof in accordance with GAAP) or
is otherwise in breach or violation of any agreement for monies owed or owing in an amount in excess of $100,000, which breach
or violation permits the other party thereto to declare a default or otherwise accelerate amounts due thereunder, or (ii) suffer
to exist any other circumstance or event that would, with or without the passage of time or the giving of notice, result in a default
or event of default under any agreement binding the Company or any Subsidiary, which default or event of default would or is likely
to have a material adverse effect on the business, assets, operations (including results thereof), liabilities, properties, condition
(including financial condition) or prospects of the Company or any of its Subsidiaries, individually or in the aggregate;


 


(viii)  other
than as specifically set forth in another clause of this Section 3(a), the Company or any Subsidiary breaches any representation,
warranty, covenant or other term or condition of any Transaction Document, except, in the case of a breach of a covenant or other
term or condition that is curable, only if such breach remains uncured for a period of two (2) consecutive Business Days;


 


(ix)  any
breach or failure in any respect by the Company or any Subsidiary to comply with any provision of Section 9 of this Note;


 


(x)  any
Material Adverse Effect (as defined in the Note Purchase Agreement) occurs, provided, that, one or more adverse events that occur
with respect to the Company’s clinical trial(s) shall not constitute a “Material Adverse Effect”;


 


(xi)  the
Company fails to consummate the Merger on or prior to February 1, 2018;


 


(xii)  any
Change of Control (other than the Merger) occurs; or


 


(xiii)  any
Event of Default (as defined in the Other Notes) occurs with respect to any Other Notes.


 


(b)  Notice
of an Event of Default; Redemption Right. Upon the occurrence of an Event of Default with respect to this Note or any Other
Note, the Company shall within one (1) Business Day deliver written notice thereof via facsimile, electronic mail or overnight
courier (an “Event of Default Notice”) to the Holder. At any time after the earlier of the Holder's receipt
of an Event of Default Notice and the Holder becoming aware of an Event of Default, the Holder may require the Company to redeem
all or any portion of this Note by delivering written notice thereof (the “Event of Default Redemption Notice”)
to the Company, which Event of Default Redemption Notice shall indicate the portion of this Note the Holder is electing to redeem.
Each portion of this Note subject to redemption by the Company pursuant to this Section 3(b) shall be redeemed by the Company at
a price in cash equal to the product of (i) the Outstanding Amount multiplied by (ii) the Redemption Premium (the “Event
of Default Redemption Price”). Redemptions required by this Section 3(b) shall be made in accordance with the provisions
of Section 6. To the extent redemptions required by this Section 3(b) are deemed or determined by a court of competent jurisdiction
to be prepayments of the Note by the Company, such redemptions shall be deemed to be voluntary prepayments.


 






    	 	4	 



     


    

 


(c)  Mandatory
Redemption upon Bankruptcy Event of Default. Notwithstanding anything to the contrary herein, upon any Bankruptcy Event of
Default, whether occurring prior to or following the Maturity Date, the Company shall immediately pay to the Holder an amount in
cash equal to the Event of Default Redemption Price, in addition to any and all other amounts due hereunder, without the requirement
for any notice or demand or other action by the Holder or any other person or entity, provided that the Holder may, in its sole
discretion, waive such right to receive payment upon a Bankruptcy Event of Default, in whole or in part, and any such waiver shall
not affect any other rights of the Holder hereunder, including any other rights in respect of such Bankruptcy Event of Default,
and any right to payment of the Event of Default Redemption Price or any other Event of Default Redemption Price, as applicable.


 


4.  RIGHTS
UPON FUNDAMENTAL TRANSACTION. The Company shall not enter into or be party to a Fundamental Transaction unless the Successor
Entity assumes in writing all of the obligations of the Company under this Note and the other Transaction Documents in accordance
with the provisions of this Section 4(a) pursuant to written agreements in form and substance satisfactory to the Required Holders
(as defined in the Note Purchase Agreement) and approved by the Required Holders prior to such Fundamental Transaction, including
agreements to deliver to each holder of Notes in exchange for such Notes a security of the Successor Entity evidenced by a written
instrument substantially similar in form and substance to the Notes, including, without limitation, having a principal amount and
interest rate equal to the principal amounts and the interest rates of the Notes held by such holder and having similar ranking
to the Notes, and satisfactory to the Required Holders. Upon the occurrence of any Fundamental Transaction, the Successor Entity
shall succeed to, and be substituted for (so that from and after the date of such Fundamental Transaction, the provisions of this
Note referring to the “Company” shall refer instead to the Successor Entity), and may exercise every right and power
of the Company and shall assume all of the obligations of the Company under this Note with the same effect as if such Successor
Entity had been named as the Company herein. The provisions of this Section shall apply similarly and equally to successive Fundamental
Transactions.


 


5.  NONCIRCUMVENTION.
The Company hereby covenants and agrees that the Company will not, by amendment of its Certificate of Incorporation (as defined
in the Note Purchase Agreement), Bylaws (as defined in the Note Purchase Agreement) or through any reorganization, transfer of
assets, consolidation, merger, scheme of arrangement, dissolution, issue or sale of securities, or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms of this Note, and will at all times in good faith carry
out all of the provisions of this Note and take all action as may be required to protect the rights of the Holder of this Note.


 






    	 	5	 



     


    

 


6.  REDEMPTIONS
AT THE COMPANY’S ELECTION.


 


(a)  Company
Optional Redemption. At any time prior to the Maturity Date, so long as no Event of Default has occurred or is continuing the
Company shall have the right to redeem all, but not less than all, of the Outstanding Amount then remaining under this Note (the
“Company Optional Redemption Amount”) on the Company Optional Redemption Date (each as defined below) (a “Company
Optional Redemption”). The portion of this Note subject to redemption pursuant to this Section 6(a) shall be redeemed
by the Company in cash at a price (the “Company Optional Redemption Price”) equal to 105% of the Outstanding
Amount being redeemed as of the Company Optional Redemption Date. The Company may exercise its right to require redemption under
this Section 6(a) by delivering a written notice thereof by facsimile or electronic mail and overnight courier to all, but not
less than all, of the holders of Notes (the “Company Optional Redemption Notice” and the date all of the holders
of Notes received such notice is referred to as the “Company Optional Redemption Notice Date”). The Company
may deliver only one Company Optional Redemption Notice hereunder and such Company Optional Redemption Notice shall be irrevocable.
The Company Optional Redemption Notice shall (x) state the date on which the Company Optional Redemption shall occur (the “Company
Optional Redemption Date”) which date shall not be less than five (5) Trading Days nor more than twenty (20) Trading
Days following the Company Optional Redemption Notice Date, (y) certify that no Event of Default has occurred or is continuing
and (z) state the aggregate Outstanding Amount of the Notes which is being redeemed in such Company Optional Redemption from the
Holder and all of the other holders of the Notes pursuant to this Section 6(a) (and analogous provisions under the Other Notes)
on the Company Optional Redemption Date. Notwithstanding anything herein to the contrary, (i) if no Event of Default has occurred
as of the Company Optional Redemption Notice Date but an Event of Default occurs at any time prior to the Company Optional Redemption
Date, (A) the Company shall provide the Holder a subsequent notice to that effect and (B) unless the Holder waives the Event of
Default, the Company Optional Redemption shall be cancelled and the applicable Company Optional Redemption Notice shall be null
and void. In the event of the Company’s redemption of any portion of this Note under this Section 6(a), the Holder’s
damages would be uncertain and difficult to estimate because of the parties’ inability to predict future interest rates and
the uncertainty of the availability of a suitable substitute investment opportunity for the Holder. Accordingly, any redemption
premium due under this Section 6(a) is intended by the parties to be, and shall be deemed, a reasonable estimate of the Holder’s
actual loss of its investment opportunity and not as a penalty.


 


(b)  Pro
Rata Redemption Requirement. If the Company elects to cause a Company Optional Redemption of this Note pursuant to Section
6(a), then it must simultaneously take the same action with respect to all of the Other Notes.


  






    	 	6	 



     


    

 


7.  REDEMPTIONS.


 


(a)  Mechanics.
The Company shall deliver the applicable Event of Default Redemption Price to the Holder in cash within five (5) Business Days
after the Company’s receipt of the Holder’s Event of Default Redemption Notice. The Company shall deliver the applicable
Company Optional Redemption Price to the Holder in cash on the applicable Company Optional Date. Notwithstanding anything herein
to the contrary, in connection with any redemption hereunder at a time the Holder is entitled to receive a cash payment under any
of the other Transaction Documents, at the option of the Holder delivered in writing to the Company, the applicable Redemption
Price hereunder shall be increased by the amount of such cash payment owed to the Holder under such other Transaction Document
and, upon payment in full in accordance herewith, shall satisfy the Company’s payment obligation under such other Transaction
Document. In the event of a redemption of less than all of the Outstanding Amount of this Note, the Company shall promptly cause
to be issued and delivered to the Holder a new Note (in accordance with Section 13(d)) representing the outstanding Principal which
has not been redeemed. In the event that the Company does not pay the applicable Redemption Price to the Holder within the time
period required, at any time thereafter and until the Company pays such unpaid Redemption Price in full, the Holder shall have
the option, in lieu of redemption, to require the Company to promptly return to the Holder all or any portion of this Note representing
the Outstanding Amount that was submitted for redemption and for which the applicable Redemption Price (together with any Late
Charges thereon) has not been paid. Upon the Company’s receipt of such notice, (x) the applicable Redemption Notice shall
be null and void with respect to such Outstanding Amount, and (y) the Company shall immediately return this Note, or issue a new
Note (in accordance with Section 13(d)), to the Holder, and in each case the principal amount of this Note or such new Note
(as the case may be) shall be increased by an amount equal to the difference between (1) the applicable Redemption Price (as the
case may be, and as adjusted pursuant to this Section 6, if applicable) minus (2) the Principal portion of the Outstanding Amount
submitted for redemption. The Holder’s delivery of a notice voiding a Redemption Notice and exercise of its rights following
such notice shall not affect the Company’s obligations to make any payments of Late Charges which have accrued prior to the
date of such notice with respect to the Outstanding Amount subject to such notice.


 


(b)  Redemption
by Other Holders. Upon the Company’s receipt of notice from any of the holders of the Other Notes for redemption or repayment
as a result of an event or occurrence substantially similar to the events or occurrences described in Section 3(c) or Section 4
(each, an “Other Redemption Notice”), the Company shall immediately, but no later than one (1) Business Day
of its receipt thereof, forward to the Holder by facsimile or electronic mail a copy of such notice. If the Company receives a
Redemption Notice and one or more Other Redemption Notices, during the seven (7) Business Day period beginning on and including
the date which is two (2) Business Days prior to the Company’s receipt of the Holder’s applicable Redemption Notice
and ending on and including the date which is two (2) Business Days after the Company’s receipt of the Holder’s applicable
Redemption Notice and the Company is unable to redeem all principal, interest and other amounts designated in such Redemption Notice
and such Other Redemption Notices received during such seven (7) Business Day period, then the Company shall redeem a pro rata
amount from each holder of the Notes (including the Holder) based on the principal amount of the Notes submitted for redemption
pursuant to such Redemption Notice and such Other Redemption Notices received by the Company during such seven (7) Business Day
period.


 






    	 	7	 



     


    

 


8.  VOTING
RIGHTS. The Holder shall have no voting rights as the holder of this Note, except as required by law (including, without limitation,
the Delaware General Corporation Law) and as expressly provided in this Note.


 


9.  COVENANTS.
Until all of the Notes have been prepaid, redeemed or otherwise satisfied in accordance with their terms:


 


(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 and its Subsidiaries (other than Permitted Senior Indebtedness solely with respect to Permitted Senior Indebtedness
Collateral).


 


(b)  Incurrence
of Indebtedness. The Company shall not, and the Company shall cause each of its Subsidiaries to not, directly or indirectly,
incur or guarantee, assume or suffer to exist any Indebtedness (other than (i) the Indebtedness evidenced by this Note and the
Other Notes and (ii) other Permitted Indebtedness).


 


(c)  Existence
of Liens. The Company shall not, and the Company shall cause each of its Subsidiaries to not, 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 (collectively, “Liens”)
other than Permitted Liens.


 


(d)  Restricted
Payments. The Company shall not, and the Company shall cause each of its Subsidiaries to not, 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 Indebtedness
(other than the Notes) 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, (i) an event constituting an Event
of Default has occurred and is continuing or (ii) an event that with the passage of time and without being cured would constitute
an Event of Default has occurred and is continuing.


 


(e)  Restriction
on Redemption and Cash Dividends. The Company shall not, and the Company shall cause each of its Subsidiaries to not, directly
or indirectly, redeem, repurchase or declare or pay any cash dividend or distribution on any of its capital stock.


 


(f)  Restriction
on Transfer of Assets. The Company shall not, and the Company shall cause each of its Subsidiaries to not, directly or indirectly,
sell, lease, license, assign, transfer, spin-off, split-off, close, convey or otherwise dispose of any assets or rights of the
Company or any Subsidiary owned or hereafter acquired whether in a single transaction or a series of related transactions, other
than (i) sales, leases, licenses, assignments, transfers, conveyances and other dispositions of such assets or rights by the Company
and its Subsidiaries in the ordinary course of business consistent with its past practice and (ii) sales of inventory and product
in the ordinary course of business.


 






    	 	8	 



     


    

 


(g)  Maturity
of Indebtedness. The Company shall not, and the Company shall cause each of its Subsidiaries to not, directly or indirectly,
permit any Indebtedness of the Company or any of its Subsidiaries to mature or accelerate prior to the Maturity Date.


 


(h)  Change
in Nature of Business. The Company shall not, and the Company shall cause each of its Subsidiaries to not, directly or
indirectly, engage in any material line of business substantially different from those lines of business conducted by or publicly
contemplated to be conducted by the Company and each of its Subsidiaries on the Subscription Date or any business substantially
related or incidental thereto. The Company shall not, and the Company shall cause each of its Subsidiaries to not, directly or
indirectly, modify its or their corporate structure or purpose.


 


(i)  Preservation
of Existence, Etc. The Company shall maintain and preserve, and cause each of its Subsidiaries to maintain and preserve, its
existence, rights and privileges, and become or remain, and cause each of its Subsidiaries to become or remain, duly qualified
and in good standing in each jurisdiction in which the character of the properties owned or leased by it or in which the transaction
of its business makes such qualification necessary.


 


(j)  Maintenance
of Properties, Etc. The Company shall maintain and preserve, and cause each of its Subsidiaries to maintain and preserve, all
of its properties which are necessary or useful in the proper conduct of its business in good working order and condition, ordinary
wear and tear excepted, and comply, and cause each of its Subsidiaries to comply, at all times with the provisions of all leases
to which it is a party as lessee or under which it occupies property, so as to prevent any loss or forfeiture thereof or thereunder.


 


(k)  Maintenance
of Intellectual Property. The Company will, and will cause each of its Subsidiaries to, take all action necessary or advisable
to maintain all of the Intellectual Property Rights (as defined in the Note Purchase Agreement) of the Company and/or any of its
Subsidiaries that are necessary or material to the conduct of its business in full force and effect.


 


(l)  Maintenance
of Insurance. The Company shall maintain, and cause each of its Subsidiaries to maintain, insurance with responsible and reputable
insurance companies or associations (including, without limitation, comprehensive general liability, hazard, rent and business
interruption insurance) with respect to its properties (including all real properties leased or owned by it) and business, in such
amounts and covering such risks as is required by any governmental authority having jurisdiction with respect thereto or as is
carried generally in accordance with sound business practice by companies in similar businesses similarly situated.


 


(m)  Transactions
with Affiliates. The Company shall not, nor shall it permit any of its Subsidiaries to, enter into, renew, extend or be a party
to, any transaction or series of related transactions (including, without limitation, the purchase, sale, lease, transfer or exchange
of property or assets of any kind or the rendering of services of any kind) with any affiliate, except in the ordinary course of
business in a manner and to an extent consistent with past practice and necessary or desirable for the prudent operation of its
business, for fair consideration and on terms no less favorable to it or its Subsidiaries than would be obtainable in a comparable
arm’s length transaction with a Person that is not an affiliate thereof.


 






    	 	9	 



     


    

 


(n)  Restricted
Issuances. The Company shall not, directly or indirectly, without the prior written consent of the holders of a majority in
aggregate principal amount of the Notes then outstanding, (i) issue any Notes (other than as contemplated by the Note Purchase
Agreement and the Notes) or (ii) issue any other securities that would cause a breach or default under the Notes.


 


(o)  Independent
Investigation. At the request of the Holder either (x) at any time when an Event of Default has occurred and is continuing,
(y) upon the occurrence of an event that with the passage of time or giving of notice would constitute an Event of Default or (z)
at any time the Holder reasonably believes an Event of Default may have occurred or be continuing, the Company shall hire an independent,
reputable investment bank selected by the Company and approved by the Holder to investigate as to whether any breach of this Note
has occurred (the “Independent Investigator”). If the Independent Investigator determines that such breach of
this Note has occurred, the Independent Investigator shall notify the Company of such breach and the Company shall deliver written
notice to each holder of a Note of such breach. In connection with such investigation, the Independent Investigator may, during
normal business hours, inspect all contracts, books, records, personnel, offices and other facilities and properties of the Company
and its Subsidiaries and, to the extent available to the Company after the Company uses reasonable efforts to obtain them, the
records of its legal advisors and accountants (including the accountants’ work papers) and any books of account, records,
reports and other papers not contractually required of the Company to be confidential or secret, or subject to attorney-client
or other evidentiary privilege, and the Independent Investigator may make such copies and inspections thereof as the Independent
Investigator may reasonably request. The Company shall furnish the Independent Investigator with such financial and operating data
and other information with respect to the business and properties of the Company as the Independent Investigator may reasonably
request. The Company shall permit the Independent Investigator to discuss the affairs, finances and accounts of the Company with,
and to make proposals and furnish advice with respect thereto to, the Company’s officers, directors, key employees and independent
public accountants or any of them (and by this provision the Company authorizes said accountants to discuss with such Independent
Investigator the finances and affairs of the Company and any Subsidiaries), all at such reasonable times, upon reasonable notice,
and as often as may be reasonably requested.


 


10.  [Intentionally
Omitted]


 


11.  AMENDING
THE TERMS OF THIS NOTE. The prior written consent of the Holder shall be required for any change, waiver or amendment to this
Note.


 


12.  TRANSFER.
This Note may be offered, sold, assigned or transferred by the Holder without the consent of the Company, subject only to the applicable
provisions of the Note Purchase Agreement.


 






    	 	10	 



     


    

 


13.  REISSUANCE
OF THIS NOTE.


 


(a)  Transfer.
If this Note is to be transferred, the Holder shall surrender this Note to the Company, whereupon the Company will forthwith issue
and deliver upon the order of the Holder a new Note (in accordance with Section 13(d)), registered as the Holder may request, representing
the outstanding Principal being transferred by the Holder and, if less than the entire outstanding Principal is being transferred,
a new Note (in accordance with Section 13(d)) to the Holder representing the outstanding Principal not being transferred.


 


(b)  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 (in accordance with Section 13(d)) representing the outstanding Principal.


 


(c)  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 accordance with Section 13(d) and 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.


 


(d)  Issuance
of New Notes. Whenever the Company is required to issue a new Note pursuant to the terms of this Note, such new Note (i) shall
be of like tenor with this Note, (ii) shall represent, as indicated on the face of such new Note, the Principal remaining outstanding
(or in the case of a new Note being issued pursuant to Section 13(a) or Section 13(c), the Principal designated by the Holder which,
when added to the principal represented by the other new Notes issued in connection with such issuance, does not exceed the Principal
remaining outstanding under this Note immediately prior to such issuance of new Notes), (iii) shall have an issuance date, as indicated
on the face of such new Note, which is the same as the Issuance Date of this Note, (iv) shall have the same rights and conditions
as this Note, and (v) shall represent accrued and unpaid Interest and Late Charges on the Principal and Interest of this Note,
from the Issuance Date.


 


14.  REMEDIES,
CHARACTERIZATIONS, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF. The remedies provided in this Note shall be cumulative
and in addition to all other remedies available under this Note and any of the other Transaction Documents at law or in equity
(including a decree of specific performance and/or other injunctive relief), and nothing herein shall limit the Holder’s
right to pursue actual and consequential damages for any failure by the Company to comply with the terms of this Note. The Company
covenants to the Holder that there shall be no characterization concerning this instrument other than as expressly provided herein.
Amounts set forth or provided for herein with respect to payments, redemptions and the like (and the computation thereof) shall
be the amounts to be received by the Holder and shall not, except as expressly provided herein, be subject to any other obligation
of the Company (or the performance thereof). The Company acknowledges that a breach by it of its obligations hereunder will cause
irreparable harm to the Holder and that the remedy at law for any such breach may be inadequate. The Company therefore agrees that,
in the event of any such breach or threatened breach, the Holder shall be entitled, in addition to all other available remedies,
to specific performance and/or temporary, preliminary and permanent injunctive or other equitable relief from any court of competent
jurisdiction in any such case without the necessity of proving actual damages and without posting a bond or other security. The
Company shall provide all information and documentation to the Holder that is requested by the Holder to enable the Holder to confirm
the Company’s compliance with the terms and conditions of this Note.


 






    	 	11	 



     


    

 


15.  PAYMENT
OF COLLECTION, ENFORCEMENT AND OTHER COSTS. If (a) this Note is placed in the hands of an attorney for collection or enforcement
or is collected or enforced through any legal proceeding or the Holder otherwise takes action to collect amounts due under this
Note or to enforce the provisions of this Note or (b) there occurs any bankruptcy, reorganization, receivership of the Company
or other proceedings affecting Company creditors’ rights and involving a claim under this Note, then the Company shall pay
the costs incurred by the Holder for such collection, enforcement or action or in connection with such bankruptcy, reorganization,
receivership or other proceeding, including, without limitation, attorneys’ fees and disbursements. The Company expressly
acknowledges and agrees that no amounts due under this Note shall be affected, or limited, by the fact that the purchase price
paid for this Note was less than the original Principal amount hereof.


 


16.  CONSTRUCTION;
HEADINGS. This Note shall be deemed to be jointly drafted by the Company and the initial Holder and shall not be construed
against any such Person as the drafter hereof. The headings of this Note are for convenience of reference and shall not form part
of, or affect the interpretation of, this Note. Unless the context clearly indicates otherwise, each pronoun herein shall be deemed
to include the masculine, feminine, neuter, singular and plural forms thereof. The terms “including,” “includes,”
“include” and words of like import shall be construed broadly as if followed by the words “without limitation.”
The terms “herein,” “hereunder,” “hereof” and words of like import refer to this entire Note
instead of just the provision in which they are found. Unless expressly indicated otherwise, all section references are to sections
of this Note. Terms used in this Note and not otherwise defined herein, but defined in the other Transaction Documents, shall have
the meanings ascribed to such terms on the Closing Date in such other Transaction Documents unless otherwise consented to in writing
by the Holder.


 


17.  FAILURE
OR INDULGENCE NOT WAIVER. No failure or delay on the part of the Holder in the exercise of any power, right or privilege hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other
or further exercise thereof or of any other right, power or privilege. No waiver shall be effective unless it is in writing and
signed by an authorized representative of the waiving party.


 






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18.  NOTICES;
CURRENCY; PAYMENTS.


 


(a)  Notices.
Whenever notice is required to be given under this Note, unless otherwise provided herein, such notice shall be given in accordance
with Section 9(f) of the Note Purchase Agreement. The Company shall provide the Holder with prompt written notice of all actions
taken pursuant to this Note, including in reasonable detail a description of such action and the reason therefore.


 


(b)  Currency.
All dollar amounts referred to in this Note are in United States Dollars (“U.S. Dollars”), and all amounts owing
under this Note shall be paid in U.S. Dollars. All amounts denominated in other currencies (if any) shall be converted into the
U.S. Dollar equivalent amount in accordance with the Exchange Rate on the date of calculation. “Exchange Rate”
means, in relation to any amount of currency to be converted into U.S. Dollars pursuant to this Note, the U.S. Dollar exchange
rate as published in the Wall Street Journal on the relevant date of calculation (it being understood and agreed that where an
amount is calculated with reference to, or over, a period of time, the date of calculation shall be the final date of such period
of time).


 


(c)  Payments.
Whenever any payment of cash is to be made by the Company to any Person pursuant to this Note, unless otherwise expressly set forth
herein, such payment shall be made in lawful money of the United States of America by a certified check drawn on the account of
the Company and sent via overnight courier service to such Person at such address as previously provided to the Company in writing
(which address, in the case of each of the Buyers, shall initially be as set forth on the Schedule of Buyers attached to the Note
Purchase Agreement), provided that the Holder may elect to receive a payment of cash via wire transfer of immediately available
funds by providing the Company with prior written notice setting out such request and the Holder’s wire transfer instructions.
Whenever any amount expressed to be due by the terms of this Note is due on any day which is not a Business Day, the same shall
instead be due on the next succeeding day which is a Business Day. Any amount of Principal or other amounts due under the Transaction
Documents which is not paid when due shall result in a late charge being incurred and payable by the Company in an amount equal
to interest on such amount at the rate of eighteen percent (18%) per annum from the date such amount was due until the same is
paid in full (“Late Charge”).


 


19.  CANCELLATION.
After all Principal, accrued Interest, Late Charges and other amounts at any time owed on this Note have been paid in full, this
Note shall automatically be deemed canceled, shall be surrendered to the Company for cancellation and shall not be reissued.


 


20.  WAIVER
OF NOTICE. To the extent permitted by law, the Company hereby irrevocably waives demand, notice, presentment, protest and all
other demands and notices in connection with the delivery, acceptance, performance, default or enforcement of this Note and the
Note Purchase Agreement.


 


21.  GOVERNING
LAW. This Note shall be construed and enforced in accordance with, and all questions concerning the construction, validity,
interpretation and performance of this Note shall be governed by, the internal laws of the State of New York, without giving effect
to any choice of law or conflict of law provision or rule (whether of the State of New York or any other jurisdictions) that would
cause the application of the laws of any jurisdictions other than the State of New York. The Company hereby irrevocably submits
to the exclusive jurisdiction of the state and federal courts sitting in the City of New York, Borough of Manhattan, for the adjudication
of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby
irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to
the jurisdiction of any such court, that such suit, action or proceeding is brought in an inconvenient forum or that the venue
of such suit, action or proceeding is improper. Nothing contained herein shall be deemed to limit in any way any right to serve
process in any manner permitted by law. Nothing contained herein shall be deemed to limit in any way any right to serve process
in any manner permitted by law. Nothing contained herein (i) shall be deemed or operate to preclude the Holder from bringing suit
or taking other legal action against the Company in any other jurisdiction to collect on the Company’s obligations to the
Holder, to realize on any collateral or any other security for such obligations, or to enforce a judgment or other court ruling
in favor of the Holder. THE COMPANY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE TO, AND AGREES NOT TO REQUEST, A JURY TRIAL
FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS NOTE OR ANY TRANSACTION CONTEMPLATED
HEREBY.


 






    	 	13	 



     


    

 


22.  JUDGMENT
CURRENCY.


 


(a)  If
for the purpose of obtaining or enforcing judgment against the Company in any court in any jurisdiction it becomes necessary to
convert into any other currency (such other currency being hereinafter in this Section 22 referred to as the “Judgment
Currency”) an amount due in U.S. dollars under this Note, the conversion shall be made at the Exchange Rate prevailing
on the Business Day immediately preceding:


 


(i)  the
date actual payment of the amount due, in the case of any proceeding in the courts of New York or in the courts of any other jurisdiction
that will give effect to such conversion being made on such date: or


 


(ii)  the
date on which the foreign court determines, in the case of any proceeding in the courts of any other jurisdiction (the date as
of which such conversion is made pursuant to this Section 22(a)(ii) being hereinafter referred to as the “Judgment Conversion
Date”).


 


(b)  If
in the case of any proceeding in the court of any jurisdiction referred to in Section 22(a)(ii) above, there is a change in the
Exchange Rate prevailing between the Judgment Conversion Date and the date of actual payment of the amount due, the applicable
party shall pay such adjusted amount as may be necessary to ensure that the amount paid in the Judgment Currency, when converted
at the Exchange Rate prevailing on the date of payment, will produce the amount of US dollars which could have been purchased with
the amount of Judgment Currency stipulated in the judgment or judicial order at the Exchange Rate prevailing on the Judgment Conversion
Date.


 


(c)  Any
amount due from the Company under this provision shall be due as a separate debt and shall not be affected by judgment being obtained
for any other amounts due under or in respect of this Note.


 






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23.  SEVERABILITY.
If any provision of this Note is prohibited by law or otherwise determined to be invalid or unenforceable by a court of competent
jurisdiction, the provision that would otherwise be prohibited, invalid or unenforceable shall be deemed amended to apply to the
broadest extent that it would be valid and enforceable, and the invalidity or unenforceability of such provision shall not affect
the validity of the remaining provisions of this Note so long as this Note as so modified continues to express, without material
change, the original intentions of the parties as to the subject matter hereof and the prohibited nature, invalidity or unenforceability
of the provision(s) in question does not substantially impair the respective expectations or reciprocal obligations of the parties
or the practical realization of the benefits that would otherwise be conferred upon the parties. The parties will endeavor in good
faith negotiations to replace the prohibited, invalid or unenforceable provision(s) with a valid provision(s), the effect of which
comes as close as possible to that of the prohibited, invalid or unenforceable provision(s).


 


24.  MAXIMUM
PAYMENTS. Without limiting Section 9(d) of the Note Purchase Agreement, nothing contained herein shall be deemed to establish
or require the payment of a rate of interest or other charges in excess of the maximum permitted by applicable law. In the event
that the rate of interest required to be paid or other charges hereunder exceed the maximum permitted by such law, any payments
in excess of such maximum shall be credited against amounts owed by the Company to the Holder and thus refunded to the Company.


 


25.  CERTAIN
DEFINITIONS. For purposes of this Note, the following terms shall have the following meanings:


 


(a)  “1934
Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder.


 


(b)  “Affiliate”
means, with respect to any Person, any other Person that directly or indirectly controls, is controlled by, or is under common
control with, such Person, it being understood for purposes of this definition that “control” of a Person means the
power directly or indirectly either to vote 10% or more of the stock having ordinary voting power for the election of directors
of such Person or direct or cause the direction of the management and policies of such Person whether by contract or otherwise.


 


(c)  “Business
Day” means any day other than Saturday, Sunday or other day on which commercial banks in the City of New York are authorized
or required by law to remain closed.


 


(d)  “Change
of Control” means any Fundamental Transaction other than (i) any merger of the Company or any of its, direct or indirect,
wholly-owned Subsidiaries with or into any of the foregoing Persons, (ii) any reorganization, recapitalization or reclassification
of the shares of Common Stock in which holders of the Company’s voting power immediately prior to such reorganization, recapitalization
or reclassification continue after such reorganization, recapitalization or reclassification to hold publicly traded securities
and, directly or indirectly, are, in all material respects, the holders of the voting power of the surviving entity (or entities
with the authority or voting power to elect the members of the board of directors (or their equivalent if other than a corporation)
of such entity or entities) after such reorganization, recapitalization or reclassification, or (iii) pursuant to a migratory merger
effected solely for the purpose of changing the jurisdiction of incorporation of the Company or any of its Subsidiaries.


 






    	 	15	 



     


    

 


(e)  “Closing
Date” shall have the meaning set forth in the Note Purchase Agreement, which date is the date the Company initially issued
Notes pursuant to the terms of the Note Purchase Agreement.


 


(f)  “Common
Stock” means (i) the Company’s shares of common stock, par value $0.001 per share, and (ii) any capital stock into
which such common stock shall have been changed or any share capital resulting from a reclassification of such common stock.


 


(g)  “Fundamental
Transaction” means (A) that the Company shall, directly or indirectly, including through subsidiaries, Affiliates or
otherwise, in one or more related transactions, (i) consolidate or merge with or into (whether or not the Company is the surviving
corporation) another Subject Entity, or (ii) sell, assign, transfer, convey or otherwise dispose of all or substantially all of
the properties or assets of the Company or any of its “significant subsidiaries” (as defined in Rule 1-02 of Regulation
S-X) to one or more Subject Entities, or (iii) make, or allow one or more Subject Entities to make, or allow the Company to be
subject to or have its Common Stock be subject to or party to one or more Subject Entities making, a purchase, tender or exchange
offer that is accepted by the holders of at least either (x) 50% of the outstanding shares of Common Stock, (y) 50% of the outstanding
shares of Common Stock calculated as if any shares of Common Stock held by all Subject Entities making or party to, or Affiliated
with any Subject Entities making or party to, such purchase, tender or exchange offer were not outstanding; or (z) such number
of shares of Common Stock such that all Subject Entities making or party to, or Affiliated with any Subject Entity making or party
to, such purchase, tender or exchange offer, become collectively the beneficial owners (as defined in Rule 13d-3 under the 1934
Act) of at least 50% of the outstanding shares of Common Stock, or (iv) consummate a stock or share purchase agreement or other
business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with
one or more Subject Entities whereby all such Subject Entities, individually or in the aggregate, acquire, either (x) at least
50% of the outstanding shares of Common Stock, (y) at least 50% of the outstanding shares of Common Stock calculated as if any
shares of Common Stock held by all the Subject Entities making or party to, or Affiliated with any Subject Entity making or party
to, such stock purchase agreement or other business combination were not outstanding; or (z) such number of shares of Common Stock
such that the Subject Entities become collectively the beneficial owners (as defined in Rule 13d-3 under the 1934 Act) of at least
50% of the outstanding shares of Common Stock, or (v) reorganize, recapitalize or reclassify its Common Stock, (B) that the Company
shall, directly or indirectly, including through subsidiaries, Affiliates or otherwise, in one or more related transactions, allow
any Subject Entity individually or the Subject Entities in the aggregate to be or become the “beneficial owner” (as
defined in Rule 13d-3 under the 1934 Act), directly or indirectly, whether through acquisition, purchase, assignment, conveyance,
tender, tender offer, exchange, reduction in outstanding shares of Common Stock, merger, consolidation, business combination, reorganization,
recapitalization, spin-off, scheme of arrangement, reorganization, recapitalization or reclassification or otherwise in any manner
whatsoever, of either (x) at least 50% of the aggregate ordinary voting power represented by issued and outstanding Common Stock,
(y) at least 50% of the aggregate ordinary voting power represented by issued and outstanding Common Stock not held by all such
Subject Entities as of the date of this Note calculated as if any shares of Common Stock held by all such Subject Entities were
not outstanding, or (z) a percentage of the aggregate ordinary voting power represented by issued and outstanding shares of Common
Stock or other equity securities of the Company sufficient to allow such Subject Entities to effect a statutory short form merger
or other transaction requiring other shareholders of the Company to surrender their shares of Common Stock without approval of
the shareholders of the Company or (C) directly or indirectly, including through subsidiaries, Affiliates or otherwise, in one
or more related transactions, the issuance of or the entering into any other instrument or transaction structured in a manner to
circumvent, or that circumvents, the intent of this definition in which case this definition shall be construed and implemented
in a manner otherwise than in strict conformity with the terms of this definition to the extent necessary to correct this definition
or any portion of this definition which may be defective or inconsistent with the intended treatment of such instrument or transaction.


 






    	 	16	 



     


    

 


(h)  “GAAP”
means United States generally accepted accounting principles, consistently applied.


 


(i)  “Group”
means a “group” as that term is used in Section 13(d) of the 1934 Act and as defined in Rule 13d-5 thereunder.


 


(j)  “Indebtedness”
shall have the meaning ascribed to such term in the Note Purchase Agreement.


 


(k)  “Interest
Date” means, with respect to any given calendar quarter, the last Business Day of such calendar quarter.


 


(l)  “Interest
Rate” means twelve and a half percent (12.5%) per annum, as may be adjusted from time to time in accordance with Section
2.


 


(m)  “Make-Whole
Amount” means as to any Outstanding Amount on any date of determination, and as to any redemption hereunder, the amount
of any Interest that, but for such redemption hereunder, would have accrued with respect to the Outstanding Amount being redeemed
under this Note at the Interest Rate for the period from the applicable redemption date through January 29, 2019. The Company hereby
acknowledges and agrees that the Make-Whole Amount is intended by the parties to be, and shall be deemed, a reasonable estimate
of the Holder’s actual loss of its investment opportunity as a result of a redemption of this Note prior to the Maturity
Date and not as a penalty.


 


(n)  “Maturity
Date” shall mean September 30, 2018; provided, however, the Maturity Date may be extended at the option of the Holder
(i) in the event that, and for so long as, an Event of Default shall have occurred and be continuing or any event shall have occurred
and be continuing that with the passage of time and the failure to cure would result in an Event of Default or (ii) through the
date that is twenty (20) Business Days after the consummation of a Fundamental Transaction in the event that a Fundamental Transaction
is publicly announced prior to the Maturity Date.


 






    	 	17	 



     


    

 


(o)  “Merger”
means the transaction whereby a wholly owned subsidiary (“Merger Sub”) of Monster Digital, Inc., a Delaware
corporation (“Monster”), will merge with and into the Company, with the Company surviving the merger as a wholly
owned subsidiary of Monster, and pursuant to which all of the outstanding shares of the Company’s capital stock will be exchanged
for shares of the common stock, $0.001 par value per share, of Monster in accordance with the terms and conditions set forth in
the Agreement and Plan of Merger and Reorganization by and among the Company, Monster, and Merger Sub dated as of July 3, 2017,
as amended.


 


(p)  “Outstanding
Amount” means the sum of (A) the portion of the Principal to be redeemed or otherwise with respect to which this determination
is being made, (B) accrued and unpaid Interest with respect to such Principal and (C) accrued and unpaid Late Charges with respect
to such Principal and Interest and (D) the Make-Whole Amount.


 


(q)  
“Parent Entity” of a Person means an entity that, directly or indirectly, controls the applicable Person and
whose common stock or equivalent equity security is quoted or listed on an NMS stock exchange, or, if there is more than one such
Person or Parent Entity, the Person or Parent Entity with the largest public market capitalization as of the date of consummation
of the Fundamental Transaction.


 


(r)  “Permitted
Indebtedness” means (i) Indebtedness evidenced by this Note and the Other Notes, (ii) Indebtedness set forth on Schedule
24(q) attached hereto, as in effect as of the Subscription Date; (iii) Indebtedness secured by Permitted Liens or unsecured but
as described in clauses (iv) and (v) of the definition of Permitted Liens; (iv) indebtedness incurred for the purchase of goods
or services on normal trade credit; (v) other unsecured indebtedness in an amount not exceeding $100,000 outstanding at any time;
and (vi) Permitted Senior Indebtedness secured by Permitted Senior Collateral.


 


(s)  “Permitted
Liens” means (i) any Lien for taxes 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, (ii) 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, (iii) any Lien created by operation
of law, such as materialmen’s liens, mechanics’ liens 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,
(iv) Liens (A) upon or in any equipment acquired or held by the Company or any of its Subsidiaries to secure the purchase price
of such equipment or Indebtedness incurred solely for the purpose of financing the acquisition or lease of such equipment, or (B)
existing on such equipment at the time of its acquisition, provided that the Lien is confined solely to the property so acquired
and improvements thereon, and the proceeds of such equipment, in either case, with respect to Indebtedness in an aggregate amount
not to exceed $100,000, (v) Liens incurred in connection with the extension, renewal or refinancing of the Indebtedness secured
by Liens of the type described in clause (iv) above, provided that any extension, renewal or replacement Lien shall be limited
to the property encumbered by the existing Lien and the principal amount of the Indebtedness being extended, renewed or refinanced
does not increase, (vi) Liens in favor of customs and revenue authorities arising as a matter of law to secure payments of custom
duties in connection with the importation of goods, and (vii) Liens arising from judgments, decrees or attachments in circumstances
not constituting an Event of Default under Section 3(a)(vi).


 






    	 	18	 



     


    

 


(t)  “Permitted
Senior Indebtedness” means outstanding convertible promissory notes issued by the Company in an aggregate principal and
accrued interest amount of $9,469,836.88 (which notes will be converted into shares of common stock of the Company immediately
prior to the closing of the Merger).


 


(u)  “Permitted
Senior Indebtedness Collateral” means the Company’s assets secured under the Permitted Senior Indebtedness.


 


(v)  “Person”
means an individual, a limited liability company, a partnership, a joint venture, a corporation, a trust, an unincorporated organization,
any other entity or a government or any department or agency thereof.


 


(w)  “Redemption
Notices” means, collectively, the Event of Default Redemption Notices and the Company Optional Redemption Notices, and
each of the foregoing, individually, a “Redemption Notice.”


 


(x)  “Redemption
Premium” means 105%.


 


(y)  “Redemption
Prices” means, collectively, Event of Default Redemption Prices, and the Company Optional Redemption Prices, and each
of the foregoing, individually, a “Redemption Price.”


 


(z)  
“Note Purchase Agreement” means that certain note purchase agreement, dated as of the Subscription Date, by
and among the Company and the initial holders of the Notes pursuant to which the Company issued the Notes, as may be amended from
time to time.


 


(aa)  “Subject
Entity” means any Person, Persons or Group or any Affiliate or associate of any such Person, Persons or Group.


 


(bb)  “Subsidiaries”
shall have the meaning as set forth in the Note Purchase Agreement.


 


(cc)  “Successor
Entity” means the Person (or, if so elected by the Holder, the Parent Entity) formed by, resulting from or surviving
any Fundamental Transaction or the Person (or, if so elected by the Holder, the Parent Entity) with which such Fundamental Transaction
shall have been entered into.


 






    	 	19	 



     


    

 


26.  DISCLOSURE.
At any time from and after the Public Company Date (as defined in the Note Purchase Agreement), upon receipt or delivery by the
Company of any notice in accordance with the terms of this Note, unless the Company has in good faith determined that the matters
relating to such notice do not constitute material, non-public information relating to the Company or any of its Subsidiaries,
the Company shall within one (1) Business Day after any such receipt or delivery publicly disclose such material, non-public information
on a Current Report on Form 8-K or otherwise. In the event that the Company believes that a notice contains material, non-public
information relating to the Company or any of its Subsidiaries, the Company so shall indicate to the Holder contemporaneously with
delivery of such notice, and in the absence of any such indication, the Holder shall be allowed to presume that all matters relating
to such notice do not constitute material, non-public information relating to the Company or any of its Subsidiaries. If the Company
or any of its Subsidiaries provides material non-public information to the Holder that is not simultaneously filed in a Current
Report on Form 8-K and the Holder has not agreed to receive such material non-public information, the Company hereby covenants
and agrees that the Holder shall not have any duty of confidentiality to the Company, any of its Subsidiaries or any of their respective
officers, directors, employees, affiliates or agents with respect to, or a duty to any of the foregoing not to trade on the basis
of, such material non-public information. Nothing contained in this Section 26 shall limit any obligations of the Company, or any
rights of the Holder, under the Note Purchase Agreement.


 


[signature page follows]


 




    	 	20	 



     


    

 


IN WITNESS WHEREOF,
the Company has caused this Note to be duly executed as of the Issuance Date set out above.


 


 


	 	INNOVATE BIOPHARMACEUTICALS INC.


 


 


 



	 	By: 	/s/ Christopher Prior,
    Ph.D.             
	 	 	 Name: Christopher Prior, Ph.D.
	 	 	 Title: Chief Executive Officer