Exhibit 10.2


 


 


NEITHER THIS SECURITY
NOR THE SECURITIES INTO WHICH THIS SECURITY IS CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR
THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS
OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE
TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THIS SECURITY AND THE SECURITIES
ISSUABLE UPON CONVERSION OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY
SUCH SECURITIES.


 


Original Issue Date: ___________, 201_


Original Conversion Price (subject to adjustment
herein): $0.___


 


Principal Amount: $_______.__


Purchase Price: $_______.__


 


3%
ORIGINAL ISSUE DISCOUNT


SENIOR
CONVERTIBLE PROMISSORY NOTE


DUE
___________, 202_


 


THIS 3% ORIGINAL ISSUE
DISCOUNT SENIOR CONVERTIBLE PROMISSORY NOTE is a duly authorized and validly issued 3% Original Issue Discount Senior Convertible
Promissory Note of Appliance Recycling Centers of America, Inc., a Minnesota corporation (the “Company” or the
“Borrower”), having its principal place of business at 175 Jackson Avenue North, Suite 102, Minneapolis, Minnesota
55343-4565, designated as its 3% Original Issue Discount Senior Convertible Promissory Note due ___________, 202_ (the “Note”).


 


Section 1.              
FOR VALUE RECEIVED, the Company promises to pay to Energy Efficiency Investments, LLC, a California limited liability company,
or its registered assigns (as permitted in the Transaction Documents) (the “Holder”), or shall have paid pursuant
to the terms hereunder, the principal sum of $_______.__ on ___________, 202_ (the “Maturity Date”), or such
earlier date as this Note is required or permitted to be repaid as provided hereunder, and to pay interest to the Holder on the
aggregate unconverted and then-outstanding principal amount of this Note in accordance with the provisions hereof. This Note is
subject to the following additional provisions:


 


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


 


“Alternate
Conversion Price” means sixty-five percent (65%) of the lower of (a) $0.618, which is sixty-five percent (65%) of
the VWAP on the date of the Purchase Agreement or (b) sixty-five percent (65%) of the VWAP during the ten (10) Trading Days
immediately prior to the applicable Conversion Date. Notwithstanding the above, in no event shall the Alternate Conversion Price
be less than sixty-five percent (65%) of fifty cents ($0.50) per share.


 


 






    	 	1	 



     


    

 


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


 


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


 


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


 


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


 


“Change of
Control Transaction” means the occurrence after the date hereof of any of (a) an acquisition after the date hereof by
an individual or legal entity or “group” (as described in Rule 13d-5(b)(1) promulgated under the Exchange Act) of effective
control (whether through legal or beneficial ownership of capital stock of the Company, by contract or otherwise) of in excess
of fifty percent (50%) of the voting securities of the Company (other than by means of conversion or exercise of the Note and the
Securities issued together with the Note), (b) the Company merges into or consolidates with any other Person, or any Person merges
into or consolidates with the Company and, after giving effect to such transaction, the shareholders of the Company immediately
prior to such transaction own less than fifty percent (50%) of the aggregate voting power of the Company or the successor entity
of such transaction, (c) the Company sells or transfers all or substantially all of its assets to another Person and the shareholders
of the Company immediately prior to such transaction own less than fifty percent (50%) of the aggregate voting power of the acquiring
entity immediately after the transaction, (d) a replacement at one time or within a three year period of more than one-half of
the members of the Board of Directors that is not approved by a majority of those individuals who are members of the Board of Directors
on the date of the Purchase Agreement (or by those individuals who are serving as members of the Board of Directors on any date
whose nomination to the Board of Directors was approved by a majority of the members of the Board of Directors who are members
on the date hereof), or (e) the execution by the Company of an agreement to which the Company is a party or by which it is bound,
providing for any of the events set forth in clauses (a) through (d) above.


 


 






    	 	2	 



     


    

 


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


 


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


 


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


 


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


 


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


 


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


 


“DTC”
means the Depository Trust Company.


 


“DTC/FAST
Program” means the DTC’s Fast Automated Securities Transfer Program.


 


“DWAC”
means Deposit Withdrawal at Custodian as defined by DTC.


 


“DWAC Eligible”
means that (a) the Common Stock is eligible at DTC for full services pursuant to DTC’s Operational Arrangements, including
without limitation transfer through DTC’s DWAC system, (b) the Company has been approved (without revocation) by DTC’s
underwriting department, (c) the Transfer Agent is approved as an agent in the DTC/FAST Program, (d) the Conversion Shares are
otherwise eligible for delivery via DWAC, and (e) the Transfer Agent does not have a policy prohibiting or limiting delivery of
the Conversion Shares via DWAC.


 


“Equity Conditions”
means, during the period in question, (a) the Company shall have duly honored all conversions scheduled to occur or occurring by
virtue of one or more Notices of Conversion of the Holder, if any, (b) the Company shall have paid all liquidated damages and other
amounts owing to the Holder in respect of this Note, (c) all of the Conversion Shares then issuable pursuant to the Transaction
Documents, including applicable Beneficial Ownership Limitations contained therein (and shares issuable in lieu of cash payments
of interest) may be resold pursuant to Rule 144 without volume or manner-of-sale restrictions or current public information requirements
as determined by the counsel to the Company as set forth in a written opinion letter to such effect, addressed and acceptable to
the Transfer Agent and the Holder, (d) the Common Stock is trading on a Trading Market and all of the shares issuable pursuant
to the Transaction Documents are listed or quoted for trading on such Trading Market (and the Company believes, in good faith,
that trading of the Common Stock on a Trading Market will continue uninterrupted for the foreseeable future), (e) there is a sufficient
number of authorized but unissued and otherwise unreserved shares of Common Stock for the issuance of all of the shares then issuable
pursuant to the Transaction Documents, (f) there is no existing Event of Default and no existing event that, with the passage of
time or the giving of notice, would constitute an Event of Default, (g) the issuance of the shares in question to the Holder would
not exceed the limitations set forth in Section 4(d) herein, (h) there has been no public announcement of a pending or proposed
Fundamental Transaction or Change of Control Transaction that has not been consummated, (i) the applicable Holder is not in possession
of any information provided by the Company that constitutes, or may constitute, material non-public information, (j) for a period
of ten (10) consecutive Trading Days prior to the applicable date in question, the average daily dollar trading volume for the
Common Stock on the principal Trading Market exceeds $10,000.00 per Trading Day, and (k) the Company’s Common Stock must
be DWAC Eligible.


 


 






    	 	3	 



     


    

 


“Event of
Default” shall have the meaning set forth in Section 6(a).


 


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


 


“Las Vegas
Courts” shall have the meaning set forth in Section 7(d).


 


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


 


“Mandatory
Default Amount” means either, at the Holder’s discretion, (i) the conversion of the outstanding principal amount
of this Note, plus all accrued and unpaid interest hereon, converted at the Alternative Conversion Price or (ii) the payment of
the outstanding principal amount of this Note and accrued and unpaid interest hereon, in addition to, for both (i) and (ii) above,
the payment of all other amounts, costs, expenses and liquidated damages due in respect of this Note.


 


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


 


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


 


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


 


“Purchase
Agreement” means the Securities Purchase Agreement, dated as of November 8, 2016, among the Company and the original
Holder, as amended, modified, or supplemented from time to time in accordance with its terms.


 


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


 


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


 


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


 


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


 


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


 


 






    	 	4	 



     


    

 


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


 


Section 2.              
Interest.


 


a)               
Interest; Guaranteed Interest. The Company shall pay interest to the Holder at the rate of eight percent (8%) per
annum on the principal amount of this Note outstanding from time to time from and after the Original Issue Date through and including
the Maturity Date. Notwithstanding the above and anything to the contrary contained herein, the minimum amount of interest due
and payable hereunder at any time through and including the first anniversary of the Original Issue Date of this Note shall be
an amount not less than equivalent to eight percent (8%) of the initial principal amount of this Note. For clarity and not for
limitation, such minimum of eight percent (8%) interest shall be guaranteed, independently of any conversion or repayment of any
principal hereunder. From and after the first anniversary of this Note, through and including the payment of all obligations hereunder,
interest shall accrue on a daily basis at the rate of eight percent (8%) per annum.


 


b)              
Payment of Interest in Cash or Kind. Interest shall be payable on each Conversion Date (as to that principal amount
then being converted) and on the Maturity Date, as applicable, in cash or in duly authorized, validly issued, fully paid, and non-assessable
shares of Common Stock or a combination thereof, at the Company’s option; provided, however, that in the event
that all of the Equity Conditions are not met on that certain Conversion Date or Maturity Date, as applicable, such payment in
cash or Common Stock or combination thereof shall be at the Holder’s option. Payment of interest in shares of Common Stock
shall otherwise occur pursuant to Section 4(c)(ii) herein. Interest hereunder will be paid to the Person in whose name this Note
is registered on the records of the Company regarding registration and transfers of this Note (the “Note Register”).


 


c)               
Late Fee. All overdue accrued and unpaid interest to be paid hereunder shall entail a late fee at an interest rate
equal to the lesser of twelve percent (12%) per annum or the maximum rate permitted by applicable law (the “Late Fees”)
that shall accrue daily from the date such interest is due hereunder through and including the date of actual payment in full.


 


d)              
Prepayment. At any time prior to the Maturity Date, upon five (5) days written notice to the Holder, the Company
may prepay any portion of the principal amount of this Note and the relevant portion of the accrued interest, including guaranteed
interest, if applicable. If the Borrower exercises its right to prepay the Note, the Borrower shall make payment to the Holder
of an amount in cash equal to (i) the sum of the then-outstanding principal amount of this Note and accrued interest, including
guaranteed interest, if applicable, (ii) multiplied by 105%. The Holder may continue to convert the Note from the date notice
of the prepayment is given until the date of the prepayment.


 


 






    	 	5	 



     


    

 


Section 3.              
Registration of Transfers and Exchanges.


 


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


 


b)              
Investment Representations. This Note has been issued subject to certain investment representations of the original
Holder set forth in the Purchase Agreement and may be transferred or exchanged only in compliance with the Purchase Agreement and
applicable federal and state securities laws and regulations.


 


c)               
Reliance on Note Register. Prior to due presentment for transfer to the Company of this Note, the Company and any
agent of the Company may treat the Person in whose name this Note is duly registered on the Note Register as the owner hereof for
the purpose of receiving payment as herein provided and for all other purposes, whether or not this Note is overdue, and neither
the Company nor any such agent shall be affected by notice to the contrary.


 


Section 4.              
Conversion.


 


a)               
Voluntary Conversion. At any time after the Original Issue Date until this Note is no longer outstanding, this Note
shall be convertible, in whole or in part, into shares of Common Stock at the option of the Holder, at any time and from time to
time (subject to the conversion limitations set forth in Section 4(d) and Section 4(e) hereof). The Holder shall effect conversions
by delivering to the Company a Notice of Conversion, the form of which is attached hereto as Annex A (each, a “Notice
of Conversion”), specifying therein the principal amount of this Note to be converted and the date on which such conversion
shall be effected (such date, the “Conversion Date”). If no Conversion Date is specified in a Notice of Conversion,
the Conversion Date shall be the date that such Notice of Conversion is deemed delivered hereunder. No ink-original Notice of Conversion
shall be required, nor shall any medallion guarantee (or other type of guarantee or notarization) of any Notice of Conversion form
be required. To effect conversions hereunder, the Holder shall not be required physically to surrender this Note to the Company
unless the entire principal amount of this Note, plus all accrued and unpaid interest thereon, has been so converted. Conversions
hereunder shall have the effect of lowering the outstanding principal amount of this Note in an amount equal to the applicable
conversion. The Holder and the Company shall maintain records showing the principal amount(s) converted and the date of such conversion(s).
The Company may deliver an objection to any Notice of Conversion within one (1) Business Day of delivery of such Notice of Conversion.
In the event of any dispute or discrepancy, the records of the Holder shall be controlling and determinative in the absence of
manifest error. The Holder, and any assignee by acceptance of this Note, acknowledge and agree that, by reason of the provisions
of this paragraph, following conversion of a portion of this Note, the unpaid and unconverted principal amount of this Note may
be less than the amount stated on the face hereof.


 


 






    	 	6	 



     


    

 


b)              
Conversion Price. The fixed conversion price in effect on any Conversion Date shall be $___,1
subject to adjustment herein (the “Conversion Price”). Notwithstanding anything herein to the contrary, at any
time after the occurrence of any Event of Default the Holder may require the Company to, at such Holder’s option and otherwise
in accordance with the provisions for conversion herein, convert all or any part of this Note into Common Stock at the Alternate
Conversion Price. Further, if sixty-five percent (65%) of the VWAP during the ten (10) Trading Days immediately prior to the applicable
Conversion Date is less than the then-applicable Conversion Price, then the Conversion Price for such conversion and all subsequent
conversions shall be reduced to equal such price, subject to further reductions in the Conversion Price for subsequent conversions
to be calculated in the same manner. Notwithstanding the above, in no event shall any per-share Conversion Price be less than fifty
cents ($0.50) unless the Alternate Conversion Price is applicable. All such determinations to be appropriately adjusted for any
stock dividend, stock split, stock combination, reclassification, or similar transaction that proportionately decreases or increases
the Common Stock during such measuring period. Nothing herein shall limit a Holder’s right to pursue actual damages or declare
an Event of Default pursuant to Section 6 hereof and the Holder shall have the right to pursue all remedies available to it hereunder,
at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief. The exercise of any
such rights shall not prohibit the Holder from seeking to enforce damages pursuant to any other Section hereof or under applicable
law.


 


c)               
Mechanics of Conversion.


 


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


 


ii.               
Delivery of Certificate Upon Conversion. Not later than three (3) Trading Days after each Conversion Date (the “Share
Delivery Date”), the Company shall deliver, or cause to be delivered, to the Holder (A) a certificate or certificates
representing the number of Conversion Shares being acquired upon the conversion of this Note, which certificate or certificates
shall be free of restrictive legends and trading restrictions (other than those that may then be required by the Purchase Agreement)
if (i) generated on or after the six-month anniversary of the Original Issue Date (provided that the Securities are then eligible
for resale under Rule 144 without the requirement for the Company to be in compliance with the current public information required
under Rule 144 as to such Conversion Shares and without volume or manner-of-sale restrictions), (ii) such Securities are then the
subject of an effective registration statement, or (iii) such Securities are otherwise freely tradable pursuant to an applicable
exemption from registration, and (B) a bank check in the amount of accrued and unpaid interest (if the Company has elected or is
required to pay accrued interest in cash). Each certificate or all certificates required to be delivered by the Company under this
Section 4(c) shall be delivered electronically through the Depository Trust Company or another established clearing corporation
performing similar functions. If a certificate or certificates representing the Conversion Shares shall not be free of restrictive
legends because of the reasons set forth above, then the Conversion Shares shall bear a restrictive legend in the following form,
as appropriate:


 


 


____________________________________


1
65% of VWAP on the Original Issue Date of this Note, but not less than $0.50


 






    	 	7	 



     


    

 







“NEITHER THE ISSUANCE AND SALE
OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE 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 (WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER), IN A GENERALLY ACCEPTABLE
FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS 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.”


 


iii.             
Failure to Deliver Certificates. If, in the case of any Notice of Conversion, such certificate or certificates are
not delivered to or as directed by the applicable Holder by the Share Delivery Date, the Holder shall be entitled to elect by written
notice to the Company at any time on or before its receipt of such certificate or certificates, to rescind such Conversion, in
which event the Company shall promptly return to the Holder any original Note delivered to the Company and the Holder shall promptly
return to the Company the Common Stock certificates issued to such Holder pursuant to the rescinded Conversion Notice. Whether
or not the Holder elects to rescind any such Conversion, the Company shall promptly, upon demand therefor, reimburse the Holder
in cash for any fees and costs that the Holder may have directly or indirectly incurred by virtue of such untimely delivery or
absolute delivery failure. Such fees and costs include, but are not limited to, interest charges, and margin fees, and costs of
“buy-in” in accordance with Section 4(c)(v) hereof.


 


 






    	 	8	 



     


    

 


iv.             
Obligation Absolute; Partial Liquidated Damages. The Company’s obligations to issue and deliver the Conversion
Shares upon conversion of this Note in accordance with the terms hereof are absolute and unconditional, irrespective of any action
or inaction by the Holder to enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any
judgment against any Person or any action to enforce the same, or any setoff, counterclaim, recoupment, limitation, or termination,
or any breach or alleged breach by the Holder or any other Person of any obligation to the Company or any violation or alleged
violation of law by the Holder or any other Person, and irrespective of any other circumstance that might otherwise limit such
obligation of the Company to the Holder in connection with the issuance of such Conversion Shares; provided, however,
that such delivery shall not operate as a waiver by the Company of any such action the Company may have against the Holder. In
the event the Holder of this Note shall elect to convert any or all of the outstanding principal amount hereof, the Company may
not refuse conversion based on any claim that the Holder or anyone associated or affiliated with the Holder has been engaged in
any violation of law, agreement, or for any other reason, unless an injunction from a court, on notice to Holder, restraining and
or enjoining conversion of all or part of this Note shall have been sought and obtained, and the Company posts a surety bond for
the benefit of the Holder in the amount of 150% of the outstanding principal amount of this Note, which is subject to the injunction,
which bond shall remain in effect until the completion of arbitration/litigation of the underlying dispute and the proceeds of
which shall be payable to the Holder to the extent it obtains judgment. In the absence of such injunction, the Company shall issue
Conversion Shares or, if applicable, cash, upon a properly noticed conversion. If the Company fails for any reason to deliver to
the Holder such certificate or certificates pursuant to Section 4(c)(ii) by the date that is two (2) Trading Days after the Share
Delivery Date, the Company shall pay to the Holder, in cash, as liquidated damages and not as a penalty, for each $1,000.00 of
principal amount being converted, $10.00 per Trading Day (increasing to $20.00 per Trading Day on the seventh (7th) Trading Day
after such Share Delivery Date) for each Trading Day commencing two (2) Trading Days after such Share Delivery Date until such
certificates are delivered or Holder rescinds such conversion. Nothing herein shall limit a Holder’s right to pursue actual
damages or declare an Event of Default pursuant to Section 6 hereof for the Company’s failure to deliver Conversion Shares
within the period specified herein and the Holder shall have the right to pursue all remedies available to it hereunder, at law
or in equity including, without limitation, a decree of specific performance and/or injunctive relief. The exercise of any such
rights shall not prohibit the Holder from seeking to enforce damages pursuant to any other Section hereof or under applicable law.


 


v.               
Compensation for Buy-In on Failure to Timely Deliver Certificates Upon Conversion. In addition to any other rights
available to the Holder, if the Company fails for any reason to deliver to the Holder such certificate or certificates by two (2)
Trading Days after the Share Delivery Date pursuant to Section 4(c)(ii), and if after two (2) Trading Days following such Share
Delivery Date the Holder is required by its brokerage firm to purchase (in an open market transaction or otherwise), or the Holder’s
brokerage firm otherwise purchases, shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Conversion
Shares that the Holder was entitled to receive upon the conversion relating to such Share Delivery Date (a “Buy-In”),
then the Company shall (A) pay in cash to the Holder (in addition to any other remedies available to or elected by the Holder)
the amount, if any, by which (x) the Holder’s total purchase price (including any brokerage commissions) for the Common Stock
so purchased exceeds (y) the product of (1) the aggregate number of shares of Common Stock that the Holder was entitled to receive
from the conversion at issue multiplied by (2) the actual sale price at which the sell order giving rise to such purchase obligation
was executed (including any brokerage commissions) and (B) at the option of the Holder, either reissue (if surrendered) this Note
in a principal amount equal to the principal amount of the attempted conversion (in which case such conversion shall be deemed
rescinded) or deliver to the Holder the number of shares of Common Stock that would have been issued if the Company had timely
complied with its delivery requirements under Section 4(c)(ii). For example, if the Holder purchases Common Stock having a total
purchase price of $11,000.00 to cover a Buy-In with respect to an attempted conversion of this Note with respect to which the actual
sale price of the Conversion Shares (including any brokerage commissions) giving rise to such purchase obligation was a total of
$10,000.00 under clause (A) of the immediately preceding sentence, the Company shall be required to pay the Holder $1,000.00. The
Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In and, upon
request of the Company, evidence of the amount of such loss. Nothing herein shall limit a Holder’s right to pursue any other
remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or
injunctive relief with respect to the Company’s failure to timely deliver certificates representing shares of Common Stock
upon conversion of this Note as required pursuant to the terms hereof.


 


 






    	 	9	 



     


    

 


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


 


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


 


viii.          
Transfer Taxes and Expenses. The issuance of certificates for shares of the Common Stock on conversion of this Note
shall be made without charge to the Holder hereof for any documentary stamp or similar taxes that may be payable in respect of
the issue or delivery of such certificates, provided that, the Company shall not be required to pay any tax that may be payable
in respect of any transfer involved in the issuance and delivery of any such certificate upon conversion in a name other than that
of the Holder of this Note so converted and the Company shall not be required to issue or deliver such certificates unless or until
the Person or Persons requesting the issuance thereof shall have paid to the Company the amount of such tax or shall have established
to the satisfaction of the Company that such tax has been paid. The Company shall pay all Transfer Agent fees required for standard
or same-day processing of any Notice of Conversion. The Company shall pay all other expenses that may reasonably be expected to
be incurred in respect of any conversion, including, but not limited to, legal opinions required for the issuance of such shares
of Common Stock and for the removal of any restrictive legends on any certificates evidencing such shares and stop transfer instructions
at the Company’s transfer agent.


 


 






    	 	10	 



     


    

 


d)              
Holder’s Conversion Limitations. The Company shall not effect any conversion of this Note, and a Holder shall
not have the right to convert any portion of this Note, to the extent that after giving effect to the conversion set forth on the
applicable Notice of Conversion, the Holder (together with the Holder’s Affiliates, and any Persons acting as a group together
with the Holder or any of the Holder’s Affiliates) would beneficially own in excess of the Beneficial Ownership Limitation
(as defined below). For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder
and its Affiliates shall include the number of shares of Common Stock issuable upon conversion of this Note with respect to which
such determination is being made, but shall exclude the number of shares of Common Stock that are issuable upon (i) conversion
of the remaining, unconverted principal amount of this Note beneficially owned by the Holder or any of its Affiliates and (ii) exercise
or conversion of the unexercised or unconverted portion of any other securities of the Company subject to a limitation on conversion
or exercise analogous to the limitation contained herein (including, without limitation, any other Notes) beneficially owned by
the Holder or any of its Affiliates. Except as set forth in the preceding sentence, for purposes of this Section 4(d), beneficial
ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder.
To the extent that the limitation contained in this Section 4(d) applies, the determination of whether this Note is convertible
(in relation to other securities owned by the Holder together with any Affiliates) and of which principal amount of this Note is
convertible shall be in the sole discretion of the Holder, and the submission of a Notice of Conversion shall be deemed to be the
Holder’s determination of whether this Note may be converted (in relation to other securities owned by the Holder together
with any Affiliates) and which principal amount of this Note is convertible, in each case subject to the Beneficial Ownership Limitation.
To ensure compliance with this restriction, the Holder will be deemed to represent to the Company each time it delivers a Notice
of Conversion that such Notice of Conversion has not violated the restrictions set forth in this paragraph and the Company shall
have no obligation to verify or confirm the accuracy of such determination. In addition, a determination as to any group status
as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated
thereunder. For purposes of this Section 4(d), in determining the number of outstanding shares of Common Stock, the Holder may
rely on the number of outstanding shares of Common Stock as stated in the most recent of the following: (i) the Company’s
most recent periodic or annual report filed with the Commission, as the case may be, (ii) a more recent public announcement by
the Company, or (iii) a more recent written notice by the Company or the Company’s transfer agent setting forth the number
of shares of Common Stock outstanding. Upon the written or oral request of a Holder, the Company shall within two Trading Days
confirm orally and in writing to the Holder the number of shares of Common Stock then-outstanding. In any case, the number of outstanding
shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including
this Note, by the Holder or its Affiliates since the date as of which such number of outstanding shares of Common Stock was reported.
The “Beneficial Ownership Limitation” shall be 4.99% of the number of shares of the Common Stock outstanding
immediately after giving effect to the issuance of shares of Common Stock issuable upon conversion of this Note held by the Holder.
The Holder, upon not less than 61 days’ prior notice to the Company, may increase or decrease the Beneficial Ownership Limitation
provisions of this Section 4(d), provided that the Beneficial Ownership Limitation in no event exceeds 9.99% of the number of shares
of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock upon conversion of this
Note held by the Holder and the Beneficial Ownership Limitation provisions of this Section 4(d) shall continue to apply. Any such
increase or decrease will not be effective until the 61st day after such notice is delivered to the Company. The Beneficial
Ownership Limitation provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity
with the terms of this Section 4(d) to correct this paragraph (or any portion hereof) that may be defective or inconsistent with
the intended Beneficial Ownership Limitation contained herein or to make changes or supplements necessary or desirable to properly
give effect to such limitation. The limitations contained in this paragraph shall apply to a successor holder of this Note.


 


 






    	 	11	 



     


    

 


e)               
Limitations on the Number of Shares Issuable. Notwithstanding anything herein to the contrary, the Company shall
not issue to the Holder any Conversion Shares upon conversion of this Note to the extent such shares after giving effect to such
issuance after conversion and when added to the number of shares of Common Stock issued and issuable upon conversion of any other
Notes or exercise of any Warrants issued pursuant to the Purchase Agreement would exceed (i) 19.9% of the number of shares of Common
Stock outstanding immediately before the date of the Purchase Agreement (the “Maximum Share Amount”) or (ii)
19.9% of the total voting power of the Company’s securities outstanding immediately before the date of the Purchase Agreement
that are entitled to vote on a matter being voted on by holders of the Common Stock (the “Maximum Voting Amount”),
unless and until the Company obtains shareholder approval permitting such issuances in accordance with applicable rules and regulations
of the NASDAQ Capital Market (“Stockholder Approval”). For purposes of this Section 4(e), beneficial ownership
shall be determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder. For purposes of this Section 4(e), in determining the number of outstanding shares of Common Stock, a Holder
may rely on the number of outstanding shares of Common Stock as reflected in (A) the Company’s most recent periodic or annual
report filed with the Commission, as the case may be, (B) a more recent public announcement by the Company or (C) a more recent
written notice by the Company or the Transfer Agent setting forth the number of shares of Common Stock outstanding. Upon the written
or oral request of a Holder, the Company shall within two Trading Days confirm orally and in writing to the Holder the number of
shares of Common Stock then outstanding. If on any attempted conversion of this Note, the issuance of Conversion Shares would exceed
the Maximum Share Amount or the Maximum Voting Amount, and the Company shall not have previously obtained Stockholder Approval
at the time of exercise, then the Company shall issue to the Holder requesting conversion such number of Conversion Shares as may
be issued below the Maximum Share Amount or Maximum Voting Amount, as the case may be, and, with respect to the remainder of the
aggregate number of Conversion Shares, this Note shall not be convertible until and unless Stockholder Approval has been obtained.


 


 






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Section 5.              
Certain Adjustments.


 


a)               
Stock Dividends and Stock Splits. If the Company, at any time while this Note is outstanding: (i) pays a stock dividend
or otherwise makes a distribution or distributions payable in shares of Common Stock on shares of Common Stock or any Common Stock
Equivalents (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Company upon conversion
of, or payment of interest on, the Note), (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii)
combines (including by way of a reverse stock split) outstanding shares of Common Stock into a smaller number of shares or (iv)
issues, in the event of a reclassification of shares of the Common Stock, any shares of capital stock of the Company, then the
Conversion Price shall be multiplied by a fraction of which, the numerator shall be the number of shares of Common Stock (excluding
any treasury shares of the Company) outstanding immediately before such event, and of which the denominator shall be the number
of shares of Common Stock outstanding immediately after such event. Any adjustment made pursuant to this Section shall become effective
immediately after the record date for the determination of shareholders entitled to receive such dividend or distribution and shall
become effective immediately after the effective date in the case of a subdivision, combination, or re-classification.


 


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


 


 






    	 	13	 



     


    

 


c)               
Subsequent Rights Offerings. In addition to any adjustments pursuant to Section 5(a) above, if at any time the Company
grants, issues or sells any Common Stock Equivalents or rights to purchase stock, warrants, securities or other property pro rata
to the record holders of any class of shares of Common Stock (the “Purchase Rights”), then the Holder will be
entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights that the Holder could have
acquired if the Holder had held the number of shares of Common Stock acquirable upon complete conversion of this Note (without
regard to any limitations on exercise hereof, including without limitation, the Beneficial Ownership Limitation) immediately before
the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the
date as of which the record holders of shares of Common Stock are to be determined for the grant, issue or sale of such Purchase
Rights (provided, however, to the extent that the Holder’s right to participate in any such Purchase Right would result in
the Holder exceeding the Beneficial Ownership Limitation, or the issuance of such Purchase Rights would exceed the Maximum Share
Amount or the Maximum Voting Amount, then the Holder shall not be entitled to participate in such Purchase Right to such extent
(or beneficial ownership of such shares of Common Stock as a result of such Purchase Right to such extent) and such Purchase Right
to such extent shall be held in abeyance for the Holder until such time, if ever, as its right thereto would not result in the
Holder exceeding the Beneficial Ownership Limitation or the issuance of such Purchase Rights exceeding the Maximum Share Amount
or the Maximum Voting Amount).


 


d)              
Pro Rata Distributions. During such time as this Note is outstanding, if the Company shall declare or make any dividend
or other distribution of its assets (or rights to acquire its assets) to holders of shares of Common Stock, by way of return of
capital or otherwise (including, without limitation, any distribution of cash, stock, or other securities, property or options
by way of a dividend, spin off, reclassification, corporate rearrangement, scheme of arrangement or other similar transaction)
(a “Distribution”), then, in each such case, the Company shall cause to be mailed to the Holder at its last
address as it shall appear upon the Note Register of the Company, at least 10 calendar days prior to the date as of which a record
is taken for such Distribution, or, if no such record is taken, the date as of which the record holders of shares of Common Stock
are to be determined for the participation in such Distribution, a notice stating the date as of which such record is to be taken
or such determination made, and the date as of which it is expected that holders of the Common Stock of record shall be entitled
to receive such Distribution; provided that the failure to mail such notice or any defect therein or in the mailing thereof shall
not affect the validity of the corporate action required to be specified in such notice. To the extent that any notice provided
hereunder constitutes, or contains, material, non-public information regarding the Company or any of the Subsidiaries, the Company
shall simultaneously file such notice with the Commission pursuant to a Current Report on Form 8-K.


 


 






    	 	14	 



     


    

 


e)               
Fundamental Transaction. If, at any time while this Note is outstanding, (i) the Company, directly or indirectly,
in one or more related transactions effects any merger or consolidation of the Company with or into another Person, (ii) the Company,
directly or indirectly, effects any sale, lease, license, assignment, transfer, conveyance or other disposition of all or substantially
all of its assets in one or a series of related transactions, (iii) any, direct or indirect, purchase offer, tender offer or exchange
offer (whether by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to sell,
tender or exchange their shares for other securities, cash or property and has been accepted by the holders of 50% or more of the
outstanding Common Stock, (iv) the Company, directly or indirectly, in one or more related transactions effects any reclassification,
reorganization or recapitalization of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively
converted into or exchanged for other securities, cash or property, (v) the Company, directly or indirectly, in one or more related
transactions consummates a stock or share purchase agreement or other business combination (including, without limitation, a reorganization,
recapitalization, spin-off or scheme of arrangement) with another Person whereby such other Person acquires more than 50% of the
outstanding shares of Common Stock (not including any shares of Common Stock held by the other Person or other Persons making or
party to, or associated or affiliated with the other Persons making or party to, such stock or share purchase agreement or other
business combination) (each a “Fundamental Transaction”), then, in each case, the Company shall cause to be
mailed to the Holder at its last address as it shall appear upon the Note Register of the Company, at least 20 calendar days prior
to the applicable effective date of such Fundamental Transaction, a notice stating the date on which such Fundamental Transaction
is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall
be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such Fundamental
Transaction; provided that the failure to mail such notice or any defect therein or in the mailing thereof shall not affect the
validity of the corporate action required to be specified in such notice. To the extent that any notice provided hereunder constitutes,
or contains, material, non-public information regarding the Company or any of the Subsidiaries, the Company shall simultaneously
file such notice with the Commission pursuant to a Current Report on Form 8-K. The Holder shall remain entitled to convert the
Note during the period commencing on the date of such notice to the effective date of the Fundamental Transaction triggering such
notice except as may otherwise be expressly set forth herein.


 


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


 


g)              
Notice to the Holder.


 


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


 


 






    	 	15	 



     


    

 


ii.               
Notice to Allow Conversion by Holder. If (A) the Company shall declare a dividend (or any other distribution in whatever
form) on the Common Stock, (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common
Stock, (C) the Company shall authorize the granting to all holders of the Common Stock of rights or warrants to subscribe for or
purchase any shares of capital stock of any class or of any rights, (D) the approval of any shareholders of the Company shall be
required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Company is a party,
any sale or transfer of all or substantially all of the assets of the Company, or any compulsory share exchange whereby the Common
Stock is converted into other securities, cash or property or (E) the Company shall authorize the voluntary or involuntary dissolution,
liquidation or winding up of the affairs of the Company, then, in each case, the Company shall cause to be filed at each office
or agency maintained for the purpose of conversion of this Note, and shall cause to be delivered to the Holder at its last address
as it shall appear upon the Note Register, at least twenty (20) calendar days prior to the applicable record or effective date
hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution,
redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record
to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such
reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date
as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common
Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share
exchange, provided that the failure to deliver such notice or any defect therein or in the delivery thereof shall not affect the
validity of the corporate action required to be specified in such notice. To the extent that any notice provided hereunder constitutes,
or contains, material, non-public information regarding the Company or any of the Subsidiaries, the Company shall simultaneously
file such notice with the Commission pursuant to a Current Report on Form 8-K. The Holder shall remain entitled to convert this
Note during the 20-day period commencing on the date of such notice through the effective date of the event triggering such notice
except as may otherwise be expressly set forth herein.


 


Section 6.              
Events of Default.


 


a)               
“Event of Default” means, wherever used herein, any of the following events (whatever the reason for
such event and whether such event shall be voluntary or involuntary or effected by operation of law or pursuant to any judgment,
decree or order of any court, or any order, rule or regulation of any administrative or governmental body):


 


i.                
any default in the payment of (A) the principal amount of any Note or (B) interest, liquidated damages and other amounts
owing to a Holder on any Note, as and when the same shall become due and payable (whether on a Conversion Date or the Maturity
Date or by acceleration or otherwise), which default, solely in the case of an interest payment or other default under clause (B)
above, is not cured within five (5) Trading Days after the Company has become or should have become aware of such failure;


 


ii.               
the Company shall fail to observe or perform any other covenant or agreement contained in the Note (other than a breach
by the Company of its obligations to deliver shares of Common Stock to the Holder upon conversion, which breach is addressed in
clause (xi) below), which failure is not cured, if possible to cure, within the earlier to occur of (A) ten (10) Trading Days
after notice of such failure sent by the Holder or by any other Holder to the Company and (B) fifteen (15) Trading Days after
the Company has become or should have become aware of such failure;


 


 






    	 	16	 



     


    

 


iii.             
a default or event of default (subject to any grace or cure period provided in the applicable agreement, document or instrument)
shall occur under (A) any of the Transaction Documents or (B) any other material agreement, lease, document or instrument
to which the Company or any Subsidiary is obligated (and not covered by clause (vi) below), which default or event of default,
in the case of subsection (B), did not exist at the date of the Purchase Agreement and would reasonably be expected to have a Material
Adverse Effect;


 


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


 


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


 


vi.             
the Company or any Subsidiary shall default on any of its obligations under any mortgage, credit agreement or other facility,
indenture agreement, factoring agreement or other instrument under which there may be issued, or by which there may be secured
or evidenced, any indebtedness for borrowed money or money due under any long term leasing or factoring arrangement that (a) involves
an obligation greater than $100,000.00, whether such indebtedness now exists or shall hereafter be created, and (b) which default
or event of default did not exist at the date of the Purchase Agreement and results in such indebtedness becoming or being declared
due and payable prior to the date on which it would otherwise become due and payable;


 


vii.            
the Common Stock shall not be eligible for listing or quotation for trading on a Trading Market and shall not be eligible
to resume listing or quotation for trading thereon within five (5) Trading Days, or the transfer of shares of Common Stock through
the Depository Trust Company System is no longer available or “chilled”;


 


viii.          
the Company shall be a party to any Change of Control Transaction or Fundamental Transaction or shall agree to sell or dispose
of all or in excess of one-third (1/3) of its assets in one transaction or a series of related transactions (whether or not such
sale would constitute a Change of Control Transaction);


 


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


 


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


 


 






    	 	17	 



     


    

 


xi.             
the Company fails to file with the Commission any required reports under Section 13 or 15(d) of the Exchange Act such that
it is not in compliance with Rule 144(c)(1) (or Rule 144(i)(2), if applicable);


 


xii.            
the occurrence of any levy upon or seizure or attachment of, or any uninsured loss of or damage to, any property of the
Borrower or any Subsidiary having an aggregate fair value or repair cost (as the case may be) in excess of $100,000.00 individually
or in the aggregate, and any such levy, seizure or attachment shall not be set aside, bonded or discharged within thirty (30) days
after the date thereof;


 


xiii.          
the Company shall fail to maintain sufficient reserved shares pursuant to Section 4.11 of the Purchase Agreement; or


 


xiv.          
any monetary judgment, writ, or similar final process shall be entered or filed against the Company, any subsidiary, or
any of their respective property or other assets for more than $100,000.00, and such judgment, writ, or similar final process shall
remain unvacated, unbonded, or unstayed for a period of 90 calendar days.


 


b)              
Remedies Upon Event of Default. If any Event of Default occurs, the Company shall have five (5) Trading Days to cure
such Event of Default. If following the five Trading Day period the Event of Default remains, then the outstanding principal amount
of this Note, plus accrued but unpaid interest, liquidated damages and other amounts owing in respect thereof through the date
of acceleration, shall become, at the Holder’s election, immediately due and payable in cash at the Mandatory Default Amount.
Commencing five (5) Trading Days after the occurrence of any Event of Default that results in the eventual acceleration of this
Note, the interest rate on this Note shall accrue at an interest rate equal to the lesser of one and one-half percent (1.5%) per
month (18% per annum) or the maximum rate permitted under applicable law. Upon the payment in full of the Mandatory Default Amount,
the Holder shall promptly surrender this Note to or as directed by the Company. In connection with such acceleration described
herein, the Holder need not provide, and the Company hereby waives, any presentment, demand, protest or other notice of any kind,
and the Holder may immediately and without expiration of any grace period enforce any and all of its rights and remedies hereunder
and all other remedies available to it under applicable law. Such acceleration may be rescinded and annulled by Holder at any time
prior to payment hereunder and the Holder shall have all rights as a holder of the Note until such time, if any, as the Holder
receives full payment pursuant to this Section 6(b). No such rescission or annulment shall affect any subsequent Event of Default
or impair any right consequent thereon.


 


Section 7.              
Miscellaneous.


 


a)               
Notices. Any and all notices or other communications or deliveries to be provided by the Holder hereunder, including,
without limitation, any Notice of Conversion, shall be in writing and delivered personally, by facsimile, or sent by a nationally
recognized overnight courier service, addressed to the Company, at the address set forth above, or such other facsimile number
or address as the Company may specify for such purposes by notice to the Holder delivered in accordance with this Section 7(a).
Any and all notices or other communications or deliveries to be provided by the Company hereunder shall be in writing and delivered
personally, by facsimile, or sent by a nationally recognized overnight courier service addressed to each Holder at the facsimile
number or address of the Holder appearing on the books of the Company, or if no such facsimile number or address appears on the
books of the Company, at the principal place of business of such Holder, as set forth in the Purchase Agreement. Any notice or
other communication or deliveries hereunder shall be deemed given and effective on the earliest of (i) the date of transmission,
if such notice or communication is delivered via facsimile at the facsimile number set forth on the signature pages attached hereto
prior to 5:30 p.m. (Minneapolis time) on any date, (ii) the next Trading Day after the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile number set forth on the signature pages attached hereto on a day that
is not a Trading Day or later than 5:30 p.m. (Minneapolis time) on any Trading Day, (iii) the second Trading Day following the
date of mailing, if sent by U.S. nationally recognized overnight courier service, or (iv) upon actual receipt by the party to whom
such notice is required to be given.


 


 






    	 	18	 



     


    

 


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


 


c)               
Lost or Mutilated Note. If this Note shall be mutilated, lost, stolen or destroyed, the Company shall execute and
deliver, in exchange and substitution for and upon cancellation of a mutilated Note, or in lieu of or in substitution for a lost,
stolen or destroyed Note, a new Note for the principal amount of this Note so mutilated, lost, stolen or destroyed, but only upon
receipt of evidence of such loss, theft or destruction of such Note, and of the ownership hereof, reasonably satisfactory to the
Company.


 


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


 


 






    	 	19	 



     


    

 


e)               
Waiver. Any waiver by the Company or the Holder of a breach of any provision of this Note shall not operate as or
be construed to be a waiver of any other breach of such provision or of any breach of any other provision of this Note. The failure
of the Company or the Holder to insist upon strict adherence to any term of this Note on one or more occasions shall not be considered
a waiver or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Note
on any other occasion. Any waiver by the Company or the Holder must be in writing.


 


f)               
Severability. If any provision of this Note is invalid, illegal, or unenforceable, the balance of this Note shall
remain in effect, and if any provision is inapplicable to any Person or circumstance, it shall nevertheless remain applicable to
all other Persons and circumstances. If it shall be found that any interest or other amount deemed interest due hereunder violates
the applicable law governing usury, the applicable rate of interest due hereunder shall automatically be lowered to equal the maximum
rate of interest permitted under applicable law. The Company covenants (to the extent that it may lawfully do so) that it shall
not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension
or usury law or other law that would prohibit or forgive the Company from paying all or any portion of the principal of or interest
on this Note as contemplated herein, wherever enacted, now or at any time hereafter in force, or that may affect the covenants
or the performance of this Note, and the Company (to the extent it may lawfully do so) hereby expressly waives all benefits or
advantage of any such law, and covenants that it will not, by resort to any such law, hinder, delay or impede the execution of
any power herein granted to the Holder, but will suffer and permit the execution of every such as though no such law has been enacted.


 


g)              
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 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, conversion 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 an injunction restraining any such breach or any such threatened breach, without the necessity of showing economic loss and
without any bond or other security being required. 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.


 


 






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h)              
Next Business Day. Whenever any payment or other obligation hereunder shall be due on a day other than a Business
Day, such payment shall be made on the next succeeding Business Day.


 


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


 


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


 


(Signature Page Follows)


 


 


 


 


 


 


 


 


 


 


 




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IN WITNESS WHEREOF,
the Company has caused this Note to be signed in its name by an authorized officer as of the date first above indicated.


 


	
        APPLIANCE RECYCLING CENTERS OF AMERICA,
        INC.

         

         

         

	
        By:  ________________________

         

        Name:   _________________

         

        Title:  __________________

         

        Facsimile No. for delivery of
Notices:  __________________

         

         

         

	 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 




    	 	22	 



     


    


ANNEX A


 


NOTICE OF CONVERSION


 


The undersigned hereby
elects to convert principal under the 3% Original Issue Discount Senior Convertible Promissory Note due ___________, 202_, of Appliance
Recycling Centers of America, Inc., a Minnesota corporation (the “Company”), into shares of common stock (the
“Common Stock”) of the Company according to the conditions hereof as of the date written below. If shares of
Common Stock are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable
with respect thereto and is delivering herewith such certificates and opinions as reasonably requested by the Company in accordance
therewith. No fee will be charged to the holder for any conversion, except for such transfer taxes, if any.


 


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


 





	Conversion calculations:	Date to Effect Conversion:  ___________ __, 20__
	 	 
	 	Principal Amount of Note to be Converted:  $_____
	 	 
	 	Payment of Interest in Common Stock:   __ yes   __ no
	 	 
	 	If yes, $__________ of Interest Accrued on Account of Conversion at Issue.
	 	 
	 	Number of shares of Common Stock to be issued:  __________
	 	 
	 	Signature: ____________________
	 	 
	 	Name: __________
	 	 
	 	DWAC Instructions:
	 	 
	 	Broker Name, address, contact person, and telephone number:
	 	 
	 	 
	 	 
	 	 
	 	Broker DTC No:__________
	 	Account No: __________




 


 


 


 






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