gtbp_ex1020





  Exhibit 10.20












 



[FORM OF SETTLEMENT NOTE]


 


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 BORROWER. THIS
SECURITY AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS
SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN
ACCOUNT WITH A REGISTERED BROKER-DEALER OR OTHER LOAN WITH A
FINANCIAL INSTITUTION THAT IS AN “ACCREDITED INVESTOR”
AS DEFINED IN RULE 501(a) UNDER THE SECURITIES ACT OR OTHER LOAN
SECURED BY SUCH SECURITIES.


 


Original
Issue Date: ___________,
2020


 



Principal Amount: $_____________


 



Original Conversion Price (subject to adjustment herein):
$0.20


 



CONVERTIBLE NOTE



DUE January 31, 2021


 


THIS
CONVERTIBLE NOTE is a duly authorized and validly issued Note of
GT BIOPHARMA, INC., a
Delaware corporation, (“Borrower”), having its
principal place of business at 9350 Wilshire Blvd, Suite 203,
Beverly Hills, CA 90212, due
January 31,
2021 (the
“Maturity
Date”) (this note, the “Note”).


 


FOR
VALUE RECEIVED, Borrower promises to pay to THEOREM GROUP, LLC, a California limited
liability company, or its registered assigns (the
“Holder”), with an address
at: _________________________, or shall have paid pursuant to the
terms hereunder, the principal sum of ____________________________
AND __/100ths DOLLARS ($_____________) on the Maturity Date or such
earlier date as this Note is required or permitted to be repaid as
provided hereunder, and to pay interest, if any, 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 Settlement Agreement and
(b) the following terms shall have the following
meanings:


 


“Affiliate” of any
specified Person means any other Person directly or indirectly
controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this
definition, “control” (including, with correlative
meanings, the terms “controlling,” “controlled
by” and “under common control with”), as used
with respect to any Person, shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of the
management or policies of such Person, whether through the
ownership of voting securities, by agreement or
otherwise.


 






 








 






 

 


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


 


“Attribution Parties”
shall have the meaning set forth in Section 4(e).


 


“Bankruptcy Event” means
any of the following events: (a) Borrower or any Subsidiary 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 Borrower or any Subsidiary thereof, (b)
there is commenced against Borrower or any Subsidiary thereof any
such case or proceeding that is not dismissed within 60 days after
commencement, (c) Borrower or any Subsidiary thereof is adjudicated
insolvent or bankrupt or any order of relief or other order
approving any such case or proceeding is entered, (d) Borrower or
any 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) Borrower or any Subsidiary thereof makes a general
assignment for the benefit of creditors, (f) Borrower or any
Subsidiary thereof calls a meeting of its creditors with a view to
arranging a composition, adjustment or restructuring of its debts
(g) Borrower or any Subsidiary thereof
admits in writing that it is generally unable to pay its debts as
they become due, or (h) Borrower or any 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(e).


 


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


 


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


 


“Change of Control
Transaction” means, other than by means of conversion
or exercise of this Note and the securities issued together with
this Note, 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 Borrower,
by contract or otherwise) of in excess of 50% of the voting
securities of Borrower, (b) Borrower merges into or consolidates
with any other Person, or any Person merges into or consolidates
with Borrower and, after giving effect to such transaction, the
stockholders of Borrower immediately prior to such transaction own
less than 50% of the aggregate voting power of Borrower or the
successor entity of such transaction, (c) Borrower sells or
transfers all or substantially all of its assets to another Person
and the stockholders of Borrower immediately prior to such
transaction own less than 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 which is not
approved by a majority of those individuals who are members of the
Board of Directors on the Original Issue Date (or by those
individuals who are serving as members of the Board of Directors on
any date whose nomination to the Board of Directors was approved by
a majority of the members of the Board of Directors who are members
on the date hereof), or (e) the execution by Borrower of an
agreement to which Borrower is a party or by which it is bound,
providing for any of the events set forth in clauses (a) through
(d) above.


 


 




 

2








 






 

 


“Common Stock Equivalents”
means any securities of Borrower or its subsidiaries which would
entitle the holder thereof to acquire at any time Common
Stock.


 


 “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(c).


 


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


 


“Debentures” means those
certain 10% Senior Convertible Debentures of the Borrower issued on
August 2, 2018, September 7, 2018, September 24, 2018, December 19,
2019, January 30, 2020, April 20, 2020, May 7, 2020, June 19, 2020,
July 7, 2020 and the Senior Convertible Notes issued on February 4,
2019.


 


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


 


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


 


“Exempt Issuance” means
the issuance of (a) shares of Common Stock or options to employees,
officers or directors of Borrower or its Subsidiaries pursuant to
any equity or option plan duly adopted for such purpose, by a
majority of the non-employee members of the Board of Directors or a
majority of the members of a committee of non-employee directors
established for such purpose, (b) the Conversion Shares upon
conversion of this Note and/or other securities exercisable or
exchangeable for, or convertible into, Common Stock issued and
outstanding on the Original Issue Date; provided that such securities
and any term thereof have not been amended since the Original Issue
Date to increase the number of such securities or to decrease the
issue price, exercise price, exchange price or conversion price of
such securities (except pursuant to provisions providing for
automatic adjustment to such terms upon the occurrence of certain
events similar to those set forth in Section 5) and (c) securities
issued pursuant to acquisitions or strategic transactions approved
by a majority of the disinterested directors of Borrower,
provided that any
such issuance shall only be to a Person (or to the equity holders
of a Person) which is, itself or through its Subsidiaries, an
operating company or an owner of an asset in a business synergistic
with the business of Borrower and shall be intended to provide to
Borrower substantial additional benefits in addition to the
investment of funds, but shall not include a transaction in which
Borrower is issuing securities primarily for the purpose of raising
capital or to an entity whose primary business is investing in
securities.


 


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


 


“GAAP” means United States
generally accepted accounting principles applied on a consistent
basis during the periods involved.


 


“Indebtedness” means any
liability of the Borrower (a) for borrowed money or under any
reimbursement obligation relating to a letter of credit or other
similar instruments (other than standby letters of credit or
similar instrument issued for the benefit of or surety,
performance, completion or payment bonds, earnest money notes or
similar purpose undertakings or indemnifications issued by, such
Person in the ordinary course of business) or (b) evidenced by a
bond, note, debenture or similar instrument (including a purchase
money obligation) which, as of the date of incurrence thereof is
not required to be recorded as a liability in accordance with
GAAP.


 


 




 

3








 






 

 


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


 


“Liens” means a lien,
charge, pledge, security interest, encumbrance, right of first
refusal, preemptive right or other restriction.


 


“Mandatory Default Amount”
means the sum of (a) the greater of (i) the outstanding principal
amount of this Note divided by the Conversion Price on the date the
Mandatory Default Amount is either (A) demanded (if demand or
notice is required to create an Event of Default) or otherwise due
or (B) paid in full, whichever has a lower Conversion Price,
multiplied by the VWAP on the date the Mandatory Default Amount is
either (x) demanded (if demand or notice is required to create an
Event of Default) or otherwise due or (y) paid in full, whichever
has a higher VWAP, or (ii) 130% of the outstanding principal amount
of this Note and (b) all other amounts, costs, expenses and
liquidated damages due in respect of this Note..


 


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


 


“Note Register” shall have
the meaning set forth in Section 3(c).


 


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


 


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


 


“Permitted Indebtedness”
means (a) any Indebtedness existing as of the Original Issue Date;;
(b) any liabilities for borrowed money or amounts owed not in
excess of $10,000 in the aggregate (other than trade accounts
payable incurred in the ordinary course of business); (c) all
guaranties, endorsements and other contingent obligations in
respect of Indebtedness of others, whether or not the same are or
should be reflected in Borrower's consolidated balance sheet (or
the notes thereto) not affecting more than $10,000 in the
aggregate, except guaranties by endorsement of negotiable
instruments for deposit or collection or similar transactions in
the ordinary course of business; (d) the present value of any lease
payments not in excess of $100,000 due under leases required to be
capitalized in accordance with GAAP; (e) any liabilities for
borrowed money that are junior to this Note pursuant to an
intercreditor agreement, and the holders of which are not granted
any security interest; (f) up to $7,500,000 aggregate principal
amount of liability for borrowed money incurred after the Original
Issue Date that rank pari
passu to this Note and the holders of which are not granted
any security interest; (g) any other liability for borrowed money
incurred on or after the Repurchase Offer Trigger Date;
provided that
Borrower shall comply (or shall have previously complied) with the
requirements of Section 2(g) and (h) any Indebtedness incurred in
connection with any refinancing, refunding, renewal, replacement or
extension, in whole or in part, of any Indebtedness.


 


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


 


 




 

4








 






 

 


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


 


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


 


“Settlement Agreement”
means that certain Settlement Agreement, dated as of __________,
2020, by and among Borrower, the Holder, Anthony
Cataldo and Paul Kessler.


 


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


 


“Subsidiary” means, with
respect to any Person, any corporation, partnership, limited
liability company, association, joint venture or other business
entity of which more than 50% of the total voting power of shares,
stock or other ownership interests entitled (without regard to the
occurrence of any contingency) to vote in the election of the
Person or Persons (whether directors, managers, trustees or other
Persons performing similar functions) having the power to direct or
cause the direction of the management and policies thereof is at
the time owned or controlled, directly or indirectly, by that
Person or one or more of the other Subsidiaries of that Person or a
combination thereof; provided, in determining the
percentage of ownership interests of any Person controlled by
another Person, no ownership interest in the nature of a
“qualifying share” of the former Person shall be deemed
to be outstanding. Unless the context otherwise requires,
references herein to a “Subsidiary” refer to a
Subsidiary of Borrower.


 


“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
American, the Nasdaq Capital Market, the Nasdaq Global Market, the
Nasdaq Global Select Market, the New York Stock Exchange, the OTC
Bulletin Board, the OTCQB, the OTCQX or the OTC Pink Marketplace
(or any successors to any of the foregoing).


 


“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 any of the Nasdaq markets or exchanges 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 on the OTCQX, OTCQB or OTC Pink
Marketplace maintained by the OTC Markets Group, Inc. (or a similar
organization or agency succeeding to its functions of reporting
prices), the volume weighted average price of the Common Stock on
the first such facility (or a similar organization or agency
succeeding to its functions of reporting prices), or (d) in
all other cases, the fair market value of a share of Common Stock
as determined by an independent appraiser, the fees and expenses of
which shall be paid by Borrower.


 


Section
2.       
 Interest and General
Provisions.


 


 




 

5








 






 

 


a)           Payment
of Interest in Cash or Kind. Borrower shall pay interest to
the Holder on the aggregate unconverted and then outstanding
principal amount of this Note at the rate of 10% per annum, payable
on each Conversion Date (as to that principal amount then being
converted) and on the Maturity Date (each such date, an
“Interest Payment
Date”) (if any Interest Payment Date is not a Business
Day, then the applicable payment shall be due on the next
succeeding Business Day), in cash or, at the Holder’s option
in duly authorized, validly issued, fully paid and non-assessable
shares of Common Stock based on the Conversion Price then in
effect. Borrower may not pay any interest in shares of Common Stock
in excess of the Beneficial Ownership Limitation when applicable,
unless waived by Holder. Following
the occurrence and during the continuance of an Event of Default,
then from the first date of such occurrence, the annual interest
rate on this Note shall be eighteen percent (18%). Such interest
shall be due and payable on the Maturity Date, whether by
acceleration or otherwise.


 


b)           Payment
Grace Period. Except as described in this Note, Borrower
shall not have any grace period to pay any monetary amounts due
under this Note.


 

c)          
Conversion
Privileges. The Conversion Rights set forth in Section 4
shall remain in full force and effect immediately from the date
hereof and until the Note is paid in full regardless of the
occurrence of an Event of Default. This Note shall be payable in
full on the Maturity Date, unless previously converted into Common
Stock in accordance with Section 4 hereof.


 

d)          
Application of
Payments. Interest on this Note shall be calculated on the
basis of a 360-day year and the actual number of days elapsed.
Payments made in connection with this Note shall be applied first
to amounts due hereunder other than principal and interest,
thereafter to interest and finally to principal.


 

e)          
Pari Passu. Except as otherwise set forth herein, the Borrower
shall treat this Note pari
passu with the Permitted Indebtedness of other 10%
Convertible Notes. All payments made, or actions taken on the
Permitted Indebtedness of other 10% Convertible Notes shall be made
or taken pari passu with
this Note. Notwithstanding anything to the contrary contained
herein or in the Settlement Agreement, it shall not be considered
non-pari passu for a Holder to elect to receive interest paid in
Common Stock or for Borrower to actually pay interest in Common
Stock to such electing Holder.


 


f)           Manner
and Place of Payment. Principal and interest on this Note
and other payments in connection with this Note shall be payable at
the Holder’s offices as designated above in lawful money of
the United States of America in immediately available funds without
set-off, deduction or counterclaim. Upon assignment of the interest
of Holder in this Note, Borrower shall instead make its payment
pursuant to the assignee’s instructions upon receipt of
written notice thereof. Except as set forth herein, this Note may
not be prepaid without the consent of the Holder.


 


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


 


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 representations of the
original Holder set forth in the Settlement Agreement and may be
transferred or exchanged only in compliance with the Settlement
Agreement and applicable federal and state securities laws and
regulations.


 


 




 

6








 






 

 


c)
         Reliance on Note Register.
Prior to due presentment for transfer to Borrower of this Note,
Borrower and any agent of Borrower may treat the Person in whose
name this Note is duly registered on the register of Notes (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 Borrower 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, including interest accrued hereon, 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(e) hereof). The Holder shall effect conversions by
delivering to Borrower 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 and accrued
interest, if any, to be converted and the date on which such
conversion shall be effected (such date, the “Conversion Date”). If no
Conversion Date is specified in a Notice of Conversion, the
Conversion Date shall be the date that such Notice of Conversion is
deemed delivered hereunder. To effect conversions hereunder, the
Holder shall not be required to physically surrender this Note to
Borrower unless the entire principal amount of this Note has been
so converted, in which case the Holder shall deliver the original
of this Note to Borrower no later than ten (10) Trading Days after
conversion. 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 Borrower shall maintain
records showing the principal amount(s) converted and the date of
such conversion(s). Borrower 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, acknowledges
and agrees 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.


 


b)           Mandatory
Conversion. In the event the Borrower is successful in
obtaining the Second Raise as defined in Section 5.e), the Holder
agrees to convert on the final closing date of the Second Raise
(the “Second Raise Closing Date”), all money owed to
the Borrower pursuant to this Note, whether in principal, interest
or fees, into shares of the Borrower’s Common
Stock.


 


c)           Conversion
Price. The conversion price for the principal and interest,
if any, in connection with voluntary conversions by the Holder
shall be $0.20 per share of
Common Stock, subject to adjustment herein (the “Conversion Price”). The
conversion price for a mandatory conversion pursuant to Section
4.b) shall be the lessor of (i) the Conversion Price in effect on
the Second Date Closing Date, or (ii) 75% of the lowest per share
price at which Common Stock may be issued in connection with any
conversion rights associated with the Second Raise.


 


d)
         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 plus
interest, if any, elected by the Holder to be converted by (y) the
Conversion Price.


 


 




 

7








 






 

 


ii.         Delivery
of Certificate Upon Conversion. In connection with sales of
the Conversion Shares, not later than two (2) Trading Days after
each Conversion Date (the “Share Delivery Date”),
Borrower shall deliver, or cause to be delivered, to the Holder a
certificate or certificates representing the Conversion Shares or
by crediting the Holder's or its designee's balance account with
The Depository Trust Company's Deposit / Withdrawal At Custodian
system, which Conversion Shares, if issued on or after the earlier
of the one year or six month anniversary, as applicable, of the
Original Issue Date in accordance with Rule 144 shall be free of
restrictive legends and trading restrictions representing the
number of Conversion Shares being acquired upon the conversion of
this Note. Borrower shall use its best efforts to deliver any
certificate or certificates required to be delivered by Borrower
under this Section 4(d) electronically through the Depository Trust
Company or another established clearing corporation performing
similar functions.


 


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 Borrower
at any time on or before its receipt of such certificate or
certificates, to rescind such Conversion, in which event Borrower
shall promptly return to the Holder any original Note delivered to
Borrower and the Holder shall promptly return to Borrower the
certificate or certificates issued to such Holder pursuant to the
rescinded Conversion Notice.


 


iv.         Obligation
Absolute; Partial Liquidated Damages. Borrower’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 Borrower or any violation or alleged violation of law
by the Holder or any other Person, and irrespective of any other
circumstance which might otherwise limit such obligation of
Borrower to the Holder in connection with the issuance of such
Conversion Shares; provided, however, that such delivery
shall not operate as a waiver by Borrower of any such action
Borrower 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, Borrower 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 Borrower
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,
Borrower shall issue Conversion Shares or, if applicable, cash,
upon a properly noticed conversion. If Borrower fails for any
reason to deliver to the Holder such certificate or certificates
pursuant to Section 4(d)(ii) by the Share Delivery Date, Borrower
shall pay to the Holder, in cash, as liquidated damages and not as
a penalty, for each $1,000 of principal amount being converted, $10
per Trading Day (increasing to $20 per Trading Day on the fifth
(5th)
Trading Day after such liquidated damages being to accrue) for each
Trading Day after such Share Delivery Date until such certificates
are delivered or Holder rescinds such conversion. Nothing herein
shall limit a Holder’s right to pursue actual damages or
declare an Event of Default pursuant to Section 8 hereof for
Borrower’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.


 


 




 

8








 






 

 


v.           Compensation
for Buy-In on Failure to Timely Deliver Conversion Shares Upon
Conversion. In addition to any other rights available to the
Holder, if Borrower fails for any reason to deliver to the Holder
such Conversion Shares by the Share Delivery Date pursuant to
Section 4(d)(ii), and if after such Share Delivery Date the Holder
is required by its brokerage firm to purchase (in an open market
transaction or otherwise), or the Holder or Holder’s
brokerage firm otherwise purchases, shares of Common Stock to
deliver in satisfaction of a sale by the Holder of the Conversion
Shares which the Holder was entitled to receive upon the conversion
relating to such Share Delivery Date (a “Buy-In”), then Borrower
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 Borrower had timely complied with its
delivery requirements under Section 4(d)(ii). For example, if the
Holder purchases Common Stock having a total purchase price of
$11,000 to cover a Buy-In with respect to an attempted conversion
of this 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 under clause (A)
of the immediately preceding sentence, Borrower shall be required
to pay the Holder $1,000. The Holder shall provide Borrower written
notice indicating the amounts payable to the Holder in respect of
the Buy-In and, upon request of Borrower, 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
Borrower’s failure to timely deliver Conversion Shares upon
conversion of this Note as required pursuant to the terms
hereof.


 


vi.         Reservation
of Shares Issuable Upon Conversion. Borrower covenants that
it will at all times reserve and keep available out of its
authorized and unissued shares of Common Stock for the sole purpose
of issuance upon conversion of this Note as herein provided, free
from preemptive rights or any other actual contingent purchase
rights of Persons other than the Holder, not less than 150% of the
aggregate number of shares of the Common Stock as shall 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 interest which has accrued and would accrue on such
principal amount assuming such principal amount was not converted
through the Maturity Date. Borrower covenants that all shares of
Common Stock that shall be so issuable shall, upon issue, be duly
authorized, validly issued, fully paid and
non-assessable.


 


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 which the Holder would otherwise be
entitled to purchase upon such conversion, Borrower 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.


 


 




 

9








 






 

 


viii.         Transfer
Taxes and Expenses. The issuance of Conversion Shares 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 Conversion
Shares; provided
that, Borrower 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 Conversion Shares upon conversion in a name
other than that of the Holder of this Note so converted and
Borrower shall not be required to issue or deliver such Conversion
Shares unless or until the Person or Persons requesting the
issuance thereof shall have paid to Borrower the amount of such tax
or shall have established to the satisfaction of Borrower that such
tax has been paid. Borrower shall pay all Transfer Agent fees
required for same-day processing of any Notice of
Conversion.


 


e)
          Holder’s
Conversion Limitations. Borrower 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 (such Persons,
“Attribution
Parties”)) would beneficially own in excess of the
Beneficial Ownership Limitation.  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 held by the Holder and its
Affiliates and Attribution Parties plus 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 which 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
Attribution Parties and (ii) exercise or conversion of the
unexercised or unconverted portion of any other securities of
Borrower subject to a limitation on conversion or exercise
analogous to the limitation contained herein beneficially owned by
the Holder or any of its Affiliates or Attribution Parties. 
Except as set forth in the preceding sentence, for purposes of this
Section 4(e), 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(e) 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 Attribution Parties) 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 Borrower each time it delivers a
Notice of Conversion that such Notice of Conversion has not
violated the restrictions set forth in this paragraph and Borrower
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(e), 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) Borrower’s
most recent periodic or annual report filed with the SEC, as the
case may be, (ii) a more recent public announcement by Borrower, or
(iii) a more recent written notice by Borrower or Borrower’s
transfer agent setting forth the number of shares of Common Stock
outstanding.  Upon the written or oral request of a Holder,
Borrower shall within two (2) 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 Borrower, 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 9.99% 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 may decrease
the Beneficial Ownership Limitation at any time upon prior notice
to Borrower, and may increase the Beneficial Ownership Limitation
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(e) shall continue to apply. Any such increase will not be
effective until the 61st day after such
notice is delivered to Borrower. 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(e) to correct this paragraph (or any
portion hereof) which may be defective or inconsistent with the
intended Beneficial Ownership Limitation contained herein or to
make changes or supplements necessary or desirable to properly give
effect to such limitation. The limitations contained in this
paragraph shall apply to a successor holder of this Note. The
provisions of this Section 4.e) notwithstanding, in the event of a
mandatory conversion pursuant to Section 4.b), the mandatory
conversion shall be made into shares of Common Stock up to the
Beneficial Ownership Limitation amount. The balance of the
mandatory conversion shall be made into shares of preferred stock
of the Borrower convertible into shares of the Common Stock on a
share for share basis.


 


 




 

10








 






 

 


Section 5.       
   Certain
Adjustments.


 


a)
         Stock Dividends and Stock
Splits. If Borrower, 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 Borrower upon conversion of the Notes or any other
Permitted Indebtedness that is convertible into Common Stock), (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 Borrower, 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 Borrower) outstanding immediately before
such event, and of which the denominator shall be the number of
shares of Common Stock outstanding immediately after such event.
Any adjustment made pursuant to this Section shall become effective
immediately after the record date for the determination of
stockholders entitled to receive such dividend or distribution and
shall become effective immediately after the effective date in the
case of a subdivision, combination or
re-classification.


 


b)           Subsequent
Equity Sales. In addition to the reductions of the
Conversion Price described in Section 4(c), if, at any time while
this Note is outstanding, Borrower 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 Common Stock at an effective price
per share that is lower than the then Conversion Price (such lower
price, the “Base
Conversion Price” and such issuances, collectively, a
“Dilutive
Issuance”) (if the holder of the Common Stock or
Common Stock Equivalents so issued shall at any time, whether by
operation of purchase price adjustments, reset provisions, floating
conversion, exercise or exchange prices or otherwise, or due to
warrants, options or rights per share which are issued in
connection with such issuance, be entitled to receive 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, subject to adjustment for reverse and forward stock splits
and the like. 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 Borrower enters into a Variable
Rate Transaction, despite the prohibition set forth in the
Settlement Agreement, Borrower 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. Borrower 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 Borrower provides a Dilutive Issuance Notice pursuant to this
Section 5(b), upon the occurrence of any Dilutive Issuance, the
Holder is entitled to receive a number of Conversion Shares based
upon the Base Conversion Price on or after the date of such
Dilutive Issuance, regardless of whether the Holder accurately
refers to the Base Conversion Price in the Notice of
Conversion.


 


 




 

11








 






 

 


c)
         Subsequent Rights Offerings.
In addition to any adjustments
pursuant to Sections 5(a) and (b) above, if at any time Borrower
grants, issues or sells any Common Stock Equivalents or rights to
purchase stock, warrants, securities or other property pro rata to
the record holders of any class of shares of Common Stock (the
“Purchase
Rights”), then the Holder
will be entitled to acquire, upon the terms applicable to such
Purchase Rights, the aggregate Purchase Rights which the Holder
could have acquired if the Holder had held the number of shares of
Common Stock acquirable upon complete conversion of this 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, 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).


 


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


 


e)           Adjustment
upon $15,000,000 Raise. This Note is part of a financing
that will be followed by a second financing in the amount of
$15,000,000 (the “Second Raise”). The Second Raise may
consist of the sale of Common Stock, the sale of convertible debt,
and/or the issuance of warrants. Upon the closing of the Second
Raise, the Conversion Price of this Note will automatically be the
lesser of: (i) the Conversion Price of this Note pursuant to the
terms and conditions of this Note; (ii) the price of the Common
Stock sold in the Second Raise discounted by 25%; (iii) the
conversion price of debt sold in the Second Raise discounted by
25%; or (iv) the exercise price of warrants issued in connection
with the Second Raise discounted by 25%.


 


 




 

12








 






 

 


f)           Fundamental
Transaction. If, at any time while this Note is outstanding,
(i) Borrower, directly or indirectly, in one or more related
transactions effects any merger or consolidation of Borrower with
or into another Person, (ii) Borrower, 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 Borrower 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) Borrower, 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
(other than, for the avoidance of doubt any subdivision,
combination or re-classification described in Section 5(a)), (v)
Borrower, directly or indirectly, in one or more related
transactions consummates a stock or share purchase agreement or
other business combination (including, without limitation, a
reorganization, recapitalization, spin-off or scheme of
arrangement) with another Person whereby such other Person acquires
more than 50% of the outstanding shares of Common Stock (not
including any shares of Common Stock held by the other Person or
other Persons making or party to, or associated or affiliated with
the other Persons making or party to, such stock or share purchase
agreement or other business combination) (each a
“Fundamental
Transaction”), then, upon any subsequent conversion of
this Note, the Holder shall have the right to receive, for each
Conversion Share that would have been issuable upon such conversion
immediately prior to the occurrence of such Fundamental Transaction
(without regard to any limitation in Section 4(e) on the conversion
of this Note), the number of shares of Common Stock of the
successor or acquiring corporation or of Borrower, if it is the
surviving corporation, and any additional consideration (the
“Alternate
Consideration”) receivable as a result of such
Fundamental Transaction by a holder of the number of shares of
Common Stock for which this Note is convertible immediately prior
to such Fundamental Transaction (without regard to any limitation
in Section 4(e) on the conversion of this Note). For purposes of
any such conversion, the determination of the Conversion Price
shall be appropriately adjusted to apply to such Alternate
Consideration based on the amount of Alternate Consideration
issuable in respect of one (1) share of Common Stock in such
Fundamental Transaction, and Borrower shall apportion the
Conversion Price among the Alternate Consideration in a reasonable
manner reflecting the relative value of any different components of
the Alternate Consideration. If holders of Common Stock are given
any choice as to the securities, cash or property to be received in
a Fundamental Transaction, then the Holder shall be given the same
choice as to the Alternate Consideration it receives upon any
conversion of this Note following such Fundamental Transaction.
Borrower shall cause any successor entity in a Fundamental
Transaction in which Borrower is not the survivor (the
“Successor
Entity”) to assume in writing all of the obligations
of Borrower under this Note and the other Settlement Documents in
accordance with the provisions of this Section 5(f) pursuant to
written agreements in form and substance reasonably satisfactory to
the Holder (which approval shall not be unreasonably withheld,
delayed or conditioned) prior to such Fundamental Transaction and
shall, at the option of the holder of this Note, deliver to the
Holder in exchange for this Note a security of the Successor Entity
evidenced by a written instrument substantially similar in form and
substance to this Note which is convertible for a corresponding
number of shares of capital stock of such Successor Entity (or its
parent entity) equivalent to the shares of Common Stock acquirable
and receivable upon conversion of this Note (without regard to any
limitations on the conversion of this Note) prior to such
Fundamental Transaction, and with a conversion price which applies
the conversion price hereunder to such shares of capital stock (but
taking into account the relative value of the shares of Common
Stock pursuant to such Fundamental Transaction and the value of
such shares of capital stock, such number of shares of capital
stock and such conversion price being for the purpose of protecting
the economic value of this Note immediately prior to the
consummation of such Fundamental Transaction), and which is
reasonably satisfactory in form and substance to the Holder (which
approval shall not be unreasonably withheld, delayed or
conditioned). Upon the occurrence of any such Fundamental
Transaction, the Successor Entity shall succeed to, and be
substituted for (so that from and after the date of such
Fundamental Transaction, the provisions of this Note and the
Settlement Agreement referring to the “Borrower” shall
refer instead to the Successor Entity), and may exercise every
right and power of Borrower and shall assume all of the obligations
of Borrower under this Note and the other Settlement Documents with
the same effect as if such Successor Entity had been named as
Borrower herein.


 


 




 

13








 






 

 


g)           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 Borrower) issued and outstanding.

 


h)
         Notice to the
Holder.


 


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


 


ii.       
  Notice to
Allow Conversion by Holder. If (A) Borrower shall declare a
dividend (or any other distribution in whatever form) on the Common
Stock, (B) Borrower shall declare a special nonrecurring cash
dividend on or a redemption of the Common Stock, (C) Borrower shall
authorize the granting to all holders of the Common Stock of rights
or warrants to subscribe for or purchase any shares of capital
stock of any class or of any rights, (D) the approval of any
stockholders of Borrower shall be required in connection with any
reclassification of the Common Stock, any consolidation or merger
to which Borrower is a party, any sale or transfer of all or
substantially all of the assets of Borrower, or any compulsory
share exchange whereby the Common Stock is converted into other
securities, cash or property or (E) Borrower shall authorize the voluntary or
involuntary dissolution, liquidation or winding up of the affairs
of Borrower, then, in each case, Borrower 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 Borrower or any of the
Subsidiaries, Borrower shall simultaneously file such notice with
the SEC 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.


 


i)           Reset.
Provided the Holder has acquired from the Borrower a Note in the
principal amount of not less than $30,000, then for so long as this
Note is outstanding, if from and after the Issue Date of this Note
the Holder converts any or all of a Debenture, then with respect to
an aggregate amount of such conversions of the Debenture not
exceeding the initial Principal Amount of this Note, upon the
occurrence of a Dilutive Issuance (as defined in the Debenture),
Borrower shall issue to Holder additional shares of Common Stock
(the “Additional Shares”) for no additional
consideration, so that the average price per share of the shares of
Common Stock issued and issuable upon the aforedescribed conversion
of the Debenture when added to the Additional Shares shall be equal
to the Base Conversion Price (as defined in the
Debenture).

 


 




 

14








 






 

 


Section
6.                      Negative
Covenants. As long as any portion of this Note remains
outstanding, unless the Holder shall have otherwise given prior
written consent, Borrower shall not directly or
indirectly:


 


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


 


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


 


c)           amend
its charter documents, including, without limitation, its restated
certificate of incorporation and bylaws, in any manner that
materially and adversely affects any rights of the Holder;
provided,
however,
except in connection with an increase in the authorized shares by
Borrower;


 


d)           repay,
repurchase or offer to repay, repurchase or otherwise acquire any
shares of its Common Stock or Common Stock Equivalents other than
(i) as to the Conversion Shares or such shares of Common Stock that
may be issued upon conversion of Permitted Indebtedness having
terms similar to the Notes, in each case, in connection with the
payment of cash in lieu of fractional shares or (ii) with respect
to Common Stock Equivalents, to the extent permitted by Section
6(e) below;


 


e)           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 Permitted Indebtedness or the Notes, if on a pro-rata
basis), whether by way of payment in respect of principal of (or
premium, if any) or interest on, such Indebtedness. The foregoing
restriction shall also apply to Permitted Indebtedness from and
after the occurrence of an Event of Default;


 


f)           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,
liquidation, distribution, preferential payments in connection with
any securities or debt issuances, corporate rearrangement, scheme
of arrangement or other similar transaction;


 


g)           enter
into any transaction with any Affiliate of Borrower which would be
required to be disclosed by a company subject to the reporting
requirements of Section 12(g) of the Exchange Act in any public
filing with the SEC, unless such transaction is made on reasonable
commercial terms and expressly approved by either (i) a majority of
the disinterested directors of Borrower (even if less than a quorum
otherwise required for board approval) or (ii) all of the
directors; or


 


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


 


Section
7.          
  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):


 


 




 

15








 






 

 


i.           any
default in the payment of (A) the principal amount of this Note or
(B) interest, liquidated damages and other amounts owing to a
Holder of this 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 a
default under clause (B) above, is not cured within three (3)
Trading Days after Borrower has become aware of such
default;


 


ii.         Borrower
shall fail to observe or perform any other material covenant or
agreement contained in this Note (other than a breach by Borrower
of its obligations to deliver shares of Common Stock to the Holder
upon conversion, which breach is addressed in clause (ix) below)
which failure is not cured, if possible to cure, within the earlier
to occur of (A) five (5) Trading Days
after notice of such failure sent by the Holder or by any Other
Holder to Borrower and (B) ten (10) Trading Days after Borrower has
become aware of such failure;


 


iii.          a
material default or event of default (subject to any grace or cure
period provided in the applicable agreement, document or
instrument) shall occur under any material agreement, lease,
document or instrument to which Borrower or any Subsidiary is
obligated (and not covered by clause (vi) below), which would
reasonably be expected to have a Material Adverse
Effect;


 


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


 


v.           Borrower
or any Subsidiary shall be subject to a Bankruptcy
Event;


 


vi.         Borrower
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 $50,000, whether such Indebtedness now exists or shall
hereafter be created, and (b) results in such Indebtedness becoming
or being declared due and payable prior to the date on which it
would otherwise become due and payable;


 


vii.         Borrower
shall be a party to any Change of Control Transaction or
Fundamental Transaction or disposition of all or in excess of 30%
of its assets in one transaction or a series of related
transactions (whether or not such sale would constitute a Change of
Control Transaction);


 


viii.           Borrower
or any Subsidiary shall be subject to a Bankruptcy
Event;


 


ix.        
 Borrower shall fail for any reason to deliver Conversion
Shares to a Holder prior to the fifth (5th) Trading Day after
a Conversion Date pursuant to Section 4(d) or Borrower shall
provide at any time notice to the Holder, including by way of
public announcement, of Borrower’s intention to not honor
requests for conversions of any Notes in accordance with the terms
hereof;


 

 




 

16








 






 


x.       
Borrower shall fail to observe or perform any material covenant or
agreement set forth in any other Settlement Document, which breach
is not cured within any allowed cure period;


 



xi.       
 any monetary judgment, writ or similar final process shall be
entered or filed against Borrower, or any of its respective
property or other assets for more than $50,000, and such judgment,
writ or similar final process shall remain unvacated, unbonded,
unstayed, unsettled, unsatisfied, or unpaid for a period of ninety
(90) calendar days;


 

xii.           
any dissolution, liquidation or winding up by Borrower of a
substantial portion of its business;


 

xiii.           
cessation of operations by Borrower;


 

xiv.           
the failure by Borrower or any material Subsidiary to maintain any
material intellectual property rights, personal, real property,
equipment, leases or other assets which are necessary to conduct
its business (whether now or in the future) and such breach is not
cured with twenty (20) days after written notice to Borrower from
the Holder;


 

x.    
          the Conversion Shares are no
longer listed, quoted or are otherwise delisted from the then
principal Trading Market;


 

xvi.           
a Commission or judicial stop trade order or suspension from
Borrower’s then principal Trading Market;


 

xvii.         
the restatement after the date hereof of any financial statements
filed by Borrower with the SEC for any date or period from the
Original Issue Date and until this Note is no longer outstanding,
if the result of such restatement would, by comparison to the
unrestated financial statements, have constituted a Material
Adverse Effect. For the avoidance of doubt, any restatement related
to new accounting pronouncements shall not constitute a default
under this Section;


 


xviii.        
Borrower effectuates a reverse split of its Common Stock without
five (5) days prior written notice to the Holder; or


 


xix.           a
failure by Borrower to notify Holder of any material event of which
Borrower is obligated to notify Holder pursuant to the terms of
this Note or any other Transaction Document;


 


xx.           a
default by the Borrower of a material term, covenant, warranty or
undertaking of any other agreement to which the Borrower and Holder
are parties, or the occurrence of an event of default under any
such other agreement to which Borrower and Holder are parties which
is not cured after any required notice and/or cure
period;


 

xxi.           
any material provision of any Settlement Document shall at any time
for any reason (other than pursuant to the express terms thereof)
cease to be valid and binding on or enforceable against Borrower,
or the validity or enforceability thereof shall be contested by
Borrower, or a proceeding shall be commenced by Borrower or any
governmental authority having jurisdiction over Borrower or Holder,
seeking to establish the invalidity or unenforceability thereof, or
Borrower shall deny in writing that it has any liability or
obligation purported to be created under any Settlement
Document.


 




 

17








 






 

 


In the
event more than one grace, cure or notice period is applicable to
an Event of Default, then the shortest grace, cure or notice period
shall be applicable thereto.


 


b)
         Remedies Upon Event of Default,
Fundamental Transaction and Change of Control Transaction.
If any Event of Default or a Fundamental Transaction or a Change of
Control Transaction occurs, the outstanding principal amount of
this Note, 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 on the Maturity Date and also
five (5) days after the occurrence of any Event of Default interest
on this Note shall accrue at an interest rate equal to the lesser
of 18% per annum or the maximum rate permitted under applicable
law. Upon the payment in full of the Mandatory Default Amount, the
Holder shall promptly surrender this Note to or as directed by
Borrower. In connection with such acceleration described herein,
the Holder need not provide, and Borrower 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 8(b). No such
rescission or annulment shall affect any subsequent Event of
Default or impair any right consequent thereon.


 

Section
8.         
Miscellaneous.


 


a)
         Notices. All notices, demands, requests, consents,
approvals, and other communications required or permitted hereunder
shall be in writing and, unless otherwise specified herein, shall
be (i) personally served, (ii) deposited in the mail, registered or
certified, return receipt requested, postage prepaid, (iii)
delivered by reputable air courier service with charges prepaid, or
(iv) transmitted by hand delivery, telegram, facsimile, or
electronic mail, addressed as set forth below or to such other
address as such party shall have specified most recently by written
notice. Any notice or other communication required or permitted to
be given hereunder shall be deemed effective (a) upon hand delivery
or delivery by facsimile, with accurate confirmation generated by
the transmitting facsimile machine, at the address or number
designated below (if delivered on a business day during normal
business hours where such notice is to be received), or the first
business day following such delivery (if delivered other than on a
business day during normal business hours where such notice is to
be received), or (b) upon receipt, when sent by electronic mail
(provided confirmation of transmission is electronically generated
and keep on file by the sending party), or (c) on the second
business day following the date of mailing by express courier
service, fully prepaid, addressed to such address, or upon actual
receipt of such mailing, whichever shall first occur. The addresses
for such communications shall be: (i) if to Borrower, to: GT
Biopharma, Inc., 9350 Wilshire Blvd, Suite 203, Beverly
Hills, CA 90212, Attn: Chief Executive
Officer (with copies emailed to sww@gtbiopharma.com; ajc@gtbiopharma.com), with a
copy to (which shall not constitute notice): Perrie Weiner at
perrie.weiner@bakermckenzie.com, and (ii) if to the Holder,
to: the address and email indicated on the front page of this
Note.


 


b)
         Absolute Obligation. Except as
expressly provided herein, no provision of this Note shall alter or
impair the obligation of Borrower, which is absolute and
unconditional, to pay (A) 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 Borrower. 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, Borrower 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
Borrower.


 


 




 

18








 






 

 


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 New
York, without regard to the principles of conflict of laws thereof.
Each party agrees that all legal proceedings concerning the
interpretation, enforcement and defense of the transactions
contemplated by any of the Settlement Documents (whether brought
against a party hereto or its respective Affiliates, directors,
officers, shareholders, employees or agents) shall be commenced in
the state and federal courts sitting in the City of New York,
Borough of Manhattan (the “New York Courts”). Each
party hereto hereby irrevocably submits to the exclusive
jurisdiction of the New York Courts for the adjudication of any
dispute hereunder or in connection herewith or with any transaction
contemplated hereby or discussed herein (including with respect to
the enforcement of any of the Settlement Documents), and hereby
irrevocably waives, and agrees not to assert in any suit, action or
proceeding, any claim that it is not personally subject to the
jurisdiction of such New York Courts, or such New York Courts are
improper or inconvenient venue for such proceeding. Each party
hereby irrevocably waives personal service of process and consents
to process being served in any such suit, action or proceeding by
mailing a copy thereof via registered or certified mail or
overnight delivery (with evidence of delivery) to such party at the
address in effect for notices to it under this 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 attorney's fees and other costs and
expenses incurred in the investigation, preparation and prosecution
of such action or proceeding. This
Note shall be deemed an unconditional obligation of Borrower for
the payment of money and, without limitation to any other remedies
of Holder, may be enforced against Borrower by summary proceeding
pursuant to New York Civil Procedure Law and Rules Section 3213 or
any similar rule or statute in the jurisdiction where enforcement
is sought. For purposes of such rule or statute, any other document
or agreement to which Holder and Borrower are parties or which
Borrower delivered to Holder, which may be convenient or necessary
to determine Holder’s rights hereunder or Borrower’s
obligations to Holder are deemed a part of this Note, whether or
not such other document or agreement was delivered together
herewith or was executed apart from this Note.


 


e)
         Waiver. Any waiver by Borrower
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 Borrower 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
Borrower 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.


 


g)
       Usury. 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. Borrower
covenants (to the extent that it may lawfully do so) that it shall
not at any time insist upon, plead, or in any manner whatsoever
claim or take the benefit or advantage of, any stay, extension or
usury law or other law which would prohibit or forgive Borrower
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 which may affect the covenants or the
performance of this Note, and Borrower (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.


 


 




 

19








 






 

 


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.


 


j)         Amendment.
This Note may be amended and any provisions hereof may be waived by
written consent of Borrower and the
Majority in Interest.


 


k)
       Facsimile Signature. In the
event that Borrower’s signature is delivered by facsimile
transmission, PDF, electronic signature or other similar electronic
means, such signature shall create a valid and binding obligation
of Borrower with the same force and effect as if such signature
page were an original thereof.


 


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


 



(Signature Pages Follow)


 


 


 


 


 


 


 




 

20








 






IN WITNESS WHEREOF, Borrower has caused
this Note to be signed in its name by an authorized officer as of
the Original Issue Date set out above.

 


	

 

	
GT
BIOPHARMA, INC.

	

 


	

 

	

 

	

 

	

 


	

	
By:  

	
 

	

 


	

 

	

Name:  



	
Anthony
Cataldo 

	

 


	

 

	

Title:  



	

Chief
Executive Officer 

	

 







 


 


 


 


 


 




 








 






 

 



ANNEX A



 



NOTICE OF CONVERSION


 


The
undersigned hereby elects to convert principal under the
Convertible Note due January 31, 2021 of GT Biopharma, Inc., a
Delaware corporation (the “Borrower”), into shares
of common stock (the “Common Stock”), of
Borrower 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
Borrower 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 Borrower that its ownership of the Common Stock
does not exceed the amounts specified under Section 4(e) of this
Note, as determined in accordance with Section 13(d) of the
Exchange Act.


 


The
undersigned agrees to comply with the prospectus delivery
requirements under the applicable securities laws in connection
with any transfer of the aforesaid shares of Common
Stock.


 


Conversion
calculations:


	
 

	

Date to
Effect Conversion: ____________________________


	
 

	
 


	
 

	

Principal
Amount of Note to be Converted: $__________________


	
 

	
 


	
 

	

Accrued
Interest to be Converted, if any: $______________


	
 

	
 


	
 

	

Conversion
Price: $_________________


	
 

	
 


	
 

	

Number
of shares of Common Stock to be issued: ______________


	
 

	
 


	
 

	

Signature:
_________________________________________


	
 

	
 


	
 

	

Name:
____________________________________________


	
 

	
 


	
 

	
 


	
 

	
 


	
 

	

DWAC
Instructions: _________________________________


	
 

	
 


	
 

	

Broker
No:_____________


	
 

	

Account
No: _______________