THESE SECURITIES HAVE NOT 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. THESE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT SECURED BY SUCH SECURITIES.


 


	 	43⁄4% SECURED CONVERTIBLE DEBENTURE
	 	 
	Company:	World Surveillance Group Inc., a Delaware corporation
	Company Address:	State Road 405, Building M6-306A, Room 1400, Kennedy Space Center, FL 32815
	Closing Date:	January 25, 2012
	Maturity Date:	January 25, 2015
	Principal Amount:	$500,000


 


This 43⁄4% CONVERTIBLE
DEBENTURE is duly authorized and validly issued by World Surveillance Group Inc., a Delaware corporation, (the “Company”)
to La Jolla Cove Investors, Inc. or its registered assigns (the “Holder”), pursuant to the terms of a Securities
Purchase Agreement dated January 25, 2012 between the Company and the Holder (the “Securities Purchase Agreement”).
Capitalized terms not otherwise defined herein shall have the meanings ascribed to them in the Securities Purchase Agreement.


 


FOR VALUE RECEIVED, the
Company promises to the Holder the principal sum of $500,000, subject to adjustment as provided herein (the “Principal
Amount”) on January 25, 2015 (the “Maturity Date”) or such earlier date as this Debenture is required
or permitted to be repaid as provided hereunder, and to pay interest to the Holder on the aggregate unconverted and then outstanding
principal amount of this Debenture at the rate of four and three quarters percent (43⁄4%) per annum (the “Interest
Rate”), all in accordance with the terms and conditions contained in this Debenture. Interest shall accrue from the date
hereof and be payable on a monthly basis, commencing on the 15th day of each month following the month of issuance of this Debenture,
with the final payment to be made on the Maturity Date (each, an “Interest Payment Due Date”). Interest shall
be calculated on the basis of a year of 365 or 366 days, as the case may be, for the actual number of days (including the first
day but excluding the last day) occurring in the period for which such interest is payable. Payment of interest on this Debenture
shall be in cash or, at the option of the Holder, in shares of Common Stock of the Company valued at the then applicable Conversion
Price (as defined below). At the Maturity Date, the Company shall pay in cash the full outstanding Principal Amount of this Debenture,
together with all accrued and unpaid interest. Subject to the Section 2.5 of the Securities Purchase Agreement, this Debenture
may not be prepaid without the written consent of the Holder. This Debenture is subject to the following additional provisions:


 


	
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ARTICLE 1


DEFINITIONS


 


1.1       Definitions.
Capitalized terms used but not defined in this Debenture shall have the meaning ascribed in the Securities Purchase Agreement.
The terms defined in this Article whenever used in this Debenture have the following meanings:


 


“Alternate Consideration”
shall have the meaning set forth in Section 3.1.


 


“Bankruptcy Code”
means the United States Bankruptcy Code of 1986, as amended (11 U.S.C. §§ 101 et. seq.).


 


“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 calendar 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.


 


“Capital Shares”
means the Common Stock and any other shares of any other class or series of capital stock, whether now or hereafter authorized
and however designated, which have the right to participate in the distribution of earnings and assets (upon dissolution, liquidation
or winding-up) of the Company.


 


“Closing Date”
means the closing date set forth at the beginning of this Debenture.


 


“Common Stock
Issued at Conversion”, when used with reference to the securities deliverable upon conversion of this Debenture pursuant
to Section 2.1 hereof, means all Common Stock or securities of any other class or series into which this Debenture hereafter shall
have been changed or substituted, whether now or hereafter created and however designated.


 


“Conversion Date”
means the date specified in accordance with the provisions of Section 2.2.


 


“Conversion Notice”
means a written notice of conversion substantially in the form annexed hereto as Exhibit A.


 


	
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“Conversion Price”
means the applicable price for the conversion of this Debenture as set forth in 2.1.


 


“Current Market
Price” 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 national securities exchange, the VWAP of the Common Stock for such date (or the nearest preceding
date) on the principal exchange on which the Common Stock is then listed or quoted for trading as reported as reported by Bloomberg
L.P. at 4:15 p.m. (New York City time); (b) if the Common Stock is traded on the OTC Bulletin Board, the VWAP of the Common Stock
for such date (or the nearest preceding date) on the OTC Bulletin Board as reported by Bloomberg L.P. at 4:15 p.m. (New York City
time); (c) if the Common Stock is not then 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 Sheets, LLC (or a similar organization or agency succeeding to
its functions of reporting prices), the last reported VWAP 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 Holder and reasonably
acceptable to the Company.


 


“Debenture”
means this 43⁄4% Convertible Debenture issued by the Company or debenture issue in exchange or replacement.


 


“Discount Multiplier”
has the meaning set forth in Section 2.1(a).


 


“Event of Default”
has the meaning set forth in Section 5.1.


 


“Excluded Securities”
means (a) securities issued by the Company pursuant to a stock option or equity incentive plan or pursuant to an agreement or arrangement
that has been approved by the Company’s Board of Directors or its Compensation Committee and provides for the grant of the
Company’s securities solely to any employee, officer, director, consultant or adviser in exchange for services provided to
the Company, (b) shares of Common Stock issued by the Company upon the conversion, exchange or exercise of any right, option, obligation
or security outstanding on the date prior to the Closing Date, provided that the terms of such right, option, obligation or security
are not amended or otherwise modified on or after the Closing Date, and provided that the conversion price, exchange price, exercise
price or other purchase price is not reduced, adjusted or otherwise modified and the number of shares of Common Stock issued or
issuable is not increased (whether by operation of, or in accordance with, the relevant governing documents or otherwise) on or
after the Closing Date, (c) securities issued in connection with any acquisition, whether through an acquisition of stock, assets
or technologies, leasing arrangement or in any other transaction the primary purpose of which is not to raise equity capital, and
(d) the shares of Common Stock issued upon conversion of this Debenture.


 


“Floor Price”
has the meaning set forth in Section 2.1(c).


 


“Holder”
has the meaning set forth in the first paragraph of this Debenture.


 


“Interest Payment
Due Date” has the meaning set forth in the second paragraph of this Debenture.


 


	
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“Interest Rate”
means the interest rate as defined in the second paragraph of this Debenture.


 


“Maturity Date”
means the maturity date set forth in the second paragraph of this Debenture.


 


“Outstanding”
when used with reference to Common Stock or Capital Shares means, on any date of determination, all issued and outstanding Common
Stock or Capital Shares, and includes all such Common Stock or Capital Shares issuable in respect of outstanding scrip or any certificates
representing fractional interests in such Common Stock or Capital Shares; provided, however, that any such Common Stock or Capital
Shares directly or indirectly owned or held by or for the account of the Company or any Subsidiary of the Company shall not be
deemed “Outstanding” for purposes hereof.


 


“Principal Amount”
has the meaning set forth in the second paragraph of this Debenture.


 


“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 national securities exchange, the daily volume weighted average price of the Common Stock for such date (or the nearest
preceding date) on the principal exchange on which the Common Stock is then listed or quoted for trading 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 Common Stock is
traded on the OTC Bulletin Board, 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 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 Sheets, LLC (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 Holder and reasonably acceptable to the Company.


 


All references to “cash”
or “$” herein means the currency of the United States of America.


 


	
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ARTICLE 2


CONVERSION OF DEBENTURE


 


2.1       Conversion;
Conversion Price.


 


(a)       Beginning on the earlier
to occur of (i) the effectiveness of a registration statement with the SEC covering the resale of the shares of Common Stock to
which Holder shall be entitled to under this Agreement (the "S-1"), but in no event prior to ninety-one (91) days following
the Closing Date, or (ii) one hundred eighty-one (181) days following the Closing Date, the Holder shall have the right to convert
a portion of the Principal Amount and any accrued interest outstanding under this Debenture from time to time during each thirty
(30) day period from the Closing up to five percent (5%) of the face amount of this Debenture, or $25,000, if the VWAP is at or
below $0.09 for the period of ten (10) consecutive days prior to the conversion date, and up to ten percent (10%), or $50,000,
if the VWAP is above $0.09 for the period of ten (10) consecutive days prior to the conversion date, and for every $0.02 increase
in the VWAP above $0.09 for the period of ten (10) consecutive days prior to the conversion date, Holder shall have the right to
convert up to an additional ten percent (10%), or an additional $50,000, into shares of Common Stock (calculated as to each such
conversion to the nearest 1/100th of a share), on any Business Day. Such percentage limitation above shall be accumulated so that
in the event that Holder has not converted up to the maximum allowed, any such excess shall be added to the next 30 day period's
percentage allowance. For example, if in the first thirty (30) day period the Holder has converted 3%, then during the subsequent
thirty (30) day period, Holder shall be allowed to convert up to 7%.


 


(b)       Subject to Section
2.1(c) below, the number of shares into which this Debenture can be converted is equal to the dollar amount of this Debenture being
converted, as reflected in the applicable Conversion Notice, divided by the quotient of the Conversion Price divided by 10, plus
the Debenture amount being converted divided by the Conversion Price. The “Conversion Price” shall be equal
to the lesser of (i) $0.35, or (ii) 75% of the average of the VWAPs during the thirty (30) Trading Days prior to the date of the
Conversion Notice (such percentage amount being the “Discount Multiplier”); provided, however, that if
the Company’s election in Section 2.1(c)(ii) below is exercised, the “Conversion Price” shall be equal to the
Floor Price.


 


(c)       If, on the date
the Holder delivers a Conversion Notice, the applicable Conversion Price is below $0.075 (the “Floor Price”),
the Company shall have the right in its sole discretion, exercisable within two (2) Business Days after the Company’s receipt
of such Conversion Notice, in lieu of issuing the shares of Common Stock as set forth in the Conversion Notice to either (i) convert
the portion of the Debenture that Holder elected to convert using the Floor Price as the Conversion Price and paying to the Holder
in cash an amount equal to the difference in the value of the actual Common Stock Issued at Conversion to Holder hereunder using
the Floor Price as a Conversion Price and the value of the Common Stock that would have been delivered to Holder had the conversion
been done without regard to the Floor Price (the “Cash True-Up Payment”) – SEE EXAMPLE EXH. A. In the
event that the Company fails to make the Cash True-Up Payment within two (2) Business Days after the Company’s receipt of
such Conversion Notice, the Company shall no longer have the right to do the partial conversion and Cash True-Up Payment and shall
issue to Holder the applicable Common Stock Issued at Conversion set forth in the Conversion Notice under the terms of this Debenture.
In the event that the Company elects to do the partial conversion and Cash True-Up Payment, Holder shall have the right to withdraw
its Conversion Notice.


 


2.2       Exercise
of Conversion Privilege. Holder shall exercise its conversion rights any Business Day by emailing or telecopying an executed
and completed Conversion Notice to the Company. The Conversion Notice shall specify the date on which such conversion shall be
effected (such date, the “Conversion Date”) and the amount that is to be converted, subject to the limitations
set forth in Section 2.1(a) hereof. 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. Each date on which a Conversion Notice is emailed or telecopied
to the Company shall constitute a Conversion Date. The Conversion Notice also shall state the name or names (with addresses) of
the persons who are to become the holders of the Common Stock Issued at Conversion in connection with such conversion. To effect
conversions hereunder, the Holder shall not be required to physically surrender this Debenture to the Company unless the entire
Principal Amount of this Debenture, plus all accrued and unpaid interest thereon, has been so converted. Conversions hereunder
shall have the effect of lowering the outstanding principal amount of this Debenture in an amount equal to the applicable conversion.
The Holder and the Company shall maintain records showing the Principal Amount(s) converted and the date of such conversion(s).
The Company may deliver an objection to any Notice of Conversion within one Business Day of delivery of such Notice of Conversion.
In the event of any dispute or discrepancy, the records of the Holder shall be controlling and determinative in the absence of
manifest error. The Holder, and any assignee by acceptance of this Debenture, acknowledge and agree that, by reason of the provisions
of this paragraph, following conversion of a portion of this Debenture, the unpaid and unconverted Principal Amount of this Debenture
may be less than the amount stated on the face hereof.


 


	
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2.3       Delivery
of Common Stock. The Company shall convert this Debenture and issue the Common Stock Issued at Conversion in the manner provided
below, and all voting and other rights associated with the beneficial ownership of the Common Stock Issued at Conversion shall
vest with the Holder, effective as of the Conversion Date at the time specified in the Conversion Notice, subject to Section 2.1
above. As promptly as practicable after the receipt of the Conversion Notice as aforesaid, but in any event not more than two
(2) Business Days after the Company’s receipt of such Conversion Notice unless the Company elects the prepayment as set
forth in Section 2.1(c), the Company shall (a) issue the Common Stock Issued at Conversion in accordance with the provisions of
this Debenture and (b) unless a transfer of the Common Stock Issued at Conversion is requested by DWAC in the Conversion Notice,
cause to be mailed for delivery by overnight courier (x) a certificate or certificate(s) representing the number of shares of
Common Stock to which the Holder is entitled by virtue of such conversion, and (y) cash, as provided in Section 2.5, in respect
of any fraction of a share of Common Stock deliverable upon such conversion. Pursuant to the terms of a Conversion Notice indicating
a DWAC transfer, unless the Company elects the prepayment as set forth in Section 2.1(c), the Company will issue instructions
to the transfer agent accompanied by an opinion of counsel (if so required by Company’s transfer agent), and, except as
otherwise provided below, shall cause the transfer agent to transmit the certificates representing the Common Stock Issued at
Conversion to the Holder by crediting the account of the Holder’s designated broker with the Depository Trust Corporation
(“DTC”) through its Deposit Withdrawal Agent Commission (“DWAC”) system within two (2) business
days after receipt by Company of the Notice of Conversion (the “Delivery Date”). The Holder shall be treated
for all purposes as the beneficial holder of such shares of Common Stock Issued at Conversion, or, in the case that Company delivers
physical certificates as set forth above, the record holder of such shares of Common Stock, unless the Holder provides Company
written instructions to the contrary. Notwithstanding the foregoing to the contrary, Company or its transfer agent shall only
be obligated to issue and deliver the shares to the DTC on the Holder’s behalf via DWAC (or certificates free of restrictive
legends) if the registration statement providing for the resale of the shares of Common Stock issuable upon the conversion of
this Debenture is effective.


 


2.4       Transfer
Taxes. Conversion of this Debenture shall be made without charge to the Holder hereof for any documentary stamp or similar
taxes that may be payable in respect of the issue or delivery of such certificates, provided that the Company shall not be required
to pay any tax that may be payable in respect of any transfer involved in the issuance and delivery of any such certificate upon
conversion in a name other than that of the Holder of this Debenture so converted and the Company shall not be required to issue
or deliver such certificates unless or until the person or persons requesting the issuance thereof shall have paid to the Company
the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid.


 


	
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2.5       Fractional
Shares. No fractional shares or scrip representing fractional shares of Common Stock shall be delivered upon conversion of
this Debenture. Instead of any fractional share which otherwise would be delivered upon conversion of this Debenture, the Company
shall pay a cash adjustment in respect of such fraction in an amount equal to the same fraction multiplied by the Current Market
Price on the Conversion Date. No cash payment of less than $1.00 shall be required to be given unless specifically requested by
the Holder.


 


2.6       Beneficial
Ownership Limitation  Notwithstanding the foregoing, the Holder may not convert this Debenture to the extent that such conversion
would cause the Holder to exceed the Beneficial Ownership Limitation as set forth in Section 6.13. To the extent that Holder delivers
a Conversion Notice which would result in the issuance of shares of Common Stock in excess of the Beneficial Ownership Limitation,
such Conversion Notice shall be deemed to provide for conversion of only that portion of the Debenture as can be issued without
exceeding the Beneficial Ownership Limitation.


 





2.7       Obligations
Absolute. The Conversion Notice shall constitute a contract between the Holder and the Company, whereby the Holder shall be
deemed to subscribe for the number of shares of Common Stock which it will be entitled to receive upon such conversion, subject
to the Company’s options set forth in Section 2.1, and, in payment and satisfaction of such subscription, to surrender this
Debenture and to release the Company from all liability thereon (except if and to the extent that any Principal Amount thereof
remains unconverted). Subject to the Company’s options set forth in Section 2.1, the Company’s obligations to issue
and deliver the Common Stock upon conversion in accordance with the terms of this Debenture are absolute and unconditional, irrespective
of any action or inaction by the Holder to enforce the same, any waiver or consent with respect to any provision hereof, the recovery
of any judgment against any Person or any action to enforce the same, or any setoff, counterclaim, recoupment, limitation or termination,
or any breach or alleged breach by the Holder or any other Person of any obligation to the Company or any violation or alleged
violation of law by the Holder or any other Person, and irrespective of any other circumstance which might otherwise limit such
obligation of the Company to the Holder in connection with the issuance of such Common Stock Issued at Conversion. Subject to
the Company’s options set forth in Section 2.1, if the Company fails for any reason to deliver to the Holder such certificate
or certificates pursuant to Section 2.3 by the third Day after the Conversion Date, and if after such 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 such Holder of the shares of Common Stock
which the Holder was entitled to receive upon the conversion, 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 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 such Holder was entitled to receive from the conversion at issue multiplied by (2) the actual sale price at
which the sell order giving rise to such purchase obligation was executed (including any brokerage commissions) and (B) at the
option of the Holder, either reissue (if surrendered) this Debenture in a principal amount equal to the principal amount of the
attempted conversion 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. The Holder shall provide the Company written notice indicating the amounts
payable to the Holder and, upon request of the Company, evidence of the amount of such loss. Nothing herein shall limit a Holder’s
right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific
performance and/or injunctive relief with respect to the Company’s failure to timely deliver certificates representing shares
of Common Stock upon conversion of this Debenture as required pursuant to the terms hereof.


 


	
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ARTICLE 3

RECLASSIFICATION AND ADJUSTMENTS


 


3.1       Reclassification.
Subject to the Company’s early termination rights as set forth in Section 2.5 of the Securities Purchase Agreement, in the
event that (A) the Company effects any merger or consolidation of the Company with or into another Person, (B) the Company effects
any sale of all or substantially all of its assets in one transaction or a series of related transactions, (C) any tender offer
or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted
to tender or exchange their shares for other securities, cash or property, or (D) the Company effects any reclassification 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 (in any such case, a “Fundamental Transaction”), then, upon any subsequent
conversion of this Debenture, the Holder shall have the right to receive, for each share of Common Stock that would have been
issuable upon such conversion immediately prior to the occurrence of such Fundamental Transaction, the same kind and amount of
securities, cash or property as it would have been entitled to receive upon the occurrence of such Fundamental Transaction if
it had been, immediately prior to such Fundamental Transaction, the holder of one share of Common Stock (the “Alternate
Consideration”).


 


(b)       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 share of Common Stock in such Fundamental Transaction,
and the Company shall apportion the Conversion Price among the Alternate Consideration in a reasonable manner reflecting the relative
value of any different components of the Alternate Consideration. Subject to the Company’s early termination rights as set
forth in Section 2.5 of the Securities Purchase Agreement, if holders of Common Stock are given any choice as to the securities,
cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate
Consideration it receives upon any conversion of this Debenture following such Fundamental Transaction. To the extent necessary
to effectuate the foregoing provisions, any successor to the Company or surviving entity in such Fundamental Transaction shall
issue to the Holder a new debenture consistent with the foregoing provisions and evidencing the Holder’s right to convert
such debenture into Alternate Consideration.


 


	
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(c)       Subject to the Company’s
early termination rights as set forth in Section 2.5 of the Securities Purchase Agreement, in the event of a Fundamental Transaction,
the Holder of this Debenture shall have the right thereafter, at its sole option, to (x) declare an Event of Default and require
the Company to prepay this Debenture as set forth in Section 5.1(i), (y) elect to receive the number of shares of common stock
of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and Alternate Consideration as
is receivable upon or as a result of such Fundamental Transaction by a holder of the number of shares of Common Stock into which
the outstanding portion of this Debenture may be converted at the Conversion Price applicable immediately prior to such Fundamental
Transaction, or (z) require the Company, or such successor, resulting or purchasing corporation, as the case may be, to, without
benefit of any additional consideration therefor, execute and deliver to the Holder a debenture with substantial identical rights,
privileges, powers, restrictions and other terms as this Debenture in an amount equal to the amount outstanding under this Debenture
immediately prior to such Fundamental Transaction. The foregoing provisions shall similarly apply to successive Fundamental Transactions.


 


3.2       Adjustments
to Floor Price.


 


(a)       Subdivision or
Combination of Common Stock. If the Company, at any time while this Debenture is outstanding, shall (A) pay a stock dividend
or otherwise make a distribution or distributions on shares of its Common Stock or any other equity or equity equivalent securities
payable in shares of Common Stock, (B) subdivide outstanding shares of Common Stock into a larger number of shares, (C) combine
(including by way of reverse stock split) outstanding shares of Common Stock into a smaller number of shares, or (D) issue by reclassification
of shares of the Common Stock any shares of capital stock of the Company, then the Floor Price shall be multiplied by a fraction
of which the numerator shall be the number of shares of Common Stock (excluding treasury shares, if any) outstanding before such
event and of which the denominator shall be the number of shares of Common Stock outstanding 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)       Issuance of Capital
Shares. If the Company, at any time while this Debenture is outstanding, issues or sells, any shares of Common Stock or rights,
warrants or options to subscribe for or purchase shares of Common Stock (collectively, “Common Stock Equivalents”),
excluding any Excluded Securities, for a consideration per share less than the Floor Price, then immediately after such sale or
issuance the Floor Price then in effect shall be reduced to an amount equal to 90% of the effective price at which the Common Stock
was issued. For purposes of determining the adjusted Floor Price under this Section, the following shall be applicable:


 


(A)       Issuance of Equity
Securities. If the Company in any manner grants or sells any Common Stock Equivalents and the lowest price per share for which
one share of Common Stock is issuable upon the exercise of any such Common Stock Equivalent is less than the Floor Price, then
such share of Common Stock shall be deemed to be outstanding and to have been issued and sold by the Company at the time of the
granting or sale of such Common Stock Equivalent for such price per share. For purposes of this Section, the “lowest price
per share” for which one share of Common Stock is issuable upon the exercise of any such Common Stock Equivalent shall be
equal to the sum of the lowest amounts of consideration (if any) received or receivable by the Company with respect to any one
share of Common Stock (x) upon granting or sale of the Common Stock Equivalent, (y) upon exercise of the Common Stock Equivalent
and (z) upon conversion or exchange or exercise of such Common Stock Equivalent. No further adjustment of the Floor Price shall
be made upon the actual issuance of such share of Common Stock upon the exercise or conversion of the Common Stock Equivalent.


 


	
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(B)       Change in Option
Price or Rate of Conversion. If the purchase price provided for in any Common Stock Equivalent, the additional consideration,
if any, payable upon the issue, conversion, exchange or exercise of any Common Stock Equivalent, or the rate at which any Common
Stock Equivalent is convertible into or exchangeable or exercisable for Common Stock changes at any time, the Floor Price in effect
at the time of such change shall be adjusted to the Floor Price which would have been in effect at such time had such Common Stock
Equivalent provided for such changed purchase price, additional consideration or changed conversion rate, as the case may be, at
the time initially granted, issued or sold. For purposes of this Section, if the terms of any Common Stock Equivalent that was
outstanding as of the Closing Date are changed in the manner described in the immediately preceding sentence, then such Common
Stock Equivalent and the Common Stock deemed issuable upon exercise, conversion or exchange thereof shall be deemed to have been
issued as of the date of such change. No adjustment shall be made if such adjustment would result in an increase of the Floor Price
then in effect.


 


(C)       Calculation of
Consideration Received. If any Common Stock Equivalent is issued in connection with the issue or sale of other securities of
the Company, together comprising one integrated transaction in which no specific consideration is allocated to such Common Stock
Equivalent by the parties thereto, the Common Stock Equivalent will be deemed to have been issued for the difference of (x) the
aggregate fair market value of such Common Stock Equivalent and other securities issued or sold in such integrated transaction,
less (y) the fair market value of the securities other than such Common Stock Equivalent, issued or sold in such transaction and
the other securities issued or sold in such integrated transaction will be deemed to have been issued or sold for the balance of
the consideration received by the Company. If any Common Stock or Common Stock Equivalents are issued or sold or deemed to have
been issued or sold for cash, the consideration received therefor will be deemed to be the gross amount raised by the Company;
provided, however, that such gross amount is not greater than 110% of the net amount received by the Company therefor. If any Common
Stock, Options or Convertible Securities are issued or sold for a consideration other than cash, the amount of the consideration
other than cash received by the Company will be the fair value of such consideration. The fair value of any consideration other
than cash or securities will be determined jointly by the Company and the Holder.


 


(D)       Record Date.
If the Company takes a record of the holders of Common Stock for the purpose of entitling them (x) to receive a dividend or other
distribution payable in Common Stock, or Capital Shares or (y) to subscribe for or purchase Common Stock, Capital Shares, then
such record date will be deemed to be the date of the issue or sale of the Common Stock deemed to have been issued or sold upon
the declaration of such dividend or the making of such other distribution or the date of the granting of such right of subscription
or purchase, as the case may be.


 


	
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(c)       Other Events.
If any event occurs of the type contemplated by the provisions of this Section 3.2 but not expressly provided for by such provisions
(including, without limitation, the granting of stock appreciation rights, phantom stock rights or other rights with equity features),
then the Company's Board of Directors will make an appropriate adjustment in the Floor Price so as to protect the rights of the
Holder under this Debenture; provided that no such adjustment will increase the Floor Price as otherwise determined pursuant to
this Section 3.2.


 


3.3       Notice
of Certain Events.


 


(a)       Adjustment to
Floor Price. Whenever the Floor Price is adjusted pursuant to any provision of Section 3.2, the Company shall promptly mail
to the Holder a notice setting forth the Floor Price after such adjustment and setting forth a brief statement of the facts requiring
such adjustment.


 


(b)       Notice to Allow
Conversion by Holder. If (A) the Company shall declare a dividend (or any other distribution in whatever form) on the Common
Stock, (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock, (C) the Company
shall authorize the granting to all holders of the Common Stock of rights or warrants to subscribe for or purchase any shares of
capital stock of any class or of any rights, (D) the approval of any stockholders of the Company shall be required in connection
with any reclassification of the Common Stock, any consolidation or merger to which the Company is a party, any sale or transfer
of all or substantially all of the assets of the Company, of any compulsory share exchange whereby the Common Stock is converted
into other securities, cash or property or (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation
or winding up of the affairs of the Company, then, in each case, the Company shall cause to be filed at each office or agency maintained
for the purpose of conversion of this Debenture, and shall cause to be delivered to the Holder at its last address as it shall
appear upon the Debenture Register, at least 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. The Holder is entitled to convert this Debenture during the 20-day period commencing
on the date of such notice through the effective date of the event triggering such notice.


 


	
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(c)       If at any time that
this Debenture is outstanding: (i) the VWAP is below $0.03 (ii) the Company has not authorized or reserved the lesser of at least
50 million shares of its Common Stock or enough shares of its Common Stock to account for the conversion of this Debenture in full
and the issuance of shares of the Common Stock in accordance with its terms; or (iii) the Holder is prohibited for any reason,
including without limitation in connection with any claim, suit, federal or state law, regulation, order, interpretation, statute,
or similar authority, from otherwise converting this Debenture, then the Holder may elect in Holder’s sole and absolute discretion
to convert any portion of the outstanding Principal Amount and accrued and unpaid interest under this Debenture into such number
of shares of Common Stock of the Company equal to the dollar amount of the Debenture being converted divided by the Conversion
Price, subject to the provisions of Section 2.1 (c).


 


ARTICLE 4


COVENANTS


 


4.1       Notice
of Default. If any one or more events occur which constitute or which, with notice, lapse of time, or both, would constitute
an Event of Default, the Company shall forthwith give notice to the Holder, specifying the nature and status of the Event of Default
or such other event(s), as the case may be.


 


4.2       Payment
of Obligations. So long as this Debenture shall be outstanding, the Company shall pay, extend, or discharge at or before maturity,
all its respective material obligations and liabilities, including, without limitation, tax liabilities, except where the same
may be contested in good faith by appropriate proceedings.


 


4.3       Compliance
with Laws. So long as this Debenture shall be outstanding, the Company shall comply with all applicable laws, ordinances,
rules, regulations and requirements of governmental authorities, except for such noncompliance which would not have a material
adverse effect on the business, properties, condition (financial or otherwise) or results of operations of the Company and the
Subsidiaries.


 


4.4       Inspection
of Property, Books and Records. So long as this Debenture shall be outstanding, the Company shall keep proper books of record
and account in which full, true and correct entries shall be made of all material dealings and transactions in relation to its
business and activities and shall permit representatives of the Holder at the Holder’s expense to visit and inspect any
of its respective properties, to examine and make abstracts from any of its respective books and records, not reasonably deemed
confidential by the Company, and to discuss its respective affairs, finances and accounts with its respective officers and independent
public accountants, all at such reasonable times during normal business hours and upon reasonable notice as shall be effected
in a manner so as not to interfere unreasonably with the Company’s normal business operations.


 


4.5       Negative
Covenants. As long as at least 25% of the Principal Amount of this Debenture remains outstanding, without the Holder’s
prior written consent which consent shall not unreasonably be withheld or delayed, the Company shall not, and shall not permit
any of its Subsidiaries to, directly or indirectly:


 


(a)        intentionally omitted;


 


	
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(b)       amend its charter
documents, including, without limitation, the certificate of incorporation and bylaws, in any manner that materially and adversely
affects any rights of the Holder;


 


(c)       repay, repurchase
or offer to repay, repurchase or otherwise acquire more than a de minimis number of shares of its Common Stock or Capital Shares;


 


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


 


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


 


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


 


4.6       No
Impairment.  Except and to the extent as waived or consented to by the Holder, the Company shall not by any action, including,
without limitation, amending its certificate of incorporation or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance
of any of the terms of this Agreement, but will at all times in good faith assist in the carrying out of all such terms and in
the taking of all such actions as may be necessary or appropriate to protect the rights of Holder as set forth in this Agreement
against impairment.


 


4.7       Right
of First Refusal on Other Financing.In the event that the Company offers any securities in a financing transaction (either
debt, equity, or a combination thereof) which is intended to close during a time at least 10% of the Principal Amount of this
Debenture remains outstanding, Holder shall be entitled to a right of first refusal to enable it to match the terms of such financing.
The Company shall deliver to Holder, at least 20 days prior to the proposed closing date of such transaction, written notice describing
the proposed transaction, including the terms and conditions thereof, and providing Holder an option during the 20 day period
following delivery of such notice to provide the financing being offered in such transaction on the same terms as contemplated
by such transaction. Notwithstanding the foregoing, if the Company seeks to consummate such financing on terms less favorable
to the Company than those terms that were provided to Holder, such financing shall be subject to Holder’s right of first
refusal set forth in this Section 4.7.


 





4.8       DWAC
Eligibility.  The Company shall use commercially reasonable efforts to obtain approval by the Depository Trust Corporation
(DTC) to have its Common Stock become eligible for DWAC/FAST transfer with its transfer agent.


 





ARTICLE 5

EVENTS OF DEFAULT; REMEDIES


 


5.1       Events
of Default.  “Event of Default” wherever used herein means any one of the following events:


 


	
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(a)       the Company shall
default in the payment of principal of or interest on this Debenture as and when the same shall be due and payable;


 


(b)       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;


 


(c)       any representation
or warranty made in this Debenture, any other Transaction Documents, any written statement pursuant hereto or thereto or any other
report, financial statement or certificate made or delivered to the Holder or any other Holder shall be untrue or false or misleading,
in light of the circumstances under which they were made, in any material respect as of the date when made or deemed made;


 


(d)       the Company or any
Subsidiary shall be subject to a Bankruptcy Event;


 


(e)       the Company or any
Subsidiary shall default on any of its obligations under any mortgage, credit agreement or other facility, indenture agreement,
factoring agreement or other instrument under which there may be issued, or by which there may be secured or evidenced, any indebtedness
for borrowed money or money due under any long term leasing or factoring arrangement that (a) involves an obligation greater than
$150,000, whether such indebtedness now exists or shall hereafter be created, and (b) results in such indebtedness becoming or
being declared due and payable prior to the date on which it would otherwise become due and payable;


 


(f)       it becomes unlawful
for the Company to perform or comply with its obligations under this Debenture in any respect;


 


(g)       the Common Stock
shall not be eligible for listing or quotation for trading on a Trading Market and shall not be eligible to resume listing or quotation
for trading thereon within five Trading Days;


 


(h)       the Company shall
fail to timely file all reports required to be filed by it with the Commission pursuant to Section 13 or 15(d) of the Exchange
Act otherwise required by the Exchange Act;


 


(i)       intentionally omitted;


 


(j)       Company, within
ten (10) days after written notice from Holder that it cannot find a broker who will sell the Common Stock issued to Holder upon
conversion, has been unable to identify to Holder a broker who will sell the Common Stock for Holder;


 


(k)       If the average Volume
Weighted Average Price per share of the Common Stock for any period of three (3) consecutive Trading Days during the term of the
Debenture is less than $0.01 per share (as adjusted for any stock splits, stock dividends, combinations, subdivisions, recapitalizations
or similar reorganizations of capital); or


 


(l)       The total authorized
shares of Common Stock of the Company less the aggregate issued and outstanding shares of Common Stock of the Company multiplied
by the Conversion Price is greater than the unconverted Principal Amount and any accrued interest outstanding under this Debenture
multiplied by four (4), or a shown in mathematical terms as:


 


	
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(No. of Authorized
- No. of Issued) x Conversion Price > (Unconverted Principal Balance + Interest) X 4


 


5.2       Acceleration
of Maturity; Rescission and Annulment. If an Event of Default occurs and is continuing, then and in every such case the Holder
may, in Holder’s sole and absolute discretion, send a notice in writing to the Company, and if the Event of Default has
not been cured within fifteen (15) Business Days following the delivery of such default notice to the Company by the Holder, the
Holder may rescind any outstanding Conversion Notice and declare that any or all amounts owing or otherwise outstanding under
this Debenture are immediately due and payable and upon any such declaration this Debenture or such portion thereof, as applicable,
shall become immediately due and payable in cash in an amount equal to one hundred ten percent (110%) of the sum of (i) the unconverted
Principal Amount thereof, plus (ii) all accrued and unpaid interest thereon to the date of payment.


 


5.3       Late
Payment Penalty. All overdue accrued and unpaid interest to be paid hereunder shall entail a late fee at an interest rate
equal to the lesser of 18% per annum or the maximum rate permitted by applicable law which shall accrue daily from the date such
interest is due hereunder through and including the date of payment in full.


 


5.4       Intentionally
omitted.

















 


5.5       Maximum
Interest Rate. Notwithstanding anything herein to the contrary, if at any time the applicable Interest Rate as provided for
herein shall exceed the maximum lawful rate which may be contracted for, charged, taken or received by the Holder in accordance
with any applicable law, the rate of interest applicable to this Debenture shall automatically be deemed to be the maximum lawful
rate. To the greatest extent permitted under applicable law, the Company hereby waives and agrees not to allege or claim that
any provisions of this Debenture could give rise to or result in any actual or potential violation of any applicable usury laws.


 


5.6       Remedies.
The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Holder, by vitiating
the intent and purpose of the transaction contemplated hereby. Accordingly, the Company acknowledges that the remedy at law for
a breach of its obligations under this Debenture will be inadequate and agrees, in the event of a breach or threatened breach
by the Company of the provisions of this Debenture, that the Holder shall be entitled to all other available remedies at law or
in equity, and in addition to the penalties assessable herein, to an injunction or injunctions restraining, preventing or curing
any breach of this Debenture and to enforce specifically the terms and provisions thereof, without the necessity of showing economic
loss and without any bond or other security being required.


 


	
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5.7       No
Penalty. Whenever pursuant to this Debenture the Company is required to pay an amount in excess of the Principal Amount plus
accrued and unpaid interest, the Company and the Holder agree that the actual damages to the Holder from the receipt of cash payment
on this Debenture may be difficult to determine and the amount to be so paid by the Company represents stipulated damages and
not a penalty and is intended to compensate the Holder in part for loss of the opportunity to convert this Debenture and to earn
a return from the sale of shares of Common Stock acquired upon conversion of this Debenture at a price in excess of that price
paid for such shares pursuant to this Debenture. The Company and the Holder hereby agree that such amount of stipulated damages
is not disproportionate to the possible loss to the Holder from the receipt of a cash payment without the opportunity to convert
this Debenture into shares of Common Stock.


 


ARTICLE 6

MISCELLANEOUS


 


6.1       Surrender
of Debentures. Upon conversion or payment in full on the Maturity Date, the Holder shall either deliver this Debenture by
hand to the Company at its principal executive offices or surrender the same to the Company at such address by nationally recognized
overnight courier. Payment of the Debenture on the Maturity Date, shall be made by the Company to the Holder against receipt of
this Debenture by wire transfer of immediately available funds to such account(s) as the Holder shall specify by written notice
to the Company. If payment of such redemption price is not made in full by the redemption date, or the amount due on maturity
is not paid in full by the Maturity Date, the Holder shall continue to have the right to convert this Debenture for such unpaid
amount as provided in Article 2 hereof or to declare an Event of Default as provided in Article 5.


 


6.2       Effect
of Bankruptcy Event. The Holder shall be entitled to exercise its conversion privilege notwithstanding the occurrence of a
Bankruptcy Event or the commencement of any case under the Bankruptcy Code. The Company hereby waives to the fullest extent permitted
any rights to relief it may have under 11 U.S.C. § 362 in respect of the conversion of this Debenture. To the extent that
the Company makes a payment or payments to the Holder or the Holder enforces or exercises its rights under this Debenture, and
such payment or payments or the proceeds of such enforcement or exercise or any part thereof are subsequently invalidated, declared
to be fraudulent or preferential, set aside, recovered from, disgorged by or are required to be refunded, repaid or otherwise
restored to the Company, a trustee, receiver or any other person under any law (including, without limitation, any bankruptcy
law, state or federal law, common law or equitable cause of action), then to the extent of any such restoration the obligation
or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment
had not been made or such enforcement or setoff had not occurred.


 


6.3       Withholding.
To the extent required by applicable law, the Company may withhold amounts for or on account of any taxes imposed or levied by
or on behalf of any taxing authority in the United States having jurisdiction over the Company from any payments made pursuant
to this Debenture.


 


6.4       No
Rights as Shareholder. This Debenture does not entitle Holder to any voting rights or any other rights as a shareholder of
the Company prior to the conversion of the Debenture into shares of Common Stock as provided herein.


 


6.5       Saturdays,
Sundays, Holidays, etc. If the last or appointed day for the taking of any action or the expiration of any right required
or granted herein shall not be a Business Day, then, such action may be taken or such right may be exercised on the next succeeding
Business Day.


 


	
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6.6       Entire
Agreement. This Agreement, the Securities Purchase Agreement and the other Transaction Documents, together with the Exhibits and
Schedules thereto, contain the entire understanding of the parties with respect to the subject matter hereof and supersede
all prior agreements, understandings, discussions and representations, oral or written, with respect to such matters, which the
parties acknowledge have been merged into such documents, exhibits and schedules.


 


6.7       Amendments;
Waivers. No provision of this Agreement may be waived or amended except in a written instrument signed by the Company and
the Holder. No waiver of any default with respect to any provision, condition or requirement of this Agreement shall be deemed
to be a continuing waiver in the future or a waiver of any subsequent default or a waiver of any other provision, condition or
requirement hereof, nor shall any delay or omission of either party to exercise any right hereunder in any manner impair the exercise
of any such right.


 


6.8       Construction.
The headings herein are for convenience only, do not constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof. The language used in this Agreement will be deemed to be the language chosen by the parties to express
their mutual intent, and no rules of strict construction will be applied against any party. This Agreement shall be construed
as if drafted jointly by the parties, and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue
of the authorship of any provisions of this Agreement or any of the Transaction Documents.


 


6.9       Notices.
Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be in writing and
shall be deemed given and effective if delivered in the manner and to the address as specified in the Securities Purchase Agreement.


 


6.10     Governing
Law. All questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed
by and construed and enforced in accordance with the internal laws of the State of California, without regard to the principles
of conflicts of law thereof. Each party agrees that all Actions concerning the interpretations, enforcement and defense of the
transactions contemplated by this Agreement and any other Transaction Documents (whether brought against a party hereto or its
respective Affiliates, employees or agents) shall be commenced exclusively in the California Courts (as defined in the Securities
Purchase Agreement). Each party hereto hereby irrevocably submits to the exclusive jurisdiction of the California 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 the any of the Transaction Documents), and hereby irrevocably waives, and agrees
not to assert in any Action, any claim that it is not personally subject to the jurisdiction of any such California Court, or
that such Action has been commenced in an improper or inconvenient forum. Each party hereto hereby irrevocably waives personal
service of process and consents to process being served in any such Action 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 Agreement
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 manner permitted by 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 Agreement or the transactions contemplated hereby. If either party shall commence an Action to enforce
any provisions of a Transaction Document, then the prevailing party in such Action shall be reimbursed by the other party for
its reasonable attorneys’ fees and other costs and expenses incurred with the investigation, preparation and prosecution
of such Action.


 


	
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6.11       Counterparts.
This Agreement may be executed in two or more counterparts, all of which when taken together shall be considered one and the same
agreement and shall become effective when counterparts have been signed by each party and delivered to the other party, it being
understood that both parties need not sign the same counterpart. In the event that any signature is delivered by facsimile transmission
or electronic mail in portable document format or other means intended to preserve the original graphic content of a signature,
such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed)
with the same force and effect as if such facsimile signature page were an original thereof.


 


6.12       Payment
Set Aside. To the extent that the Company makes a payment or payments to the Holder pursuant to any Transaction Document or
the Holder enforces or exercises its rights thereunder, and such payment or payments or the proceeds of such enforcement or exercise
or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside, recovered from, disgorged
by or are required to be refunded, repaid or otherwise restored to the Company, a trustee, receiver or any other person under
any law (including, without limitation, any bankruptcy law, state or federal law, common law or equitable cause of action), then
to the extent of any such restoration the obligation or part thereof originally intended to be satisfied shall be revived and
continued in full force and effect as if such payment had not been made or such enforcement or setoff had not occurred.


 


6.13       Beneficial
Ownership Limitation. The number of shares of Common Stock beneficially owned by the Holder and its Affiliates shall include
the number of shares of Common Stock being converted under this Agreement with respect to which such determination is being made,
but shall exclude the number of shares of Common Stock which are still subject to conversion under this Agreement or the purchase,
exercise or conversion of the unpurchased, unexercised or nonconverted portion of any other securities of the Company (including,
without limitation, any other Common Stock Equivalents). Except as set forth in the preceding sentence, for purposes of this Section
6.13, beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations
promulgated thereunder. Upon the written or oral request of a Holder, the Company shall within two Business Days confirm orally
and/or in writing to the Holder the number of shares of Common Stock then outstanding. The “Beneficial Ownership Limitation”
shall be 4.99% of the number of shares of the Common Stock outstanding. The Holder, upon not less than 61 days’ prior notice
to the Company, may increase or decrease 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.











 


IN WITNESS WHEREOF, the
Company has caused this Debenture to be signed by its duly authorized officer on the date of this Debenture.


 


	
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        World Surveillance Group Inc., a Delaware
        

        corporation
	 
	 	 
	By: 	/s/ Glenn D. Estrella	 
	 	 	 
	Name: 	Glenn D. Estrella	 
	 	 	 
	Title:	President & CEO	 


 





	
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EXHIBIT A

CONVERSION NOTICE


 


TO:      Attn: _______________


World Surveillance Group
Inc., a Delaware corporation


 


The undersigned owner of
the Convertible Debenture due January __, 2015 (the “Debenture”) issued by World Surveillance Group Inc.,
a Delaware corporation (the “Company”) hereby irrevocably exercises its option to convert a portion of the
Debenture in accordance with its terms, as follows:


 


	Conversion Date:	 	[●]
	Conversion Time:	 	[●]
	Principal Amount converted:	 	[●]
	Accrued Interest converted:	$	[●]
	Total amount converted	$ 	[●]
	Conversion Price	$ 	[●]
	Shares of Common Stock to be issued:	 	[●]



 


The undersigned hereby
instructs the Company to (i) deliver a stock certificate representing the Common Stock Issued at Conversion, a new Debenture representing
the new Principal Amount outstanding, and a check in payment of any fractional shares to the following address:


 


La Jolla Cove Investors,
Inc.


1793 Union Street


San Francisco, California
94123


 


	or (ii) to DWAC the Common Stock Issued
    at Conversion to the following account information:	 
	 	 
	[La Jolla to cross out the option not elected]	 
	 	 
	 	 
	 	 
	Name: 	 	 
	 	 	 
	Title:	 	 


 






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Appendix A


 


Cash True-Up Payment example:


 


1)   Market
Price: $0.0625


2)   Conversion
Price = $0.05 (20% discount)


3)   Debenture
Conversion Amount = $10,000


 


Value of Common Stock Delivered Pursuant
to Conversion Price:


 


$10,000/($0.05/10) + ($10,000/$0.05) = 2,200,000
shares * $0.0625 = $137,500


 


Value of Common Stock Delivered Pursuant
to Cash True-Up Payment:


 


$10,000/($0.075/10) + ($10,000/$0.075) = 1,466,667
shares * $0.0625 = $91,667


 


Cash True-Up Payment:


 


$137,500 - $91,667 = $45,833 Cash


 


Total Value Received:


 


1,466,667 shares of Common Stock + $45,833
Cash


  



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