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


 


Original Issue Date: August 18, 2014


Original Conversion Price (subject to adjustment
herein): $0.15


 


$


 


 


ORIGINAL
ISSUE DISCOUNT 


CONVERTIBLE
DEBENTURE


DUE
AUGUST 18, 2015


 


THIS ORIGINAL ISSUE DISCOUNT
CONVERTIBLE DEBENTURE is one of a series of duly authorized and validly issued Original Issue Discount Convertible Debentures of
Labor Smart, Inc., a Nevada corporation, (the “Company”), having its principal place of business at 5604 Wendy
Bagwell Parkway, Ste 223, Hiram, GA, 30141, designated as its Original Issue Discount Convertible Debenture due August 18, 2015
(this Debenture, the “Debenture” and, collectively with the other Debentures of such series, the “Debentures”).


 


FOR VALUE RECEIVED, the
Company promises to pay to _______ or its registered assigns (the “Holder”), or shall have paid pursuant to
the terms hereunder, the principal sum of $_______ on August 18, 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 in accordance with the provisions hereof. This Debenture is
subject to the following additional provisions:


 


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


 




    	-1-



    	 



    

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


 


 


“Amortization
Conversion Rate” means the lower of the Conversion Price or 60% of the lowest VWAP for the 20 consecutive Trading Days
ending on the Trading Day that is immediately prior to the applicable Amortization Payment Date.


 


 


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


 


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


 


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


 


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


 


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


 


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


 


“Change
of Control Transaction” means the occurrence after the date hereof of any of (a) an acquisition after the date hereof
by an individual or legal entity or “group” (as described in Rule 13d-5(b)(1) promulgated under the Exchange Act) of
effective control (whether through legal or beneficial ownership of capital stock of the Company, by contract or otherwise) of
in excess of 33% of the voting securities of the Company




    	-2-



    	 



    

(other than by means of conversion
or exercise of the Debentures and the Securities issued together with the Debentures), (b) the Company merges into or consolidates
with any other Person, or any Person merges into or consolidates with the Company and, after giving effect to such transaction,
the stockholders of the Company immediately prior to such transaction own less than 66% of the aggregate voting power of the Company
or the successor entity of such transaction, (c) the Company sells or transfers all or substantially all of its assets to another
Person and the stockholders of the Company immediately prior to such transaction own less than 66% 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 the Company of an agreement to which the Company is a party or by which
it is bound, providing for any of the events set forth in clauses (a) through (d) above.


 


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


 


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


 


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


 


“Conversion
Schedule” means the Conversion Schedule in the form of Schedule 1 attached hereto.


 


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


 


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


 


“Default
Conversion Price” means 52% of the lowest VWAP during the 30 Trading Day-period immediately prior to the applicable Conversion
Date.


 


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


 


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


 


“DTC”
means the Depository Trust Company.


 


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


 


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


 




    	-3-



    	 



    

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


 


“Equity
Conditions” means, during the period in question, (a) the Company shall have duly honored all conversions and redemptions
scheduled to occur or occurring by virtue of one or more Notices of Conversion of the Holder, if any, (b) the Company shall have
paid all liquidated damages and other amounts owing to the Holder in respect of this Debenture, (c)(i) there is an effective registration
statement pursuant to which the Holder is permitted to utilize the prospectus thereunder to resell all of the shares of Common
Stock issuable pursuant to the Transaction Documents (and the Company believes, in good faith, that such effectiveness will continue
uninterrupted for the foreseeable future) or (ii) all of the Conversion Shares issuable pursuant to the Transaction Documents (and
shares issuable in lieu of cash payments of interest) may be resold pursuant to Rule 144 without volume or manner-of-sale restrictions
as determined by the counsel to the Company as set forth in a written opinion letter to such effect, addressed and acceptable to
the Transfer Agent and the Holder, (d) the Common Stock is trading on a Trading Market and all of the shares issuable pursuant
to the Transaction Documents are listed or quoted for trading on such Trading Market (and the Company believes, in good faith,
that trading of the Common Stock on a Trading Market will continue uninterrupted for the foreseeable future), (e) there is a sufficient
number of authorized but unissued and otherwise unreserved shares of Common Stock for the issuance of all of the shares then issuable
pursuant to the Transaction Documents, (f) there is no existing Event of Default and no existing event which, with the passage
of time or the giving of notice, would constitute an Event of Default, (g) the issuance of the shares in question to the Holder
would not violate the limitations set forth in Section 4(d) herein, (h) there has been no public announcement of a pending or proposed
Fundamental Transaction or Change of Control Transaction that has not been consummated, (i) the applicable Holder is not in possession
of any information provided by the Company that constitutes, or may constitute, material non-public information, (j) for each Trading
Day in a period of 20 consecutive Trading Days prior to the applicable date in question, the daily dollar trading volume for the
Common Stock on the principal Trading Market exceeds $10,000 per Trading Day, (i) the Company’s Common Stock must be DTC
and DWAC Eligible and (j) the Company has timely filed (or obtain extensions in respect thereof and file within the applicable
grace period) all reports required to be filed by the Company after the date hereof pursuant to the Exchange Act.


 


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


 


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


 


 




    	-4-



    	 



    

“Make-Whole
Amount” means, with respect to the applicable date of determination, an amount in cash equal to all of the interest that,
but for the applicable conversion or default payment, would have accrued pursuant to Section 2 with respect to the applicable principal
amount being so converted or redeemed for the period commencing on the applicable redemption date or Conversion Date or default
payment date and ending on February 18, 2015, less any amounts actually paid with respect to such amounts.


 


“Mandatory
Default Amount” means the payment of 130% of the outstanding principal amount of this Debenture and accrued and unpaid
interest hereon, in addition to the payment of (a) all other amounts, costs, expenses and liquidated damages due in respect of
this Debenture and (b) the Make-Whole Amount.


 


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


 


 


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


 


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


 


“Optional
Amortization Payment” shall have the meaning set forth in Section 2(d).


 


“Purchase
Agreement” means the Securities Purchase Agreement, dated as of August 18, 2014 among the Company and the original Holders,
as amended, modified or supplemented from time to time in accordance with its terms.


 


 


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


 


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


 


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


 


 


 


 


Section 2.Amortization and
Interest.


 


a)                 
Payment of Interest in Cash or Kind. The Company shall pay interest to the Holder on
the aggregate unconverted and then outstanding principal amount of this Debenture at the rate of 11% per annum, of which six (6)
months’ interest amount shall be guaranteed, payable on each Conversion Date (as to that principal amount then being




    	-5-



    	 



    

converted) and on the Maturity Date
in cash. In addition to the interest payable under this Section 2(a), this Debenture was issued for an original issue discount
of $______.


 


b)                 
Interest Calculations. Interest shall be calculated on the basis of a 360-day year,
consisting of twelve 30 calendar day periods, and shall accrue daily commencing on the Original Issue Date until payment in full
of the outstanding principal, together with all accrued and unpaid interest, liquidated damages and other amounts which may become
due hereunder, has been made. Interest hereunder will be paid to the Person in whose name this Debenture is registered on the records
of the Company regarding registration and transfers of this Debenture (the “Debenture Register”).


 


c)                 
Intentionally Omitted.


 


d)                
Optional Amortization Payments. The Company may redeem one-half of the face amount
of this Debenture and guaranteed interest (each, an “Optional Amortization Payment”), on each of February 18,
2015 and March 1, 2015, in accordance with the attached Optional Amortization Schedule (Appendix A). Each Amortization Payment
may, at the option of the Company, be made in cash or, subject to the Company complying with the Equity Conditions be made in Common
Stock pursuant to the Amortization Conversion Rate.


 


e)                 
Prepayment. At any time upon five (5) days written notice to the Holder, the Company
may prepay any portion of the principal amount of this Debenture and any accrued and unpaid interest. If the Company exercises
its right to prepay the Debenture, the Company shall make payment to the Holder of an amount in cash equal to the sum of the then
outstanding principal amount of this Debenture and guaranteed interest multiplied by 130%. The Holder may continue to convert the
Debenture from the date notice of the prepayment is given until the date of the prepayment. 


 


Section 3.Registration
of Transfers and Exchanges.


 


a)                 
Different Denominations. This Debenture is exchangeable for an equal aggregate principal
amount of Debentures 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 Debenture has been issued subject to certain investment
representations of the original Holder set forth in the Purchase Agreement and may be transferred or exchanged only in compliance
with the Purchase Agreement and applicable federal and state securities laws and regulations. 


 


c)                 
Reliance on Debenture Register. Prior to due presentment for transfer to the Company
of this Debenture, the Company and any agent of the Company may treat the Person in whose name this Debenture is duly registered
on the Debenture Register as the owner hereof for the purpose of receiving payment as herein provided and for all




    	-6-



    	 



    

other purposes, whether or not this
Debenture is overdue, and neither the Company nor any such agent shall be affected by notice to the contrary.


 


Section 4.Conversion.


 


a)                 
Voluntary Conversion. At any time after the Original Issue Date until this Debenture
is no longer outstanding, this Debenture shall be convertible, in whole or in part, into shares of Common Stock at the option of
the Holder, at any time and from time to time (subject to the conversion limitations set forth in Section 4(d) hereof). The
Holder shall effect conversions by delivering to the Company a Notice of Conversion, the form of which is attached hereto as Annex
A (each, a “Notice of Conversion”), specifying therein the principal amount of this Debenture to be converted
and the date on which such conversion shall be effected (such date, the “Conversion Date”). If no Conversion
Date is specified in a Notice of Conversion, the Conversion Date shall be the date that such Notice of Conversion is deemed delivered
hereunder. No ink-original Notice of Conversion shall be required, nor shall any medallion guarantee (or other type of guarantee
or notarization) of any Notice of Conversion form be required. To effect conversions hereunder, the Holder shall not be
required 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 (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 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.


 


b)                 
Conversion Price. The fixed conversion price in effect on any Conversion Date shall
be equal to $0.15, subject to adjustment herein (the “Conversion Price”), provided that, in the event the Company
fails to make any Optional Amortization Payment pursuant to Section 2(d), the Holder thereafter may require the Company to, at
such Holder’s option and otherwise in accordance with the provisions for conversion herein, convert all or any part of this
Debenture into Common Stock at the Amortization Conversion Rate. Notwithstanding anything herein to the contrary, at any time after
the occurrence of any Event of Default the Holder may require the Company to, at such Holder’s option and otherwise in accordance
with the provisions for conversion herein, convert all or any part of this Debenture into Common Stock at the Default Conversion
Price. All such determinations will be appropriately adjusted for any stock dividend, stock split, stock combination, reclassification
or similar transaction that proportionately decreases or increases the Common Stock during such measuring period. Nothing herein
shall limit a Holder’s right to pursue actual damages or declare an Event of Default




    	-7-



    	 



    

pursuant to Section 6 hereof and
the Holder shall have the right to pursue all remedies available to it hereunder, at law or in equity including, without limitation,
a decree of specific performance and/or injunctive relief. The exercise of any such rights shall not prohibit the Holder from seeking
to enforce damages pursuant to any other Section hereof or under applicable law.


 


		c)	Mechanics of Conversion.



 


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


 


                                                                 
ii.                       
Delivery of Certificate Upon Conversion. Not later than three (3) Trading Days after
each Conversion Date (the “Share Delivery Date”), the Company shall deliver, or cause to be delivered, to the
Holder (A) a certificate or certificates representing the Conversion Shares which, on or after the date on which such Conversion
Shares are eligible to be sold under Rule 144 without the need for current public information and the Company has received an opinion
of counsel to such effect reasonably acceptable to the Company (which opinion the Company will be responsible for obtaining)shall
be free of restrictive legends and trading restrictions (other than those which may then be required by the Purchase Agreement)
representing the number of Conversion Shares being acquired upon the conversion of this Debenture, (B) a bank check in the amount
of accrued and unpaid interest (if the Company has elected or is required to pay accrued interest in cash) and (C) a bank check
in the amount of the Make-Whole Amount. All certificate or certificates required to be delivered by the Company under this Section
4(d) shall be delivered electronically through the Depository Trust Company or another established clearing corporation performing
similar functions. If the Conversion Date is prior to the date on which such Conversion Shares are eligible to be sold under Rule
144 without the need for current public information the Conversion Shares shall bear a restrictive legend in the following form,
as appropriate:


 


“NEITHER THE ISSUANCE
AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS.  THE SECURITIES MAY
NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER),




    	-8-



    	 



    

IN A GENERALLY ACCEPTABLE
FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT.  NOTWITHSTANDING
THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT
SECURED BY THE SECURITIES.”


 


Notwithstanding the foregoing,
commencing on such date that the Conversion Shares are eligible for sale under Rule 144 subject to current public information requirements,
the Company, upon request of the Holder, shall obtain a legal opinion to allow for such sales under Rule 144.


 


                                                               
iii.                       
Failure to Deliver Certificates. If, in the case of any Notice of Conversion, such
certificate or certificates are not delivered to or as directed by the applicable Holder by the Share Delivery Date, the Holder
shall be entitled to elect by written notice to the Company at any time on or before its receipt of such certificate or certificates,
to rescind such Conversion, in which event the Company shall promptly return to the Holder any original Debenture delivered to
the Company and the Holder shall promptly return to the Company the Common Stock certificates issued to such Holder pursuant to
the rescinded Conversion Notice. 


 


                                                               
iv.                       
Obligation Absolute; Partial Liquidated Damages. The Company’s obligations to
issue and deliver the Conversion Shares upon conversion of this Debenture in accordance with the terms hereof are absolute and
unconditional, irrespective of any action or inaction by the Holder to enforce the same, any waiver or consent with respect to
any provision hereof, the recovery of any judgment against any Person or any action to enforce the same, or any setoff, counterclaim,
recoupment, limitation or termination, or any breach or alleged breach by the Holder or any other Person of any obligation to the
Company or any violation or alleged violation of law by the Holder or any other Person, and irrespective of any other circumstance
which might otherwise limit such obligation of the Company to the Holder in connection with the issuance of such Conversion Shares;
provided, however, that such delivery shall not operate as a waiver by the Company of any such action the Company
may have against the Holder. In the event the Holder of this Debenture shall elect to convert any or all of the outstanding principal
amount hereof, the Company may not refuse conversion based on any claim that the Holder or anyone associated or affiliated with
the Holder has been engaged in any violation of law, agreement or for any other reason, unless an injunction from a court, on notice
to Holder, restraining and or enjoining conversion of all or part of this Debenture shall have been sought and obtained, and the
Company posts a surety bond for the benefit of the Holder in the amount of 150% of the outstanding principal amount of this Debenture,




    	-9-



    	 



    

which is subject to the injunction,
which bond shall remain in effect until the completion of arbitration/litigation of the underlying dispute and the proceeds of
which shall be payable to the Holder to the extent it obtains judgment. In the absence of such injunction, the Company shall issue
Conversion Shares or, if applicable, cash, upon a properly noticed conversion. If the Company fails for any reason to deliver to
the Holder such certificate or certificates pursuant to Section 4(c)(ii) by the Share Delivery Date, the Company 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 begin 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 6 hereof
for the Company’s failure to deliver Conversion Shares within the period specified herein and the Holder shall have the right
to pursue all remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance
and/or injunctive relief. The exercise of any such rights shall not prohibit the Holder from seeking to enforce damages pursuant
to any other Section hereof or under applicable law.


 


                                                                 
v.                       
Compensation for Buy-In on Failure to Timely Deliver Certificates Upon Conversion.
In addition to any other rights available to the Holder, if the Company fails for any reason to deliver to the Holder such certificate
or certificates by the Share Delivery Date pursuant to Section 4(c)(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’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 the Company
shall (A) pay in cash to the Holder (in addition to any other remedies available to or elected by the Holder) the amount, if any,
by which (x) the Holder’s total purchase price (including any brokerage commissions) for the Common Stock so purchased exceeds
(y) the product of (1) the aggregate number of shares of Common Stock that the Holder was entitled to receive from the conversion
at issue multiplied by (2) the actual sale price at which the sell order giving rise to such purchase obligation was executed (including
any brokerage commissions) and (B) at the option of the Holder, either reissue (if surrendered) this Debenture in a principal amount
equal to the principal amount of the attempted conversion (in which case such conversion shall be deemed rescinded) or deliver
to the Holder the number of shares of Common Stock that would have been issued if the Company had timely complied with its delivery
requirements under Section 4(c)(ii). For example, if the Holder purchases Common Stock having a total purchase price of $11,000
to cover a Buy-In with respect to an attempted conversion of this Debenture with respect to which the actual sale price of the
Conversion Shares (including any brokerage commissions) giving rise to




    	-10-



    	 



    

such purchase obligation was a total
of $10,000 under clause (A) of the immediately preceding sentence, the Company shall be required to pay the Holder $1,000. The
Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In and, upon
request of the Company, evidence of the amount of such loss. Nothing herein shall limit a Holder’s right to pursue any other
remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or
injunctive relief with respect to the Company’s failure to timely deliver certificates representing shares of Common Stock
upon conversion of this Debenture as required pursuant to the terms hereof.


 


                                                               
vi.                       
Reservation of Shares Issuable Upon Conversion. The Company
covenants that it will at all times reserve and keep available out of its authorized and unissued shares of Common Stock a number
of shares of Common Stock at least equal to 300% of the Required Minimum for
the sole purpose of issuance upon conversion of this Debenture and payment of interest on this Debenture, each as herein provided,
free from preemptive rights or any other actual contingent purchase rights of Persons other than the Holder (and the other holders
of the Debentures), not less than such aggregate number of shares of the Common Stock as shall (subject to the terms and conditions
set forth in the Purchase Agreement) be issuable (taking into account the adjustments and restrictions of Section 5) upon the conversion
of the then outstanding principal amount of this Debenture and payment of interest hereunder. The Company covenants that all shares
of Common Stock that shall be so issuable shall, upon issue, be duly authorized, validly issued, fully paid and nonassessable.


 


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


 


                                                           
viii.                       
Transfer Taxes and Expenses. The issuance of certificates for shares of the Common
Stock on conversion of this 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. The




    	-11-



    	 



    

Company shall pay all Transfer Agent
fees required for same-day processing of any Notice of Conversion.


 


d)                
Holder’s Conversion Limitations. The Company shall not effect any conversion
of this Debenture, and a Holder shall not have the right to convert any portion of this Debenture, to the extent that after giving
effect to the conversion set forth on the applicable Notice of Conversion, the Holder (together with the Holder’s Affiliates,
and any Persons acting as a group together with the Holder or any of the Holder’s Affiliates) would beneficially own in excess
of the Beneficial Ownership Limitation (as defined below).  For purposes of the foregoing sentence, the number of shares of
Common Stock beneficially owned by the Holder and its Affiliates shall include the number of shares of Common Stock issuable upon
conversion of this Debenture 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 Debenture beneficially
owned by the Holder or any of its Affiliates and (ii) exercise or conversion of the unexercised or unconverted portion of any other
securities of the Company subject to a limitation on conversion or exercise analogous to the limitation contained herein (including,
without limitation, any other Debentures or the Warrants) beneficially owned by the Holder or any of its Affiliates.  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(d) applies, the determination of whether this Debenture is convertible (in relation to other securities
owned by the Holder together with any Affiliates) and of which principal amount of this Debenture 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 Debenture may be converted (in relation to other securities owned by the Holder together with any Affiliates) and
which principal amount of this Debenture is convertible, in each case subject to the Beneficial Ownership Limitation. To ensure
compliance with this restriction, the Holder will be deemed to represent to the Company each time it delivers a Notice of Conversion
that such Notice of Conversion has not violated the restrictions set forth in this paragraph and the Company shall have no obligation
to verify or confirm the accuracy of such determination. In addition, a determination as to any group status as contemplated above
shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and
regulations promulgated thereunder. For purposes of this Section 4(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) the Company’s most recent periodic or annual report filed with the Commission, as
the case may be, (ii) a more recent public announcement by the Company, or (iii) a more recent written notice by the Company or
the Company’s transfer agent setting forth the number of shares of Common Stock outstanding.  Upon the written or oral
request of a Holder, the Company shall within two Trading Days confirm orally and in writing to the Holder the number of shares
of Common Stock then outstanding.  In any case, the number of outstanding shares of Common Stock shall be




    	-12-



    	 



    

determined after giving effect to
the conversion or exercise of securities of the Company, including this Debenture, by the Holder or its Affiliates since the date
as of which such number of outstanding shares of Common Stock was reported. The “Beneficial Ownership Limitation”
shall be 4.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares
of Common Stock issuable upon conversion of this Debenture held by the Holder. The Holder, upon not less than 61 days’ prior
notice to the Company, may increase or decrease the Beneficial Ownership Limitation provisions of this Section 4(e), 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 Debenture held by the Holder and the Beneficial
Ownership Limitation provisions of this Section 4(e) shall continue to apply. Any such increase or decrease will not be effective
until the 61st day after such notice is delivered to the Company. The Beneficial Ownership Limitation provisions of
this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section
4(d) to correct this paragraph (or any portion hereof) 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 Debenture.


 


Section 5.Certain Adjustments.


 


a)                 
Stock Dividends and Stock Splits. If the Company, at any time while this Debenture
is outstanding: (i) pays a stock dividend or otherwise makes a distribution or distributions payable in shares of Common Stock
on shares of Common Stock or any Common Stock Equivalents (which, for avoidance of doubt, shall not include any shares of Common
Stock issued by the Company upon conversion of, or payment of interest on, the Debentures), (ii) subdivides outstanding shares
of Common Stock into a larger number of shares, (iii) combines (including by way of a reverse stock split) outstanding shares of
Common Stock into a smaller number of shares or (iv) issues, in the event of a reclassification of shares of the Common Stock,
any shares of capital stock of the Company, then the Conversion Price shall be multiplied by a fraction of which the numerator
shall be the number of shares of Common Stock (excluding any treasury shares of the Company) outstanding immediately before such
event, and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event. Any
adjustment made pursuant to this Section shall become effective immediately after the record date for the determination of 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. If, at any time while this Debenture is outstanding, the Company
or any Subsidiary, as applicable, sells or grants any option to purchase or sells or grants any right to reprice, or otherwise
disposes of or issues (or announces any sale, grant or any option to purchase or other disposition), any Common




    	-13-



    	 



    

Stock or Common Stock Equivalents
entitling any Person to acquire shares of Common Stock at an effective price per share that is lower than the then Conversion Price
(such lower price, the “Base Conversion Price” and 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 shares of Common Stock at an effective price
per share that is lower than the Conversion Price, such issuance shall be deemed to have occurred for less than the Conversion
Price on such date of the Dilutive Issuance), then the Conversion Price shall be reduced to equal the Base Conversion Price. Such
adjustment shall be made whenever such Common Stock or Common Stock Equivalents are issued. Notwithstanding the foregoing, no adjustment
will be made under this Section 5(b) in respect of an Exempt Issuance. The Company shall notify the Holder in writing, no later
than the Trading Day following the issuance of any Common Stock or Common Stock Equivalents subject to this Section 5(b), indicating
therein the applicable issuance price, or applicable reset price, exchange price, conversion price and other pricing terms (such
notice, the “Dilutive Issuance Notice”). For purposes of clarification, whether or not the Company provides
a Dilutive Issuance Notice pursuant to this Section 5(b), upon the occurrence of any Dilutive Issuance, the Holder is entitled
to 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.


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




    	-14-



    	 



    

 


e)                 
Fundamental Transaction. If, at any time while this Debenture is outstanding, (i) the
Company, directly or indirectly, in one or more related transactions effects any merger or consolidation of the Company with or
into another Person, (ii) the Company, directly or indirectly, effects any sale, lease, license, assignment, transfer, conveyance
or other disposition of all or substantially all of its assets in one or a series of related transactions, (iii) any, direct or
indirect, purchase offer, tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which
holders of Common Stock are permitted to sell, tender or exchange their shares for other securities, cash or property and has been
accepted by the holders of 50% or more of the outstanding Common Stock, (iv) the Company, directly or indirectly, in one or more
related transactions effects any reclassification, reorganization or recapitalization of the Common Stock or any compulsory share
exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property,
(v) the Company, directly or indirectly, in one or more related transactions consummates a stock or share purchase agreement or
other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement)
with another Person whereby such other Person acquires more than 50% of the outstanding shares of Common Stock (not including any
shares of Common Stock held by the other Person or other Persons making or party to, or associated or affiliated with the other
Persons making or party to, such stock or share purchase agreement or other business combination) (each a “Fundamental
Transaction”), then, upon any subsequent conversion of this Debenture, 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 Debenture), the number of shares of Common
Stock of the successor or acquiring corporation or of the Company, 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 Debenture is convertible immediately prior to such Fundamental Transaction (without regard
to any limitation in Section 4(d) on the conversion of this Debenture). 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 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. 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. The Company shall cause any successor entity in a Fundamental
Transaction in which the Company is not the survivor (the “Successor Entity”) to assume in writing all of the
obligations of the Company under this Debenture and the other Transaction Documents (as defined in the Purchase Agreement) in accordance
with the provisions of this Section 5(e) pursuant to written agreements in




    	-15-



    	 



    

form and substance reasonably satisfactory
to the Holder and approved by the Holder (without unreasonable delay) prior to such Fundamental Transaction and shall, at the option
of the holder of this Debenture, deliver to the Holder in exchange for this Debenture a security of the Successor Entity evidenced
by a written instrument substantially similar in form and substance to this Debenture 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 Debenture (without regard to any limitations on the conversion of this Debenture) 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 Debenture immediately prior to the consummation of such Fundamental Transaction), and which
is reasonably satisfactory in form and substance to the Holder. 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 Debenture and the other Transaction Documents referring to the “Company” shall refer instead to the Successor
Entity), and may exercise every right and power of the Company and shall assume all of the obligations of the Company under this
Debenture and the other Transaction Documents with the same effect as if such Successor Entity had been named as the Company herein.


 


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


 


g)                 
Notice to the Holder.


 


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


 


                                                                 
ii.                       
Notice to Allow Conversion by Holder. If (A) the Company shall declare a dividend (or
any other distribution in whatever form) on the Common Stock, (B) the Company shall declare a special nonrecurring cash dividend
on or a redemption of the Common Stock, (C) the Company shall authorize the granting to all holders of the Common Stock of rights
or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights, (D) the approval of any stockholders
of the Company shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which
the




    	-16-



    	 



    

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


 


Section 6.Events of Default.


 


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


 


                                                                   
i.                       
any default in the payment of (A) the principal amount of any Debenture or (B) interest, liquidated damages and other amounts
owing to a Holder on any Debenture, as and when the same shall become due and payable (whether on a Conversion Date or the Maturity
Date or by acceleration or otherwise) which default, solely in the case of an interest payment or other default under clause (B)
above, is not cured within 3 Trading Days;


 




    	-17-



    	 



    

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


 


                                                               
iii.                       
a default or event of default (subject to any grace or cure period provided in the applicable agreement, document or instrument)
shall occur under (A) any of the Transaction Documents or (B) any other material agreement, lease, document or instrument to which
the Company or any Subsidiary is obligated (and not covered by clause (vi) below);


 


                                                               
iv.                       
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 incorrect in any material respect as of the date when made or deemed made;


 


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


 


                                                               
vi.                       
the Company or any Subsidiary shall default on any of its obligations under any mortgage, credit agreement or other facility,
indenture agreement, factoring agreement or other instrument under which there may be issued, or by which there may be secured
or evidenced, any indebtedness for borrowed money or money due under any long term leasing or factoring arrangement that (a) involves
an obligation greater than $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.                       
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 or the transfer of shares of Common Stock through the
Depository Trust Company System is no longer available or “chilled”;


 


                                                           
viii.                       
the Company shall be a party to any Change of Control Transaction or Fundamental Transaction or shall agree to sell or dispose
of all or in excess of 33% of its assets in one transaction or a series of related transactions (whether or not such sale would
constitute a Change of Control Transaction);




    	-18-



    	 



    

 


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


 


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


 


                                                               
xi.                       
if the Company or any Significant Subsidiary shall: (i) apply for or consent to the appointment of a receiver, trustee,
custodian or liquidator of it or any of its properties, (ii) admit in writing its inability to pay its debts as they mature, (iii)
make a general assignment for the benefit of creditors, (iv) be adjudicated a bankrupt or insolvent or be the subject of an order
for relief under Title 11 of the United States Code or any bankruptcy, reorganization, insolvency, readjustment of debt, dissolution
or liquidation law or statute of any other jurisdiction or foreign country, or (v) file a voluntary petition in bankruptcy, or
a petition or an answer seeking reorganization or an arrangement with creditors or to take advantage or any bankruptcy, reorganization,
insolvency, readjustment of debt, dissolution or liquidation law or statute, or an answer admitting the material allegations of
a petition filed against it in any proceeding under any such law, or (vi) take or permit to be taken any action in furtherance
of or for the purpose of effecting any of the foregoing;


 


                                                             
xii.                       
if any order, judgment or decree shall be entered, without the application, approval or consent of the Borrower or any Significant
Subsidiary, by any court of competent jurisdiction, approving a petition seeking liquidation or reorganization of the Borrower
or any Subsidiary, or appointing a receiver, trustee, custodian or liquidator of the Borrower or any Subsidiary, or of all or any
substantial part of its assets, and such order, judgment or decree shall continue unstayed and in effect for any period of sixty
(60) days;


 


                                                           
xiii.                       
Intentionally omitted;


 


                                                           
xiv.                       
the Company shall fail to maintain sufficient reserved shares pursuant to Section 4.10 of the Purchase Agreement; or


 


                                                             
xv.                       
any monetary judgment, writ or similar final process shall be entered or filed against the Company, any subsidiary or any
of their respective property or other assets for more than $200,000, and such judgment, writ or similar final process shall remain
unvacated, unbonded or unstayed for a period of 45 calendar days.


 


b)                 
Remedies Upon Event of Default. If any Event of Default occurs, then the outstanding
principal amount of this Debenture, plus accrued but unpaid interest,




    	-19-



    	 



    

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. After the occurrence of any Event of Default that results in the eventual acceleration
of this Debenture, the interest rate on this Debenture shall accrue at an additional interest rate equal to the lesser of 2% per
month (24% 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 Debenture to or as directed by the Company. In connection with such acceleration described
herein, the Holder need not provide, and the Company hereby waives, any presentment, demand, protest or other notice of any kind,
and the Holder may immediately and without expiration of any grace period enforce any and all of its rights and remedies hereunder
and all other remedies available to it under applicable law. Such acceleration may be rescinded and annulled by Holder at any time
prior to payment hereunder and the Holder shall have all rights as a holder of the Debenture until such time, if any, as the Holder
receives full payment pursuant to this Section 6(b). No such rescission or annulment shall affect any subsequent Event of Default
or impair any right consequent thereon.


 


Section 7.Miscellaneous.


 


a)                 
Notices. Any and all notices or other communications or deliveries to be provided by
the Holder hereunder, including, without limitation, any Notice of Conversion, shall be in writing and delivered personally, by
facsimile, or sent by a nationally recognized overnight courier service, addressed to the Company, at the address set forth above,
or such other facsimile number or address as the Company may specify for such purposes by notice to the Holder delivered in accordance
with this Section 7(a). Any and all notices or other communications or deliveries to be provided by the Company hereunder shall
be in writing and delivered personally, by facsimile, or sent by a nationally recognized overnight courier service addressed to
each Holder at the facsimile number or address of the Holder appearing on the books of the Company, or if no such facsimile number
or address appears on the books of the Company, at the principal place of business of such Holder, as set forth in the Purchase
Agreement. Any notice or other communication or deliveries hereunder shall be deemed given and effective on the earliest of (i)
the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number set forth on the signature
pages attached hereto prior to 12:00 p.m. (New York City time) on any date, (ii) the next Trading Day after the date of transmission,
if such notice or communication is delivered via facsimile at the facsimile number set forth on the signature pages attached hereto
on a day that is not a Trading Day or later than 12:00 p.m. (New York City time) on any Trading Day, (iii) the second Trading Day
following the date of mailing, if sent by U.S. nationally recognized overnight courier service or (iv) upon actual receipt by the
party to whom such notice is required to be given.


 


b)                 
Absolute Obligation. Except as expressly provided herein, no provision of this Debenture
shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of, liquidated damages
and accrued interest, as




    	-20-



    	 



    

applicable, on this Debenture at
the time, place, and rate, and in the coin or currency, herein prescribed. This Debenture is a direct debt obligation of the Company.
This Debenture ranks pari passu with all other Debentures now or hereafter issued under the terms set forth herein.


 


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


 


d)                
Governing Law. All questions concerning the construction, validity, enforcement and
interpretation of this Debenture 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 Transaction Documents (whether brought
against a party hereto or its respective Affiliates, directors, officers, shareholders, employees or agents) shall be commenced
in the state and federal courts sitting in the City of 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 Transaction Documents), and hereby irrevocably waives, and agrees not to assert in any suit, action
or proceeding, any claim that it is not personally subject to the jurisdiction of such 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 Debenture 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 Debenture or the transactions contemplated hereby. If any party shall commence an action or proceeding to
enforce any provisions of this Debenture, then the prevailing party in such action or proceeding shall be reimbursed by the other
party for its attorneys fees and other costs and expenses incurred in the investigation, preparation and prosecution of such action
or proceeding.


 


e)                 
Waiver. Any waiver by the Company or the Holder of a breach of any provision of this
Debenture 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 Debenture.




    	-21-



    	 



    

The failure of the Company or the
Holder to insist upon strict adherence to any term of this Debenture 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 Debenture
on any other occasion. Any waiver by the Company or the Holder must be in writing.


 


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


 


g)                 
Remedies, Characterizations, Other Obligations, Breaches and Injunctive Relief. 
The remedies provided in this Debenture shall be cumulative and in addition to all other remedies available under this Debenture
and any of the other Transaction Documents at law or in equity (including a decree of specific performance and/or other injunctive
relief), and nothing herein shall limit the Holder’s right to pursue actual and consequential damages for any failure by
the Company to comply with the terms of this Debenture.  The Company covenants to the Holder that there shall be no characterization
concerning this instrument other than as expressly provided herein. Amounts set forth or provided for herein with respect to payments,
conversion and the like (and the computation thereof) shall be the amounts to be received by the Holder and shall not, except as
expressly provided herein, be subject to any other obligation of the Company (or the performance thereof). The Company acknowledges
that a breach by it of its obligations hereunder will cause irreparable harm to the Holder and that the remedy at law for any such
breach may be inadequate. The Company therefore agrees that, in the event of any such breach or threatened breach, the Holder shall
be entitled, in addition to all other available remedies, to an injunction restraining any such breach or any such threatened breach,
without the necessity of showing economic loss and without any bond or other security being required. The Company shall provide
all information and documentation to the Holder that is requested by the Holder to enable the Holder to confirm the Company’s
compliance with the terms and conditions of this Debenture.


 




    	-22-



    	 



    

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 Debenture and shall not be deemed to limit or affect any of the provisions hereof.


 


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


 


(Signature Pages
Follow)




    	-23-



    	 



    

IN WITNESS WHEREOF, the
Company has caused this Debenture to be duly executed by a duly authorized officer as of the date first above indicated.


 


 


	
        labor smart, inc.

         

         

	
        By:__________________________________________

        Name:

        Title:

        Facsimile No. for delivery of Notices: _______________

	 
	 


 




    	-24-



    	 



    

ANNEX A


 


NOTICE OF CONVERSION





 


The undersigned
hereby elects to convert principal under the Original Issue Discount Convertible Debenture due August 18, 2015 of Labor Smart,
Inc., a Nevada corporation (the “Company”), into shares of common stock (the “Common Stock”),
of the Company according to the conditions hereof, as of the date written below. If shares of Common Stock are to be issued in
the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto and is
delivering herewith such certificates and opinions as reasonably requested by the Company in accordance therewith. No fee will
be charged to the holder for any conversion, except for such transfer taxes, if any.


 


By the delivery
of this Notice of Conversion the undersigned represents and warrants to the Company that its ownership of the Common Stock does
not exceed the amounts specified under Section 4 of this Debenture, 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 Debenture
to be Converted:


 


Payment of Interest in Common
Stock __ yes __ no


If yes, $_____ of Interest
Accrued on Account of Conversion at Issue.





Number of shares of Common
Stock to be issued:








Signature:





Name:





DWAC Instructions:


 


Broker No:


Account No:






    	-25-



    	 



    

 


Appendix A


Optional Amortization Schedule


 


	Amortization Payments	Cash (30% Premium)	Common Stock
	First Payment (February 18, 2015)	$      	$
	Second Payment (March 1, 2015)	$	$


 




    	-26-



    	 



    

Schedule 1


 


CONVERSION SCHEDULE


 


This Original Issue Discount Convertible
Debenture due on August 18, 2015 in the original principal amount of $262,500 is issued by Labor Smart, Inc., a Nevada corporation.
This Conversion Schedule reflects conversions made under Section 4 of the above referenced Debenture.


 


Dated:


 


 


	
         

        Date of Conversion

        (or for first entry, Original Issue
        Date)
	
         

        Amount of Conversion
	
         

        Aggregate Principal Amount Remaining
        Subsequent to Conversion

        (or original Principal Amount)
	
         

        Company Attest

	
         

         

         
	
         

         
	
         

         
	
         

         

	
         

         

         
	
         

         
	
         

         
	
         

         

	
         

         

         
	
         

         
	
         

         
	
         

         

	
         

         

         
	
         

         
	
         

         
	
         

         

	
         

         

         
	
         

         
	
         

         
	
         

         

	
         

         

         
	
         

         
	
         

         
	
         

         

	
         

         

         
	
         

         
	
         

         
	
         

         

	
         

         

         
	
         

         
	
         

         
	
         

         

	
         

         

         
	
         

         
	
         

         
	
         

         



 


 



    	-27-