Exhibit
4.1





 


[FORM
OF SENIOR SECURED NOTE]


 


THE
SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE
STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN
EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL
SELECTED BY THE HOLDER, IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT
TO RULE 144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA
FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES. ANY TRANSFEREE OF THIS NOTE SHOULD CAREFULLY
REVIEW THE TERMS OF THIS NOTE, INCLUDING SECTION 14(a) HEREOF. THE PRINCIPAL AMOUNT REPRESENTED BY THIS NOTE MAY BE LESS THAN
THE AMOUNTS SET FORTH ON THE FACE HEREOF.


 


THIS
NOTE HAS BEEN ISSUED WITH ORIGINAL ISSUE DISCOUNT (“OID”). PURSUANT TO TREASURY REGULATION §1.1275-3(b)(1), PAUL
GAITAN, A REPRESENTATIVE OF THE COMPANY HEREOF WILL, BEGINNING TEN DAYS AFTER THE ISSUANCE DATE OF THIS NOTE, PROMPTLY MAKE AVAILABLE
TO THE HOLDER UPON REQUEST THE INFORMATION DESCRIBED IN TREASURY REGULATION §1.1275-3(b)(1)(i). PAUL GAITAN MAY BE REACHED
AT TELEPHONE NUMBER (844) 937-9547.


 


Workhorse
Group Inc.


 


SENIOR
SECURED NOTE


 


	Issuance
    Date:  December [  ], 2017	Original
    Principal Amount: U.S. $[      ]





 


FOR
VALUE RECEIVED, Workhorse Group Inc., a Nevada corporation (the “Company”), hereby promises to pay to [BUYER]
or registered assigns (the “Holder”) in cash the amount set out above as the Original Principal Amount (as reduced
pursuant to the terms hereof pursuant to redemption or otherwise, the “Principal”) when due, whether upon the
Maturity Date (as defined below), acceleration, redemption or otherwise (in each case in accordance with the terms hereof) and,
if an Event of Default has occurred and is continuing, to pay interest (“Interest”) on any outstanding Principal
at the applicable Default Rate (as defined below). This Senior Secured Note (including all Senior Secured Notes issued in exchange,
transfer or replacement hereof, this “Note”) is one of an issue of Senior Secured Notes issued pursuant to the
Securities Purchase Agreement on the Closing Date (collectively, the “Notes” and such other Senior Secured Notes,
the “Other Notes“). Certain capitalized terms used herein are defined in Section 27.


 






     


     


    




 


(1) ORIGINAL
ISSUE DISCOUNT; PAYMENTS OF PRINCIPAL; PREPAYMENTS. The Company acknowledges and agrees that this Note was issue at an original
issue discount. On the Maturity Date, the Company shall pay to the Holder an amount in cash representing 100% of all outstanding
Principal, accrued and unpaid Interest and accrued and unpaid Late Charges (as defined in Section 20(b)) on such Principal and
Interest. The “Maturity Date” shall be June 30, 2018. The Company may prepay any portion of the outstanding Principal,
at its sole discretion.


 


(2) INTEREST;
DEFAULT RATE. No Interest shall accrue hereunder unless and until an Event of Default (as defined below) has occurred. From
and after the occurrence and during the continuance of any Event of Default, Interest shall accrue hereunder at twenty-five percent
(25.0%) per annum (the “Default Rate”) and shall be computed on the basis of a 360-day year and twelve 30-day
months and shall be payable in arrears on the first Trading Day of each such calendar quarter in which Interest accrues hereunder
(each, an “Interest Date”). Accrued and unpaid Interest, if any, shall also be payable as part of the Redemption
Amount upon any redemption hereunder. In the event that such Event of Default is subsequently cured (and no other Event of Default
then exists (including, without limitation, for the Company’s failure to pay such Interest at the Default Rate on the applicable
Interest Date)), Interest shall cease to accrue hereunder as of the calendar day immediately following the date of such cure;
provided that the Interest as calculated and unpaid during the continuance of such Event of Default shall continue to apply to
the extent relating to the days after the occurrence of such Event of Default through and including the date of such cure of such
Event of Default.





 


(3) REGISTRATION;
BOOK-ENTRY. The Company shall maintain a register (the “Register”) for the recordation of the names and addresses
of the holders of each Note and the Principal amount of the Notes (and stated interest thereon) held by such holders (the “Registered
Notes”). The entries in the Register shall be conclusive and binding for all purposes absent manifest error. The Company
and the holders of the Notes shall treat each Person whose name is recorded in the Register as the owner of a Note for all purposes,
including, without limitation, the right to receive payments of Principal and Interest, if any, hereunder, notwithstanding notice
to the contrary. A Registered Note may be assigned or sold in whole or in part only by registration of such assignment or sale
on the Register. Upon its receipt of a request to assign or sell all or part of any Registered Note by the Holder, the Company
shall record the information contained therein in the Register and issue one or more new Registered Notes in the same aggregate
Principal amount as the Principal amount of the surrendered Registered Note to the designated assignee or transferee pursuant
to Section 13. Notwithstanding anything to the contrary in this Section 3, the Holder may assign any Note or any portion thereof
to an Affiliate of such Holder or a Related Fund of such Holder without delivering a request to assign or sell such Note to the
Company and the recordation of such assignment or sale in the Register (a “Related Party Assignment”); provided,
that (x) the Company may continue to deal solely with such assigning or selling Holder unless and until such Holder has delivered
a request to assign or sell such Note or portion thereof to the Company for recordation in the Register; (y) the failure of such
assigning or selling Holder to deliver a request to assign or sell such Note or portion thereof to the Company shall not affect
the legality, validity, or binding effect of such assignment or sale and (z) such assigning or selling Holder shall, acting solely
for this purpose as a non-fiduciary agent of the Company, maintain a register (the “Related Party Register”)
comparable to the Register on behalf of the Company, and any such assignment or sale shall be effective upon recordation of such
assignment or sale in the Related Party Register.


 






    	 	- 2 -	 



     


    




 


(4) RIGHTS
UPON EVENT OF DEFAULT.


 


(a) Event
of Default. Each of the following events shall constitute an “Event of Default”:


 


(i) the
Company’s failure to pay to the Holder any amount of Principal or other amounts when and as due under this Note (including, without
limitation, the Company’s failure to pay any redemption amounts hereunder) or any other Transaction Document or any other agreement,
document, certificate or other instrument delivered in connection with the transactions contemplated hereby and thereby to which
the Holder is a party;


 


(ii) the
Company or any of its Subsidiaries, pursuant to or within the meaning of Title 11, U.S. Code, or any similar Federal, foreign
or state law for the relief of debtors (collectively, “Bankruptcy Law”), (A) commences a voluntary bankruptcy
case, (B) consents to the entry of an order for relief against it in an involuntary bankruptcy case, (C) consents to the appointment
of a receiver, trustee, assignee, liquidator or similar official (a “Custodian”), (D) makes a general assignment
for the benefit of its creditors or (E) admits in writing that it is generally unable to pay its debts as they become due;


 


(iii) a
court of competent jurisdiction enters an order or decree under any Bankruptcy Law that (A) is for relief against the Company
or any of its Subsidiaries in an involuntary case, (B) appoints a Custodian of the Company or any of its Subsidiaries or (C) orders
the liquidation of the Company or any of its Subsidiaries;


 


(iv) a
final judgment or judgments for the payment of money aggregating in excess of $150,000 are rendered against the Company or any
of its Subsidiaries and which judgments are not, within sixty (60) days after the entry thereof, bonded, discharged or stayed
pending appeal, or are not discharged within sixty (60) days after the expiration of such stay; provided, however,
that any judgment which is covered by insurance or an indemnity from a credit worthy party shall not be included in calculating
the $150,000 amount set forth above so long as the Company provides the Holder a written statement from such insurer or indemnity
provider (which written statement shall be reasonably satisfactory to the Holder) to the effect that such judgment is covered
by insurance or an indemnity and the Company will receive the proceeds of such insurance or indemnity within thirty (30) days
of the issuance of such judgment;





 


(v) other
than as specifically set forth in another clause of this Section 4(a), the Company or any of its Subsidiaries breaches any representation,
warranty, covenant or other term or condition of any Transaction Document, except, in the case of a breach of a covenant or other
term or condition of any Transaction Document which is curable, only if such breach continues for a period of an aggregate of
five (5) Business Days;


 






    	 	- 3 -	 



     


    




 


(vi) any
breach or failure in any respect to comply with Section 10 or Section 11 of this Note;


 


(vii) any
material damage to, or loss, theft or destruction of a material amount of property of the Company, whether or not insured, or
any strike, lockout, labor dispute, embargo, condemnation, act of God or public enemy, or other casualty which causes, for more
than thirty (30) consecutive days, the cessation or substantial curtailment of revenue producing activities at any facility of
the Company or any Subsidiary, if any such event or circumstance could reasonably be expected to have a Material Adverse Effect
(as defined in the Securities Purchase Agreement);


 


(viii) any
default under, redemption of or acceleration prior to maturity of an aggregate amount of Indebtedness of the Company or any of
its Subsidiaries other than with respect to this Note or any Other Notes;


 


(ix) a
false or inaccurate certification by the Company as to whether any Event of Default has occurred; or


 


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


 


(b) Redemption
Right. Upon the occurrence of an Event of Default with respect to this Note or any Other Note, the Company shall within one
(1) Business Day deliver written notice thereof via facsimile or electronic mail and overnight courier (an “Event of Default
Notice”) to the Holder. At any time after the earlier of the Holder’s receipt of an Event of Default Notice and the Holder
becoming aware of an Event of Default, the Holder may require the Company to redeem (an “Event of Default Redemption”)
all or any portion of this Note by delivering written notice thereof (the “Event of Default Redemption Notice”)
to the Company, which Event of Default Redemption Notice shall indicate the portion of this Note the Holder is electing to require
the Company to redeem. Each portion of this Note subject to redemption by the Company pursuant to this Section 4(b) shall be redeemed
by the Company in cash by wire transfer of immediately available funds at a price equal to 100% of the Redemption Amount being
redeemed (the “Event of Default Redemption Price”). Redemptions required by this Section 4(b) shall be made in
accordance with the provisions of Section 7. To the extent redemptions required by this Section 4(b) are deemed or determined
by a court of competent jurisdiction to be prepayments of the Note by the Company, such redemptions shall be deemed to be voluntary
prepayments.


 






    	 	- 4 -	 



     


    




 


(5) RIGHTS
UPON FUNDAMENTAL TRANSACTION AND CHANGE OF CONTROL.


 


(a) Assumption.
The Company shall not enter into or be party to a Fundamental Transaction unless the Successor Entity assumes in writing all of
the obligations of the Company under this Note and the other Transaction Documents in accordance with the provisions of this Section
5 pursuant to written agreements in form and substance satisfactory to the Required Holders and approved by the Required Holders,
which such approval may not be unreasonably withheld, prior to such Fundamental Transaction, including agreements, if so requested
by the Holder, to deliver to each holder of Notes in exchange for such Notes a security of the Successor Entity evidenced by a
written instrument substantially similar in form and substance to the Notes, including, without limitation, having a principal
amount and interest rate equal to the Principal amount and the Default Rate of the Notes then outstanding held by the Holder,
having similar ranking and security to the Notes, and satisfactory to the Required Holders. No later than (i) thirty (30) days
prior to the occurrence or consummation of any Fundamental Transaction or (ii) if later, the first Business Day following the
date the Company first becomes aware of the occurrence or potential occurrence of a Fundamental Transaction, the Company shall
deliver written notice thereof via facsimile or electronic mail and overnight courier to the Holder. Upon the occurrence or consummation
of any Fundamental Transaction, and it shall be a required condition to the occurrence or consummation of any Fundamental Transaction
that, the Company and the Successor Entity or Successor Entities, jointly and severally, shall succeed to, and the Company shall
cause any Successor Entity or Successor Entities to jointly and severally succeed to, and be added to the term “Company”
under this Note (so that from and after the date of such Fundamental Transaction, each and every provision of this Note referring
to the “Company” shall refer instead to each of the Company and the Successor Entity or Successor Entities, jointly
and severally), and the Company and the Successor Entity or Successor Entities, jointly and severally, may exercise every right
and power of the Company prior thereto and shall assume all of the obligations of the Company prior thereto under this Note with
the same effect as if the Company and such Successor Entity or Successor Entities, jointly and severally, had been named as the
Company in this Note. The provisions of this Section shall apply similarly and equally to successive Fundamental Transactions.


 


(b) Redemption
Right. No sooner than twenty five (25) days nor later than twenty (20) days prior to the consummation of a Change of Control,
but not prior to the public announcement of such Change of Control, the Company shall deliver written notice thereof via facsimile
or electronic mail and overnight courier to the Holder (a “Change of Control Notice”). At any time during the
period beginning on the earlier to occur of (i) any oral or written agreement by the Company or any of its Subsidiaries, upon
consummation of which the transaction contemplated thereby would reasonably be expected to result in a Change of Control, (ii)
the Holder becoming aware of a Change of Control and (iii) the Holder’s receipt of a Change of Control Notice and ending twenty
five (25) Business Days after the date of the consummation of such Change of Control, the Holder may require the Company to redeem
(a “Change of Control Redemption”) all or any portion of this Note by delivering written notice thereof (“Change
of Control Redemption Notice”) to the Company, which Change of Control Redemption Notice shall indicate the Redemption
Amount the Holder is electing to require the Company to redeem. The portion
of this Note subject to redemption pursuant to this Section 5(b) shall be redeemed by the Company in cash by wire transfer of
immediately available funds at a price equal to 100% of the Redemption Amount being redeemed (the “Change of Control Redemption
Price”). Redemptions required by this Section 5 shall be made in accordance with the provisions of Section 7 and shall
have priority to payments to shareholders in connection with a Change of Control. To the extent redemptions required by this Section
5(b) are deemed or determined by a court of competent jurisdiction to be prepayments of the Note by the Company, such redemptions
shall be deemed to be voluntary prepayments.


 






    	 	- 5 -	 



     


    




 


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


 


(7) REDEMPTIONS.


 


(a) The
Company shall deliver the applicable Event of Default Redemption Price to the Holder within five (5) Business Days after the Company’s
receipt of the Holder’s Event of Default Redemption Notice (the “Event of Default Redemption Date”). If the Holder
has submitted a Change of Control Redemption Notice in accordance with Section 5(b), the Company shall deliver the applicable
Change of Control Redemption Price to the Holder (i) concurrently with the consummation of such Change of Control if such notice
is received prior to the consummation of such Change of Control and (ii) within three (3) Business Days after the Company’s receipt
of such notice otherwise (such date, the “Change of Control Redemption Date”). The Company shall pay the applicable
Redemption Price to the Holder in cash by wire transfer of immediately available funds pursuant to wire instructions provided
by the Holder in writing to the Company on the applicable due date. In the event of a redemption of less than all of the Redemption
Amount of this Note, the Company shall promptly cause to be issued and delivered to the Holder a new Note (in accordance with
Section 14(d)) representing the outstanding Principal which has not been redeemed and any
accrued Interest on such Principal which shall be calculated as if no Redemption Notice has been delivered. In the event
that the Company does not pay the applicable Redemption Price to the Holder within the time period required, at any time thereafter
and until the Company pays such unpaid Redemption Price in full, the Holder shall have the option, in lieu of redemption, to require
the Company to promptly return to the Holder all or any portion of this Note representing the Redemption Amount that was submitted
for redemption and for which the applicable Redemption Price (together with any Late Charges thereon) has not been paid. Upon
the Company’s receipt of such notice, (x) the applicable Redemption Notice shall be null and void with respect to such Redemption
Amount, (y) the Company shall immediately return this Note, or issue a new Note (in accordance with Section 14(d)) to the Holder
representing such Redemption Amount to be redeemed. The Holder’s delivery of a notice voiding a Redemption Notice and exercise
of its rights following such notice shall not affect the Company’s obligations to make any payments of Late Charges which have
accrued prior to the date of such notice with respect to the Redemption Amount subject to such notice.


 


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


 






    	 	- 6 -	 



     


    




 


(c) Insufficient
Assets. If upon a Redemption Date, the assets of the Company are insufficient to pay the applicable Redemption Price, the
Company shall (i) take all appropriate action reasonably within its means to maximize the assets available for paying the applicable
Redemption Price, (ii) redeem out of all such assets available therefor on the applicable Redemption Date the maximum possible
Redemption Amount that it can redeem on such date, pro rata among the Holder and the holders of the Other Notes to be redeemed
in proportion to the aggregate Principal amount of this Note and the Other Notes outstanding on the applicable Redemption Date
and (iii) following the applicable Redemption Date, at any time and from time to time when additional assets of the Company become
available to redeem the remaining Redemption Amount of this Note and the Other Notes, the Company shall use such assets, at the
end of the then current fiscal quarter, to redeem the balance of such Redemption Amount of this Note and the Other Notes, or such
portion thereof for which assets are then available, on the basis set forth above at the applicable Redemption Price, and such
assets will not be used prior to the end of such fiscal quarter for any other purpose. Interest
on the Principal amount of this Note and the Other Notes that have not been redeemed shall continue to accrue until such time
as the Company redeems this Note and the Other Notes. The Company shall pay to the Holder the applicable Redemption Price
without regard to the legal availability of funds unless expressly prohibited by applicable law or unless the payment of the applicable
Redemption Price could reasonably be expected to result in personal liability to the directors of the Company.


 


(8) SECURITY.
This Note and the Other Notes are secured to the extent and in the manner set forth in the Security Documents.


 


(9) RANK.
All payments due under this Note (i) shall rank pari passu with all Other Notes and (ii) shall be senior to all other Indebtedness
of the Company and its Subsidiaries.


 


(10) NEGATIVE
COVENANTS. Until all of the Notes have been converted, redeemed or otherwise satisfied in accordance with their terms, the
Company shall not, and the Company shall not permit any of its Subsidiaries without the prior written consent of the Required
Holders to, directly or indirectly:


 


(a) incur
or guarantee, assume or suffer to exist any Indebtedness, other than Permitted Indebtedness;


 






    	 	- 7 -	 



     


    




 


(b) allow
or suffer to exist any mortgage, lien, pledge, charge, security interest or other encumbrance upon or in any property or assets
(including accounts and contract rights) owned by the Company or any of its Subsidiaries (collectively, “Liens”)
other than Permitted Liens;


 


(c) redeem,
defease, repurchase, repay or make any payments in respect of, by the payment of cash or Cash Equivalents (in whole or in part,
whether by way of open market purchases, tender offers, private transactions or otherwise), all or any portion of any Indebtedness
(other than this Note and the Other Notes) of the Company or any other Person, whether by way of payment in respect of Principal
of (or premium, if any) or interest on, such Indebtedness if at the time such payment is due or is otherwise made or, after giving
effect to such payment, an event constituting, or that with the passage of time and without being cured would constitute, an Event
of Default has occurred and is continuing;


 


(d) redeem,
defease, repurchase, repay or make any payments in respect of, by the payment of cash or Cash Equivalents (in whole or in part,
whether by way of open market purchases, tender offers, private transactions or otherwise), all or any portion of any Indebtedness
(including, without limitation Permitted Indebtedness other than this Note and the Other Notes), by way of payment in respect
of principal of (or premium, if any) such Indebtedness. For clarity, such restriction shall not preclude the payment of regularly
scheduled interest payments which may accrue under such Permitted Indebtedness;


 


(e) redeem
or repurchase its Equity Interests;


 


(f) declare
or pay any cash dividend or distribution on any Equity Interest of the Company or of its Subsidiaries;


 


(g) make,
or permit any of its Subsidiaries to make, any change in the nature of its business as described in the Company’s most recent
Annual Report filed on Form 10-K with the SEC or modify its corporate structure or purpose; 


 


(h) encumber
or allow any Liens on, any of its own or its licensed copyright rights, copyright applications, copyright registrations and like
protections in each work of authorship and derivative work, whether published or unpublished, any patents, patent applications
and like protections, including improvements, divisions, continuations, renewals, reissues, extensions, and continuations-in-part
of the same, trademarks, service marks and, to the extent permitted under applicable law, any applications therefor, whether registered
or not, and the goodwill of the business of the Company and its Subsidiaries connected with and symbolized thereby, know-how,
operating manuals, trade secret rights, rights to unpatented inventions, and any claims for damage by way of any past, present,
or future infringement of any of the foregoing, other than Permitted Liens;


 


(i) enter
into, renew, extend or be a party to, any transaction or series of related transactions (including, without limitation, the purchase,
sale, lease, transfer or exchange of property or assets of any kind or the rendering of services of any kind) with any Affiliate,
except in the ordinary course of business in a manner and to an extent consistent with past practice and necessary or desirable
for the prudent operation of its business, for fair consideration and on terms no less favorable to it or its Subsidiaries than
would be obtainable in a comparable arm’s length transaction with a Person that is not an Affiliate thereof;


 






    	 	- 8 -	 



     


    




 


(j) authorize
or effect a Liquidation Event, or consent thereto;


 


(k) amend,
repeal, restate, supplement or otherwise modify its or any Subsidiary’s Organizational Documents;


 


(l) make
or commit or agree to make, any Investment in any other Person except for Permitted Investments;


 


(m) effect
or agree to effect any Asset Sale other than as contemplated by the Spin-Off (as defined in the Securities Purchase Agreement;
provided, however, that the Company may, with prior written notice to the Collateral Agent, effect an Asset Sale
to SFI (as defined in the Securities Purchase Agreement); or


 


(n) enter
into any agreement to do any of the foregoing.


 


(11) AFFIRMATIVE
COVENANTS. 


 


(a) Until
all of the Notes have been converted, redeemed or otherwise satisfied in accordance with
their terms, the Company shall, and the Company shall cause each Subsidiary to, directly or indirectly:


 


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


 


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


 


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


 






    	 	- 9 -	 



     


    




 


(b) On
or prior to [●], 20181,
the Company shall cause: (i) SFI and WTI (each as defined in the Securities Purchase Agreement) to enter into a co-license agreement
with respect to all assets related to the Horsefly division of the Company and its direct and indirect Subsidiaries (including,
without limitation, those assets set forth on Exhibit A attached hereto), with SFI as licensee and WTI as licensor, in
form and substance reasonably satisfactory to the Collateral Agent (the “Co-License Agreement”), (ii) SFI’s rights
under the Co-License Agreement to be subject to a first priority perfected security interest in favor of the Collateral Agent
pursuant to the Security Agreement and (iii) WTI, as licensor under the Co-License Agreement, to enter into a licensor consent
in form and substance reasonably satisfactory to the Collateral Agent requiring WTI to (x) give the Holder and the holders of
the Other Notes written notice of any default under the Co-License Agreement and an opportunity to cure such default and (y) provide
the Holder and the holders of the Other Notes with a license to use the licensed Intellectual Property Rights (as defined in the
Securities Purchase Agreement) to manufacture, sell, distribute, etc. any licensed products thereunder.


 


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


 


(13) TRANSFER.
This Note may be offered, sold, assigned or transferred by the Holder without the consent of the Company, subject only to the
provisions of Section 2(f) of the Securities Purchase Agreement.


 


(14) REISSUANCE
OF THIS NOTE.


 


(a) Transfer.
If this Note is to be transferred, the Holder shall surrender this Note to the Company, whereupon the Company will forthwith issue
and deliver upon the order of the Holder a new Note (in accordance with Section 14(d) and subject to Section 3), registered as
the Holder may request, representing the outstanding Principal being transferred by the Holder and, if less than the entire outstanding
Principal is being transferred, a new Note (in accordance with Section 14(d)) to the Holder representing the outstanding Principal
not being transferred. The Holder and any assignee, by acceptance of this Note, acknowledge and agree that, by reason of the provision
of Section 3, following redemption of any portion of this Note, the outstanding Principal represented by this Note may be less
than the Principal stated on the face of this Note.


 


(b) Lost,
Stolen or Mutilated Note. Upon receipt by the Company of evidence reasonably satisfactory to the Company of the loss, theft,
destruction or mutilation of this Note, and, in the case of loss, theft or destruction, of any indemnification undertaking by
the Holder to the Company in customary form and, in the case of mutilation, upon surrender and cancellation of this Note, the
Company shall execute and deliver to the Holder a new Note (in accordance with Section 14(d)) representing the outstanding Principal.


 


(c) Note
Exchangeable for Different Denominations. This Note is exchangeable, upon the surrender hereof by the Holder at the principal
office of the Company, for a new Note or Notes (in accordance with Section 14(d)) representing in the aggregate the outstanding
Principal of this Note, and each such new Note will represent such portion of such outstanding Principal as is designated by the
Holder at the time of such surrender.


 





 






1
Insert date that is thirty (30) days following the Issuance Date.




 






    	 	- 10 -	 



     


    




 


(d) Issuance
of New Notes. Whenever the Company is required to issue a new Note pursuant to the terms of this Note, such new Note (i) shall
be of like tenor with this Note, (ii) shall represent, as indicated on the face of such new Note, the Principal remaining outstanding
(or in the case of a new Note being issued pursuant to Section 14(a) or Section 14(c), the Principal designated by the Holder
which, when added to the Principal represented by the other new Notes issued in connection with such issuance, does not exceed
the Principal remaining outstanding under this Note immediately prior to such issuance of new Notes), (iii) shall have an issuance
date, as indicated on the face of such new Note, which is the same as the Issuance Date of this Note, (iv) shall have the same
rights and conditions as this Note and (v) shall represent accrued and unpaid Interest and
Late Charges, if any, on the Principal and Interest of this Note from the Issuance Date.


 


(15) REMEDIES,
CHARACTERIZATIONS, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF. The remedies provided in this Note shall be cumulative
and in addition to all other remedies available under this Note and any of the other Transaction Documents at law or in equity
(including a decree of specific performance and/or other injunctive relief), and nothing herein shall limit the Holder’s right
to pursue actual and consequential damages for any failure by the Company to comply with the terms of this Note. Amounts set forth
or provided for herein with respect to payments, redemption 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 breach, without the necessity of showing economic loss and without any bond or other security being
required.


 


(16) PAYMENT
OF COLLECTION, ENFORCEMENT AND OTHER COSTS. If (a) this Note is placed in the hands of an attorney for collection or enforcement
or is collected or enforced through any legal proceeding or the Holder otherwise takes action to collect amounts due under this
Note or to enforce the provisions of this Note or (b) there occurs any bankruptcy, reorganization, receivership of the Company
or other proceedings affecting Company creditors’ rights and involving a claim under this Note, then the Company shall pay the
costs incurred by the Holder for such collection, enforcement or action or in connection with such bankruptcy, reorganization,
receivership or other proceeding, including, but not limited to, attorneys’ fees and disbursements.


 


(17) CONSTRUCTION;
HEADINGS. This Note shall be deemed to be jointly drafted by the Company and all the Buyers and shall not be construed against
any person as the drafter hereof. The headings of this Note are for convenience of reference and shall not form part of, or affect
the interpretation of, this Note.


 


(18) FAILURE
OR INDULGENCE NOT WAIVER. No failure or delay on the part of the Holder in the exercise of any power, right or privilege hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other
or further exercise thereof or of any other right, power or privilege.


 






    	 	- 11 -	 



     


    




 


(19) DISPUTE
RESOLUTION. In the case of a dispute as to the determination of any Redemption Price, the Company shall submit the disputed
determinations or arithmetic calculations via facsimile or electronic mail within one (1) Business Day of receipt, or deemed receipt,
of the Redemption Notice or other event giving rise to such dispute, as the case may be, to the Holder. If the Holder and the
Company are unable to agree upon such determination or calculation within one (1) Business Day of such disputed determination
or arithmetic calculation being submitted to the Holder, then the Company shall, within one (1) Business Day submit via facsimile
or electronic mail the disputed arithmetic calculation of the Redemption Price to an independent, outside accountant, selected
by the Holder and approved by the Company, such approval not to be unreasonably withheld, delayed or conditioned. The Company,
at the Company’s expense, shall cause the investment bank or the accountant, as the case may be, to perform the determinations
or calculations and notify the Company and the Holder of the results no later than five (5) Business Days from the time it receives
the disputed determinations or calculations. Such investment bank’s or accountant’s determination or calculation, as the case
may be, shall be binding upon all parties absent demonstrable error.


 


(20) NOTICES;
PAYMENTS.


 


(a) Notices.
Whenever notice is required to be given under this Note, unless otherwise provided herein, such notice shall be given in accordance
with Section 9(f) of the Securities Purchase Agreement. The Company shall provide the Holder with prompt written notice of all
actions taken pursuant to this Note, including in reasonable detail a description of such action and the reason therefore. Without
limiting the generality of the foregoing, the Company will give written notice to the Holder at least twenty (20) days prior to
the date on which the Company closes its books or takes a record for determining rights to vote with respect to any Fundamental
Transaction, dissolution or liquidation, provided in each case that such information shall be made known to the public prior to
or in conjunction with such notice being provided to the Holder.


 


(b) Payments.
Whenever any payment of cash is to be made by the Company to any Person pursuant to this Note, such payment shall be made in lawful
money of the United States of America by a check drawn on the account of the Company and sent via overnight courier service to
such Person at such address as previously provided to the Company in writing (which address, in the case of each Buyer, shall
initially be as set forth on the Schedule of Buyers attached to the Securities Purchase Agreement); provided that the Holder may
elect to receive a payment of cash via wire transfer of immediately available funds by providing the Company with prior written
notice setting out such request and the Holder’s wire transfer instructions. Whenever any amount expressed to be due by the terms
of this Note is due on any day which is not a Business Day, the same shall instead be due on the next succeeding day which is
a Business Day. Any amount of Principal or other amounts due hereunder or pursuant to any other Transaction Document (as defined
in the Securities Purchase Agreement) which is not paid when due (except to the extent such amount is concurrently accruing Interest
at the Default Rate hereunder) shall result in a late charge being incurred and payable by the Company in an amount equal to (x)
additional principal hereunder in an amount equal to five (5.0%) of such overdue amount as of each of (A) the fifth calendar day
after such amount was initially due and (B) each anniversary of such due date thereafter until the same is paid in full and (y)
additional interest on such amount at the rate of fifteen percent (15.0%) per annum from the calendar day immediately following
the date such amount was due until the same is paid in full (collectively, the “Late Charges”).


 






    	 	- 12 -	 



     


    




 


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


 


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


 


(23) GOVERNING
LAW; JURISDICTION; JURY TRIAL. This Note shall be construed and enforced in accordance with, and all questions concerning
the construction, validity, interpretation and performance of this Note shall be governed by, the internal laws of the State of
New York, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of New York or
any other jurisdictions) that would cause the application of the laws of any jurisdictions other than the State of New York. The
Company hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in The City of New York,
Borough of Manhattan, for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated
hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is brought in an
inconvenient forum or that the venue of such suit, action or proceeding is improper. The Company 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 to such
party at the address set forth in Section 9(f) of the Securities Purchase 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. Nothing contained herein shall be deemed or operate to preclude the Holder from
bringing suit or taking other legal action against the Company in any other jurisdiction to collect on the Company’s obligations
to the Holder, to realize on any collateral or any other security for such obligations, or to enforce a judgment or other court
ruling in favor of the Holder. THE COMPANY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY
TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS NOTE OR ANY TRANSACTION CONTEMPLATED
HEREBY.


 


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


 






    	 	- 13 -	 



     


    




 


(25) DISCLOSURE.
Upon receipt or delivery by the Company of any notice in accordance with the terms of this Note, unless the Company has in good
faith determined that the matters relating to such notice do not constitute material, nonpublic information relating to the Company
or its Subsidiaries, the Company shall contemporaneously with any such receipt or delivery publicly disclose such material, nonpublic
information on a Current Report on Form 8-K or otherwise. In the event that the Company believes that a notice contains material,
nonpublic information relating to the Company or its Subsidiaries, the Company so shall indicate to such Holder contemporaneously
with delivery of such notice, and in the absence of any such indication, the Holder shall be allowed to presume that all matters
relating to such notice do not constitute material, nonpublic information relating to the Company or its Subsidiaries.


 


(26) USURY.
This Note is subject to the express condition that at no time shall the Company be obligated or required to pay interest hereunder
at a rate or in an amount which could subject the Holder to either civil or criminal liability as a result of being in excess
of the maximum interest rate or amount which the Company is permitted by applicable law to contract or agree to pay. If by the
terms of this Note, the Company is at any time required or obligated to pay interest hereunder, including by way of an original
issue discount, at a rate or in an amount in excess of such maximum rate or amount, the rate or amount of interest under this
Note shall be deemed to be immediately reduced to such maximum rate or amount and the interest payable shall be computed at such
maximum rate or be in such maximum amount and all prior interest payments in excess of such maximum rate or amount shall be applied
and shall be deemed to have been payments in reduction of the principal balance of this Note.


 


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


 


(a) “Affiliate”
has the meaning set forth in Rule 405 under the Securities Act of 1933, as amended.


 


(b) “Asset
Sale” means any Disposition of any business, property or assets of the Company or any of its Subsidiaries, whether now
owned or hereafter acquired (or entering into an agreement to do any of the foregoing).


 


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


 






    	 	- 14 -	 



     


    




 


(d) “Buyer”
means each of the initial holders of Notes party to the Securities Purchase Agreement pursuant to which such holder purchased
the Notes on the Closing Date.


 


(e) “Cash
Equivalents” means (a) marketable direct obligations issued or unconditionally guaranteed by the United States Government
or issued by any agency thereof and backed by the full faith and credit of the United States, in each case, maturing within six
months from the date of acquisition thereof, (b) commercial paper, maturing not more than 270 days after the date of issue rated
P-1 by Moody’s or A-1 by Standard & Poor’s, (c) certificates of deposit maturing not more than 270 days after the date of
issue, issued by commercial banking institutions and money market or demand deposit accounts maintained at commercial banking
institutions, each of which is a member of the Federal Reserve System and has a combined capital and surplus and undivided profits
of not less than $500,000,000 and a Thomson Bank Watch Rating of “BBB” or better, (d) money market accounts maintained
with mutual funds having assets in excess of $2,500,000,000, and (e) marketable tax exempt securities rated A or higher by Moody’s
or A+ or higher by Standard & Poor’s, in each case, maturing within six months from the date of acquisition thereof.


 


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


 


(g) “Closing
Date” shall have the meaning set forth in the Securities Purchase Agreement.


 


(h) “Collateral”
shall have the meaning set forth in the Security Documents.


 


(i) “Collateral
Agent” shall have the meaning set forth in the Security Documents.


 


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


 


(k) “Contingent
Obligation” means, as to any Person, any direct or indirect liability, contingent or otherwise, of that Person with respect
to any Indebtedness, lease, dividend or other obligation of another Person if the primary purpose or intent of the Person incurring
such liability, or the primary effect thereof, is to provide assurance to the obligee of such liability that such liability will
be paid or discharged, or that any agreements relating thereto will be complied with, or that the holders of such liability will
be protected (in whole or in part) against loss with respect thereto.


 






    	 	- 15 -	 



     


    




 


(l) “Convertible
Securities” means any stock or securities (other than Options) directly or indirectly convertible into or exercisable
or exchangeable for shares of Common Stock.


 


(m) “Disposition”
means any transaction, or series of related transactions, pursuant to which any Person or any of its Subsidiaries sells, assigns,
transfers, leases, licenses (as licensor) or otherwise disposes of any property or assets (whether now owned or hereafter acquired)
to any other Person, in each case, whether or not the consideration therefor consists of cash, securities or other assets owned
by the acquiring Person.


 


(n) “Equity
Interests” means (i) all shares of capital stock (whether denominated as common capital stock or preferred capital stock),
equity interests, beneficial, partnership or membership interests, joint venture interests, participations or other ownership
or profit interests in or equivalents (regardless of how designated) of or in a Person (other than an individual), whether voting
or non-voting and (ii) all securities convertible into or exchangeable for any of the foregoing and all warrants, Options or other
rights to purchase, subscribe for or otherwise acquire any of the foregoing, whether or not presently convertible, exchangeable
or exercisable.


 


(o) “Exchange
Act” means the Securities Exchange Act of 1934, as amended.


 


(p) “Fundamental
Transaction” means (i) that the Company shall, directly or indirectly, including through Subsidiaries, Affiliates or
otherwise, in one or more related transactions, (a) consolidate or merge with or into (whether or not the Company is the surviving
corporation) another Subject Entity, or (b) sell, assign, transfer, convey or otherwise dispose of all or substantially all of
the properties or assets of the Company or any of its “significant subsidiaries” (as defined in Rule 1-02 of Regulation
S-X) to one or more Subject Entities, or (c) make, or allow one or more Subject Entities to make, or allow the Company to be subject
to or have its Common Stock be subject to or party to one or more Subject Entities making, a purchase, tender or exchange offer
that is accepted by the holders of at least either (1) 50% of the outstanding shares of Common Stock, (2) 50% of the outstanding
shares of Common Stock calculated as if any shares of Common Stock held by all Subject Entities making or party to, or Affiliated
with any Subject Entities making or party to, such purchase, tender or exchange offer were not outstanding; or (3) such number
of shares of Common Stock such that all Subject Entities making or party to, or Affiliated with any Subject Entity making or party
to, such purchase, tender or exchange offer, become collectively the beneficial owners (as defined in Rule 13d-3 under the Exchange
Act) of at least 50% of the outstanding shares of Common Stock, or (d) consummate a stock purchase agreement or other business
combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with one or
more Subject Entities whereby such Subject Entities, individually or in the aggregate, acquire, either (1) at least 50% of the
outstanding shares of Common Stock, (2) at least 50% of the outstanding shares of Common Stock calculated as if any shares of
Common Stock held by all the Subject Entities making or party to, or Affiliated with any Subject Entity making or party to, such
stock purchase agreement or other business combination were not outstanding; or (3) such number of shares of Common Stock such
that the Subject Entities become collectively the beneficial owners (as defined in Rule 13d-3 under the Exchange Act) of at least
50% of the outstanding shares of Common Stock, or (e) reorganize, recapitalize or reclassify its Common Stock, (ii) that the Company
shall, directly or indirectly, including through Subsidiaries, Affiliates or otherwise, in one or more related transactions, allow any
Subject Entity individually or the Subject Entities in the aggregate to be or become the “beneficial owner” (as defined
in Rule 13d-3 under the Exchange Act), directly or indirectly, whether through acquisition, purchase, assignment, conveyance,
tender, tender offer, exchange, reduction in outstanding shares of Common Stock, merger, consolidation, business combination,
reorganization, recapitalization, spin-off, scheme of arrangement, reorganization, recapitalization or reclassification or otherwise
in any manner whatsoever, of either (a) at least 50% of the aggregate ordinary voting power represented by issued and outstanding
Common Stock, (b) at least 50% of the aggregate ordinary voting power represented by issued and outstanding Common Stock not held
by all such Subject Entities as of the Subscription Date calculated as if any shares of Common Stock held by all such Subject
Entities were not outstanding, or (c) a percentage of the aggregate ordinary voting power represented by issued and outstanding
shares of Common Stock or other equity securities of the Company sufficient to allow such Subject Entities to effect a statutory
short form merger or other transaction requiring other shareholders of the Company to surrender their shares of Common Stock without
approval of the shareholders of the Company or (iii) directly or indirectly, including through Subsidiaries, Affiliates or otherwise,
in one or more related transactions, the issuance of or the entering into any other instrument or transaction structured in a
manner to circumvent, or that circumvents, the intent of this definition in which case this definition shall be construed and
implemented in a manner otherwise than in strict conformity with the terms of this definition to the extent necessary to correct
this definition or any portion of this definition which may be defective or inconsistent with the intended treatment of such instrument
or transaction.


 






    	 	- 16 -	 



     


    




 


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


 


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


 


(s) “Indebtedness”
of any Person means, without duplication (i) all indebtedness for borrowed money, (ii) all obligations issued, undertaken or assumed
as the deferred purchase price of property or services, including (without limitation) “capital leases” in accordance
with GAAP (other than trade payables entered into in the ordinary course of business consistent with past practice), (iii) all
reimbursement or payment obligations with respect to letters of credit, surety bonds and other similar instruments, (iv) all obligations
evidenced by notes, bonds, debentures or similar instruments, including obligations so evidenced incurred in connection with the
acquisition of property, assets or businesses, (v) all indebtedness created or arising under any conditional sale or other title
retention agreement, or incurred as financing, in either case with respect to any property or assets acquired with the proceeds
of such indebtedness (even though the rights and remedies of the seller or bank under such agreement in the event of default are
limited to repossession or sale of such property), (vi) all monetary obligations under any leasing or similar arrangement which,
in connection with GAAP, consistently applied for the periods covered thereby, is classified as a capital lease, (vii) all indebtedness
referred to in clauses (i) through (vi) above secured by (or for which the holder of such Indebtedness has an existing right,
contingent or otherwise, to be secured by) any mortgage, deed of trust, lien, pledge, charge, security interest or other encumbrance
of any nature whatsoever upon or in any property or assets (including accounts and contract rights) with respect to any asset
or property owned by any Person, even though the Person which owns such assets or property has not assumed or become liable for
the payment of such indebtedness, and (viii) all Contingent Obligations in respect of indebtedness or obligations of others of
the kinds referred to in clauses (i) through (vii) above.





 


(t) “Investment”
means, with respect to any Person, (a) any investment by such Person in any other Person (including Affiliates) in the form of
loans, guarantees, advances or other extensions of credit (excluding accounts receivable arising in the ordinary course of business),
capital contributions or acquisitions of Indebtedness (including, any bonds, notes, debentures or other debt securities), Equity
Interests, or all or substantially all of the assets of such other Person (or of any division or business line of such other Person),
(b) the purchase or ownership of any futures contract or liability for the purchase or sale of currency or other commodities at
a future date in the nature of a futures contract, or (c) any investment in any other items that are or would be classified as
investments on a balance sheet of such Person prepared in accordance with GAAP.


 


(u) “Liquidation
Event” means the voluntary or involuntary liquidation, dissolution or winding up of the Company or such Subsidiaries
the assets of which constitute all or substantially all of the assets of the business of the Company and its Subsidiaries taken
as a whole, in a single transaction or series of transactions, or adoption of any plan for the same.


 


(v) “Options”
means any rights, warrants or options to subscribe for or purchase (i) shares of Common Stock or (ii) Convertible Securities.


 


(w) “Organization
Documents” means, (a) with respect to any corporation, the certificate or articles of incorporation and the bylaws (or
equivalent or comparable constitutive documents with respect to any non-U.S. jurisdiction); (b) with respect to any limited liability
company, the certificate or articles of formation or organization and operating agreement; (c) with respect to any partnership,
joint venture, trust or other form of business entity, the partnership, joint venture or other applicable agreement of formation
or organization and any agreement, instrument, filing or notice with respect thereto filed in connection with its formation or
organization with the applicable governmental authority in the jurisdiction of its formation or organization and, if applicable,
any certificate or articles of formation or organization of such entity, and (d) in each case, all shareholder or other equity
holder agreements, voting trusts and similar arrangements to which such Person is a party or which is applicable to its Equity
Interests and all other arrangements relating to the control or management of such Person.


 






    	 	- 17 -	 



     


    




 


(i) “Parent
Entity” of a Person means an entity that, directly or indirectly, controls the applicable Person, or, if there is more
than one such Person or such entity, the Person or Parent Entity designated by the Required Holders or in the absence of such
designation, such Person or entity with the largest public market capitalization as of the date of consummation of the Fundamental
Transaction.


 


(ii) “Permitted
Indebtedness” means (i) Indebtedness evidenced by this Note and the Other Notes, (ii) existing Indebtedness, as set forth
on Schedule 3(p) of the Securities Purchase Agreement, (iii) trade payables incurred in the ordinary course of business
consistent with past practice, (iv) unsecured Indebtedness and Indebtedness not secured by assets secured by the Security Agreement
or the Pledge Agreement or, prior to the due execution and delivery of the Co-License Agreement, assets relating to the Horsefly
division of the Company and its direct and indirect Subsidiaries, which Indebtedness does not provide at any time for (a) the
payment, prepayment, repayment, repurchase, acceleration or defeasance, including upon an event of default under such Indebtedness,
directly or indirectly, of any principal or premium, if any, thereon until ninety-one (91) days after the Maturity Date or later
and (b) total interest and fees at a rate in excess of twelve percent (12.00%) per annum, (v) Indebtedness secured by Permitted
Liens described in clauses (iv) and (v) of the definition of Permitted Liens, (vi) Indebtedness incurred pursuant to strategic
transactions approved by a majority of the disinterested directors of the Company, provided that any such incurrence shall only
be to a Person (or to the equityholders of a Person) which is, itself or through its subsidiaries, an operating company in a business
synergistic with the business of the Company and shall provide to the Company additional benefits in addition to the lending of
funds, but shall not include a transaction in which the Company is incurring Indebtedness primarily for the purpose of raising
funds or with an entity whose primary business is lending or investing in securities; provided, that such Indebtedness
is not secured by assets secured by the Security Agreement or the Pledge Agreement or, prior to the due execution and delivery
of the Co-License Agreement, assets relating to the Horsefly division of the Company and its direct and indirect Subsidiaries
and (vii) Liens on the Collateral in favor of the Collateral Agent.


 


(x) “Permitted
Investments” means (i) Investments in cash and Cash Equivalents and (ii) advances made in connection with purchases of
goods or services in the ordinary course of business consistent with past practice.


 


(y) “Permitted
Liens” means (i) any Lien for taxes not yet due or delinquent or being contested in good faith by appropriate proceedings
for which adequate reserves have been established in accordance with GAAP, (ii) any statutory Lien arising in the ordinary course
of business by operation of law with respect to a liability that is not yet due or delinquent, (iii) any Lien created by operation
of law, such as materialmen’s liens, mechanics’ liens and other similar liens, arising in the ordinary course of business with
respect to a liability that is not yet due or delinquent or that are being contested in good faith by appropriate proceedings,
(iv) Liens (A) upon or in any equipment acquired or held by the Company or any of its Subsidiaries to secure the purchase price
of such equipment or Indebtedness incurred solely for the purpose of financing the acquisition or lease of such equipment, or
(B) existing on such equipment at the time of its acquisition, provided that the Lien is confined solely to the equipment so acquired
and improvements thereon, and the proceeds of such equipment, (v) Liens incurred in connection with the extension, renewal or
refinancing of the Indebtedness secured by Liens of the type described in clause (iv) above, provided that any extension, renewal
or replacement Lien shall be limited to the property encumbered by the existing Lien and the principal amount of the Indebtedness
being extended, renewed or refinanced does not increase, (vi) leases or subleases and licenses and sublicenses granted to others
in the ordinary course of the Company’s business, not interfering in any material respect with the business of the Company and
its Subsidiaries taken as a whole, (vii) Liens in favor of customs and revenue authorities arising as a matter of law to
secure payments of custom duties in connection with the importation of goods, (viii) Liens arising from judgments, decrees or
attachments in circumstances not constituting an Event of Default under Section 4(a)(iv) and (ix) Liens securing the Permitted
Indebtedness described in clauses (iv) and (vi) of the definition of Permitted Indebtedness.


 






    	 	- 18 -	 



     


    




 


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


 


(aa)“Pledge
Agreement” shall have the meaning set forth in the Securities Purchase Agreement.


 


(bb)“Redemption
Amount” means (i) the portion of the Principal to be redeemed or otherwise with respect to which this determination
is being made, (ii) all accrued and unpaid Interest with respect to such portion of the Principal and (iii) accrued and unpaid
Late Charges with respect to such portion of such Principal and such Interest, if any.


 


(cc)“Redemption
Dates” means, collectively, the Event of Default Redemption Date and the Change of Control Redemption Date, each of the
foregoing, individually, a Redemption Date.


 


(dd)“Redemption
Notices” means, collectively, the Event of Default Redemption Notices and the Change of Control Redemption Notices, each
of the foregoing, individually, a Redemption Notice.


 


(ee)“Redemption
Prices” means, collectively, the Event of Default Redemption Price, and the Change of Control Redemption Price, each
of the foregoing, individually, a Redemption Price.


 


(ff)“Related
Fund” means, with respect to any Person, a fund or account managed by such Person or an Affiliate of such Person.


 


(gg)“Required
Holders” shall have the meaning set forth in the Securities Purchase Agreement.


 


(hh)“Securities
Purchase Agreement” means that certain securities purchase agreement dated as of the Subscription Date by and among the
Company and the Buyers pursuant to which the Company issued the Notes to the Buyers.


 


(ii) “Security
Agreement” shall have the meaning set forth in the Securities Purchase Agreement.


 


(jj)“Security
Documents” shall have the meaning set forth in the Securities Purchase Agreement.


 






    	 	- 19 -	 



     


    




 


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


 


(kk)“Subscription
Date” means December 26, 2017.


 


(ll)“Subsidiaries”
means all joint ventures or entities in which the Company, directly or indirectly, owns capital stock or an equity or similar
interest, including any subsidiaries formed or acquired after the Subscription Date.


 


(i) “Successor
Entity” means one or more Person or Persons (or, if so elected by the Required Holders, the Company or Parent Entity)
formed by, resulting from or surviving any Fundamental Transaction or one or more Person or Persons (or, if so elected by the
Required Holders, the Company or the Parent Entity) with which such Fundamental Transaction shall have been entered into.


 


(ii) “Transaction
Documents” shall have the meaning set forth in the Securities Purchase Agreement.


 


[Signature
Page Follows]


 






    	 	- 20 -	 



     


    




 


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





 


	 	Workhorse
    Group Inc.
	 	 
	 	By:	 
	 		Name:
	 		Title: