Exhibit 10.40



 


Exhibit
10.40


 


NEITHER
THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE
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, 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 SECTIONS 3(c)(iii) AND 18(a)
HEREOF. THE PRINCIPAL AMOUNT REPRESENTED BY THIS NOTE AND, ACCORDINGLY, THE SECURITIES ISSUABLE UPON CONVERSION HEREOF MAY BE
LESS THAN THE AMOUNTS SET FORTH ON THE FACE HEREOF PURSUANT TO SECTION 3(c)(iii) OF THIS NOTE.


 


Digital
Ally, Inc.


 


SENIOR
SECURED CONVERTIBLE NOTE


 


	Issuance
    Date: March 24, 2014	Original
    Principal Amount: U.S. $2,000,000


 


FOR
VALUE RECEIVED, Digital Ally, Inc., a Nevada corporation (the “Company”), hereby promises to pay to HUDSON
BAY Master Fund LTD. or registered assigns (the “Holder”) in cash and/or in shares of Common Stock (as
defined below) the amount set out above as the Original Principal Amount (as reduced pursuant to the terms hereof pursuant to
redemption, conversion, amortization or otherwise, the “Principal”) when due, whether upon the Maturity Date
(as defined below), on any Installment Date with respect to the Installment Amount due on such Installment Date, acceleration,
redemption or otherwise (in each case in accordance with the terms hereof) and to pay interest (“Interest”)
on any outstanding Principal at the applicable Interest Rate from the date set out above as the Issuance Date (the “Issuance
Date”) until the same becomes due and payable, whether upon an Interest Date (as defined below), any Installment Date,
the Maturity Date, acceleration, conversion, redemption or otherwise (in each case in accordance with the terms hereof). This
Senior Secured Convertible Note (including all Senior Secured Convertible Notes issued in exchange, transfer or replacement hereof,
this “Note”) is one of an issue of Senior Secured Convertible Notes issued pursuant to the Securities Purchase
Agreement on the Closing Date (collectively, the “Notes” and such other Senior Secured Convertible Notes, the
“Other Notes”). Certain capitalized terms used herein are defined in Section 30.


 




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1. PAYMENTS OF PRINCIPAL; PREPAYMENT. On each Installment Date, the Company shall pay to the Holder an amount equal to the
Installment Amount due on such Installment Date in accordance with Section 8. On the Maturity Date, the Company shall pay to
the Holder an amount in cash representing all outstanding Principal, accrued and unpaid Interest and accrued and unpaid Late
Charges (as defined in Section 24(b)) on such Principal and Interest. The “Maturity Date” shall be
March 24, 2016, as may be extended at the option of the Holder (i) in the event that, and for so long as, an Event of Default
(as defined in Section 4(a)) shall have occurred and be continuing on the Maturity Date (as may be extended pursuant to this
Section 1) or any event shall have occurred and be continuing on the Maturity Date (as may be extended pursuant to this
Section 1) that with the passage of time and the failure to cure would result in an Event of Default and (ii) through
the date that is ten (10) Business Days after the consummation of a Change of Control in the event that a Change of Control
is publicly announced or a Change of Control Notice (as defined in Section 5(b)) is delivered prior to the Maturity Date.
Other than as specifically permitted by this Note, the Company may not prepay any portion of the outstanding Principal,
accrued and unpaid Interest or accrued and unpaid Late Charges on Principal and Interest, if any.


 


2. INTEREST.
Interest on this Note shall commence accruing on the Issuance Date at the Interest Rate and shall be computed on the basis
of a 360-day year and twelve 30-day months and shall be payable in arrears for each Calendar Quarter on the first
(1st) Business Day of each Calendar Quarter after the Issuance Date (each, an “Interest Date”)
with the first (1st) Interest Date being April 1, 2014. Interest shall be payable on each Interest Date, to the
record holder of this Note on the applicable Interest Date in cash by wire transfer of immediately available funds pursuant
to wire instruction provided by the Holder in writing to the Company. Prior to the payment of Interest on an Interest Date,
Interest on this Note shall accrue at the Interest Rate and be payable by way of inclusion of the Interest in (i) the
Conversion Amount (as defined in Section 3(b)(i)) on each Conversion Date (as defined in Section 3(c)(ii)) in accordance with
Section 3(c)(i) and (ii) the Installment Amount on each Installment Date in accordance with Section 8. From and after the
occurrence and during the continuance of an Event of Default, the Interest Rate shall be increased to twenty-one percent
(21.0%). In the event that such Event of Default is subsequently cured, the adjustment referred to in the preceding sentence
shall cease to be effective as of the date of such cure; provided, that the Interest as calculated and unpaid at such
increased rate 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 cure of such Event of Default; provided, further,
that for the purpose of this Section 2, such Event of Default shall not be deemed cured unless and until any accrued and
unpaid Interest shall be paid to the Holder, including, without limitation, Interest accrued at the increased rate of
twenty-one percent (21.0%). The Company shall pay any and all taxes that may be payable with respect to the issuance and
delivery of shares of Common Stock as Interest pursuant to this Section 2.


 




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3. CONVERSION
OF NOTES. At any time or times after the Issuance Date, this Note shall be convertible into shares of the Company’s
common stock, par value $0.001 per share (the “Common Stock”), on the terms and conditions set forth in
this Section 3.


 


a.
Conversion Right. Subject to the provisions of Section 3(d), at any time or times on or after the Issuance Date, the Holder
shall be entitled to convert any portion of the outstanding and unpaid Conversion Amount into fully paid and nonassessable shares
of Common Stock in accordance with Section 3(c), at the Conversion Rate (as defined below). The Company shall not issue any fraction
of a share of Common Stock upon any conversion. If the issuance would result in the issuance of a fraction of a share of Common
Stock, the Company shall round such fraction of a share of Common Stock up to the nearest whole share. The Company shall pay any
and all transfer, stamp and similar taxes that may be payable with respect to the issuance and delivery of Common Stock upon conversion
of any Conversion Amount.


 


b.
Conversion Rate. The number of shares of Common Stock issuable upon conversion of any Conversion Amount pursuant to Section
3(a) shall be determined by dividing (x) such Conversion Amount by (y) the Conversion Price (the “Conversion Rate”).


 


(i)
“Conversion Amount” means the sum of (A) the portion of the Principal to be converted, amortized, redeemed
or otherwise with respect to which this determination is being made, (B) accrued and unpaid Interest with respect to such
Principal and (C) accrued and unpaid Late Charges, if any, with respect to such Principal and Interest.


 


(ii)
“Conversion Price” means, as of any Conversion Date or other date of determination, $8.55 per share,
subject to adjustment as provided herein.


 


c.
Mechanics of Conversion.


 


(i)
Optional Conversion. To convert any Conversion Amount into shares of Common Stock on any date (a “Conversion Date”),
the Holder shall (A) transmit by facsimile or electronic mail (or otherwise deliver), for receipt on or prior to 11:59 p.m., New
York time, on such date, a copy of an executed notice of conversion in the form attached hereto as Exhibit I (the “Conversion
Notice”) to the Company and (B) if required by Section 3(c)(iii), surrender this Note to a common carrier for delivery
to the Company as soon as practicable on or following such date (or an indemnification undertaking with respect to this Note in
the case of its loss, theft or destruction). On or before the first (1st) Business Day following the date of receipt of a Conversion
Notice, the Company shall transmit by facsimile or electronic mail a confirmation of receipt of such Conversion Notice to the
Holder and the Company’s transfer agent (the “Transfer Agent”). On or before the third (3rd) Trading
Day following the date of receipt of a Conversion Notice (the “Share Delivery Date”), the Company shall
(x) provided that the Transfer Agent is participating in the Depository Trust Company (“DTC”) Fast Automated
Securities Transfer


 




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Program,
credit such aggregate number of shares of Common Stock to which the Holder shall be entitled to the Holder’s or its designee’s
balance account with DTC through its Deposit Withdrawal At Custodian system or (y) if the Transfer Agent is not participating
in the DTC Fast Automated Securities Transfer Program, issue and deliver to the address as specified in the Conversion Notice,
a certificate, registered in the name of the Holder or its designee, for the number of shares of Common Stock to which the Holder
shall be entitled. If this Note is physically surrendered for conversion as required by Section 3(c)(iii) and the outstanding
Principal of this Note is greater than the Principal portion of the Conversion Amount being converted, then the Company shall
as soon as practicable and in no event later than three (3) Business Days after receipt of this Note and at its own expense, issue
and deliver to the Holder a new Note (in accordance with Section 18(d)) representing the outstanding Principal not converted.
The Person or Persons entitled to receive the shares of Common Stock issuable upon a conversion of this Note shall be treated
for all purposes as the record holder or holders of such shares of Common Stock on the Conversion Date, irrespective of the date
such Conversion Shares are credited to the Holder’s account with DTC or the date of delivery of the certificates evidencing
such Conversion Shares, as the case may be. In the event that the Holder elects to convert a portion of the Principal amount of
this Note prior to any applicable Installment Date, the Conversion Amount so converted shall be deducted in reverse order starting
from the final Installment Amount to be paid hereunder on the final Installment Date, unless the Holder otherwise indicates and
allocates among any Installment Dates hereunder in the applicable Conversion Notice.


 


(ii)
Company’s Failure to Timely Convert. If the Company shall fail on or prior to the Share Delivery Date to issue and
deliver a certificate to the Holder, if the Transfer Agent is not participating in the DTC Fast Automated Securities Transfer
Program, or credit the Holder’s balance account with DTC, if the Transfer Agent is participating in the DTC Fast Automated
Securities Transfer Program, for the number of shares of Common Stock to which the Holder is entitled upon the Holder’s
conversion of any Conversion Amount (a “Conversion Failure”), then (A) the Company shall pay damages to the
Holder for each Trading Day of such Conversion Failure in an amount equal to 1.5% of the product of (1) the sum of the number
of shares of Common Stock not issued to the Holder on or prior to the Share Delivery Date and to which the Holder is entitled,
and (2) any trading price of the Common Stock selected by the Holder in writing as in effect at any time during the period beginning
on the applicable Conversion Date and ending on the applicable Share Delivery Date and (B) the Holder, upon written notice to
the Company, may void its Conversion Notice with respect to, and retain or have returned, as the case may be, any portion of this
Note that has not been converted pursuant to such Conversion Notice; provided that the voiding of a Conversion Notice shall
not affect the Company’s obligations to make any payments which have accrued prior to the date of such notice pursuant to
this Section 3(c)(ii) or otherwise. In addition to the foregoing, if the Company shall fail on or prior to the Share Delivery
Date to issue and deliver a certificate to the Holder, if the Transfer Agent is not participating in the DTC Fast Automated Securities
Transfer Program, or credit the Holder’s balance account with DTC, if the Transfer Agent is participating in the DTC Fast
Automated Securities Transfer Program, for the number of shares of Common Stock to which the Holder is entitled upon the Holder’s
conversion of any Conversion Amount or on any date of the Company’s obligation to deliver shares of Common Stock as contemplated
pursuant to clause (y) below, and if on or after such Trading Day the Holder purchases (in an open market transaction or otherwise)
Common Stock to deliver in satisfaction of a sale by the


 




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Holder
of Common Stock issuable upon such conversion that the Holder anticipated receiving from the Company (a “Buy-In”),
then the Company shall, within three (3) Trading Days after the Holder’s request and in the Holder’s discretion, either
(x) pay cash to the Holder in an amount equal to the Holder’s total purchase price (including brokerage commissions and
other out-of-pocket expenses, if any) for the shares of Common Stock so purchased (the “Buy-In Price”), at
which point the Company’s obligation to issue and deliver such certificate or credit the Holder’s balance account
with DTC for the shares of Common Stock to which the Holder is entitled upon the Holder’s conversion of the applicable Conversion
Amount shall terminate, or (y) promptly honor its obligation to deliver to the Holder a certificate or certificates representing
such shares of Common Stock or credit the Holder’s balance account with DTC for such shares of Common Stock and pay cash
to the Holder in an amount equal to the excess (if any) of the Buy-In Price over the product of (A) such number of shares of Common
Stock, times (B) any trading price of the Common Stock selected by the Holder in writing as in effect at any time during the period
beginning on the applicable Conversion Date and ending on the applicable Share Delivery Date.


 


(iii)
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 a 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 18. Notwithstanding anything to the contrary in this Section 3(c)(iii),
a 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. Notwithstanding anything
to the contrary set forth herein, upon conversion of any portion of this Note in accordance with the terms hereof, the Holder
shall not be


 




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required
to physically surrender this Note to the Company unless (A) the full Conversion Amount represented by this Note is being converted
or (B) the Holder has provided the Company with prior written notice (which notice may be included in a Conversion Notice) requesting
reissuance of this Note upon physical surrender of this Note. The Holder and the Company shall maintain records showing the Principal,
Interest and Late Charges, if any, converted and the dates of such conversions or shall use such other method, reasonably satisfactory
to the Holder and the Company, so as not to require physical surrender of this Note upon conversion.


 


(iv)
Pro Rata Conversion; Disputes. In the event that the Company receives a Conversion Notice from this Note and one or more
holder of Other Notes for the same Conversion Date and the Company can convert some, but not all, of such portions of this Note
and the Other Notes submitted for conversion, the Company, subject to Section 3(d), shall convert from the Holder and each holder
of Other Notes electing to have this Note or the Other Notes converted on such date a pro rata amount of such holder’s portion
of the Note and its Other Notes submitted for conversion based on the Principal amount of this Note and the Other Notes submitted
for conversion on such date by such holder relative to the aggregate Principal amount of this Note and all Other Notes submitted
for conversion on such date. In the event of a dispute as to the number of shares of Common Stock issuable to the Holder in connection
with a conversion of this Note, the Company shall issue to the Holder the number of shares of Common Stock not in dispute and
resolve such dispute in accordance with Section 23.


 


d.
Limitations on Conversions.


 


(i)
Beneficial Ownership. The Company shall not effect the conversion of any portion of this Note, and the Holder shall not
have the right to convert any portion of this Note, to the extent that after giving effect to such conversion, the Holder together
with the other Attribution Parties collectively would beneficially own in excess of 4.99% (the “Maximum Percentage”)
of the shares of Common Stock outstanding immediately after giving effect to such conversion. For purposes of the foregoing sentence,
the aggregate number of shares of Common Stock beneficially owned by the Holder and the other Attribution Parties shall include
the number of shares of Common Stock held by the Holder and all other Attribution Parties plus the number of shares of Common
Stock issuable upon conversion of this Note with respect to which the determination of such sentence is being made, but shall
exclude shares of Common Stock which would be issuable upon (i) conversion of the remaining, nonconverted portion of this Note
beneficially owned by the Holder or any of the other Attribution Parties and (ii) exercise or conversion of the unexercised or
nonconverted portion of any other securities of the Company (including, without limitation, any convertible notes or convertible
preferred stock or warrants, including the Other Notes and Warrants) beneficially owned by the Holder or any other Attribution
Party subject to a limitation on conversion or exercise analogous to the limitation contained in this Section 3(d)(i). For purposes
of this Section 3(d)(i), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act. For purposes
of determining the number of outstanding shares of Common Stock the Holder may acquire upon the conversion of the Note without


 




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exceeding
the Maximum Percentage, the Holder may rely on the number of outstanding shares of Common Stock as reflected in (i) the Company’s
most recent Annual Report on Form 10-K, Quarterly Report on Form 10-Q, Current Report on Form 8-K or other public filing with
the SEC, as the case may be, (ii) a more recent public announcement by the Company or (iii) any other written notice by the Company
or the Transfer Agent setting forth the number of shares of Common Stock outstanding (the “Reported Outstanding Share
Number”). If the Company receives a Conversion Notice from a Holder at a time when the actual number of outstanding
shares of Common Stock is less than the Reported Outstanding Share Number, the Company shall notify the Holder in writing of the
number of shares of Common Stock then outstanding and, to the extent that such Conversion Notice would otherwise cause the Holder’s
beneficial ownership, as determined pursuant to this Section 3(d)(i), to exceed the Maximum Percentage, the Holder must notify
the Company of a reduced number of shares of Common Stock to be purchased pursuant to such Conversion Notice. For any reason at
any time, upon the written or oral request of the Holder, the Company shall within one (1) Trading Day confirm orally and in writing
to the Holder the number of shares of Common Stock then outstanding. In any case, the number of outstanding shares of Common Stock
shall be determined after giving effect to the conversion or exercise of securities of the Company, including this Note, by the
Holder and any other Attribution Party since the date as of which the Reported Outstanding Share Number was reported. In the event
that the issuance of shares of Common Stock to the Holder upon conversion of this Note results in the Holder and the other Attribution
Parties being deemed to beneficially own, in the aggregate, more than the Maximum Percentage of the number of outstanding shares
of Common Stock (as determined under Section 13(d) of the Exchange Act), the number of shares so issued by which the Holder’s
and the other Attribution Parties’ aggregate beneficial ownership exceeds the Maximum Percentage (the “Excess Shares”)
shall be deemed null and void and shall be cancelled ab initio, and the Holder shall not have the power to vote or to transfer
the Excess Shares. Upon delivery of a written notice to the Company, the Holder may from time to time increase (with such increase
not effective until the sixty-first (61st) day after delivery of such notice) or decrease the Maximum Percentage to
any other percentage not in excess of 9.99% as specified in such notice; provided that (i) any such increase in the Maximum Percentage
will not be effective until the sixty-first (61st) day after such notice is delivered to the Company and (ii) any such
increase or decrease will apply only to the Holder and the other Attribution Parties and not to any other holder of Notes that
is not an Attribution Party of the Holder. For purposes of clarity, the shares of Common Stock issuable pursuant to the terms
of this Note in excess of the Maximum Percentage shall not be deemed to be beneficially owned by the Holder for any purpose including
for purposes of Section 13(d) or Rule 16a-1(a)(1) of the Exchange Act. The provisions of this paragraph shall be construed and
implemented in a manner otherwise than in strict conformity with the terms of this Section 3(d)(i) to the extent necessary to
correct this paragraph (or any portion of this paragraph) which may be defective or inconsistent with the intended beneficial
ownership limitation contained in this Section 3(d)(i) or to make changes or supplements necessary or desirable to properly give
effect to such limitation. The limitation contained in this paragraph may not be waived and shall apply to a successor holder
of this Note.


 




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(ii)
Principal Market Regulation. The Company shall not be obligated to issue any shares of Common Stock pursuant to the terms
of this Note, and the Holder shall not have the right to receive pursuant to the terms of this Note any shares of Common Stock,
if the issuance of such shares of Common Stock would exceed the aggregate number of shares of Common Stock which the Company may
issue pursuant to the terms of the Notes and upon exercise of the Warrants without breaching the Company’s obligations under
the rules or regulations of the Principal Market (the “Exchange Cap”), except that such limitation shall not
apply in the event that the Company (i) obtains the approval of its shareholders as required by the applicable rules of the Principal
Market for issuances of Common Stock in excess of such amount or (ii) obtains a written opinion from outside counsel to the Company
that such approval is not required, which opinion shall be reasonably satisfactory to the Required Holders. Until such approval
or written opinion is obtained, no purchaser of the Notes pursuant to the Securities Purchase Agreement (the “Purchasers”)
shall be issued in the aggregate, pursuant to the terms of the Notes or upon exercise of the Warrants, shares of Common Stock
in an amount greater than the product of the Exchange Cap multiplied by a fraction, the numerator of which is the Principal amount
of Notes issued to such Purchaser pursuant to the Securities Purchase Agreement on the Closing Date and the denominator of which
is the aggregate principal amount of all Notes issued to the Purchasers pursuant to the Securities Purchase Agreement on the Closing
Date (with respect to each Purchaser, the “Exchange Cap Allocation”). In the event that any Purchaser shall
sell or otherwise transfer any of such Purchaser’s Notes, the transferee shall be allocated a pro rata portion of such Purchaser’s
Exchange Cap Allocation, and the restrictions of the prior sentence shall apply to such transferee with respect to the portion
of the Exchange Cap Allocation allocated to such transferee. In the event that any holder of Notes shall convert all of such holder’s
Notes into a number of shares of Common Stock which, in the aggregate, is less than such holder’s Exchange Cap Allocation,
then the difference between such holder’s Exchange Cap Allocation and the number of shares of Common Stock actually issued
to such holder shall be allocated to the respective Exchange Cap Allocations of the remaining holders of Notes on a pro rata basis
in proportion to the aggregate principal amount of the Notes then held by each such holder.


 


4.
RIGHTS UPON EVENT OF DEFAULT.


 


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


 


(i)
the failure of the applicable Registration Statement required to be filed pursuant to the Registration Rights Agreement to be
filed within the applicable time period specified in the Registration Rights Agreement or to be declared effective by the SEC
on or prior to the date that is ninety (90) days after the applicable Effectiveness Deadline (as defined in the Registration
Rights Agreement), or, while the applicable Registration Statement is required to be maintained effective pursuant to the
terms of the Registration Rights Agreement, the effectiveness of the applicable Registration Statement lapses for any reason
(including, without limitation, the issuance of a stop order) or is unavailable to any holder of the Notes for sale of all of
such holder’s Registrable Securities in accordance with the terms of the Registration Rights Agreement, and such lapse
or unavailability continues for a period of ten (10) consecutive Trading Days or for more than an aggregate of thirty (30)
Trading Days in any 365-day period (other than days during an Allowable Grace Period (as defined in the Registration Rights
Agreement));


 




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(ii)
(A) the suspension from trading for a period of three (3) consecutive Trading Days or for more than an aggregate of fifteen (15)
Trading Days in any 365-day period or (B) the failure of the Common Stock to be listed on an Eligible Market;


 


(iii)
the Company’s (A) failure to cure a Conversion Failure by delivery of the required number of shares of Common Stock within
five (5) Business Days after the applicable Conversion Date or (B) notice, written or oral, to the Holder or any holder of the
Other Notes, including by way of public announcement or through any of its agents, at any time, of its intention not to comply
with a request for conversion of this Note or any Other Notes into shares of Common Stock that is tendered in accordance with
the provisions of this Note or the Other Notes, other than pursuant to Section 3(d) (and analogous provisions under the Other
Notes);


 


(iv)
at any time following the seventh (7th) consecutive Business Day that the Holder’s Authorized Share Allocation
is less than 130% of the sum of (A) the number of shares of Common Stock that the Holder would be entitled to receive upon a conversion
of the full Conversion Amount of this Note (without regard to any limitations on conversion set forth in Section 3(d) or otherwise)
and (B) the number of shares of Common Stock that the Holder would be entitled to receive upon exercise in full of the Holder’s
Warrants (without regard to any limitations on exercise set forth in the Warrants);


 


(v)
the Company’s failure to pay to the Holder any amount of Principal, Interest, Late Charges or other amounts when and as
due under this Note (including, without limitation, the Company’s failure to pay any redemption, Late Charges or other amounts),
Late Charges or other amounts when and as due under this Note or any other Transaction Document (as defined in the Securities
Purchase Agreement) 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, except, in the case of a failure to pay Interest and/or Late Charges
when and as due, in which case only if such failure continues for a period of at least an aggregate of five (5) Business Days;


 


(vi)
any default under, redemption of or acceleration prior to maturity of any Indebtedness of the Company or any of its Subsidiaries
(as defined in Section 3(a) of the Securities Purchase Agreement) other than with respect to this Note or any Other Notes;


 




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(vii)
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 case, (B)
consents to the entry of an order for relief against it in an involuntary 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;


 


(viii)
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;


 


(ix)
a final judgment or judgments for the payment of money aggregating in excess of $350,000 are rendered against the Company or any
of its Subsidiaries and which judgments are not, within seventy-five (75) days after the entry thereof, bonded, discharged or
stayed pending appeal, or are not discharged within seventy-five (75) 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 $350,000 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 forty-five
(45) days of the issuance of such judgment;


 


(x)
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 at least an aggregate of seven (7) Business Days after such breach;


 


(xi)
any breach or failure in any respect to comply with either Sections 8 or 15 of this Note;


 


(xii)
the Company or any Subsidiary shall fail to perform or comply with any covenant or agreement contained in the Security Agreement
as defined in the Securities Purchase Agreement) to which it is a party, which failure continues for a period of seven (7) days
after such failure;


 


(xiii)
any material provision of any Security Document (as defined in the Securities Purchase Agreement) (as determined by the Collateral
Agent (as defined in the Securities Purchase Agreement)) shall at any time for any reason (other than pursuant to the express
terms thereof) cease to be valid and binding on or enforceable against the Company or any Subsidiary intended to be a party thereto,
or the validity or enforceability thereof shall be contested by any party thereto, or a proceeding shall be commenced by the Company
or any Subsidiary or any governmental authority having jurisdiction over any of them, seeking to establish the invalidity or unenforceability
thereof, or the Company or any Subsidiary shall deny in writing that it has any liability or obligation purported to be created
under any Security Document;


 




    	- 10 -



    	 



    

 


(xiv)
any Security Document or any other security document, after delivery thereof pursuant hereto, shall for any reason fail or cease
to create a valid and perfected and, except to the extent permitted by the terms hereof or thereof, first priority Lien (as defined
in Section 15(c)) in favor of the Collateral Agent for the benefit of the holders of the Notes on any Collateral (as defined in
the Security Documents) purported to be covered thereby;


 


(xv)
any bank at which any deposit account, blocked account, or lockbox account of the Company or any Subsidiary is maintained shall
fail to comply with any material term of any deposit account, blocked account, lockbox account or similar agreement to which such
bank is a party or any securities intermediary, commodity intermediary or other financial institution at any time in custody,
control or possession of any investment property of the Company or any Subsidiary shall fail to comply with any of the terms of
any investment property control agreement to which such Person is a party (it being understood that only accounts pursuant to
which the Collateral Agent has requested account control agreements should be subject to this clause (xv));


 


(xvi)
If (a) there shall occur and be continuing any “Event of Default” (or any comparable term) under, and as defined
in, the documents evidencing or governing the Subordinated Notes, (b) any of the obligations under the Transaction Documents for
any reason shall cease to be “Senior Indebtedness” (or any comparable terms) under, and as defined in, the documents
evidencing or governing the Subordinated Notes, (c) any Indebtedness other than the obligations under the Transaction Documents
shall constitute “Senior Indebtedness” (or any comparable term) under, and as defined in, the documents evidencing
or governing the Subordinated Notes, (d) any holder of the Subordinated Notes shall fail to perform or comply with any of the
subordination provisions of the documents evidencing or governing such Subordinated Notes, or (e) the subordination provisions
of the documents evidencing or governing the Subordinated Notes shall, in whole or in part, terminate, cease to be effective or
cease to be legally valid, binding and enforceable against any holder of the Subordinated Notes;


 


(xvii)
any material damage to, or loss, theft or destruction of, any Collateral or 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 twenty (20) 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);


 


(xviii)
a false or inaccurate certification (including a false or inaccurate deemed certification) by the Company that the Equity Conditions
are satisfied or that there has been no Equity Conditions Failure or as to whether any Event of Default has occurred;


 




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(xix)
the Company’s failure for any reason after the date that is six (6) months immediately following the Issuance Date to satisfy
the current public information requirement under Rule 144(c), which failure continues for a period of three (3) consecutive Trading
Days or for more than an aggregate of ten (10) Trading Days in any 365-day period; or


 


(xx)
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 two (2) Business Days 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 the greater of (x) 125% of the Conversion Amount being redeemed and (y) the product of (A) the Conversion Amount being redeemed
and (B) the quotient determined by dividing (I) the greatest Closing Sale Price of the shares of Common Stock during the period
beginning on the date immediately preceding such Event of Default and ending on the date the Holder delivers the Event of Default
Redemption Notice, by (II) the lowest Conversion Price in effect during such period (the “Event of Default Redemption
Price”). Redemptions required by this Section 4(b) shall be made in accordance with the provisions of Section 12. 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. Notwithstanding anything to the contrary
in this Section 4, but subject to Section 3(d), until the Event of Default Redemption Price (together with any interest thereon)
is paid in full, the Conversion Amount submitted for redemption under this Section 4(b) (together with any interest thereon) may
be converted, in whole or in part, by the Holder into Common Stock pursuant to Section 3. In the event of a partial redemption
of this Note pursuant hereto, the Principal amount redeemed shall be deducted in reverse order starting from the final Installment
Amount to be paid hereunder on the final Installment Date, unless the Holder otherwise indicates and allocates among any Installment
Dates hereunder in the applicable Event of Default Redemption Notice. The parties hereto agree that in the event of the Company’s
redemption of any portion of the Note under this Section 4(b), the Holder’s damages would be uncertain and difficult to
estimate because of the parties’ inability to predict future interest rates and the uncertainty of the availability of a
suitable substitute investment opportunity for the Holder. Accordingly, any Event of Default redemption premium due under this
Section 4(b) is intended by the parties to be, and shall be deemed, a reasonable estimate of the Holder’s actual loss of
its investment opportunity and not as a penalty.


 




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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 (i) 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(a) pursuant to written agreements in form and substance satisfactory to the Required Holders and approved by
the Required Holders 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 amounts and the interest rates of the Notes then outstanding held by such holder, having similar conversion rights
and having similar ranking and security to the Notes, and satisfactory to the Required Holders and (ii) the Successor Entity (including
its Parent Entity) is a publicly traded corporation whose common capital stock is quoted on or listed for trading on an Eligible
Market. Any security issuable or potentially issuable to the Holder pursuant to the terms of this Note on the consummation of
a Fundamental Transaction shall be registered and freely tradable by the Holder without any restriction or limitation or the requirement
to be subject to any holding period pursuant to any applicable securities laws. No later than (i) thirty (30) days prior to the
occurrence or consummation of any Fundamental Transaction or (ii) if later, the first Trading 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, and, solely at the request of the Holder, if the Successor Entity and/or Successor Entities is a publicly
traded corporation whose common capital stock is quoted on or listed for trading on an Eligible Market, shall deliver (in addition
to and without limiting any right under this Note) to the Holder in exchange for this Note a security of the Successor Entity
and/or Successor Entities evidenced by a written instrument substantially similar in form and substance to this Note and convertible
for a corresponding number of shares of capital stock of the Successor Entity and/or Successor Entities (the “Successor
Capital Stock”) equivalent (as set forth below) to the shares of Common Stock acquirable and receivable upon conversion
of


 




    	- 13 -



    	 



    

 


this
Note (without regard to any limitations on the conversion of this Note) prior to such Fundamental Transaction (such corresponding
number of shares of Successor Capital Stock to be delivered to the Holder shall equal the greater of (I) the quotient of (A) the
aggregate dollar value of all consideration (including cash consideration and any consideration other than cash (“Non-Cash
Consideration”), in such Fundamental Transaction, as such values are set forth in any definitive agreement for the Fundamental
Transaction that has been executed at the time of the first public announcement of the Fundamental Transaction or, if no such
value is determinable from such definitive agreement, as determined in accordance with Section 23 with the term “Non-Cash
Consideration” being substituted for the term “Conversion Price”) that the Holder would have been entitled to
receive upon the happening of such Fundamental Transaction or the record, eligibility or other determination date for the event
resulting in such Fundamental Transaction, had this Note been converted immediately prior to such Fundamental Transaction or the
record, eligibility or other determination date for the event resulting in such Fundamental Transaction (without regard to any
limitations on the conversion of this Note) (the “Aggregate Consideration”) divided by (B) the per share Closing
Sale Price of such corresponding Successor Capital Stock on the Trading Day immediately prior to the consummation or occurrence
of the Fundamental Transaction and (II) the product of (A) the Aggregate Consideration and (B) the highest exchange ratio pursuant
to which any shareholder of the Company may exchange Common Stock for Successor Capital Stock) (provided, however, to the extent
that the Holder’s right to receive any such shares of publicly traded common stock (or their equivalent) of the Successor
Entity would result in the Holder and its other Attribution Parties exceeding the Maximum Percentage, if applicable, then the
Holder shall not be entitled to receive such shares to such extent (and shall not be entitled to beneficial ownership of such
shares of publicly traded common stock (or their equivalent) of the Successor Entity as a result of such consideration to such
extent) and the portion of such shares shall be held in abeyance for the Holder until such time or times, as its right thereto
would not result in the Holder and its other Attribution Parties exceeding the Maximum Percentage, at which time or times the
Holder shall be delivered such shares to the extent as if there had been no such limitation), and such security shall be satisfactory
to the Holder, and with an identical conversion price to the Conversion Price hereunder (such adjustments to the number of shares
of capital stock and such conversion price being for the purpose of protecting after the consummation or occurrence of such Fundamental
Transaction the economic value of this Note that was in effect immediately prior to the consummation or occurrence of such Fundamental
Transaction, as elected by the Holder solely at its option). Upon occurrence or consummation of the Fundamental Transaction, and
it shall be a required condition to the occurrence or consummation of such Fundamental Transaction that, the Company and the Successor
Entity or Successor Entities shall deliver to the Holder confirmation that there shall be issued upon conversion of this Note
at any time after the occurrence or consummation of the Fundamental Transaction, as elected by the Holder solely at its option,
shares of Common Stock, Successor Capital Stock or, in lieu of the shares of Common Stock or Successor Capital Stock (or other
securities, cash, assets or other property purchasable upon the conversion of this Note prior to such Fundamental Transaction),
such shares of stock, securities, cash, assets or any other property whatsoever (including warrants or other purchase or subscription
rights), which for purposes of clarification may continue to be shares of Common Stock, if any, that the Holder would have been
entitled to receive upon the happening of such Fundamental Transaction or the record, eligibility or other determination date
for the event resulting in such Fundamental Transaction, had this Note been converted immediately prior to such Fundamental Transaction
or the record, eligibility or other determination date for the event resulting in such Fundamental Transaction (without regard
to any limitations on the conversion of this Note), as adjusted in accordance with the provisions of this Note. The provisions
of this Section 5(a) shall apply similarly and equally to successive Fundamental Transactions.


 




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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 (x) 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, (y) the Holder becoming aware of a Change of Control and (z) the Holder’s receipt of a Change of Control
Notice and ending twenty-five (25) Trading 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 Conversion 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 the greater of (x) 125% of the Conversion Amount being redeemed and (y) the product of (A) the Conversion
Amount being redeemed and (B) the quotient determined by dividing (I) the greatest Closing Sale Price of the shares of Common
Stock during the period beginning on the date immediately preceding the earlier to occur of (x) the consummation of the Change
of Control and (y) the public announcement of such Change of Control and ending on the date the Holder delivers the Change of
Control Redemption Notice, by (II) the lowest Conversion Price in effect during such period (the “Change of Control Redemption
Price”). Redemptions required by this Section 5 shall be made in accordance with the provisions of Section 12 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. Notwithstanding anything to the contrary in this Section 5, but subject to Section
3(d), until the Change of Control Redemption Price (together with any interest thereon) is paid in full, the Conversion Amount
submitted for redemption under this Section 5(b) (together with any interest thereon) may be converted, in whole or in part, by
the Holder into Common Stock pursuant to Section 3. In the event of a partial redemption of this Note pursuant hereto, the Principal
amount redeemed shall be deducted in reverse order starting from the final Installment Amount to be paid hereunder on the final
Installment Date, unless the Holder otherwise indicates and allocates among any Installment Dates hereunder in the applicable
Change of Control Redemption Notice. The parties hereto agree that in the event of the Company’s redemption of any portion
of the Note under this Section 5(b), the Holder’s damages would be uncertain and difficult to estimate because of the parties’
inability to predict future interest rates and the uncertainty of the availability of a suitable substitute investment opportunity
for the Holder. Accordingly, any Change of Control redemption premium due under this Section 5(b) is intended by the parties to
be, and shall be deemed, a reasonable estimate of the Holder’s actual loss of its investment opportunity and not as a penalty.


 




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6.
DISTRIBUTION OF ASSETS; RIGHTS UPON ISSUANCE OF PURCHASE RIGHTS AND OTHER CORPORATE EVENTS.


 


a.
Distribution of Assets. If the Company shall declare or make any dividend or other distributions of its assets (or rights
to acquire its assets) to any or all holders of shares of Common Stock, by way of return of capital or otherwise (including without
limitation, any distribution of cash, stock or other securities, property or options by way of a dividend, spin off, reclassification,
corporate rearrangement, scheme of arrangement or other similar transaction) (the “Distributions”), then the
Holder will be entitled to such Distributions as if the Holder had held the number of shares of Common Stock acquirable upon complete
conversion of this Note (without taking into account any limitations or restrictions on the convertibility of this Note) immediately
prior to the date on which a record is taken for such Distribution or, if no such record is taken, the date as of which the record
holders of Common Stock are to be determined for such Distributions (provided, however, that to the extent that
the Holder’s right to participate in any such Distribution would result in the Holder and the other Attribution Parties
exceeding the Maximum Percentage, then the Holder shall not be entitled to participate in such Distribution to such extent (and
shall not be entitled to beneficial ownership of such shares of Common Stock as a result of such Distribution (and beneficial
ownership) to such extent) and the portion of such Distribution shall be held in abeyance for the Holder until such time or times
as its right thereto would not result in the Holder and the other Attribution Parties exceeding the Maximum Percentage, at which
time or times the Holder shall be granted such rights (and any rights under this Section 6(a) on such initial rights or on any
subsequent such rights to be held similarly in abeyance) to the same extent as if there had been no such limitation).


 


b.
Purchase Rights. If at any time the Company grants, issues or sells any Options, Convertible Securities or rights to purchase
stock, warrants, securities or other property pro rata to the record holders of any class of Common Stock (the “Purchase
Rights”), then the Holder will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate
Purchase Rights which the Holder could have acquired if the Holder had held the number of shares of Common Stock acquirable upon
complete conversion of this Note (without taking into account any limitations or restrictions on the convertibility of this Note)
immediately prior to 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, that to the extent that the Holder’s right to participate
in any such Purchase Right would result in the Holder and the other Attribution Parties exceeding the Maximum Percentage, then
the Holder shall not be entitled to participate in such Purchase Right to such extent (and shall not be entitled to beneficial
ownership of such shares of Common Stock as a result of such Purchase Right (and beneficial ownership) to such extent) and such
Purchase Right to such extent shall be held in abeyance for the Holder until such time or times as its right thereto would not
result in the Holder and the other Attribution Parties exceeding the Maximum Percentage, at which time or times the Holder shall
be granted such right (and any Purchase Right granted, issued or sold on such initial Purchase Right or on any subsequent Purchase
Right to be held similarly in abeyance) to the same extent as if there had been no such limitation).


 




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c.
Other Corporate Events. In addition to and not in substitution for any other rights hereunder, prior to the occurrence
or consummation of any Fundamental Transaction pursuant to which holders of shares of Common Stock are entitled to receive securities,
cash, assets or other property with respect to or in exchange for shares of Common Stock (a “Corporate Event”),
the Company shall make appropriate provision to insure that, and any applicable Successor Entity or Successor Entities shall ensure
that, and it shall be a required condition to the occurrence or consummation of such Corporate Event that, the Holder will thereafter
have the right to receive upon conversion of this Note at any time after the occurrence or consummation of the Corporate Event,
shares of Common Stock or Successor Capital Stock or, if so elected by the Holder, in lieu of the shares of Common Stock (or other
securities, cash, assets or other property) purchasable upon the conversion of this Note prior to such Corporate Event (but not
in lieu of such items still issuable under Sections 6(a) and 6(b), which shall continue to be receivable on the Common Stock or
on such shares of stock, securities, cash, assets or any other property otherwise receivable with respect to or in exchange for
shares of Common Stock), such shares of stock, securities, cash, assets or any other property whatsoever (including warrants or
other purchase or subscription rights and any shares of Common Stock) which the Holder would have been entitled to receive upon
the occurrence or consummation of such Corporate Event or the record, eligibility or other determination date for the event resulting
in such Corporate Event, had this Note been converted immediately prior to such Corporate Event or the record, eligibility or
other determination date for the event resulting in such Corporate Event (without regard to any limitations on conversion of this
Note). Provision made pursuant to the preceding sentence shall be in a form and substance reasonably satisfactory to the Required
Holders. The provisions of this Section 6 shall apply similarly and equally to successive Corporate Events.


 


7.
RIGHTS UPON ISSUANCE OF OTHER SECURITIES.


 


a.
Adjustment of Conversion Price upon Issuance of Common Stock. If and whenever on or after the Subscription Date, the Company
issues or sells, or in accordance with this Section 7(a) is deemed to have issued or sold, any shares of Common Stock (including
the issuance or sale of shares of Common Stock owned or held by or for the account of the Company, but excluding shares of Common
Stock deemed to have been issued or sold by the Company in connection with any Excluded Securities) for a consideration per share
(the “New Issuance Price”) less than a price (the “Applicable Price”) equal to the Conversion
Price in effect immediately prior to such issue or sale or deemed issuance or sale (the foregoing a “Dilutive Issuance”),
then immediately after such Dilutive Issuance the Conversion Price then in effect shall be reduced to an amount equal to the New
Issuance Price. For purposes of determining the adjusted Conversion Price under this Section 7(a), the following shall be applicable:


 




    	- 17 -



    	 



    

 


(i)
Issuance of Options. If the Company in any manner grants or sells any Options and the lowest price per share for which
one share of Common Stock is issuable upon the exercise of any such Option or upon conversion or exchange or exercise of any Convertible
Securities issuable upon exercise of any such Option is less than the Applicable Price, then such share of Common Stock shall
be deemed to be outstanding and to have been issued and sold by the Company at the time of the granting or sale of such Option
for such price per share. For purposes of this Section 7(a)(i), the “lowest price per share for which one share of Common
Stock is issuable upon the exercise of any such Options or upon conversion or exchange or exercise of any Convertible Securities
issuable upon exercise of such Option” shall be equal to the sum of the lowest amounts of consideration (if any) received
or receivable by the Company with respect to any one share of Common Stock upon granting or sale of the Option, upon exercise
of the Option and upon conversion or exchange or exercise of any Convertible Security issuable upon exercise of such Option less
any consideration paid or payable by the Company with respect to such one share of Common Stock upon the granting or sale of such
Option, upon exercise of such Option and upon conversion exercise or exchange of any Convertible Security issuable upon exercise
of such Option. No further adjustment of the Conversion Price shall be made upon the actual issuance of such shares of Common
Stock or of such Convertible Securities upon the exercise of such Options or upon the actual issuance of such shares of Common
Stock upon conversion or exchange or exercise of such Convertible Securities.


 


(ii)
Issuance of Convertible Securities. If the Company in any manner issues or sells any Convertible Securities and the lowest
price per share for which one share of Common Stock is issuable upon the conversion or exchange or exercise thereof is less than
the Applicable Price, then such share of Common Stock shall be deemed to be outstanding and to have been issued and sold by the
Company at the time of the issuance or sale of such Convertible Securities for such price per share. For the purposes of this
Section 7(a)(ii), the “lowest price per share for which one share of Common Stock is issuable upon the conversion or exchange
or exercise thereof” shall be equal to the sum of the lowest amounts of consideration (if any) received or receivable by
the Company with respect to any one share of Common Stock upon the issuance or sale of the Convertible Security and upon the conversion
or exchange or exercise of such Convertible Security less any consideration paid or payable by the Company with respect to such
one share of Common Stock upon the issuance or sale of the Convertible Security and upon the conversion or exchange or exercise
of such Convertible Security. No further adjustment of the Conversion Price shall be made upon the actual issuance of such shares
of Common Stock upon conversion or exchange or exercise of such Convertible Securities, and if any such issue or sale of such
Convertible Securities is made upon exercise of any Options for which adjustment of the Conversion Price has been or is to be
made pursuant to other provisions of this Section 7(a), no further adjustment of the Conversion Price shall be made by reason
of such issue or sale.


 


(iii)
Change in Option Price or Rate of Conversion. If the purchase price provided for in any Options, the additional consideration,
if any, payable upon the issue, conversion, exchange or exercise of any Convertible Securities, or the rate at which any Convertible
Securities are convertible into or exchangeable or exercisable for shares of Common Stock increases or decreases at any time,
the Conversion Price in effect at the time of such increase or decrease shall be adjusted to the Conversion Price which would


 




    	- 18 -



    	 



    

 


have
been in effect at such time had such Options or Convertible Securities provided for such increased or decreased purchase price,
additional consideration or increased or decreased conversion rate, as the case may be, at the time initially granted, issued
or sold. For purposes of this Section 7(a)(iii), if the terms of any Option or Convertible Security that was outstanding as of
the Subscription Date are increased or decreased in the manner described in the immediately preceding sentence, then such Option
or Convertible Security and the shares of Common Stock deemed issuable upon exercise, conversion or exchange thereof shall be
deemed to have been issued as of the date of such increase or decrease. No adjustment pursuant to this Section 7(a) shall be made
if such adjustment would result in an increase of the Conversion Price then in effect.


 


(iv)
Calculation of Consideration Received. In case any Option is issued in connection with the issue or sale of other securities
of the Company, together comprising one integrated transaction, (x) the Options will be deemed to have been issued for the Option
Value of such Options and (y) the other securities issued or sold in such integrated transaction shall be deemed to have been
issued or sold for the difference of (I) the aggregate consideration received by the Company less any consideration paid or payable
by the Company pursuant to the terms of such other securities of the Company, less (II) the Option Value. If any shares of Common
Stock, Options or Convertible Securities are issued or sold or deemed to have been issued or sold for cash, the consideration
other than cash received therefor will be deemed to be the net amount received by the Company therefor. If any shares of Common
Stock, Options or Convertible Securities are issued or sold for a consideration other than cash, the amount of such consideration
received by the Company will be the fair value of such consideration, except where such consideration consists of publicly traded
securities, in which case the amount of consideration received by the Company will be the Closing Sale Price of such publicly
traded securities on the date of receipt of such publicly traded securities. If any shares of Common Stock, Options or Convertible
Securities are issued to the owners of the non-surviving entity in connection with any merger in which the Company is the surviving
entity, the amount of consideration therefor will be deemed to be the fair value of such portion of the net assets and business
of the non-surviving entity as is attributable to such shares of Common Stock, Options or Convertible Securities, as the case
may be. The fair value of any consideration other than cash or publicly traded securities will be determined jointly by the Company
and the Required Holders. If such parties are unable to reach agreement within ten (10) Business Days after the occurrence of
an event requiring valuation (the “Valuation Event”), the fair value of such consideration will be determined
within five (5) Business Days after the tenth (10th) Business Day following the Valuation Event by an independent,
reputable appraiser jointly selected by the Company and the Required Holders. The determination of such appraiser shall be final
and binding upon all parties absent manifest error and the fees and expenses of such appraiser shall be borne by the Company.


 


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


 




    	- 19 -



    	 



    

 


(vi)
No Readjustments. For the avoidance of doubt, in the event the Conversion Price has been adjusted pursuant to this Section
7(a) and the Dilutive Issuance that triggered such adjustment does not occur, is not consummated, is unwound or is cancelled after
the facts for any reason whatsoever, in no event shall the Conversion Price be readjusted to the Conversion Price that would have
been in effect if such Dilutive Issuance had not occurred or been consummated.


 


b.
Adjustment of Conversion Price upon Subdivision or Combination of Common Stock. If the Company at any time on or after
the Subscription Date subdivides (by any stock split, stock dividend, recapitalization or otherwise) one or more classes of its
outstanding shares of Common Stock into a greater number of shares, the Conversion Price in effect immediately prior to such subdivision
will be proportionately reduced. If the Company at any time on or after the Subscription Date combines (by combination, reverse
stock split or otherwise) one or more classes of its outstanding shares of Common Stock into a smaller number of shares, the Conversion
Price in effect immediately prior to such combination will be proportionately increased.


 


c.
Other Events. If any event occurs of the type contemplated by the provisions of this Section 7 but not expressly provided
for by such provisions (including, without limitation, the granting of stock appreciation rights, phantom stock rights or other
rights with equity features), then the Company’s Board of Directors will make an appropriate adjustment in the Conversion
Price so as to protect the rights of the Holder under this Note; provided, that no such adjustment will increase the Conversion
Price as otherwise determined pursuant to this Section 7.


 


d.
Voluntary Adjustment by Company. The Company may at any time during the term of this Note, with the prior written consent
of the Required Holders, reduce the then current Conversion Price to any amount and for any period of time deemed appropriate
by the Board of Directors of the Company.


 


8.
COMPANY CONVERSION OR REDEMPTION.


 


a.
General. On each applicable Installment Date, provided there has been no Equity Conditions Failure, the Company shall pay
to the Holder of this Note the Installment Amount due on such date by converting all or some of such Installment Amount into Common
Stock, in accordance with this Section 8 (a “Company Conversion”); provided, however, that the
Company may, at its option following notice to the Holder as set forth below, pay the Installment Amount by redeeming such Installment
Amount in cash (a “Company Redemption”) or by any combination of a Company Conversion and a Company Redemption
so long as all of the outstanding applicable Installment Amount due on any Installment Date shall be converted and/or redeemed
by the Company on the applicable Installment Date, subject to the provisions of this Section 8. On or prior to the date which
is the twenty-first (21st) Trading Day


 




    	- 20 -



    	 



    

 


prior
to each Installment Date (each, an “Installment Notice Due Date”), the Company shall deliver written notice
(each, a “Company Installment Notice” and the date all of the holders receive such notice is referred to as
the “Company Installment Notice Date”), to each holder of Notes which Company Installment Notice shall (i)
either (A) confirm that the applicable Installment Amount of the Holder’s Note shall be converted to Common Stock in whole
or in part pursuant to a Company Conversion (such amount to be converted, the “Company Conversion Amount”)
or (B) (1) state that the Company elects to redeem for cash, or is required to redeem for cash in accordance with the provisions
of the Notes, in whole or in part, the applicable Installment Amount pursuant to a Company Redemption and (2) specify the portion
(including Interest and Late Charges, if any, on such amount and Interest) which the Company elects or is required to redeem pursuant
to a Company Redemption (such amount to be redeemed, the “Company Redemption Amount”) and the portion (including
Interest and Late Charges, if any, on such amount and Interest, if any) that is the Company Conversion Amount, which amounts,
when added together, must at least equal the applicable Installment Amount and (ii) if the Installment Amount is to be paid, in
whole or in part, in Common Stock pursuant to a Company Conversion, certify that the Equity Conditions have been satisfied as
of the Company Installment Notice Date. Each Company Installment Notice shall be irrevocable. If the Company does not timely deliver
a Company Installment Notice in accordance with this Section 8, then the Company shall be deemed to have delivered an irrevocable
Company Installment Notice confirming a Company Conversion and shall be deemed to have certified that the Equity Conditions in
connection with any such conversion on the Company Installment Notice Date and Installment Date have been satisfied. Except as
expressly provided in this Section 8(a), the Company shall convert and/or redeem the applicable Installment Amount of this Note
pursuant to this Section 8 and the corresponding Installment Amounts of the Other Notes pursuant to the corresponding provisions
of the Other Notes in the same ratio of the Installment Amount being converted and/or redeemed hereunder. The Company Conversion
Amount (whether set forth in the Company Installment Notice or by operation of this Section 8) shall be converted in accordance
with Section 8(b) and the Company Redemption Amount shall be redeemed in accordance with Section 8(c). Notwithstanding anything
herein to the contrary, in the event of any partial conversion or redemption of this Note, the Principal amount converted or redeemed
shall be deducted in reverse order starting from the final Installment Amount to be paid hereunder on the final Installment Date,
unless the Holder otherwise indicates and allocates among any Installment Dates hereunder in the applicable Conversion Notice
or Redemption Notice, as applicable.


 


b.
Mechanics of Company Conversion. If the Company delivers a Company Installment Notice and confirms, or is deemed to have
confirmed, in whole or in part, a Company Conversion in accordance with Section 8(a), then (1) contemporaneously with the delivery
of the Company Installment Notice on the applicable Company Installment Notice Date, the Company shall, or shall direct the Transfer
Agent to, credit the Holder’s account with DTC (or if the Transfer Agent is not participating in the DTC Fast Automated
Securities Transfer Program, issue and deliver to the Holder a certificate for) a number of shares of Common Stock (the “Initial
Pre-Installment Conversion Shares”) equal to the quotient of (x) the Company Conversion Amount as of the applicable
Installment Date divided by (y) the Initial Company Pre-Installment Conversion Price then in effect, (2) in addition, in the event
the Holder delivers an Acceleration Notice (as defined in Section 8(e)) at least five (5) Trading Days prior to the


 




    	- 21 -



    	 



    

 


applicable
Installment Date, on the Trading Day immediately following receipt of such Acceleration Notice (such date, the “Additional
Pre-Installment Conversion Shares Date”) the Company shall, or shall direct the Transfer Agent to, credit the Holder’s
account with DTC (or if the Transfer Agent is not participating in the DTC Fast Automated Securities Transfer Program, issue and
deliver to the Holder a certificate for) a number of shares of Common Stock (the “Additional Pre-Installment Conversion
Shares” and together with the Initial Pre-Installment Conversion Shares, the “Pre-Installment Conversion Shares”)
equal to the quotient of (x) the Accelerated Amount(s) (as defined in Section 8(e)) set forth in such Acceleration Notice divided
by (y) the Additional Company Pre-Installment Conversion Price then in effect and (3) on the applicable Installment Date, the
Company shall, or shall direct the Transfer Agent to, credit the Holder’s account with DTC (or if the Transfer Agent is
not participating in the DTC Fast Automated Securities Transfer Program, issue and deliver to the Holder a certificate) for an
additional number of shares of Common Stock, if any, equal to the Installment Balance Conversion Shares; provided, that
the Equity Conditions have been satisfied (or waived in writing by the Holder) on each day during the period commencing on such
Company Installment Notice Date through the applicable Installment Date. On the second (2nd) Trading Day immediately
after the end of the Measuring Period, the Company shall deliver a notice setting forth the calculation of the Installment Balance
Conversion Shares (and the calculation of the component parts of such calculation) to the Holders. If an Event of Default occurs
during the period from any Company Installment Notice Date through the Installment Date, the Holder may elect an Event of Default
Redemption in accordance with Section 4(b) without being required to return to the Company any Pre-Installment Conversion Shares
previously delivered to the Holder. All Pre-Installment Conversion Shares and Installment Balance Conversion Shares shall be fully
paid and nonassessable shares of Common Stock (rounded to the nearest whole share). If the Equity Conditions are not satisfied
as of the Company Installment Notice Date, then unless the Company has elected to redeem such Installment Amount, the Company
Installment Notice shall indicate that unless the Holder waives the Equity Conditions, the Installment Amount shall be redeemed
for cash. If the Company confirmed (or is deemed to have confirmed by operation of Section 8(a)) the conversion of the applicable
Company Conversion Amount, in whole or in part, and there was no Equity Conditions Failure as of the applicable Company Installment
Notice Date (or is deemed to have certified that the Equity Conditions in connection with any such conversion have been satisfied
by operation of Section 8(a)) but an Equity Conditions Failure occurred between the applicable Company Installment Notice Date
and any time through the applicable Installment Date (the “Interim Installment Period”), the Company shall
provide the Holder a subsequent notice to that effect. If the Equity Conditions are not satisfied (or waived in writing by the
Holder) during such Interim Installment Period, then at the option of the Holder designated in writing to the Company, the Holder
may require the Company to do either one or both of the following: (i) the Company shall redeem all or any part designated by
the Holder of the Company Conversion Amount (such designated amount is referred to as the “First Redemption Amount”)
on such Installment Date and the Company shall pay to the Holder on such Installment Date, by wire transfer of immediately available
funds, an amount in cash equal to 125% of such First Redemption Amount and/or (ii) the Company Conversion shall be null and void
with respect to all or any part designated by the Holder of the unconverted Company Conversion Amount and the Holder shall be
entitled to all the rights of a holder of this Note with respect to such amount of the Company Conversion Amount; provided,
however, that the Conversion Price for such unconverted Company Conversion Amount shall thereafter be


 




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adjusted
to equal the lesser of (A) the Company Conversion Price as in effect on the date on which the Holder voided the Company Conversion
and (B) the Company Conversion Price as in effect on the date on which the Holder delivers a Conversion Notice relating thereto.
If the Company fails to redeem any First Redemption Amount on or before the applicable Installment Date by payment of such amount
on the applicable Installment Date, then the Holder shall have the rights set forth in Section 12(a) as if the Company failed
to pay the applicable Company Installment Redemption Price (as defined below) and all other rights under this Note (including,
without limitation, such failure constituting an Event of Default described in Section 4(a)(v)). Notwithstanding anything to the
contrary in this Section 8(b), but subject to the limitations set forth in Section 3(d), until the Company credit the Holder’s
account with DTC, or if the Transfer Agent is not participating in the DTC Fast Automated Securities Transfer Program, issue and
deliver to the Holder a certificate for, the shares of Common Stock representing the Company Conversion Amount to the Holder,
the Company Conversion Amount may be converted by the Holder into Common Stock pursuant to Section 3. In the event that the Holder
elects to convert the Company Conversion Amount prior to the applicable Installment Date as set forth in the immediately preceding
sentence, the Company Conversion Amount so converted shall be deducted in reverse order starting from the final Installment Amount
to be paid hereunder on the final Installment Date, unless the Holder otherwise indicates and allocates among any Installment
Dates hereunder in the applicable Conversion Notice.


 


c.
Mechanics of Company Redemption. If the Company elects a Company Redemption in accordance with Section 8, then the Company
Redemption Amount which is to be paid to the Holder on the applicable Installment Date shall be redeemed by the Company and the
Company shall pay to the Holder on such Installment Date, by wire transfer of immediately available funds, an amount in cash (the
“Company Installment Redemption Price”) equal to 100% of the Company Redemption Amount. If the Company fails
to redeem the Company Redemption Amount on the applicable Installment Date by payment of the Company Installment Redemption Price
on such date, then at the option of the Holder designated in writing to the Company (any such designation shall be deemed a “Conversion
Notice” pursuant to Section 3(c) for purposes of this Note), (i) the Holder shall have the rights set forth in Section
12(a) as if the Company failed to pay the applicable Company Installment Redemption Price and all other rights as a Holder of
Notes (including, without limitation, such failure constituting an Event of Default described in Section 4(a)(v)) and (ii) the
Holder may require the Company to convert all or any part of the Company Redemption Amount at the Company Conversion Price as
in effect on the applicable Installment Date. Conversions required by this Section 8(c) shall be made in accordance with the provisions
of Section 3(c). Notwithstanding anything to the contrary in this Section 8(c), but subject to Section 3(d), until the Company
Installment Redemption Price (together with any interest thereon) is paid in full, the Company Redemption Amount (together with
any interest thereon) may be converted, in whole or in part, by the Holder into Common Stock pursuant to Section 3. In the event
the Holder elects to convert all or any portion of the Company Redemption Amount prior to the applicable Installment Date as set
forth in the immediately preceding sentence, the Company Redemption Amount so converted shall be deducted in reverse order starting
from the final Installment Amount to be paid hereunder on the final Installment Date, unless the Holder otherwise indicates and
allocates among any Installment Dates hereunder in the applicable Conversion Notice.


 




    	- 23 -



    	 



    

 


d.
Deferred Installment Amount. Notwithstanding any provision of this Section 8 to the contrary, the Holder may, at its option
and in its sole discretion, deliver a written notice to the Company no later than the Business Day immediately prior to the applicable
Installment Date electing to have the payment of all or any portion of an Installment Amount payable on such Installment Date
deferred (such amount(s) deferred, the “Deferral Amount”) until any subsequent Installment Date selected by
the Holder, in its sole discretion, in which case, the Deferral Amount shall be added to, and become part of, the Installment
Amount to be paid on such subsequent Installment Date and such Deferral Amount shall continue to accrue Interest hereunder. Any
notice delivered by the Holder pursuant to this Section 8(d) shall set forth (i) the Deferral Amount and (ii) the date that such
Deferral Amount shall now be payable.


 


e.
Accelerated Installment Amount. Notwithstanding any provision of this Section 8 to the contrary, if the Company delivers
a Company Installment Notice and confirms, or is deemed to have confirmed, in whole or in part, a Company Conversion in accordance
with Section 8(a), the Holder may, at its option and in its sole discretion, deliver a written notice to the Company (an “Acceleration
Notice”) no later than the Business Day immediately prior to the applicable Installment Date electing to have the payment
of all or any portion of any or all Installment Amount(s) scheduled to be paid on future Installment Dates after the applicable
Installment Date accelerated (such amount(s) accelerated, the “Accelerated Amount(s)”) to be paid on the applicable
Installment Date, in which case, such Accelerated Amount(s) shall be added to, and become part of, the Installment Amount payable
on such applicable Installment Date and shall be payable in Common Stock by including such Accelerated Amount(s) in the Company
Conversion Amount for the applicable Installment Date. Any notice delivered by the Holder pursuant to this Section 8(e) shall
set forth (i) the Accelerated Amount(s) and (ii) the date that such Accelerated Amount should have been paid if not for the Holder’s
right to accelerate such Installment Amount(s) pursuant to this Section 8(e).


 


9.
OPTIONAL REDEMPTION AT THE COMPANY’S ELECTION.


 


a.
General. At any time after the Issuance Date, so long as (i) the arithmetic average of the Closing Sale Price of the Common
Stock for any twenty (20) consecutive Trading Days following the Issuance Date (the “Company Optional Measuring Period”)
equals or exceeds two hundred percent (200%) of the Conversion Price on the Issuance Date (as adjusted for any stock dividend,
stock split, stock combination, reclassification or similar transaction after the Subscription Date, but not adjusted for any
adjustment to the Conversion Price pursuant to Section 7(a)) and (ii) there has been no Equity Conditions Failure during the period
beginning on the first day of the applicable Equity Conditions Measuring Period prior to the applicable Company Optional Redemption
Notice Date (as defined below) through the Company Optional Redemption Date (as defined below), the Company shall have the right
to redeem all or any portion of the Conversion Amount then remaining under this Note and the Other Notes (the “Company
Optional Redemption Amount”) as designated in the Company Optional Redemption Notice on the Company Optional Redemption
Date (each as defined below) (a “Company Optional Redemption”). The portion of this Note and the Other Notes
subject to redemption pursuant to this Section 9(a) shall be redeemed by the Company on the Company Optional Redemption Date in
cash by wire transfer of immediately available funds pursuant to wire instructions provided by the Holder in writing to the Company
at a price equal


 




    	- 24 -



    	 



    

 


to
the 125% of the Conversion Amount to be redeemed (the “Company Optional Redemption Price”). The Company may
exercise its right to require redemption under this Section 9 by delivering within not more than two (2) Trading Days following
the end of such Company Optional Measuring Period a written notice thereof by facsimile or electronic mail and overnight courier
to the Holder and all, but not less than all, of the holders of the Other Notes (the “Company Optional Redemption Notice”
and the date all of the holders of the Notes received such notice is referred to as the “Company Optional Redemption
Notice Date”). The Company Optional Redemption Notice shall be irrevocable. The Company Optional Redemption Notice shall
(i) state the date on which the Company Optional Redemption shall occur (the “Company Optional Redemption Date”),
which date shall not be less than fifteen (15) Trading Days nor more than twenty-five (25) Trading Days following the Company
Optional Redemption Notice Date and (ii) state the aggregate Conversion Amount of the Notes which the Company has elected
to be subject to Company Optional Redemption from the Holder and all of the holders of the Other Notes pursuant to this Section
9(a) (and analogous provisions under the Other Notes) on the Company Optional Redemption Date and (iii) certify that there has
been no Equity Conditions Failure during the period beginning on the first day of the applicable Equity Conditions Measuring Period
prior to the applicable Company Optional Redemption Date through the Company Optional Redemption Notice Date. If the Company confirmed
that there was no such Equity Conditions Failure as of the applicable Company Optional Redemption Notice Date but an Equity Conditions
Failure occurs between the applicable Company Optional Redemption Notice Date and any time through the applicable Company Optional
Redemption Date (the “Company Optional Redemption Interim Period”), the Company shall provide the Holder a
subsequent notice to that effect. If there is an Equity Conditions Failure (which is not waived in writing by the Holder) during
such Company Optional Redemption Interim Period, then the Company Optional Redemption shall be null and void with respect to all
or any part designated by the Holder of the unconverted Company Optional Redemption Amount and the Holder shall be entitled to
all the rights of a holder of this Note with respect to such amount of the Company Optional Redemption Amount. The Company may
not effect more than one (1) Company Optional Redemption. Notwithstanding anything to the contrary in this Section 9, until the
Company Optional Redemption Price is paid, in full, the Company Optional Redemption Amount may be converted, in whole or in part,
by the Holder into shares of Common Stock pursuant to Section 3. All Conversion Amounts converted by the Holder after the Company
Optional Redemption Notice Date shall reduce the Company Optional Redemption Amount of this Note required to be redeemed on the
Company Optional Redemption Date, unless the Holder otherwise indicates in the applicable Conversion Notice. Company Optional
Redemptions made pursuant to this Section 9 shall be made in accordance with Section 12. To the extent redemptions required by
this Section 9 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. In the event of a partial redemption of this Note pursuant hereto, the
Principal amount redeemed shall be deducted in reverse order starting from the final Installment Amount to be paid hereunder on
the final Installment Date, unless the Holder otherwise indicates and allocates among any Installment Dates hereunder in a written
notice to the Company. The parties hereto agree that in the event of the Company’s redemption of any portion of the Note
under this Section 9, the Holder’s damages would be uncertain and difficult to estimate because of the parties’ inability
to predict future interest rates and the uncertainty of the availability of a suitable substitute investment opportunity for the
Holder.


 


b.
Pro Rata Redemption Requirement. If the Company elects to cause a Company Optional Redemption pursuant to Section 9(a),
then it must simultaneously take the same action in the same proportion with respect to the Other Notes. If the Company elects
to cause a Company Optional Redemption pursuant to Section 9(a) (or similar provisions under the Other Notes) with respect to
less than all of the Conversion Amounts of the Notes then outstanding, then the Company shall require redemption of a Conversion
Amount from each of the holders of the Notes equal to the product of (i) the aggregate Company Optional Redemption Amount of Notes
which the Company has elected to cause to be redeemed pursuant to Section 9(a), multiplied by (ii) the fraction, the numerator
of which is the sum of the aggregate Original Principal Amount of the Notes purchased by such holder of outstanding Notes and
the denominator of which is the sum of the aggregate Original Principal Amount of the Notes purchased by all holders holding outstanding
Notes (such fraction with respect to each holder is referred to as its “Company Optional Redemption Allocation
Percentage”, and such amount with respect to each holder is referred to as its “Pro Rata Company Optional Redemption
Amount”); provided, however that in the event that any holder’s Pro Rata Company Optional Redemption Amount exceeds
the outstanding Principal amount of such holder’s Note, then such excess Pro Rata Company Optional Redemption Amount shall
be allocated amongst the remaining holders of Notes in accordance with the foregoing formula. In the event that the initial holder
of any Notes shall sell or otherwise transfer any of such holder’s Notes, the transferee shall be allocated a pro rata portion
of such holder’s Company Optional Redemption Allocation Percentage and Pro Rata Company Optional Redemption Amount.


 


10. NON
CIRCUMVENTION. 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.





 




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11.
RESERVATION OF AUTHORIZED SHARES.


 


a. Reservation.
The Company shall initially reserve out of its authorized and unissued shares of Common Stock a number of shares of Common
Stock for each of this Note and the Other Notes equal to 130% of the Conversion Rate with respect to the Conversion Amount of
each such Note as of the Issuance Date. So long as any of this Note and the Other Notes are outstanding, the Company
shall take all action necessary to reserve and keep available out of its authorized and unissued Common Stock, solely for the
purpose of effecting the conversion of this Note and the Other Notes, the number of shares of Common Stock specified above in
this Section 11(a) as shall from time to time be necessary to effect the conversion of all of the Notes then outstanding; provided,
that at no time shall the number of shares of Common Stock so reserved be less than the number of shares required to be
reserved pursuant hereto (in each case, without regard to any limitations on conversions) (the “Required Reserve
Amount”). The initial number of shares of Common Stock reserved for conversions of this Note and the Other Notes
and each increase in the number of shares so reserved shall be allocated pro rata among the Holder and the holders of the
Other Notes based on the Principal amount of this Note and the Other Notes held by each holder at the Closing (as
defined in the Securities Purchase Agreement) or increase in the number of reserved shares, as the case may be (the
“Authorized Share Allocation”). In the event that a holder shall sell or otherwise transfer this Note or
any of such holder’s Other Notes, each transferee shall be allocated a pro rata portion of such holder’s
Authorized Share Allocation. Any shares of Common Stock reserved and allocated to any Person which ceases to hold any Notes
shall be allocated to the Holder and the remaining holders of Other Notes, pro rata based on the Principal amount of this
Note and the Other Notes then held by such holders.


 


b.
Insufficient Authorized Shares. If at any time while any of the Notes remain outstanding the Company does not have a sufficient
number of authorized and unreserved shares of Common Stock to satisfy its obligation to reserve for issuance upon conversion of
the Notes at least a number of shares of Common Stock equal to the Required Reserve Amount (an “Authorized Share Failure”),
then the Company shall immediately take all action necessary to increase the Company’s authorized shares of Common Stock
to an amount sufficient to allow the Company to reserve the Required Reserve Amount for the Notes then outstanding. Without limiting
the generality of the foregoing sentence, as soon as practicable after the date of the occurrence of an Authorized Share Failure,
but in no event later than sixty (60) days after the occurrence of such Authorized Share Failure, the Company shall either (x)
obtain the written consent of its shareholders for the approval of an increase in the number of authorized shares of Common Stock
and provide each shareholder with an information statement with respect thereto or (y) hold a meeting of its shareholders for
the approval of an increase in the number of authorized shares of Common Stock. In connection with such meeting, the Company shall
provide each shareholder with a proxy statement and shall use its best efforts to solicit its shareholders’ approval of
such increase in authorized shares of Common Stock and to cause its Board of Directors to recommend to the shareholders that they
approve such proposal.


 


12.
REDEMPTIONS.


 


a.
Mechanics. The Company shall deliver the applicable Event of Default Redemption Price to the Holder within three (3) 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 deliver the applicable Company Installment Redemption Price to the Holder on the applicable
Installment Date. The Company shall deliver the applicable Company Optional Redemption Price on the applicable Company Optional
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 instruction 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 Conversion Amount of this Note, the Company shall promptly cause to be issued and delivered
to the Holder a new Note (in accordance with Section 18(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 Conversion 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 Conversion Amount, (y) the Company shall immediately
return this Note, or issue a new Note (in accordance with Section 18(d)) to the Holder representing such Conversion Amount to
be redeemed and (z) the Conversion Price of this Note or such new Notes shall be adjusted to the lesser of (A) the Conversion
Price as in effect on the date on which the applicable Redemption Notice is voided and (B) the lowest Closing Bid Price of the
Common Stock during the period beginning on and including the date on which the applicable Redemption Notice is delivered to the
Company and ending on and including the date on which the applicable Redemption Notice is voided. 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 Conversion
Amount subject to such notice.


 




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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), Section 5(b), Section 8 or Section 9 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 this Note and the Other Notes submitted for redemption
pursuant to such Redemption Notice and such Other Redemption Notices received by the Company during such seven Business Day period.


 


13.
VOTING RIGHTS. The Holder shall have no voting rights as the holder of this Note, except as required by law and as expressly
provided in this Note.


 


14.
SECURITY. This Note and the Other Notes are secured to the extent and in the manner set forth in the Security Documents.


 


15.
COVENANTS.


 


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


 


b.
Incurrence of Indebtedness. So long as this Note is outstanding, the Company shall not, and the Company shall not permit
any of its Subsidiaries to, directly or indirectly, incur or guarantee, assume or suffer to exist any Indebtedness, other than
Permitted Indebtedness.


 


c.
Existence of Liens. So long as this Note is outstanding, the Company shall not, and the Company shall not permit any of
its Subsidiaries to, directly or indirectly, 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.


 


d.
Restricted Payments. The Company shall not, and the Company shall not permit any of its Subsidiaries to, directly or indirectly,
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), 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.


 


e.
Restriction on Redemption and Cash Dividends. 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 to, directly or
indirectly, redeem or repurchase its Equity Interest, or permit any Subsidiary to redeem or repurchase its Equity Interests (except
on a pro rata basis among all holders thereof) or declare or pay any cash dividend or distribution on any Equity Interest of the
Company or of its Subsidiaries without in each case the prior express written consent of the Required Holders.


 


f.
Change in Nature of Business. The Company shall not 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. The Company
shall not modify its corporate structure or purpose.


 




    	- 27 -



    	 



    

 


g.
Intellectual Property. The Company shall not, and the Company shall not permit any of its Subsidiaries, directly or indirectly,
to encumber or allow any Liens on, any of its 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.


 


h.
Preservation of Existence, Etc. The Company shall 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.


i.
Maintenance of Properties, Etc. The Company shall 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.


 


j.
Maintenance of Insurance. The Company shall 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.


 


k.
Transactions with Affiliates. The Company shall not, nor shall it permit any of its Subsidiaries to, 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.


 


l.
Subordinated Notes. Neither the Company nor any Guarantor shall amend, modify, alter, increase, or change, directly or
indirectly, any of the terms or conditions of the documents evidencing or governing the Subordinated Notes without the prior written
consent of the Required Holders. Neither the Company nor any Guarantor shall optionally prepay or redeem any Indebtedness under
the Subordinated Notes without the prior written consent of the Required Holders.


 




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16.
VOTE TO ISSUE, OR CHANGE THE TERMS OF, NOTES. The affirmative vote at a meeting duly called for such purpose or the written
consent without a meeting of the Required Holders shall be required for any change or amendment or waiver of any provision to
this Note or any of the Other Notes. Any change, amendment or waiver by the Company and the Required Holders shall be binding
on the Holder of this Note and all holders of the Other Notes.


 


17.
TRANSFER. This Note and any shares of Common Stock issued upon conversion of 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.


 


18.
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 18(d) and subject to Section
3(c)(iii)), 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 18(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 provisions of Section 3(c)(iii) following conversion or 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 18(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 18(d) and in Principal amounts of at least
$100,000) 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.


 


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 18(a) or Section 18(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.


 




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19.
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, 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 breach, without the necessity of showing economic loss and without any bond or other security
being required.


 


20.
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.


 


21.
CONSTRUCTION; HEADINGS. This Note shall be deemed to be jointly drafted by the Company and all the Purchasers 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.


 


22.
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.


 




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23.
DISPUTE RESOLUTION. In the case of a dispute as to the determination of the Closing Bid Price, the Closing Sale Price or
the Weighted Average Price or the arithmetic calculation of the Conversion Rate, the Conversion Price or 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 Conversion Notice or 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 Business Day submit via facsimile or electronic mail (a) the disputed determination of the Closing Bid Price,
the Closing Sale Price or the Weighted Average Price to an independent, reputable investment bank selected by the Holder and approved
by the Company, such approval not to be unreasonably withheld or delayed, or (b) the disputed arithmetic calculation of the Conversion
Rate, Conversion Price or any Redemption Price to an independent, outside accountant, selected by the Holder and approved by the
Company, such approval not to be unreasonably withheld or delayed. 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.


 


24.
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 shall give written notice to the Holder (i) immediately
upon any adjustment of the Conversion Price, setting forth in reasonable detail, and certifying, the calculation of such adjustment
and (ii) at least twenty (20) days prior to the date on which the Company closes its books or takes a record (A) with respect
to any dividend or distribution upon the Common Stock, (B) with respect to any pro rata subscription offer to holders of Common
Stock or (C) 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 of the Purchasers, 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 under the Transaction Documents
which is not paid when due shall result in a late charge being incurred and payable by the Company in an amount equal to interest
on such amount at the rate of twenty-one percent (21.0%) per annum from the date such amount was due until the same is paid in
full (“Late Charge”).


 






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25.
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.


 


26.
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.


 


27.
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 it set forth on the signature page hereto 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.


 


28.
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,


 




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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).


 


29.
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 within one (1) Business Day after 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.


 


30.
CERTAIN DEFINITIONS. For purposes of this Note, the following terms shall have the following meanings:


 


a.
“Additional Company Pre-Installment Conversion Price” means, with respect to any Additional Pre-Installment
Conversion Shares Date, that price which shall be the lower of (i) the then Conversion Price then in effect and (ii) the Market
Price as of the applicable Additional Pre-Installment Conversion Shares Date.


 


b.
“Affiliate” means, with respect to any Person, any other Person that directly or indirectly controls, is controlled
by, or is under common control with, such Person, it being understood for purposes of this definition that “control”
of a Person means the power directly or indirectly either to vote 10% or more of the stock having ordinary voting power for the
election of directors of such Person or direct or cause the direction of the management and policies of such Person whether by
contract or otherwise.


 


c.
“Approved Stock Plan” means any employee benefit plan which has been approved by the Board of Directors of
the Company, pursuant to which the Company’s securities may be issued to any employee, officer or director for services
provided to the Company.


 


d.
“Attribution Parties” means, collectively, the following Persons and entities: (i) any investment vehicle,
including, any funds, feeder funds or managed accounts, currently, or from time to time after the Issuance Date, directly or indirectly
managed or advised by the Holder’s investment manager or any of its Affiliates or principals, (ii) any direct or indirect
Affiliates of the Holder or any of the foregoing, (iii) any Person acting or who could be deemed to be acting as a Group together
with the Holder or any of the foregoing and (iv) any other Persons whose beneficial ownership of the Company’s Common Stock
would or could be aggregated with the Holder’s and the other Attribution Parties for purposes of Section 13(d) of the Exchange
Act. For clarity, the purpose of the foregoing is to subject collectively the Holder and all other Attribution Parties to the
Maximum Percentage.


 




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e.
“Bloomberg” means Bloomberg Financial Markets.


 


f.
“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.


 


g.
“Calendar Quarter” means each of: the period beginning on and including January 1 and ending on and including
March 31; the period beginning on and including April 1 and ending on and including June 30; the period beginning on and including
July 1 and ending on and including September 30; and the period beginning on and including October 1 and ending on and including
December 31.


 


h.
“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.


 


i.
“Closing Bid Price” and “Closing Sale Price” means, for any security as of any date, the
last closing bid price and last closing trade price, respectively, for such security on the Principal Market, as reported by Bloomberg,
or, if the Principal Market begins to operate on an extended hours basis and does not designate the closing bid price or the closing
trade price, as the case may be, then the last bid price or last trade price, respectively, of such security prior to 4:00:00
p.m., New York Time, as reported by Bloomberg, or, if the Principal Market is not the principal securities exchange or trading
market for such security, the last closing bid price or last trade price, respectively, of such security on the principal securities
exchange or trading market where such security is listed or traded as reported by Bloomberg, or if the foregoing do not apply,
the last closing bid price or last trade price, respectively, of such security in the over-the-counter market on the electronic
bulletin board for such security as reported by Bloomberg, or, if no closing bid price or last trade price, respectively, is reported
for such security by Bloomberg, the average of the bid prices, or the ask prices, respectively, of any market makers for such
security as reported in the OTC Link or “pink sheets” by OTC Markets Group Inc. (formerly Pink OTC Markets Inc.).
If the Closing Bid Price or the Closing Sale Price cannot be calculated for a security on a particular date on any of the foregoing
bases, the Closing Bid Price or the Closing Sale Price, as the case may be, of such security on such date shall be the fair market
value as mutually determined by the Company and the Holder. If the Company and the Holder are unable to agree upon the fair market
value of such security, then such dispute shall be resolved pursuant to Section 23. All such determinations to be appropriately
adjusted for any stock dividend, stock split, stock combination, reclassification or similar transaction during the applicable
calculation period.


 




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j.
“Closing Date” shall have the meaning set forth in the Securities Purchase Agreement, which date is the date
the Company initially issued Notes pursuant to the terms of the Securities Purchase Agreement.


 


k.
“Company Conversion Price” means as of any date of determination, that price which shall be the lower of (i)
the Conversion Price then in effect and (ii) the Market Price as of such date of determination.


 


l.
“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.


 


m.
“Conversion Share Ratio” means the quotient of (i) the number of Pre-Installment Conversion Shares delivered
in connection with such Installment Date divided by (ii) the number of Post-Installment Conversion Shares relating
to such Installment Date determined as if the applicable date of determination was the applicable Installment Date.


 


n.
“Conversion Shares” means shares of Common Stock issuable by the Company pursuant to the terms of any of the
Notes, including any related Interest and Late Charges so converted, amortized or redeemed.


 


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


 


p.
“Eligible Market” means the Principal Market, The New York Stock Exchange, The Nasdaq
Global Market, The Nasdaq Global Select Market or the NYSE MKT.


 


q.
“Equity Conditions” means each of the following conditions: (i) on each day during Equity Conditions Measuring
Period, either (x) all Registration Statements filed and required to be filed pursuant to the Registration Rights Agreement shall
be effective and available for the resale of all remaining Registrable Securities including the shares of Common Stock issuable
upon conversion of the Conversion Amount that is subject to the applicable Company Conversion or Company Optional Redemption,
as applicable, requiring the satisfaction of the Equity Conditions, in accordance with the terms of the Registration Rights Agreement
and there shall not have been any Grace Periods (as defined in the Registration Rights Agreement) or (y) all Conversion Shares
issuable pursuant to the terms of this Note and the Other Notes and exercise of the Warrants, including the shares of Common Stock
issuable upon conversion of the Conversion Amount that is subject to the applicable Company Conversion or Company Optional


 




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Redemption,
as applicable, requiring the satisfaction of the Equity Conditions, shall be eligible for sale without restriction pursuant to
Rule 144 and without the need for registration under any applicable federal or state securities laws; (ii) on each day during
the Equity Conditions Measuring Period, the Common Stock is designated for quotation on the Principal Market or any other Eligible
Market and shall not have been suspended from trading on such exchange or market (other than suspensions of not more than two
(2) days and occurring prior to the applicable date of determination due to business announcements by the Company) nor shall delisting
or suspension by such exchange or market been threatened, commenced or pending either (A) in writing by such exchange or market
or (B) by falling below the then effective minimum listing maintenance requirements of such exchange or market; (iii) during the
Equity Conditions Measuring Period, the Company shall have delivered Conversion Shares pursuant to the terms of this Note and
the Other Notes and Warrant Shares upon exercise of the Warrants to the holders on a timely basis as set forth in Section 3(c)
hereof (and analogous provisions under the Other Notes) and Section 1(a) of the Warrants; (iv) the shares of Common Stock issuable
upon conversion of the Conversion Amount that is subject to the applicable Company Conversion or Company Optional Redemption,
as applicable, requiring the satisfaction of the Equity Conditions may be issued in full without violating Section 3(d) hereof
and the rules or regulations of the Principal Market or any other applicable Eligible Market; (v) during the Equity Conditions
Measuring Period, the Company shall not have failed to timely make any payments within five (5) Business Days of when such payment
is due pursuant to any Transaction Document; (vi) during the Equity Conditions Measuring Period, there shall not have occurred
either (A) the public announcement of a pending, proposed or intended Fundamental Transaction which has not been abandoned, terminated
or consummated, (B) an Event of Default or (C) an event that with the passage of time or giving of notice would constitute an
Event of Default; (vii) the Company shall have no knowledge of any fact that would cause (x) the Registration Statements required
pursuant to the Registration Rights Agreement not to be effective and available for the resale of all remaining Registrable Securities,
including the shares of Common Stock issuable upon conversion of the Conversion Amount that is subject to the applicable Company
Conversion or Company Optional Redemption, as applicable, requiring the satisfaction of the Equity Conditions, in accordance with
the terms of the Registration Rights Agreement or (y) any shares of Common Stock issuable pursuant to the terms of this Note and
the Other Notes and shares of Common Stock issuable upon exercise of the Warrants, including the shares of Common Stock issuable
upon conversion of the Conversion Amount that is subject to the applicable Company Conversion or Company Optional Redemption,
as applicable, requiring the satisfaction of the Equity Conditions, not to be eligible for sale without restriction pursuant to
Rule 144 and without the requirement to be in compliance with Rule 144(c)(1) (or any successor thereto) promulgated under the
Securities Act and any applicable state securities laws; (viii) during the Equity Conditions Measuring Period, the Company otherwise
shall have been in compliance with and shall not have breached any provision, covenant, representation or warranty of any Transaction
Document; (ix) the Holder shall not be in possession of any material, nonpublic information received from the Company, any Subsidiary
or its respective agent or affiliates; (x) the shares of Common Stock issuable upon conversion of the Conversion Amount that is
subject to the applicable Company Conversion or Company Optional Redemption, as applicable, requiring the satisfaction of the
Equity Conditions are duly authorized and listed and eligible for trading without restriction on an Eligible Market; (xi) the
Company shall have obtained the Stockholder Approval on or before the applicable Stockholder Meeting Deadline


 




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(each
as defined in the Securities Purchase Agreement); (xii) the daily dollar trading volume of the Common Stock as reported by Bloomberg
for each Trading Day during the Equity Conditions Measuring Period shall be at least $50,000; and (xiii) if the event requiring
satisfaction of the Equity Conditions is a Company Conversion, on each Trading Day during the Equity Conditions Measuring Period,
the Closing Sale Price of the Common Stock equals or exceeds $4.00 (as adjusted for any stock dividend, stock split, stock combination,
reclassification or similar transaction occurring after the Subscription Date).


 


r.
“Equity Conditions Failure” means that on any day during the period commencing ten (10) Trading Days prior
to the applicable date of determination through the applicable date of determination, the Equity Conditions have not each been
satisfied (or waived in writing by the Holder).


 


s.
“Equity Conditions Measuring Period” means each day during the period beginning thirty (30) Trading Days prior
to the applicable date of determination and ending on and including the applicable date of determination.


 


t.
“Equity Interests” means (a) 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 (b) 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.


 


u.
“Exchange Act” means the Securities Exchange Act of 1934, as amended.


 


v.
“Excluded Securities” means any shares of Common Stock issued or issuable: (i) in connection with any Approved
Stock Plan; (ii) pursuant to the terms of the Notes (including, without limitation, pursuant to a Company Conversion) or upon
the exercise of the Warrants; provided that the terms of such Notes or Warrants are not amended, modified or changed on or after
the Subscription Date; and (iii) upon conversion or exercise of any Options or Convertible Securities which are outstanding on
the day immediately preceding the Subscription Date, provided that the terms of such Options or Convertible Securities
are not amended, modified or changed on or after the Subscription Date.


 


w.
“Fundamental Transaction” means (A) that the Company shall, directly or indirectly, including through subsidiaries,
Affiliates or otherwise, in one or more related transactions, (i) consolidate or merge with or into (whether or not the Company
is the surviving corporation) another Subject Entity, or (ii) 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 (iii) 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 (x)


 




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50%
of the outstanding shares of Common Stock, (y) 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 (z) 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 (iv) consummate a share 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 (x) at least 50% of the outstanding shares of Common Stock, (y) 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 (z) 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 (v) reorganize, recapitalize
or reclassify its Common Stock, (B) that any Subject Entity individually or the Subject Entities in the aggregate is or shall
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 (x) at least 50% of the aggregate ordinary
voting power represented by issued and outstanding Common Stock, (y) 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 date of this Note calculated as if any
shares of Common Stock held by all such Subject Entities were not outstanding, or (z) 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 (C) 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.


 


x.
“GAAP” means United States generally accepted accounting principles, consistently applied.


 


y.
“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.


 


z.
“Guarantors” shall have the meaning ascribed to such term in the Security Documents.


 




    	- 38 -



    	 



    

 


aa.
“Holiday” means a day other than a Business Day or on which trading does not take place on the Principal Market.


 


bb.
“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), (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, lien, pledge, charge, security interest or other encumbrance upon or in any property
or assets (including accounts and contract rights) 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.


 


cc.
“Initial Company Pre-Installment Conversion Price” means, with respect to any Company Installment Notice Date,
that price which shall be the lower of (i) the then Conversion Price then in effect and (ii) the Market Price as of the applicable
Company Installment Notice Date.


 


dd.
“Installment Amount” means with respect to each Installment Date, an amount equal to the sum of the (i) lesser
of (A) $111,111.11 and (B) the Principal outstanding on such Installment Date, (ii) any Deferral Amount deferred pursuant to Section
8(d) and included in such Installment Amount, (iii) any Accelerated Amount accelerated pursuant to Section 8(e) and included in
such Installment Amount and (iv) accrued and unpaid Interest with respect to such Principal and accrued and unpaid Late Charges,
if any, with respect to such Principal and Interest, as any such Installment Amount for each Holder may be reduced pursuant to
the terms hereof, whether upon conversion, redemption or otherwise. In the event the Holder shall sell or otherwise transfer or
assign any portion of this Note, the transferee shall be allocated a pro rata portion of each unpaid Installment Amount hereunder.


 


ee.
“Installment Balance Conversion Shares” means, for any Installment Date, a number of shares of Common Stock
equal to (i) the Post-Installment Conversion Shares for such date minus (ii) the amount of any Pre-Installment Conversion Shares
delivered in respect of the applicable Installment Date; provided, that in the event that the amount of Pre-Installment
Conversion Shares exceeds the Post-Installment Conversion Shares for such date (such excess, the “Installment Conversion
Shares Excess”), the Installment Balance Conversion Shares shall equal zero (0) for such date and in no event shall
the Installment Conversion Shares Excess reduce the number of Pre- Installment Conversion Shares payable on the next Company Installment
Notice Date, if any.


 




    	- 39 -



    	 



    

 


ff.
“Installment Date” means September 24, 2014 and every calendar month anniversary thereafter through and including
the Maturity Date, or, if any such date falls on a Holiday, the next day that is not a Holiday.


 


gg.
“Interest Rate” means 6.00% per annum, subject to adjustment as set forth in Section 2.


 


hh.
“Lead Investor” means Hudson Bay Master Fund Ltd.


 


ii.
“Market Price” means 80% of the arithmetic average of the three (3) lowest daily Weighted Average Prices of
the Common Stock during the Measuring Period. All such determinations to be appropriately adjusted for any stock split, stock
dividend, stock combination, reclassification or other similar transaction during such Measuring Period.


 


jj.
“Measuring Period” means the twenty (20) consecutive Trading Day period ending on the Trading Day immediately
preceding the applicable date of determination.


 


kk.
“Options” means any rights, warrants or options to subscribe for or purchase shares of Common Stock or Convertible
Securities.


 


ll.
“Option Value” means the value of an Option based on the Black and Scholes Option Pricing model obtained from
the “OV” function on Bloomberg determined as of (A) the Trading Day prior to the public announcement of the applicable
Option if the issuance of such Option is publicly announced or (B) the Trading Day immediately following the issuance of the applicable
Option if the issuance of such Option is not publicly announced, for pricing purposes and reflecting (i) a risk-free interest
rate corresponding to the U.S. Treasury rate for a period equal to the remaining term of the applicable Option as of the applicable
date of determination, (ii) an expected volatility equal to the greater of 100% and the 100 day volatility obtained from the HVT
function on Bloomberg as of the day immediately following the public announcement of (A) the Trading Day immediately following
the public announcement of the applicable Option if the issuance of such Option is publicly announced or (B) the Trading Day immediately
following the issuance of the applicable Option if the issuance of such Option is not publicly announced, (iii) the underlying
price per share used in such calculation shall be the highest Weighted Average Price during the period beginning on the day prior
to the execution of definitive documentation relating to the issuance of the applicable Option and the public announcement of
such issuance, (iv) a zero cost of borrow and (v) a 360 day annualization factor.


 


mm.
“Parent Entity” of a Person means an entity that, directly or indirectly, controls the applicable Person, including
such entity whose common capital stock or equivalent equity security is quoted or listed on an Eligible Market (or, if so elected
by the Required Holders, any other market, exchange or quotation system), or, if there is more than one such Person or such entity,
the Person or 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.


 




    	- 40 -



    	 



    

 


nn.
“Permitted Indebtedness” means (i) Indebtedness evidenced by this Note and the Other Notes, (ii) trade payables
incurred in the ordinary course of business consistent with past practice, (iii) unsecured Indebtedness incurred by the
Company that is made expressly subordinate in right of payment to the Indebtedness evidenced by this Note, as reflected in a written
agreement acceptable to the Required Holders and approved by the Required Holders in writing, and which Indebtedness does not
provide at any time for (a) the payment, prepayment, repayment, repurchase or defeasance, 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 6.00% per annum, (iv) unsecured Indebtedness under the Subordinated Notes, in an aggregate principal amount not to
exceed $2,500,000 (plus any principal amount arising from payments in kind of interest thereon by adding such interest to the
then outstanding principal amount of such Indebtedness) to the extent that such Indebtedness has been expressly subordinated in
right of payment to all Indebtedness of the Company and the Guarantors under the Transaction Documents on terms and conditions
satisfactory to the Collateral Agent and (v) Indebtedness secured by Permitted Liens described in clauses (iv) of the definition
of Permitted Liens.


 


oo.
“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 property 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, and (viii) Liens arising
from judgments, decrees or attachments in circumstances not constituting an Event of Default under Section 4(a)(ix).


 




    	- 41 -



    	 



    

 


pp.
“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.


 


qq.
“Post-Installment Conversion Shares” means, for any Installment Date and without taking into account the delivery
of any Pre-Installment Conversion Shares, that number of shares of Common Stock equal to the applicable Company Conversion Amount
(including, without limitation, the addition of any Accelerated Amounts to such Company Conversion Amount in accordance with Section
8(e)) on such Installment Date divided by the Company Conversion Price as in effect on the applicable Installment Date, rounded
up to the nearest whole share of Common Stock.


 


rr.
“Principal Market” means The NASDAQ Capital Market.


 


ss.
“Redemption Notices” means, collectively, the Event of Default Redemption Notices, the Change of Control Redemption
Notices, the Company Installment Notices and the Company Optional Redemption Notice, each of the foregoing, individually, a Redemption
Notice.


 


tt.
“Redemption Prices” means, collectively, the Event of Default Redemption Price, the Change of Control Redemption
Price, the Company Installment Redemption Price and the Company Optional Redemption Price, each of the foregoing, individually,
a Redemption Price.


 


uu.
“Registrable Securities” shall have the meaning ascribed to such term in the Registration Rights Agreement.


 


vv.
“Registration Rights Agreement” means that certain registration rights agreement dated as of the Subscription
Date by and among the Company and the Purchasers relating to, among other things, the registration of the resale of the shares
of Common Stock issuable upon conversion of this Note and the Other Notes and exercise of the Warrants.


 


ww.
“Registration Statement” shall have the meaning ascribed to such term in the Registration Rights Agreement.


 


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


 


yy.
“Required Holders” means the holders of Notes representing at least a majority of the aggregate principal amount
of the Notes then outstanding and shall include the Lead Investor so long as the Lead Investor or any of its Affiliates holds
any Notes.


 


zz.
“SEC” means the United States Securities and Exchange Commission.


 


aaa.
“Securities Act” means the Securities Act of 1933, as amended.


 




    	- 42 -



    	 



    

 


bbb.
“Securities Purchase Agreement” means that certain securities purchase agreement dated as of the Subscription
Date by and among the Company and the Purchasers of the Notes pursuant to which the Company issued the Notes and Warrants.


 


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


 


ddd.
“Subordinated Notes” means (i) that certain 8% Subordinated Note issued by the Company on November 7, 2011
due on May 30, 2015 in the aggregate principal amount of $1,000,000 and (ii) that certain 8% Subordinated Note issued by the Company
on May 31, 2011 due on May 30, 2015 in the aggregate principal amount of $1,500,000, each as in effect on the Subscription Date.


 


eee.
“Subscription Date” means March 21, 2014.


 


fff.
“Successor Entity” means one or more Person or Persons (or, if so elected by the Holder, 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 Holder, the Company or the Parent Entity) with which such Fundamental Transaction shall have been entered into.


 


ggg.
“Trading Day” means any day on which the Common Stock is traded on the Principal Market, or, if the Principal
Market is not the principal trading market for the Common Stock, then on the principal securities exchange or securities market
on which the Common Stock is then traded; provided that “Trading Day” shall not include any day on which the Common
Stock is scheduled to trade on such exchange or market for less than 4.5 hours or any day that the Common Stock is suspended from
trading during the final hour of trading on such exchange or market (or if such exchange or market does not designate in advance
the closing time of trading on such exchange or market, then during the hour ending at 4:00:00 p.m., New York Time).


 


hhh.
“Warrants” has the meaning ascribed to such term in the Securities Purchase Agreement, and shall include all
warrants issued in exchange therefor or replacement thereof.


 


iii.
“Warrant Shares” means shares of Common Stock issuable by the Company upon the exercise of any of the Warrants.


 


jjj.
“Weighted Average Price” means, for any security as of any date, the dollar volume-weighted average price
for such security on the Principal Market during the period beginning at 9:30:01 a.m., New York Time (or such other time as
the Principal Market publicly announces is the official open of trading), and ending at 4:00:00 p.m., New York Time (or such
other time as the Principal Market publicly announces is the official close of trading) as reported by Bloomberg through its
“Volume at Price” functions, or, if the foregoing does not apply, the dollar volume-weighted average price of
such security in the over-the-counter market on the electronic bulletin board for such security during the period beginning
at 9:30:01 a.m., New York Time (or such other time as such market publicly announces is the official open of trading), and
ending at 4:00:00 p.m., New York Time (or such other time as such market publicly announces is the official close of trading)
as reported by Bloomberg, or, if no dollar volume-weighted average price is reported for such security by Bloomberg for such
hours, the average of the highest closing bid price and the lowest closing ask price of any of the market makers for such
security as reported in the OTC Link or “pink sheets” by OTC Markets Group Inc. (formerly Pink OTC Markets Inc.).
If the Weighted Average Price cannot be calculated for a security on a particular date on any of the foregoing bases, the
Weighted Average Price of such security on such date shall be the fair market value as mutually determined by the Company and
the Holder. If the Company and the Holder are unable to agree upon the fair market value of such security, then such dispute
shall be resolved pursuant to Section 23. All such determinations to be appropriately adjusted for any stock dividend, stock
split, stock combination, reclassification or similar transaction during the applicable calculation period.


 


[Signature
Page Follows]


 




    	- 43 -



    	 



    

 


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


 


	 	Digital
    Ally, Inc.
	 	 	 
	 	By:	/s/
    Stanton E. Ross
	 	Name:	Stanton
    E. Ross
	 	Title:	Chairman,
    President & CEO


 




    	 



    	 



    

 


EXHIBIT I


 


digital
ally, inc.


 


CONVERSION
NOTICE


 


Reference
is made to the Senior Secured Convertible Note (the “Note”) issued to the undersigned by Digital Ally, Inc.,
a Nevada corporation (the “Company”). In accordance with and pursuant to the Note, the undersigned hereby elects
to convert the Conversion Amount (as defined in the Note) of the Note indicated below into shares of Common Stock par value $0.001
per share (the “Common Stock”) of the Company, as of the date specified below.


 


	 	Date
    of Conversion:	 


 


	 	Aggregate
    Conversion Amount to be converted:	 


 


Please
confirm the following information:


 


	 	Conversion
    Price:	 


 


	 	Number
    of shares of Common Stock to be issued:	 


 


Please
issue the Common Stock into which the Note is being converted in the following name and to the following address:


 


	 	Issue
    to:	 
	 	 	 
	 	 	 
	 	 	 
	 	 	 


 


	 	Facsimile
    Number and Electronic Mail:	 


 


	 	Authorization:	 


 


	 	By:	 
	 	 	 
	 	Title:	 
	 	 	 
	 	Dated:	 



 


	 	Account
    Number:	 
	 	(if electronic book entry transfer)



 


	 	Transaction
    Code Number:	 
	 	(if electronic book entry transfer)



 


		Installment
Amounts to be reduced and amount of reduction:	 





 




    	 



    	 



    

 


ACKNOWLEDGMENT


 


The
Company hereby acknowledges this Conversion Notice and hereby directs First American Stock Transfer to issue the above indicated
number of shares of Common Stock in accordance with the Transfer Agent Instructions dated March 21, 2014 from the Company and
acknowledged and agreed to by First American Stock Transfer.


 


 


	 	Digital
    Ally, Inc.
	 	 
	 	By:
    	 
	 	Name:	 
	 	Title: