Document:

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

 

	Principal
                                         Amount: $42,500.00

        Purchase
        Price: $42,500.00
	Issue
    Date: September 4,
    2014

 

CONVERTIBLE
PROMISSORY NOTE

 

FOR
 VALUE RECEIVED,
 ALKAME HOLDINGS,
INC.,  a 
Nevada  corporation (hereinafter  called
 the "Borrower"),
hereby promises  to pay to the order of  KBM
WORLDWIDE, INC., a New York corporation, or registered assigns (the
"Holder") the sum of $42,500.00
together with any interest as set forth
herein, on June 8, 2015 (the
"Maturity Date"), and to pay interest on the unpaid principal balance
hereof at the rate of eight percent (8%)
(the "Interest Rate") per annum from
the date hereof (the "Issue Date") until the same becomes due and
payable, whether at maturity or upon acceleration or by
prepayment or otherwise. This Note may not be prepaid in whole or in part except as otherwise
explicitly  set forth herein. Any amount of principal
or interest on this Note which is
not paid when due shall bear interest at the rate of twenty two
percent (22%) per annum from the
due date thereof until the same is paid ("Default
Interest"). Interest shall commence accruing on the date
that the Note is fully paid and shall be computed on
the basis of a 365-day year and the actual number of days elapsed.  All payments
due hereunder (to the extent not converted
into common stock, $0.001 par value per share (the "Common Stock") in accordance
with  the terms hereof) shall be made in
lawful money of the United States of America.  AJI payments shall be made at such
address as the Holder shall hereafter give to the Borrower by written notice made
 in accordance with the provisions of this Note. 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 and, in the case of any interest payment
date which is not the date on

    	 

    	 

    

which
this Note is
paid in full,
the extension  of
the due date
thereof 
shall  not be taken 
into account for purposes of determining the amount of interest due on such
date.  As used in this Note, the term
"business day" shall mean any day other than a Saturday, Sunday or a day
on which commercial banks in the city of New York, New York are authorized or required
by law or executive order to  remain closed. Each capitalized term used 
herein, and not  otherwise defined, shall have the meaning ascribed thereto
in that certain Securities Purchase Agreement dated the date hereof,
pursuant to which this Note was originally issued (the "Purchase Agreement").

 

This
Note is free
from all taxes,
liens, claims and
encumbrances with respect
to the issue thereof and
shall not be subject
to preemptive rights or
other similar rights
of shareholders of the Borrower and
will not impose personal liability upon
the holder thereof.

 

The
following terms shall apply
to this Note:

 

ARTICLE
I. CONVERSION RIGHTS

 

1.1
 Conversion Right. 
The Holder shall
have the right
from time to
time, and
at any  time  during 
the  period beginning on  the date
which  is one  hundred eighty (180) days
following the date of this
Note and ending on the later of:
(i) the Maturity Date and (ii) the date of payment
of the Default Amount (as
defined in Article UI) pursuant to Section l.6(a) or
Article III, each in respect of the
remaining outstanding principal amount of
this Note to convert all or any
part of the outstanding and unpaid principal
amount of this Note into fully paid
and non assessable shares of Common Stock, as such Common Stock exists on the
Issue Date, or any shares of capital stock or other
securities of the Borrower into which such Common Stock shall hereafter be changed or reclassified at the conversion price
(the "Conversion Price") determined as  provided herein (a
"Conversion"); provided, however, that in no
event shall the Holder  be entitled
to convert any portion of this Note in excess of
that portion of this Note upon conversion of which the sum of (1) the number
of shares of Common Stock  beneficially owned by the Holder
and its affiliates (other than shares of Common
Stock which may be deemed beneficially owned through the ownership of the unconverted
 portion of the Notes or the unexercised
 or unconverted portion of
any other security of the Borrower subject to a limitation
on conversion or exercise analogous  to the limitations contained 
herein) and (2) the  number of  shares
of Common Stock issuable upon the conversion of the portion
of this Note with respect to which the
determination of this proviso is being made, would result in beneficial ownership
 by the Holder and its affiliates of more
than 4.99% of the
outstanding shares of Common Stock. For purposes of the proviso
to the immediately preceding sentence, beneficial ownership shall be determined
in accordance with  Section  13(d) 
of the Securities  Exchange Act of 1934, as amended (the "Exchange Act"),
and Regulations 130-G  thereunder, except  as
otherwise provided in clause (1) of such proviso, provided,  further, however,
 that the limitations on conversion may be waived
by the Holder upon, at the
election of the Holder, not less than 61 days'
prior notice to the Borrower, and the provisions
of the conversion limitation shall
continue

    	2

    	 

    

 

  

to
apply until such
6lst  day (or
such later date,
as determined by
the Holder,
as may be specified in such notice
of waiver).  The number of
shares of Common Stock to be
issued upon each conversion of this Note shall 
be determined  by dividing the Conversion Amount (as defined below) by
the applicable Conversion Price then in effect on the date specified
 in the notice of conversion,
 in the form attached hereto
as Exhibit A
(the ''Notice of Conversion"), delivered to the Borrower by
the Holder in accordance with Section 1 .4 below; provided that the Notice
of Conversion  is submitted 
by facsimile or e-mail  (or by other means resulting 
in, or reasonably expected to result in, notice) to the Borrower before
6:00p.m., New York, New York time
on such conversion date (the "Conversion Date"). The term "Conversion Amount'' means, with respect to any conversion
of this Note, the sum of (l) the principal amount of this Note to
be converted in such
conversion plus (2) at the Holder's
option, accrued and unpaid interest, if any, on such principal amount at the interest
rates provided in this
Note to the Conversion Date, plus (3)
at the Holder's option, Default Interest, if any, on
the amounts referred to in the
immediately preceding clauses (1) and/or (2) plus
(4) at the Holder's option, any amounts
owed to the Holder pursuant to Sections 1.3 and
1.4(g) hereof.

 

1.2
Conversion Price.

 

(a)
Calculation 
of  Conversion  Price.
The  conversion
 price  (the "Conversion
 Price")
shall equal the Variable Conversion Price (as defined herein) (subject 
to equitable adjustments for stock splits,  stock dividends or rights offerings
by the Borrower relating to the Borrower's securities or the securities of any subsidiary
of the  Borrower, combinations, recapitalization,
reclassifications, extraordinary distributions and similar
events). The "Variable Conversion Price" shall mean 58% multiplied by the Market Price
(as defined herein) (representing a discount rate of 42%). "Market Price"
means the average of the lowest three (3) Trading Prices (as defined below) for the
Common Stock during the ten (10) Trading Day period ending on the
latest complete Trading Day prior to the Conversion Date. ''Trading Price" means,
for any security as of any date,
the closing bid price on the Over-the-Counter Bulletin Board, Pink Sheets electronic  quotation
system or applicable trading market (the "OTC")  as reported by a reliable
reporting service ("Reporting  Service")
designated  by the Holder (i.e. Bloomberg)
or, if the OTC is not the principal trading market for such security,
the closing bid price of such security on the principal securities exchange
or trading market where such security is listed or traded or, if no closing bid price
of such security is available in any of the foregoing manners,
the average  of the closing bid prices of any 
market makers for such security that are listed in the "pink sheets".
If the Trading Price cannot be calculated for such security on such date in the manner
provided above, the Trading Price shall
be the fair market value as mutually determined 
by the Borrower and the holders of a majority in interest
of the Notes being converted for which the calculation of the Trading Price is required in order 
to determine the Conversion Price of such Notes. "Trading
Day" shall mean any day on which the Common Stock is tradable for any period on the OTC, or on the principal
securities exchange or other securities market
on which the Common Stock is then being traded.

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(b)
 Conversion  Price 
During  Major  Announcements. 
Notwithstanding anything contained in
Section 1.2(a) to
the contrary, in
the event the Borrower (i) makes a public announcement that it intends to consolidate
or merge with any other corporation (other than
a merger in which the Borrower is the
surviving or continuing corporation and its capital stock is unchanged) or sell
or transfer all or substantially all of the assets of the Borrower or (ii) any person, group or
entity (including the Borrower) publicly announces a tender offer to purchase 50% or
more of the Borrower's  Common Stock
(or any other takeover scheme) (the date of
the announcement  referred to in clause (i) or (ii) is
hereinafter referred to as the "Announcement Date"), then
the Conversion Price shall, effective upon the Announcement Date and continuing
through the Adjusted Conversion Price Termination Date (as defined below), be equal
to the lower of (x) the Conversion Price which would have been applicable for a Conversion
occurring on the Announcement Date and (y) the Conversion Price that would otherwise be in effect. From and after 
the Adjusted  Conversion Price Termination Date, the Conversion Price shall
be determined as set forth in this Section 1.2(a). For purposes hereof, "Adjusted Conversion Price Termination Date"
shall mean, with respect to any proposed transaction or tender offer (or takeover scheme) for which a public announcement as contemplated
by this Section 1.2(b) has been made, the date upon which the Borrower (in the case of clause (i) above) or the person, group
or entity (in the case of clause (ii) above) consummates or publicly announces the termination or abandonment of the proposed
transaction or tender offer (or takeover scheme) which caused this Section 1.2(b) to
become operative.

 

1.3
Authorized Shares.  The
Borrower covenants that during
the period the conversion 
right exists,  the
Borrower will reserve
from  its authorized and unissued  Common
Stock a sufficient number of shares, free from
preemptive rights, to provide for the issuance
of Common Stock upon the
full conversion of this Note issued
pursuant to the Purchase Agreement. The Borrower
is required at aJI times to have
authorized and reserved five times the number of shares that is actually issuable
upon full conversion of the Note (based on the Conversion Price of the Notes
in effect from time to time)(the "Reserved Amount"). The Reserved
Amount shall be increased from time to time in accordance with the Borrower's
obligations hereunder. The Borrower represents that upon issuance, such shares will be duly
and validly issued, fully paid and non-assessable.
In addition, if the Borrower shall issue any securities or make any change
to its capital structure which would change the number of shares of Common Stock
into which the Notes shall be convertible at the then current Conversion Price,
the Borrower shall at the same time
make proper provision so 
that thereafter there shall be a sufficient number
of shares of Common Stock authorized and reserved, free from preemptive rights,
for conversion of the outstanding Notes.
The Borrower (i) acknowledges that it has irrevocably instructed its transfer agent
to issue certificates for the Common
Stock issuable upon conversion of this Note, and (ii) agrees that its issuance
of this Note shall constitute full authority
to its officers and agents who are charged with the duty of executing stock
certificates to execute and issue the necessary
certificates for shares of Common Stock
in accordance with the terms and conditions of this Note.

    	4

    	 

    

  

 

If,
at any time
the Borrower does
not maintain the
Reserved Amount it
will be considered
an Event of Default
under Section 3.2 of the Note.

 

1.4
Method of
Conversion.

 

(a)
Mechanics of Conversion. 
Subject to Section
1.1,  this
Note may be converted
by the Holder in whole or in part
at any time from time to time after the Issue Date, by (A) submitting to
the Borrower a Notice of Conversion (by
facsimile, e-mail or other reasonable means of communication
dispatched on the Conversion Date prior
to 6:00 p.m., New York, New York time)
and (B) subject to Section 1.4(b), surrendering this Note
at the principal office of the Borrower.

 

(b)
 Surrender ofNote
Upon Conversion.  Notwithstanding
anything to the contrary
set forth herein,
upon conversion of this
Note in accordance with
the terms hereof, the Holder shall not be
required to physically surrender this Note to
the Borrower unless the entire unpaid
principal  amount  of this 
Note  is so 
converted.  The Holder and the Borrower shall maintain records
showing the principal amount so converted
and the dates of such conversions or
shall use such other method, reasonably satisfactory
to the Holder and the Borrower, so as
not to require physical surrender of this Note upon each such conversion. 
In the event of any dispute or discrepancy,
such records of the Borrower
shall, prima facie, be controlling
and determinative in the absence of manifest
error. Notwithstanding the foregoing, if any portion
of this Note is converted as aforesaid, the
Holder may not transfer this
Note unless the Holder
first physically surrenders this Note to the Borrower, whereupon the
Borrower will forthwith issue and deliver upon the order of the Holder a new
Note of like tenor, registered as the Holder (upon
payment by the Holder of  any applicable
transfer taxes) may request, representing  in the aggregate the remaining unpaid
principal amount of this Note. The Holder and any assignee, by
acceptance of this Note, acknowledge and
agree that, by reason of the
provisions of this paragraph, following conversion of a
portion of this Note, the unpaid
and unconverted principal amount of this Note represented
by this Note may be less than the amount stated on the face hereof.

 

(c)
Payment of Taxes. The
Borrower shall not
be required to
pay any tax which
may be payable
in respect of
any transfer involved in the issue and delivery
of shares of Common Stock or other
securities or property on conversion of this Note
in a name other than that of the Holder
(or in street name), and the
Borrower shall not be required
to issue or deliver any such shares or other
securities or property unless and until the
person or persons (other than the
Holder or the custodian in whose street name
such shares are to be held for the Holder's
account) requesting the issuance thereof shall
have paid to the Borrower the amount of
any such tax or shall have established to the satisfaction
of the Borrower that such tax has been paid.

 

(d)
Delivery of Common
Stock Upon Conversion. 
Upon receipt by the Borrower
from the Holder
of a facsimile
transmission or e-mail (or other
reasonable means of communication) of a Notice of Conversion meeting the requirements
for conversion as provided

    	5

    	 

    

  

 

in
this Section 1.4,
the Borrower shall
issue and deliver
or cause to
be issued and delivered to or
upon the order of the Holder certificates for the Common Stock issuable upon
such conversion within three (3) business
days after such receipt (the "Deadline")
(and, solely in the case of conversion of the
entire unpaid principal amount hereof, surrender of this Note) in accordance
with the terms hereof and the Purchase Agreement.

 

(e)
Obligation
of Borrower to
Deliver Common Stock.
 Upon receipt
by the Borrower of
a Notice of Conversion, the Holder
shall be deemed to be the holder of record
of the Common Stock issuable upon such conversion, the outstanding 
principal amount and the amount of accrued and unpaid interest on this Note
shall be reduced to reflect such conversion,
and, unless the Borrower defaults on its
obligations under this Article I, all rights with
respect to the portion of this Note being so
converted shall forthwith terminate except the right to receive the 
Common Stock or  other securities, cash or other assets, as herein provided,
 on such conversion.  If the Holder shall
have given a Notice of Conversion  as provided 
herein, the Borrower's obligation to issue
and deliver the certificates for Common Stock shall be absolute and
unconditional, irrespective of the absence of
any action by the Holder to enforce
the same, any waiver or  consent with respect to
any  provision thereof, the recovery of any judgment against any person
or any action to enforce the same,
any failure or delay in
the enforcement of any  other obligation of 
the Borrower  to  the holder of
record, or  any setoff,  counterclaim,
recoupment, limitation or termination, or any breach or alleged 
breach by the Holder of any obligation to the Borrower, and irrespective
of any other circumstance which
might otherwise limit such obligation of the Borrower to the Holder in connection
with such conversion. 
The Conversion Date specified in the Notice
of Conversion shall be the
Conversion Date so long as the Notice
of Conversion is received by the Borrower before 6:00
p.m., New York, New York time, on such date.

 

(f)
 Delivery  of 
Common  Stock  by 
Electronic  Transfer. 
In  lieu  of delivering 
physical 
certificates  representing  the
Common Stock issuable upon conversion, provided  the 
Borrower is participating in the  Depository 
Trust Company ("DTC") Fast Automated Securities  Transfer ("FAST")
 program,  upon request of the Holder and
its compliance with the provisions contained in Section 1.1 and in this Section 1.4,
the Borrower shall use its best efforts to
cause its transfer agent to electronically transmit the Common Stock issuable
upon conversion to the Holder by crediting the account
of Holder's Prime Broker with DTC through
its Deposit Withdrawal Agent Commission ("DWAC") system.

 

(g)
Failure to Deliver
Common Stock Prior
to Deadline.  Without
in any way  limiting 
the Holder's right to pursue other
 remedies, including actual  damages 
and/or equitable relief, the parties agree that
if delivery of the Common Stock issuable upon conversion of 
this Note  is not delivered  by
the Deadline (other  than a failure due to the
circumstances described in Section 1.3 above, which failure shall be governed
by such Section) the Borrower shall pay to the
Holder  $2,000 per day 
in cash, for each day  beyond the
Deadline that the Borrower fails to deliver such
Common Stock. Such cash amount shall be
paid to Holder by the

    	6

    	 

    

  

 

fifth
day of the
month following
the month in
which it has
accrued or,
at the option of the Holder (by
written notice to the Borrower by
the first day of the month following the
month in which it has
accrued), shall be added to the principal
amount of this Note, in which event interest shall accrue thereon in accordance with the terms
of this Note and such additional principal amount shall be convertible into Common Stock in accordance with 
the  terms  of this Note.
The Borrower agrees that the right to convert
is a valuable right to the Holder. The damages resulting from a failure, attempt to
frustrate,  interference with such conversion
right are difficult  if not impossible  to
qualify. Accordingly the parties acknowledge that the liquidated damages provision contained in
this Section 1.4(g) are justified.

 

1.5
 Concerning the Shares. The  shares
 of  Common 
Stock issuable  upon conversion
of this Note
may not be
sold or transferred unless (i) such shares
are sold pursuant to an effective registration statement under the Act or (ii)
the Borrower or its transfer agent shall have been furnished
with an opinion of counsel (which opinion shall be in form, substance and scope
customary for opinions of counsel in comparable
transactions) to the effect that the shares to be
sold  or  transferred 
may  be sold or transferred pursuant
to an  exemption from such registration or (iii) such shares are sold or transferred
pursuant to Rule 144 under the Act (or a successor rule) ("Rule 
144") or (iv) such
shares are transferred to an "affiliate" (as defined in Rule 144) of the Borrower who
agrees to sell or otherwise transfer the shares
only in accordance with this Section 1.5
and who is an Accredited Investor (as
defined in the Purchase Agreement). Except as otherwise provided in the
Purchase Agreement (and subject to the removal provisions
set forth below), until such time as the shares of Common
Stock issuable upon conversion of this Note
have been registered under the Act or
otherwise may be sold pursuant to Rule 144
without any restriction as to the number of securities as
of a particular date that can then
be immediately sold, each certificate for shares of Common
Stock issuable upon conversion of
this Note that has not been so included
in an effective registration statement or that bas not been sold
pursuant to an effective registration statement
or an exemption that permits removal
of the legend, shall bear a legend substantially in the
following form, as appropriate:

 

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

    	7

    	 

    

   

The
legend set forth
above shall be
removed and the
Borrower shall
issue to the Holder
a new certificate therefore free of any transfer legend
if (i) the
Borrower or its transfer agent shall have received an
opinion of counsel, in form, substance
and scope customary for opinions of counsel in
comparable transactions, to the effect
that a public sale or transfer of such Common
Stock may be made without registration under the Act, which opinion shall be accepted by the
Company so that the sale or transfer is effected or
(ii) in the case of
the Common Stock issuable upon conversion of this Note, such security
is registered for sale by the Holder under an effective registration
statement filed under the Act or otherwise
may be sold pursuant to Rule

144
without any restriction
as to the
number of securities
as of a
particular date that
can then be immediately sold.  In
the event  that the Company does  not
accept the opinion of counsel provided by the Holder with
respect to the transfer of Securities
pursuant to an exemption from registration, such as Rule 144 or Regulation
S, at the Deadline, it will be considered an Event
of Default pursuant to Section 3.2
of the Note.

 

1.6
Effect of Certain Events.

 

(a)
Effect of Merger,
Consolidation,
Etc.  At the
option of the Holder,
the sale, conveyance
or disposition
of all or substantially all of
the assets of the Borrower, the effectuation
by the Borrower of
a transaction or series of related
transactions in which more than

50%
of the voting
power of the
Borrower is
disposed of, or
the consolidation, merger
or other

business
combination  of the
Borrower  with or 
into any
other  Person 
(as defined  below)
or Persons when the Borrower is not the
survivor shall either: (i) be deemed to be an Event of Default (as defined in Article
Ill) pursuant to which the
Borrower shall be required to pay to the Holder upon the consummation of and
as a condition
to such transaction an amount equal to the Default Amount (as defined in Article
III) or (ii) be treated pursuant to Section  l.6(b)
hereof. "Person" shall mean any individual, corporation, limited liability
company, partnership, association, trust or other entity or
organization.

 

(b)
 Adjustment Due
to Merger, Consolidation,
Etc.  If, at
any time when this
Note is
issued and outstanding and prior
to conversion of all
of the Notes, there shall be any merger, consolidation,  exchange 
of shares,  recapitalization, reorganization, or other 
similar event, as a result
of which shares of Common Stock
of the Borrower shall be changed into the same or
a different  number of shares
of another class  or classes of stock or securities
of the Borrower or another entity, or in
case of any
sale or conveyance of all or substantially
all of the assets of the Borrower other than in connection with a plan of complete liquidation of the Borrower, then the Holder
of this Note shall thereafter have the right to receive upon conversion of this Note, upon
the basis and upon the terms and conditions
specified herein and in lieu of the shares
of Common Stock immediately theretofore issuable  upon conversion, such stock, securities
or assets which the Holder would have been entitled to receive in such transaction
had

    	8

    	 

    

 

 

this
Note 
been converted  in
full immediately prior
to such
 transaction (without
regard to any limitations on conversion
set forth herein), and in any such case appropriate provisions shall be made with respect
to the rights and  interests
of  the Holder  of this Note to
the end that the provisions hereof (including,
without limitation, provisions for adjustment of the Conversion
Price and of the number of shares issuable upon conversion
of the Note) shall thereafter be applicable, as nearly
as may be practicable in relation to any securities or assets thereafter deliverable
upon the conversion hereof.
The Borrower shall not affect any transaction described in this Section l.6(b) unless
(a)  it first
gives, to the extent practicable, thirty
(30) days  prior written notice
(but in any event at least fifteen (15) days prior
written notice) of the record date of the special meeting
of shareholders to approve, or
if there is no such record date, the consummation of, such merger,
consolidation, exchange of shares, recapitalization, reorganization or other 
similar event
or sale of assets (during which
time the Holder shall be entitled to convert this Note)
and (b) the resulting successor or acquiring entity (if not the Borrower)
 assumes by written instrument  the
obligations of this Section 1.6(b). 
The above provisions shall similarly apply to
successive consolidations, mergers, sales, transfers or share
exchanges.

 

(c)
Adjustment Due to Distribution. If the Borrower shall declare or make any distribution of its assets (or rights to acquire its
assets) to holders of Common Stock as a dividend, stock repurchase, by way of return of capital or otherwise (including any dividend
or distribution to the Borrower's shareholders in cash or shares (or rights to acquire shares) of capital stock of a subsidiary
(i.e., a spin-off)) (a "Distribution"), then the Holder of this Note shall be entitled, upon any conversion of this
Note after the date of record for determining shareholders entitled to such Distribution, to receive the amount of such assets
which would have been payable to the Holder with respect to the shares of Common Stock issuable
upon such conversion
had such Holder
been the
holder of such
shares of Common
Stock on the record date for the determination of shareholders entitled to such
Distribution.

 

(d)
 Adjustment Due
to Dilutive Issuance.
 If,
at any time
when any
Notes are issued and outstanding,
the Borrower issues or sells, or
in accordance with this
Section 1.6(d) hereof is deemed to have issued or sold, any shares of Common
Stock for no consideration or for a consideration per share (before deduction of reasonable expenses or commissions or underwriting
discounts or allowances in connection therewith) less than the Conversion Price in effect on the date of such issuance (or deemed
issuance) of such shares of Common Stock (a "Dilutive Issuance"), then immediately upon the Dilutive Issuance, the Conversion
Price will be reduced to the amount of the consideration per share received by the Borrower in such Dilutive Issuance.

 

The
Borrower shall be deemed to have issued or sold shares of Common Stock if the Borrower in any manner issues or grants any warrants,
rights or options (not including employee stock option plans), whether or not immediately exercisable, to subscribe for or to
purchase Common Stock or other securities convertible into or exchangeable for Common

    	9

    	 

    

  

Stock
("Convertible Securities")
(such warrants, rights
and options to
purchase Common Stock or
Convertible
Securities  are hereinafter referred  to
as "Options") and the
price per share for which Common Stock
is issuable upon the
exercise of such Options is less
than the Conversion Price then in effect, then the
Conversion Price shall be equal to such price per share. For purposes of the
preceding sentence, the "price per
share for which Common Stock is issuable
upon the exercise of  such Options" is 
determined  by dividing (i)  the
total amount,  if any, received or receivable
by the Borrower as consideration for the
issuance or granting of all such Options, plus the minimum aggregate
amount of additional consideration, if
any, payable to the Borrower upon 
the exercise of all  such Options,
plus, in the case of Convertible Securities issuable upon the
exercise of such Options, the
minimum aggregate amount of additional
consideration payable upon the conversion or
exchange thereof at the time such Convertible
Securities first become convertible or exchangeable,
by (ii) the maximum total number
of shares of Common Stock issuable upon the exercise of all such Options (assuming full conversion of Convertible
Securities, if applicable). No further adjustment to the
Conversion Price will be made upon the actual issuance of such
Common Stock upon the exercise
of such Options or upon the
conversion or exchange of Convertible Securities
issuable upon exercise of such Options.

 

Additionally,
the Borrower shall
be deemed to
have issued or
sold shares of
Common Stock  if the Borrower in
any manner issues or sells any Convertible Securities, whether or not  immediately
 convertible  (other 
than where the  same are issuable  upon
the exercise of Options), and the price per share for
which Common Stock is
issuable upon such conversion or exchange 
is less than the Conversion Price then in effect, then the
Conversion Price shall be equal
to such price per share. For the purposes of the preceding sentence, the "price
per share for which Common Stock  is issuable
upon such con version or exchange" is determined 
by dividing (i) the total amount,
if any, received or receivable by
the Borrower as consideration for the 
issuance or sale of all such Convertible  Securities, plus the minimum aggregate
amount of additional consideration,  i
f  any, payable to the Borrower upon
the conversion or exchange thereof at the time such
Convertible Securities first become convertible or exchangeable,
by (ii) the maximum total number of
shares of Common Stock issuable upon the conversion or
exchange of all such Convertible Securities.
No further adjustment to the Conversion Price
will be made upon the actual issuance
of such Common Stock upon conversion or exchange of such Convertible Securities.

 

(e)
 Purchase  Rights. 
If,  at 
any  time  when 
any  Notes  are 
issued  and outstanding,
the Borrower issues
any convertible securities or rights to
purchase stock, warrants, securities
or other property (the "Purchase Rights")
pro rata to the record holders of any class
of Common Stock,  then the Holder of  this
Note will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which such
Holder could have acquired if such Holder
 had held the number of shares of Common
Stock acquirable upon complete conversion of this Note (without 
regard to any limitations on conversion contained herein)
immediately before the date on which a
record is taken for the grant, issuance or sale of

    	10

    	 

    

 

 

such
Purchase Rights or,
if no such record is taken,
the date as of which
the record holders of Common
Stock are to be determined for the grant, issue
or sale of such Purchase Rights.

 

(f)
Notice of Adjustments. 
Upon the occurrence
of each adjustment
or readjustment of the
Conversion Price as
a result of
the events described in this Section
1.6, the Borrower, at its expense, shall promptly compute such adjustment or
readjustment and prepare and furnish
to the Holder a certificate setting
forth such adjustment or readjustment and showing in
detail the facts upon which such
adjustment or readjustment is based. The Borrower shall, upon the written request  at
any time of the Holder, furnish to such Holder a like certificate
setting forth (i) such adjustment
or readjustment, (ii) the
Conversion  Price at the time in
effect and (iii) the number of shares of
Common Stock and the amount, if any, of other securities
or property which at the time would be received
upon conversion of the Note.

 

1.7
Trading  Market  Limitations. Unless
permitted  by the
applicable  rules and regulations
of  the principal
securities  market  on
 which the
Common  Stock is then listed or
traded, in no event shall the Borrower  issue
upon conversion of or otherwise pursuant to this Note and the other
Notes issued pursuant to
the Purchase Agreement more than the maximum number
of shares of Common
Stock  that the Borrower can
issue pursuant to any rule of the principal  United States securities market
on which the Common Stock is then traded (the
"Maxim um Share Amount"), which shall be 4.99% of the
total shares outstanding on the Closing
Date (as defined in the Purchase Agreement), subject to
equitable adjustment from time to time for
stock splits, stock dividends, combinations, capital reorganizations and similar events relating to the Common Stock occurring
after the date hereof.  Once
the Maxim um Share Amount has been issued, if
the Borrower fails to eliminate
any prohibitions under applicable law
or the rules or regulations of any stock
exchange, interdealer quotation system or other self-regulatory organization
with jurisdiction over the Borrower or
any of its securities on the Borrower's
ability to issue shares of Common 
Stock  in excess of the Maximum Share Amount,
in lieu of any further right to convert this Note, this will be considered an Event
of Default under Section 3.3 of the Note.

 

1.8
Status as Shareholder.   Upon
submission  of  a 
Notice of  Conversion 
by a Holder, (i)
the shares  covered
thereby (other  than
the shares, if any, which cannot be issued because their
issuance would exceed such Holder's allocated portion of the Reserved
Amount or Maximum Share Amount) shall be
deemed converted into shares of Common
Stock and (ii) the Holder's rights
as a Holder of such converted portion of this Note shall cease and terminate, excepting
only  the right to receive certificates
for such shares of Common Stock
and to any remedies provided herein or otherwise available at law or in equity
to such Holder because of a failure
by the Borrower to comply
with the terms  of this Note. 
Notwithstanding the foregoing, if a Holder has not received certificates for all
shares of Common Stock prior to the tenth (10th) business
day after the expiration of the Deadline with respect to a conversion of any
portion of this Note for any
reason, then (unless the Holder otherwise elects to retain its status as a
holder of Common Stock by so notifying
the Borrower) the Holder shall regain the
rights of a Holder of

    	11

    	 

    

  

 

this
Note with respect
to such
unconverted portions of
this
Note and the
Borrower shall, as soon as practicable,
return  such unconverted  Note to 
the  Holder
or, if the Note has not  been surrendered,
adjust its records to reflect that
such portion of this
Note has not been converted.
 In all cases,
the Holder
shall retain all of its rights
and remedies (including,
without limitation,
(i) the right to receive Conversion
Default Payments pursuant to Section 1.3 to the extent
 required thereby for such Conversion Default
and any subsequent Conversion Default and (ii) the
right to have the Conversion Price with respect
to subsequent conversions
determined in accordance with Section 1.3) for the Borrower's
failure to convert this Note.

 

1.9
Prepayment.  Notwithstanding
anything to the
contrary
contained i n
this Note, at any
time during the period
beginning on the Issue Date and ending on
the date which is thirty (30) days following
the Issue Date, the Borrower
shall have the right,
exercisable on not Jess than three
(3) Trading Days prior written notice to the Holder of the Note to
prepay the outstanding Note (principal and
accrued interest), in full , in
accordance with this Section
1.9. Any notice of prepayment hereunder (an "Optional
Prepayment Notice") shall be
delivered to the Holder of the Note
at its registered addresses and shall
state: (1) that the Borrower is exercising
its right to prepay the Note, and (2) the date
of prepayment which shall be not
more than three
(3) Trading Days from the
date of the Optional Prepayment Notice. On the date fixed for
prepayment (the "Optional Prepayment
Date"), the Borrower shall make
payment of the Optional Prepayment Amount (as defined 
below) to or upon the order of the Holder as specified by the Holder in writing to the Borrower at least one
(1) business day prior to the Optional Prepayment Date. If the Borrower exercises
its right to prepay the Note, the Borrower shall make payment
to the Holder of an amount in cash (the "Optional Prepayment Amount")
equal to 115%, multiplied by the sum of: (w) the
then outstanding principal amount of this Note plus (x)
accrued and unpaid interest on the unpaid principal amount of this Note to
the Optional Prepayment  Date plus (y)
Default Interest, if
any, on the amounts referred
to in clauses (w) and (x) plus (z)
any amounts owed  to the Holder pursuant
to Sections
1.3 and 1.4(g) hereof. If the Borrower
delivers an Optional
Prepayment Notice and fails
to pay the Optional Prepayment Amount due
to the Holder of the Note within
two (2) business days following
the Optional Prepayment Date, the Borrower shall
forever forfeit its right
to prepay the Note pursuant to this Section
1.9.

 

Notwithstanding
 anything  to 
the contrary  contained
 in this 
Note, 
at any time during the period beginning on the date
which is thirty-one (31) days following
the Issue Date and ending on the date
which is sixty (60) days following the
Issue Date, the Borrower shall have the
right, exercisable on not less than
three (3) Trading Days prior written
notice to the Holder of the Note to prepay
the outstanding 
Note (principal and accrued interest),
in full, in accordance with this Section
1.9. Any Optional Prepayment Notice shall be delivered
to the Holder of the Note at
its registered addresses and shall state: (1) that the Borrower is exercising
its right to prepay the Note, and (2) the date
of prepayment which shall be not
more than three (3) Trading Days from the
date of the Optional Prepayment Notice.  On
the Optional Prepayment Date, the Borrower shall make payment
of the Second Optional Prepayment Amount (as defined below) to or upon the
order of the Holder as specified by the
Holder in writing to
the Borrower at least one

    	12

    	 

    

  

(I)
 business
day prior to
the Optional Prepayment
Date.  If the
Borrower exercises its
right to prepay the Note, the
Borrower shall make payment to the Holder of
an amount  in cash (the "Second
Optional Prepayment Amount'') equal to 120%,
multiplied by the sum of:
(w) the then outstanding  principal amount
of this Note plus (x) accrued and unpaid
interest on the unpaid principal amount of this Note to the Optional Prepayment
Date pl us (y) Default Interest,
if any, on the amounts referred to in clauses
(w) and (x) plus (z) any amounts owed to the
Holder pursuant to Sections 1.3 and 1.4(g) hereof. If
the Borrower delivers
an Optional Prepayment Notice and fails
to pay the Second Optional Prepayment
Amount due to the Holder of the Note within two (2) 
business days following the  Optional 
Prepayment  Date,  the Borrower shall
forever forfeit its right to prepay the Note pursuant
to this Section 1.9.

 

Notwithstanding
 anything  to 
the contrary  contained 
in  this Note, 
at any  time
during the period
beginning on the date which is sixty-one
(61) days following the Issue Date and
ending on the date which is ninety (90) days following
the Issue Date, the Borrower shall have
the right, exercisable  on not less than three (3)
Trading  Days prior written notice to the
Holder of the Note to prepay the outstanding Note
(principal and accrued interest), in full, in accordance
with this Section 1.9. Any Optional Prepayment 
Notice shall be delivered  to the Holder of the Note at its registered addresses
and shall state: (1) that
the Borrower is exercising its right to prepay the
Note, and (2) the date
of prepayment which shall be not more
than three (3) Trading Days from
the date of the Optional Prepayment
Notice. On the Optional Prepayment Date, the Borrower shall make
payment of the Third Optional
Prepayment Amount (as defined below) to or upon the order of the Holder as specified
by the Holder in writing to
the Borrower at least one (I) business
day prior to the
Optional Prepayment Date. 
If the Borrower exercises its right to prepay the Note, the Borrower shall make
payment to the Holder of an amount in cash (the ''Third Optional 
Prepayment Amount") equal to 125%, multiplied by the sum of: (w) the then
outstanding principal amount of this Note plus (x) accrued and unpaid interest on
the unpaid principal amount of this Note
to the Optional Prepayment Date plus (y) Default Interest, if any, on 
the amounts referred to in clauses (w) and (x) 
plus (z) any amounts owed to the Holder pursuant to Sections
1 .3 and 1.4(g) hereof. If the Borrower delivers
an Optional Prepayment Notice
and tails to pay the Third Optional Prepayment
Amount due to the Holder of the Note within  two
(2) business  days following  the
 Optional Prepayment Date, the  Borrower
shall forever forfeit its right to prepay the
Note pursuant to this Section 1 .9.

 

Notwithstanding
any to the
contrary stated
elsewhere herein,
at any time
during the period beginning
on the date
that is ninety-one (91 ) day from
the Issue Date and ending one hundred twenty (1 20) days following 
the  Issue Date. the Borrower shall have the 
right, exercisable on not less than three (3) Trading Days prior
written notice to the Holder of the Note to prepay the outstanding Note (principal
and accrued interest),
in full, in accordance with
this Section 1 .9. Any Optional Prepayment Notice shall
be delivered to
the Holder of the Note at its registered addresses and shall state: (I) that the Borrower
is exercising its right to prepay
the Note, and (2) the date of prepayment which
shall be not more than three (3) Trading
Days from the date of the Optional Prepayment Notice. On
the Optional Prepayment Date, the Borrower

    	13

    	 

    

  

shall
 make  payment
of the Fourth 
Optional  Prepayment
Amount  (as defined 
below) to or
upon the order of  the Holder as
specified by the Holder in writing
to the Borrower at least one 
(1) business day prior to the Optional  Prepayment Date. If the Borrower exercises
its right to prepay the Note, the Borrower shall make payment to the
Holder of an amount in cash  (the  "Fourth
Optional  Prepayment Amount") equal to 130%, multiplied 
by the sum of:  (w)  the then outstanding
principal amount of  this  Note plus
(x) accrued and unpaid interest on  the
unpaid principal amount  of this Note
to the Optional Prepayment Date plus (y) Default Interest,  if any,
on the  amounts  referred to in clauses
 (w)  and (x) plus
(z) any amounts owed to the Holder pursuant to Sections 1.3 and 
l.4(g) hereof.  If the
Borrower delivers an Optional Prepayment Notice and fails
to pay the Fourth Optional Prepayment Amount due to the Holder of the Note
within two (2) business  days following the Optional Prepayment Date, 
the Borrower shall forever  forfeit its right to prepay the Note pursuant to
this Section 1.9.

 

Notwithstanding
any to the
contrary  stated  elsewhere
herein, at
any time  during the
period  beginning  on the date
that is one hundred twenty-one (121) day from the Issue Date and
ending one hundred fifty (150)  days following
the Issue Date, the Borrower shall have the right, exercisable on not less
than three (3) Trading Days prior written notice to the Holder of the Note
to prepay the outstanding Note (principal
and accrued  interest),  in full, in
accordance with this Section 1.9. Any Optional  Prepayment Notice
shall  be delivered  to
the Holder of the Note at its registered 
addresses and shall state: (I) that the
Borrower is exercising its right to prepay the Note, and (2) the date of prepayment 
which shall be not more than three (3) Trading 
Days from

the
date of the Optional 
Prepayment  Notice.
 On the
Optional  Prepayment Date,
the  Borrower shall
make payment of the
Fifth Optional Prepayment Amount
(as defined below) to or upon the order of
the Holder as specified by the Holder  in
writing to the Borrower at least one (1) business day prior to the Optional Prepayment
Date. If the Borrower exercises its right to prepay the Note, the Borrower shall make payment to the Holder of an amount in cash
(the "Fifth Optional Prepayment Amount") equal to 135%, multiplied by the sum of: (w) the then outstanding principal
amount of this Note plus (x) accrued and unpaid interest on the unpaid principal amount of this Note to the Optional Prepayment
Date plus (y) Default Interest, if any, on the amounts referred to in clauses (w) and (x) plus (z) any amounts owed to the Holder
pursuant to Sections 1.3 and 1.4(g) hereof. If the Borrower delivers an Optional Prepayment Notice and fails to pay the Fifth
Optional Prepayment Amount due to the Holder of the Note within two (2) business days following the Optional Prepayment Date,
the Borrower shall forever forfeit its right to prepay the Note pursuant to this Section 1.9.

 

Notwithstanding
any to the contrary 
stated  elsewhere
herein,  at any
time  during the period 
beginning on the
date that is one hundred fifty-one  (151)
day from the Issue Date and ending 
one hundred eighty 
(180) days  following the Issue Date, the Borrower shall 
have the right, exercisable on not less than three (3)
Trading Days prior written notice to the
Holder of the Note to prepay the outstanding
Note (principal and accrued  interest), in full,
in accordance with this Section 1.9. Any
Optional Prepayment  Notice shall be delivered to the
Holder of the Note at its registered addresses and shall state: (1) that the
Borrower is exercising its
right to prepay the

    	14

    	 

    

 

 

Note,
and (2) the
date of prepayment
which shall be
not more than
three (3) Trading
Days from the date of the
Optional Prepayment Notice.  On
the Optional Prepayment Date, the Borrower shall make payment
of the Sixth Optional Prepayment Amount
(as defined below) to or upon the order
of the Holder as specified by the Holder in writing to the Borrower at
least one (1) business day prior to
the Optional Prepayment Date.  If the Borrower exercises its
right to prepay the Note, the Borrower shall
make payment to the Holder of an amount
in cash (the "Sixth Optional
Prepayment Amount") equal  to 140%,  multiplied
by the  sum  of: 
(w) the then outstanding principal amount of this Note plus (x)
accrued  and  unpaid 
interest  on the  unpaid 
principal amount of this Note to the Optional 
Prepayment Date  plus (y) Default Interest, if
any, on the amounts referred to in clauses (w)
and (x) plus (z) any amounts owed to the Holder
pursuant to Sections 1.3 and 1.4(g) hereof
 If the Borrower delivers an Optional
Prepayment Notice and fails to pay the Sixth Optional Prepayment Amount due to the
Holder of the Note within two (2) business days following the Optional 
Prepayment Date, the Borrower shall forever forfeit  its right to
prepay the Note pursuant to this Section 1.9.

 

After
the expiration of
one hundred eighty
(180) following the
date of the
Note, the Borrower shall
have no right of prepayment. 

 

ARTICLE
II. CERTAIN COVENANTS

 

2.1
 Distributions
 on  Capital 
Stock.  So  long
as  the  Borrower 
shall  have any obligation under
this Note, the Borrower shall not without the
Holder's written consent (a) pay, declare or 
set apart for such  payment, any  dividend
or other distribution  (whether  in cash,
property or other securities)
on shares of capital stock other than dividends on shares of Common Stock solely
in the form of additional shares of Common
Stock or (b) directly
or indirectly or through any subsidiary make any other payment or distribution
 in respect of its capital stock except
for distributions pursuant to
any shareholders' rights
plan which is approved by a majority of the Borrower's disinterested directors.

 

2.2
Restriction on Stock
Repurchases.  So long
as the Borrower
shall have any obligation
under this Note,
the Borrower shall not without the Holder's written consent redeem, repurchase
or otherwise acquire (whether for cash or
in exchange for property or other securities or otherwise) in any one transaction or series of related transactions any shares
of capital stock of the Borrower or any warrants, rights or options to purchase or acquire any
such shares.

 

2.3
Borrowings. So  long
 as the
Borrower shall have
any obligation  under
this Note, the Borrower shall
not, without the Holder's written consent,
(a) create, incur, assume guarantee, endorse,  contingently agree to 
purchase or otherwise become liable  upon the obligation of any other person,
firm, partnership, joint venture or corporation, except by the endorsement of negotiable instruments for deposit
or collection, or (b) suffer to exist any liability

    	15

    	 

    

 

 

for
 borrowed  money,
 except  any 
borrowings  that 
does  not  render 
the  Borrower  a 
"Shell" company as defined
in Rule 12b-2 under the Securities Exchange
Act of 1934.

 

2.4
Sale of Assets.  So long
as the Borrower 
shall  have any
obligation  under this Note,
 the
 Borrower shall
not,  without the Holder's written consent,
sell,  lease or otherwise dispose of any significant portion of its assets outside
the ordinary course of business. Any consent to the disposition of any assets may be conditioned on a specified use of the proceeds
of disposition.

 

2.5
Advances and Loans. 
So  long  as 
the Borrower
shall 
have  any  obligation
under this Note, the Borrower  shall
not, without
the Holder's written  consent,
lend money, give credit or  make advances
to any person, firm, joint venture or corporation,
including, without limitation, 
officers, directors, employees, subsidiaries and affiliates of the Borrower,
 except loans, credits
or advances (a) in existence or committed on the  date hereof
and which the Borrower has informed Holder
in writing prior  to the  date 
hereof, (b) made in the ordinary course of business
or (c) not in excess of$100,000.

  

ARTICLE
 III.  EVENTS
OF DEFAULT

 

If
any of
the following
events of default
(each,
an "Event of Default")
shall occur:

 

3.1
Failure 
to Pay  Principal 
or  Interest.  The
Borrower fails
 to pay
the  principal
hereof or interest thereon when due  on this Note, whether 
at maturity, upon acceleration  or
otherwise.

 

3.2
Conversion  and the Shares. 
The  Borrower  fails 
to issue shares 
of Common Stock 
to the Holder 
(or announces or threatens in writing
that  it will not
honor  its obligation to do so)
upon exercise  by the Holder of the con
version  rights of the Holder in accordance
with the terms of this Note,
fails to transfer or cause its
transfer agent
to transfer (issue) (electronically
or in certificated form) any certificate
for shares of Common Stock issued to the Holder upon con version of or otherwise pursuant to this Note as and when required by
this Note, the Borrower directs its transfer agent not to transfer or delays, impairs, and/or hinders its transfer agent in transferring
(or issuing) (electronically or in certificated form) any certificate for shares of Common Stock to be issued to the Holder upon
con version of or otherwise pursuant to this Note as and when required by this Note, or fails to remove (or directs its transfer
agent not to remove or impairs, delays, and/or hinders its transfer agent from removing) an y restrictive legend (or to withdraw
any stop transfer instructions in respect thereof) on any certificate
for any shares of Common 
Stock  issued to the
Holder upon conversion of
or otherwise
pursuant to th is Note as and when required
by this Note (or makes  any written
announcement, statement or threat that it
does not intend to honor
the obligations described in this paragraph) and any such failure

    	16

    	 

    

 

  

shall
 continue  uncured 
(or  any  written 
announcement,  statement  or 
threat  not  to 
honor  its obligations
shall not be
rescinded in writing) for three (3) business days after the Holder shall have
delivered a Notice of Conversion. It
is an obligation of the Borrower to
remain current in its obligations to its transfer agent. It shall be an
event of default of this Note, if a conversion of this
Note is delayed, hindered or
frustrated due to a balance owed
by the Borrower to its transfer agent. If at
the option of the Holder, the Holder
advances any funds to the Borrower's
transfer agent in order to
process a conversion, such advanced
funds shall be paid by the Borrower
to the Holder within forty eight (48) hours of a demand from
the Holder.

 

3.3
Breach of Covenants. 
The Borrower breaches
any material covenant
or other material term
or condition contained
in this
Note and any
collateral documents including but not limited to the Purchase Agreement and
such breach continues for a period of ten
(10) days after written notice thereof to the Borrower
from the Holder.

 

3.4
Breach of Representations and
Warranties.  Any representation or warranty of the Borrower made herein
or in any agreement, statement or certificate given in writing pursuant hereto or in connection herewith (including, without limitation,
the Purchase Agreement), shall be false or misleading in any material respect when made and the breach of which has (or with the
passage of time will have) a material adverse effect on the rights of the Holder with respect to this Note or the Purchase Agreement.

 

3.5
 Receiver or
Trustee. The Borrower or
any subsidiary of
the Borrower shall make
an assignment for
the benefit of creditors, or apply for or consent
to the appointment of a receiver
or trustee for it or for a substantial part of
its property or business, or such
a receiver or trustee shall otherwise be appointed.

 

3.6
Judgments.  Any money
judgment, writ
or similar
process shall be
entered or filed against
the Borrower or any subsidiary of the Borrower or any of
its property or other assets for more
than $50,000, and
shall remain unvacated, unbonded
or unstayed for a period of twenty (20)
days unless otherwise consented to by the Holder,
which consent will not be unreasonably withheld.

 

3.7
Bankruptcy.  Bankruptcy, 
insolvency,  reorganization 
or  liquidation proceedings or
other proceedings,
voluntary or involuntary,
for relief under
any bankruptcy law or any law for the relief of debtors shall be instituted
by or against the Borrower  or 
any subsidiary of the Borrower.

 

3.8
Delisting of Common
Stock.  The Borrower
shall fail to
maintain the listing
of the Common Stock on
at least one of the OTC (which specifically includes the Pink Sheets electronic
quotation system) or an equivalent replacement exchange, the Nasdaq National Market, the Nasdaq Small Cap Market,
the New York Stock Exchange, or the American Stock Exchange.

    	17

    	 

    

  

 

3.9
Failure to Comply
with the Exchange
Act.  The Borrower
shall fail
to comply with the
reporting requirements of the Exchange 
Act; and/or the Borrower shall cease to be subject to the reporting requirements
of the Exchange Act.

 

3.10
Liquidation.  Any dissolution,
liquidation, or
winding up of
Borrower or any substantial
portion of its business.

 

3.11
  Cessation
of Operations.  Any
cessation of operations
by Borrower
or Borrower admits  i
t is otherwise
generally unable to pay its debts as such debts become
due, provided, however, that any disclosure of the Borrower's abil ity to continue
as a "going concern" shall
not be an admission that the Borrower cannot pay its debts as they become due.

 

3.12
 Maintenance of
Assets.  The  failure 
by  Borrower  to 
maintain  any material intellectual
property rights,
personal, real property
or other assets which are necessary
to conduct its business (whether now or in the
future).

 

3.13
 Financial
Statement Restatement.  The 
restatement  of  any 
financial statements filed by
the Borrower with the SEC for
any date or period from two years prior to the Issue Date of this Note and until this Note is no longer outstanding, if the result
of such restatement would, by comparison to the unrestated financial statement, have constituted a material adverse effect on
the rights of the Holder with respect to this Note or the Purchase Agreement.

 

3.14
Reverse Splits. The  Borrower
 effectuates 
a  reverse  split 
of  its

Common
Stock without twenty (20)
days prior
written notice to
the Holder. 

 

3.15
 Replacement of
Transfer Agent. In
the event that
the Borrower proposes
to replace its transfer
agent, the Borrower fails to provide,
prior to the effective date of such replacement,
 a fully executed Irrevocable Transfer  Agent
 Instructions  in a 
form as initially delivered pursuant to the Purchase
Agreement (including but not limited
to the provision to irrevocably reserve
shares of Common Stock in the Reserved Amount) signed by
the successor transfer agent
to Borrower and the Borrower. 

 

3.16
 Cross-Default.  Notwithstanding
anything to the
contrary
contained in this Note
or the other
related or companion documents, a breach
or default by the Borrower of any covenant
or other term or condition contained
in any of the Other Agreements,
after the passage of all applicable notice and
cure or grace periods,
shall, at the option of
the Holder, be considered a default
under this Note and the Other Agreements, in which event
the Holder shall be entitled (but in no
event required) to apply all rights and remedies of the Holder under
the terms of this

    	18

    	 

    

 

  

Note
 and  the 
Other  Agreements  by 
reason  of  a 
default under 
said  Other  Agreement 
or hereunder. "Other Agreements" means, collectively, all
agreements and instruments between, among
or by: (1) the Borrower, and, or for the benefit of, (2) the
Holder and any affiliate of the Holder, including, without limitation, promissory
notes; provided, however, the term "Other
Agreements" shall not include the related
or companion documents to this Note. 
Each of the loan transactions will be cross-defaulted 
with each other loan transaction and with all other existing
and future debt of Borrower to the Holder.

 

Upon
the occurrence and
during the continuation of
any Event of 
Default specified
in Section 3.1
(solely with respect to failure to
pay the principal hereof or interest thereon when due at
the Maturity Date), the
Note shall become immediately due and payable
and the Borrower shall pay to the Holder, in full
satisfaction of its obligations hereunder,
an amount equal to the Default Sum (as defined herein).
UPON THE OCCURRENCE AND DURING THE CONTINUATION 
OF ANY EVENT OF DEFAULT SPECIFIED  IN SECTION 3.2, THE NOTE SHALL BECOME IMMEDIATELY
DUE AND PAYABLE AND THE BORROWER SHALL PAY
TO THE HOLDER, IN FULL SATISFACTION OF ITS OBLIGATIONS HEREUNDER, AN 
AMOUNT EQUAL TO: (Y)  THE DEFAULT SUM (AS DEFINED HEREIN); MULTIPLIED
BY (Z) TWO (2). Upon the occurrence
and during the continuation of any Event of Default specified in Sections 3.1 (solely
with respect to failure to pay the principal hereof or interest thereon when due on this Note upon a Trading Market Prepayment
Event pursuant to Section 1.7 or upon acceleration), 3.3, 3.4, 3.6, 3.8, 3.9, 3.11, 3.12, 3.1 3, 3.14, and/or 3. 15 exercisable
through the delivery of written notice to the Borrower by such Holders (the "Default Notice"), and upon the occurrence
of an Event of Default specified the remaining sections of Articles ill (other than failure to pay the principal hereof or interest
thereon at the Maturity Date specified in Section 3,1 hereof), the Note shall become immediately due and payable and the Borrower
shall pay to the Holder, in full satisfaction of its obligations hereunder, an amount equal to the greater of (i) l 50% times
the sum of (w) the then outstanding principal amount of this Note plus (x) accrued and unpaid interest on the unpaid principal
amount of this Note to the date of payment (the "Mandatory Prepayment Date") plus (y) Default Interest, if any, on the
amounts referred to in clauses (w) and/or (x) plus (z) any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof
(the then outstanding principal amount of this Note to the date of payment plus the amounts referred to in clauses (x), (y) and
(z) shall collectively be known as the "Default Sum") or (ii) the "parity value" of the Default Sum to be
prepaid, where parity value means (a) the highest number of shares of Common Stock issuable upon conversion of or otherwise pursuant
to such Default Sum in accordance with Article I, treating the Trading Day immediately preceding the Mandatory Prepayment Date
as the "Conversion Date" for purposes of determining the lowest applicable Conversion Price, unless the Default Event
arises as a result of a breach in respect of a specific Conversion Date in which case such Conversion Date shall be the Conversion
Date), multiplied by (b) the highest Closing Price for the Common Stock during the period beginning on the date of first occurrence
of the Event of Default and ending one day prior to the Mandatory Prepayment Date (the "Default Amount") and all other
amounts payable hereunder shall immediately become due and payable, all without demand, presentment or notice, all of which hereby
are expressly waived, together with all costs, including, without limitation, legal fees and expenses, of collection, and the
Holder shall be entitled to exercise all other rights and remedies available at law or in equity.

 

If
the Borrower fails to pay the Default Amount within five (5) business days of written notice that such amount is due and payable,
then the Holder shall have the right at any time, so long as the Borrower remains in default (and so long and to the extent that
there are sufficient authorized shares), to require the Borrower, upon written notice, to immediately issue, in Lieu of the Default
Amount, the number of shares of Common Stock of the Borrower equal to the Default Amount divided by the Conversion Price then
in effect.

 

ARTICLE
IV. MISCELLANEOUS

 

4.1
 Failure
or Indulgence
Not Waiver. 
No failure or delay
on the part of the Holder in

    	19

    	 

    

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 privileges. All rights and remedies existing hereunder are cumulative to, and not exclusive of, any rights or remedies otherwise
available.

 

4.2
Notices.  All 
notices, 
demands, requests, consents, approvals, and other communications required or permitted hereunder shall be in writing and,
unless otherwise specified herein, shall be (i) personally served, (i i) deposited i n the mail, registered or certified, return
receipt requested, postage prepaid, (ii i) delivered by reputable air courier service with charges prepaid, or (iv) transmitted
by hand delivery, telegram, or facsimile, addressed as set forth below or to such other address as such party shall have specified
most recently by written notice. A n y notice or other communication required or permitted to be given hereunder shall be deemed
effective (a) upon hand delivery or deli very by facsimile, with accurate confirmation generated by the transmitting facsimile
machine, at the address or number designated below (if delivered on a business day during normal business hours where such notice
is to be received), or the first business day following such deli very (if delivered other than on a business day during normal
business hours where such notice is to be received) or (b) on the second business day following the date of mailing by express
courier service, full y prepaid, addressed to such address, or upon actual receipt of such mailing, whichever shall first occur.
The addresses for such communications shall be:

 

If
to the Borrower,
to:

ALKAME
HOLDINGS,
INC.

3651
Lindell Road
- Suite
D #356

Las
Vegas, NV 89013

Attn:
ROBERT
EAKLE, Chief
Executive Officer facsimile:

    	20

    	 

    

 

 

With
a copy by
fax only to
(which copy shall
not constitute notice): [enter
name of
law firm]

Attn:
[attorney  name]

[enter
address  line 1]
[enter city,
state, zip]
facsimile: [enter 
fax number]

 

If
to the Holder:

KBM
WORLDWIDE, INC.

80
Cuttermill  Road -
Suite 410

Great
Neck, NY  11021

Attn:
Seth Kramer,
President

e-mail:
info@kbmworldwide.com  

 

With
a copy by
fax only to
(which copy shall
not constitute
notice): Naidich  Wurman Birnbaum 
& Maday, LLP

Att:
Judah A.
Eisner,
Esq.

Attn:
Bernard S. Feld
man,
Esq. facsimile: 516-466-3555

e-mail:
dyork@nwbm
law.com

 

4.3
Amendments. This  Note and
any  provision  hereof
may only  be
amended  by an  instrument 
in  writing
 signed  by
the Borrower and the Holder. The  term 
"Note" and all reference thereto,
as used throughout this instrument, shall mean  this instrument (and the other Notes
issued pursuant to the Purchase Agreement) as originally
executed, or if later amended or supplemented,
then as so amended 
or supplemented.

 

4.4
Assignability.  This  Note 
shall  be binding  upon 
the  Borrower  and 
its successors and assigns, and
shall inure to be the  benefit of the Holder and its successors and assigns. Each
transferee of this Note must be an "accredited
investor" (as defined in Rule 50l(a) of the 1933 Act). Notwithstanding anything
in this Note to  the contrary, this Note may be pledged as collateral in 
connection with a bona fide margin account or other
 lending arrangement.

 

4.5
Cost 
of  Collection.If default
is made  in 
the  payment  of 
this 
Note, the

Borrower
shall  pay
the Holder hereof
costs of collection,
including  reasonable  attorneys'
fees.

 

4.6
Governing Law. 
This Note shall
be governed  by
and construed  in accordance
with  the Jaws
of the State of New York  without
regard  to principles of conflicts
of laws.  Any action brought by either party against 
the other concerning the transactions contemplated
by this

 

    	21

    	 

    

 

  

Note
shall be brought
only in the
state courts of
New York or
in the federal
courts located in the state and county of
Nassau. The parties to this
Note hereby irrevocably waive any objection
to jurisdiction and venue of any action instituted hereunder and shall not
assert any defense based on lack of jurisdiction
or venue or based upon forum non conveniens. The Borrower
and Holder waive trial by
jury.  The prevailing  party
shall be entitled to recover from the other 
party its reasonable attorney's fees and costs. In
the event that any provision of this Note or any other agreement delivered in
connection herewith is invalid or unenforceable  under any applicable statute or rule
of law, then such provision shall be
deemed inoperative to the extent that it may conflict 
therewith and shall  be
deemed modified to conform  with such statute
or rule of law. Any such provision which
may prove in valid or unenforceable under
any law shall not affect the validity or enforceability of any 
other provision  of any  agreement.
 Each party hereby irrevocably waives personal
service of process and consents to process being served in any suit, action
or proceeding in connection with this Agreement or any other Transaction Document
by mailing a copy thereof via registered or certified 
mail or overnight delivery (with evidence of delivery) to
such party at the address in effect
for notices to it under this
Agreement and agrees that such service 
shall  constitute 
good  and sufficient service of  process
and notice  thereof. Nothing contained
herein shall be deemed to limit
in any way any
right to serve process in any other
manner permitted by law.

 

4.7
Certain Amounts.  Whenever
pursuant to this
Note the Borrower
is required to pay
an amount in
excess of the
outstanding principal amount (or the portion thereof required
to be paid at that time) plus accrued and
unpaid interest plus Default Interest on such interest, the Borrower and
the Holder agree that the actual damages to the Holder from the receipt of cash
payment on this  Note  may 
be difficult  to determine and the
 amount to  be so paid by the Borrower represents
stipulated damages and not a penalty and  is
intended to compensate  the Holder in part
for loss of the opportunity to convert this Note
and to earn a return from the sale

of
shares of Common
Stock acquired upon conversion of this Note at a price in excess of the price paid for such shares pursuant to this Note.
 The Borrower
and the
Holder
hereby agree that such amount of
stipulated damages is not plainly disproportionate to the possible loss 
to the Holder from the receipt of a cash payment without the
opportunity to convert this Note  into
shares of Common Stock.

 

4.8
Purchase Agreement. 
By its acceptance
of this Note,
each party agrees
to be bound by
the applicable terms of the Purchase Agreement.

 

4.9
Notice of Corporate
Events.  Except as
otherwise
provided below,
the Holder of this
Note shall have no rights as a
Holder of Common Stock unless and
only to the extent that it converts this
Note into Common Stock. The Borrower shall
provide the Holder with
prior notification of any meeting of
the Borrower's shareholders (and copies
of proxy materials and other information sent to shareholders). In the
event of any taking
by the Borrower of a record of 
its shareholders for the purpose of determining 
shareholders  who are entitled  to
 receive payment of
any dividend or other distribution, any right to subscribe
for, purchase or otherwise

    	22

    	 

    

  

acquire
(including by way
of merger,
consolidation,
reclassification or recapitalization)
any share of any class or any other securities
or property, or to receive any other right, or for the purpose of determining shareholders who are entitled to vote in connection
with an y proposed sale, lease or conveyance of all or substantially all of the assets of the Borrower or any proposed liquidation,
dissolution or winding up of the Borrower, the Borrower shall mail a notice to the Holder, at least twenty (20) days prior to
the record date specified therein (or thirty (30) days prior to the consummation of the transaction or event, whichever is earlier),
of the date on which any such record is to be taken for the purpose of such dividend, distribution, right or other event, and
a brief statement regarding the amount and character of such dividend, distribution, right or other event to the extent known
at such time. The Borrower shall make a public announcement of any event requiring notification to the Holder hereunder substantially
simultaneously  with
the notification to the Holder in accordance
with the terms
of this Section 4.9.

 

4.10
Remedies.  The  Borrower 
acknowledges  that  a 
breach  by  it 
of  its obligations
 hereunder will cause  irreparable
harm to the Holder, by vitiating the intent
and purpose of the transaction contemplated hereby. Accordingly, the Borrower acknowledges
that the remedy at law for a breach of its
obligations
under this Note will be inadequate and agrees, in the event of a breach or threatened breach by the Borrower of the provisions
of this Note, that the Holder shall be entitled, in addition to all other available remedies at law or in equity, and in addition
to the penalties assessable herein, to an injunction or injunctions restraining, preventing or curing any breach of this Note
and to enforce specifically the terms and provisions thereof, without the necessity of showing economic loss and without any bond
or other security being required.

 

 

IN
WITNESS WHEREOF,
Borrower has caused
this Note to be
signed
 in its
name by its duly authorized officer September
4, 2014.

 

ALKAME
HOLDINGS, INC.

 

By:
/s/ Robert Eakle

Robert
Eakle

Chief
Executive Officer

    	23THE
SECURITIES OFFERED 
HEREBY  HAVE 
NOT BEEN  AND  WILL 
NOT  BE  REGISTERED 
WITH THE  UNITED  STATES 
SECURITIES AND EXCHANGE  COMMISSION OR
THE SECURITIES COMMISSION  OF
ANY STATE PURSUANT  TO AN EXEMPTION FROM
 REGISTRATION  PROVIDED
BY SECTION 3(b) OF THE
SECURITIES ACT OF 1933, AS
AMENDED, AND THE RULES AND REGULATIONS PROMULGATED THEREUNDER (THE
"1933 ACT)

 

 

us 
$52,500.00

 

ALKAME
HOLDINGS, INC.

8%
CONVERTIBLE REDEEMABLE
NOTE DUE SEPTEMBER
5,
2015

 

 

FOR
VALUE RECEIVED, Alkame Holdings, Inc., (the "Company")
promises to pay to the order of
LG CAPITAL FUNDING, LLC and its
authorized successors and permitted
assigns ("Holder"), the aggregate principal face amount
of Fifty Two Thousand Five Hundred Dollars exactly (U.S.
$52,500.00)
on September 5, 2015 ("Maturity
Date") and to pay interest on the
principal amount outstanding hereunder at the rate of
8% per annum commencing on
September 5, 2014.
The interest will be paid to the Holder in whose name this
Note is registered on the records of
the Company regarding registration and transfers of this Note. The
principal of, and interest on, this Note are
payable at 1218 Union
Street, Suite #2, Brooklyn, NY 11225 initially, and if
changed, last appearing
on the records of the Company as designated in
writing by the Holder hereof from time to time. The Company
will pay each interest
payment and the outstanding principal due upon this
Note before or on the Maturity Date, less any amounts
required by law to be deducted or withheld, to the
Holder of this Note by check or wire transfer addressed to such Holder
at the last address appearing on the records of the Company. The forwarding of such check or wire
transfer shall constitute
a payment of outstanding principal hereunder and shall satisfy and
discharge the liability for principal on this Note to
the extent of the sum represented by such check
or wire transfer.  Interest shall be payable in Common Stock (as defined
below) pursuant to paragraph 4(b)
herein.

 

This
Note is
subject to
the following additional
provisions:

 

1.
 This Note
is exchangeable
for an equal
aggregate principal
amount of Notes
of different authorized
denominations, as
requested by the Holder surrendering
the same. No service
charge will be made
for such registration or transfer or exchange,
except that Holder lay any tax or other governmental charges
payable in connection therewith.

 

    	 

    	 

    

2.
 The Company
shall be entitled
to
withhold
from all payments
any amounts required
to be
withheld
under applicable
laws.

 

3.
 This Note may be transferred or exchanged only
in compliance with the Securities Act of 1933, as amended ("Act") and applicable state securities laws. Any attempted
transfer to a non-qualifying party shall be treated by the Company as void. Prior to due presentment for transfer of this Note,
the Company and any agent of the Company may treat the person in whose name this Note is duly registered on the Company's records
as the owner hereof for all other purposes, whether or not this Note be overdue, and neither the Company nor any such agent shall
be affected or bound by notice to the contrary. Any Holder of this Note electing to exercise the right of conversion set forth
in Section 4(a) hereof, in addition to the requirements set forth in Section 4(a), and any prospective transferee of this Note,
also is required to give the Company written confirmation that this Note is being converted ("Notice of Conversion")
in the form annexed hereto as Exhibit A. The date of receipt (including receipt by telecopy) of such Notice of Conversion shall
be the Conversion Date.

 

4.
(a) The Holder of this Note is
entitled, at its option, at any time after 180 days, and after full cash payment for the shares convertible hereunder, to
convert all or any amount of the principal face amount of this Note then outstanding into shares of the Company's common
stock (the "Common Stock") without restrictive legend of any nature, at a price ("Con version Price") for
each share of Common Stock equal to 53% of the lowest trading price of the Common Stock as reported on the National
Quotations Bureau OTCQB exchange which the Company's shares are traded or any exchange upon which the Common Stock may be
traded in the future ("Exchange"), for the twenty prior trading days including the day upon which a Notice of
Conversion is received by the Company (provided such Notice of Conversion is delivered by fax or other electronic method of
communication to the Company after 4 P.M. Eastern Standard or Daylight Savings Time if the Holder wishes to include the same
day closing price). If the shares have not been delivered within 3 business days, the Notice of Conversion may be rescind ed.
Such conversion shall be effectuated by the Company delivering the shares of Common Stock to the Holder within 3 business
days of receipt by the Company of the Notice of Conversion. Once the Holder has received such shares of Common Stock, the
Holder shall surrender this Note to the Company, executed by the Holder evidencing such Holder's intention to convert this
Note or a specified portion hereof, and accompanied by proper assignment hereof in blank. Accrued but unpaid interest shall
be subject to conversion. No fractional shares or scrip representing fractions of shares will be issued on conversion, but
the number of shares issuable shall be rounded to the nearest whole share. In
the event the Company experiences a DTC "Chill" on its shares, the conversion price shall be
decreased to 43% instead of 53% while
that "Chill" is
in effect. In no event shall the
Holder be allowed to effect a
conversion if such conversion,
along with all other shares
of Company Common Stock beneficially owned by
the Holder and its affiliates
would exceed 9.9%
of the outstanding shares of
the Common Stock of
the Company.

 

(b)
 Interest on
any unpaid  principal
balance of this
Note shall
be paid
at the rate of
8%  per
annum. Interest shall be paid by
the Company in Common Stock ("Interest
Shares"). The dollar
amount converted 
into Interest
Shares shall be all or a
portion of the accrued interest
calculated on the unpaid principal
balance of this Note to the date of such
notice.

    	2

    	 

    

(c)
 During the
first 180 days after
the Note has
been issued,
it may be prepaid at
150% of the face
amount plus any
accrued interest This Note may not be prepaid
after the I 80th day. The redemption must be
closed and paid for within 3 business days of the Company sending
the redemption demand or the redemption will be
invalid and the Company may not redeem this
Note. 

 

(d)
 Upon (i)
a transfer of
all or substantially
all of
the assets of
the Company to any
person in a
single transaction or series
of related transactions, (ii)
a reclassification,
capital reorganization or other change
or exchange of outstanding
shares of
the Common Stock, or (iii)
any consolidation or merger
of the Company with
or into another person or entity in which
the Company is
not the surviving entity (other
than a merger which
is effected solely to change the jurisdiction
of incorporation of the
Company and results
in a reclassification, conversion
or ex change of outstanding
shares of Common Stock solely
into shares
of Common Stock)
(each of
items (i), (i
i) and
(iii) being
referred to as a "Sale Event"), then, in each case,
the Company shall,
upon request
of the Holder, redeem
this Note in
cash for 150%
of the principal amount, plus
accrued but unpaid interest through the
date of redemption, or
at the election of the
Holder, such Holder
may convert the unpaid
principal amount of this Note (together
with the amount of accrued
but unpaid interest) into shares of
Common Stock immediately
prior to such Sale
Event at the Conversion Price.

 

(e)
 In case
of any Sale
Event in
connection with which
this Note is
not re- deemed or
converted,
the Company shall
cause effective provision to be made so that
the Holder of
this Note shall have
the right thereafter, by converting this Note,
to purchase or convert this Note
into the kind
and number of shares of
stock or other
securities or
property (including
cash) receivable upon such reclassification,
capital reorganization or other change, consolidation
or merger by a holder of the number of shares of Common Stock that could have been
purchased upon exercise of the Note and
at the same Conversion Price,
as defined
in this Note,
immediately prior to such Sale Event. The
foregoing provisions shall similarly apply to successive
Sale Events. If the
consideration received by the holders of
Common Stock is other than cash, the
value shall
be as determined
by the Board of Directors of the Company or successor
person or entity
acting in good
faith.

 

5.
 No provision
of this
Note shall
alter or
impair the obligation
of the Company,
which is absolute and unconditional,
to pay the principal of,
and interest on,
this Note at
the time, place, and rate,
and in the form, herein prescribed.

 

6.
 The Company
hereby expressly waives
demand and presentment
for payment,
notice of non-payment,
protest,
notice of protest, notice of
dishonor, notice of
acceleration or intent to
accelerate, and diligence in
taking any action to
collect
amounts called
for hereunder and shall
be directly and primarily liable for the payment
of all sums owing and to be owing hereto.

 

7.
 The Company
agrees to pay
all costs and
expenses, including reasonable attorneys'
fees and expenses,
which may
be incurred by the Holder in
collecting
any amount due under this Note. 

 

 

    	3

    	 

    

 

 

8.
If one
or more
of the following
described "Events
of Default" shall
occur:

 

(a)
The Company
shall
default in
the payment of
principal or interest
on this

Note
or any other
note issued to
the Holder by
the Company; or

 

(b)
 Any of
the representations
or warranties made
by the Company
herein or in
any certificate
or financial or other written
statements heretofore
or hereafter
furnished by or on behalf
of the Company in connection
with the execution and
delivery of this
Note, or the
Securities Purchase
Agreement under which
this note was issued shall be
false or misleading
in any respect; or

 

(c)
 The Company
shall
fail to
perform or observe,
in any
respect, any covenant,
term, provision,
condition, agreement
or obligation of the Company under this Note or
any other note issued to the Holder, and not cure
such failure
within 10 days of such
event; or

 

(d)
 The Company
shall (1)
become insolvent;
(2) admit
in writing
its inability to pay its
debts generally as they
mature; (3) make
an assignment for
the benefit of creditors or commence
proceedings for its dissolution; (4)
apply for or consent to
the appointment of a trustee, liquidator
or receiver for its or for a substantial
part of its property
or business; (5)
file a petition
for  bankruptcy relief,
consent to the filing
of such petition or have
filed against it
an involuntary petition for bankruptcy
relief, all
under federal
or state laws
as applicable; or

 

(e)
 A trustee,
liquidator or
receiver shall
be appointed for
the Company
or for a
substantial part
of its property or business without its consent and shall
not be discharged with
in thirty (30)
days after such appointment; or

 

(f)
 Any governmental
agency or
any court
of competent jurisdiction
at the in- stance
of any
governmental agency
shall assume
custody or control
of the
whole or
any substantial
portion of the properties or assets of the Company; or

 

(g)
 One or
more money judgments,
writs or
warrants of
attachment, or
similar process, in
excess of
fifty thousand dollars ($50,000) in
the aggregate, shall be
entered or filed against the
Company or any of
its properties or other
assets and shall
remain unpaid, unvacated,
unbonded or unstayed for a
period of fifteen (15) days or in
any event later
than five (5) days
prior to the date of any proposed
sale thereunder;
or

 

(h)
 Defaulted on
or breached any
term of any
other note of
similar
 debt instrument
into which the Company
has entered and failed to
cure such default
within the appropriate grace period; or

 

(i)
 The Company
shall have
its Common
Stock delisted from
an exchange (including
the OTCBB exchange)
or, if
the Common
Stock trades on an
exchange, then trading in
the Common Stock shall
be suspended for
more than 10 consecutive
days;

 

(j)
Intentionally Deleted;

    	4

    	 

    

 

(k)
 The Company
shall not deliver
to the
Holder the
Common Stock pursuant to
paragraph 4 herein
without restrictive legend
within 3 business days
of its receipt
of a Notice of Conversion; or

 

(I)
 The Company
shall not
replenish the
reserve set
forth in Section
12,
with- in 3
business days of
the request of
the Holder.

 

(m) The Company
shall not
be "current" in its filings with the Securities and Exchange Commission; or

 

(n)
 The Company
shall lose
the "bid"
price for
its stock in
a market (including the
OTCQB marketplace or other
exchange).

 

Then,
or at any
time thereafter, unless
cured, and
in each and
every such case,
unless such Event of
Default shall have been waived
in writing by the
Holder (which waiver shall not
be deemed to be
a waiver of any subsequent default)
at the option of
the Holder and in
the Holder's
sole discretion,
the Holder may
consider this Note
immediately due and payable, without presentment, demand, protest or (further)
notice of any kind (other than notice
of acceleration),
all of which are hereby expressly waived, anything
herein or in any note
or other instruments contained
to the contrary notwithstanding, and the Holder
may immediately, and without expiration
of any period of grace, enforce
any and all of the Holder's
rights and remedies provided herein or any other rights or remedies
afforded by law.
Upon an Event of
Default, interest
shall accrue
at a default
interest rate of 24%
per annum
or, if such rate
is usurious or
not permitted by current
law, then
at the highest rate of interest permitted
by law. In the
event of a breach of
Section 8(k) the penalty shall be
$250 per day the shares are not issued
beginning on the 4th
day after the conversion notice
was delivered
to the Company.
This penalty shall
increase to $500
per day beginning on the 10th day. The penalty for
a breach of Section 8(n) shall be an increase
of the outstanding principal amounts by 20%. In case of a breach of Section 8(i),
the outstanding principal
due under
this Note shall
increase by 50%. If this Note
is not paid at maturity, the outstanding principal due
under this Note shall increase
by 10%.

 

If
the Holder
shall commence
an action or
proceeding to enforce
any provisions
of this Note,
including, without limitation,
engaging an attorney, then if the
Holder prevails
in such action, the
Holder shall be
reimbursed by the Company for its attorneys'
fees and other costs
and expenses incurred in
the investigation, preparation and prosecution of such
action or proceeding.

 

 

9.
 In case
any provision of
this Note
is held
by a court of competent
jurisdiction to be
excessive in scope
or otherwise invalid or
unenforceable,
such provision shall
be adjusted rather than
voided, if possible, so that
it is
enforceable to the maximum extent
possible,
and the validity and
enforceability of
the remaining provisions of this Note
will not in any
way be affected or impaired thereby.

 

10.Neither
this Note 
nor any term
hereof may be
amended, waived,
 discharged or terminated
other than
by a written instrument signed
by the Company and the Holder.

    	5

    	 

    

 

11.
 The Company
represents that it
is not a
"shell"
issuer and
has never been
a "shell"
issuer or that if
it previously has been
a "shell"
issuer that at
least 12 months
have passed since the Company has reported
form 10 type information indicating it
is no longer a "shell
issuer. Further.
The Company will instruct
its counsel to either
(i) write a 144- 3(a)(9)
opinion to allow
for salability
of the conversion shares
or (ii) accept such
opinion from Holder's counsel.

 

12.The
Company shall issue irrevocable transfer
agent instructions reserving 2,641,000 shares
of its Common Stock
for conversions under
this Note (the "Share Reserve").
The reserve shall be
replenished as needed to allow for conversions of this
Note. Upon full conversion of this Note,
any shares remaining
in the Share Reserve shall be cancelled. The Company shall
pay all costs associated with
issuing and delivering the shares.
The company should at all
times reserve a minimum of four times the amount of shares required
if the note would be fully converted. The Holder may reasonably
request increases from time to time to reserve such
amounts. 

 

13.
 The Company
will give the
Holder direct
notice of any
corporate actions including but not
limited to name changes,
stock splits,
recapitalizations etc. This
notice shall
be given to the
Holder as soon
as possible
under law.

 

14.
 This Note
shall be
governed by
and construed in
accordance with the
laws
of New
York applicable to contracts
made and wholly to be performed
within the State of
New York and
shall be binding
upon the successors
and assigns
of each party
hereto. The Holder
and the Company hereby
mutually waive trial by jury
and consent to
exclusive jurisdiction and venue in the courts of the
State of New York.
This Agreement may be
executed in
counterparts, and the facsimile transmission
of an executed counterpart
to this Agreement shall
be effective as an original.

 

 

    	6

    	 

    

 

 

IN
WITNESS  WHEREOF,
the Company
has caused  this
Note to be
duly executed
by an officer thereunto duly
authorized.

  

 

Dated: 9/5/14

 

ALKAME HOLDINGS, INC.

 

By: /s/ Robert Eakle

Title: CEO

 

    	7

    	 

    

EXHIBIT
A

 

 

 

NOTICE
OF CONVERSION

 

(To
be Executed
by the
Registered Holder in
order to
Convert the
Note)

 

The
undersigned hereby
irrevocably
elects to
convert $________________ 
of the
above Note into_____________
Shares of
Common Stock of
Alkame Holdings,
Inc, ("Shares")
according to the conditions
set forth in such Note,
as of the date written
below.

 

If Shares are
to be issued in the
name of a person other
than the undersigned, the
undersigned will pay all
transfer and other taxes and charges payable
with respect thereto.

 

Date
of Conversion: __________________________

Applicable
Conversion Price: __________________________

Signature:
__________________________

[Print
Name of Holder and Title of Signer] 

Address: __________________________

__________________________

 

SSN or EIN: __________________________

Shares are to be
registered in the following name: __________________________

 

Name: __________________________

Address: __________________________

Tel: __________________________

Fax: __________________________

SSN or EIN: __________________________

 

Shares are to be
sent or delivered to the following account:

 

Account Name: __________________________

Address: __________________________

 

    	8

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