Document:

NEITHER
THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION 014 THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT
OF 1933. AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSAC1'ION NOT SUBJECT TO,
THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL
OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE ('OMPANY. THESE
SECURITIES AND THE SECURITIES ISSUABLE UPON CONVERSION OF THESE SECURITIES MM BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN
ACCOUNT OK OTHER LOAN SECURED BY SUCH SECURITIES.

Date of Issuance: August 8, 2014

$101,000

12% CONVERTIBLE DEBENTURE

DUE: August 7, 2015

THIS DEBENTURE
is a duly authorized and issued 12% Convertible Debentures of Labor Smart, Inc., a Nevada corporation having a principal place
of business at 5604 Wendy Bagwell Parkway, Suite 223, Hiram, GA 30141 (the "Company), due August 7, 2015 (the 'Debenture")

FOR VALUE RECEIVED,
the Company promises to pay to DANIEL JAMES MANAGEMENT, INC., or its registered assigns (the "Holder"), the principal
sum of $101,000 on August 7, 2015 or such earlier date as the Debentures are required or permitted to be repaid as provided hereunder
(the "Maturity Date"), and to pay interest to the Holder on the aggregate unconverted and then outstanding principal
amount of this Debenture at the rate of 12% per annum, compounded daily, payable on the Maturity Date, unless the Debenture is
converted to shares of common stock in accordance with the terms and conditions herein.

THE COMPANY MAY PREPAY ANY PORTION
OF THE PRINCIPAL AMOUNT AT 135% OF SUCH AMOUNT ALONG WITH ANY ACCRUED INTEREST OF THIS DEBENTURE AT ANY TIME UPON SEVEN DAYS WRITTEN
NOTICE TO THE HOLDER

This Debenture is subject to the following additional
provisions:

Section 1.
This Debenture is exchangeable for an equal aggregate principal amount of Debentures of different authorized denominations, as
requested by the Holder surrendering the same. No service charge will be made for such registration of transfer or exchange.

Section 2.
This Debenture may be transferred or exchanged only in compliance with applicable federal and state securities laws and regulations.
Prior to due presentment to the Company for transfer of this Debenture, the Company and any agent of the Company

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may
treat the Person in whose name this Debenture is duly registered on the Debenture Register as the owner hereof for the purpose
of receiving payment as herein provided and for all other purposes, whether or not this Debenture is overdue, and neither the Company
nor any such agent shall be affected by notice to the contrary.

Section 3. Events of Default.

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

i)  
any default in the payment of the principal of, interest (including Late Fees) on, or liquidated damages in respect
to this Debenture, free of any claim of subordination, as and when the same shall become due and payable (whether on a Conversion
Date or the Maturity Date or by acceleration or otherwise) which default is not cured, if possible to cure, within 3 days of notice
of such default sent by the Holder;

ii)
 the Company or any of its subsidiaries shall commence, or there shall be commenced against the Company or any such
subsidiary a case under any applicable bankruptcy or insolvency laws as now or hereafter in effect or any successor thereto, or
the Company commences any other proceeding under any reorganization, arrangement, adjustment of debt, relief of debtors, dissolution,
insolvency or liquidation or similar law of any jurisdiction whether now or hereafter in effect relating to the Company or any
subsidiary thereof or there is commenced against the Company or any subsidiary thereof any such bankruptcy, insolvency or other
proceeding which remains undismissed for a period of 60 days; or the Company or any subsidiary thereof is adjudicated insolvent
or bankrupt; or any order of relief or other order approving any such case or proceeding is entered; or the Company or any subsidiary
thereof suffers any appointment of any custodian or the like for it or any substantial part of its property which continues undischarged
or unstayed for a period of 60 days; or the Company or any subsidiary thereof makes a general assignment for the benefit of creditors;
or the Company shall fail to pay, or shall state that it is unable to pay, or shall be unable to pay, its debts generally as they
become due; or the Company or any subsidiary thereof shall call a meeting of its creditors with a view to arranging a composition,
adjustment or restructuring of its debts; or the Company or any subsidiary thereof shall by any act or failure to act expressly
indicate its consent to, approval of or acquiescence in any of the foregoing; or any corporate or other action is taken by the
Company or any subsidiary thereof for the purpose of effecting any of the foregoing; or

(iii)the Company shall fail to timely file
all reports required to be filed

by it with the SEC pursuant to Section 13 or 15(d)
of the Securities and Exchange Act of 1934, as amended (the "Exchange Act"), or otherwise required by the Exchange Act.

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(iv)a
conversion of the Debenture into shares as detailed in Section 4

is delayed due to a balance owed
by the Company to its transfer agent. While it is an obligation of the Company to stay current in its obligations to its transfer
agent, if, at its option, the Holder makes payment to the Company's transfer agent to cause issuance of shares in accordance with
a conversion, the Company shall repay such payment amount to the Holder within 48 hours of demand by the Holder.

b) If
any Event of Default occurs and is continuing, the full principal amount of this Debenture, together with interest and other amounts
owing in respect thereof, to the date of acceleration, such sum multiplied by 2, shall become at the Holder's election, immediately
due and payable in cash. The Holder need not provide and the Company hereby waives any presentment, demand, protest or other notice
of any kind, and the Holder may immediately and without expiration of any grace period enforce any and all of its rights and remedies
hereunder and all other remedies available to it under applicable law. Such declaration may be rescinded and annulled by Holder
at any time prior to payment hereunder and the Holder shall have all rights as a Debenture holder until such time, if any, as the
full payment under this Section shall have been received by it. No such rescission or annulment shall affect any subsequent Event
of Default or impair any right consequent thereon.

Section 4. Conversion.

(a)i) Holder's Conversion Right. At any time
after the Original Issue Date

until this Debenture is no longer
outstanding, this Debenture, including interest and principal, shall be convertible into shares of Common Stock at a price of fifty-eight
percent (58%) (the "Conversion Rate") of the lowest daily trading price, determined on the then current trading
market for the Company's common stock, for 10 trading days prior to conversion (the "Set Price") at the option of the
Holder, in whole at any time and from time to time. All Common Stock issued under this Debenture shall be issued to Daniel James
Management, Inc. The Holder shall effect conversions by delivering to the Company the form of Notice of Conversion attached hereto
as Annex A (a "Notice of Conversion"), specifying the date on which such conversion is to be effected (a "Conversion
Date"). If no Conversion Date is specified in a Notice of Conversion, the Conversion Date shall be the date that such Notice
of Conversion is provided hereunder. To effect conversions hereunder, the Holder shall not be required to physically surrender
Debentures to the Company. The Company shall deliver any objection to any Notice of Conversion within 2 Business Days of receipt
of such notice. In the event of any dispute or discrepancy, the records of the Holder shall be controlling and determinative in
the absence of manifest error. If the Company does not request the issuance of the shares underlying this Debenture after receipt
of a Notice of Conversion within 4 Business days following the period allowed for any objection, the Company shall be responsible
for any differential in the value of the converted shares underlying this Debenture between the value of the closing price on the
date the shares should have been delivered and the date the shares are delivered. Furthermore, if the Holder or its assigned designee
do not receive delivery of the converted shares within 14 days after the Conversion Date, the Conversion Rate for all future conversions
shall be forty percent (40%), and if the Holder

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or
its assigned designee do not receive delivery of the converted shares within 30 days after the Conversion Date, the Conversion
Rate for all future conversions shall be thirty percent (30%). The Holder and any assignee, by acceptance of this Debenture, acknowledge
and agree that, by reason of the provisions of this paragraph, following conversion of a portion
of this Debenture, the unpaid and unconverted principal amount of this Debenture may be less than the amount stated on the face
hereof.

ii)     
If the Company, at any time while this Debenture is outstanding: (A) shall pay a stock dividend or otherwise make
a distribution or distributions on shares of its Common Stock or any other equity or equity equivalent securities payable in shares
of Common Stock (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Company pursuant to
this Debenture, including as interest thereon), (B) subdivide outstanding shares of Common Stock into a larger number of shares,
(C) combine (including by way of reverse stock split) outstanding shares of Common Stock into a smaller number of shares, or (D)
issue by reclassification of shares of the Common Stock any shares of capital stock of the Company, then the Set Price shall be
multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding treasury shares, if any)
outstanding before such event and of which the denominator shall be the number of shares of Common Stock outstanding after such
event. Any adjustment made pursuant to this Section shall become effective immediately after the record date for the determination
of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date
in the case of a subdivision, combination or re-classification.

iii)     
Whenever the Set Price is adjusted pursuant to any of Section 4, the Company shall promptly mail to each Holder a
notice setting forth the Set Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment.

iv)   
If (A) the Company shall declare a dividend (or any other distribution) on the Common Stock;
(B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock; (C) the Company shall
authorize the granting to all holders of the Common Stock rights or warrants to subscribe for or purchase any shares of capital
stock of any class or of any rights; (D) the approval of any stockholders of the Company shall be required in connection with any
reclassification of the Common Stock, any consolidation or merger to which the Company is a party, any sale or transfer of all
or substantially all of the assets of the Company, of any compulsory share exchange whereby the Common Stock is converted into
other securities, cash or property; (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding
up of the affairs of the Company; then, in each case, the Company shall cause to be filed at each office or agency maintained for
the purpose of conversion of the Debentures, and shall cause to be mailed to the Holders at their last addresses as they shall
appear upon the stock books of the Company, at least 20 calendar days prior to the applicable record or effective date hereinafter
specified, a notice stating the date on which a record is to be taken for the purpose of such dividend, distribution, redemption,
rights or warrants, or if a record is not to be taken, the date as of

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which
the holders of the Common Stock of record to be entitled to such dividend. distributions, redemption, rights or warrants
are to be determined or the date on which such reclassification, consolidation, merger, sale, transfer or share exchange
is expected to become effective or close, and the date as of which it
is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for
securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange;
provided, that the failure to mail such notice or any defect therein or in the mailing thereof shall not affect the validity of
the corporate action required to be specified in such notice. Holders are entitled to convert Debentures during the 20-day period
commencing the date of such notice to the effective date of the event triggering such notice.

v) If, at any
time while this Debenture is outstanding, (A) the Company effects any merger or consolidation of the Company with or into another
Person, (B) the Company effects any sale of all or substantially all of its assets in one or a series of related transactions.
(C) any tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common
Stock are permitted to tender or exchange their shares for other securities, cash or property, or (D) the Company effects any reclassification
of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged
for other securities, cash or property (in any such case, a "Fundamental Transaction"), then upon any subsequent conversion
of this Debenture, the Holder shall have the right to receive, for each Underlying Share that would have been issuable upon such
conversion absent such Fundamental Transaction, the same kind and amount of securities, cash or property as it would have been
entitled to receive upon the occurrence of such Fundamental Transaction if it had been. immediately prior to such Fundamental Transaction,
the holder of one share of Common Stock (the "Alternate Consideration"). For purposes of any such conversion, the determination
of the Set Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration
issuable in respect of one share of Common Stock in such Fundamental Transaction, and the Company shall apportion the Set Price
among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate
Consideration. If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental
Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any conversion of
this Debenture following such Fundamental Transaction. To the extent necessary to effectuate the foregoing provisions, any successor
to the Company or surviving entity in such Fundamental Transaction shall issue to the Holder a new debenture consistent with the
foregoing provisions and evidencing the Holder's right to convert such debenture into Alternate Consideration. The terms of any
agreement pursuant to which a Fundamental Transaction is effected shall include terms requiring any such successor or surviving
entity to comply with the provisions of this paragraph and insuring that this Debenture (or any such replacement security) will
be similarly adjusted upon any subsequent transaction analogous to a Fundamental Transaction. If any Fundamental Transaction constitutes
or results in a Change of Control Transaction, then at the request of the Holder delivered before the 90th

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day
after such Fundamental Transaction. the Company (or any such
successor or surviving entity) will purchase the Debenture from the Holder for a purchase price, payable in cash within
five Trading Days after such request (or, if later, on the effective date of the Fundamental Transaction), equal to the
100% of the remaining unconverted principal amount of this Debenture on the date of such request, plus all accrued and unpaid
interest thereon, plus all other accrued and unpaid amounts due hereunder.

(b)  
In lieu of delivering physical certificates representing the Common Stock issuable upon conversion, the Company shall
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 the Depository Trust Company ("DTC") through its Deposit Withdrawal Agent Commission ("DWAC")
system.

(c)   
The Company covenants that it will at all times reserve and keep available out of its authorized and unissued shares
of Common Stock solely for the purpose of issuance upon conversion of the Debenture, such number of shares of Common Stock as shall
then be issuable upon conversion of this Debenture. Furthermore, the Company is required to at all time, regardless of issuances
of shares to the Holder, to maintain an "evergreen" reserve of THREE MILLION (3,000,000) authorized common stock shares
available for issuance to the Holder pursuant to a conversion.

(d)  
Any and all notices or other communications or deliveries to be provided by the Holders hereunder, including, without
limitation, any Notice of Conversion, shall be in writing and delivered personally, by facsimile, sent by a nationally recognized
overnight courier service, addressed to the Company, at the address set forth or such other address or facsimile number as the
Company may specify for such purposes by notice to the Holders delivered in accordance with this Section. Any and all notices or
other communications or deliveries to be provided by the Company hereunder shall be in writing and delivered personally, by facsimile,
sent by a nationally recognized overnight courier service addressed to each Holder at the facsimile telephone number or address
of such Holder appearing on the books of the Company, or if no such facsimile telephone number or address appears, at the principal
place of business of the Holder. Any notice or other communication or deliveries hereunder shall be deemed given and effective
on the earliest of (i) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile telephone
number specified in this Section prior to 5:30 p.m. PST, (ii) the date after the date of transmission, if such notice or communication
is delivered via facsimile at the facsimile telephone number specified in this Section later than 5:30
p.m.PST on any date and earlier than 11:59 p.m. PST
on such date, (iii) the second Business Day following the date of mailing, if sent by nationally recognized-overnight courier service,
or (iv) upon actual receipt by the party to whom such notice is required to be given.

Section 5.
Definitions. For the purposes hereof, in addition to the terms defined elsewhere in this Debenture and in the Purchase Agreement
(the "Transaction Documents"), the following terms shall have the following meanings:

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"Business
Day" means any day except Saturday, Sunday and any day which shall be a federal legal holiday in the United States or a day
on which banking institutions in the State of California
are authorized or required by law or other government action to

close.

"Common Stock" means the
common stock of the Company and stock of any other class into which such shares may hereafter have been reclassified or changed.

"Person"
means a corporation, an association, a partnership, organization, a business, an individual,
a government or political subdivision thereof or a governmental agency.

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

"Set Price" shall have the meaning set
forth in Section 4.

Section 6.
Except as expressly provided herein, no provision of this Debenture shall alter or impair the obligation of the Company, which
is absolute and unconditional, to pay the principal of, interest and liquidated damages (if any) on, this Debenture at the time,
place, and rate, and in the coin or currency, herein prescribed. This Debenture is a direct debt obligation of the Company. This
Debenture ranks pari passu with all other Debentures now or hereafter issued under the terms set forth herein. As long as this
Debenture is outstanding, the Company shall not and shall cause it subsidiaries not to, without the consent of the Holder, amend
its certificate of incorporation, bylaws or other charter documents so as to adversely affect any rights of the Holder.

Section 7. If
this Debenture shall be mutilated, lost, stolen or destroyed, the Company shall execute and deliver, in exchange and substitution
for and upon cancellation of a mutilated Debenture, or in lieu of or in substitution for a lost, stolen or destroyed Debenture,
a new Debenture for the principal amount of this Debenture so mutilated, lost, stolen or destroyed but only upon receipt of evidence
of such loss, theft or destruction of such Debenture, and of the ownership hereof, and indemnity, if requested, all reasonably
satisfactory to the Company.

Section 8.
So long as any portion of this Debenture is outstanding, the Company will not and will not permit any of its subsidiaries to, directly
or indirectly, enter into, create, incur, assume or suffer to exist any indebtedness of any kind, on or with respect to any of
its property or assets now owned or hereafter acquired or any interest therein or any income or profits therefrom that is senior
in any respect to the Company's obligations under the Debentures without the prior consent of the Holder, which consent shall not
be unreasonably withheld.

Section 9.
In the event an Event of Default shall occur, and in the event that thereafter this Debenture is placed in the hands of an attorney
for collection, or in the event this Debenture is collected in whole or in part through legal proceedings of any

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nature, then and in any such case the Company
promises to pay all costs of collection, including, but not limited to. reasonable attorneys' fees and court costs incurred by
the holder hereof on account of such collection, whether or not suit is filed.

Section 10.
Any waiver by the Company or the Holder of a breach of any provision of this Debenture shall not operate as or be construed to
be a waiver of any other breach of such provision or of any breach of any other provision of this Debenture. The failure of the
Company or the Holder to insist upon strict adherence to any term of this Debenture on one or more occasions shall not be considered
a waiver or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Debenture.
Any waiver must be in writing.

Section 11.
If any provision of this Debenture is invalid, illegal or unenforceable, the balance of this Debenture shall remain in effect,
and if any provision is inapplicable to any person or circumstance, it shall nevertheless remain applicable to all other persons
and circumstances. If it shall be found that any interest or other amount deemed interest due hereunder violates applicable laws
governing usury, the applicable rate of interest due hereunder shall automatically be lowered to equal the maximum permitted rate
of interest. The Company covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, plead,
or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law or other law which would
prohibit or forgive the Company from paying all or any portion of the principal of or interest on the Debentures as contemplated
herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants or the performance of this indenture,
and the Company (to the extent it may lawfully do so) hereby expressly waives all benefits or advantage of any such law, and covenants
that it will not, by resort to any such law, hinder, delay or impeded the execution of any power herein granted to the Holder,
but will suffer and permit the execution of every such as though no such law has been enacted.

Section 12.
Whenever any payment or other obligation hereunder shall be due on a day other than a Business Day, such payment shall be made
on the next succeeding Business Day.

Section
13. All questions concerning the construction, validity, enforcement and interpretation of this Debenture shall be governed by
and construed and enforced in accordance with the internal laws of the State of California, without regard to the principles of
conflicts of law thereof. Each party agrees that all legal proceedings concerning the interpretations, enforcement and defense
of the transactions contemplated by any of the Transaction Documents (whether brought against a party hereto or its respective
affiliates, directors, officers, shareholders, employees or agents) shall be commenced in the state and federal courts sitting
in the City of Orange, (the "California Courts"). Each party hereto hereby irrevocably submits to the exclusive jurisdiction
of the California Courts for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated
hereby or discussed herein (including with respect to the enforcement of any of the Transaction Documents), and hereby irrevocably
waives,

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and
agrees not to assert in any suit, action or proceeding, any claim that it is not personally
subject to the jurisdiction of any such court, or such California Courts are improper or inconvenient venue for such proceeding.
Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit,
action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence
of delivery) to such party at the address in effect for notices to it under this Debenture and agrees that such Service shall constitute
good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law. Each party hereto hereby irrevocably waives, to the fullest extent permitted by
applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Debenture or the
transactions contemplated hereby. If either party shall commence an action or proceeding to enforce any provisions of this Debenture,
then the prevailing party in such action or proceeding shall be reimbursed by the other party for its attorneys fees and other
costs and expenses incurred with the investigation, preparation and prosecution of such action or proceeding.

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

FOR: LABORSMART, INC.

By: /s/ Ryan Schadel

 

Name & Title: Ryan Schadel, CEO

Date: 8/8/14

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ANNEX
A

NOTICE OF CONVERSION

The undersigned hereby elects to
convert principal under the 12% Convertible Debenture of Labor Smart, Inc. (the "Company"), due on August 7, 2015, (12
months) into

shares of common stock,
$.001 par value per share (the "Common Stock"), of the Company according to the conditions hereof, 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 taxes
payable with respect thereto and is delivering herewith such certificates and opinions as reasonably requested by the Company in
accordance therewith. No fee will be charged to the holder for any conversion, except for such transfer taxes, if any.

By the delivery of this Notice of Conversion
the undersigned represents and warrants to the Company that its ownership of the Company's Common Stock does not exceed the amounts
determined in accordance with Section 13(d) of the Exchange Act, specified under Section 4 of this Debenture.

Conversion calculations:

Date to Effect Conversion:

58% of the lowest daily trading price for 10 trading days
prior to conversion:

Principal Amount of
Debentures to be Converted: Interest Amount of Debentures to be Converted: Number of shares of Common Stock to be issued: Signature:

Name & Title:THIS NOTE HAS NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR THE SECURITIES LAWS OF ANY STATE,
AND HAS BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE
OR DISPOSITION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL FOR THE COMPANY
THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OR ANY APPLICABLE STATE SECURITIES LAWS.

THIS NOTE DOES NOT REQUIRE PHYSICAL
SURRENDER OF THIS NOTE IN THE EVENT OF A PARTIAL REDEMPTION OR CONVERSION. AS A RESULT, FOLLOWING ANY REDEMPTION OR CONVERSION
OF ANY PORTION OF THIS NOTE, THE OUTSTANDING PRINCIPAL AMOUNT REPRESENTED BY THIS NOTE MAY BE LESS THAN THE PRINCIPAL AMOUNT AND
ACCRUED INTEREST SET FORTH BELOW.

 

 

	Original Issue Date: March 27, 2014	$220,000.00

 

LABOR SMART, INC.

 

10% OID CONVERTIBLE NOTE DUE JANUARY
1, 2015

 

This 10% OID
Convertible Note of Labor Smart, Inc., a Nevada corporation (the "Company"), having its principal place of business at
5604 Wendy Bagwell Parkway, Suite 223, Hiram, GA 30141 (this "Note"), is duly authorized and validly issued.

FOR VALUE RECEIVED,
the Company promises to pay to the order of GEMINI MASTER FUND, LTD., a Cayman Islands company, or its registered assigns (the
"Holder"), or shall have paid pursuant to the terms hereunder, on or before January 1, 2015 (the "Maturity or such
earlier date as this Note is required or permitted to be repaid as provided hereunder, the principal sum of $220,000.00.

This Note is subject to the following
additional provisions:

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

"Bankruptcy
Event" means any of the following events: (a) the Company or any Subsidiary thereof commences a case or other proceeding
under any bankruptcy, reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or liquidation
or similar law of any jurisdiction relating to the Company or any Subsidiary thereof; (b) there is commenced against the Company
or any Subsidiary thereof any such case or proceeding that is not dismissed within 60 days after commencement; (c) the Company
or any Subsidiary thereof is adjudicated insolvent or

    	March 2014 01D 10% LTNC Note	1	 

    	 

    

bankrupt or any order of relief
or other order approving any such case or proceeding is entered; (d) the Company or any Subsidiary thereof suffers any appointment
of any custodian or the like for it or any substantial part of its property that is not discharged or stayed within 60 calendar
days after such appointment; (e) the Company or any Subsidiary thereof makes a general assignment for the benefit of creditors;
(f) the Company or any Subsidiary thereof calls a meeting of its creditors with a view to arranging a composition, adjustment or
restructuring of its debts; or (g) the Company or any Subsidiary thereof, by any act or failure to act, expressly indicates its
consent to, approval of or acquiescence in any of the foregoing or takes any corporate or other action for the purpose of effecting
any of the foregoing.

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

"Change
of Control Transaction" means the occurrence after the date hereof of any of (i) an acquisition after the date hereof
by an individual or legal entity or "group" (as described in Rule 13d-5(b)(1) promulgated under the Securities Exchange
Act of 1934, as amended) of effective control (whether through legal or beneficial ownership of capital stock of the Company, by
contract or otherwise) of in excess of 33% of the voting securities of the Company, or (ii) the Company merges into or consolidates
with any other entity, or any entity merges into or consolidates with the Company and, after giving effect to such transaction,
the stockholders of the Company immediately prior to such transaction own less than 66% of the aggregate voting power of the Company
or the successor entity of such transaction, or (iii) the Company sells or transfers all or substantially all of its assets to
a third party and the stockholders of the Company immediately prior to such transaction own less than 66% of the aggregate voting
power of the acquiring entity immediately after the transaction, or (iv) a replacement at one time or within a three year period
of more than one-half of the members of the Company's board of directors which is not approved by a majority of those individuals
who are members of the board of directors on the date hereof (or by those individuals who are serving as members of the board of
directors on any date whose nomination to the board of directors was approved by a majority of the members of the board of directors
who are members on the date hereof), or (v) the execution by the Company of an agreement to which the Company is a party or by
which it is bound, providing for any of the events set forth in clauses (1) through (iv) above.

"Event of Default"
shall have the meaning set forth in Section 5.

"Fundamental Transaction"
means any Change of Control Transaction.

"Mandatory Default
Amount" is equal to the greater of (i) one hundred twenty percent (120%) of the outstanding Principal (plus all accrued
and unpaid Interest, if any) and (ii) the product of (A) the highest closing price for the five (5) days on which the principal
Primary Market is open for business (a "Trading Day") immediately preceding

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the Holder's acceleration
and (B) a fraction, of which the numerator is the entire outstanding Principal, and of which the denominator is the Conversion
Price as of the date such ratio is being determined.

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

"Original
Issue Date" means the date of the issuance of this Note, regardless of any transfers of any Note and regardless of the
number of instruments which may be issued to evidence this Note.

"Purchase
Agreement" means that certain Securities Purchase Agreement, dated on or about the date hereof, among the Company and
the Holder, as amended, modified or supplemented from time to time in accordance with its terms.

"Subsidiary"
means any direct or indirect subsidiary of the Company currently existing or formed or acquired after the date hereof.

Section 2.Interest Rate; Default
Interest.

a)Interest Rate. Interest
shall accrue on the principal amount hereunder at a rate of 10% per annum and be payable in cash on the Maturity Date or in shares
of common stock upon a conversion.

b)Default Interest Rate.
Upon an Event of Default hereunder, interest shall accrue daily on the outstanding principal amount of this Note at a rate per
annum equal to 18%.

Section 3.Conversion of Note.
This Note shall be convertible into shares of Common Stock, on the terms and conditions set forth in this Section 3.

(a)Conversion Right.
Subject to the provisions of Section 3(c), at any time or times on or after the date set out above as the Original Issue Date (the
"Original Issue Date"), the Holder shall be entitled to convert any portion of the outstanding and unpaid
Conversion Amount (as defined below) into fully paid and nonassessable shares of Common Stock in accordance with Section 3(b),
at the Conversion Price (as defined below) subject to the Conversion Minimum (as defined below). The number of shares of Common
Stock issuable upon conversion of any Conversion Amount pursuant to this Section 3(a) shall be equal to the quotient of
dividing the Conversion Amount by the Conversion Price ("Conversion Shares"). The Company shall not issue any
fraction of a share of Common Stock upon any conversion. If the issuance would result in the issuance of a fraction of a share
of Common Stock, the Company shall round such fraction of a share of Common Stock up to the nearest whole share. The Company shall
pay any and all transfer agent fees, legal fees, costs and any other fees or costs that may be incurred or charged in connection
with the issuance of shares of Common Stock to the Holder arising out of or relating to the conversion of this Note.

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(i)"Conversion
Amount" means the portion of the Principal and Interest to be converted, plus any penalties, redeemed or otherwise
with respect to which this determination is being made.

(ii)"Conversion
Price" shall equal the lesser of (A) $0.25 and (B) sixty-five percent (65%) of the lowest VWAP occurring during the
twenty (20) consecutive Trading Days immediately preceding the applicable Conversion Date on which the Holder elects to convert
all or part of this Note, subject to adjustment as provided in this Note.

(iii)"Conversion
Minimum" shall, unless otherwise approved in writing by the Company, constitute any individual conversion of at least
an amount equal to $10,000 of the Principal.

(iv)"VWAP"
means, for any date, the price determined by the first of the following clauses that applies: (a) the volume weighted average price
of the Common Stock for such date (or the nearest preceding date) on the Primary Market; (b) if the Common Stock is not then quoted
for trading on the Primary Market and if prices for the Common Stock are then reported in the "Pink Sheets" published
by Pink Sheets, LLC (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid
price per share of the Common Stock so reported; or (c) in all other cases, the fair market value of a share of Common Stock as
determined by an independent appraiser selected in good faith by the Holder and reasonably acceptable to the Company.

(b)Mechanics
of Conversion.

(i)Optional
Conversion. To convert any Conversion Amount into shares of Common Stock on any date (a "Conversion Date"),
the Holder shall transmit by email, facsimile (or otherwise deliver), for receipt on or prior to 11:59 p.m., New York, NY Time,
on such date, a copy of an executed notice of conversion in the form attached hereto as Exhibit A (the "Conversion Notice")
to the Company. On or before the third (3rd) Business Day following the date of receipt of a Conversion Notice, the Company shall
(A) if legends are not required to be placed on certificates of Common Stock pursuant to the then existing provisions of Rule 144
of the Securities Act of 1933 ("Rule 144") and provided that the Company's transfer agent is participating
in the Depository Trust Company's ("DTC") Fast Automated Securities Transfer Program, credit such aggregate
number of shares of Common Stock to which the Holder shall be entitled to the Holder's or its designee's balance account with DTC,
or (B) if the Company's transfer agent is not participating in the DTC Fast Automated Securities Transfer Program, issue and deliver
to the address as specified in the Conversion Notice, a certificate, registered in the name of the Holder or its designee, for
the number of shares of Common Stock to which the Holder shall be entitled which certificates shall not bear any restrictive legends
unless required pursuant the Rule 144. If this Note is physically surrendered for conversion and the outstanding Principal is greater
than the Principal portion of the Conversion Amount being converted, then the Company shall, upon request of the Holder, as soon
as practicable and in no event later than three (3) Business

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Days after receipt of this Note
and at its own expense, issue and deliver to the holder a new Note representing the outstanding Principal not converted. The individual,
corporation, partnership, limited liability company, limited liability partnership, trust, association, organization or other entity
(each a "Person") entitled to receive the shares of Common Stock issuable upon a conversion of this Note
shall be treated for all purposes as the record holder or holders of such shares of Common Stock upon the transmission of a Conversion
Notice. For the purposes hereof, the term "Business Day" means any day except any Saturday, any Sunday,
any day which shall be a federal legal holiday in the United States or any day on which banking institutions in the State of California
are authorized or required by law or other governmental action to close.

(ii)Company's
Failure to Timely Convert. If within three (3) Business Days after the Company's receipt of the facsimile or email copy of
a Conversion Notice, the Company shall fail to issue and deliver to Holder the number of shares of Common Stock to which the Holder
is entitled upon such Holder's conversion of any Conversion Amount (a "Conversion Failure"), the Principal
shall increase by $3,000 per day until the Company issues and delivers a certificate to the Holder for the number of shares of
Common Stock to which the Holder is entitled upon such Holder's conversion of any Conversion Amount. If the Company fails to deliver
shares in accordance with the timeframe stated in this Section, resulting in a Conversion Failure, the Holder, at any time prior
to selling all of those shares, may rescind any portion, in whole or in part, of that particular conversion attributable to the
unsold shares and have the rescinded Conversion Amount returned to the Principal with the rescinded Conversion Shares returned
to the Company.

(iii)DTC
Eligibility. If the Company loses its status as "DTC Eligible" for any reason, the Conversion Price shall thereafter
be redefined to mean the lesser of (A) $0.10 and (B) fifty percent (50%) of the lowest trade occurring during the twenty (20) consecutive
Trading Days immediately preceding the applicable Conversion Date on which the Holder elects to convert all or part of this Note,
subject to adjustment as provided in this Note.

(iv)Book-Entry.
Notwithstanding anything to the contrary set forth herein, upon conversion of any portion of this Note in accordance with the terms
hereof, the Holder shall not be required to physically surrender this Note to the Company unless (A) the full Conversion Amount
represented by this Note is being converted or (B) the Holder has provided the Company with prior written notice (which notice
may be included in a Conversion Notice) requesting reissuance of this Note upon physical surrender of this Note. The Holder and
the Company shall maintain records showing the Principal and Interest converted and the dates of such conversions or shall use
such other method, reasonably satisfactory to the Holder and the Company, so as not to require physical surrender of this Note
upon conversion.

(c)Limitations
on Conversions. The Company shall not effect any conversions of this Note and the Holder shall not have the right to convert
any portion of this Note or receive shares of Common Stock as payment of interest hereunder to the

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extent that after giving effect
to such conversion or receipt of such Interest payment, the Holder, together with any affiliate thereof, would beneficially own
(as determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
and the rules promulgated thereunder) in excess of 9.99% of the number of shares of Common Stock outstanding immediately after
giving effect to such conversion or receipt of shares as payment of Interest. Since the Holder will not be obligated to report
to the Company the number of shares of Common Stock it may hold at the time of a conversion hereunder, unless the conversion at
issue would result in the issuance of shares of Common Stock in excess of 9.99% of the then outstanding shares of Common Stock
without regard to any other shares which may be beneficially owned by the Holder or an affiliate thereof, the Holder shall have
the authority and obligation to determine whether the restriction contained in this Section will limit any particular conversion
hereunder and to the extent that the Holder determines that the limitation contained in this Section applies, the determination
of which portion of the principal amount of this Note is convertible shall be the responsibility and obligation of the Holder.
If the Holder has delivered a Conversion Notice for a principal amount of this Note that, without regard to any other shares that
the Holder or its affiliates may beneficially own, would result in the issuance in excess of the permitted amount hereunder, the
Company shall notify the Holder of this fact and shall honor the conversion for the maximum principal amount permitted to be converted
on such Conversion Date in accordance with Section 3(a) and, any principal amount tendered for conversion in excess of the permitted
amount hereunder shall remain outstanding under this Note. The provisions of this Section may be waived by a Holder (but only as
to itself and not to any other Holder) upon not less than sixty-five (65) days' prior notice to the Company. Other Holders shall
be unaffected by any such waiver.

(d)Other
Provisions.

(i)Share Reservation.The
Company shall at all times reserve and keep available out of its authorized Common Stock the full number of shares of Common Stock
issuable upon conversion of all outstanding amounts under this Note; and within five (5) Business Days following the receipt by
the Company of a Holder's notice that such minimum number of underlying shares of Common Stock is not so reserved, the Company
shall promptly reserve a sufficient number of shares of Common Stock to comply with such requirement. The Company will at all times
reserve at least 2,000,000 shares of Common Stock for conversion.

(ii)Prepayment.
At any time the Company shall have the option, upon ten (10) Business Days' notice to Holder, to pre-pay the entire remaining outstanding
principal amount of this Note in cash, provided that (A) the Company shall pay the Holder one hundred thirty percent (130%) of
the Principal plus Interest outstanding in repayment hereof, (B) such amount must be paid in cash on the next Business Day following
such ten (10) Business Day notice period, and (C) the Holder may still convert this Note pursuant to the terms hereof at all times
until such prepayment amount has been received in full. Except as set forth in this Section the Company may not prepay this Note
in whole or in part.

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(iii)All calculations
under this Section 3 shall be rounded up to the nearest $0.00001 or whole share.

(iv)Nothing
herein shall limit a Holder's right to pursue actual damages or declare an Event of Default herein for the Company's failure to
deliver certificates representing shares of Common Stock upon conversion within the period specified herein and such Holder shall
have the right to pursue all remedies available to it at law or in equity including, without limitation, a decree of specific performance
and/or injunctive relief, in each case without the need to post a bond or provide other security. The exercise of any such rights
shall not prohibit the Holder from seeking to enforce damages pursuant to any other Section hereof or under applicable law.

Section 4.Adjustments
to Conversion Price; Fundamental Transactions. The Conversion Price and the number and kind of securities issuable upon
conversion of this Note shall be subject to adjustment from time to time as set forth in this Section 4.

(a)Stock
Dividends and Splits. If at any time while this Note is outstanding the Company (i) declares or pays a stock dividend on its
Common Stock or otherwise makes a distribution on any class of capital stock (or securities convertible into or exercisable or
exchangeable for capital stock) that is payable in shares of Common Stock, (ii) subdivides outstanding shares of Common Stock into
a larger number of shares, (iii) combines (including, without limitation, by way of reverse stock split) outstanding shares of
Common Stock into a smaller number of shares, or (iv) issues by reclassification of shares of the Common Stock any shares of capital
stock of the Company (including, without limitation, in connection with any merger or consolidation), then in each such case the
Conversion Price then in effect shall be adjusted by multiplying such Conversion Price by a fraction of which (A) the numerator
shall be the number of shares of Common Stock outstanding immediately before such event, and (B) the denominator shall be the number
of shares of Common Stock outstanding immediately after such event. Any adjustment made pursuant to clause (i) of this paragraph
shall become effective immediately after the record date for such dividend or distribution, and any adjustment made pursuant to
clauses (ii), (iii) or (iv) of this paragraph shall become effective immediately after the effective date of such subdivision,
combination or reclassification.

(b)Pro
Rata Distributions. Subject to Section 4(c) below, if at any time while this Note is outstanding the Company declares
or pays any dividend or otherwise distributes any of its assets (including, without limitation, cash, properties, evidences of
indebtedness, securities (including any options or other convertible securities but excluding a distribution of Common Stock covered
by Section 4(a) above or Purchase Rights covered by Section 4(c) below) or options or rights to acquire any such
assets) (in each case, "Distributed Property") to all holders of Common Stock pro raw (and not to all Holders
in their capacity as holders of Notes), whether by way of dividend, return of capital, spin-off, reclassification, corporate rearrangement,
scheme of arrangement or other similar transaction, then in each such case the Conversion Price in effect

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immediately prior to the close of
business on the record date for such dividend or distribution shall be reduced, effective as of the close of business on such record
date, to a price determined by multiplying such Conversion Price by a fraction of which (i) the denominator shall be the closing
price of Common Stock on the Primary Market on such record date (the "Market Price"), and (ii) the numerator
shall be such Market Price minus the value of the Distributed Property on such date applicable to one outstanding share of Common
Stock, as determined by the Company's independent certified public accounting firm that regularly examines the financial statements
of the Company.

(c)Rights
Offerings Below Market. Notwithstanding Section 4(b) above, if at any time while this Note is outstanding the Company grants,
issues or sells pro raw to all holders of its outstanding shares of Common Stock, any options, convertible securities or other
rights (the "Purchase Rights") entitling them to directly or indirectly subscribe for or purchase shares
of Common Stock at an effective price per share less than the Market Price on the record date of such grant, issuance or sale,
then in each such case the Conversion Price in effect immediately prior to the close of business on such record date shall be reduced,
effective as of the close of business on such record date, to a price determined by multiplying such Conversion Price by a fraction
of which (i) the numerator shall be the number of shares of Common Stock outstanding as of the close of business on such record
date plus the number of shares of Common Stock which the aggregate offering price of the total number of shares so offered for
subscription or purchase (including and assuming receipt by the Company in full of all consideration payable upon both issuance
and exercise of such Purchase Rights) would purchase at such Market Price, and (ii) the denominator shall be the number of shares
of Common Stock outstanding as of the close of business on such record date plus the total number of additional shares of Common
Stock so offered for subscription or purchase; provided, that in lieu of receiving such adjustment to the Conversion Price, the
Holder shall have the option, upon written notice to the Company within thirty (30) days following its receipt of the notice of
such adjustment, to elect to acquire, upon any conversion of this Note and in accordance with the terms applicable to the issuance
of such Purchase Rights, the aggregate Purchase Rights which the Holder would have acquired if the Holder had converted such portion
of this Note being converted (without regard to any limitations on ownership or conversion and regardless of whether this Note
was then convertible) immediately prior to such record date. To the extent that shares of Common Stock have not been delivered
pursuant to such Purchase Rights specified in this Section upon the expiration or termination of such Purchase Rights, the Conversion
Price shall be readjusted to the Conversion Price which would then be in effect had the adjustment made upon the issuance of such
Purchase Rights been made on the basis of delivery of only the number of shares of Common Stock actually delivered. In determining
whether any Purchase Rights entitle the holder thereof to subscribe for or purchase shares of Common Stock at less than such Market
Price, and in determining the aggregate offering price of such shares of Common Stock, there shall be taken into account any consideration
received for such Purchase Rights, the value of such consideration (if other than cash) to be determined in good faith by the Company's
Board of Directors.

(d)Fundamental
Transactions. If at any time while this Note is

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outstanding, (i) the Company effects
any merger or consolidation of the Company with or into another Person, (ii) the Company effects any sale of all or substantially
all of its assets in one or a series of related transactions, (iii) any tender offer or exchange offer (whether by the Company
or another Person) is completed pursuant to which holders of Common Stock are permitted to tender or exchange their shares for
other securities, cash or property, or (iv) the Company effects any reclassification of the Common Stock or any compulsory share
exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property (each,
a "Fundamental Transaction"), then the Holder shall have the right thereafter to receive, upon any conversion
of this Note, for each Conversion Share that would have been issuable upon such conversion immediately prior to the occurrence
of such Fundamental Transaction, the same amount and kind of securities, cash and property as the Holder would have been entitled
to receive upon the occurrence of such Fundamental Transaction if the Holder had been the record holder of one Conversion Share
immediately prior to such Fundamental Transaction (without regard to any limitations or restrictions on conversion or acquisition
of Conversion Shares and whether or not this Note was then convertible) (the "Alternate Consideration"), and the
Conversion Price shall be appropriately and equitably adjusted to apply to such Alternate Consideration based on the amount of
Alternate Consideration issuable in respect of one share of Common Stock in such Fundamental Transaction relative to the then Conversion
Price. The Company shall apportion the Conversion Price among the Alternate Consideration in a reasonable manner reflecting the
relative value of any different components of the Alternate Consideration. If holders of Common Stock are given any choice as to
the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as
to the Alternate Consideration it receives upon any conversion of this Note following such Fundamental Transaction. In case of
any such Fundamental Transaction, any successor to the Company, acquirer or surviving entity (if other than the Company) shall
expressly assume the due and punctual observance and performance of each and every covenant, obligation, liability and condition
under this Note to be performed and observed by the Company, subject to such modifications as may be reasonably deemed appropriate
(as determined in good faith by resolution of the Board of Directors of the Company) in order to provide for adjustments of the
number and kind of Conversion Shares for which this Note is convertible which shall be as nearly equivalent as practicable to the
adjustments provided for in this Section. Such assumption shall be pursuant to a written agreement in form and substance reasonably
satisfactory to the Holder. At the Holder's request, any successor to the Company, acquirer or surviving entity in such Fundamental
Transaction shall issue to the Holder a new Note from such entity substantially similar in form and substance to this Note and
consistent with the foregoing provisions, which new Note shall be reasonably satisfactory to the Holder and include, without limitation,
(A) the outstanding Principal and Interest owed to the Holder under this Note, (B) an interest rate equal to the Interest Rate,
(C) similar ranking to this Note, and (D) the Holder's right to convert the new Note into Alternate Consideration. The terms of
any agreement pursuant to which a Fundamental Transaction is effected shall include terms requiring any such successor, acquirer
or surviving entity to comply with the provisions of this Section and ensuring that this Note (or any such replacement security)
will be similarly adjusted upon any subsequent

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transaction analogous to a Fundamental
Transaction. Notwithstanding anything to the contrary contained herein, if a Fundamental Transaction (X) is an all cash transaction,
(Y) constitutes or results in a "Rule 13e-3 transaction" as defined in Rule 13e-3 under the Exchange Act (going private
transaction), or (Z) otherwise results in the successor, surviving or acquiring entity not being traded on a national securities
exchange, the Nasdaq Global Select Market, the Nasdaq Global Market or the Nasdaq Capital Market, then upon the written request
of the Holder, delivered before the sixtieth (60th) day after such Fundamental Transaction, the Company (or any such successor,
acquirer or surviving entity) shall redeem this Note from the Holder for a redemption price, payable in cash within five (5) Business
Days after such request (or, if later, on the effective date of such Fundamental Transaction), equal to the value of this Note
as determined using the Black-Scholes Option Pricing Model via Bloomberg. The provisions of this Section shall similarly apply
to successive Fundamental Transactions and shall be applied without regard to any limitations of this Note.

Section 5.Intentionally
Deleted.

Section 6.Eventsof
Default.

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

i.any
default in the payment of (A) the principal amount under this Note, or (B) interest, liquidated damages and other amounts owing
under this Note as and when the same shall become due and payable (whether on the Maturity Date or by acceleration or otherwise)
which default is not cured within 3 business days;

ii.the
Company shall fail to observe or perform any other covenant or agreement contained in this Note which failure is not cured, if
possible to cure, within 5 days after notice of such failure is delivered by the Holder or after the Company has become or should
have become aware of such failure, whichever is earlier;

iii.a
default or event of default (subject to any grace or cure period provided in the applicable agreement, document or instrument)
shall occur under (A) the Purchase Agreement or (B) any other convertible debenture

iv.the
Company or any Subsidiary shall be subject to a Bankruptcy Event;

v.the
Company or any Subsidiary shall default on any of its obligations under any mortgage or indenture agreement that (a) involves an

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obligation greater
than $100,000, whether such indebtedness now exists or shall hereafter be created, and (b) results in such indebtedness becoming
or being declared due and payable prior to the date on which it would otherwise become due and payable;

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

vii.The
common stock of the Company ("Common Stock") is suspended or delisted for trading on the Over the Counter Bulletin Board
market (the "Primary Market") and the OTCQB;

viii.A
Conversion Failure as defined in Section 3(b)(ii) hereof;

ix.The
Company loses its status as "DTC Eligible"; or

x.The
Company shall become late or delinquent in its filing requirements as a fully-reporting issuer registered with the Securities &
Exchange Commission. For the avoidance of doubt, the Company will not be considered late or delinquent in its filings requirements
as a fully-reporting issuer registered with the Securities & Exchange Commission if it timely files Form 12b-25 (Notification
of Late Filing) and subsequently timely files the required filing documents to maintain compliance.

b)Remedies Upon Event of
Default. If any Event of Default occurs, the outstanding principal amount of this Note, plus accrued but unpaid interest, liquidated
damages and other amounts owing in respect thereof through the date of acceleration, shall become, at the Holder's election, immediately
due and payable in cash at the Mandatory Default Amount. After the occurrence and during the continuance of any Event of Default,
the interest rate on this Note shall accrue at an interest rate equal to the lesser of 18% per annum or the maximum rate permitted
under applicable law. In connection with such acceleration described herein, the Holder need not provide, and the Company hereby
waives, any presentment, demand, protest or other notice of any kind, and the Holder may immediately and without expiration of
any grace period enforce any and all of its rights and remedies hereunder and all other remedies available to it under applicable
law.

Section 7.Miscellaneous.

a)Notices. Any and
all notices or other communications or deliveries to be provided by the Holder hereunder, shall be in writing and delivered personally,
by facsimile, by email or sent by a nationally recognized overnight courier service, addressed to the Company, at the address set
forth above, or such other facsimile number, email or address as the Company may specify for such purpose by notice to the

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Holder delivered in accordance with
this Section. Any and all notices or other communications or deliveries to be provided by the Company hereunder shall be in writing
and delivered personally, by facsimile, by email or sent by a nationally recognized overnight courier service addressed to each
Holder at the facsimile number or address of the Holder appearing on the books of the Company, or if no such facsimile number,
email or address appears, at the principal place of business of the Holder. Any notice or other communication or deliveries hereunder
shall be deemed given and effective on the earliest of (i) the date of transmission, if such notice or communication is delivered
via facsimile or email at the facsimile number or email address specified to such party prior to 8:30 p.m. (New York City time),
(ii) the date immediately following the date of transmission, if such notice or communication is delivered via facsimile or email
at the facsimile number or email address specified to such party between 8:30 p.m. (New York City time) and 11:59 p.m. (New York
City time) on any date, (iii) the second Business Day following the date of mailing, if sent by U.S. nationally recognized overnight
courier service, or (iv) upon actual receipt by the party to whom such notice is required to be given. The address for such notices
and communications shall be as set forth in the Purchase Agreement.

b)Absolute
Obligation. Except as expressly provided herein, no provision of this Note shall alter or impair the obligation of the Company,
which is absolute and unconditional, to pay the principal of, liquidated damages and accrued interest, as applicable, on this Note
at the time, place, and rate, and in the coin or currency, herein prescribed. This Note is a direct debt obligation of the Company.

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

d)Governing
Law. All questions concerning the construction, validity, enforcement and interpretation of this Note shall be governed by and
construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflict
of laws thereof. Each party agrees that all legal proceedings concerning the interpretation, enforcement and defense of the transactions
contemplated by this Note or the Purchase Agreement (whether brought against a party hereto or its respective affiliates, directors,
officers, shareholders, employees or agents) shall be commenced in the state and federal courts sitting in the City of New York,
Borough of Manhattan (the "New York Courts"). Each party hereto hereby irrevocably submits to the exclusive jurisdiction
of the New York Courts for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated
hereby or discussed herein (including with respect to the enforcement of this Note or the Purchase Agreement), and hereby irrevocably
waives, and agrees not to assert in any suit,

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action or proceeding, any claim
that it is not personally subject to the jurisdiction of such New York Courts, or such New York Courts are improper or inconvenient
venue for such proceeding. Each party hereby irrevocably waives personal service of process and consents to process being served
in any such suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence
of delivery) to such party at the address in effect for notices to it under this Note and agrees that such service shall constitute
good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any other manner permitted by applicable law. Each party hereto hereby irrevocably waives, to the fullest extent
permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Note
or the transactions contemplated hereby. If either party shall commence an action or proceeding to enforce any provisions of this
Note, then the prevailing party in such action or proceeding shall be reimbursed by the other party for its attorney's fees and
other costs and expenses reasonably incurred in the investigation, preparation and prosecution of such action or proceeding.

e)Waiver;
Amendments. Any waiver by the Company or the Holder of a breach of any provision of this Note shall not operate as or be construed
to be a waiver of any other breach of such provision or of any breach of any other provision of this Note. The failure of the Company
or the Holder to insist upon strict adherence to any term of this Note on one or more occasions shall not be considered a waiver
or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Note. Any
waiver by the Company or the Holder must be in writing. This Note shall not be directly or indirectly effectively modified or amended
without the prior written consent of the Holder.

f)Successors
and Assigns. This Note may be assigned by the Holder with the prior written consent of the Company. This Note may not be assigned
by the Company, except to a successor in the event of a Fundamental Transaction. This Note shall be binding on and inure to the
benefit of the parties thereto and their respective successors and assigns.

g)Severability.
If any provision of this Note is invalid, illegal or unenforceable, the balance of this Note shall remain in effect, and if any
provision is inapplicable to any person or entity or circumstance, it shall nevertheless remain applicable to all other persons,
entities and circumstances.

h)Next Business
Day. Whenever any payment or other obligation hereunder shall be due on a day other than a Business Day, such payment shall be
made on the next succeeding Business Day.

i)Headings.
The headings contained herein are for convenience only, do not constitute a part of this Note and shall not be deemed to limit
or affect any of the provisions hereof.

    	March 2014 01D 10% LTNC Note	13	 

    	 

    

 

j)Assumption.
Any successor to the Company or any surviving entity in a Fundamental Transaction shall (i) assume, prior to such Fundamental Transaction,
all of the obligations of the Company under this Note and the Purchase Agreement pursuant to written agreements in form and substance
satisfactory to the Holder (such approval not to be unreasonably withheld or delayed) and (ii) issue to the Holder a new Note of
such successor entity evidenced by a written instrument substantially similar in form and substance to this Note, including, without
limitation, having a principal amount and interest rate equal to the principal amount and the interest rate of this Note and having
similar ranking to this Note, which shall be satisfactory to the Holder (any such approval not to be unreasonably withheld or delayed).
The provisions of this Section shall apply similarly and equally to successive Fundamental Transactions and shall be applied without
regard to any limitations of this Note.

k)No Usury.
To the fullest extent permitted by law, the Company agrees not to insist upon or plead or in any manner whatsoever claim, and shall
resist any and all efforts to be compelled to take the benefit or advantage of, usury laws wherever enacted, in force at the time
of execution of this Note or hereafter, in connection with any action that may be brought by the Holder in order to enforce any
right or remedy under this Note or other Transaction Documents. Notwithstanding any provision to the contrary contained herein,
it is expressly agreed and provided that the total liability of the Company under this Note for payments in the nature of interest
shall not exceed the maximum lawful interest rate authorized under applicable law. If the effective interest rate otherwise applicable
under this Note exceeds such maximum lawful interest rate, then such applicable interest rate shall be reduced so as not to exceed
such maximum lawful interest rate.

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

    	March 2014 01D 10% LTNC Note	14	 

    	 

    

 

 

 

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

LABOR SMART, INC.

 

 

 

 

By: /s/ Ryan Schadel

Name: Ryan Schadel

Title: CEO

 

 

 

 

 

 

 

 

    	March 2014 01D 10% LTNC Note	15

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