Document:

EXECUTION VERSION 

GUARANTY AGREEMENT 

     GUARANTY
AGREEMENT, dated as of May 30, 2013 (as amended, supplemented, or otherwise
modified from time to time, this “Guaranty”), is made by ZAIS Financial
Corp. a Maryland corporation (together with its successors and permitted
assigns, the “Guarantor”), in favor of Citibank, N.A. (the “Buyer”, which term shall
include Buyer’s successors and assigns, and any buyer for whom any Buyer acts as
agent pursuant to the Repurchase Agreement) pursuant to the Repurchase
Agreement. 

RECITALS 

    
WHEREAS, pursuant to the Master Repurchase Agreement, dated as of May 30,
2013 (as amended, supplemented or otherwise modified from time to time, the
“Repurchase Agreement”), between ZFC Trust (“Seller”) and the Buyer, the Buyer has
agreed to enter into transactions from time to time with Seller, pursuant to
which (i) with respect to the initial transaction, Seller transfers to Buyer a
Purchased Certificate representing ownership in ZFC Trust Grantor Trust Holdings
Pass Through Trust I (the “Pass Through Trust”), the assets of which
consist of Participation Interests in Eligible Loans, and (ii) with respect to
each subsequent transaction, Seller transfers additional Participation Interests
in Eligible Loans to the Pass Through Trust against the transfer of additional
funds by Buyer with respect to such additional Participation Interests, pursuant
to a Purchase Price Increase, in each case with a simultaneous agreement by
Buyer to transfer to Seller such Purchased Certificate at a date certain or on
demand, against the payment of the Repurchase Price by Seller. Each such
transaction shall be referred to herein as a “Transaction”;

    
WHEREAS, the Guarantor will obtain substantial direct and indirect
benefit from the Transactions, and to induce the Buyer to enter into
Transactions under the Repurchase Agreement, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Guarantor has agreed to provide the guaranty set forth herein in favor of Buyer;
and 

    
WHEREAS, it is a condition precedent to the obligation of the Buyer to
enter into the Repurchase Agreement that the Guarantor shall have executed and
delivered this Guaranty to the Buyer. 

    
NOW, THEREFORE, in consideration of the foregoing premises, to induce the
Buyer to enter into the Repurchase Agreement and to enter into Transactions
thereunder, the Guarantor hereby agrees with the Buyer, as follows: 

    
1. Defined Terms. (a) Unless otherwise
defined herein, terms which are defined in the Repurchase Agreement and used
herein are so used as so defined. 

     (b) For purposes of this Guaranty, “Obligations” means (a) all of Seller’s
Obligations (as such term is defined in the Repurchase Agreement) to pay the
Repurchase Price on the Repurchase Date and all other obligations and
liabilities of Seller to Buyer, its Affiliates, the Custodian or any other
Person arising under, or in connection with, the Program Documents or directly
related to the Purchased Certificate, the Participation Interests or the
Eligible Loans whether now existing or hereafter arising; (b) any and all sums
paid by Buyer or on behalf of Buyer in accordance with the terms of the Program
Documents with respect to the Purchased Certificate, the Participation Interests
or the Eligible Loans or its interest therein; (c) in the event of any
proceeding for the collection or enforcement of any of Seller’s indebtedness,
obligations or liabilities referred to in clause (a), the reasonable expenses of
retaking, holding, collecting, preparing for sale, selling or otherwise
disposing of or realizing on the Purchased Certificate or otherwise exercising
Buyer’s rights as certificateholder of the Purchased Certificate (including
terminating the Pass Through Trust and Legal Title Trust and realizing, holding,
collecting preparing for sale, selling or otherwise
disposing of the Participation Interests or Loans) or of any exercise by Buyer
or any Affiliate of Buyer of its rights under the Program Documents, including,
without limitation, reasonable attorneys’ fees and disbursements and court
costs; and (d) all of Seller’s indemnity obligations to Buyer pursuant to the
Program Documents.

     (c) The words “hereof”, “herein” and “hereunder” and words of similar import
when used in this Guaranty shall refer to this Guaranty as a whole and not to
any particular provision of this Guaranty, and section and paragraph references
are to this Guaranty unless otherwise specified. 

     (d) The meanings given to terms defined herein shall be equally applicable to
both the singular and plural forms of such terms. 

     2. Guaranty. (a) Guarantor hereby
unconditionally and irrevocably guarantees to the Buyer and its successors,
indorsees, transferees and assigns the prompt and complete payment and
performance by the Seller when due (whether at the stated maturity, by
acceleration or otherwise) of the Obligations. 

     (b) Guarantor further agrees to pay any and all expenses (including, without
limitation, all reasonable fees and disbursements of counsel) which may be paid
or incurred by the Buyer in enforcing, or obtaining advice of counsel in respect
of, any rights with respect to, or collecting, any or all of the Obligations
and/or enforcing any rights with respect to, or collecting against, the
Guarantor under this Guaranty. This Guaranty shall remain in full force and
effect until the Obligations are paid in full, notwithstanding that from time to
time prior thereto the Seller may be free from any Obligations. 

     (c) No payment or payments made by Seller, any other guarantor or any other
Person or received or collected by the Buyer from Seller or any other Person by
virtue of any action or proceeding or any set-off or appropriation or
application, at any time or from time to time, in reduction of or in payment of
the Obligations shall be deemed to modify, reduce, release or otherwise affect
the liability of the Guarantor hereunder. 

     (d) Guarantor agrees that whenever, at any time, or from time to time, the
Guarantor shall make any payment to the Buyer on account of the Guarantor’s
liability hereunder, the Guarantor will notify the Buyer in writing that such
payment is made under this Guaranty for such purpose. 

    
3. Right
of Set-off. Upon the occurrence and during
the continuance of any Default or Event of
Default hereunder or under any Program Document, the Buyer is hereby irrevocably
authorized at any time and from time to time without notice to the Guarantor,
any such notice being hereby waived by the Guarantor, to set off and appropriate
and apply any and all monies and other property of the Guarantor, deposits
(general or special, time or demand, provisional or final), in any currency, and
any other credits, indebtedness or claims, in any currency, in each case whether
direct or indirect, absolute or contingent, matured or unmatured, at any time
held or owing by the Buyer or any Affiliate thereof to or for the credit or the
account of the Guarantor, or any part thereof in such amounts as the Buyer may
elect, on account of the liabilities of the Guarantor hereunder and claims of
every nature and description of the Buyer against the Guarantor, in any
currency, whether arising hereunder, under the Repurchase Agreement or
otherwise, as the Buyer may elect, whether or not the Buyer has made any demand
for payment and although such liabilities and claims may be contingent or
unmatured. Buyer may set off cash, the proceeds of the liquidation of any of the
Purchased Items and all other sums or obligations owed by Buyer or its Affiliate
to Seller or Guarantor against all of Seller’s or Guarantor’s obligations to
Buyer or its Affiliate, whether under this Guaranty or under any other agreement
between the parties or between Seller or Guarantor or any other guarantor and
any Affiliate of the Buyer, or otherwise, whether or not such obligations are then due, without prejudice to Buyer’s or its
Affiliate’s right to recover any deficiency. The Buyer shall notify the
Guarantor of any such set-off and the application made by the Buyer, provided
that the failure to give such notice shall not affect the validity of such
set-off and application. The rights of the Buyer under this paragraph are in
addition to other rights and remedies (including, without limitation, other
rights of set-off) which the Buyer may have. Upon an Event of Default in the
performance of any obligations hereunder or under the Program Documents, the
Buyer shall have the right to cause liquidation, termination or acceleration to
the extent of any assets pledged by the Guarantor to secure its obligations
hereunder or under any other agreement to which this Section 3 applies. For
purposes of this section only, any Affiliate of Buyer referred to herein shall
mean Citigroup Global Markets Realty Corp.

-2- 

     4. Subrogation. Upon making any payment hereunder, the Guarantor shall be
subrogated to the rights of the Buyer against the Seller and any Purchased Items
under the Repurchase Agreement for any Obligations with respect to such payment;
provided
that the Guarantor shall not seek to enforce any right or receive any payment by
way of subrogation until all amounts due and payable by the Seller to the Buyer
under the Repurchase Agreement or any other Program Document have been paid in
full. Until one year and one day after payment of the full amount and discharge
of all Obligations, the performance of all of Guarantor’s obligations hereunder
and the termination of this Guaranty, neither any payment made by or for the
account of Guarantor nor any performance or enforcement of any obligation
pursuant to this Guaranty shall entitle the Guarantor by subrogation, indemnity,
exoneration, reimbursement, contribution or otherwise to any payment by Seller
or to any payment from or out of any property of Seller, and Guarantor shall not
exercise any right or remedy against Seller or any property of Seller by reason
of any performance by Guarantor of this Guaranty. If any amount shall be paid to
the Guarantor on account of such subrogation rights at any time when all of the
Obligations shall not have been paid in full or performed, such amount shall be
held in trust for the benefit of the Buyer and shall forthwith be paid to the
Buyer to be credited and applied upon the Obligations, whether matured or
unmatured, in accordance with the terms of this Guaranty. 

    
5. Amendments, etc. with Respect to the Obligations. Guarantor shall remain obligated hereunder notwithstanding
that, without any reservation of rights against the Guarantor, and without
notice to or further assent by the Guarantor, any demand for payment of any of
the Obligations made by the Buyer may be rescinded by the Buyer, and any of the
Obligations continued, and the Obligations, or the liability of any other party
upon or for any part thereof, or any collateral security or guarantee therefor
or right of offset with respect thereto, may, from time to time, in whole or in
part, be renewed, extended, amended, modified, accelerated, compromised, waived,
surrendered or released by the Buyer, and the Repurchase Agreement, and the
other Program Documents and any other document in connection therewith may be
amended, modified, supplemented or terminated, in whole or in part, in
accordance with its terms and as the Buyer may deem advisable from time to time,
and any collateral security, guarantee or right of offset at any time held by
the Buyer for the payment of the Obligations may be sold, exchanged, waived,
surrendered or released. The Buyer shall have no obligation to protect, secure,
perfect or insure any Lien at any time held by it as security for the
Obligations or for this Guaranty or any property subject thereto. When making
any demand hereunder against the Guarantor, the Buyer may, but shall be under no
obligation to, make a similar demand on the Seller or any other guarantor, and
any failure by the Buyer to make any such demand or to collect any payments from
the Seller or any such other guarantor or any release of the Seller or such
other guarantor shall not relieve the Guarantor of its obligations or
liabilities hereunder, and shall not impair or affect the rights and remedies,
express or implied, or as a matter of law, of the Buyer against the Guarantor.
For the purposes hereof “demand” shall include the commencement and continuance
of any legal proceedings. 

-3- 

     6. Guaranty Absolute and
Unconditional. (a) Guarantor waives any and
all notice of the creation, renewal, extension or accrual of any of the
Obligations and notice of or proof of reliance by the Buyer upon this Guaranty
or acceptance of this Guaranty; the Obligations, and any of them, shall
conclusively be deemed to have been created, contracted or incurred in reliance
upon this Guaranty; and all dealings between Seller or the Guarantor, on the one
hand, and the Buyer, on the other, shall likewise be conclusively presumed to
have been had or consummated in reliance upon this Guaranty. Guarantor waives
diligence, presentment, protest, demand for payment and notice of default or
nonpayment to or upon Seller or the Guaranty with respect to the Obligations.
This Guaranty shall be construed as a continuing, absolute and unconditional
guarantee of payment without regard to (i) the validity or enforceability of the
Repurchase Agreement, the other Program Documents, any of the Obligations or any
collateral security therefor or guarantee or right of offset with respect
thereto at any time or from time to time held by the Buyer, (ii) any defense,
set-off or counterclaim (other than a defense of payment or performance) which
may at any time be available to or be asserted by it or Seller against the
Buyer, or (iii) any other circumstance whatsoever (with or without notice to or
knowledge of the Seller or the Guarantor) which constitutes, or might be
construed to constitute, an equitable or legal discharge of the Seller for the
Obligations, or of the Guarantor under this Guaranty, in bankruptcy or in any
other instance. When pursuing its rights and remedies hereunder against the
Guarantor, the Buyer may, but shall be under no obligation, to pursue such
rights and remedies that they may have against the Seller or any other Person or
against any collateral security or guarantee for the Obligations or any right of
offset with respect thereto, and any failure by the Buyer to pursue such other
rights or remedies or to collect any payments from the Seller or any such other
Person or to realize upon any such collateral security or guarantee or to
exercise any such right of offset, or any release of the Seller or any such
other Person or any such collateral security, guarantee or right of offset,
shall not relieve the Guarantor of any liability hereunder, and shall not impair
or affect the rights and remedies, whether express, implied or available as a
matter of law, of the Buyer against the Guarantor. This Guaranty shall remain in
full force and effect and be binding in accordance with and to the extent of its
terms upon the Guarantor and its successors and assigns thereof, and shall inure
to the benefit of the Buyer, and its successors, indorsees, transferees and
assigns, until all the Obligations and the obligations of the Guarantor under
this Guaranty shall have been satisfied by payment in full, notwithstanding that
from time to time during the term of the Repurchase Agreement the Seller may be
free from any Obligations. 

     (b) To the extent permitted by law, Guarantor hereby waives any defense
arising by reason of, and any and all right to assert against the Buyer any
claim or defense based upon, an election of remedies by the Buyer which in any
manner impairs, affects, reduces, releases, destroys and/or extinguishes
Guarantor’s subrogation rights, rights to proceed against Seller or any other
guarantor for reimbursement or contribution, and/or any other rights of the
Guarantor to proceed against Seller, against any other guarantor, or against any
other person or security. 

     (i)
Guarantor is presently informed of the financial
condition of the Seller and of all other circumstances which diligent inquiry
would reveal and which bear upon the risk of nonpayment of the Obligations. The
Guarantor hereby covenants that it will make its own investigation and will
continue to keep itself informed of the financial condition of the Seller, of
all other circumstances which bear upon the risk of nonpayment and that it will
continue to rely upon sources other than the Buyer for such information and will
not rely upon the Buyer for any such information. Absent a written request for
such information by the Guarantor to the Buyer, Guarantor hereby waives its
right, if any, to require the Buyer to disclose to Guarantor any information
which the Buyer may now or hereafter acquire concerning such condition or
circumstances including, but not limited to, the release of or revocation by any
other guarantor. 

-4- 

     (ii) Guarantor has independently reviewed the Repurchase Agreement and related
agreements and has made an independent determination as to the validity and
enforceability thereof, and in executing and delivering this Guaranty to the
Buyer, Guarantor is not in any manner relying upon the validity, and/or
enforceability, and/or attachment, and/or perfection of any Liens or security
interests of any kind or nature granted by the Seller or any other guarantor to
the Buyer, now or at any time and from time to time in the future. 

     7. Reinstatement. This Guaranty shall
continue to be effective, or be reinstated, as the case may be, if at any time
payment, or any part thereof, of any of the Obligations is rescinded or must
otherwise be restored or returned by the Buyer upon the insolvency, bankruptcy,
dissolution, liquidation or reorganization of Seller or upon or as a result of
the appointment of a receiver, intervenor or conservator of, or trustee or
similar officer for, Seller or any substantial part of its property, or
otherwise, all as though such payments had not been made. 

     8. Payments. The Guarantor hereby agrees
that the Obligations will be paid to the Buyer without deduction, abatement,
recoupment, reduction, set-off or counterclaim in U.S. Dollars and in accordance
with the wiring instructions of the Buyer. 

     9. Representations and Warranties. The
Guarantor represents and warrants that: 

     (a) Guarantor is duly organized, validly
existing and in good standing as a limited partnership under the laws of the
jurisdiction under whose laws it is organized. Guarantor is duly qualified to do
business and has obtained all necessary licenses, permits, charters,
registrations and approvals necessary for the conduct of its business as
currently conducted and the performance of its obligations hereunder and under
any other Program Documents except where any failure to obtain such a license,
permit, charter, registration or approval will not cause a Material Adverse
Effect with respect to Guarantor; 

     (b) Guarantor has all necessary power and authority to conduct its business
as currently conducted, to execute, deliver and perform its obligations
hereunder and under any other Program Document; 

     (c) The execution, delivery and performance by Guarantor of this Guaranty and
the other Program Documents to which it is a party has been duly authorized by
all necessary action and do not require any additional approvals or consents or
other action by or any notice to or filing with any Person other than any that
have heretofore been obtained, given or made; 

     (d) No consent or authorization of, filing with, or other act by or in
respect of, any arbitrator or Governmental Authority and no consent of any other
Person (including, without limitation, any creditor of Guarantor) is required in
connection with the execution, delivery, performance, validity or enforceability
of this Guaranty; 

     (e) This Guaranty has been duly executed and delivered by the Guarantor and
constitutes a legal, valid and binding obligation of the Guarantor enforceable
in accordance with its terms, except as enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting the enforcement of creditors’ rights generally and by general
principles of equity (whether enforcement is sought in proceedings in equity or
at law); 

     (f) The execution, delivery and performance of this Guaranty will not violate
any provision of any law, treaty, rule or regulation or determination of an
arbitrator, a court or other governmental authority,
applicable to or binding upon the Guarantor or any of its property or to which
the Guarantor or any of its property is subject (“Requirement of Law”), or any provision
of any security issued by the Guarantor or of any agreement, instrument or other
undertaking to which the Guarantor is a party or by which it or any of its
property is bound (“Contractual
Obligation”), and will not result in or
require the creation or imposition of any Lien on any of the properties or
revenues of the Guarantor pursuant to any Requirement of Law or Contractual
Obligation of the Guarantor; 

-5- 

     (g) Guarantor is an indirect majority owner of Seller, and the Guarantor has
received, or will receive, direct or indirect benefit from the making of this
Guaranty with respect to the Obligations; 

     (h)
The execution, delivery and performance of this
Guaranty and the other Program Documents to which the Guarantor is a party does
not constitute a material default by the Guarantor under any loan or repurchase
agreement, mortgage, indenture or other agreement or instrument to which the
Guarantor is a party or by which it or any of its properties is or may be bound
or affected; 

     (i)
No litigation, investigation or proceeding of or
before any arbitrator or Governmental Authority is pending or, to the knowledge
of the Guarantor, threatened by or against the Guarantor or any of its
Affiliates or against any of the Guarantor’s properties or revenues with respect
to this Guaranty or any of the transactions contemplated hereby;

     (j)
The Guarantor and its Subsidiaries have filed or
caused to be filed all tax returns which are required to be filed and has paid
all taxes shown to be due and payable on said returns or on any assessments made
against it or any of the Guarantor’s or its Subsidiaries’ property and all other
taxes, fees or other charges imposed on it or any of the Guarantor’s property by
any Governmental Authority (other than any the amount or validity of which are
currently being contested in good faith by appropriate proceedings); no tax Lien
has been filed, and, to the knowledge of the Guarantor, no claim is being
asserted, with respect to any such tax, fee or other charge; 

     (k)
As of the date hereof, and after giving effect to
this Guaranty and the contingent obligation evidenced hereby, Guarantor is, and
will be, solvent, and has and will have assets which, fairly valued, exceed
Guarantor’s obligations, liabilities (including contingent liabilities) and
debts, and has and will have property and assets sufficient to satisfy and repay
Guarantor’s obligations and liabilities;

     (l)
Guarantor has and will continue to have
independent means of obtaining information concerning Seller’s affairs,
financial conditions and business. Buyer shall not have any duty or
responsibility to provide Guarantor with any credit or other information
concerning Seller’s affairs, financial condition or business which may come into
Buyer’s possession; 

     (m)
The financial statements of Guarantor, copies of
which have been furnished to the Buyer, (i) are, as of the dates and for the
periods referred to therein, complete and correct in all material respects, (ii)
present fairly the financial condition and results of operations of the
Guarantor as of the dates and for the periods indicated and (iii) have been
prepared in accordance with GAAP consistently applied, except as noted therein
(subject to interim statements as to normal year-end adjustments). Since the
date of the most recent financial statements, there has been no Material Adverse
Effect with respect to Guarantor. Except as disclosed in such financial
statements, Guarantor is not subject to any contingent liabilities or
commitments that, individually or in the aggregate, have a reasonable likelihood
of causing a Material Adverse Effect with respect to Guarantor;

-6- 

     (n) None of the documents or information prepared by or on behalf of
Guarantor and provided by Guarantor to the Buyer relating to Guarantor’s
financial condition contain any statement of a material fact with respect to
Guarantor that was untrue or misleading in any material respect when made. Since
the furnishing of such documents or information, there has been no change, nor
any development or event involving a prospective change known to Guarantor, that
would render any of such documents or information untrue or misleading in any
material respect; 

     (o) No consent, license, approval or authorization from, or registration,
filing or declaration with, any regulatory body, administrative agency, or other
governmental, instrumentality, nor any consent, approval, waiver or notification
of any creditor, lessor or other non-governmental person, is required in
connection with the execution, delivery and performance by Guarantor of this
Guaranty or the consummation by Guarantor of any other Program Document, other
than any that have heretofore been obtained, given or made or would otherwise
not result in a Material Adverse Effect if not so obtained, given or
made;

     (p) No practice, procedure or policy employed or proposed to be employed by
Guarantor in the conduct of its businesses violates any law, regulation,
judgment, agreement, regulatory consent, order or decree applicable to it which,
if enforced, would result in a Material Adverse Effect with respect to
Guarantor;

     (q) Guarantor does not intend to incur, nor does it believe that it has
incurred, debts beyond its ability to pay such debts as they mature. Guarantor
is not contemplating the commencement of insolvency, bankruptcy, liquidation or
consolidation proceedings or the appointment of a receiver, liquidator,
conservator, trustee or similar official in respect of Guarantor or any of its
assets; and 

     (r) Guarantor is not required to be registered as an “investment company” as
defined under the Investment Company Act or as an entity under the control of an
“investment company” as defined under the Investment Company Act. 

    
Guarantor agrees that the foregoing representations and warranties shall
be deemed to have been made by the Guarantor on the date of each Transaction
under the Repurchase Agreement on and as of such purchase date as though made
hereunder on and as of such date, or as of such other date specified in the
related representation and warranty. 

          10. Covenants.

     (a)
Reserved.

     (b)
Reserved.

     (c)
Reserved. 

     (d)
Reserved. 

     (e)
Guarantor shall promptly inform the Buyer in
writing of any of the following: 

     (i) Any Default, Event of Default under the Repurchase
Agreement or default or breach by Guarantor of any obligation hereunder or under
any other Program Document to which it is a party, or the occurrence or
existence of any event or circumstance that Guarantor reasonably expects will
with the passage of time become a Default,
Event of Default under the Repurchase Agreement or such a default or breach by
the Guarantor; 

-7- 

     (ii) Any material dispute, licensing issue, litigation,
investigation, proceeding or suspension between Guarantor, on the one hand, and
any Governmental Authority or any other Person, on the other hand;

     (iii) Any material change in accounting
policies or financial reporting practices of Guarantor; and 

     (iv) Any event, circumstance or condition
that has resulted, or has a reasonable likelihood of resulting in either a
Material Adverse Effect with respect to Guarantor. 

     (f) Guarantor shall maintain all licenses, permits or other approvals
necessary for Guarantor to conduct its business and to perform its obligations
under this Guaranty and each other Program Document to which it is a party and
Guarantor shall conduct its business in accordance with applicable law in all
material respects. 

     (g) Reserved. 

     (h) Except as provided in the Repurchase Agreement, Guarantor shall not at
any time, directly or indirectly, (i) enter into any transaction of merger or
consolidation or amalgamation as to which the Seller is not the surviving
entity, or liquidate, wind up or dissolve itself (or suffer any liquidation,
winding up or dissolution) or sell all or substantially all of its assets
without the Buyer’s prior consent; (ii) form or enter into any partnership,
joint venture, syndicate or other combination which would have a Material
Adverse Effect with respect to Guarantor; or (iii) effectuate a Change of
Control with respect to Guarantor, in each case without the prior consent of
Buyer. 

    
(i) Reserved. 

    
(j) Guarantor shall not convey, sell, lease, assign, transfer or otherwise
dispose of (collectively, “Transfer”), all or substantially all of its Property,
business or assets (including, without limitation, receivables and leasehold
interests) whether now owned or hereafter acquired or allow any Subsidiary to
Transfer substantially all of its assets to any Person; provided, that Guarantor
may, after prior written notice to the Buyer, allow such action with respect to
any Subsidiary which is not a material part of Guarantor’s overall business
operations. 

    
(k) Guarantor shall not make any material change in the accounting policies
or financial reporting practices of Guarantor or its Subsidiaries, except to the
extent such change is permitted by GAAP, consistently applied. 

    
(l) Guarantor shall keep all property useful and necessary in its business in
good working order and condition. 

    
(m) Any
payments made by Guarantor to Buyer shall be free and clear of, and without
deduction or withholding for, any taxes; provided, however, that if Guarantor
shall be required by law to deduct or withhold any taxes from any sums payable
to Buyer, then Guarantor shall (A) make such deductions or withholdings and pay
such amounts to the relevant authority in accordance with applicable law, (B)
pay to the Buyer the sum that would have been payable had such deduction or
withholding not been made, and (C) at the time such
payment is made, pay to the Buyer all additional amounts as specified by the
Buyer to preserve the after-tax yield Buyer would have received if such tax had
not been imposed. This provision does not apply to income taxes payable by Buyer
on its taxable income. 

-8- 

     11. Reserved.

    
12. Termination. Subject to the provisions
of Section 7, this Guaranty shall terminate on the upon the final payment in
full of the Obligations and the termination of the Repurchase Agreement;
provided, however, that Sections 2(b), 9, 18, 19, 21 and 24 shall survive any
such termination and this Guaranty shall be reinstated upon any Obligations
arising under the Master Repurchase Agreement, whether such Obligations arise
prior to or upon or after the termination of such Master Repurchase Agreement.

    
13. Severability. Any provision of this
Guaranty which is prohibited or unenforceable in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction. 

    
14. Paragraph Headings. The paragraph
headings used in this Guaranty are for convenience of reference only and are not
to affect the construction hereof or be taken into consideration in the
interpretation hereof. 

    
15. No
Waiver; Cumulative Remedies. The Buyer shall
not by any act, delay, indulgence, omission or otherwise be deemed to have
waived any right or remedy hereunder or to have acquiesced in any Default or
Event of Default under the Repurchase Agreement or in any breach of any of the
terms and conditions hereof. No failure to exercise, nor any delay in
exercising, on the part of the Buyer, any right, power or privilege hereunder
shall operate as a waiver thereof. No single or partial exercise of any right,
power or privilege hereunder shall preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. A waiver by the
Buyer of any right or remedy hereunder on any one occasion shall not be
construed as a bar to any right or remedy which the Buyer would otherwise have
on any future occasion. The rights and remedies herein provided are cumulative,
may be exercised singly or concurrently and are not exclusive of any rights or
remedies provided by law. 

    
16. Waivers and Amendments. None of the
terms or provisions of this Guaranty may be waived, amended, supplemented or
otherwise modified except by a written instrument executed by the Guarantor and
the Buyer, provided that any provision of this Guaranty may be waived by the
Buyer in a letter or agreement executed by the Buyer or by facsimile or
electronic transmission from the Buyer.

    
17. Successors and Assigns. This Guaranty
shall be binding upon the successors and permitted assigns of Guarantor and
shall inure to the benefit of Buyer and its successors and permitted assigns.
This Guaranty may not be assigned by Guarantor and any attempt to assign or
transfer this Guaranty shall be null and void and of no effect whatsoever.

    
18.
GOVERNING LAW. THIS GUARANTY SHALL BE CONSTRUED IN ACCORDANCE WITH, AND GOVERNED BY,
THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO THE CONFLICT
OF LAWS PRINCIPLES THEREOF (EXCEPT FOR SECTION 5-1401 OF THE NEW YORK GENERAL
OBLIGATIONS LAW).

-9- 

     19. Intent. Guarantor and Buyer intend
that this Guaranty is a “repurchase agreement,” as that term is defined in
section 101(47)(A)(v) of the Bankruptcy Code, a “securities contract,” as that
term is defined in section 741 (7)(A)(xi) of the Bankruptcy Code, and a “master
netting agreement,” as that term is defined in section 101(38A)(A) of the
Bankruptcy Code; and that Buyer shall be entitled to, without limitation, the
liquidation, termination, acceleration, setoff and non-avoidability rights
afforded to parties such as Buyer to “repurchase agreements,” pursuant to
sections 559, 362(b)(7) and 546(f) of the Bankruptcy Code, “securities
contracts,” pursuant to sections 555, 362(b)(6) and 546(e) of the Bankruptcy
Code, and “master netting agreements,” pursuant to sections 561, 362(b)(27) and
546(j) of the Bankruptcy Code. Guarantor and Buyer further intend that this
Guaranty is “related to” the Master Repurchase Agreement and Transactions
thereunder within the meaning of sections 101(38A)(A), 101(47)(A)(v) and
741(7)(A)(xi) of the Bankruptcy Code. Guarantor acknowledges that this Section
19 is a material inducement to Buyer to enter into the Master Repurchase
Agreement and Transactions thereunder.

    
20. Notices. Notices by the Buyer to the
Guarantor may be given by mail, by hand or by electronic transmission, addressed
to the Guarantor at the Guarantor’s address or transmission number set forth
under its signature below and shall be effective (a) in the case of mail, five
days after deposit in the postal system, first class certified mail and postage
pre-paid, (b) one Business Day following timely delivery to a nationally
recognized overnight courier service for next Business Day delivery, (c) when
delivered if delivered by hand and (d) in the case of electronic transmissions,
when sent, if such transmission is electronically confirmed. 

    
21. Submission To Jurisdiction; Waivers.
Guarantor hereby irrevocably and unconditionally: 

     (a) Submits for the Guarantor and the Guarantor’s property in any legal
action or proceeding relating to this Guaranty and the other Program Documents
to which the Guarantor is a party, or for recognition and enforcement of any
judgment in respect thereof, to the non-exclusive general jurisdiction of the
courts of the State of New York, the courts of the United States of America for
the Southern District of New York, and appellate courts from any
thereof; 

     (b)
Consents that any such action or proceeding may
be brought in such courts and waives any objection that the Guarantor may now or
hereafter have to the venue of any such action or proceeding in any such court
or that such action or proceeding was brought in an inconvenient court and
agrees not to plead or claim the same; 

     (c) Agrees that service of process in any such action or proceeding may be
effected by mailing a copy thereof by registered or certified mail (or any
substantially similar form of mail), postage prepaid, to the Guarantor at
Guarantor’s address set forth under Guarantor’s signature below or at such other
address of which the Buyer shall have been notified; and 

     (d) Agrees that nothing herein shall affect the right to effect service of
process in any other manner permitted by law or shall limit the right to sue in
any other jurisdiction. 

    
22. Integration. This Guaranty represents
the agreement of the Guarantor with respect to the subject matter hereof and
there are no promises or representations by the Buyer relative to the subject
matter hereof not reflected herein. 

-10- 

     23. Acknowledgments. Guarantor hereby
acknowledges that: 

     (a) Guarantor has been advised by counsel in the negotiation, execution and
delivery of this Guaranty and the other Program Documents; 

     (b) The
Buyer does not have any fiduciary relationship to the Guarantor, and the
relationship between the Buyer and the Guarantor is solely that of surety and
creditor; and 

     (c) No
joint venture exists between the Buyer and the Guarantor or among the Buyer,
Seller and the Guarantor. 

     24. WAIVERS OF JURY TRIAL. THE GUARANTOR HEREBY IRREVOCABLY AND
UNCONDITIONALLY WAIVES TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING
TO THIS GUARANTY OR ANY OTHER PROGRAM DOCUMENT AND FOR ANY COUNTERCLAIM HEREIN
OR THEREIN. 

[ Signature pages follow ] 

-11- 

     IN WITNESS
WHEREOF, the undersigned has caused this Guaranty to be duly executed and
delivered as of the date first above written. 

		ZAIS Financial Corp., as
  Guarantor
		 
		 
		 
		 
		By: /s/ Michael F.
      Szymanski
		Name: Michael F. Szymanski
		Title: President
		 
		 
		Address for
      Notices:
		 
		ZAIS Financial Corp.
		c/o ZAIS REIT Management, LLC
		2 Bridge Avenue, Suite 322
		Red Bank, New Jersey 07701
		Attention: President
		Telephone No.: (732) 978-7518
		Fax No.: (732)
747-7619NEITHER
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: $63,000.00Issue Date: October 26, 2012

Purchase
Price: $63,000.00

CONVERTIBLE
PROMISSORY NOTE

 

FOR
VALUE RECEIVED, SIMPLEPONS, INC., a Delaware corporation (hereinafter called the “Borrower”), hereby promises
to pay to the order of ASHER ENTERPRISES, INC., a Delaware corporation, or registered assigns (the “Holder”)
the sum of $63,000.00 together with any interest as set forth herein, on July 24, 2013 (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, $0.01 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. All 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 III) pursuant to Section 1.6(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 13D-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 to apply until such 61st 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 6:00 p.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 (1) 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, or applicable trading market (the “OTCBB”) as reported by a reliable reporting service (“Reporting Service”)
designated by the Holder (i.e. Bloomberg) or, if the OTCBB 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” by the National Quotation Bureau, Inc. 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 OTCBB, or on the principal securities
exchange or other securities market on which the Common Stock is then being traded.

 

(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 all
times to have one (1) million shares authorized but unissued in its capital structure such that when the Holder submits a Notice
of Conversion there will be at a minimum one (1) million shares of Common Stock that are authorized but unissued for the Borrower's
transfer agent to issue to the Holder (the “Reserved Amount”). This Reserved Amount is in addition to any shares presently
held or to be held in the future by the transfer agent for the benefit of the Holder. If at any time the Reserved Amount is less
than one (1) million shares of Common Stock then the Borrower will take immediate steps to increase the reserve but in any event
will increase the reserve within thirty (30) days of the Reserved Amount falling below one (1) million shares of Common Stock
(the "Cure Period"). 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.

 

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 of Note 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 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 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 has 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.”

 

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 Buyer 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 III) 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 1.6(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
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 1.6(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 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 conversion 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, if 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 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 “Maximum 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 Maximum 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 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 in this Note, at any time during
the period beginning on 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 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 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 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 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 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 (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 “Second 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 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 ninety-one (91)
days following the issue date and ending on the date which is one hundred twenty (120) 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
(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 “Third 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 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 one hundred twenty-one
(121) 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 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 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 150%, 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 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.

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, create, incur, assume guarantee, endorse, contingently agree to purchase
or otherwise become liable upon the obligation of any person, firm, partnership, joint venture or corporation, except by the endorsement
of negotiable instruments for deposit or collection, or suffer to exist any liability for borrowed money, except (a) borrowings
in existence or committed on the date hereof and of which the Borrower has informed Holder in writing prior to the date hereof,
(b) indebtedness to trade creditors or financial institutions incurred in the ordinary course of business or (c) borrowings, the
proceeds of which shall be used to repay this Note.

 

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 conversion
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 conversion 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 conversion 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) any 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 this 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 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 OTCBB
or an equivalent replacement exchange, the Nasdaq National Market, the Nasdaq SmallCap Market, the New York Stock Exchange, or
the American Stock Exchange.

 

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 it is otherwise generally unable
to pay its debts as such debts become due, provided, however, that any disclosure of the Borrower’s ability 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.

 

3.15        
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 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.

Notwithstanding
anything to the contrary the Borrower will be permitted to cure a breach or default within ten (10) business days, other than
an Event of Default under Section 3.2 of the Note in which only the cure period provided in 3.2 will apply.

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, 3.13, 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 III (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) 150% 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 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, (ii) deposited in the mail, registered
or certified, return receipt requested, postage prepaid, (iii) 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. Any notice or other communication required or permitted to be given hereunder
shall be deemed effective (a) upon hand delivery or delivery 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 delivery (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, fully 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:

SIMPLEPONS,
INC.

220
Congress Park Drive - Suite 304

Delray
Beach, FL 33445

Attn:
BRIAN S. JOHN, Chief Executive Officer

facsimile:

 

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:

ASHER
ENTERPRISES, INC.

1
Linden Pl., Suite 207

Great
Neck, NY. 11021

Attn:
Curt Kramer, President

facsimile:
516-498-9894

 

With
a copy by fax only to (which copy shall not constitute notice):

Naidich
Wurman Birnbaum & Maday, LLP

80
Cuttermill Road, Suite 410

Great
Neck, NY 11021

Attn:
Bernard S. Feldman, Esq.

facsimile:
516-466-3555

 

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 501(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 laws 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 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 invalid 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 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 any 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 this October 26, 2012.

 

SIMPLEPONS,
INC.

 

By:
/s/ Brian S. John

BRIAN
S. JOHN

Chief
Executive Officer

 

 

EXHIBIT A

NOTICE
OF CONVERSION 

 

The
undersigned hereby elects to convert $_________________ principal amount of the Note (defined below) into that number
of shares of Common Stock to be issued pursuant to the conversion of the Note (“Common Stock”) as set forth
below, of SIMPLEPONS, INC., a Delaware corporation (the “Borrower”) according to the conditions of the convertible
note of the Borrower dated as of October 26, 2012 (the “Note”), as of the date written below. No fee will be charged
to the Holder for any conversion, except for transfer taxes, if any.

 

Box
Checked as to applicable instructions:

 

[
] The Borrower shall electronically transmit the Common Stock issuable pursuant to this Notice of Conversion to the account
of the undersigned or its nominee with DTC through its Deposit Withdrawal Agent Commission system (“DWAC Transfer”).

 

Name
of DTC Prime Broker:

Account
Number:

 

[
] The undersigned hereby requests that the Borrower issue a certificate or certificates for the number of shares of Common
Stock set forth below (which numbers are based on the Holder’s calculation attached hereto) in the name(s) specified immediately
below or, if additional space is necessary, on an attachment hereto:

 

ASHER
ENTERPRISES, INC.

1
Linden Pl., Suite 207

Great
Neck, NY. 11021

Attention:
Certificate Delivery

(516)
498-9890

 

Date
of Conversion:  _____________

Applicable
Conversion Price: $____________

Number
of Shares of Common Stock to be Issued

Pursuant
to Conversion of the Notes: ______________

Amount
of Principal Balance Due remaining

Under
the Note after this conversion: ______________

 

ASHER
ENTERPRISES, INC.

 

By:_____________________________

Name:Curt
Kramer

Title:
President

Date:
______________

1
Linden Pl., Suite 207

Great
Neck, NY. 11021

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00218-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00218-of-00352.parquet"}]]