Document:

dimn_ex101.htm

EXHIBIT 10.1

 

AMENDED AND RESTATED JOINT VENTURE AGREEMENT

 

Joint Venture Agreement dated as of January 25, 2017 (this “Agreement”) by and between Mineracao Batovi Ltda., a Brazilian corporation (“Mineracao”), Diamante Minerals, Inc. a Nevada corporation (“Diamante”) and Dr. Charles Fipke (the “Mineracao Shareholder”).

 

W I T N E S S E T H

 

WHEREAS, the parties, together with Jose Aldo (“Aldo”), a former shareholder of Mineracao previously executed a certain agreement dated as of February 10, 2014, as amended February 25, 2014, regarding the acquisition by Diamante from Mineracao of up to a 75% interest in a joint venture in Mato Grosso, Brazil owned by Mineracao (the “Initial Agreement”); 

 

AND WHEREAS Mineracao and Diamante subsequently entered into a joint venture agreement dated November 20, 2014, as amended by a letter agreement dated February 27, 2015 (collectively the “Joint Venture Agreement”) following the termination of the Initial Agreement which Joint Venture Agreement contemplated the parties participating in a joint venture with respect to certain mineral claims in Mato Grosso, Brazil (the “Claims”) as detailed in Schedule “A” hereto through a newly formed Brazilian company;

 

AND WHEREAS Mineracao, Diamante and the Mineracao Shareholder have now determined to enter into this Agreement so as to amend and restate the Joint Venture Agreement to provide for the joint venture contemplated by the Joint Venture Agreement to be effected through holdings in Mineracao and to reflect the fact that subsequent to the entering into of the Joint Venture Agreement, Diamante acquired Aldo’s former shareholdings in Mineracao, being a 2.4% equity interest (the “2.4% Interest”).

 

NOW, THEREFORE, in consideration of the mutual covenants herein and other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereby agree as follows:

 

Article 1 
Joint Venture Entity

 

1.1 Initial Right. Subject to the provisions of section 1.2 hereof Diamante has the right but not the obligation to contribute up to US$1,000,000 in cash to Mineracao on or before June 30, 2017 for up to a 17.6% equity interest in Mineracao (the “Initial Interest”), it being acknowledged that such monies are to be applied to the exploration of the Claims and it being further acknowledged that the Initial Interest is in addition to the 2.4% Interest, such that, if the Initial Interest acquired is 17.6%, Diamante would then hold a 20% Interest in Mineracao.

 

1.2 Obligatory Contribution. Notwithstanding the provisions of Section 1.1 hereof with respect to Diamante having the right but not the obligation to contribute to Mineracao, in circumstances where, on or before June 30, 2017, Diamante raises monies by way of an offering of its securities (an “Offering”) in circumstances where such monies, or a portion thereof (the “Allocated Funds”) are to be applied to the exploration of the Claims, as disclosed in a registration statement or other disclosure document issued by Diamante in connection with such Offering, Diamante shall be obligated to contribute such Allocated Funds to Mineracao in accordance with the provisions of Section 1.1 hereof.

 

	
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1.3 Pro Rata Allocation. In circumstances where, as of June 30, 2017, Diamante has contributed a portion (the “Contributed Portion”) only of the US$1,000,000 to Mineracao in accordance with the provisions of Section 1.1 hereof, the Initial Interest acquired by Diamante shall be a pro rata portion of 17.6% based upon the percentage that the Contributed Portion is of US$1,000,000.

 

Article 2 
Earn-In Right

 

2.1 Additional Right. In order to acquire an additional interest in Mineracao (the “Additional Interest”), Diamante shall have the right (the “Additional Right”) but not the obligation to, in circumstances where the Initial Interest has been acquired, incur up to an additional US$2,000,000 of exploration expenses (the “Additional Exploration Expenses”) on the Claims no later than November 20, 2019 (the “Additional Interest Earn In Period”) so as to acquire up to an additional 29% equity interest in Mineracao. The itemized detail of such expenses (as well as any other expenses incurred by Diamante in connection with this Agreement, as provided for in this Agreement) shall be evidenced by the filings made by Diamante with the Securities and Exchange Commission (the “SEC”) indicating the incurrence of such exploration expenses as well as any other documentary evidence submitted by Diamante to Mineracao. 

 

2.2 Pro Rata Allocation. In circumstances where, as of November 20, 2019, Diamante has contributed a portion (the “Additional Contributed Portion”) only of the US$2,000,000 to Mineracao in accordance with the provisions of Section 2.1 hereof, the Additional Interest acquired by Diamante shall be a pro rata portion of 29% based upon the percentage that the Additional Contributed Portion is of US$2,000,000.

 

2.3 Negotiation Rights. Mineracao shall have the right to negotiate and enter into an agreement (a “Major Mining Agreement”) with a major mining company (a “Mining Company”) to operate, finance and/or construct a mine on the Claims and grant the Mining Company at least a 51% interest in Mineracao, provided that the Mining Company must commit to invest no less than US$250,000,000 in Mineracao. In the event a Major Mining Agreement is entered into the interests of Diamante and the Mineracao Shareholder shall be diluted pro rata in accordance with their percentage holdings in Mineracao, provided that, if such Major Mining Agreement is entered into during the Additional Interest Earn In Period, Diamante may elect to exercise the Additional Right by forthwith paying to Mineracao an amount up to the amount of Additional Exploration Expenses remaining to be incurred so as to acquire an Additional Interest calculated based upon the amount of Additional Exploration Expenses so paid. 

 

2.4 Profits. Any and all profits generated by Mineracao shall be allocated between Diamante and the Mineracao Shareholder according to their respective equity interests in Mineracao and paid in the form of dividends based on the assessment of the board of the directors of Mineracao.

 

	
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Article 3 
Management of Mineracao

 

3.1 Joint Venture Entity. The terms provided for in this Agreement shall be incorporated into the charter and bylaws of Mineracao or otherwise given effect in a manner as advised by Brazilian counsel to Mineracao.

 

3.2 Board. During the period from the date Diamante acquires an Initial Interest until the expiry of the Additional Interest Earn In Period (the “Interim Period”) being the earlier of the date the Additional Interest is acquired in full, the date Diamante advises in writing that it has elected not to acquire any further Additional Interest or November 20, 2019, and thereafter in circumstances where Diamante holds at least a 40% interest in Mineracao, Mineracao shall be managed by a board of directors comprised of two (2) representatives from each of Diamante and the Mineracao Shareholder. Notwithstanding the above, in circumstances where Diamante’s interest in Mineracao at the end of the Interim Period is greater than 10% but less than 40%, the board of directors shall thereafter be comprised of three (3) representatives of the Mineracao Shareholder and one (1) of Diamante. The board of directors shall be similarly constituted during the Interim Period as long as the interest in Mineracao held by Diamante is less than 10%. If at any time following the expiry of the Interim Period Diamante’s interest in Mineracao is reduced to 10% or less, Diamante shall thereafter not be entitled to any representation on the board of directors of Mineracao. Notwithstanding anything contained herein to the contrary, the affirmative approval of at least three of the four members of the board must be obtained prior to taking the following actions:

 

(i) the adoption of the annual budget, including all expenditures relating to Mineracao, and any amendments thereto (the “Budget”); 

 

(ii) the approval of financial statements and reports relating to Mineracao;

 

(iii) the appointment and termination of a general manager for Mineracao, including the terms of the compensation of such manager;

 

(iv) any financing or funding for Mineracao, including without limitation the authorization or issuance of any right, including, without limitation, any warrant or option or other right (contingent or otherwise) to purchase or acquire any interest in Mineracao other than as provided for herein;

 

(v) the scope and purpose of a feasibility study for Mineracao, including the determination that the study is positive;

 

(vi) the decision to mine and commence commercial production;

 

(vii) the sale or lease of any claim owned by Mineracao;

 

(viii) the execution of any agreement relating directly or indirectly to Mineracao, including without limitation, any off-take, lease or sale agreement or royalty arrangement; 

 

	 
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(ix) the encumbrance of any type of security interest in any portion of the assets or securities of Mineracao or any interest therein;

 

(x) establishing any subsidiary or other company which shall have any interest in Mineracao or any portion thereof; 

 

(xi) the appointment of key employees, agents or consultants for Mineracao, including without limitation the terms of their compensation and benefit arrangements; 

 

(xii) the commencement or settlement of any litigation or threatened litigation in which the amount at issue involves more than US$500,000; and

 

(xiii) any termination or winding up of Mineracao.

 

3.3 Expenses. Each of Diamante and Mineracao agree that all expenditures relating to Mineracao shall be allocated in accordance with the terms of this Agreement. Accordingly, as of the date hereof, until the end of the Interim Period Diamante shall be responsible for 100% of the expenses of Mineracao provided that all such expenses shall first be approved in writing by the Diamante representatives on the board of directors of Mineracao.

 

The bank account in the name of Mineracao shall require that both the signature of a representative of Diamante and a representative of the Mineracao Shareholder shall be required for all withdrawals from said account. Until further notice, the Diamante representative shall be Chad Ulansky and the Mineracao Shareholder representative shall be Keiven Bauer. 

 

Diamante and Mineracao shall cause Mineracao to engage Diamante to carry out exploration activity in accordance with approved budgets and in this regard it is acknowledged that Diamante shall be entitled to charge a 10% administration fee on all exploration expenditures incurred under US$50,000 and 5% on all exploration expenditures incurred over US$50,000.

 

It is acknowledged that, in fulfilling its role as contemplated by the above paragraph Diamante may sub-contract with third parties, including but not limited to, Kel-Ex Development Ltd.

 

3.4 Claims. If at any time prior to acquiring the Additional 29% Interest Diamante stops funding the company or decides to withdraw then the Mineracao Shareholder will be granted the right to acquire the interest of Diamante in Mineracao at fair market value.

 

3.5 Dilution. Each of Diamante and the Mineracao Shareholder agree that if a party does not fund its pro rata share of an expenditure provided for in a Budget following the expiry of the Interim Period, the interest of said defaulting party shall be reduced pro ratably through additional financings. For the avoidance of doubt Diamante shall sole fund any exploration expenditures up to the end of the Interim Period. For the purposes of such dilution calculations the Mineracao Shareholder will be initially deemed to have contributed an amount equal to their pro rata share of the amount contributed by Diamante (i.e. if Diamante contributed US$3,000,000 for 49% of Mineracao’s shares (inclusive of the 2.4% Interest), the Mineracao Shareholder shall be deemed to have contributed US$3,122,450 for 51% of Mineracao’s shares.

 

	 
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3.6 Interest in Mineracao. Subject to Section 2.2 Mineracao agrees that it shall not, directly or indirectly, provide any other person or party any rights with respect to Mineracao without the prior written consent of Diamante.

 

Article 4 
Representations and Warranties

 

4.1 Representations and Warranties. Each of Diamante and Mineracao represent the following:

 

(a) Each party represents and warrants that it is in good standing under the laws of the jurisdiction in which it is incorporated, and that it has all the requisite power, right and authority to enter into this Agreement and to perform its obligations hereunder. The execution and delivery of this Agreement and the consummation of the obligations provided herein have been duly and validly authorized by all necessary action on the part of each party.

 

(b) This Agreement does not: (i) conflict with any provision of the respective party’s charter, or similar organizational documents or bylaws; (ii) conflict with, or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, indenture, patent, patent license or instrument to which either Diamante or Mineracao, as the case may be, is a party; or (iii) result in a violation of any law, rule, regulation, order, judgment or decree applicable to Diamante or Mineracao, as the case may be, or by which any of its respective property or asset is bound or affected. Mineracao has all requisite permits and approvals necessary to establish and own and operate Mineracao and to consummate the transactions contemplated in this Agreement.

 

(c) The execution, delivery and performance of this Agreement by Diamante or Mineracao, as the case may be, has been duly authorized by all requisite action and constitutes the valid and binding obligation of each of them, enforceable against it in accordance with the terms hereof.

 

(d) Mineracao represents and warrants that it is the sole legal and beneficial owner of the Claims. Mineracao has not encumbered, mortgaged or conveyed any interest in the Claims, including but not limited to conveying any royalty interest therein, other than as set forth in this Agreement; and it has no knowledge of any pending litigation or other claims challenging its rights and title to the Claims. No other person or entity has any rights, direct or indirect, in the Claims.

 

(e) Mineracao represents and warrants that prior to the date of this Agreement, it and its affiliates have incurred no less than US$3,975,000 in expenses with respect to the Claims. Mineracao represents and warrants that the amount of is the total amount currently required to be submitted by Mineracao to the Brazilian government (the “Government”) to maintain the claims for the 2017 year. No other payment is due to the Government or any third party in order for Mineracao to maintain the Claims.

 

	 
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Article 5 
MISCELLANEOUS

 

5.1 Limitations on Transfers. 

 

(a) Neither Diamante nor the Mineracao Shareholder will transfer, convey, assign, mortgage or grant an option in respect of or grant a right to purchase or in any manner transfer, alienate or otherwise dispose of (in this section, to “Transfer”) any or all of its interest in Mineracao or transfer or assign any of its rights under this Agreement (in this section, such interests and rights, collectively, the “Holdings”) other than in accordance with the provisions of this section. A Party may Transfer only the whole of its Holdings, except as contemplated in subsection 5.1(c) hereof.

 

(b) Subject to subsection 5.1(c) hereof, if, a party (for the purposes of this section, the “Selling Party”) wishes to sell or assign its Holdings (the “Offered Interest”) to a third party it shall first give notice in accordance with the terms hereof (the “Sale Notice”) to such effect to the other party (for the purposes of this section, the “Non-Selling Party”) and in such Sale Notice shall provide the details of the terms on which it is prepared to sell the Offered Interest. The Non-Selling Party shall then have the right for a period of thirty (30) days in which to give notice to the Selling Party in accordance with the terms hereof, that they elect to purchase the Offered Interest on such terms. If the Non-Selling Party gives notice of election to purchase the Offered Interest, the party shall enter into and consummate such sale on the terms set forth in the Sale Notice or as otherwise mutually agreed. If the Non-Selling Party fails to give notice of its election to purchase the Offered Interest within the required period of time, then the Selling Party may sell the Offered Interest to any other third party on the terms offered to the Non-Selling Party in the Sale Notice or better. If such transaction is not consummated within 150 days of the original Sale Notice, then the procedure provided for in this section shall again apply.

 

(c) Nothing in this section applies to or restricts in any manner:

 

(i) a disposition by the transferring party of all or a portion of its Holdings to an Affiliate (as that terms is defined under the Business Corporations Act (British Columbia) of the transferring party, provided that such Affiliate first assumes and agrees to be bound by the terms of this Agreement and agrees with the other party in writing to retransfer the Holdings to the transferring party before ceasing to be an Affiliate of the transferring party. Notwithstanding the foregoing the other party shall not be obligated upon such a transfer to release the transferring party from its obligations under this Agreement;

 

(ii) an amalgamation, merger or other form of corporate reorganization involving or the acquisition of shares or assets of the transferring party which is a bona fide business transaction that has the effect in law of the amalgamated or surviving corporation possessing, directly or indirectly, substantially all the property, rights and interest and being subject to substantially all the debts, liabilities and obligations of the transferring party; or 

 

	
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(iii) a sale, forfeiture, charge, withdrawal, transfer or other disposition or encumbrance with is otherwise specifically allowed for under this Agreement.

 

5.2 Indemnities. Diamante and Mineracao shall fully indemnify, defend, release and hold harmless each other and their respective affiliates and successors, and their agents, and employees from and against all loss, costs, penalties, expense, damage and liability (including without limitation, loss due to injury or death, reasonable attorneys fees, expert fees and other expenses incurred in defending against litigation or administrative enforcement actions, either pending or threatened), resulting from a direct or indirect breach or threatened breach of any representation, warranty or covenant in this Agreement. This indemnity shall survive termination of this Agreement.

 

5.3 Notice. All notices or other communications to either party shall be in writing and shall be sufficiently given if (i) delivered in person, (ii) sent by electronic communication, with confirmation sent by registered or certified mail, return receipt requested, (iii) sent by registered or certified mail, return receipt requested, or (iv) sent by overnight mail by a courier that maintains a delivery tracking system. Subject to the following sentence, all notices shall be effective and shall be deemed delivered (i) if by personal delivery, on the date of delivery, (ii) if by electronic communication, on the date of receipt of the electronic communication, (iii) if by mail, on the date of delivery as shown on the actual receipt, and (iv) if by overnight courier, as documented by the courier’s tracking system. If the date of such delivery or receipt is not a business day, the notice or other communication delivered or received shall be effective on the next business day (“business day” means a day, other than a Saturday, Sunday or statutory holiday observed by banks in the jurisdiction in which the intended recipient of a notice or other communication is situated.) A party may change its address from time to time by notice to the other party as indicated above. 

 

All notices to Diamante shall be addressed to:

 

Diamante Minerals, Inc. 

203-1634 Harvey Ave

Kelowna, BC, V1Y-6G2, Canada

Attn: Chad Ulansky

 

All notices to Mineracao or the Mineracao Shareholder shall be addressed to:

 

Mineracao Batovi Ltda

203-1634 Harvey Ave

Kelowna, BC, V1Y-6G2, Canada

Attn: Keiven Bauer

 

5.4 Waiver. No waiver of any provision of this Agreement, or waiver of any breach of this Agreement, shall be effective unless the waiver is in writing and is signed by the party against whom the waiver is claimed. No waiver of any breach shall be deemed to be a waiver of any other subsequent breach.

 

	 
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5.5 Modification. No modification, variation or amendment of this Agreement shall be effective unless it is in writing and signed by all parties to this Agreement.

 

5.6 Entire Agreement. This Agreement sets forth the entire agreement of the parties with respect to the transactions contemplated herein and supercedes any other agreement, representation, warranty or undertaking, written or oral, among the parties.

 

5.7 Further Assurances. Each of the parties agrees that it shall take from time to time such actions and execute such additional instruments as may be reasonably necessary or convenient to implement and carry out the intent and purpose of this Agreement.

 

5.8 Governing Law; Disputes. This Agreement shall be governed by and construed in accordance with the laws of the Province of British Columbia and the laws of Canada applicable therein. All disputes arising out of or in connections with this Agreement, or in respect of any defined legal relations associated therewith or derived therefrom, shall be referred to and finally resolved by a sole arbitrator by arbitration under the rule of The Commercial Arbitration Act of British Columbia.

 

5.9 Attorneys Fees. In any arbitration or litigation between the parties to this Agreement or persons claiming under them resulting from, arising out of, or in connection with this Agreement or the construction or enforcement thereof, the substantially prevailing party or parties shall be entitled to recover from the defaulting party or parties, all reasonable costs, expenses, attorneys fees, expert fees, and other costs of suit incurred by it in connection with such litigation, including such costs, expenses and fees incurred prior to the commencement of the proceeding, in connection with any appeals, and collecting any final judgment entered therein. If a party or parties substantially prevails on some aspects of such action, but not on others, the arbitrators or court, as the case may be, may apportion any award of costs and attorneys fees in such manner as it deems equitable.

 

5.10 Termination. This Agreement shall terminate and be of no further force and effect in circumstances where Diamante does not acquire any portion of the Initial Interest in accordance with the provisions of Section 1.1 hereof on or before June 30, 2017.

 

5.11 Construction. The section and paragraph headings contained in this Agreement are for convenience only, and shall not be used in the construction of this Agreement. The invalidity of any provision of this Agreement shall not affect the enforceability of any other provision of this Agreement. The parties agree that this Agreement is the product of negotiation and that neither party will be deemed to be the drafter thereof. Each party to this Agreement consulted with, or had the opportunity to consult with, its legal department or with the independent attorney of its choice with regard to the Agreement, and signs it voluntarily.

 

5.12 Signatures. This Agreement may be executed by facsimile or other electronic form and in counterparts, each of which shall constitute an original and all of which together shall constitute one instrument. 

 

Remainder of Page Intentionally Omitted; Signature Pages to Follow

 
	 
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.

 

	 	MINERACAO BATOVI LTDA 	
	 			
		By:	/s/ Charles Fipke 	
	
 
	
Name:
	Charles Fipke	
	 	Title:	Director	

 

	 	DIAMANTE MINERALS INC. 	
	 			
		By:	/s/ Chad Ulanksy	
	
 
	
Name:
	Chad Ulanksy	
	 	Title:	Chairman and CEO	
	 			
	
 
	
/s/ Charles Fipke 
	
 

	
 
	
Dr. Charles Fipke
	
 

 

 

	
9Legend Oil and Gas, Ltd. 8-K

 

Exhibit 4.1

 

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

 

Original
Issue Date: January 25, 2017 

Original
Conversion Price (subject to adjustment herein): $0.03

 

$770,000.00

 

Original
ISSUE DISCOUNT SENIOR CONVERTIBLE DEBENTURE 

DUE
MARCH 1, 2018

 

THIS
ORIGINAL ISSUE DISCOUNT SENIOR CONVERTIBLE DEBENTURE is one of a series of duly authorized and validly issued Original Issue Discount
Senior Secured Convertible Debentures of LEGEND OIL AND GAS, LTD., a Colorado corporation (the “Company”),
having its principal place of business at 555 North Point Center East, Suite 400, Alpharetta, Georgia 30022, designated as its
Original Issue Discount Senior Secured Debentures due March 1, 2018 (the “Debenture” and, collectively with
the other debentures of such series, if any, the “Debentures”).

 

FOR
VALUE RECEIVED, the Company promises to pay to HILLAIR CAPITAL INVESTMENTS L.P. or its registered assigns (the “Holder”),
or shall have paid pursuant to the terms hereunder, the principal sum of $770,000.00 on March 1, 2018 (the “Maturity
Date”) or such earlier date as this Debenture is required or permitted to be repaid as provided hereunder, and to pay
interest to the Holder on the aggregate then outstanding principal amount of this Debenture in accordance with the provisions
hereof. This Debenture is subject to the following additional provisions:

 

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

 

“Bankruptcy
Event” means any of the following events: (a) the Company or any Subsidiary thereof commences a case or other proceeding
under any bankruptcy, reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or liquidation
or similar law of any jurisdiction relating to the Company or any Subsidiary thereof, (b) there is commenced against the Company
or any Subsidiary thereof any such case or proceeding that is not dismissed within 60 days after commencement, (c) the Company
or any Subsidiary thereof is adjudicated insolvent or bankrupt or any order of relief or other order approving any such case or
proceeding is entered, (d) the Company or any Subsidiary thereof suffers any appointment of any custodian or the like for it or
any substantial part of its property that is not discharged or stayed within 60 calendar days after such appointment, (e) the
Company or any Subsidiary thereof makes a general assignment for the benefit of creditors, (f) the Company or any Subsidiary thereof
calls a meeting of its creditors with a view to arranging a composition, adjustment or restructuring of its debts or (g) the Company
or any Subsidiary thereof, by any act or failure to act, expressly indicates its consent to, approval of or acquiescence in any
of the foregoing or takes any corporate or other action for the purpose of effecting any of the foregoing.

 

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

 

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

 

“Event
of Default” shall have the meaning set forth in Section 8(a).

 

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“Indebtedness”
means, with respect to the Company, (x) any liabilities for borrowed money or amounts owed in excess of $50,000 (other than trade
accounts payable incurred in the ordinary course of business), (y) all guaranties, endorsements and other contingent obligations
in respect of indebtedness of others, whether or not the same are or should be reflected in the Company’s consolidated balance
sheet (or the notes thereto), except guaranties by endorsement of negotiable instruments for deposit or collection or similar
transactions in the ordinary course of business; and (z) the present value of any lease payments in excess of $50,000 due under
leases required to be capitalized in accordance with GAAP.

 

“Mandatory
Default Amount” means the sum of (a) 130% of the outstanding principal amount of this Debenture and (b) all other amounts,
costs, expenses and liquidated damages due in respect of this Debenture.

 

“New
York Courts” shall have the meaning set forth in Section 8(d).

 

“Optional
Redemption” shall have the meaning set forth in Section 6.

 

“Optional
Redemption Amount” means the sum of (a) 120% of the then outstanding principal amount of the Debenture, (b) accrued
but unpaid interest on the Debenture and (c) all liquidated damages and other amounts due in respect of the Debenture.

 

“Optional
Redemption Date” shall have the meaning set forth in Section 6.

 

“Optional
Redemption Notice” shall have the meaning set forth in Section 6.

 

“Optional
Redemption Notice Date” shall have the meaning set forth in Section 6.

 

“Original
Issue Date” means the date of the first issuance of the Debentures, regardless of any transfers of any Debenture and
regardless of the number of instruments which may be issued to evidence such Debentures.

 

“Permitted
Indebtedness” means (a) the indebtedness evidenced by the Debentures, (b) the Indebtedness existing on the Original
Issue Date, (c) lease obligations and purchase money indebtedness of up to $600,000, in the aggregate, incurred in connection
with the acquisition of capital assets and lease obligations with respect to newly acquired or leased assets and (d) the Seller’s
Note (as defined in the April 2nd Purchase Agreement (as defined below)).

 

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“Permitted
Lien” means the individual and collective reference to the following: (a) Liens for taxes, assessments and other governmental
charges or levies not yet due or Liens for taxes, assessments and other governmental charges or levies being contested in good
faith and by appropriate proceedings for which adequate reserves (in the good faith judgment of the management of the Company)
have been established in accordance with GAAP, (b) Liens imposed by law which were incurred in the ordinary course of the Company’s
business, such as carriers’, warehousemen’s and mechanics’ Liens, statutory landlords’ Liens, and other
similar Liens arising in the ordinary course of the Company’s business, and which (x) do not individually or in the aggregate
materially detract from the value of such property or assets or materially impair the use thereof in the operation of the business
of the Company and its consolidated Subsidiaries or (y) are being contested in good faith by appropriate proceedings, which proceedings
have the effect of preventing for the foreseeable future the forfeiture or sale of the property or asset subject to such Lien,
(c) Liens incurred in connection with Permitted Indebtedness under clause (c) thereunder, provided that such Liens are not secured
by assets of the Company or its Subsidiaries other than the assets so acquired or leased, (d) the Liens in connection with the
Seller’s Note described in Section 4.18 of the Securities Purchase Agreement between the Holder and Company dated April
2, 2015 (the “April 2nd Purchase Agreement”) and (e) the Lien on rolling stock of Subsidiaries of
the Company incurred on December 16, 2015 securing the repayment of borrowings of up to $272,000 under a Business Loan Agreement
with State Bank and Trust Company.

 

“Purchase
Agreement” means the Securities Purchase Agreement, dated as of January __, 2017, between the Company and the Holder.

 

“Transaction
Documents” means the Purchase Agreement, this Debenture, and all documents executed in connection therewith and herewith.

 

 Section
2.       No Regular Interest Payment.

 

a)       The
parties acknowledge this Debenture was issued at an original issue discount and there are no regularly scheduled interest payments.

 

b)       Prepayment.
Except as otherwise set forth in this Debenture, the Company may not prepay any portion of the principal amount of this Debenture
without the prior written consent of the Holder.

 

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

 

    4

     

    

 

Section
4.         Conversion.

 

a)       Voluntary
Conversion. At any time after the Original Issue Date until this Debenture is no longer outstanding, this Debenture shall
be convertible, in whole or in part, into shares of Common Stock at the option of the Holder, at any time and from time to time
(subject to the conversion limitations set forth in Section 4(d) hereof). The Holder shall effect conversions by delivering to
the Company a Notice of Conversion, the form of which is attached hereto as Annex A (each, a “Notice of Conversion”),
specifying therein the principal amount of this Debenture to be converted and the date on which such conversion shall be effected
(such date, the “Conversion Date”). If no Conversion Date is specified in a Notice of Conversion, the Conversion
Date shall be the date that such Notice of Conversion is deemed delivered hereunder. No ink-original Notice of Conversion shall
be required, nor shall any medallion guarantee (or other type of guarantee or notarization) of any Notice of Conversion form be
required. To effect conversions hereunder, the Holder shall not be required to physically surrender this Debenture to the Company
unless the entire principal amount of this Debenture, plus all accrued and unpaid interest thereon, has been so converted. Conversions
hereunder shall have the effect of lowering the outstanding principal amount of this Debenture in an amount equal to the applicable
conversion. The Holder and the Company shall maintain records showing the principal amount(s) converted and the date of such conversion(s).
The Company may deliver an objection to any Notice of Conversion within one (1) Business Day of delivery of such Notice of Conversion.
In the event of any dispute or discrepancy, the records of the Holder shall be controlling and determinative in the absence of
manifest error. The Holder, and any assignee by acceptance of this Debenture, acknowledge and agree that, by reason of the
provisions of this paragraph, following conversion of a portion of this Debenture, the unpaid and unconverted principal amount
of this Debenture may be less than the amount stated on the face hereof.

 

b)             Conversion
Price. The conversion price in effect on any Conversion Date shall be equal to $0.03, subject to adjustment herein
(the “Conversion Price”).

 

c)
            Mechanics of Conversion.

 

i.       Conversion
Shares Issuable Upon Conversion of Principal Amount. The number of Conversion Shares issuable upon a conversion hereunder
shall be determined by the quotient obtained by dividing (x) the outstanding principal amount of this Debenture to be converted
by (y) the Conversion Price.

 

ii.       Delivery of Certificate Upon Conversion. Not later
than three (3) Trading Days after each Conversion Date (the “Share Delivery Date”), the Company shall deliver,
or cause to be delivered, to the Holder (A) a certificate or certificates representing the Conversion Shares which, on or after
the six month anniversary of the Original Issue Date, shall be free of restrictive legends and trading restrictions (other than
those which may then be required by the Purchase Agreement) representing the number of Conversion Shares being acquired upon the
conversion of this Debenture and (B) a legal opinion of Company counsel as may be requested by the Holder to enable Holder to
deposit the Conversion Share certificates in accounts with its prime broker (or other brokerage account), together with the instruction
letter to the Transfer Agent and the resolution of the Board of Directors authorizing the Transaction Documents and any additional
supporting documentation requested by the Holder (including, without limitation, any instruction letter to the Company’s
transfer agent). On or after the six month anniversary of the Original Issue Date, if the Company is a participant in the Deposit
or Withdrawal at Custodian system (DWAC) of the Depository Trust Company, the Company shall deliver any certificate or certificates
required to be delivered by the Company under this Section 4(c) electronically through the Depository Trust Company or another
established clearing corporation performing similar functions.

 

    5

     

    

 

iii.       Failure
to Deliver Certificates. If, in the case of any Notice of Conversion, such certificate or certificates and the related legal
opinion of Company counsel, the instruction letter to the Transfer Agent and the resolution of the Board of Directors authorizing
the Transaction Documents are not delivered to or as directed by the applicable Holder by the Share Delivery Date, the Holder
shall be entitled to elect by written notice to the Company at any time on or before its receipt of such certificate or certificates,
to rescind such Conversion, in which event the Company shall promptly return to the Holder any original Debenture delivered to
the Company and the Holder shall promptly return to the Company the Common Stock certificates issued to such Holder pursuant to
the rescinded Conversion Notice.

 

iv.       Obligation
Absolute; Partial Liquidated Damages. The Company’s obligations to issue and deliver the Conversion Shares upon conversion
of this Debenture in accordance with the terms hereof are absolute and unconditional, irrespective of any action or inaction by
the Holder to enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any judgment against
any Person or any action to enforce the same, or any setoff, counterclaim, recoupment, limitation or termination, or any breach
or alleged breach by the Holder or any other Person of any obligation to the Company or any violation or alleged violation of
law by the Holder or any other Person, and irrespective of any other circumstance which might otherwise limit such obligation
of the Company to the Holder in connection with the issuance of such Conversion Shares; provided, however, that
such delivery shall not operate as a waiver by the Company of any such action the Company may have against the Holder. In the
event the Holder of this Debenture shall elect to convert any or all of the outstanding principal amount hereof, the Company may
not refuse conversion based on any claim that the Holder or anyone associated or affiliated with the Holder has been engaged in
any violation of law, agreement or for any other reason, unless an injunction from a court, on notice to Holder, restraining and
or enjoining conversion of all or part of this Debenture shall have been sought and obtained, and the Company posts a surety bond
for the benefit of the Holder in the amount of 150% of the outstanding principal amount of this Debenture, which is subject to
the injunction, which bond shall remain in effect until the completion of arbitration/litigation of the underlying dispute and
the proceeds of which shall be payable to the Holder to the extent it obtains judgment. In the absence of such injunction, the
Company shall issue Conversion Shares or, if applicable, cash, upon a properly noticed conversion. If the Company fails for any
reason to deliver to the Holder such certificate or certificates and the related legal opinion of Company counsel, the instruction
letter to the Transfer Agent and the resolution of the Board of Directors authorizing the Transaction Documents and other supporting
documentation pursuant to Section 4(c)(ii) by the Share Delivery Date, the Company shall pay to the Holder, in cash, as liquidated
damages and not as a penalty, for each $1,000 of principal amount being converted, $10 per Trading Day (increasing to $20 per
Trading Day on the fifth (5th) Trading Day after such liquidated damages begin to accrue) for each Trading Day after
the second Trading Day following such Share Delivery Date until such certificates and the related legal opinion of Company counsel,
the instruction letter to the Transfer Agent and the resolution of the Board of Directors authorizing the Transaction Documents
and other supporting documentation are delivered or Holder rescinds such conversion. Nothing herein shall limit a Holder’s
right to pursue actual damages or declare an Event of Default pursuant to Section 8 hereof for the Company’s failure to
deliver Conversion Shares within the period specified herein and the Holder shall have the right to pursue all remedies available
to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief.
The exercise of any such rights shall not prohibit the Holder from seeking to enforce damages pursuant to any other Section hereof
or under applicable law.

 

    6

     

    

 

v.       Compensation
for Buy-In on Failure to Timely Deliver Certificates Upon Conversion. In addition to any other rights available to the Holder,
if the Company fails for any reason to deliver to the Holder such certificate or certificates by the Share Delivery Date pursuant
to Section 4(c)(ii), and if after such Share Delivery Date the Holder is required by its brokerage firm to purchase (in an open
market transaction or otherwise), or the Holder’s brokerage firm otherwise purchases, shares of Common Stock to deliver
in satisfaction of a sale by the Holder of the Conversion Shares which the Holder was entitled to receive upon the conversion
relating to such Share Delivery Date (a “Buy-In”), then the Company shall (A) pay in cash to the Holder (in
addition to any other remedies available to or elected by the Holder) the amount, if any, by which (x) the Holder’s total
purchase price (including any brokerage commissions) for the Common Stock so purchased exceeds (y) the product of (1) the aggregate
number of shares of Common Stock that the Holder was entitled to receive from the conversion at issue multiplied by (2) the actual
sale price at which the sell order giving rise to such purchase obligation was executed (including any brokerage commissions)
and (B) at the option of the Holder, either reissue (if surrendered) this Debenture in a principal amount equal to the principal
amount of the attempted conversion (in which case such conversion shall be deemed rescinded) or deliver to the Holder the number
of shares of Common Stock that would have been issued if the Company had timely complied with its delivery requirements under
Section 4(c)(ii). For example, if the Holder purchases Common Stock having a total purchase price of $11,000 to cover a Buy-In
with respect to an attempted conversion of this Debenture with respect to which the actual sale price of the Conversion Shares
(including any brokerage commissions) giving rise to such purchase obligation was a total of $10,000 under clause (A) of the immediately
preceding sentence, the Company shall be required to pay the Holder $1,000. The Holder shall provide the Company written notice
indicating the amounts payable to the Holder in respect of the Buy-In and, upon request of the Company, evidence of the amount
of such loss. Nothing herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law
or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company’s
failure to timely deliver certificates representing shares of Common Stock upon conversion of this Debenture as required pursuant
to the terms hereof.

 

    7

     

    

 

vi.       Reservation
of Shares Issuable Upon Conversion. The Company covenants that it will at all times reserve and keep available out of its
authorized and unissued shares of Common Stock for the sole purpose of issuance upon conversion of this Debenture and payment
of interest on this Debenture, each as herein provided, free from preemptive rights or any other actual contingent purchase rights
of Persons other than the Holder (and the other holders of the Debentures), not less than such aggregate number of shares of the
Common Stock as shall (subject to the terms and conditions set forth in the Purchase Agreement) be issuable (taking into account
the adjustments and restrictions of Section 5) upon the conversion of the then outstanding principal amount of this Debenture
and payment of interest hereunder. The Company covenants that all shares of Common Stock that shall be so issuable shall, upon
issue, be duly authorized, validly issued, fully paid and nonassessable.

 

vii.       Fractional
Shares. No fractional shares or scrip representing fractional shares shall be issued upon the conversion of this Debenture.
As to any fraction of a share which the Holder would otherwise be entitled to purchase upon such conversion, the Company shall
at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied
by the Conversion Price or round up to the next whole share.

 

viii.       Transfer
Taxes and Expenses. The issuance of certificates for shares of the Common Stock on conversion of this Debenture shall be made
without charge to the Holder hereof for any documentary stamp or similar taxes that may be payable in respect of the issue or
delivery of such certificates, provided that, the Company shall not be required to pay any tax that may be payable in respect
of any transfer involved in the issuance and delivery of any such certificate upon conversion in a name other than that of the
Holder of this Debenture so converted and the Company shall not be required to issue or deliver such certificates unless or until
the Person or Persons requesting the issuance thereof shall have paid to the Company the amount of such tax or shall have established
to the satisfaction of the Company that such tax has been paid. The Company shall pay all Transfer Agent fees required for same-day
processing of any Notice of Conversion.

 

    8

     

    

 

Section
5.         Certain Adjustments.

 

a)       Stock
Dividends and Stock Splits. If the Company, at any time while this Debenture is outstanding: (i) pays a stock dividend or
otherwise makes a distribution or distributions payable in shares of Common Stock on shares of Common Stock or any Common Stock
Equivalents (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Company upon conversion
of, or payment of interest on, the Debentures), (ii) subdivides outstanding shares of Common Stock into a larger number of shares,
(iii) combines (including by way of a reverse stock split) outstanding shares of Common Stock into a smaller number of shares
or (iv) issues, in the event of a reclassification of shares of the Common Stock, any shares of capital stock of the Company,
then the Conversion Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock
(excluding any treasury shares of the Company) outstanding immediately before such event, and of which the denominator shall be
the number of shares of Common Stock outstanding immediately after such event. Any adjustment made pursuant to this Section shall
become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or
distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.

 

b)       Pro
Rata Distributions. During such time as this Debenture is outstanding, if the Company shall declare or make any dividend or
other distribution of its assets (or rights to acquire its assets) to holders of shares of Common Stock, by way of return of capital
or otherwise (including, without limitation, any distribution of cash, stock or other securities, property or options by way of
a dividend, spin off, reclassification, corporate rearrangement, scheme of arrangement or other similar transaction) (a “Distribution”),
at any time after the issuance of this Debenture, then, in each such case, the Holder shall be entitled to participate in such
Distribution to the same extent that the Holder would have participated therein if the Holder had held the number of shares of
Common Stock acquirable upon complete exercise of this Debenture (without regard to any limitations on conversion hereof, including
without limitation, the Beneficial Ownership Limitation) immediately before the date of which a record is taken for such Distribution,
or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the
participation in such Distribution (provided, however, to the extent that the Holder’s right to participate
in any such Distribution would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be
entitled to participate in such Distribution to such extent (or in the beneficial ownership of any shares of Common Stock as a
result of such Distribution to such extent) and the portion of such Distribution shall be held in abeyance for the benefit of
the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).

 

    9

     

    

 

c)              Calculations.
All calculations under this Section 5 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be.
For purposes of this Section 5, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall
be the sum of the number of shares of Common Stock (excluding any treasury shares of the Company) issued and outstanding.

 

d)              Notice
to the Holder.

 

i.       Adjustment
to Conversion Price. Whenever the Conversion Price is adjusted pursuant to any provision of this Section 5, the Company shall
promptly deliver to each Holder a notice setting forth the Conversion Price after such adjustment and setting forth a brief statement
of the facts requiring such adjustment.

 

ii.       Notice
to Allow Conversion by Holder. If (A) the Company shall declare a dividend (or any other distribution in whatever form) on
the Common Stock, (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock, (C)
the Company shall authorize the granting to all holders of the Common Stock of rights or warrants to subscribe for or purchase
any shares of capital stock of any class or of any rights, (D) the approval of any stockholders of the Company shall be required
in connection with any reclassification of the Common Stock, any consolidation or merger to which the Company is a party, any
sale or transfer of all or substantially all of the assets of the Company, or any compulsory share exchange whereby the Common
Stock is converted into other securities, cash or property or (E) the Company shall authorize the voluntary or involuntary dissolution,
liquidation or winding up of the affairs of the Company, then, in each case, the Company shall cause to be filed at each office
or agency maintained for the purpose of conversion of this Debenture, and shall cause to be delivered to the Holder at its last
address as it shall appear upon the Debenture Register, at least twenty (20) calendar days prior to the applicable record or effective
date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution,
redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record
to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such
reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date
as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common
Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or
share exchange, provided that the failure to deliver such notice or any defect therein or in the delivery thereof shall not affect
the validity of the corporate action required to be specified in such notice. To the extent that any notice provided hereunder
constitutes, or contains, material, non-public information regarding the Company or any of the Subsidiaries, the Company shall
simultaneously file such notice with the Commission pursuant to a Current Report on Form 8-K. The Holder shall remain entitled
to convert this Debenture during the 20-day period commencing on the date of such notice through the effective date of the event
triggering such notice except as may otherwise be expressly set forth herein.

 

    10

     

    

 

Section
6.        Optional Redemption at Election of Company. Subject to the provisions of this Section 6, the Company may deliver
a notice to the Holder (an “Optional Redemption Notice” and the date such notice is deemed delivered hereunder,
the “Optional Redemption Notice Date”) of its irrevocable election to redeem some or all of the then outstanding
principal amount of this Debenture for cash in an amount equal to the Optional Redemption Amount on the 10th Business
Day following the Optional Redemption Notice Date (such date, the “Optional Redemption Date” and such redemption,
the “Optional Redemption”). The Optional Redemption Amount is payable in full on the Optional Redemption Date.
The Company may not deliver an Optional Redemption Notice if there is an existing Event of Default or an existing event which,
with the passage of time or giving of notice, would constitute an Event of Default. If any portion of the payment pursuant to
an Optional Redemption shall not be paid by the Company on the applicable due date, interest shall accrue thereon at an interest
rate equal to the lesser of 18% per annum or the maximum rate permitted by applicable law until such amount is paid in full. Notwithstanding
anything herein contained to the contrary, if any portion of the Optional Redemption Amount remains unpaid after such date, the
Holder may elect, by written notice to the Company given at any time thereafter, to invalidate such Optional Redemption, ab
initio, and, with respect to the Company’s failure to honor the Optional Redemption, the Company shall have no further
right to exercise such Optional Redemption. The Company covenants and agrees that it will honor all Notices of Conversion tendered
from the time of delivery of the Optional Redemption Notice through the date all amounts owing thereon are due and paid in full.

 

Section
7.         Negative Covenants. As long as any portion of this Debenture remains outstanding, unless the holders of 100%
in principal amount of the then outstanding Debentures shall have otherwise given prior written consent, the Company shall not,
and shall not permit any of the Subsidiaries to, directly or indirectly:

 

a)       other
than Permitted Indebtedness, enter into, create, incur, assume, guarantee or suffer to exist any indebtedness for borrowed money
of any kind, including, but not limited to, a guarantee, on or with respect to any of its property or assets now owned or hereafter
acquired or any interest therein or any income or profits therefrom;

 

b)       other
than Permitted Liens, enter into, create, incur, assume or suffer to exist any Liens of any kind, on or with respect to any of
its property or assets now owned or hereafter acquired or any interest therein or any income or profits therefrom;

 

    11

     

    

 

c)       amend
its charter documents, including, without limitation, its certificate of incorporation and bylaws, in any manner that materially
and adversely affects any rights of the Holder;

 

d)       repay,
repurchase or offer to repay, repurchase or otherwise acquire more than a de minimis number of shares of its Common Stock
or Common Stock Equivalents other than as to repurchases of Common Stock or Common Stock Equivalents of departing officers and
directors of the Company, provided that such repurchases shall not exceed an aggregate of $10,000 for all officers and directors
during the term of this Debenture;

 

e)       repay,
repurchase or offer to repay, repurchase or otherwise acquire any Indebtedness, other than the Debentures if on a pro-rata basis,
other than regularly scheduled principal and interest payments as such terms are in effect as of the Original Issue Date, provided
that such payments shall not be permitted if, at such time, or after giving effect to such payment, any Event of Default exist
or occur;

 

f)       pay
cash dividends or distributions on any equity securities of the Company;

 

g)       enter
into any transaction with any Affiliate of the Company which would be required to be disclosed in any public filing with the Commission,
unless such transaction is made on an arm’s-length basis and expressly approved by a majority of the disinterested directors
of the Company (even if less than a quorum otherwise required for board approval); or

 

h)       enter
into any agreement with respect to any of the foregoing.

 

 Section
8.        Events of Default.

 

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

 

i.       any
default in the payment of (A) the principal amount of any Debenture or (B) liquidated damages and other amounts owing to a Holder
on any Debenture, as and when the same shall become due and payable (whether on an Optional Redemption Date, the Maturity Date
or by acceleration or otherwise) which default, solely in the case of a payment or other default under clause (B) above, is not
cured within 3 Business Days;

 

ii.       the
Company shall fail to observe or perform any other covenant or agreement contained in the Debentures which failure is not cured,
if possible to cure, within the earlier to occur of (A) 5 Business Days after notice of such failure sent by the Holder or by
any other Holder to the Company or (B) 10 Business Days after the Company has become or should have become aware of such failure;

 

    12

     

    

 

iii.       a
default or event of default (subject to any grace or cure period provided in the applicable agreement, document or instrument)
shall occur under (A) any of the Transaction Documents or (B) any other material agreement, lease, document or instrument to which
the Company or any Subsidiary is obligated (and not covered by clause (vi) below);

 

iv.       any
representation or warranty made in this Debenture, any Transaction Documents, any written statement pursuant hereto or thereto
or any other report, financial statement or certificate made or delivered to the Holder or any other Holder shall be untrue or
incorrect in any material respect as of the date when made or deemed made;

 

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

 

vi.       the
Company or any Subsidiary shall default on any of its obligations under any mortgage, credit agreement or other facility, indenture
agreement, factoring agreement or other instrument under which there may be issued, or by which there may be secured or evidenced,
any indebtedness for borrowed money or money due under any long term leasing or factoring arrangement that (a) involves an obligation
greater than $150,000, whether such indebtedness now exists or shall hereafter be created, and (b) results in such indebtedness
becoming or being declared due and payable prior to the date on which it would otherwise become due and payable;

 

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

 

viii.       any
monetary judgment, writ or similar final process shall be entered or filed against the Company, any subsidiary or any of their
respective property or other assets for more than $50,000, and such judgment, writ or similar final process shall remain unvacated,
unbonded or unstayed for a period of 45 calendar days.

 

b)       Remedies
Upon Event of Default. If any Event of Default occurs, the outstanding principal amount of this Debenture, plus accrued but
unpaid interest, liquidated damages and other amounts owing in respect thereof through the date of acceleration, shall become,
at the Holder’s election, immediately due and payable in cash at the Mandatory Default Amount. Commencing 5 days after the
occurrence of any Event of Default that results in the eventual acceleration of this Debenture, the interest rate on this Debenture
shall accrue at an interest rate equal to the lesser of 18% per annum or the maximum rate permitted under applicable law. Upon
the payment in full of the Mandatory Default Amount, the Holder shall promptly surrender this Debenture to or as directed by the
Company. In connection with such acceleration described herein, the Holder need not provide, and the Company hereby waives, any
presentment, demand, protest or other notice of any kind, and the Holder may immediately and without expiration of any grace period
enforce any and all of its rights and remedies hereunder and all other remedies available to it under applicable law. Such acceleration
may be rescinded and annulled by Holder at any time prior to payment hereunder and the Holder shall have all rights as a holder
of the Debenture until such time, if any, as the Holder receives full payment pursuant to this Section 8(b). No such rescission
or annulment shall affect any subsequent Event of Default or impair any right consequent thereon.

 

    13

     

    

 

 Section
9.      Miscellaneous.

 

a)       Notices.
Any and all notices or other communications or deliveries to be provided by the Holder hereunder, shall be in writing and delivered
personally, by facsimile, or sent by a nationally recognized overnight courier service, addressed to the Company, at the address
set forth above, or such other facsimile number or address as the Company may specify for such purposes by notice to the Holder
delivered in accordance with this Section 9(a). Any and all notices or other communications or deliveries to be provided by the
Company hereunder shall be in writing and delivered personally, by facsimile, or sent by a nationally recognized overnight courier
service addressed to each Holder at the facsimile number, e-mail address or address of the Holder appearing on the books of the
Company, or if no such facsimile number or e-mail address or address appears on the books of the Company, at the principal place
of business of such Holder, as set forth in the Purchase Agreement. Any notice or other communication or deliveries hereunder
shall be deemed given and effective on the earliest of (i) the date of transmission, if such notice or communication is delivered
via facsimile or e-mail at the facsimile number or e-mail address set forth on the signature pages attached hereto prior to 5:30
p.m. (New York City time) on any date, (ii) the next Business Day after the date of transmission, if such notice or communication
is delivered via facsimile or e-mail at the facsimile number or e-mail address set forth on the signature pages attached hereto
on a day that is not a Business Day or later than 5:30 p.m. (New York City time) on any Business Day, (iii) the second Business
Day following the date of mailing, if sent by U.S. nationally recognized overnight courier service or (iv) upon actual receipt
by the party to whom such notice is required to be given.

 

b)      Absolute
Obligation. Except as expressly provided herein, no provision of this Debenture shall alter or impair the obligation of the
Company, which is absolute and unconditional, to pay the principal of, liquidated damages and accrued interest, as applicable,
on this Debenture at the time, place, and rate, and in the coin or currency, herein prescribed. This Debenture is a direct debt
obligation of the Company. This Debenture ranks pari passu with all other Debentures now or hereafter issued under the
terms set forth herein. 

 

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

 

d)       Governing
Law. All questions concerning the construction, validity, enforcement and interpretation of this Debenture shall be governed
by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles
of conflict of laws thereof. Each party agrees that all legal proceedings concerning the interpretation, enforcement and defense
of the transactions contemplated hereby (whether brought against a party hereto or its respective Affiliates, directors, officers,
shareholders, employees or agents) shall be commenced in the state and federal courts sitting in the City of New York, Borough
of Manhattan (the “New York Courts”). Each party hereto hereby irrevocably submits to the exclusive jurisdiction
of the New York Courts for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated
hereby or discussed herein (including with respect to the enforcement of this Debenture, and hereby irrevocably waives, and agrees
not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of such New York
Courts, or such New York Courts are improper or inconvenient venue for such proceeding. Each party hereby irrevocably waives personal
service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof via registered
or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under
this Debenture and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing
contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by applicable law.
Each party hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by
jury in any legal proceeding arising out of or relating to this Debenture or the transactions contemplated hereby. If any party
shall commence an action or proceeding to enforce any provisions of this Debenture, then the prevailing party in such action or
proceeding shall be reimbursed by the other party for its attorneys’ fees and other costs and expenses incurred in the investigation,
preparation and prosecution of such action or proceeding.

 

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

 

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

 

g)       Remedies,
Characterizations, Other Obligations, Breaches and Injunctive Relief. The remedies provided in this Debenture shall be cumulative
and in addition to all other remedies available under this Debenture and any of the other Transaction Documents at law or in equity
(including a decree of specific performance and/or other injunctive relief), and nothing herein shall limit the Holder’s
right to pursue actual and consequential damages for any failure by the Company to comply with the terms of this Debenture. The
Company covenants to the Holder that there shall be no characterization concerning this instrument other than as expressly provided
herein. Amounts set forth or provided for herein with respect to payments and the like (and the computation thereof) shall be
the amounts to be received by the Holder and shall not, except as expressly provided herein, be subject to any other obligation
of the Company (or the performance thereof). The Company acknowledges that a breach by it of its obligations hereunder will cause
irreparable harm to the Holder and that the remedy at law for any such breach may be inadequate. The Company therefore agrees
that, in the event of any such breach or threatened breach, the Holder shall be entitled, in addition to all other available remedies,
to an injunction restraining any such breach or any such threatened breach, without the necessity of showing economic loss and
without any bond or other security being required. The Company shall provide all information and documentation to the Holder that
is requested by the Holder to enable the Holder to confirm the Company’s compliance with the terms and conditions of this
Debenture.

 

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h)       Due
Authorization. This Debenture has been duly authorized, executed and delivered by the Company and is the legal obligation
of the Company, enforceable against the Company in accordance with its terms. No consent of any other party and no consent, license,
approval or authorization of, or registration or declaration with, any governmental authority, bureau or agency is required in
connection with the execution, delivery or performance by the Company, or the validity or enforceability of this Debenture other
than such as have been met or obtained. The execution, delivery and performance of this Debenture and all other agreements and
instruments executed and delivered or to be executed and delivered pursuant hereto or thereto will not violate any provision of
any existing law or regulation or any order or decree of any court, regulatory body or administrative agency or the certificate
of incorporation or by-laws of the Company or any mortgage, indenture, contract or other agreement to which the Company is a party
or by which the Company or any property or assets of the Company may be bound.

 

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

 

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

 

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

 

(Signature
Page Follows)

 

    17

     

    

 

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

 

	 	LEGEND
                                         OIL and GAS, LTD.
	 	 
	 	By:	
	 	 	Name:
Title:
	 	 	 
	 	Facsimile
        No. for delivery of Notices: _______________
	 	 
	 	E-mail
        Address for delivery of Notice: _______________

 

    18

     

    

 

ANNEX
A

 

 NOTICE
OF CONVERSION

 

The
undersigned hereby elects to convert principal under the Original Issue Discount Senior Convertible Debenture due March 1, 2018
of Legend Oil and Gas, Ltd., a Colorado corporation (the “Company”), into shares of common stock (the “Common
Stock”), of the Company according to the conditions hereof, as of the date written below. If shares of Common Stock
are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with
respect thereto and is delivering herewith such certificates and opinions as reasonably requested by the Company in accordance
therewith. No fee will be charged to the holder for any conversion, except for such transfer taxes, if any.

 

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

 

The
undersigned agrees to comply with the prospectus delivery requirements under the applicable securities laws in connection with
any transfer of the aforesaid shares of Common Stock.

 

Conversion
calculations: 

 

	 	Date to Effect Conversion:	 
	 	 	 
	 	Principal Amount of Debenture to be Converted: 	 
	 	 	 
	 	Number of shares of Common Stock to be issued:	 
	 	 	 
	 	Signature:	 
	 	 	 
	 	Name:	 
	 	 	 
	 	Address for Delivery of Common Stock Certificates:	 
	 	 	 
	 	Or	 
	 	 	 
	 	DWAC Instructions:	 
	 	 	 
	 	Broker No:__________	 
	 	 	 
	 	Account No: __________	 

  

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Schedule
1

 

CONVERSION
SCHEDULE

 

The
Original Issue Discount Senior Convertible Debentures due on March 1, 2018 in the aggregate principal amount of $385,000
are issued by Legend Oil and Gas, Ltd., a Colorado corporation. This Conversion Schedule reflects conversions made under Section
4 of the above referenced Debenture.

 

Dated:

 

	Date
of Conversion 

        (or
        for first entry, Original Issue Date)

         
	Amount
                                         of Conversion

         
	Aggregate
Principal Amount Remaining Subsequent to Conversion 

        (or
original Principal Amount) 
	Company
                                         Attest

         

				 
				 
				 
				 
				 
				 
				 
				 
				 

 

    20

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