Document:

Exhibit 10.1

 

SEPARATION AGREEMENT AND GENERAL RELEASE

 

MSC Industrial Direct
Co. Inc., a New York corporation (the “Company”), and Eileen McGuire, an individual (“Executive”),
have entered into this Separation Agreement and General Release (this “Separation Agreement”) this 13th day
of January, 2014, which is the date of the last signature hereto. In consideration of the mutual promises contained in this Separation
Agreement, the parties agree as follows:

 

1.           Resignations;
Retirement From Employment; Transition Period.

 

(a)           The
Company and Executive hereby agree that Executive’s employment with the Company shall terminate effective February 28,
2014 (the “Separation Date”). Executive shall resign from her position as Executive Vice President, Human Resources
of the Company, as well as all other positions that Executive may hold as an officer and/or director of any of the Company's subsidiaries
or affiliates or as a fiduciary of any benefit plans of the Company and its subsidiaries, effective as of the Separation Date.
Executive will promptly execute such documents and take such actions as may be necessary or reasonably requested by the Company
to effectuate or memorialize the resignation of such positions. In accordance with its regular payroll practices, after the Separation
Date, the Company will pay Executive all earned but unpaid salary earned by Executive through the Separation Date, and compensation
for all accrued but unused vacation days. In addition, the Company will reimburse Executive for all business expenses incurred
on behalf of the Company through the Separation Date, in accordance with the Company’s policies with respect to the reimbursement
of expenses.

 

(b)           During
the period commencing on the date hereof through the Separation Date (the “Transition Period”) (i) Executive
shall be entitled to continue to receive a base salary at a rate equal to her current base salary rate of $328,313, payable in
accordance with the Company’s regular payroll practices, and (ii) Executive (and her eligible beneficiaries) shall be entitled
to continue to participate in all retirement savings, medical, dental, life insurance and other employee welfare plans in which
she (and/or her eligible beneficiaries) currently participates, all to the extent Executive remains eligible under the terms of
such plans and subject to the terms and conditions of such plans as may be in effect from time to time. During the Transition Period,
Executive shall continue to be an “at will” employee and will continue to be subject to all Company policies and other
agreements binding on Executive.

 

2.           Payments
and Other Consideration. If Executive executes and does not revoke this Separation Agreement during the revocation period
described in Section 19 hereof and if Executive re-signs this Separation Agreement on or within twenty-one (21) days following
the Separation Date and does not revoke this Separation Agreement during the revocation period described in Section 19 hereof (the
“Second Revocation Period”), Executive will be entitled to the following payments and benefits, subject to compliance
by Executive with the terms and conditions of this Separation Agreement, including without limitation, the terms and conditions
set forth in Sections 5 and 6 hereof, as well as all Company policies and other agreements binding on Executive, including
the Company’s Executive Incentive Compensation Recoupment Policy (which shall remain applicable to Executive in accordance
with its terms), the Incentive Plan (as hereinafter defined) and the stock options and restricted stock awards granted under the
Incentive Plan. Executive acknowledges and agrees that under the terms of this Separation Agreement, she is receiving consideration
beyond that which she would otherwise be entitled and which, but for the mutual covenants set forth in this Separation Agreement,
the Company would not otherwise be obligated to provide. It is expressly acknowledged and agreed that if Executive revokes this
Separation Agreement during either of the revocation periods described in Section 19 hereof, all provisions of this Separation
Agreement shall be null and void ab initio and Executive shall not be entitled to any of the payments or other benefits provided
in this Separation Agreement:

 

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(a)           During
the three years beginning on the day after the Separation Date, the Company will pay Executive a total of $1,060,460.00, in
seventy-eight (78) equal biweekly installments in accordance with the Company’s normal payroll practices. The first of these
payments (which will include any installments that otherwise would have been made prior to the end of the Second Revocation Period)
shall be made on the Company’s first regular payroll date after the Second Revocation Period.

 

(b)           During
the three years beginning on the day after the Separation Date, the Company will pay Executive a special payment of $500,000.00
as recognition of Executive’s long-standing tenure and contribution. This special payment shall be made in seventy-eight
(78) equal biweekly installments in accordance with the Company’s normal payroll practices. The first of these payments (which
will include any installments that otherwise would have been made prior to the end of the Second Revocation Period) shall be made
on the Company’s first regular payroll date after the Second Revocation Period.

 

(c)           The
Company will pay Executive 50% of the full annual incentive bonus, if any, that Executive would have received in respect of the
Company’s fiscal year 2014 based upon the Company’s actual performance, to be determined and paid on the same
basis and at the same time as for other executives of the Company.

 

(d)           If
Executive timely elects under the provisions of COBRA to continue her group health plan coverage that was in effect on the date
of this Separation Agreement, Executive will receive continuation of such coverage at the Company’s expense for a period
of 18 months from the Separation Date, provided that Executive continues to be eligible for COBRA coverage.

 

(e)           Executive
has been granted stock options and restricted stock awards under the Company’s 2005 Omnibus Incentive Plan (the “Incentive
Plan”). Attached as Schedule A to this Separation Agreement is a summary of Executive’s outstanding stock
options and restricted stock awards. All unvested stock options shall be accelerated as of the end of the Second Revocation Period
and all vested stock options will be exercisable in accordance with the Incentive Plan for a period of 30 days following the Separation
Date (subject to tolling for any period during which the trading window is closed). Such restricted stock (“Restricted
Stock”) will continue to vest as provided in Schedule A. Any stock options that are vested and exercisable as of the
Separation Date and any stock options accelerated as of the end of the Second Revocation Period may not be exercised prior to the
Company’s first open trading window following the Separation Date.

 

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(f)           During
the three years beginning on the day after the Separation Date, Executive will have the right to continue using the vehicle leased
by the Company for use by Executive and the Company shall continue to (i) make the monthly lease payments under the automobile
lease for the benefit of Executive and (ii) pay for or reimburse, as applicable, the automobile insurance, fuel and repairs and
maintenance on such vehicle, to the extent and subject to the terms and conditions in effect immediately prior to Executive’s
termination of employment; provided that Executive shall continue to be bound by and shall observe all agreements and conditions
relating to the use of such vehicle as in effect immediately prior to her termination of employment; provided further that
any payments for or reimbursements of any lease payments, automobile insurance, fuel and repairs and maintenance incurred with
respect to such vehicle in 2014 will be made no later than March 15, 2015. At the end of the aforesaid three-year period, Executive
may purchase the vehicle from the Company at the vehicle’s then current “blue book” value.

 

(g)           Within
thirty days after the Second Revocation Period, the Company will pay Executive $120,000 on account of anticipated relocation expenses.

 

3.           General
Release of Claims; No Admission.

 

(a)           In
consideration for the payments and benefits set forth in Sections 1(b) and 2 above, Executive on her own behalf and on behalf of
her heirs, personal representatives, successors and assigns, does hereby forever release, remise and discharge the Company and
its subsidiaries and affiliates, and each of their past, present, and future officers, directors, shareholders, members, employees,
trustees, agents, representatives, affiliates, successors and assigns (collectively referenced herein as “Releasees”)
from any and all claims, claims for relief, demands, actions, causes of action, fees and liabilities of any kind or description
whatsoever, known or unknown, suspected or unsuspected, whether arising out of contract, tort, statute, treaty or otherwise, in
law or in equity, which Executive now has, has had, or may hereafter have against any of the Releasees (i) from the beginning
of time through the date upon which Executive signs this Separation Agreement, and/or (ii) arising from, connected with, or
in any way growing out of, or related to, directly or indirectly, (A) Executive’s employment by the Company and its
subsidiaries and affiliates, (B) Executive’s service as an officer or key employee, as the case may be, of the Company
and its subsidiaries and affiliates, (C) any transaction prior to the date upon which Executive signs this Separation Agreement
and all effects, consequences, losses and damages relating thereto, (D) the services provided by Executive to the Company
and its subsidiaries and affiliates, or (E) Executive’s termination of employment with the Company under the common
law or any federal or state statute, including, but not limited to, all claims arising under Title VII of the Civil Rights Act
of 1964, as amended; The Civil Rights Act of 1991, as amended; the False Claims Act, 31 U.S.C.A. § 3730, as amended, including,
but not limited to, any right to personal gain with respect to any claim asserted under its “qui tam” provisions; Sections
1981 through 1988 of Title 42 of the United States Code, as amended; The Employee Retirement Income Security Act of 1974, as amended;
The Immigration Reform and Control Act, as amended; The Americans with Disabilities Act of 1990, as amended; The Age Discrimination
in Employment Act of 1967, as amended; The Older Workers’ Benefit Protection Act of 1990, as amended; The Workers Adjustment
and Retraining Notification Act, as amended; The Occupational Safety and Health Act, as amended; The Lilly Ledbetter Fair Pay Act;
The Genetic Information Nondiscrimination Act; The National Labor Relations Act; The Family and Medical Leave Act of 1993, as amended;
The Civil Rights Act of 1866, as amended; The North Carolina Handicapped Persons Protection Act, N.C. Gen. Stat. §§
168A-1, et seq.; N.C. Equal Employment Practices Act, N.C. Gen. Stat. § 143.421, et seq.; N.C. Retaliatory
Employment Discrimination Act, N.C. Gen. Stat. §§ 95-240, et seq.; N.C. Military Affairs Act, N.C. Gen. Stat. 127B,
et seq.; and Parental Leave For School Involvement Law, N.C. Gen. Stat. § 95-28-3; any other federal, state or local
civil or human rights law or any other local, state or federal law, regulation, ordinance or executive order; any public policy,
contract, tort, or common law; or any allegation for costs, fees, or other expenses including attorneys’ fees incurred in
these matters.

 

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(b)           Notwithstanding
the foregoing, nothing in this Separation Agreement shall release or waive any rights or claims Executive may have: (i) under this
Separation Agreement; (ii) for indemnification under any written indemnification agreement by and between Executive and the Company
and/or under applicable law or the Company’s charter or bylaws; (iii) under any applicable insurance coverage(s); (iv) with
respect to any accrued and vested benefits under any tax-qualified retirement plans applicable to Executive; or (v) for unemployment
or state disability insurance benefits or participation in group benefit plans under COBRA. In addition, nothing in this Separation
Agreement shall preclude Executive from filing a charge or complaint with or participating in any investigation or proceeding before
the Equal Employment Opportunity Commission or the equivalent state agency or otherwise complying with any legal requirements.
However, while Executive may file a charge and participate in any proceeding conducted by the Equal Employment Opportunity Commission
or the equivalent state agency, by signing this Separation Agreement, Executive waives any right to bring a lawsuit against the
Company or any of the Releasees and waives any right to any individual monetary recovery in any action or lawsuit initiated by
the Equal Employment Opportunity Commission or equivalent state agency.

 

(c)           In
addition, for the purpose of implementing a full and complete release and discharge of each and all of the Releasees, Executive
expressly acknowledges that this Separation Agreement is intended to include and does include in its effect, without limitation,
all claims which Executive does not know or suspect to exist in Executive’s favor at the time Executive signed this Separation
Agreement and this Separation Agreement contemplates the extinguishment of all such claims.

 

(d)           Executive
represents that Executive has not assigned or otherwise transferred any interest in any claim that is the subject of this Separation
Agreement.

 

4.           Affirmations.

 

(a)           Executive
affirms that she has not filed or caused to be filed, and is not presently a party to any claim, complaint, or action against the
Company or any of its subsidiaries or affiliates in any forum. Executive furthermore affirms that Executive has no known workplace
injuries or occupational diseases, and has been provided and has not been denied any leave requested under the Family and Medical
Leave Act. Executive disclaims and waives any right of reinstatement with the Company.

 

(b)           Executive
represents that she is not aware, to the best of Executive’s knowledge, of any conduct on Executive’s part or on the
part of the Company, any subsidiary or affiliate of the Company, or any other director, officer or employee of the Company or any
of its subsidiaries or affiliates that violated any law or otherwise exposed the Company or any of its subsidiaries or affiliates
to any liability, whether criminal or civil, whether to any government, individual or other entity.

 

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5.           Restrictive
Covenants.

 

(a)           Confidentiality.
Executive will not, at any time, use or disclose to any individual or entity any Confidential Information (as defined below) except
(i) in the performance of Executive’s duties for the Company, (ii) as authorized in writing by the Company, or
(iii) as required by law or legal process, provided that, prior written notice of such required disclosure is provided to
the Company and, provided further that all reasonable efforts to preserve the confidentiality of such information shall be made.
As used in this Separation Agreement, “Confidential Information” shall mean information that (i) is used
or potentially useful in the Company’s business, (ii) the Company treats as proprietary, private or confidential, and
(iii) is not generally known to the public. Confidential Information includes, without limitation, information relating to
the Company’s products or services, processing, manufacturing, marketing, selling, customer lists, call lists, customer data,
memoranda, notes, records, technical data, sketches, plans, drawings, chemical formulas, trade secrets, composition of products,
research and development data, sources of supply and material, operating and cost data, financial information, personal information
and information contained in manuals or memoranda. Confidential Information also includes proprietary and/or confidential information
of the Company’s customers, suppliers and trading partners who may share such information with the Company pursuant to a
confidentiality agreement or otherwise. Executive agrees to treat all such customer, supplier or trading partner information as
Confidential Information hereunder.

 

(b)           Non-competition.
Executive agrees that for a period of two years after the Separation Date, Executive will not directly or indirectly, whether as
an executive, officer, director, owner, shareholder, partner, associate, employee, consultant, advisor, contractor, joint venturer,
manager, agent, representative or otherwise, work for a Competitor (as defined below) in any capacity that would involve: (a) the
same or substantially similar functions or responsibilities to those Executive performed for the Company within two years before
the Separation Date; or (b) supervision over the same or substantially similar responsibilities to those Executive performed
for the Company within two years before the Separation Date; or (c) assisting a Competitor in decisions that involve
or affect the same or a substantially similar area of operations to those Executive was involved in with the Company within
two years before the Separation Date. For purposes of this Separation Agreement, a “Competitor” is any person
(or branch, office or operation thereof) that engages in business that is competitive with the business activities of the Company
through, but not limited to: (i) selling maintenance, repair and operating (MRO) supplies to North American businesses; (ii) selling
metalworking supplies to North American businesses; (iii) providing indirect materials management services to North American
businesses; (iv) aggregating information regarding indirect materials for the purpose of conducting business-to-business Internet
commerce with North American businesses; or (v) indirect materials procurement services to North American businesses, provided,
however, that a person shall not be deemed a Competitor unless the aggregate revenue of such person for its most recently
completed fiscal year that is attributable to the categories of products and services set forth in clauses (i) through (v) above
equals more than 5% of the aggregate amount of consolidated revenue that the Company derived from such categories of products and
services during its most recently completed fiscal year. The Competitors for purposes of this Separation Agreement include, but
are not limited to, the following companies and all their affiliates: Applied Industrial Technologies, BlackHawk Industrial Distribution,
Inc., Fastenal Company, The Hagemeyer Group, including Hagemeyer North America, Inc. and all Hagemeyer operating companies, Industrial
Distribution Group, Inc., and all affiliates specialty distributors, Lawson Products, Inc., McMaster-Carr Supply Company, Motion
Industries, Inc., W.W. Grainger, Inc., and Wesco International, Inc.

 

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(c)           Non-solicitation.
Executive agrees that for a period of three years from the Separation Date, Executive will not (a) in any capacity employ
or solicit for employment, or recommend that another person employ or solicit for employment, any person who is then, or was at
any time during the twelve (12) months immediately preceding the Separation Date, an Associate, sales representative or agent of
the Company or any present or future subsidiary or affiliate of the Company; or (b) on behalf of herself, or any other person,
firm or corporation, solicit any customer of the Company or any of its affiliates with whom Executive had contact while working
for the Company; nor will Executive in any way, directly or indirectly, for herself, or for any other person, firm, corporation
or entity, divert, or take away any customer of the Company or its affiliates with whom Executive has had contact. For purposes
of this paragraph, the term “contact” shall mean engaging in any communication, whether written or oral, with the customer
or a representative of the customer, or obtaining any information with respect to such customer or customer representative.

 

(d)           Non-disparagement.
Neither party will, at any time, take any action or make any public statement, including, without limitation, statements to individuals,
subsequent employers, vendors, clients, customers, suppliers or licensors or the news media, that would disparage, defame or place
in a negative light, the other party, any of its subsidiaries or affiliates, or any of their respective officers, directors, shareholders,
employees, successors, business services or products; provided that nothing herein shall restrict either party from making
statements in good faith that are required by applicable law (including a Form 8-K to be filed by the Company reporting Executive’s
resignation and this Separation Agreement) or by order of any court of competent jurisdiction.

 

(e)           Cooperation.
Executive agrees to make herself reasonably available to the Company to respond to requests for information concerning litigation,
regulatory inquiry or investigation, involving facts or events relating to the Company that may be within Executive’s knowledge,
and with respect to transition matters. Executive will cooperate fully with the Company in connection with any pending or future
litigation or investigatory matter brought by or against the Company to the extent that the Company reasonably deems Executive’s
cooperation necessary or advisable. Executive acknowledges that such cooperation may include, but shall in no way be limited to,
Executive being available for an interview with the Company or any of the other Releasees, or any of their attorneys or agents,
providing to any of them upon their request any documents in Executive’s possession or under Executive’s control that
may relate to the litigation or investigatory matter, and upon their request providing truthful sworn statements in connection
with the litigation or investigatory matter. The Company will reimburse Executive for her reasonable out-of-pocket expenses incurred
in connection with fulfilling Executive’s obligations under this Section 5(e).

 

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(f)           For
purposes of paragraphs 5(a) through (e) of this Separation Agreement, “the Company” includes MSC Industrial Direct
Co., Inc., and all of its subsidiaries and affiliates.

 

6.           Return
of Personal Property. Executive promises to return to the Company no later than the Separation Date all items of Company
property in Executive’s possession or control, including any items containing Confidential Information and any tangible property
including all automobiles, laptops, computers, PDAs, Blackberries, Smartphones, credit cards, entry cards, identification badges
and keys.

 

7.           Notices.
All notices, demands, consents or communications required or permitted hereunder shall be in writing. Any notice, demand or other
communication given under this Separation Agreement shall be deemed to be given if given in writing (including facsimile or similar
transmission) addressed as provided below (or at such other address as the addressee shall have specified by notice actually received
by the sender) and if either (a) actually delivered in fully legible form to such address or (b) in the case of a letter, five
(5) days shall have elapsed after the same shall have been deposited in the United States mail, with first-class postage prepaid
and registered or certified:

 

To the Company:

 

MSC Industrial Direct Co., Inc.

75 Maxess Road

Melville, New York 11747-3151

Attention: General Counsel

Facsimile: (516) 812-1175

 

To Executive:

 

At the address contained
in the Company’s personnel records provided that Executive may change her address at any time by giving the Company notice
of such change in accordance with the notice provision of this Separation Agreement.

 

8.           Governing
Law; Arbitration. This Separation Agreement shall be governed by and construed and enforced according to the laws of the
State of New York, without regard to conflicts of laws principles thereof, unless preempted by federal law. Subject to the arbitration
provisions in the following paragraph, the parties agree that the state and federal courts located in the State of New York, County
of Suffolk, shall have exclusive jurisdiction in any action, suit or proceeding based on or arising out of this Separation Agreement
and the parties hereby: (a) submit to the personal jurisdiction of such courts; (b) consent to service of process in connection
with any action, suit or proceeding; (c) agree that venue is proper and convenient in such forum; (d) waive any other requirement
(whether imposed by statute, rule of court or otherwise) with respect to personal jurisdiction, subject matter jurisdiction, venue,
or service of process; and (e) waive the right, if any, to a jury trial. 

 

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Any claims arising
under or related to the Separation Agreement shall be settled by binding arbitration pursuant to the rules of the American Arbitration
Association under its Employment Arbitration Rules or such other rules as to which the parties may agree.  The arbitration
shall take place in in the Borough of Manhattan in the City of New York, within 30 days following service of notice of such dispute
by one party on the other.  The arbitration shall be conducted before a panel of three arbitrators, one to be selected by
each of the parties and the third to be selected by the other two.  The panel of arbitrators shall have no authority to order
a modification or amendment of the Separation Agreement.  Except as provided below, Executive and the Company agree that this
arbitration procedure will be the exclusive means of redress for any disputes relating to or arising under the Separation Agreement. 
The parties expressly waive the right to a jury trial, and agree that the arbitrators’ award shall be final and binding on
both parties, and shall not be appealable and may be filed with the clerk of one or more courts, state or federal, having jurisdiction
over the party against whom such award is rendered or such party’s property as a basis of judgment and of the issuance of
execution for its collection.  The Company and Executive agree that the sole disputes that are excepted from this paragraph
are any actions seeking injunctive relief from a court of competent jurisdiction regarding enforcement and application of Sections
5 and 6 of this Separation Agreement, which actions may be brought in addition to, or in place of, an arbitration proceeding in
accordance with the first paragraph of this Section 8.

 

9.           Nonadmission
of Wrongdoing. The parties agree that neither this Separation Agreement nor the furnishing of the consideration set forth
herein shall be deemed or construed at any time for any purpose as an admission by any party of any liability, wrongdoing or unlawful
conduct of any kind, or any obligation by the Company to make any payments referenced herein.

 

10.           Amendment;
Waiver. This Separation Agreement may not be modified, altered or changed except upon express written consent of both of
the parties. The failure of any party to insist upon the performance of any of the terms and conditions in this Separation Agreement,
or the failure to prosecute any breach of any of the terms and conditions of this Separation Agreement, shall not be construed
thereafter as a waiver of any such terms or conditions. This entire Separation Agreement shall remain in full force and effect
as if no such forbearance or failure of performance had occurred.

 

11.           Entire
Agreement; No Representations. This Separation Agreement sets forth the entire agreement between the parties hereto and
supersedes any prior agreements or understandings between the parties concerning the subject matter of this Separation Agreement,
except as otherwise provided in this Separation Agreement. Each party acknowledges that such party has not relied on any representations,
promises, or agreements of any kind made to such party in connection with the other party’s decision to enter into this Separation
Agreement, except for those set forth in this Separation Agreement.

 

12.           Severability.
The parties agree that if any provision of this Separation Agreement is declared or determined by any court of competent jurisdiction
to be illegal, invalid, or unenforceable, the legality, validity, and enforceability of the remaining parts, terms, or provisions
shall not be affected thereby, and said illegal, unenforceable or invalid part, term, or provision shall be deemed not to be part
of this Separation Agreement.

 

13.           Withholding
for Taxes. The Company may withhold from any amounts payable hereunder all federal, state, city or other taxes as shall
be required to be withheld pursuant to any applicable law or government regulation or ruling. Upon execution of this Separation
Agreement, Executive shall be responsible to remit to the Company all applicable withholding taxes in respect of the Restricted
Stock.

 

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14.           Binding
Effect; Assignment. This Separation Agreement will inure to the benefit of and be binding upon the heirs, executors, administrators,
successors, and assigns of the parties, including, without limitation, any successor to the Company. The parties represent and
warrant that they have not transferred or assigned to any person or entity any rights or obligations herein. This Separation Agreement
is not assignable by either party without the prior written consent of the other, except that the Company may assign this Separation
Agreement to any assignee of or successor to substantially all of the business or assets of the Company or any direct or indirect
subsidiary thereof without prior written consent of Executive.

 

15.           Counterparts.
This Separation Agreement may be executed in counterparts, and each counterpart shall have the same force and effect as an original
and shall constitute an effective, binding agreement on the part of each of the undersigned.

 

16.           Section
409A.

 

(a)           To
the extent applicable, amounts and other benefits payable under this Separation Agreement are intended to be exempt from the definition
of “nonqualified deferred compensation” under Section 409A, including the rulings, notices and other guidance issued
by the Internal Revenue Service interpreting the same (collectively, “Section 409A”) in accordance with one
or more of the exemptions available under Section 409A. In this regard, each such payment hereunder that may be treated as payable
in the form of “a series of installment payments,” as defined in Treas. Reg. §1.409A-2(b)(2)(iii) shall be deemed
a separate payment for purposes of Section 409A.

 

(b)           To
the extent applicable, it is intended that this Separation Agreement comply with the provisions of Section 409A. This Separation
Agreement shall be administered and interpreted in a manner consistent with this intent.

 

(c)           Executive
is a “specified employee,” determined pursuant to procedures adopted by the Company in compliance with Section 409A,
on the date of her separation from service and therefore to the extent necessary to comply with Section 409A, amounts payable to
Executive hereunder are to be paid or made available on the earlier of (a) the first business day after the expiration of six (6)
months from the date of Executive’s separation from service and (b) Executive’s death.

 

(d)           For
purposes of Section 409A, any payments or benefits provided under this Separation Agreement shall be separate payments and not
one of a series of payments. Additionally, the following rules shall apply to any obligation to reimburse an expense or provide
an in-kind benefit that is nonqualified deferred compensation within the meaning of Section 409A: (i) the amount of expenses eligible
for reimbursement, or in-kind benefits provided, during a calendar year may not affect the expenses eligible for reimbursement,
or in-kind benefits to be provided, in any other taxable year; (ii) the reimbursement of an eligible expense must be made on or
before the last day of the calendar year following the calendar year in which the expense was incurred; and (iii) the right to
reimbursement or in-kind benefits is not subject to liquidation or exchange for another benefit.

 

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(e)           The
Company neither represents nor warrants the tax treatment under any federal, state, local or foreign laws or regulations thereunder
(collectively, the “Tax Laws”) of any payments or benefits provided by this Separation Agreement including,
but not limited to, when and to what extent such payments or benefits may be subject to tax, penalties and interest under the Tax
Laws.

 

17.           Captions;
Drafter Protection. This Separation Agreement’s headings and captions are provided for reference and convenience
only, and will not be employed in the construction of this Separation Agreement. It is agreed and understood that the general rule
pertaining to construction of contracts, that ambiguities are to be construed against the drafter, shall not apply to this Separation
Agreement.

 

18.           Consultation
with Attorney; Voluntary Agreement. Executive acknowledges that (a) the Company has advised Executive of Executive’s
right to consult with an attorney of Executive’s own choosing prior to executing this Separation Agreement, and Executive
has had an opportunity to consult with an attorney, (b) Executive has carefully read and fully understands all of the provisions
of this Separation Agreement, (c) Executive is entering into this Separation Agreement, including the releases set forth in Section 3,
knowingly, freely and voluntarily in exchange for good and valuable consideration and (d) Executive would not be entitled to any
of the benefits described in Sections 1(b) and 2 in the absence of this Separation Agreement.

 

19.           Revocation.
Executive acknowledges that (i) Executive has been given twenty-one (21) calendar days to consider the terms of this Separation
Agreement, although Executive may sign it sooner and (ii) Executive will have twenty-one (21) calendar days to consider re-signing
this Separation Agreement following the Separation date, although Executive may re-sign it sooner. In the event the Executive elects
to sign or re-sign this Separation Agreement prior to the end of either or both of these twenty-one (21) calendar day periods,
Executive agrees that it is a knowing and voluntary waiver of her right to wait the full twenty-one (21) days. Executive will have
seven (7) calendar days from the date on which Executive signs this Separation Agreement to revoke Executive’s consent to
the terms of this Separation Agreement and seven (7) calendar days from the date on which Executive re-signs this Separation Agreement
to revoke Executive’s consent to her reaffirmation that the releases and waivers encompass all conduct during the Transition
Period. Such revocation must be in writing and sent by hand delivery or facsimile to MSC Industrial Direct Co., Inc., 75 Maxess
Road, Melville, New York 11747-3151, Attention: General Counsel, Fax: 516-812-1175. Notice of such revocation must be received
within the seven (7) calendar day periods referenced above. In the event of such revocation by Executive, Executive will not have
any rights under Sections 1(b) and 2 of this Separation Agreement, provided further that in the event Executive revokes
this Separation Agreement within seven (7) calendar days from the date on which Executive first signs this Separation Agreement,
this Separation Agreement will not become effective.

 

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IN WITNESS WHEREOF,
the parties have executed this Separation Agreement on the respective dates set forth below.

 

 

	 	COMPANY:
	 	 
	 	MSC INDUSTRIAL DIRECT CO., INC.
	 	 
	 	 
	Dated: January 13, 2014	By: 	/s/ Erik Gershwind
	 	Name:
Title:	Erik Gershwind
President and Chief Executive Officer
	 	 	 
	 	 	 
	 	EXECUTIVE:
	 	 	 
	 	 	 
	Dated: January 13, 2014	/s/ Eileen McGuire
	 	Eileen McGuire, an individual

 

BY SIGNING THIS SEPARATION AGREEMENT AND GENERAL RELEASE (SECOND SIGNING), THE UNDERSIGNED AGREES THAT THE GENERAL RELEASE OF CLAIMS IN SECTION 3 HEREOF ENCOMPASSES ALL CONDUCT DURING THE TRANSITION PERIOD AND THE COMPLETION OF EXECUTIVE’S EMPLOYMENT WITH THE COMPANY.

 

	 	 	 
	 	EXECUTIVE:
	 	 	 
	 	 	 
	 	 
	 	Eileen McGuire, an individual
	 	 
	Dated: _______ __, 2014	 

 

    	-11-

    	 

    

 

Schedule A

 

	 	Option
                                         Awards	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	Number
of Securities Underlying Unexercised Options

(#)	 	 	 	Number
of Securities Underlying Unexercised Options

(#)	 	 	 	Option

Exercise

Price	 	 	 	 	 
	 	Grant Date	 	 	 	Exercisable	 	 	 	Unexercisable	 	 	 	($)	 	 	 	Vesting Schedule	 
	 	10/16/2008	 	 	 	5,000	 	 	 	-	 	 	 	38.07	 	 	 	n/a	 
	 	10/13/2009	 	 	 	18,928	 	 	 	-	 	 	 	44.17	 	 	 	n/a	 
	 	10/19/2010	 	 	 	12,278	 	 	 	4,093	 	 	 	54.52	 	 	 	100% as of end of Second Revocation Period	 
	 	10/21/2011	 	 	 	6,689	 	 	 	6,690	 	 	 	66.69	 	 	 	100% as of end of Second Revocation Period	 
	 	10/24/2012	 	 	 	3,919	 	 	 	11,757	 	 	 	69.46	 	 	 	100% as of end of Second Revocation Period	 
	 	10/23/2013	 	 	 	-	 	 	 	16,021	 	 	 	81.76	 	 	 	100% as of end of Second Revocation Period	 

 

 

	Restricted Stock Awards	 
	 	 	 	 	 	 	 	 
	Grant Date	 	 	Number of Shares of Restricted Stock that Have Not Vested	 	 	Vesting Schedule	 
	 	10/13/2009	 	 	 	798	 	 	 	100% on October 13, 2014	 
	 	10/19/2010	 	 	 	1,293	 	 	 	50% on October 19, 2014 and October 19, 2015	 
	 	10/21/2011	 	 	 	2,114	 	 	 	50% on October 21, 2014 and 25% on October 21, 2015 and October 21, 2016	 
	 	10/24/2012	 	 	 	3,743	 	 	 	50% on October 24, 2015 and 25% on October 24, 2016 and February 28, 2017	 
	 	10/23/2013	 	 	 	3,180	 	 	 	50% on October 23, 2016 and 50% on February 28, 2017	 

 

    	-12-NEITHER THE ISSUANCE AND SALE OF THE
SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE,
SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER), IN A GENERALLY ACCEPTABLE
FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING
THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT
SECURED BY THE SECURITIES.

 

	Principal Amount: $42,500.00	Issue Date: September 4, 2013
	Purchase Price: $42,500.00	 

 

CONVERTIBLE PROMISSORY NOTE

 

FOR VALUE RECEIVED,
BLUE SPHERE CORP., a Nevada 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 $42,500.00
together with any interest as set forth herein, on June 6, 2014 (the “Maturity Date”), and to pay interest on the unpaid
principal balance hereof at the rate of eight percent (8%) (the “Interest Rate”) per annum from the date hereof (the
“Issue Date”) until the same becomes due and payable, whether at maturity or upon acceleration or by prepayment or
otherwise. This Note may not be prepaid in whole or in part except as otherwise explicitly set forth herein.Any amount of principal
or interest on this Note which is not paid when due shall bear interest at the rate of twenty two percent (22%) per annum from
the due date thereof until the same is paid (“Default Interest”). Interest shall commence accruing on the date that
the Note is fully paid and shall be computed on the basis of a 365-day year and the actual number of days elapsed. All payments
due hereunder (to the extent not converted into common stock, $0.001 par value per share (the “Common Stock”) in accordance
with the terms hereof) shall be made in lawful money of the United States of America. 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. 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 authorized and
reserved four times the number of shares that is actually issuable upon full conversion of the Note (based on the Conversion Price
of the Notes in effect from time to time)(the “Reserved Amount”). The Reserved Amount shall be increased from time
to time in accordance with the Borrower’s obligations pursuant to Section 4(g) of the Purchase Agreement. 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.

 

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

 

1.4 Method of Conversion.

 

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

 

    	 

    	 

    

 

 

b.Surrender
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, primafacie, 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 $1,000 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 thirty (30) 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 112%, 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 three (3) business days following the Optional Prepayment Date, the Borrower shall forever forfeit its right to prepay the
Note pursuant to this Section 1.9.

 

Notwithstanding anything
to the contrary contained in this Note, at any time during the period beginning on the date which is thirty-one (31) days following
the issue date and ending on the date which is sixty (60) days following the issue date, the Borrower shall have the right, exercisable
on not less than three (3) Trading Days prior written notice to the Holder of the Note to prepay the outstanding Note (principal
and accrued interest), in full, in accordance with this Section 1.9. Any Optional Prepayment Notice shall be delivered to the Holder
of the Note at its registered addresses and shall state: (1) that the Borrower is exercising its right to prepay the Note, and
(2) the date of prepayment which shall be not more than three (3) Trading Days from the date of the Optional Prepayment Notice.
On the Optional Prepayment Date, the Borrower shall make payment of the Second Optional Prepayment Amount (as defined below) to
or upon the order of the Holder as specified by the Holder in writing to the Borrower at least one (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 119%, 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 three (3) 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 ThirdOptional 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 125%, multiplied by the sum of: (w) the then outstanding
principal amount of this Note plus (x) accrued and unpaid interest on the unpaid principal amount of this Note to the Optional
Prepayment Date plus (y) Default Interest, if any, on the amounts referred to in clauses (w) and (x) plus (z) any
amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof. If the Borrower delivers an Optional Prepayment Notice and
fails to pay the Third Optional Prepayment Amount due to the Holder of the Note within three (3) business days following the Optional
Prepayment Date, the Borrower shall forever forfeit its right to prepay the Note pursuant to this Section 1.9.

 

Notwithstanding any to
the contrary stated elsewhere herein, at any time during the period beginning on the date that is ninety-one (91) day from the
issue date and ending one hundred twenty (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 FourthOptional 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 129%, 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 three (3) 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 Fifth Optional Prepayment Amount (as defined below) to
or upon the order of the Holder as specified by the Holder in writing to the Borrower at least one (1) business day prior to the
Optional Prepayment Date. If the Borrower exercises its right to prepay the Note, the Borrower shall make payment to the Holder
of an amount in cash (the “Fifth Optional Prepayment Amount”) equal to 137%, multiplied by the sum of: (w) the then
outstanding principal amount of this Note plus (x) accrued and unpaid interest on the unpaid principal amount of this Note
to the Optional Prepayment Date plus (y) Default Interest, if any, on the amounts referred to in clauses (w) and (x) plus
(z) any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof. If the Borrower delivers an Optional Prepayment
Notice and fails to pay the Fifth Optional Prepayment Amount due to the Holder of the Note within three (3) 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 NasdaqSmallCap 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.

 

3.16 Cross-Default.
Notwithstanding anything to the contrary contained in this Note or the other related or companion documents, a breach or default
by the Borrower of any covenant or other term or condition contained in any of the Other Agreements, after the passage of all applicable
notice and cure or grace periods, shall, at the option of the Holder, be considered a default under this Note and the Other Agreements,
in which event the Holder shall be entitled (but in no event required) to apply all rights and remedies of the Holder under the
terms of this Note and the Other Agreements by reason of a default under said Other Agreement or hereunder.
“Other Agreements” means, collectively, all agreements and instruments between, among or by: (1) the Borrower,
and, or for the benefit of, (2) the Holder and any affiliate of the Holder, including, without limitation, promissory notes; provided,
however, the term “Other Agreements” shall not include the
related or companion documents to this Note. Each of the loan transactions will be cross-defaulted with each other loan transaction
and with all other existing and future debt of Borrower to the Holder.

 

    	 

    	 

    

   

Upon the occurrence
and during the continuation of any Event of Default specified in Section 3.1 (solely with respect to failure to pay the principal
hereof or interest thereon when due at the Maturity Date), the Note shall become immediately due and payable and the Borrower shall
pay to the Holder, in full satisfaction of its obligations hereunder, an amount equal to the Default Sum (as defined herein). UPON
THE OCCURRENCE AND DURING THE CONTINUATION OF ANY EVENT OF DEFAULT SPECIFIED IN SECTION 3.2, THE NOTE SHALL BECOME IMMEDIATELY
DUE AND PAYABLE AND THE BORROWER SHALL PAY TO THE HOLDER, IN FULL SATISFACTION OF ITS OBLIGATIONS HEREUNDER, AN AMOUNT EQUAL TO:
(Y) THE DEFAULT SUM (AS DEFINED HEREIN); MULTIPLIED BY (Z) 175% (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:

BLUE SPHERE CORP.

35 Asuta Street

Even Yehuda, Israel 40500

Attn: SHLOMO PALAS, 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

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 bonafide 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 September 4, 2013.

 

	 	BLUE SPHERE CORP.
	 	 	 
	 	By:	 
	 	 	SHLOMO PALAS
	 	 	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 BLUE SPHERE CORP., a Nevada corporation (the “Borrower”) according
to the conditions of the convertible note of the Borrower dated as of September 4, 2013 (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

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