Document:

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

 

	Principal
    Amount: US$58,300.00	Issue
    Date: December 19, 2018 
	Purchase
    Price: US$53,000.00	 

 

CONVERTIBLE
PROMISSORY NOTE

 

FOR
VALUE RECEIVED, Foothills Exploration Inc., a Delaware corporation (OTC: FTXP) (hereinafter called the “Borrower”),
hereby promises to pay to the order of Jefferson Street Capital LLC, a New Jersey limited liability company, or registered
assigns (the “Holder”) the sum of US$58,300.00 together with any interest as set forth herein, on September 19, 2019
(the “Maturity Date”), and to pay interest on the unpaid principal balance hereof at the rate of ten percent (10%)
(the “Interest Rate”) per annum from the funding 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 be prepaid in whole or
in part as 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 eighteen percent (18%) per annum from the due date thereof until the same is paid (the “Default
Interest”). Interest shall commence accruing on the date that the Note is fully paid and shall be computed on the basis
of a 360-day year and the actual number of days elapsed. All payments due hereunder (to the extent not converted into common stock,
$0.0001 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 at any time following one hundred eighty (180) days from the Issue Date,
and from time to time thereafter, 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 (as
defined below) determined as provided herein (a “Conversion”); provided, however, that in no event shall
the Holder be entitled to convert any portion of this Note in excess of that portion of this Note upon conversion of which the
sum of (1) the number of shares of Common Stock beneficially owned by the Holder and its affiliates (other than shares of Common
Stock which may be deemed beneficially owned through the ownership of the unconverted portion of the Notes or the unexercised
or unconverted portion of any other security of the Borrower subject to a limitation on conversion or exercise analogous to the
limitations contained herein) and (2) the number of shares of Common Stock issuable upon the conversion of the portion of this
Note with respect to which the determination of this proviso is being made, would result in beneficial ownership by the Holder
and its affiliates of more than 4.99% of the outstanding shares of Common Stock. For purposes of the proviso to the immediately
preceding sentence, beneficial ownership shall be determined in accordance with Section 13(d) of the Securities Exchange Act of
1934, as amended (the “Exchange Act”), and Regulations 13D-G thereunder, except as otherwise provided in clause (1)
of such proviso, provided, further, however, that the limitations on conversion may be waived by the Holder
upon, at the election of the Holder, not less than 61 days’ prior notice to the Borrower, and the provisions of the conversion
limitation shall continue to apply until such 61st day (or such later date, as determined by the Holder, as may be specified in
such notice of waiver). The number of shares of Common Stock to be issued upon each conversion of this Note shall be determined
by dividing the Conversion Amount (as defined below) by the applicable Conversion Price then in effect on the date specified in
the notice of conversion, in the form attached hereto as Exhibit A (the “Notice of Conversion”), delivered to the
Borrower by the Holder in accordance with Section 1.4 below; provided that the Notice of Conversion is submitted by facsimile
or e-mail (or by other means resulting in, or reasonably expected to result in, notice) to the Borrower before 6:00 p.m., New
York, New York time on such conversion date (the “Conversion Date”). The term “Conversion Amount” means,
with respect to any conversion of this Note, the sum of (1) the principal amount of this Note to be converted in such conversion
plus (2) at the Holder’s option, accrued and unpaid interest, if any, on such principal amount at the interest rates
provided in this Note to the Conversion Date, provided however, that the Borrower shall have the right to pay any or all interest
in cash 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.

 

    	2

     

    

 

1.2
Conversion Price.

 

(a)
Calculation of Conversion Price. Subject to the adjustments described herein, and provided that no Event of Default (as
defined in Article III) has occurred, 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 equal the
lesser of (i) 60% multiplied by the lowest Trading Price (as defined below) during the previous twenty-five (25) Trading Days
(as defined below) before the Issue Date of this Note (representing a discount rate of 40%) or (ii) 60% multiplied by the Market
Price (as defined herein) (representing a discount rate of 40%). “Market Price” means the lowest Trading Price for
the Common Stock during the twenty-five (25) 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 lesser of: (a) the lowest trade price on the Over-the-Counter
Bulletin Board (the “OTCBB”), OTCQB or applicable trading market as reported by a reliable reporting service (“Reporting
Service”) designated by the Holder or, if the OTCBB is not the principal trading market for such security, the trading price
of such security on the principal securities exchange or trading market where such security is listed or traded or, if no trading
price of such security is available in any of the foregoing manners, the average of the trading prices of any market makers for
such security that are listed in the “pink sheets” by the National Quotation Bureau, Inc., or (b) the closing bid
price on the OTCBB, OTCQB or applicable trading market as reported by a Reporting Service designated by the Holder 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. To the extent the Conversion Price of the Borrower’s
Common Stock closes below the par value per share, the Borrower will take all steps necessary to solicit the consent of the stockholders
to reduce the par value to the lowest value possible under law. The Borrower agrees to honor all conversions submitted pending
this adjustment. The Conversion Price may be adjusted downward if, within three (3) business days of the transmittal of the Notice
of Conversion to the Borrower, the Common Stock has a closing bid which is 5% or lower than that set forth in the Notice of Conversion.
If the shares of the Borrower’s Common Stock have not been delivered within three (3) business days to the Holder, the Notice
of Conversion may be rescinded. At any time after the Closing Date, if in the case that the Borrower’s Common Stock is not
deliverable by DWAC (including if the Borrower’s transfer agent has a policy prohibiting or limiting delivery of shares
of the Borrower’s Common Stock specified in a Notice of Conversion), an additional 10% discount will apply for all future
conversions under all Notes. If in the case that the Borrower’s Common Stock is “chilled” for deposit into the
DTC system and only eligible for clearing deposit, an additional 7.5% discount shall apply for all future conversions under all
Notes while the “chill” is in effect. If in the case of both of the above, an additional cumulative 17.5% discount
shall apply. Additionally, if the Borrower ceases to be a reporting company pursuant to the 1934 Act or if the Note cannot be
converted into free trading shares after one hundred eighty-one (181) days from the Issue Date, an additional 15% discount will
be attributed to the Conversion Price. 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, OTCQB or on the principal securities exchange or other securities market on which the Common Stock is then being
traded. The Borrower shall be responsible for the fees of its transfer agent and all DTC fees associated with any such issuance
by applying such amount to the principal amount due under the Note. Holder shall be entitled to deduct $500.00 from the conversion
amount in each Notice of Conversion to cover Holder’s deposit fees associated with each Notice of Conversion. If at any
time the Conversion Price as determined hereunder for any conversion would be less than the par value of the Common Stock, then
at the sole discretion of the Holder, the Conversion Price hereunder may equal such par value for such conversion and the Conversion
Amount for such conversion may be increased to include Additional Principal, where “Additional Principal” means such
additional amount to be added to the Conversion Amount to the extent necessary to cause the number of conversion shares issuable
upon such conversion to equal the same number of conversion shares as would have been issued had the Conversion Price not been
adjusted by the Holder to the par value price.

 

    	3

     

    

 

While
this Note is outstanding, each time any third party has the right to convert monies owed to that third party (or receive shares
pursuant to a settlement or otherwise), including but not limited to under Section 3(a)(9) and Section 3(a)(10), at a discount
to market greater than the Conversion Price in effect at that time (prior to all other applicable adjustments in the Note), then
the Holder, in Holder’s sole discretion, may utilize such greater discount percentage (prior to all applicable adjustments
in this Note) until this Note is no longer outstanding. While this Note is outstanding, each time any third party has a look back
period greater than the look back period in effect under the Note at that time, including but not limited to under Section 3(a)(9)
and Section 3(a)(10), then the Holder, in Holder’s sole discretion, may utilize such greater number of look back days until
this Note is no longer outstanding. The Borrower shall give written notice to the Holder within one (1) business day of becoming
aware of any event that could permit the Holder to make any adjustment described in the two immediately preceding sentences.

 

(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.

 

(c)
Pro Rata Conversion; Disputes. In the event of a dispute as to the number of shares of Common Stock issuable to the Holder
in connection with a conversion of this Note, the Borrower shall issue to the Holder the number of shares of Common Stock not
in dispute and resolve such dispute in accordance with Section 4.13.

 

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 six 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 3(d) 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. Notwithstanding the foregoing, in no event shall the Reserved Amount be lower than
the initial Reserved Amount, regardless of any prior conversions.

 

If,
at any time the Borrower does not maintain or replenish the Reserved Amount within three (3) business days of the request of the
Holder, the principal amount of the Note shall increase by Five Thousand and No/100 United States Dollars ($5,000) (under Holder’s
and Borrower’s expectation that any principal amount increase will tack back to the Issue Date) per occurrence.

 

    	4

     

    

 

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 5:00 p.m., New York, New York time) and (B) subject to Section 1.4(b), surrendering this Note
at the principal office of the Borrower.

 

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

 

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

 

(d)
Delivery of Common Stock Upon Conversion. Upon receipt by the Borrower from the Holder of a facsimile transmission or e-mail
(or other reasonable means of communication) of a Notice of Conversion meeting the requirements for conversion as provided in
this Section 1.4, the Borrower shall issue and deliver or cause to be issued and delivered to or upon the order of the Holder
certificates for the Common Stock issuable upon such conversion within three (3) business days after such receipt (the “Deadline”)
(and, solely in the case of conversion of the entire unpaid principal amount hereof, surrender of this Note) in accordance with
the terms hereof and the Purchase Agreement.

 

    	5

     

    

 

(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 5:00 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 commercially reasonable 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 At Custodian (“DWAC”) system.

 

(g)
DTC Eligibility & Sub-Penny. If the Borrower fails to maintain its status as “DTC Eligible” for any reason,
or, if the Conversion Price is less than $0.01, at any time while this Note is outstanding, the principal amount of the Note shall
increase by Fifteen Thousand and No/100 United States Dollars ($15,000) (under Holder’s and Borrower’s expectation
that any principal amount increase will tack back to the Issue Date). In addition, the Variable Conversion Price shall be redefined
to mean forty percent (40%) multiplied by the Market Price, subject to adjustment as provided in this Note.

 

(h)
Failure to Deliver Common Stock Prior to Delivery Deadline. Without in any way limiting the Holder’s right to pursue
other remedies, including actual damages and/or equitable relief, the parties agree that if delivery of the Common Stock issuable
upon conversion of this Note is not delivered by the Deadline (other than a failure due to the circumstances described in Section
1.3 above, which failure shall be governed by such Section) the Borrower shall pay to the Holder $2,000 per day in cash, for each
day beyond the Deadline that the Borrower fails to deliver such Common Stock until the Borrower issues and delivers a certificate
to the Holder or credit the Holder’s balance account with OTC for the number of shares of Common Stock to which the Holder
is entitled upon such Holder’s conversion of any Conversion Amount (under Holder’s and Borrower’s expectation
that any damages will tack back to the Issue Date). 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(h) are justified.

 

    	6

     

    

 

(i)
Rescindment of a Notice of Conversion. If (i) the Borrower fails to respond to Holder within one (1) business day from
the Conversion Date confirming the details of Notice of Conversion, (ii) the Borrower fails to provide any of the shares of the
Borrower’s Common Stock requested in the Notice of Conversion within three (3) business days from the date of receipt of
the Note of Conversion, (iii) the Holder is unable to procure a legal opinion required to have the shares of the Borrower’s
Common Stock issued unrestricted and/or deposited to sell for any reason related to the Borrower’s standing, (iv) the Holder
is unable to deposit the shares of the Borrower’s Common Stock requested in the Notice of Conversion for any reason related
to the Borrower’s standing, (v) at any time after a missed Deadline, at the Holder’s sole discretion, or (vi) if OTC
Markets changes the Borrower’s designation to ‘Limited Information’ (Yield), ‘No Information’ (Stop
Sign), ‘Caveat Emptor’ (Skull & Crossbones), ‘OTC’, ‘Other OTC’ or ‘Grey Market’
(Exclamation Mark Sign) or other trading restriction on the day of or any day after the Conversion Date, the Holder maintains
the option and sole discretion to rescind the Notice of Conversion (“Rescindment”) with a “Notice of Rescindment.”

 

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.”

 

    	7

     

    

 

The
legend set forth above shall be removed and the Borrower shall issue to the Holder a new certificate therefore free of any transfer
legend if (i) the Borrower or its transfer agent shall have received an opinion of counsel, in form, substance and scope customary
for opinions of counsel in comparable transactions, to the effect that a public sale or transfer of such Common Stock may be made
without registration under the Act, which opinion shall be reasonably accepted by the Borrower 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
Borrower 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, except for shares of Common Stock issued
directly to vendors or suppliers of the Borrower in satisfaction of amounts owed to such vendors or suppliers (provided, however,
that such vendors or suppliers shall not have an arrangement to transfer, sell or assign such shares of Common Stock prior to
the issuance of such shares), 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. Notwithstanding this Section 1.6(d), a Dilutive Issuance shall not include
a one-time issuance of restricted Common Stock or options to purchase shares of restricted Common Stock solely to the officers,
directors, and employees of the Borrower not to exceed twenty percent (20%) of the Borrower’s issued and outstanding shares
of Common Stock at the time of issuance with such issuance subject to standard vesting requirements.

 

    	8

     

    

 

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.

 

    	9

     

    

 

(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 3.2 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.

 

    	10

     

    

 

1.9
Prepayment. Notwithstanding anything to the contrary contained in this Note, the Borrower may prepay the amounts outstanding
hereunder pursuant to the following terms and conditions:

 

(a)
At any time during the period beginning on the Issue Date and ending on the date which is sixty (60) days following the Issue
Date, the Borrower shall have the right, exercisable on not less than three (3) Trading Days prior written notice to the Holder
of the Note to prepay the outstanding Note (principal and accrued interest), in full by making a payment to the Holder of an amount
in cash 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 plus (y) Default Interest, if any.

 

(b)
At any time during the period beginning the day which is sixty one (61) days following the Issue Date and ending on the date which
is one hundred twenty (120) days following the Issue Date, the Borrower shall have the right, exercisable on not less than three
(3) Trading Days prior written notice to the Holder of the Note to prepay the outstanding Note (principal and accrued interest),
in full by making a payment to the Holder of an amount in cash equal to 135%, multiplied by the sum of: (w) the then outstanding
principal amount of this Note plus (x) accrued and unpaid interest on the unpaid principal amount of this Note plus
(y) Default Interest, if any.

 

(c)
At any time during the period beginning the day which is one hundred twenty one (121) days following the Issue Date and ending
on the date which is 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 by making a payment to the Holder of an amount in cash equal to 140%, multiplied by the sum of:
(w) the then outstanding principal amount of this Note plus (x) accrued and unpaid interest on the unpaid principal amount
of this Note plus (y) Default Interest, if any.

 

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

 

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 applicable prepayment amount 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 delivers an Optional Prepayment Notice and fails to pay the applicable prepayment amount due
to the Holder of the Note within two (2) business days following the Optional Prepayment Date, the Borrower shall forever forfeit
its right to prepay the Note pursuant to this Section 1.9.

 

    	11

     

    

 

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 financial institutions or other lenders 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.

 

2.6
Section 3(a)(9) or 3(a)(10) Transaction. So long as this Note is outstanding, the Borrower shall not enter into any transaction
or arrangement structured in accordance with, based upon, or related or pursuant to, in whole or in part, either Section 3(a)(9)
of the Securities Act (a “3(a)(9) Transaction”) or Section 3(a)(l0) of the Securities Act (a “3(a)(l0) Transaction”).
In the event that the Borrower does enter into, or makes any issuance of Common Stock related to a 3(a)(9) Transaction or a 3(a)(l0)
Transaction while this Note is outstanding, a liquidated damages charge of 25% of the outstanding principal balance of this Note,
but not less than Fifteen Thousand Dollars $15,000, will be assessed and will become immediately due and payable to the Holder
at its election in the form of cash payment or addition to the balance of this Note.

 

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2.7
Preservation of Existence, etc. The Borrower shall maintain and preserve, and cause each of its Subsidiaries to maintain
and preserve, its existence, rights and privileges, and become or remain, and cause each of its Subsidiaries (other than dormant
Subsidiaries that have no or minimum assets) to become or remain, duly qualified and in good standing in each jurisdiction in
which the character of the properties owned or leased by it or in which the transaction of its business makes such qualification
necessary.

 

2.8
Non-circumvention. The Borrower hereby covenants and agrees that the Borrower will not, by amendment of its Certificate
or Articles of Incorporation or Bylaws, or through any reorganization, transfer of assets, consolidation, merger, scheme of arrangement,
dissolution, issue or sale of securities, or any other voluntary action, avoid or seek to avoid the observance or performance
of any of the terms of this Note, and will at all times in good faith carry out all the provisions of this Note and take all action
as may be required to protect the rights of the Holder.

 

2.9
Repayment from Proceeds. While any portion of this Note is outstanding, if the Borrower receives cash proceeds from any
source or series of related or unrelated sources, including but not limited to, from payments from customers, the issuance of
equity or debt, the conversion of outstanding warrants of the Borrower, the issuance of securities pursuant to an equity line
of credit of the Borrower or the sale of assets, the Borrower shall, within one (1) business day of Borrower’s receipt of
such proceeds, inform the Holder of such receipt, following which the Holder shall have the right in its sole discretion to require
the Borrower to immediately apply all or any portion of such proceeds to repay all or any portion of the outstanding amounts owed
under this Note. Failure of the Borrower to comply with this provision shall constitute an Event of Default. In the event that
such proceeds are received by the Holder prior to the Maturity Date, the required prepayment shall be subject to the terms of
Section 1.9 herein.

 

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.

 

    	13

     

    

 

3.3
Failure to Deliver Transaction Expense Amount. The Borrower fails to deliver the Transaction Expense Amount (as defined
in the Purchase Agreement) to the Holder within three (3) business days of the date such amount is due.

 

3.4
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 (except that no cure period shall apply for the Borrower’s
breach of Section 4.16 of this Note).

 

3.5
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.

 

3.6
Receiver or Trustee. The Borrower or any subsidiary of the Borrower shall make an assignment for the benefit of creditors
or commence proceedings for its dissolution, 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 for the Borrower or
for a substantial part of its property or business without its consent and shall not be discharged within sixty (60) days after
such appointment.

 

3.7
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.

 

    	14

     

    

 

3.8
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, or the Borrower admits in writing its inability to pay its debts generally as they mature, or have
filed against it an involuntary petition for bankruptcy relief, all under federal or state laws as applicable or the Borrower
admits in writing its inability to pay its debts generally as they mature, or have filed against it an involuntary petition for
bankruptcy relief, all under international, federal or state laws as applicable.

 

3.9
Delisting of Common Stock. The Borrower shall fail to maintain the listing of the Common Stock on at least one of the OTCBB,
OTCQB, OTC Pink or an equivalent replacement exchange, the Nasdaq National Market, the Nasdaq Small Cap Market, the New York Stock
Exchange, or the NYSE MKT.

 

3.10
Failure to Comply with the Exchange Act. The Borrower shall fail to comply with the reporting requirements of the Exchange
Act (including but not limited to becoming delinquent in its filings); and/or the Borrower shall cease to be subject to the reporting
requirements of the Exchange Act.

 

3.11
Liquidation. Any dissolution, liquidation, or winding up of Borrower or any substantial portion of its business.

 

3.12
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.

 

3.13
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) or any disposition or conveyance of
any material asset of the Borrower.

 

3.14
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.

 

3.15
Reverse Splits. The Borrower effectuates a reverse split of its Common Stock without twenty (20) days prior written notice
to the Holder.

 

3.16
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.

 

    	15

     

    

 

3.17
Cessation of Trading. Any cessation of trading of the Common Stock on at least one of the OTCBB, OTCQB, OTC Pink or an
equivalent replacement exchange, the Nasdaq National Market, the Nasdaq Small Cap Market, the New York Stock Exchange, or the
NYSE MKT, and such cessation of trading shall continue for a period of five consecutive (5) Trading Days.

 

3.18
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 material covenant or other term or condition contained in any of the Other Agreements,
other than any such breach or default which is cured by agreement of the parties, 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 agreements and instruments defined as the Documents. 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.

 

3.19
Bid Price. The Borrower shall lose the “bid” price for its Common Stock ($0.0001 on the “Ask” with
zero market makers on the “Bid” per Level 2) and/or a market (including the OTCBB, OTCQB or an equivalent replacement
exchange).

 

3.20
OTC Markets Designation. OTC Markets changes the Borrower’s designation to ‘No Information’ (Stop Sign),
‘Caveat Emptor’ (Skull and Crossbones), or ‘OTC’, ‘Other OTC’ or ‘Grey Market’
(Exclamation Mark Sign).

 

3.21
Inside Information. Any attempt by the Borrower or its officers, directors, and/or affiliates to transmit, convey, disclose,
or any actual transmittal, conveyance, or disclosure by the Borrower or its officers, directors, and/or affiliates of, material
non-public information concerning the Borrower, to the Holder or its successors and assigns, which is not immediately cured by
Borrower’s filing of a Form 8-K pursuant to Regulation FD on that same date.

 

3.22
Unavailability of Rule 144. If, at any time on or after the date which is six (6) months after the Issue Date, the Holder
is unable to (i) obtain a standard “144 legal opinion letter” from an attorney reasonably acceptable to the Holder,
the Holder’s brokerage firm (and respective clearing firm), and the Borrower’s transfer agent in order to facilitate
the Holder’s conversion of any portion of the Note into free trading shares of the Borrower’s Common Stock pursuant
to Rule 144, and (ii) thereupon deposit such shares into the Holder’s brokerage account. Upon the occurrence of any Event
of Default specified in Sections 3.1, 3.2, 3.3, 3.4, 3.5, 3.6, 3.7, 3.8, 3.9, 3.10, 3.11, 3.12, 3.13, 3.14, 3.15, 3.16. 3.17,
3.18, 3.19, 3.20, 3.21, and/or 3.22 exercisable through the delivery of written notice to the Borrower by such Holders (the “Default
Notice”), 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 (i) 150% (EXCEPT WITH RESPECT TO SECTION 3.2 AND/OR 3.22, IN WHICH CASE 150%
SHALL BE REPLACED WITH 200%) 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) at the option of the Holder, 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 Trading 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. Further, if a breach of Sections 3.9,
3.10 and/or 3.19 occurs or is continuing after the six (6) month anniversary of this Note, then the principal amount of the Note
shall increase by Fifteen Thousand and No/100 United States Dollars ($15,000) (under Holder’s and Borrower’s expectation
that any principal amount increase will tack back to the Issue Date) and the Holder shall be entitled to use the lowest Trading
Price during the delinquency period as a base price for the conversion with the Variable Conversion Price shall be redefined to
mean forty percent (40%) multiplied by the Market Price (at the option of the Holder), subject to adjustment as provided in this
Note. For example, if the lowest Trading Price during the delinquency period is $0.01 per share and the conversion discount is
50%, then the Holder may elect to convert future conversions at $0.005 per share. If this Note is not paid at Maturity Date, then
the outstanding principal due under this Note shall increase by Fifteen Thousand and No/100 United States Dollars ($15,000).

 

The
Holder shall have the right at any time, to require the Borrower 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, subject
to the terms of this Note. This requirement by the Borrower shall automatically apply upon the occurrence of an Event of Default
without the need for any party to give any notice or take any other action.

 

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

 

    	16

     

    

 

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:

 

Foothills
Exploration Inc.

11111
Santa Monica Blvd., Suite 1712

Los
Angeles, California 90025

Attn:
B.P. Allaire, Chief Executive Officer

 

If
to the Holder:

 

Jefferson
Street Capital LLC

900
Monroe Street, Suite 908

Hoboken,
New Jersey 07030

Attn:
Brian Goldberg, Managing Member 

 

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

 

Lucosky
Brookman LLP

101
Wood Avenue South, 5th Floor

Woodbridge,
New Jersey 08830

Attn:
Seth Brookman, Esq.

 

    	17

     

    

 

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. Neither the Borrower nor the Holder shall assign this Note or any rights or obligations
hereunder without the prior written consent of the other. Notwithstanding the foregoing, the Holder may assign its rights hereunder
to any “accredited investor” (as defined in Rule 501(a) of the 1933 Act) in a private transaction from the Holder
or to any of its “affiliates”, as that term is defined under the 1934 Act, without the consent of the Borrower. Notwithstanding
anything in this Note to the contrary, this Note may be pledged as collateral in connection with a bona fide margin account
or other lending arrangement. The Holder and any assignee, by acceptance of this Note, acknowledge and agree that 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.

 

4.5
Cost of Collection. If default is made in the payment of this Note, the Borrower shall pay the Holder hereof reasonable
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 Nevada 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 federal courts located in the State of New Jersey. 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 HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY
HAVE TO, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING
OUT OF THIS NOTE OR ANY TRANSACTION CONTEMPLATED HEREBY. 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.

 

    	18

     

    

 

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 including, but not limited to, name changes, recapitalizations, etc. as soon as possible under law.

 

4.10
Usury. If it shall be found that any interest or other amount deemed interest due hereunder violates the applicable law
governing usury, the applicable provision shall automatically be revised to equal the maximum rate of interest or other amount
deemed interest permitted under applicable law. The Borrower covenants (to the extent that it may lawfully do so) that it will
not seek to claim or take advantage of any law that would prohibit or forgive the Borrower from paying all or a portion of the
principal or interest on this Note.

 

    	19

     

    

 

4.11
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. No provision of this Note shall alter or impair the obligation
of the Borrower, which is absolute and unconditional, to pay the principal of, and interest on, this Note at the time, place,
and rate, and in the form, herein prescribed.

 

4.12
Severability. In the event that any provision of this Note 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 provision hereof which may prove invalid or unenforceable under any
law shall not affect the validity or enforceability of any other provision hereof.

 

4.13
Dispute Resolution. In the case of a dispute as to the determination of the Conversion Price, Conversion Amount, any prepayment
amount or Default Amount, Default Sum, Closing or Maturity Date, the closing bid price, or fair market value (as the case may
be) or the arithmetic calculation of the Conversion Price or the applicable prepayment amount(s) (as the case may be), the Borrower
or the Holder shall submit the disputed determinations or arithmetic calculations via facsimile (i) within two (2) Business Days
after receipt of the applicable notice giving rise to such dispute to the Borrower or the Holder or (ii) if no notice gave rise
to such dispute, at any time after the Holder learned of the circumstances giving rise to such dispute. If the Holder and the
Borrower are unable to agree upon such determination or calculation within two (2) Business Days of such disputed determination
or arithmetic calculation (as the case may be) being submitted to the Borrower or the Holder, then the Borrower shall, within
two (2) Business Days, submit via facsimile (a) the disputed determination of the Conversion Price, the closing bid price, the
or fair market value (as the case may be) to an independent, reputable investment bank selected by the Borrower and approved by
the Holder or (b) the disputed arithmetic calculation of the Conversion Price, Conversion Amount, any prepayment amount or Default
Amount, Default Sum to an independent, outside accountant selected by the Holder that is reasonably acceptable to the Borrower.
The Borrower shall cause at its expense the investment bank or the accountant to perform the determinations or calculations and
notify the Borrower and the Holder of the results no later than ten (10) Business Days from the time it receives such disputed
determinations or calculations. Such investment bank’s or accountant’s determination or calculation shall be binding
upon all parties absent demonstrable error.

 

4.14
Terms of Future Financings. So long as this Note is outstanding, upon any issuance by the Borrower or any of its subsidiaries
of any security with any term more favorable to the holder of such security or with a term in favor of the holder of such security
that was not similarly provided to the Holder in this Note, then the Borrower shall notify the Holder of such additional or more
favorable term and such term, at Holder’s option, shall become a part of the transaction documents with the Holder. The
types of terms contained in another security that may be more favorable to the holder of such security include, but are not limited
to, terms addressing conversion discounts, prepayment rate, conversion lookback periods, interest rates, original issue discounts,
stock sale price, private placement price per share, and warrant coverage.

 

    	20

     

    

 

4.15
Piggyback Registration Rights. The Borrower shall include on the next registration statement the Borrower files with SEC
(or on the subsequent registration statement if such registration statement is withdrawn, and excluding the current registration
statement that the Borrower has on file with the SEC) all shares issuable upon conversion of this Note, unless such shares are
at that time eligible for sale under Rule 144 under the Securities Act. Failure to do so will result in liquidated damages of
25% of the outstanding principal balance of this Note, but not less than Fifteen Thousand and No/100 United States Dollars ($15,000),
being immediately due and payable to the Holder at its election in the form of cash payment or addition to the balance of this
Note.

 

4.16
Variable Security Blocker. The Borrower shall not enter into a similar type financing transaction (e.g. convertible promissory
note) with, or issue a Variable Security (as defined herein) to, any party other than the Holder for a period of two (2) calendar
months following the funding date of the Note without written approval from the Holder. A Variable Security shall mean any security
issued by the Borrower that (i) has or may have conversion rights of any kind, contingent, conditional or otherwise in which the
number of shares that may be issued pursuant to such conversion right varies with the market price of the common stock; (ii) is
or may become convertible into common stock (including without limitation convertible debt, warrants or convertible preferred
stock), with a conversion or exercise price that varies with the market price of the common stock, even if such security only
becomes convertible or exercisable following an event of default, the passage of time, or another trigger event or condition;
or (iii) was issued or may be issued in the future in exchange for or in connection with any contract, security, or instrument,
whether convertible or not, where the number of shares of common stock issued or to be issued is based upon or related in any
way to the market price of the common stock, including, but not limited to, common stock issued in connection with a Section 3(a)(9)
exchange, a Section 3(a)(10) settlement, or any other similar settlement or exchange. The Borrower agrees that this is a material
term of the Note and any breach of this Section 4.16 will result in an Event of Default under Section 3.4 of this Note.

 

[signature
page follows]

 

    	21

     

    

 

 

IN
WITNESS WHEREOF, Borrower has caused this Note to be signed in its name by its duly authorized officer as of the date first above
written.

 

	 	FOOTHILLS
    EXPLORATION INC.
	 	 	 
	 	By:	
	 	Name:	B.P.
    Allaire 
	 	Title:	Chief
    Executive Officer

 

    	22

     

    

 

EXHIBIT
A

NOTICE OF CONVERSION

 

The
undersigned hereby elects to convert $ principal amount of the Note (defined below) together with $ of accrued and unpaid interest
thereto, totaling $ 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 Foothills Exploration, Inc., a Delaware corporation (the “Borrower”), according
to the conditions of the convertible note of the Borrower dated as of December 19, 2018 (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 At Custodian 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:

 

	 	Name: [NAME]	 
	 	Address: [ADDRESS]	 

 

	 	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:	 
	 	Accrued and
    unpaid interest remaining:	 

 

	 	[HOLDER]	 
	 	 		 
	 	By:
    	 	 
	 	Name:	[NAME]	
	 	Title:
    	[TITLE]	
	 	Date:

                                                         
	[DATE]Exhibit

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (“Agreement”), dated as of January 1, 2019, is by and between Delta Apparel, Inc., a Georgia corporation (“Company”), and Deborah H. Merrill (“Executive”). 
WHEREAS, Executive and the Company entered into that certain Employment and Non-Solicitation Agreement dated December 31, 2015, such agreement expired as of December 31, 2018, and Executive and the Company now want to enter into a separate written agreement providing for the terms of Executive's employment by the Company during the Term (as defined below).

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

     1. Employment. Executive agrees to be employed with the Company, and the Company agrees to employ Executive, during the Term and on the terms and conditions set forth in this Agreement. Executive agrees during the term of this Agreement to devote substantially all of Executive’s business time, efforts, skills and abilities to the performance of Executive’s duties to the Company and to the furtherance of the Company's business.  

Executive's job title will be Chief Financial Officer & President, Delta Group, and Executive’s duties will be those as are determined by the Company’s Chief Executive Officer.  

     2. Compensation. 

          (a) Base Salary. During the term of Executive's employment with the Company pursuant to this Agreement, the Company shall pay to Executive as compensation for Executive’s services an annual base salary of not less than $500,000.00 (“Base Salary”). Executive's Base Salary will be payable in arrears in accordance with the Company's normal payroll procedures and will be reviewed annually and subject to upward adjustment at the discretion of Executive’s direct supervisor. Nothing in this Agreement entitles Executive to an annual base salary of more than the above-referenced Base Salary amount.

          (b) Incentive Compensation. During the term of Executive's employment with the Company pursuant to this Agreement, Executive shall be entitled to participate in the Company's Short-Term Incentive Compensation Plan as in effect from time to time. Any cash compensation payable under this paragraph shall be referred to as “Incentive Compensation” in this Agreement. The Company reserves the right to amend and/or terminate its Short-Term Incentive Compensation Plan and nothing in this Agreement entitles Executive to any particular level of participation in the Company's Short-Term Incentive Compensation Plan.  

          (c) Executive Fringe Benefits. During the term of Executive's employment with the Company pursuant to this Agreement, Executive shall be entitled to receive such executive fringe benefits as are provided to the executives in comparable positions under any of the Company's plans and/or programs in effect from time to time for which Executive is eligible to participate and to participate in such other benefit programs as are customarily available to executives of the Company, including, without limitation, paid time off and life, health and disability benefits. Nothing herein will alter or affect the right of Company, consistent with the applicable benefit plan documents, to alter, amend, or terminate such programs in its sole discretion at whatever time it chooses.

          (d) Tax Withholding and Offset. Executive’s compensation is subject to such deductions and withholdings as are authorized by Executive or required by law and/or policies of the Company in effect from time to time.  The Company, in its sole discretion, may offset any sum due from Executive to the Company (at the end of the term of this Agreement 

1

or otherwise) against any amount which would otherwise be due to the Executive to the maximum extent permitted by law. 

          (e) Expense Reimbursements. The Company shall pay or reimburse Executive for all reasonable business expenses incurred or paid by Executive in the course of performing Executive’s duties hereunder, including, but not limited to, reasonable travel expenses for Executive. The Company’s practice is to make such reimbursements on a monthly basis and, in any event, no later than the last day of the year immediately following the year in which Executive incurs the reimbursable expense. The amount of reimbursable expenses incurred in one taxable year shall not affect the expenses eligible for reimbursement in any other taxable year. No right to reimbursement is subject to liquidation or exchange for other benefits. As a condition to such payment or reimbursement, however, Executive shall maintain and provide to the Company reasonable documentation and receipts for such expenses. 
THIS AGREEMENT IS SUBJECT TO ARBITRATION

     3. Term. Unless sooner terminated pursuant to Section 4 of this Agreement, and subject to the provisions of Section 5 and 6 hereof, the term of this Agreement (the “Term”) shall commence as of the date hereof and shall continue until December 31, 2021.   Any employment of Executive by the Company following the expiration of the Agreement will be at-will and not subject to any termination benefits set forth herein.

     4. Termination. Notwithstanding the provisions of Section 3 hereof, but subject to the provisions of Section 5 hereof, Executive's employment shall terminate as follows: 

          (a) Death. Executive's employment shall terminate upon the death of Executive; provided, however, that the Company shall continue to pay (in accordance with its normal payroll procedures) the Base Salary to Executive's estate for a period of six (6) months after the date of Executive's death if Executive is employed by the Company on the date of Executive’s death. 

          (b) Termination for Cause. The Company may terminate Executive's employment at any time for “Cause” (as hereinafter defined) by delivering a written termination notice to Executive. For purposes of this Agreement, “Cause” shall mean any of the following: (i) fraud; (ii) embezzlement; (iii) Executive's commission of a felony; (iv) the willful or continued failure or refusal by Executive to perform and discharge Executive's duties, responsibilities and obligations under this Agreement; (v) any act of moral turpitude or willful misconduct by Executive intended to result in personal enrichment of Executive at the expense of the Company, or any of its affiliates or which has a material adverse impact on the business or reputation of the Company or any of its affiliates (such determination to be made by the Company’ Chief Executive Officer or other applicable executive officer of the Company in his or her reasonable judgment); (vi) gross negligence or intentional misconduct resulting in damage to the property, reputation or business of the Company; (vii) the ineligibility of Executive to perform Executive's duties because of a ruling, directive or other action by any agency of the United States or any state of the United States having regulatory authority over the Company; or (viii) Executive's failure to correct or cure any material breach of or default under this Agreement within ten (10) days after receiving written notice of such breach or default from the Company. 

          (c) Termination Without Cause. The Company may terminate Executive's employment at any time for any or no reason by delivering a written termination notice to Executive. 

          (d) Termination by Executive. Executive may terminate Executive’s employment at any time by delivering sixty (60) days prior written notice to the Company; provided, however, that the terms, conditions and benefits specified in Section 5 hereof shall apply or be payable to Executive only if such termination occurs as a result of a material breach by the Company of any provision of this Agreement for which the Executive provides written notice to the Company 

2

within ninety (90) days of the initial existence of the alleged material breach and which is not cured by the Company within thirty (30) days of Executive’s notice to the Company.

          (e) Termination Following Disability. In the event Executive becomes “disabled” (as defined below), the Company may terminate Executive's employment by delivering a written termination notice to Executive. Notwithstanding the foregoing, Executive shall continue to receive Executive’s full Base Salary and benefits to which Executive is entitled under this Agreement for a period of six (6) months after the effective date of such termination. For purposes of this section, the Executive shall be considered disabled if the Executive (i) is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, or (ii) is, by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, receiving income replacement benefits for a period of not less than three (3) months under the Company's disability insurance policy and/or salary continuation policy as in effect on the date of such disability. 

(f) Non-Disparagement. Executive agrees that during and following the termination of Executive’s employment Executive will not publicly (or in a manner Executive reasonably should have expected to be made public) disparage or otherwise make negative comments regarding the Company, its employees or its affiliates, provided, however, that the foregoing shall in no way restrict the Executive from accurate and good faith responses to a legal subpoena or reporting any concerns that Executive may have to (i) any authority within the Company designated to receive complaints or concerns from employees, including, without limitation, the Company's Board of Directors, Board of Managers or a committee thereof, or (ii) any regulator or other governmental authority with supervisory responsibility for the Company (including, without limitation, the Securities and Exchange Commission) or the Company's independent auditors. 

     5. Certain Termination Benefits. Executive shall be entitled to certain enumerated post-termination benefits if and only if the following events occur: 

     (i) the provisions of Section 6 do not apply; 

         (ii) either the Company terminates Executive's employment without Cause pursuant to Section 4(c) or Executive terminates Executive’s employment pursuant to Section 4(d) as a result of an uncured material breach by the Company of a material provision of this Agreement; and

         (iii) the Executive executes and delivers the release contemplated in Section (e) below, and any revocation period therein expires, on or before the 30th day after the date of Executive's termination from employment, 

then in such case the Company will provide Executive the benefits described in subsection (a) below and, if and to the extent that Executive is eligible to participate and has elected to participate in such plans, subsections (b) through (c) below. 

          (a) Base Salary and Incentive Compensation. The Company shall pay to Executive (i) Executive’s Base Salary (as in effect as of the date of Executive’s termination) and (ii) Incentive Compensation (in an aggregate amount equal to the applicable portion of the Incentive Compensation received by the Executive for the most recent fiscal year prior to Executive’s termination) as follows: 

3

	
							
	 

	 
	 
	 
	 
	 
	 
	 

	 
	 
	 
	 
	 
	 
	 

	Years of
	 
	 
	 
	 
	 
	 

	Service with
	 
	Base
	 
	 
	 
	Payout

	The Company
	 
	Salary
	 
	Incentive Compensation
	 
	Period

	Less than one
	 
	3 months
	 
	25% of the Short-Term Incentive Compensation Plan award for the most recent full fiscal year prior to termination
	 
	3 months

	 
	 
	 
	 
	 
	 
	 

	One but less than two
	 
	6 months
	 
	50% of the Short-Term Incentive Compensation Plan award for the most recent full fiscal year prior to termination
	 
	6 months

	 
	 
	 
	 
	 
	 
	 

	Two but less than three
	 
	9 months
	 
	75% of the Short-Term Incentive Compensation Plan award for the most recent full fiscal year prior to termination
	 
	9 months

	 
	 
	 
	 
	 
	 
	 

	Three or More
	 
	12 months
	 
	100% of the Short-Term Incentive Compensation Plan award for the most recent full fiscal year prior to termination
	 
	12 months

To the extent permitted under Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), and related Treasury Regulations, the sum of applicable Base Salary and Incentive Compensation shall be divided into equal monthly, semi-monthly or lesser payments and paid to the Executive over the applicable Payout Period shown in the table above, depending on the Executive's years of service at the time of termination. 

          (b) Group Life and Disability Insurance. If and to the extent that: (i) the Company's plans in effect from time to time permit such coverage and Executive has elected and is participating in such coverage as of the date of Executive’s termination from employment; and (ii) it is permitted under Code Section 409A, the Company shall continue to provide Executive with group life and disability insurance coverage for the applicable Payout Period described above in (a) following termination at coverage levels and rates equal to those applicable to Executive immediately prior to such termination or, if different, as offered to other executive level employees during such applicable period. 

          (c) Medical Insurance. Upon termination of employment, Executive shall be entitled to all COBRA continuation benefits available under the Company's group health plans to similarly situated employees. To the extent permitted under Code Section 409A and the terms of the applicable benefit plans, and to the extent Executive affirmatively elects to continue participation in the Company’s group health plans under COBRA, during the applicable Payout Period, the Company shall subsidize the amounts Executive is required to pay for such COBRA continuation benefits such that the Executive will only be required to pay the rates that active, similarly situated employees must pay for such benefits. Upon the expiration of such Payout Period, the Executive will be responsible for timely paying the full COBRA premiums for the remaining COBRA continuation period. 

          (d) Offset. To the extent permitted by law, any benefits received by Executive in connection with any other employment accepted by Executive that are reasonably comparable, even if not necessarily as beneficial to Executive, to the fringe benefits then being provided by the Company pursuant to paragraphs (b) and (c) of this Section 5, shall be deemed to be the equivalent of such benefits, and shall terminate the Company's responsibility to continue providing the benefits then being provided by the Company pursuant to paragraphs (b) and (c) of this Section 5. The Company agrees that if Executive's employment with the Company is terminated, Executive shall otherwise have no duty to mitigate damages to obtain the benefits set forth in this Section 5. 

          (e) General Release. Acceptance by Executive of any amounts pursuant to this Section 5 shall constitute a full and complete release by Executive of any and all claims Executive may have against the Company, its officers, directors, employees or affiliates or its affiliates' officers, directors, or employees, including, but not limited to, claims Executive 

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might have relating to Executive's employment with the Company and cessation thereof; provided, however, that there may properly be excluded from the scope of such general release the following: (i) claims that Executive may have against the Company for reimbursement of ordinary and necessary business expenses incurred by Executive during the course of Executive’s employment; (ii) claims that may be made by the Executive for payment of Base Salary, bonuses, fringe benefits, stock upon vesting of incentive stock awards, stock upon exercise of stock options properly due to Executive, or other amounts or benefits due to Executive under this Agreement; (iii) claims respecting any matters for which the Executive is entitled to be indemnified under the Company's Articles of Incorporation, By-laws, similar organizational documents, or applicable law, respecting third party claims asserted or third party litigation pending or threatened against the Executive; and (iv) any claims prohibited by applicable law from being included in the release. 

A condition to Executive's receipt of any amounts pursuant to this Section 5 shall be Executive's execution and delivery of a general release drafted by the Company as described above, and the expiration of any revocation period therein, on or before the 30th day after the date of Executive's termination from employment. In exchange for such release, the Company shall, if Executive's employment is terminated without Cause, provide a release to Executive, but only with respect to claims against Executive that Executive identifies in writing to the Company at the time of such termination and as otherwise reasonably acceptable to the Company. 

     6. Effect of Change of Control. 

          (a) If within one (1) year following a “Change of Control” (as hereinafter defined), Executive terminates Executive’s employment with the Company for “Good Reason” (as hereinafter defined) or the Company terminates Executive's employment for any reason other than Cause, death or disability (as defined in Section 4(e)), the Company shall pay to Executive in a lump sum within thirty (30) days following Executive's termination of employment: (i) an amount equal to one times the Executive's Base Salary as of the date of termination; and (ii) an amount equal to the Incentive Compensation received by the Executive for the most recent fiscal year prior to Executive’s termination. The Company shall also provide the Executive with out-placement assistance. In addition, to the extent permitted under Code Section 409A and the terms of the applicable benefit plans, and, with respect the Company’s group health plans, to the extent Executive affirmatively elects to continue participation in such group health plans under COBRA, for the period equal to twelve (12) months from the date of termination, the Company shall continue to provide Executive with coverage under the Company's various benefit plans in which Executive participates at the time of termination at coverage levels and rates substantially equal to those applicable immediately prior to such termination. A condition to Executive's receipt of any amounts pursuant to this Section 6(a) shall be Executive's execution and delivery of a general release as described in Section 5(e) above, and the expiration of any revocation period therein, on or before the 30th day after the date of Executive's termination from employment.

          (b) “Change of Control” means, with respect to the Executive, a “change in the ownership of a corporation,” a “change in the effective control of a corporation,” or a “change in the ownership of a substantial portion of a corporation’s assets” as defined below and further defined in and interpreted in accordance with Treasury Regulations Section 1.409A-3(i)(5) (which events are collectively referred to herein as “Change of Control events”) after the date of this Agreement. To constitute a Change of Control with respect to Executive, the Change of Control event must involve and relate to a Change of Control of Delta Apparel, Inc. 

         (i) A “change in the ownership of a corporation” occurs on the date that any one person, or more than one person acting as a group, acquires ownership of stock of the corporation that, together with stock held by such person or group, constitutes more than 50 percent of the total fair market value or total voting power of the stock of such corporation. However, if any one person, or more than one person acting as a group, is considered to own more than 50 percent of 

5

the total fair market value or total voting power of the stock of a corporation, the acquisition of additional stock by the same person or persons is not considered to cause a change in ownership of the corporation (or to cause a change in the effective control of the corporation (within the meaning of paragraph (ii) below)). 

         (ii) Notwithstanding that a corporation has not undergone a change in ownership under paragraph (i) above, a “change in the effective control of a corporation” occurs on the date that either: (A) Any one person, or more than one person acting as a group, acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by such person or persons) ownership of stock of the corporation possessing 35 percent or more of the total voting power of the stock of such corporation; or (B) A majority of members of Delta Apparel, Inc.’s Board of Directors is replaced during any 12-month period by directors whose appointment or election is not endorsed by a majority of the members of Delta Apparel, Inc.’s Board of Directors prior to the date of the appointment or election. 

(iii)  A “change in the ownership of substantial portion of a corporation's assets” occurs on the date that any one person, or more than one person acting as a group acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by such person or persons) assets from the corporation that have a total gross fair market value equal to or more than 40 percent of the total gross fair market value of all of the assets of the corporation immediately before such acquisition or acquisitions. For this purpose, gross fair market value means the value of the assets of the corporation, or the value of the assets being disposed of, determined without regard to any liabilities associated with such assets.

For purposes of paragraphs (i), (ii) and (iii) immediately above, the term corporation refers solely to the relevant corporation identified in the opening paragraph of this Section 6(b) for which no other corporation is a majority shareholder. 

          (c) “Good Reason” shall mean any of the following actions taken by the Company without Executive's written consent after a Change of Control: 

         (i) the assignment to Executive by the Company of duties inconsistent with, or the reduction of the powers and functions associated with, Executive's position, duties, and responsibilities  immediately prior to a Change of Control or Potential Change of Control (as defined below), or an adverse change in Executive's titles or offices as in effect immediately prior to a Change of Control or Potential Change of Control, or any removal of the Executive from or any failure to re-elect Executive to any of such positions, except in connection with the termination of Executive’s employment for disability (as provided in Section 4(e)) or Cause or as a result of Executive's death, except to the extent that a change in duties relates to the elimination of responsibilities attendant to the Company or its parent company, as applicable, no longer being a publicly traded company;

         (ii) a reduction by the Company in the Executive's Base Salary as in effect on the date of a Change of Control or Potential Change of Control, or as the same may be subsequently increased from time to time during the term of this Agreement;  

         (iii) the Company shall require the Executive to be based anywhere other than at or within a 25-mile radius of the location where the Executive is based on the date of a Change of Control or Potential Change of Control, or if Executive agrees to such relocation, the Company fails to reimburse the Executive for moving and all other expenses reasonably incurred in connection with such move; 
 
     (iv) a significant increase in Executive's required travel on behalf of the Company; 

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         (v) the Company shall fail to continue in effect any Company-sponsored plan or benefit that is in effect on the date of a Change of Control or Potential Change of Control (other than the Company’s Incentive Stock Award Plan or the Company's Stock Option Plan) and pursuant to which Executive has received awards or benefits and is participating and that provides (A) incentive or bonus compensation, (B) fringe benefits such as paid time off, medical benefits, life insurance and accident insurance, (C) reimbursement for reasonable expenses incurred by the Executive in connection with the performance of duties with the Company, or (D) retirement benefits such as an Internal Revenue Code Section 401(k) plan, except to the extent that such plans taken as a whole are replaced with substantially comparable plans; 

         (vi) any material breach by the Company of any provision of this Agreement for which the Executive provides written notice to the Company within ninety (90) days of the initial existence of the alleged material breach and which is not cured by the Company within thirty (30) days of Executive’s notice to the Company; and

         (vii) any failure by the Company to obtain the assumption of this Agreement by any successor or assign of the Company effected in accordance with the provisions of Section 12. 

          (d) “Potential Change of Control” shall mean the date, which must be within twelve (12) months preceding a Change of Control, as of which (i) the Company enters into an agreement the consummation of which, or the approval by shareholders of which, would constitute a Change of Control; (ii) proxies for the election of directors of Delta Apparel, Inc.’s Board of Directors are solicited by anyone other than Delta Apparel, Inc. which solicitation, if successful, would result in a Change of Control; (iii) any person (including, but not limited to, any individual, partnership, joint venture, corporation, association or trust) publicly announces an intention to take or to consider taking actions which, if consummated, would constitute a Change of Control; or (iv) any other event occurs which is deemed to be a Potential Change of Control by Delta Apparel, Inc.’s Board of Directors and Delta Apparel, Inc.’s Board of Directors adopts a resolution to the effect that a Potential Change of Control has occurred. 

          (e) In the event that (i) Executive would otherwise be entitled to the compensation and benefits described in Section 5 or 6(a) hereof (“Compensation Payments”), and (ii) the Company determines, based upon the advice of tax counsel, that, as a result of such Compensation Payments and any other benefits or payments required to be taken into account under the Internal Revenue Code of 1986, as amended (the “Code”), Section 280G(b)(2) (collectively, “Parachute Payments”), any of such Parachute Payments would be reportable by the Company as an “excess parachute payment” under Code Section 280G, such Compensation Payments shall be reduced to the extent necessary to cause the aggregate present value (determined in accordance with Code Section 280G and applicable regulations promulgated thereunder) of the Executive's Parachute Payments to equal 2.99 times the “base amount” as defined in Code Section 280G(b)(3) with respect to such Executive. However, such reduction in the Compensation Payments shall be made only if, in the opinion of such tax counsel, it would result in a larger Parachute Payment to the Executive than payment of the unreduced Parachute Payments after deduction in each case of tax imposed on and payable by the Executive under Section 4999 of the Code (“Excise Tax”). The value of any non-cash benefits or any deferred payment or benefit for purposes of this paragraph shall be determined by a firm of independent auditors selected by the Company. 

          (f) The parties hereto agree that the payments provided under Section 6(a) above are reasonable compensation in light of Executive's services rendered to the Company and that neither party shall assert that the payment of such benefits constitutes an “excess parachute payment” within the meaning of Section 280G(b)(1) of the Code. 

          (g) Unless the Company determines that any Parachute Payments made hereunder must be reported as “excess parachute payments” in accordance with Section 6(e) above, neither party shall file any return taking the position that the payment of such benefits constitutes an “excess parachute payment” within the meaning of Section 280G(b)(1) of the Code. 

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     7. Non-Competition. During the Term and for an additional period of time (i) beginning as of the earlier of the expiration of the Term or the termination of Executive’s employment with the Company for any reason whatsoever, and (ii) extending for twelve (12) calendar months, Executive will not, directly or indirectly, compete with the Company by “Working” (as defined below) for a “Competing Business” (as defined below) in the “Restricted Territory” (as defined below).  For purposes of Sections 7, 8 and 9 of this Agreement, “Company” shall be defined to include the Company as identified in the initial paragraph of this Agreement and all of such entity’s parent companies, subsidiaries, affiliates and other related companies or entities.

“Working” shall be limited to employment for, contracting with, or otherwise providing direct or indirect assistance as a proprietor, partner, investor, shareholder (other than as a passive investor owning less than a 5% equity interest), director, officer, employee, consultant, independent contractor, or other similar capacity for or on Executive’s own behalf, or for or on behalf of any other person, partnership, association, corporation or business entity of any type (collectively a “Person”) that (i) is performed in a position that is the same or similar to any position that Executive held with the Company in the 24 months prior to the termination of Executive’s employment with the Company; (ii) involves performing similar duties or services for such Person as Executive provided or performed for the Company in the 24 months prior to the termination of Executive’s employment with the Company; or (iii) involves the sale of Products or products similar to the Products or the supervision of persons selling Products.

“Competing Business” shall be defined as any business that engages, in whole or in part, in: (i) the manufacturing, producing, sourcing, marketing, selling, distributing, fulfilling and/or providing of activewear, casual, athletic and/or lifestyle apparel or garments; or (ii) the manufacturing, producing, sourcing, marketing, selling distributing, fulfilling and/or providing of (A) direct-to-garment printed apparel or other fabric-based items or products, (B) print-to-order, made-to-order or on-demand printed paper, poster, or sticker items/products, and/or (C) other promotional items or products.

“Products” shall be defined as (i) the activewear, casual, athletic and/or lifestyle apparel or garments or (ii) direct-to-garment printed apparel or other fabric-based items or products, print-to-order, made-to-order or on-demand printed paper, poster, or sticker items/products, and/or other promotional items or products, that are either actively being manufactured, produced, sourced, marketed, sold, distributed, fulfilled and/or provided by the Company at the time that Executive is terminated from the Company or (ii) any items, products or goods that are subject to any confidential prospective business opportunity of the Company of which Executive is knowledgeable about or has responsibilities for pursuing or developing on behalf of the Company at the time that Executive is terminated from the Company.

“Restricted Territory” shall be limited to the following discrete, severable, geographic areas:  (A) the United States of America and its territories, possessions and military bases and installations; (B) any country or other jurisdiction throughout the world where the Company’s Products are sold, offered for sale and/or delivered as of the date hereof or where the Company licenses or otherwise permits the sale or delivery of Products as of the date hereof; (C) any country or other jurisdiction throughout the world where the Company applied for trademark registration or similar intellectual property rights with respect to any of its intellectual property assets as of the date hereof; and (D) if the foregoing subsections (A), (B) or (C) are finally determined to be too broad by a court of competent jurisdiction, the states throughout the United States where Products or services are sold, offered for sale, delivered and/or provided by the Company. 

     8. Non-Solicitation of Employees, Customers and Vendors. During the Term and for an additional period of one year that commences from the earlier of the expiration of the Term or the termination of Executive’s employment with the Company for any reason whatsoever, Executive shall not, on Executive’s own behalf or for or on behalf of any other Person: (a) solicit or hire any employee of the Company to join a Competing Business; (b) attempt to influence or induce any employee of the Company to leave the employment of the Company (other than through general 

8

advertisements not directed at any particular employee or group of employees); (c) use or disclose the names and addresses of the Company's employees; (d) Solicit any Customer of the Company for the purpose of  (i) providing Products or services to such Customer that are competitive with the Products on behalf of a Competing Business; (ii) providing Products to a Customer in competition with the Company; (iii) diverting or attempting to divert from the Company the business of any Customer, including but not limited to any actions that cause such Customer to reduce the level or amount of Products provided by Company to such Customer; or (iv) otherwise intentionally interfering with the Company’s business relationship with any Customer that would cause such Customer to cease doing business with the Company or reduce the amount of Products the Customer purchases from the Company; or (e) intentionally interfere with the Company’s business relationships with its suppliers or vendors or take any other action that would cause such suppliers or vendors to cease doing business with the Company or reduce the amount of goods, materials or services a supplier or vendor provides to the Company. 

“Customer” shall be limited to any Person to which the Company has sold Products, Solicited for the sale of Products or has plans or intentions to Solicit for the sale of Products.  If the foregoing definition of “Customer” is finally determined to be too broad by a court of competent jurisdiction, the following definition of “Customer will apply: any Person to which the Company has sold Products, Solicited for the sale of Products or has plans or intentions to Solicit for the sale of Products and (i) of whom Executive Solicited during Executive’s employment with the Company; (ii) of whom employees of the Company supervised by Executive Solicited during Executive’s employment with the Company; (iii) about whom Executive was exposed to Company Data or Trade Secrets in the ordinary course of business as a result of Executive’s association with the Company; (iv) about whom Executive had access to the pricing, advertising and/or marketing schemes developed by Executive or the Company for such customer; or (v) with whom Executive had material contacts during Executive’s employment with the Company.  

“Solicit” shall mean directly or indirectly soliciting, working on a bid, influencing, contacting, contracting with, selling, accepting sales from, seeking sales or other business opportunities from, purchasing, buying, servicing, or other similar dealings with a Customer (or providing information or assistance to a Competing Business that would enable or help such Competing Business Solicit a Customer) as it relates to the purchase of Products (or material components of the Products) or the sale of the Products.

     9. Non-Disclosure of Company Data and Trade Secrets; Inventions.  The Company has a proprietary interest in Trade Secrets and Company Data that require secrecy.
  
(a) Except as may be necessary to perform Executive’s duties for the Company, Executive shall hold Trade Secrets in confidence and shall not use, misappropriate, or divulge Trade Secrets of the Company at any time during the course of Executive’s employment with the Company and after Executive’s employment with the Company ends. Except as may be necessary to perform Executive’s duties for the Company, Executive shall hold Company Data in confidence and shall not use, misappropriate, or divulge Company Data to any Person at any time during Executive’s employment with the Company and for a period of five (5) years after Executive’s employment with the Company ends.
  
(b) Nothing in this Agreement is intended to interfere with or discourage a good faith disclosure to any governmental entity related to a suspected violation of the law.  Executive is hereby notified in accordance with the Defend Trade Secrets Act of 2016 that Executive will not be held criminally or civilly liable under any federal or state trade secret law for any disclosure of a Trade Secret that: (A) is made: (1) in confidence to a federal, state, or local government official, either directly or indirectly, or to an attorney; and (2) solely for the purpose of reporting or investigating a suspected violation of law; or (B) is made in a complaint or other document that is filed under seal in a lawsuit or other proceeding.  If the Executive files a lawsuit for retaliation by the Company for reporting a suspected violation of law, the Executive may disclose the Company's Trade Secrets to the Executive's attorney and use the Trade 

9

Secret information in the court proceeding if the Executive: (A) files any document containing the Trade Secret under seal; and (B) does not disclose the Trade Secret, except pursuant to court order.

(c) “Trade Secrets” and “Company Data”.

(i) “Trade Secrets” are Company information, in any medium or form, including, but not limited to, (i) a formula, pattern, compilation, program, device, method, technique, product, system, or process, design, prototype, procedure, or code that (a) derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, the public or any other person who can obtain economic value from its disclosure or use, and (b) is the subject of Company efforts that are reasonable under the circumstances to maintain its secrecy; and/or (ii) any Company information that could otherwise come under the definition of Trade Secret under the South Carolina Trade Secrets Act, the federal Defend Trade Secrets Act or other applicable law in the jurisdiction where Executive works.
   
(ii) “Company Data” is defined as information, in any medium or form, related to the Company’s business, products or services that (i) is competitively sensitive information; (ii) is important or valuable to the Company; (iii) is kept in confidence by the Company; (iv) becomes known to or exposed to Executive through Executive’s employment with the Company; and (v) does not fall within the definition of Trade Secret above. 

(d) Inventions. Executive will promptly disclose to the Company in writing and assign and transfer to the Company: (i) all inventions and improvements, and all right, title and interest therein, made or conceived by Executive solely or jointly with others in the course of Executive’s employment or on the Company's time or at its expense or using the Company's material or facilities; and (ii) all inventions and improvements, and all right, title and interest therein, relating to the Company's business made or conceived by Executive solely or jointly with others during the Executive’s employment with the Company. 

     10. Remedies and Representations Relating to the Protective Covenants.
 
(a) In the event that Executive breaches any of the “Protective Covenants” (paragraphs 7, 8 or 9 hereof), the parties hereto recognize that irreparable damage will result to the Company. The parties therefore agree that the Company shall be entitled, in addition to any other remedies or damages available to it under the South Carolina Trade Secrets Act, the federal Defend Trade Secrets Act, or other statutory or common law, to obtain injunctive relief without bond in order to restrain the violation of such covenants by Executive.  In the event that the Company prevails, in whole or in part, in any such action involving the Protective Covenants, Executive shall be liable to the Company for all of its costs and expenses, including, without limitation, reasonable attorney fees and expert witness fees.

(b) In addition to the remedies set forth above, and to the extent applicable, Company shall be entitled to receive from Executive the profits, if any, received by Executive upon exercise and/or sale of any Company granted stock options or incentive stock awards or upon the vesting of or lapse of the restrictions on any grant of any stock awards to the extent such options or rights were exercised, or such vesting occurred or restrictions lapsed, within the six-month period prior to the termination of Executive's employment. 

(c) If any court should construe any Protective Covenant, or any clause or portion of these Protective Covenants, to be too broad to prevent enforcement to its fullest extent, then such restrictions shall be enforced to the maximum extent that the court finds reasonable and enforceable.  In the event that any of these provisions or any clause or portion of these provisions shall be held to be invalid or unenforceable, the remaining provisions, or any clause or portion of these provisions, hereof shall nevertheless continue to be valid and enforceable as though the invalid or unenforceable provisions, or clauses or portions of these provisions, had not been included therein.  If any provision, or any clause 

10

or portion of these Protective Covenants or in this Agreement is unlawful, against public policy, or otherwise declared void or unenforceable, such provision, or clause or portion of these provisions, shall be deemed excluded from this Agreement, which shall in all other respects remain in effect. Upon a determination that any provision, clause, portion of any provision, or portion of any clause of the Protective Covenants shall be held to be unlawful, against public policy, invalid, or otherwise void or unenforceable, the court may modify such provision, clause, portion of any provision, or portion of any clause and grant only the relief reasonably necessary to (i) protect Company’s legitimate business interest or interests and (ii) achieve the original intent of the parties to the extent possible.

(d) Executive acknowledges and confirms that the Protective Covenants contained in this Agreement (including without limitation the length of the term and geographic scope of the Protective Covenants) are reasonably necessary to protect the legitimate business interests of the Company, are not overbroad or unfair, and are not the result of overreaching, duress or coercion of any kind. Executive further acknowledges and confirms that the compensation paid to Executive for work done for and on behalf of the Company is sufficient, fair and reasonable and supports these covenants.

(e) The Protective Covenants may be enforced in a court of competent jurisdiction in Greenville County, South Carolina, and Executive agrees to submit to jurisdiction in Greenville County, South Carolina, whether or not Executive is then residing in South Carolina. In addition, the Company, in its sole discretion, may institute a proceeding in the location of Executive’s residence or where Executive is working to remedy a violation of this Agreement.  Enforcement of the Protective Covenants is specifically excluded from the arbitration procedures set forth in this Agreement.

(f) Executive acknowledges that the obligations of this Agreement survive Executive’s termination of employment and, if relevant, any subsequent employment with the Company, no matter how such employment is ended or terminated.  In the event that Executive breaches any of the Protective Covenants, the corresponding restricted period shall be extended by the amount of time Executive was in violation of the covenant.

(g) As a condition of employment and a material terms under this Agreement, Executive agrees that, at any time during his/her employment, if requested by the Company, Executive shall sign an amendment (without additional consideration) to this Agreement which would modify the Protective Covenants contained herein based on changes to Executive’s duties, changes in the Company’s business, changes in the Customers or territory the Executive services, or changes in the law regarding restrictive covenants. The Protective Covenants contained herein are independent, separate from, and cumulative to other restrictive covenants established between Executive and Company, including but not limited to any non-disclosure, non-solicitation, or other similar agreements or policies established by the Company or agreed to by the parties.

     11. Compliance With Section 409A. To the extent a payment hereunder is, or shall become, subject to the application of Section 409A of the Code and related Treasury Regulations, the following shall apply:

(a) This Agreement is intended to comply with the requirements of Section 409A and the Treasury Regulations and other guidance issued thereunder, as in effect from time to time, and to avoid any additional tax thereunder.  To the extent a provision of this Agreement is contrary to or fails to address the requirements of Code Section 409A and related Treasury Regulations, this Agreement shall be construed and administered as necessary to comply with such requirements to the extent allowed under applicable law and this Agreement is appropriately amended to comply with such requirements.
(b) The time or schedule of payment hereunder may be accelerated or delayed only upon such events and conditions as the Internal Revenue Service (“IRS”) may permit in generally applicable published regulatory or other guidance under Code Section 409A.

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(c) For purposes of this Agreement, all references to “termination of employment” or similar phrases shall be construed to require a “separation from service” (as defined in Treasury Regulation Section 1.409A-1(h)).

(d) To the extent compliance with the requirements of Treasury Regulation Section 1.409A-3(i)(2) (or any successor provision) is necessary to avoid the application of an additional tax under Code Section 409A to payments due to Executive upon Executive’s separation from service at a time when Executive is determined to be a “specified employee” under Treasury Regulation Section 1.409A-1(i) and any stock of the Company or any of its affiliates or related entities is publicly traded on an established securities market or otherwise, then notwithstanding any other provision of this Agreement, any such payments that are otherwise due within six (6) months following Executive’s separation from service will be deferred without interest and paid to Executive in a lump sum immediately following that six (6) month period.

(e) Neither the Company nor its affiliates, subsidiaries or related entities, nor any of the Company's or such entities' directors, officers or agents will be liable to Executive or anyone else if the Internal Revenue Service or any court or other authority determines that any payments or benefits to be provided under this Agreement are subject to taxes, penalties or interest as a result of failing to comply with or be exempt from Section 409A.

     12. Miscellaneous. 

(a) Notices. Any notices, consents, demands, requests, approvals and other communications to be given under this Agreement by either party to the other must be in writing and must be either (i) personally delivered, (ii) mailed by registered or certified mail, postage prepaid with return receipt requested, or (iii) delivered by reputable overnight express delivery service or reputable same-day local courier service, with confirmed receipt, to the address set forth below, or to such other address as may be designated by the parties from time to time in accordance with this Section 13(a): 

If to the Company: 
Delta Apparel, Inc.
322 South Main Street
Greenville, SC 29601 
Attention: General Counsel

If to Executive: 
1020 N. Shore
Anderson, SC 29625

Notices delivered personally or by overnight express delivery service or by local courier service are deemed given as of actual receipt. Mailed notices are deemed given three (3) business days after mailing. 

          (b) Entire Agreement. This Agreement supersedes any and all other agreements, either oral or written, between the parties with respect to the subject matter of this Agreement as applicable to the Term and contains all of the covenants and agreements between the parties with respect to the subject matter of this Agreement as applicable to the Term. 

          (c) Modification. No change or modification of this Agreement is valid or binding upon the parties, nor will any waiver, termination or discharge of any term or condition of this Agreement be so binding, unless confirmed in writing and signed by the parties to this Agreement.

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          (d) Governing Law and Venue. This Agreement shall be governed by and construed and enforced in accordance with, the laws of the State of South Carolina without regard to the choice of law principles. 

          (e)  Counterparts. This Agreement may be executed in one or more counterparts, each of which will be deemed to be an original copy of this Agreement, and all of which, when taken together, shall be deemed to constitute one and the same agreement. The exchange of copies of this Agreement and of signature pages by facsimile transmission shall constitute effective execution and delivery of this Agreement as to the parties and may be used in lieu of the original agreement for all purposes. Signatures of the parties transmitted by facsimile shall be deemed to be their original signatures for any purpose whatsoever. 

          (f) Costs. Except as otherwise specifically set forth herein, if any action at law or in equity is necessary to enforce or interpret the terms of this Agreement, each party shall bear its own costs and expenses (including, without limitation, attorneys' fees); provided, however, that in the event Executive incurs costs or expenses in connection with successfully enforcing this Agreement following a Change of Control, the Company shall reimburse the Executive for all such reasonable costs and expenses (including, without limitation, attorneys' fees). 

          (g) Estate. If Executive dies prior to the expiration of the term of employment or during a period when monies are owing to Executive, any monies that may be due Executive from the Company under this Agreement as of the date of Executive’s death shall be paid to Executive’s estate as and when otherwise payable. 

          (h) Assignment. The rights, duties and benefits to Executive hereunder are personal to Executive, and no such right, duty or benefit may be assigned by Executive without the prior written consent of the Company. The rights and obligations of the Company shall inure to the benefit and be binding upon it and its successors and assigns, which assignment shall not require the consent of Executive.  Company may assign this Agreement to any Person, including without limitation any parent company, affiliate or related company, at its discretion.

         (i) Binding Effect. This Agreement is binding upon and shall inure to the benefit of the parties hereto, their respective executors, administrators, successors, personal representatives, heirs and assigns permitted under subsection 12(h) above. 

          (j) Third-Party Beneficiaries. Nothing in this Agreement, express or implied, is intended to or shall confer upon any other person or entity (other than affiliates of the Company as provided herein) any rights, benefits or remedies of any nature whatsoever under or by reason of this Agreement. 

          (k) Waiver of Breach. The waiver by the Company or Executive of a breach of any provision of this Agreement by Executive or the Company may not operate or be construed as a waiver of any subsequent breach. 

         (l) Construction. The parties agree that this Agreement was freely negotiated among the parties and that Executive has had the opportunity to consult with an attorney in negotiating its terms. Accordingly, the parties agree that this Agreement shall not be construed in favor of any party or against any party. The parties further agree that the headings and subheadings are for convenience of the parties only and shall not be given effect in the construction of this Agreement. 

     13. Arbitration. 

(a) Any legal claim (other than those excepted below) arising out of or in any way relating to this Agreement or Executive's employment or the termination of Executive's employment shall be subject to binding and final arbitration in Greenville County, South Carolina, pursuant to the Commercial Arbitration Rules of the American Arbitration Association, the cost of which shall be equally shared between the parties. Unless otherwise provided herein, the 

13

arbitration shall be conducted by a single arbitrator in accordance with the Employment Arbitration Rules and Mediation Procedures published by the American Arbitration Association. The arbitrator shall be selected by mutual agreement of the parties. If the parties cannot agree on an arbitrator within thirty (30) days after written request for arbitration is made by one party to the controversy, a neutral arbitrator shall be appointed according to the procedures set forth in the American Arbitration Association Employment Arbitration Rules and Mediation Procedures. In rendering the award, the arbitrator shall have the authority to resolve only the legal dispute between the parties, shall not have the authority to abridge or enlarge substantive rights or remedies available under existing law, and shall determine the rights and obligations of the parties according to the substantive and procedural laws of South Carolina. In addition, the arbitrator's decision and award shall be in writing and signed by the arbitrator, and accompanied by a concise written explanation of the basis of the award. The award rendered by the arbitrator shall be final and binding, and judgment on the award may be entered in any court having jurisdiction thereof. The arbitrator is authorized to award any party a sum deemed proper for the time, expense, and trouble of arbitration, including arbitration fees and attorneys' fees.

(b) Types of Claims.  All legal claims brought by Executive against Company related to this Agreement, the employment relationship, terms and conditions of employment, and/or termination from employment are subject to this dispute resolution procedure. The above terms notwithstanding, any legal claim brought by Executive or Company for or relating to workers' compensation, unemployment compensation benefits, breach, violation or misappropriation of Company's Trade Secrets, provisions of any confidentiality agreements or noncompete agreements or other restrictive covenants (including but not limited to the Protective Covenants), and claims alleging status or membership with regard to any employment benefit plan governed by the Employee Retirement Income Security Act, and/or charges filed with the National Labor Relations Board, U.S. Department of Labor, or Equal Employment Opportunity Commission, are not subject to this arbitration procedure.

(c) Class Action.  Executive expressly agrees not to commence or file any class action, including any class arbitration against Company, or join or serve in any representative capacity in any class action, including class arbitration, against or involving the Company.

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

	 
	 
	 
	 
	 
	 
	 

	 
	 
	 
	 
	 
	 
	 

	 
	 
	Delta Apparel, Inc.
	 
	 

	 
	 
	 
	 
	 

	 
	 
	By:
	 
	 /s/ Robert W. Humphreys
	 
	 

	 
	 
	Name:
	 
	 
Robert W. Humphreys 
	 
	 

	 
	 
	Title:
	 
	Chairman & CEO
	 
	 

	 
	 
	 
	 
	 
	 
	 

	 
	 
	“Executive”
	 
	 

	 
	 
	By:
	 
	 /s/ Deborah H. Merrill
	 
	 

	 
	 
	Name:
	 
	 
Deborah H. Merrill
	 
	 

	 
	 
	Title:
	 
	CFO and President, Delta Group
	 
	 

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