Document:

Exhibit

AMENDED AND RESTATED
INVESTMENT AGREEMENT 
This AMENDED AND RESTATED INVESTMENT AGREEMENT (this “Agreement”) is entered into as of the 9th day of February, 2018 by and among JPMorgan Chase Funding Inc., a Delaware corporation (“JPM”), JCP Realty Partners, LLC, a Delaware limited liability company (“JCP”), Juniper NVM, LLC, a Delaware limited liability company (“Juniper” and together with JPM and JCP, “Investors”), and IMH Financial Corporation, a Delaware corporation (the “Company” and, together with Investors, the “Parties”).
WHEREAS, the Company, JPM and SRE Monarch, LLC, a Delaware limited liability company (“Seller”) entered into that certain Preferred Stock Purchase Agreement dated as of April 11, 2017 (the “Purchase Agreement”), pursuant to which JPM purchased from Seller all of the outstanding shares (the “B-2 Purchased Shares”) of the Company’s Series B-2 Cumulative Convertible Preferred Stock, $0.01 par value per share (the “Series B-2 Stock”), on the terms and conditions set forth in the Purchase Agreement;
WHEREAS, concurrently with the execution of the Purchase Agreement, the Company and Investors entered into an Investment Agreement dated as of April 11, 2017 (the “Original Agreement”) in order to set forth their rights and obligations with respect to certain matters related to the Company, the B-2 Purchased Shares and Investors’ ownership of the Company’s Series B-1 Cumulative Convertible Preferred Stock, $0.01 par value per share (the “Series B-1 Stock”) and the Series B-2 Stock, as applicable;
WHEREAS, concurrently with the execution of this Agreement, the Company and JPM are entering into that certain Series B-3 Cumulative Convertible Preferred Stock Subscription Agreement dated as of the date hereof (the “Subscription Agreement”), pursuant to which JPM is purchasing from the Company 2,352,941 shares (the “B-3 Purchased Shares” and together with B-2 Purchased Shares, the “Purchased Shares”) of the Company’s Series B-3 Cumulative Convertible Preferred Stock, $0.01 par value per share (the “Series B-3 Stock” and together with Series B-1 Stock and Series B-2 Stock, the “Series B Preferred Stock”), on the terms and conditions set forth in the Subscription Agreement; 
WHEREAS, in connection with the transactions contemplated by the Purchase Agreement, the Certificate of Designation of the Company’s Series B Cumulative Preferred Stock in effect as of April 10, 2017 (the “Original Certificate”) was amended and restated in the form attached as Exhibit A to the Original Agreement (the “Existing Certificate”), and in connection with the transactions contemplated by the Subscription Agreement, the Existing Certificate will be amended and restated in the form attached as Exhibit A hereto (the “Restated Certificate”) concurrently with the closing of the transactions contemplated by the Subscription Agreement; 
WHEREAS, pursuant to the Existing Certificate, the approval of JCP and Juniper, in their respective capacity as a holder of shares of the Series B-1 Stock, is required for the transactions contemplated by the Subscription Agreement and the amendment and restatement of the Existing Certificate; and 

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WHEREAS, in order to induce JPM, and as a condition to JPM’s willingness, to enter into the Subscription Agreement and purchase the B-3 Purchased Shares, and in order to induce JCP and Juniper to approve the transactions contemplated by the Subscription Agreement and this Agreement, the Company and Investors are entering into this Agreement in order to amend and restate the Original Agreement in its entirety as set forth herein.
NOW, THEREFORE, in consideration of the premises and the mutual agreements hereinafter set forth, the Parties hereby agree as follows:
Article 1
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Investors that:
Section 1.1    Representations in the Purchase Agreement and the Subscription Agreement.  Each of the representations and warranties of the Company set forth (a) in Article 3 of the Purchase Agreement was true and correct as of the date thereof and (b) in Article 2 of the Subscription Agreement is true and correct as of the date hereof.  
Section 1.2    Authority; Execution; Enforceability.  The Company has full power and authority to execute and deliver this Agreement and to perform its obligations hereunder. The execution and delivery of this Agreement, the performance of its obligations hereunder, and the consummation of the transactions contemplated hereby, including the filing of the Restated Certificate with the Secretary of State of the State of Delaware, by the Company have been duly authorized by all requisite action on the part of the Company and its stockholders and no other action on the part of the Company or its stockholders is necessary to authorize the execution, delivery and performance of this Agreement by the Company or the consummation of the transactions contemplated hereby.  Assuming due execution and delivery of this Agreement by Investors, this Agreement constitutes the valid and legally binding obligation of the Company, enforceable against it in accordance with its terms and conditions, subject to (a) bankruptcy, insolvency, reorganization, moratorium and similar laws affecting creditors’ rights and remedies generally and (b) general principles of equity. 
Section 1.3    No Conflicts.  Neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated by this Agreement will conflict with or constitute on the part of the Company a breach of or default (or an event which, with notice or lapse of time or both, would constitute a default) or give rise to any right of termination, amendment, cancellation or acceleration under (a) its certificate of incorporation, as amended, including the certificates of designation of any preferred stock of the Company; (b) its by-laws, as amended; (c) any loan or credit agreement, note, bond, mortgage, indenture, lease, permit, concession, franchise, license, contract, agreement or other instrument, arrangement, understanding or obligation to which the Company or any of its subsidiaries is a party or by which any of them or any of their properties or assets may be bound; or (d) the Delaware General Corporation Law (the “DGCL”), or any other federal, state or local law, statute, ordinance, rule, regulation or any decree, writ, injunction, judgment or order from any court or governmental or regulatory authority of the United States, any State or locality thereof or any foreign jurisdiction (each, a “Governmental Authority”) or any 

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arbitration award which is either applicable to, binding upon or enforceable against the Company.  Notwithstanding the generality of the foregoing, the Company’s grant to Investors of the rights set forth in Article 4 do not, and when and if exercised by Investors in accordance with their terms will not, conflict with or constitute a default or breach under any of the items described in clauses (a), (b), (c) or (d) that are applicable to the Company, including the Restated Certificate (it being understood that the Company is not representing that the exercise of the rights set forth in Article 4 would not result, directly or indirectly, in a Noncompliance Event (as defined in the Restated Certificate) under the Restated Certificate). 
Section 1.4    Consents and Approvals.  Other than the filing of a Current Report on Form 8-K with the Securities and Exchange Commission (“SEC”), no notices, reports, registrations or other filings are required to be made by the Company with, nor are any consents, approvals or authorizations required to be obtained by the Company from any Governmental Authority or any other person under any contract, agreement or other obligation to which the Company is party or by which its assets are bound, in connection with the valid execution, delivery or performance of this Agreement and all other agreements and instruments contemplated hereby by the Company or the consummation by the Company of the transactions contemplated by this Agreement and all other agreements and instruments contemplated hereby that has not already been obtained in each case except for such notices, reports, registrations and other filings or consents, approvals or authorizations the failure of which to make or obtain, individually or in the aggregate, are not material to the Company’s ability to perform its obligations hereunder and would not reasonably be expected to have a material adverse effect on the Company, its assets, properties, liabilities or condition (financial or otherwise). Notwithstanding the generality of the foregoing, the Company’s grant to Investors of the rights set forth in Article 4 do not, and, if exercised by Investors in accordance with their terms immediately following the date hereof (assuming such rights were then exercisable) would not, require any such notices, filings or consents with or from any Governmental Authority (other than the filing of a Current Report on Form 8-K with the SEC), the Company’s Board of Directors, any stockholder of the Company or any other person, or under the Restated Certificate (it being understood that the Company is not representing that the exercise of the rights set forth in Article 4 would not result, directly or indirectly, in a Noncompliance Event (as defined in the Restated Certificate) under the Restated Certificate).      
Section 1.5    Litigation; Compliance with Laws.  Except as set forth in Schedule 1.5 (a) attached hereto and incorporated herein, there is no action, claim, dispute, arbitration, audit, hearing, inquiry, investigation, administrative enforcement proceeding, litigation or suit (whether civil, criminal, administrative or investigative) commenced, brought, conducted, or heard by or before, or otherwise involving, any Governmental Authority or arbitration tribunal pending or, to the knowledge of the Company, threatened against the Company, and there is no judgment, decree or order against the Company, in each case, that would be reasonably likely to adversely affect the Company’s ability to perform its obligations under this Agreement or to have a material adverse effect on the Company, its assets, properties, liabilities or condition (financial or otherwise).  The Company is in compliance in all material respects with all laws applicable to the Company’s business as presently conducted, except where the failure to be in compliance would not be reasonably likely to adversely affect the Company’s ability to perform its obligations under this Agreement or to have a material adverse effect on the Company, its assets, properties, liabilities or condition (financial 

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or otherwise). Except as set forth in Schedule 1.5(b) attached hereto and incorporated herein, neither the Company nor any of its subsidiaries has received written notice that it is in default in any material respect with respect to any judgment, order, writ, injunction, decree, rule or regulation of any arbitrator or Governmental Authority. 
Section 1.6    Net Operating Losses.  As of the end of its 2016 taxable year, the Company had a net operating loss carryover for federal income tax purposes of at least $300,000,000.  The net operating loss carryover of the Company is not subject to any annual use limitation pursuant to Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”), or any use limitation pursuant to the separate return limitation year provisions of Treasury Regulation Section 1.1502-21(c).
Section 1.7    Real Estate Holdings.  At least twenty-five (25) percent of the Company’s consolidated gross revenues for the 12 months ended December 31, 2017 were, and at least twenty-five (25) percent of the Company’s consolidated total assets as of the date hereof (measured on a fair value basis as determined by the Company’s management) are, derived from the Company’s and its subsidiaries’ direct ownership of real property or ownership of interests in limited liability companies, limited partnerships and other business entities that directly own real property.
Section 1.8    Investment Company Act.  The Company is not an “investment company” as defined in Section 3(a)(1) of the Investment Company Act of 1940, as amended (the “1940 Act”), and it is not relying on an exclusion from the definition of “investment company” in Section 3(b) or Section 3(c) of the 1940 Act or an exclusion in any rule promulgated under the 1940 Act.  
Section 1.9    Ability to Perform.  The Company does not believe, and to the knowledge of the Company it does not have any reason or cause to believe, that it cannot perform each and every covenant of the Company contained in this Agreement, the Purchase Agreement, the Subscription Agreement or any of the documents and agreements delivered pursuant hereto or thereto to which it is a party.
Section 1.10    Taxes.  The Company has timely filed or caused to be filed all required federal and other material tax returns and has paid all U.S. federal and other material taxes imposed on it and any of its assets by any Governmental Authority except for any such taxes as are being contested in good faith by appropriate proceedings and with respect to which adequate reserves have been provided in accordance with United States Generally Accepted Accounting Principles (“GAAP”).   No tax liens have been filed against any of the Company’s assets and no claims are being asserted in writing with respect to any such taxes (except for (i) liens and with respect to taxes not yet due and payable or liens or claims with respect to taxes that are being contested in good faith and for which adequate reserves have been established in accordance with GAAP and (ii) any such liens and claims that in the aggregate are not in excess of $1,000,000).
Section 1.11    Adequate Capital.  To the knowledge of the Company, the Company (i) has adequate capital with which to conduct the businesses in which it is engaged as such businesses are now conducted and are presently proposed to be conducted after the Closing and (ii) has not become, or is not presently, financially insolvent within the meaning of the bankruptcy laws or the insolvency laws of any jurisdiction.

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Section 1.12    Financial Information.  Complete and accurate copies of the Company’s audited financial statements consisting of the balance sheet of the Company as at December 31 in each of the years 2016, 2015 and 2014 and the related statements of income and retained earnings, stockholders’ equity and cash flow for the years then ended (the “Financial Statements”) have been delivered to Buyer. The Financial Statements have been prepared in accordance with GAAP applied on a consistent basis throughout the periods involved. The Financial Statements are based on the books and records of the Company, and fairly present in all material respects the financial condition of the Company as of the respective dates they were prepared and the results of the operations of the Company for the periods indicated. The Company maintains a standard system of accounting established and administered in accordance with GAAP.  Other than such adjustments that are proposed by the Company’s independent accountants that are both, individually and in the aggregate, immaterial to the Financial Statements, taken as a whole, neither the Company nor any subsidiary has received any advice or notification from its independent accountants that it has used any improper accounting practice that would have the effect of not reflecting or incorrectly reflecting in the books and records of any of the Company’s or its subsidiaries’ properties, assets, liabilities, revenues, expenses, equity accounts or other accounts.
Section 1.13    No Other Representations or Warranties.  Except for the representations and warranties contained in this Article 1 (including the related portions of the Schedules incorporated therein) and the Officer’s Certificate delivered to the Investors on the date hereof in connection with the filing of the Restated Certificate (the “Officer’s Certificate”), neither the Company nor any other person or entity has made or makes any other express or implied representation or warranty, either written or oral, on behalf of the Company, including any representation or warranty as to the accuracy or completeness of any information regarding the Purchased Shares or the Company, its assets, properties, liabilities, condition (financial or otherwise) or future prospects, furnished or made available to Investors and its directors, officers, employees, consultants, financial advisors, counsel, accountants and other agents (including, without limitation, any information, documents or material delivered or made available to Investors in expectation of the transactions contemplated hereby) or as to the future revenue, profitability or success of the Company’s operations, or any representation or warranty arising from statute or otherwise in law. 
Section 1.14    Knowledge of the Company.    As used in this Article 1 or elsewhere in this Agreement, the phrases “to the knowledge of the Company”, “the Company’s knowledge” or similar language, shall mean the knowledge as of the date of this Agreement of any member of the Company’s management team (which shall include any individual who is as of the date hereof a Vice President or a more senior employee of the Company and the Company’s associate general counsel), including knowledge any such person would reasonably be expected to obtain in the ordinary course of their position and supervision of their direct reports.  
Article 2
REPRESENTATIONS AND WARRANTIES OF INVESTORS
Each Investor, severally and not jointly, represents and warrants to the Company that (except, however, that neither JCP nor Juniper will be deemed to make the representation and warranty contained in Section 2.1 or 2.4): 

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Section 2.1    Representations in the Purchase Agreement and the Subscription Agreement.  Each of the representations and warranties of JPM set forth (a) in Article 4 of the Purchase Agreement was true and correct as of the date thereof and (b) in Article 3 of the Subscription Agreement is true and correct as of the date hereof.
Section 2.2    Authority; Execution; Enforceability.  Such Investor has full power and authority to execute and deliver this Agreement and to perform its obligations hereunder. The execution and delivery of this Agreement, the performance of its obligations hereunder, and the consummation of the transactions contemplated hereby, by such Investor have been duly authorized by all requisite action on the part of such Investor and no other action on the part of such Investor is necessary to authorize the execution, delivery and performance of this Agreement by such Investor or the consummation of the transactions contemplated hereby.  Assuming due execution and delivery of this Agreement by the Company and the other Investors, this Agreement constitutes the valid and legally binding obligation of such Investor, enforceable against it in accordance with its terms and conditions, subject to (a) bankruptcy, insolvency, reorganization, moratorium and similar laws affecting creditors’ rights and remedies generally and (b) general principles of equity.
Section 2.3    Consents and Approvals.  No notices, reports, registrations or other filings are required to be made by such Investor with, nor are any consents, approvals or authorizations required to be obtained by Investor from, any Governmental Authority or any other person under any contract, agreement or other obligation to which such Investor is party or by which its assets are bound, in connection with the valid execution, delivery or performance of this Agreement and all other agreements and instruments contemplated hereby by such Investor or the consummation by such Investor of the transactions contemplated by this Agreement and all other agreements and instruments contemplated hereby, in each case except for such notices, reports, registrations and other filings the failure of which to make or obtain, individually or in the aggregate, are not material to such Investor’s ability to perform its obligations hereunder.
Section 2.4    Independent Investigation.  JPM has conducted its own independent investigation, review and analysis of the Company and the Purchased Shares, and acknowledges that it has been provided with such access to the personnel, properties, assets, premises, books and records, and other documents and data of the Company that it has requested for such purpose. JPM acknowledges and agrees that: (a) in making its decision to enter into the Purchase Agreement, the Subscription Agreement and this Agreement and to consummate the transactions contemplated hereby, JPM has relied solely upon its own investigation and the express representations and warranties of the Company set forth in Article 1 of this Agreement (including related portions of the Schedules incorporated therein), in the Purchase Agreement and in the Subscription Agreement; and (b) neither the Company nor any other person or entity has made any representation or warranty as to the Purchased Shares or the Company, its assets, properties, liabilities, condition (financial or otherwise) or future prospects or this Agreement, except as expressly set forth in the Purchase Agreement, in the Subscription Agreement or in Article 1 of this Agreement (including the related portions of the Schedules incorporated therein) and JPM expressly disclaims reliance on any representation or warranty of the Company not contained in Article 1 of this Agreement, in the Purchase Agreement or in the Subscription Agreement.

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Section 2.5    No Other Representations or Warranties.  No Investor (nor any other person or entity on behalf of an Investor) has made or makes to any other Investor, any representation or warranty, express or implied, written or oral, with respect to any matter pertaining to the Company, the Purchased Shares, this Agreement, the Purchase Agreement, the Subscription Agreement, the Existing Certificate, the Restated Certificate, or any transactions contemplated by, or any matter pertaining to, any of the foregoing agreements or instruments.   
Article 3
COVENANTS OF THE COMPANY 
Section 3.1    Compliance and Reporting Obligations of the Company.
(a)    Until such time as it becomes eligible for the Designated Exclusion, the Company covenants and agrees that it shall not be an “investment company” as defined in Section 3(a)(1) of the 1940 Act without relying on an exclusion from the definition of “investment company” in Section 3(b) or Section 3(c) of the 1940 Act or an exclusion in any rule promulgated under the 1940 Act.
(b)    The Company shall proceed in good faith and take all commercially reasonable actions as are reasonably necessary for the Company to be eligible to rely on the exclusion from the definition of “investment company” set forth in Section 3(c)(5)(C) of the 1940 Act (the “Designated Exclusion”) and use its best efforts to remain eligible for the Designated Exclusion at all times thereafter.  Promptly (and in any event no more than five (5) days) after the Company has become eligible for the Designated Exclusion, the Company shall deliver a 1940 Act Compliance Statement (defined below) to each Investor evidencing the Company’s eligibility for the Designated Exclusion. Without the prior written consent of each Investor, which consent may be withheld for any or no reason, the Company will not take any action the result of which would reasonably be expected to cause the Company to become ineligible for the Designated Exclusion (whether or not the Company is then eligible for any other exclusion from the definition of “investment company” in Section 3(b) or Section 3(c) of the 1940 Act or in any rule promulgated thereunder).  
(c)    Within five (5) days after the earlier of (i) the date the Company files with the SEC a quarterly report on Form 10-Q, or an annual report on Form 10-K, with respect to the fiscal quarter, or year, then ended (beginning with the quarter ending June 30, 2017) and (ii) the last date on which the Company could timely file the report in respect of the applicable fiscal quarter, or year, referenced in clause (i) in accordance with applicable law, the Company shall deliver to each Investor (a) a written statement in the form of Exhibit B attached hereto (a “1940 Act Compliance Statement”) setting forth in reasonable detail the information and calculations contemplated thereby and otherwise reasonably necessary for such Investor to determine whether the Company is then in compliance with the Designated Exclusion based on fair value accounting and all guidance issued by the Staff of the SEC with respect to calculations under Section 3(c)(5)(C) asset composition requirements under the 1940 Act, or (b) in the event the Company is not then in compliance with the Designated Exclusion, a written opinion of the Company’s outside legal counsel in the form of Exhibit C attached hereto (a “1940 Act Opinion”) that the Company is not an “investment company” as defined in Section 3(a)(1) of the 1940 Act without relying on an exclusion from the definition of “investment company” in Section 3(b) or Section 3(c) of the 1940 

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Act or an exclusion in any rule promulgated under the 1940 Act.  If, at any time after the Company relies on the Designated Exclusion, the Company becomes aware of any fact or circumstance, or any action is taken or not taken (including any agreement to act or not act) by or on behalf of the Company or any of its subsidiaries, the result of which would be that the Company is then not in compliance, or would be reasonably likely to be out of compliance, with the Designated Exclusion, the Company will (x) provide prompt (in any event within two (2) calendar days) written notice (a “Noncompliance Notice”) to each Investor describing the circumstances thereof, and including a 1940 Act Compliance Statement illustrating such non-compliance or expected non-compliance, and (y) at the request of JPM following delivery of a Noncompliance Notice, will promptly (in any event within 5 business days of such request) deliver to the Investors a 1940 Act Opinion.  The Company shall provide each Investor with access to records of the Company as are reasonably requested by such Investor in connection with its review of any 1940 Act Compliance Statement or Noncompliance Notice.
Section 3.2    Bank Holding Company Act.  The Company does not and, until such time as JPM determines, in its sole discretion, that JPM could not be deemed to be an affiliate of the Company for purposes of the Bank Holding Company Act of 1956, as amended (such act, the “BHCA” and such an affiliate, a “BHCA Affiliate”), the Company will not, and will not allow its BHCA Affiliates to: (a) engage in proprietary trading, as defined in Section 13 of the BHCA and the rules and regulations adopted thereunder, as amended (collectively, the “Volcker Rule”); (b) sponsor or hold an ownership interest in a covered fund, as such terms are defined in the Volcker Rule; or (c) engage in any transaction with a covered fund in violation of the “Super 23A” and “Super 23B” provisions of the Volcker Rule set forth in 12 CFR 248.14.  Within ten (10) business days after the first day of each calendar quarter, an executive officer of the Company shall deliver to the Investors a certificate (a “BHCA Certificate”) certifying that the Company is in compliance with the provisions of this Section 3.2 as of such date and was in compliance with such provisions at all times during the prior calendar quarter.
Section 3.3    Affiliated Transactions.  The Company hereby represents and acknowledges that the Company is deemed an Affiliate (as defined under 12 CFR Part 223.2) of JPM for purposes of the affiliated transactions rules under section 23A and 23B of the Federal Reserve Act and Regulation W thereunder, 12 CFR Part 223 (collectively, “Reg W”), and, as such, the Company shall at all times comply with the applicable requirements of Reg W and cooperate with JPM as reasonably necessary in connection therewith.  
Section 3.4    Compliance Breach.  Notwithstanding anything to the contrary in this Agreement, each Investor hereby agrees that JPM shall have the sole and exclusive power under this Agreement to determine, in its sole discretion, on behalf of the Investors (i) whether the Company has failed, in whole or in part, to perform or comply with any of the covenants and agreements set forth in Section 3.1, Section 3.2 and Section 3.3, (ii) whether or not any failure by the Company shall be excused, modified or waived by the Investors, and (iii) whether or not to pursue any one or more of the remedies contemplated by this Agreement with respect to such failure, including, without limitation, whether the Investors shall have the right to exercise the Put Right as a result of such failure. 

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Article 4
INVESTOR PUT RIGHT
Section 4.1    Grant.  Subject to Section 4.2, the Company hereby grants to each Investor an irrevocable, perpetual, right to require the Company to purchase (the “Put Right”), and upon exercise of the Put Right in accordance with this Article 4, the Company shall have the unconditional obligation to purchase from such Investor up to all of the shares of Series B-1 Stock, Series B-2 Stock and Series B-3 Stock, as applicable, then held by such Investor (or any affiliate of such Investor then holding any such shares) for a price per share equal to the Required Redemption Price (as defined in the Restated Certificate) for such shares (the “Put Price”).
Section 4.2    Exercise Mechanics.  Subject in all cases to Section 3.4, if (a) the Company breaches any covenant set forth in Section 3.1 or Section 3.2 or (b) at any time after becoming eligible for the Designated Exclusion, the Company is not eligible for the Designated Exclusion, and such breach or ineligibility is not cured within sixty (60) calendar days of the occurrence of such breach or ineligibility (provided that the cure period for failure to deliver a 1940 Act Compliance Statement, a 1940 Act Opinion or a BHCA Certificate within the time periods required therefor shall be five (5) calendar days) (the end of such cure period, the “Put Activation Date”), JPM may in its discretion exercise the Put Right by providing written notice of such exercise to the Company and the other Investors, and if and only if JPM exercises the Put Right, each other Investor may in its discretion exercise the Put Right by providing written notice of such exercise to the Company, in any case, specifying the number of shares of Series B-1 Stock, Series B-2 Stock or Series B-3 Stock, as the case may be, for which the Put Right is being exercised, and the aggregate Put Price therefor (an “Exercise Notice”), at any time (i) in the case of JPM, after the Put Activation Date and (ii) in the case of the other Investors, after receipt of JPM’s Exercise Notice, unless such breach or ineligibility is cured (and the Company has delivered written notice setting forth in reasonable detail how such breach or ineligibility has been cured and evidence thereof) prior to the delivery of an Exercise Notice; provided that unless such Investor otherwise informs the Company in writing prior to the Put Closing Date, in the event JPM (or any of its affiliates) provides the Company with an Exercise Notice, each Investor (other than JPM) and its affiliates (if any) shall be deemed to have provided the Company with an Exercise Notice with respect to all (or a proportionate portion thereof in the event the Exercise Notices of JPM and its affiliates are for less than all of the Series B Preferred Stock held by them) of the Series B Preferred Stock of such Investor (or affiliate).  As between JPM and the other Investors, any determination as to whether any breach or ineligibility by the Company giving rise to the right to exercise the Put Right has been cured will be made by JPM in its sole discretion.
Section 4.3    Closing of Put Right Purchase.  If the Company receives an Exercise Notice from JPM, then the Company shall promptly, but no later than three calendar days after its receipt of such Exercise Notice, notify the other Investors in writing of such Exercise Notice and provide such other Investors with a copy of such Exercise Notice.  On the thirtieth (30th) day after receipt of JPM’s Exercise Notice (the “Put Closing Date”), the Company shall purchase from JPM (and its affiliates, as applicable) and from all other Investors who provide (including for the avoidance of doubt, those Investors and their affiliates who are deemed to have provided) an Exercise Notice 

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to the Company prior to the Put Closing Date, the number of shares of Series B-1 Stock, Series B-2 Stock or Series B-3 Stock, as applicable, set forth in such Exercise Notices (the “Subject Shares”).  To the extent that the Company fails to purchase any of the Subject Shares as required by the preceding sentence (such Subject Shares not purchased, the “Remaining Shares”), dividends shall continue to accrue on the Remaining Shares as provided in the Restated Certificate, whether or not declared, until all such Remaining Shares are purchased and all rights of such shares shall remain in full force and effect until purchased by the Company.  If the Company does not have sufficient funds available to purchase all of the Subject Shares, the Company shall purchase from all such Investors, on a pro rata basis in proportion to the aggregate Put Price payable to each such Investor as set forth in the Exercise Notice provided or deemed to have been provided by such Investor (“Pro Rata Share”), as many of such shares as it is able out of any available funds, and shall purchase the Remaining Shares from all such Investors, on a pro rata basis in proportion to their Pro Rata Share, that are not transferred as provided in Section 4.4 with all available funds of the Company thereafter until all of such Remaining Shares have been purchased and the Put Price therefor (and the interest thereon, if any, as set forth in Section 4.4) has been paid in full.   
Section 4.4    Put Closing Default. In addition to the provisions of Section 4.3, if the Company fails to consummate the purchase of all of the Subject Shares set forth in any Exercise Notices delivered in accordance with this Article 4 on or prior to the applicable Put Closing Date (a “Put Closing Default”), any portion of the applicable Put Price not then paid shall bear interest at a rate of thirteen percent (13%) per annum compounding monthly until the Remaining Shares that are not transferred as provided in the following sentence are purchased and the applicable Put Price is paid in full.  In addition and notwithstanding anything to the contrary herein, from and after a Put Closing Default, each Investor to whom such Put Closing Default relates may, in its discretion, Transfer (as defined in the Restated Certificate) any Remaining Shares to any third party (to the extent of any Remaining Shares not purchased by the Company prior to such Transfer as required by Section 4.3) without obtaining any consent of the Board or the holders of the Series B Preferred Stock.
Article 5
SURVIVAL; INDEMNIFICATION

Section 5.1    Survival.  All representations and warranties contained in this Agreement shall survive the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby until the date that is one year from the date of this Agreement; provided, that the representations and warranties in Section 1.10 shall survive until thirty (30) days after the expiration of the applicable statute of limitations, and Sections 1.1, 1.2, 1.3, 1.6, 1.7, 1.12, 1.13 and Sections 2.1, 2.2, 2.3 and 2.4 shall survive indefinitely.  All covenants and agreements of the parties contained herein shall survive the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby indefinitely or for the period explicitly specified therein. 
Section 5.2    Indemnification by Company.  
(a)    The Company (the “Company Indemnifying Party”) shall indemnify and hold harmless each Investor, its affiliates and stockholders, directors and officers (collectively, the 

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“Company Indemnified Parties”) from and against any and all liabilities, obligations, deficiencies, demands, claims, suits, actions, causes of action, assessments, losses, costs and expenses (including reasonable attorneys’ fees) (collectively, “Claims”), sustained or incurred by any such Company Indemnified Party, resulting from (i) any breach of a representation or warranty made by the Company Indemnifying Party in this Agreement, and (ii) any breach of a covenant made by the Company Indemnifying Party in this Agreement.  The provisions of this Section 5.2 are intended to be for the benefit of, and shall be enforceable by, each Company Indemnified Party.  In no event shall any Company Indemnifying Party be liable to any Company Indemnified Party for any punitive, incidental, consequential, special or indirect damages, including loss of future revenue or income, loss of business reputation or opportunity relating to the breach or alleged breach of this Agreement, or diminution of value or any damages based on any type of multiple, except to the extent paid by a Company Indemnified Party to a third party in respect of the claim for which such Company Indemnified Party is entitled to indemnification hereunder.  For the avoidance of doubt, the Company shall not be in breach of its representations and warranties in Section 1.6 unless and until there is a “determination,” as such term is defined in Section 1313(a) of the Code, that results in any such representation or warranty not being true and correct as of the date such representation or warranty was made.
(b)    Without limiting the foregoing, in the event one or more Company Indemnified Parties receive one or more payments from the Company (“Indemnity Proceeds”) in respect of any Claim for a breach of a representation or warranty of the Company in Article 1 (including, as a result of Section 1.1, any breach of a representation or warranty of the Company in Article 3 of the Purchase Agreement or in Article 2 of the Subscription Agreement, in each case, determined in accordance with the terms of such agreement) or a covenant made by the Company in this Agreement or any other Claim ancillary or related to any such breach (a “Specified Breach”), such Indemnity Proceeds (net of the costs of obtaining such Indemnity Proceeds, including attorneys’ fees and expenses, which costs shall be reimbursed from the Indemnity Proceeds to the applicable Investor Indemnified Party(ies) incurring such costs, the “Net Indemnity Proceeds”) shall be allocated among, and disbursed to, all of the Investors in respect of such Specified Breach, on a pro rata basis in proportion to the sum of (i) the aggregate Liquidation Preference (as defined in the Restated Certificate) of all shares of Series B Preferred Stock and (ii) the aggregate Conversion Price (as defined in the Restated Certificate) of those shares of the Company’s Common Stock that were issued upon conversion of Series B Preferred Stock, in the case of each of clauses (i) and (ii), held by them at the time the Company pays the Indemnity Proceeds.  Each Investor agrees to cooperate in the determination of any required allocation of Net Indemnity Proceeds pursuant to this Section 5.2(b), and agrees, if applicable, to pay to the other Investors such portion of the Net Indemnity Proceeds received by such Investor as is required hereunder.  For the avoidance of doubt: (i) in the event JPM asserts Claims against the Company that are not with respect to a Specified Breach but that are based upon facts that would support a Claim for a Specified Breach, then for purposes of this Section 5.2(b), all of the recoveries by JPM from the Company in respect of such Claims shall be deemed to have arisen from a Specified Breach and shall be allocated among, and disbursed to, all of the Investors pursuant to and in accordance with this Section 5.2(b), regardless of whether the other Investors have asserted or are able to assert such Claims; and (ii) the provisions of this Section 5.2(b) shall not apply to any Claims asserted against the Company by JPM or any of its affiliates or direct or indirect subsidiaries with respect to any agreement (including, without 

11

limitation, any loan made to the Company by JPM or any of its affiliates or direct or indirect subsidiaries) other than this Agreement or by the Investors with respect to the Officer’s Certificate.
Section 5.3    Indemnification by Investors.  Each Investor (the “Investor Indemnifying Party”) shall indemnify and hold harmless, individually and not jointly and severally, the Company, its affiliates and stockholders, directors and officers (collectively, the “Investor Indemnified Parties”) from and against any and all Claims sustained or incurred by any such Investor Indemnified Party, resulting from (i) any breach of a representation or warranty made by the Investor Indemnifying Party in this Agreement, and (ii) any breach of a covenant made by the Investor Indemnifying Party in this Agreement.  The provisions of this Section 5.3 are intended to be for the benefit of, and shall be enforceable by, each Investor Indemnified Party.  In no event shall any Investor Indemnifying Party be liable to any Investor Indemnified Party for any punitive, incidental, consequential, special or indirect damages, including loss of future revenue or income, loss of business reputation or opportunity relating to the breach or alleged breach of this Agreement, or diminution of value or any damages based on any type of multiple, except to the extent paid by an Investor Indemnified Party to a third party in respect of the claim for which such Investor Indemnified Party is entitled to indemnification hereunder.
Section 5.4    Parity of Investors.  Notwithstanding anything to the contrary in any of this Agreement, the Purchase Agreement, the Subscription Agreement or the Restated Certificate, and except to the extent (i) provided in Section 3.4 of this Agreement and (ii) provided in Section 11 of the Restated Certificate and Section 1.1.5 of Schedule I to the Restated Certificate as relates to a Pre‐Authorized Transfer to a JPM Permitted Transferee (each as defined in the Restated Certificate), each Party acknowledges that it is the intent and desire of the Parties, and each Party agrees, that, the terms of the Purchase Agreement, the Existing Certificate and the Original Agreement shall not modify or otherwise alter the parity between the Series B-1 Stock and the Series B-2 Stock that existed pursuant to the terms of the Original Certificate immediately prior to the Original Agreement.  In the event of any such modification or alteration of such parity in a manner that is adverse to an Investor, then: (a) the other Parties shall reasonably cooperate with such Investor to attempt to restore or otherwise accomplish such parity; and (b) if, after reasonably cooperating, the Parties are unable to restore or otherwise accomplish such parity, then the Company shall indemnify such Investor for the damages and other losses (including diminution in value) suffered by such Investor from such absence of parity, and such indemnification shall be such Investor’s sole remedy with respect to such inability to restore or otherwise accomplish parity unless the Company is unable to restore or otherwise accomplish such parity in full.   Each Investor hereby agrees that the maximum amount it shall, and shall be entitled to, claim and recover as damages and other losses pursuant to this Section 5.4 from another Investor (the “Advantaged Investor”) is: (x) one hundred fifty percent (150%) of the sum of (A) the Original Price (as defined in the Restated Certificate) per share of all the Series B-1 Stock or Series B-2 Stock, as applicable, held by such Investor plus (B) the Dividends (as defined in the Restated Certificate) accrued and unpaid thereon, whether or not declared, through the date such Investor brings its claim against the Advantaged Investor; minus (y) any amounts such Investor (or its affiliates) recover from the Advantaged Investor with respect to its (or their) claim pursuant to Section 5.2(b).  For the avoidance of doubt, the immediately preceding sentence does not limit any Investor’s ability to claim and recover against the Company pursuant to this Section 5.4.

12

Article 6
GENERAL PROVISIONS
Section 6.1    Notices. All notices, requests and other communications to any Party shall be in writing and shall be delivered in person, by electronic mail, mailed by certified or registered mail, return receipt requested, or sent by facsimile transmission.
If to JPM, to:
JPMorgan Chase Funding Inc.
270 Park Avenue
New York, New York 10017
Attention: Chad Parson
Email: chad.s.parson@jpmorgan.com
Fax: (212) 834-6671
With a copy which shall not constitute notice, to:

Fried, Frank, Harris, Shriver & Jacobsen LLP
One New York Plaza
New York, New York 10004
Attention: Julian Chung
Email: julian.chung@friedfrank.com
Fax: (212) 859-4000

If to JCP or Juniper, to:

11150 Santa Monica Blvd., Suite 1400
Los Angeles, California 90025
Attention: Jay Wolf
Email: jay@junipercptl.com
Fax: (213) 633-2323
With a copy which shall not constitute notice, to:

Munger, Tolles & Olson LLP
350 South Grand Avenue, 50th Floor
Los Angeles, California 90071
Attention:  C. David Lee
Email: david.lee@mto.com
Fax: (213) 593-2885

If to the Company, to: 
IMH Financial Corporation
7001 N. Scottsdale Rd, Suite 2050
Scottsdale, Arizona 85253

13

Attention: Lawrence D. Bain, CEO
Email: ldb@imhfc.com
Fax: (480) 840-8401

And to:
IMH Financial Corporation
7001 N. Scottsdale Rd, Suite 2050
Scottsdale, Arizona 85253
Attention: Legal Department
Email: legal@imhfc.com
Fax: (480) 840-8401
With a copy which shall not constitute notice, to:

Ulmer & Berne LLP
1660 West 2nd Street, Suite 1100
Cleveland, Ohio 44113-1448
Attention: Howard M. Groedel, Esq.
Email: hgroedel@ulmer.com  
Fax: (216) 583-7119

Section 6.2    Fees and Expenses.  Each Party shall pay its own costs and expenses incurred in connection with the preparation, negotiation, execution and delivery of this Agreement and the consummation of the transactions contemplated hereby.
Section 6.3    Entire Agreement; Amendments. This Agreement (together with the Restated Certificate, the Purchase Agreement, the Subscription Agreement and the Investors’ Rights Agreement (as defined in the Subscription Agreement)) is the entire agreement of the Parties and supersedes all prior agreements and understandings with respect to the subject matter hereof.  No amendment or modification (or termination or cancellation unless pursuant to the express terms) of this Agreement shall be effective unless made in writing by each Party. 
Section 6.4    Severability. Any provision of this Agreement that is invalid, unenforceable or illegal in any jurisdiction shall, as to such jurisdiction, be ineffective only to the extent of such invalidity, unenforceability or illegality without affecting the remaining provisions hereof and without affecting the validity, enforceability or legality of such provision in any other jurisdiction.
Section 6.5     Specific Enforcement; Cumulative Remedies. The Parties acknowledge that money damages may not be an adequate remedy for violations of this Agreement and that any Party, in addition to any other rights and remedies which the Parties may have hereunder or at law or in equity, may, in its sole discretion, apply to a court of competent jurisdiction for specific performance or injunction or such other relief as such court may deem just and proper in order to enforce this Agreement or prevent any violation hereof and, to the extent permitted by applicable law, each party waives any objection to the imposition of such relief. All rights, powers and remedies provided under this Agreement or otherwise available in respect hereof at law or in equity shall be cumulative 

14

and not alternative, and the exercise or beginning of the exercise of any thereof by any party shall not preclude the simultaneous or later exercise of any other such rights, powers or remedies by such Party.  In no event shall either Party be liable to the other Party for any punitive, incidental, consequential, special or indirect damages, including loss of future revenue or income, loss of business reputation or opportunity relating to the breach or alleged breach of this Agreement, or diminution of value or any damages based on any type of multiple, except to the extent paid by a Party to a third party in respect of a claim arising from such breach or alleged breach. 
Section 6.6    Amendment; Waiver.  Any term of this Agreement may be amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance, and either retroactively or prospectively) only with the written consent of the Parties; provided, that any provision hereof may be waived by any waiving Party on its own behalf, without the consent of the other Party.
Section 6.7    Succession and Assignment.  This Agreement shall be binding upon and inure to the benefit of the Parties and their respective successors and permitted assigns, and no other person or entity shall have any rights, interests or claims hereunder or be entitled to any benefits under or on account of this Agreement as a third party beneficiary or otherwise except the Company Indemnified Parties and the Investor Indemnified Parties and their respective rights under Article 5.  No Party may assign either this Agreement or any of its rights, interests or obligations hereunder without the prior written approval of the other Party; provided that each Investor may assign its rights under this Agreement without the consent of the Company to any such Investor’s affiliate to which shares of Series B-1 Stock, Series B-2 Stock or Series B-3 Stock, as applicable, are transferred pursuant to a transfer permitted under the Restated Certificate.  Any purported assignment in violation of this Section shall be void and of no effect. 
Section 6.8    Applicable Law; Jurisdiction; Waiver of Jury Trial.  This Agreement shall be governed in all respects, including but not limited to, validity, interpretation and effect, by the laws of the State of New York regardless of the laws that might otherwise govern under applicable principles of conflicts of laws thereof.  Any litigation against any party to this Agreement arising out of or in any way relating to this Agreement shall be brought solely in any federal or state court located in the State of New York in New York County and each of the Parties submits to the exclusive jurisdiction of such courts for the purpose of any such litigation.  Each party irrevocably and unconditionally agrees not to assert (a) any objection which it may ever have to the laying of venue of any such litigation in any federal or state court located in the State of New York in New York County, (b) any claim that any such litigation brought in any such court has been brought in an inconvenient forum and (c) any claim that such court does not have jurisdiction with respect to such litigation.  Each Party irrevocably and unconditionally waives, to the extent permitted by applicable law, any right to a trial by jury.
Section 6.9    Interpretation. The section headings contained herein are for reference purposes only and will not in any way affect the interpretation or meaning of this Agreement. 
Section 6.10    Counterparts.  This Agreement may be executed in one or more original or electronic counterparts, each of which shall be deemed an original, but all of which shall constitute the same instrument.

15

[Remainder of page left intentionally blank.]

16

IN WITNESS WHEREOF, the Parties have set their hands to this Investment Agreement to be effective as of the date first written above. 
	
			
	 
	THE COMPANY: 

	 
	 

	 
	IMH FINANCIAL CORPORATION

	 
	 

	 
	By:
	/s/ Lawrence D. Bain

	 
	Name:
	Lawrence D. Bain

	 
	Title:
	Chairman and CEO

	
			
	 
	JPM:

	 
	 

	 
	JPMorgan Chase Funding Inc.

	 
	 

	 
	By:
	/s/ Chadwick S. Parson

	 
	Name:
	Chadwick S. Parson

	 
	Title:
	Managing Director

	
			
	 
	JCP:

	 
	 

	 
	JCP Realty Partners, LLC

	 
	 

	 
	By:
	/s/ Jay Wolf

	 
	Name:
	Jay Wolf

	 
	Title:
	Managing Partner

	
			
	 
	JUNIPER:

	 
	 

	 
	Juniper NVM, LLC

	 
	 

	 
	By:
	Juniper Capital Partners, LLC

	 
	Its:
	Sole Member

	 
	 

	 
	By:
	/s/ Jay Wolf

	 
	Name:
	Jay Wolf

	 
	Title:
	Manager

Exhibit A

Restated Certificate of Designation

See attached.

Exhibit B

1940 Act Compliance Statement

See attached.

Exhibit C

1940 Act Opinion

See attached.

Schedule 1.5(a)

Material Litigation

See attached.

Schedule 1.5(b)

Notices of Default

None.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: $165,000.00Issue Date: January
17, 2018

 

 

8% CONVERTIBLE NOTE

 

FOR
VALUE RECEIVED, DRONE GUARDER, INC., a Nevada corporation (“Borrower” or “Company”), hereby
promises to pay to the order of EMA FINANCIAL, LLC, a Delaware limited liability company, or its registered assigns (the
“Holder”), on January 17, 2019, (subject to extension as set forth below, the “Maturity Date”), the sum
of $165,000.00 as set forth herein, together with interest on the unpaid principal balance hereof at the rate of eight (8%) per
annum (the “Interest Rate”) from the date of issuance hereof until this Note plus any and all amounts due hereunder
are paid in full, and any additional amounts set forth herein, including without limitation any Additional Principal (as defined
herein). Interest shall be computed on the basis of a 365-day year and the actual number of days elapsed. Any amount of principal
or interest on this Note which is not paid when due shall bear interest at the rate of twenty-four (24%) per annum from the due
date thereof until the same is paid (“Default Interest”). All payments due hereunder 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 entered
into by and between the Company and Holder dated on or about the date hereof, pursuant to which this Note was originally issued
(the “Purchase Agreement”). The Holder may, by written notice to the Borrower at least five (5) days before the Maturity
Date (as may have been previously extended), extend the Maturity Date to up to one (1) year following the date of the original
Maturity Date hereunder.

 

    	 	1	 

    	 

    

 

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, in its sole and absolute discretion, at any time from time to time, to
convert all or any part of the outstanding amount due under this Note into fully paid and non-assessable shares of Common
Stock, as such Common Stock exists on the Issue Date, or any shares of capital stock or other securities of the Borrower into
which such Common Stock shall hereafter be changed or reclassified at the conversion price (the
“Conversion Price”) determined as provided herein (a “Conversion”); provided, however,
that in no event shall the Holder be entitled to convert any portion of this Note in excess of that portion of this Note upon
conversion of which the sum of (1) the number of shares of Common Stock beneficially owned by the Holder and its affiliates
(other than shares of Common Stock which may be deemed beneficially owned through the ownership of the unconverted portion of
the Notes or the unexercised or unconverted portion of any other security of the Borrower subject to a limitation on
conversion or exercise analogous to the limitations contained herein) and (2) the number of shares of Common Stock issuable
upon the conversion of the portion of this Note with respect to which the determination of this proviso is being made, would
result in beneficial ownership by the Holder and its affiliates of more than 4.9% 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 Regulation 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 (“Conversion Shares”) 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 11:59 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) accrued and unpaid interest, if any, on such principal amount being converted at the interest
rates provided in this Note to the Conversion Date, plus (3) at the Holder’s option, Default Interest, if any,
on the amounts referred to in the immediately preceding clauses (1) and/or (2), plus (4) any
Additional Principal for such Conversion, plus (5) at the Holder’s option, any amounts owed to the Holder
pursuant to Sections 1.2(c) and 1.4(g) hereof.

 

    	 	2	 

    	 

    

 

1.2.   
 Conversion Price.

 

a)                                       
Calculation of Conversion Price. The conversion price hereunder (the “Conversion
Price”) shall equal the lower of: (i) the closing sale price of the Common Stock on the Principal Market on the Trading Day
immediately preceding the Closing Date, and (ii) 50% of either the lowest sale price for the Common Stock on the Principal Market
during the twenty (20) consecutive Trading Days including and immediately preceding the Conversion Date, or the closing bid price,
whichever is lower, provided, however, if the Company’s share price at any time loses the bid (ex: 0.0001 on the ask
with zero market makers on the bid on level 2), then the Conversion Price may, in the Holder’s sole and absolute discretion,
be reduced to a fixed conversion price of 0.00001 (if lower than the conversion price otherwise), and provided, that if
on the date of delivery of the Conversion Shares to the Holder, or any date thereafter while Conversion Shares are held by the
Holder, the closing bid price per share of Common Stock on the Principal Market on the Trading Day on which the Common Shares are
traded is less than the sale price per share of Common Stock on the Principal Market on the Trading Day used to calculate the Conversion
Price hereunder, then such Conversion Price shall be automatically reduced such that the Conversion Price shall be recalculated
using the new low closing bid price (“Adjusted Conversion Price”) and shall replace the Conversion Price above, and
Holder shall be issued a number of additional shares such that the aggregate number of shares Holder receives is based upon the
Adjusted Conversion Price, and provided, further, that the Conversion Price shall be subject to Section 1.2(b) below. For
the purpose of clarity, any shares required to be issued as a result of an Adjusted Conversion Price shall be deemed to be “Conversion
Shares” under this Note. If an Event of Default under Section

3.9 of the Note has occurred,
Holder, in its sole discretion, may elect to use a Conversion Price which shall equal the lower of: (i) the closing sale price
of the Common Stock on the Principal Market on the Trading Day immediately preceding the Closing Date; (ii) 50% of either the lowest
sale price or the closing bid price, whichever is lower for the Common Stock on the Principal Market during any Trading Day in
which the Event of Default has not been cured. If such Common Stock is not traded on the OTCBB, OTCQB, NASDAQ or NYSE, then such
sale price shall be the sale price of such security on the principal securities exchange or trading market where such security
is listed or traded or, if no sale price of such security is available in any of the foregoing manners, the average of the closing
bid prices of any market makers for such security that are listed in the “pink sheets” by the National Quotation Bureau,
Inc. If such sale price cannot be calculated for such security on such date in the manner provided above, such price shall be the
fair market value as mutually determined by the Borrower and the Holder. If the Borrower’s Common stock is chilled for deposit
at DTC, becomes chilled at any point while this Note remains outstanding or deposit or other additional fees are payable due to
a Yield Sign, Stop Sign or other trading restrictions, or if the closing sale price at any time falls below $0.035 (as appropriately
and equitably adjusted for stock splits, stock dividends, stock contributions and similar events), then such 50% figure specified
in clause 1.2(a)(ii) above shall be reduced to 35%. In the event that the shares of the Borrower’s Common Stock are not deliverable
via DWAC following the conversion of any amount hereunder, an additional 5% discount will be attributed to the Conversion Price.
Additionally, the Borrower acknowledges that it will take all reasonable steps necessary or appropriate, including providing a
board of directors resolution authorizing the issuance of common stock to Holder. So long as the requested sale may be made pursuant
to Rule 144, the Company agrees to accept an opinion of counsel to the Holder confirming the rights of the Holder to sell shares
of Common Stock issuable or issued to Holder on conversion of this Note pursuant to Rule 144 as promulgated by the SEC (“Rule
144”), as such Rule 144 may be in effect from time to time, which opinion will be issued at the Company’s expense and
the conversion dollar amount will be

 

    	 	3	 

    	 

    

 

reduced by $750.00 to cover
the cost of such legal opinion. “Trading Day” shall mean any day on which the Common Stock is tradable for any period
on the OTCQB, or on the principal securities exchange or other securities market on which the Common Stock is then being traded.
Additionally, if the Company ceases to be a reporting company pursuant to the 1934 Act or if the Note cannot be converted into
free trading shares after 181 days from the issuance date, an additional 15% discount will be attributed to the Conversion Price
for any and all Conversions submitted thereafter.

 

b)                                      
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 the Conversion Price hereunder shall equal such par value for such Conversion and
the Conversion Amount for such Conversion shall 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 subject to the minimum price set forth in this Section 1.2(b).

 

c)                                       
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 free trading shares of Common Stock issuable upon conversion
of this Note is not delivered by the Deadline (as defined below) the Borrower shall pay to the Holder $1,000.00 per day in cash,
for each day beyond the Deadline that the Borrower fails to deliver such Common Stock. Such cash amount shall be paid to Holder
by the fifth day of the month following the month in which it has accrued or, at the option of the Holder, 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 this Note is a valuable right to the Holder. The damages resulting from a failure, attempt to frustrate,
or interference with such conversion right are difficult if not impossible to quantify. Accordingly, the parties acknowledge that
the liquidated damages provision contained in this Section are justified.

 

1.3.    
Authorized Shares. The Borrower covenants that the Borrower will at all times while this Note is outstanding 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 or adjustment of this Note. The Borrower is required at all times to have
authorized and reserved five (5) times the number of shares that is actually issuable upon full conversion or adjustment of
this Note (based on the Conversion Price of the Notes in effect from time to time)(the “Reserved
Amount”). Initially, the Company will instruct the Transfer Agent to reserve twenty five million seven hundred and
forty-two thousand (25,742,000) shares of common stock in the name of the Holder for issuance upon conversion hereof. 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 this Note 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 this Note in full. 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

 

    	 	4	 

    	 

    

 

stock certificates to execute and issue the necessary
certificates for shares of Common Stock in accordance with the terms and conditions of this Note.

 

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

 

1.4.   
 Method of Conversion.

 

a)                                       
Mechanics of Conversion. Subject to Section 1.1, this Note may be converted by the
Holder in whole or in part at any time and from time to time after the Issue Date, by 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 11:59 p.m., New York,
New York time).

 

b)                                      
Book Entry 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 or upon an event triggering the calculation of an Adjusted Conversion Price, 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 or such an event (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 duly
and properly executed Notice of Conversion or upon an event triggering the calculation of an Adjusted Conversion Price, the Holder
shall be deemed to be the holder of record of the Common Stock issuable upon such conversion or as a result of an Adjusted Conversion
Price, the outstanding principal amount and the amount of accrued and unpaid interest on this Note shall be reduced to reflect
such conversion or adjustment, 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 or upon an event triggering the calculation of an Adjusted Conversion Price, 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 11:59 p.m., New York, New York time,
on such date.

f)                                        
Delivery of Common Stock by Electronic Transfer. In lieu of delivering physical certificates
representing the Common Stock issuable upon conversion, provided the Borrower is participating in the Depository Trust Company
(“DTC”) Fast Automated Securities Transfer (“FAST”) program, upon request of the Holder and its compliance
with the provisions contained in Section 1.1 and in this Section 1.4, the Borrower shall use its best efforts to cause its transfer
agent to electronically transmit the Common Stock issuable upon conversion or upon an event triggering the calculation of an Adjusted
Conversion Price to the Holder by crediting the account of Holder’s Prime Broker with DTC through its Deposit Withdrawal
Agent Commission (“DWAC”) system.

 

g)                                      
Failure to Deliver Common Stock Prior to Deadline. Without in any way limiting the
Holder’s right to pursue other remedies, including actual damages and/or equitable relief, the parties agree that if delivery
of the Common Stock issuable upon conversion or adjustment of this Note is not delivered by the Deadline, the Borrower shall pay
to the Holder

$1,000.00 per day in cash, for
each day beyond the Deadline that the Borrower fails to deliver such Common Stock to the Holder. 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, 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 and/or receive shares in the event of an adjustment is a valuable right to the Holder. The damages
resulting from a failure, attempt to frustrate, or interference with such conversion or adjustment right are difficult if not impossible to qualify. Accordingly
the parties acknowledge that the liquidated damages provision contained in this Section 1.4(g) are justified.

 

    	 	6	 

    	 

    

 

h)                                      
The Borrower acknowledges that it will take all reasonable steps necessary or appropriate,
including accepting an opinion of counsel to Holder confirming the rights of Holder to sell shares of Common Stock issued to Holder
on conversion or adjustment of the Note pursuant to Rule 144 as promulgated by the SEC (“Rule 144"), as such Rule may
be in effect from time to time. So long as the requested sale may be made pursuant to Rule 144 the Borrower agrees to accept an
opinion of counsel to the Holder which opinion will be issued at the Borrower’s expense.

 

i)                                         
Charges and Expenses. Issuance of Common Stock to Holder, or any of its assignees,
upon the conversion of this Note shall be made without charge to the Holder for any issuance fee, transfer tax, legal opinion and
related charges, postage/mailing charge or any other expense with respect to the issuance of such Common Stock. Company shall pay
all Transfer Agent fees incurred from the issuance of the Common Stock to Holder, as well as any and all other fees and charges
required by the Transfer Agent as a condition to effectuate such issuance. That notwithstanding, the Holder may in the interest
of securing issuance and/or delivery of Common Stock before the Deadline, at any time from time to time, in its sole discretion
elect to pay any such fees or charges upfront, and Company agrees that any such fees or charges as noted in this Section that are
paid by the Holder (whether from the Company’s delays, outright refusal to pay, Holder’s interest in securing issuance
and/or delivery of Common Stock before the Deadline, or otherwise), will be at Company’s expense, and the conversion amount
will automatically be reduced by that dollar amount to cover the cost of the fees or charges as noted in this Section.

 

1.5.   
Restricted Securities. The shares of Common Stock issuable upon conversion or adjustment
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). Any legend set forth
on any stock certificate evidencing any Conversion Shares 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 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 acceptable to the Company,
or (ii) in the case of the Common Stock issued or 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.

 

1.6.     Effect
of Certain Events.

 

    	 	7	 

    	 

    

 

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, for clarification, the Holder shall be entitled to convert this Note)
and (b) the resulting successor or acquiring entity 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. Such
assets shall be held in escrow by the Company pending any such conversion.

 

    	 	8	 

    	 

    

 

d)                                     
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.

 

e)                                       
Stock Dividends and Stock Splits. If the Company, at any time while this Note is outstanding:
(A) pays a stock dividend or otherwise makes a distribution or distributions payable in shares of Common Stock on shares of Common
Stock or any securities convertible into or exercisable for Common Stock; (B) subdivides outstanding shares of Common Stock into
a larger number of shares; (C) combines (including by way of a reverse stock split) outstanding shares of Common Stock into a smaller
number of shares; or (D) issues, in the event of a reclassification of shares of the Common Stock, any shares of capital stock
of the Company, then the Conversion Price (and each sale or bid price used in determining the Conversion Price) shall be multiplied
by a fraction, of which the numerator shall be the number of shares of Common Stock outstanding immediately before such event and
of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event. Any adjustment
made pursuant to this Section shall become effective immediately after the record date for the determination of stockholders entitled
to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision,
combination or re-classification.

 

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.    
Revocation. If any Conversion Shares are not received by the Deadline, the Holder may revoke the applicable Conversion
pursuant to which such Conversion Shares were issuable. This Note shall remain convertible after the Maturity Date hereof
until this Note is repaid or converted in full.

 

1.8.    
Prepayment. Notwithstanding anything to the contrary contained in this Note, subject to the terms of this Section, at any
time during the period beginning on the Issue Date and ending on the date which is six (6) months following the Issue Date
(“Prepayment Termination Date”), Borrower shall have the right, exercisable on not less than five (5) Trading
Days prior

 

    	 	9	 

    	 

    

 

written notice to the Holder
of this Note, to prepay the outstanding balance on this Note (principal and accrued interest), in full, in accordance with this
Section. 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 ten (10) Trading Days from the date of the Optional Prepayment Notice. On the date
fixed for prepayment (the “Optional Prepayment Date”), the Borrower shall make payment of the Optional Prepayment Amount
(as defined below) to or upon the order of the Holder as specified by the Holder in writing to the Borrower at least one (1) business
day prior to the Optional Prepayment Date. If the Borrower exercises its right to prepay the Note, the Borrower shall make payment
to the Holder of an amount in cash (the “Optional Prepayment Amount”) equal to the Prepayment Factor (as defined below),
multiplied by the sum of:

(w) the then outstanding
principal amount of this Note plus (x) accrued and unpaid interest on the unpaid principal amount of this Note to the Optional
Prepayment Date plus (y) Default Interest, if any, on the amounts referred to in clauses (w) and (x) plus (z) any
amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof. If the Borrower delivers an Optional Prepayment Notice and
fails to pay the Optional Prepayment Amount due to the Holder of the Note within two (2) business days following the Optional Prepayment
Date, the Borrower shall forever forfeit its right to prepay the Note pursuant to this Section. After the Prepayment Termination
Date, the Borrower shall have no right to prepay this Note. For purposes hereof, the “Prepayment Factor” shall equal
one hundred and fifty percent (150%), provided that such Prepayment factor shall equal one hundred and thirty five percent (135%)
if the Optional Prepayment Date occurs on or before the date which is ninety (90) days following the Issue Date hereof.

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; Liens. Notwithstanding section 4(l) of the Purchase Agreement, so long
as the Borrower shall have any obligation under this Note, the Borrower shall not (i) 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, or (b) indebtedness to trade creditors or financial institutions incurred in the ordinary
course of business, or (ii) enter into, create

 

    	 	10	 

    	 

    

 

or incur any liens, claims
or encumbrances of any kind, on or with respect to any of its property or assets now owned or hereafter acquired or any interest
therein or any income or profits therefrom, securing any indebtedness occurring after the date hereof.

 

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 in existence or committed on the date hereof and which the Borrower has informed Holder
in writing prior to the date hereof.

 

2.6.   
Charter. So long as the Borrower shall have any obligations under this Note, the Borrower
shall not amend its charter documents, including without limitation its certificate of incorporation and bylaws, in any manner
that materially and adversely affects any rights of the Holder.

 

2.7.   
Transfer Agent. The Borrower shall not change its transfer agent without the prior
written consent of the Holder. Any resignation by the transfer agent without a replacement transfer agent consented to by the Holder
prior to such replacement taking effect shall constitute an Event of Default hereunder.

 

ARTICLE III. EVENTS OF DEFAULT

 

Any
one or more of the following events which shall occur and/or be continuing shall constitute an event of default (each, an “Event
of Default”):

 

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 at any time following the execution
hereof or) 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

 

    	 	11	 

    	 

    

 

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 five (5) business days after the Holder shall have delivered a
Notice of Conversion. It is an obligation of the Borrower to remain current in its obligations to its transfer agent. It shall
be an event of default of this Note, if a conversion of this Note is delayed, hindered or frustrated due to a balance owed by the
Borrower to its transfer agent. If at the option of the Holder, the Holder advances any funds to the Borrower’s transfer
agent in order to process a conversion, such advanced funds shall be paid by the Borrower to the Holder within forty eight (48)
hours of a demand from the Holder.

 

3.3.              
Breach of Covenants. The Borrower breaches any material covenant or other material
term or condition contained in this Note and any collateral documents including but not limited to the Purchase Agreement and such
breach continues for a period of three (3) days after written notice (via email) thereof to the Borrower from the Holder.

 

3.4.              
Breach of Representations and Warranties. Any representation or warranty of the Borrower
made herein or in any agreement, statement or certificate given in writing pursuant hereto or in connection herewith (including,
without limitation, the Purchase Agreement), shall be false or misleading in any material respect when made and the breach of which
has (or with the passage of time will have) a material adverse effect on the rights of the Holder with respect to this Note or
the Purchase Agreement.

3.5.              
Receiver or Trustee. The Borrower or any subsidiary of the Borrower shall make an assignment
for the benefit of creditors, or apply for or consent to the appointment of a receiver or trustee for it or for a substantial part
of its property or business, or such a receiver or trustee shall otherwise be appointed.

3.6.              
Judgments. Any money judgment, writ or similar process shall be entered or filed against
the Borrower or any subsidiary of the Borrower or any of its property or other assets for more than $50,000.00, and shall remain
unvacated, unbonded or unstayed for a period of twenty

(20) days unless otherwise consented
to by the Holder, which consent will not be unreasonably withheld.

3.7.              
Bankruptcy. Bankruptcy, insolvency, reorganization or liquidation proceedings or other
proceedings, voluntary or involuntary, for relief under any bankruptcy law or any law for the relief of debtors shall be instituted
by or against the Borrower or any subsidiary of the Borrower.

3.8.              
Delisting of Common Stock. The Borrower shall fail to maintain the listing of the Common
Stock on at least one of the OTCBB, or OTCQB, or an equivalent replacement exchange, NASDAQ, the NYSE or AMEX.

3.9.              
Failure to Comply with the Exchange Act. The Borrower shall fail to comply in any material
respect with the reporting requirements of the Exchange Act; and/or the Borrower shall cease to be subject to the reporting requirements
of the Exchange Act.

3.10.          
Liquidation. Any dissolution, liquidation, or winding up of Borrower or any substantial
portion of its business.

3.11.          
Cessation of Operations. Any cessation of operations by Borrower or Borrower admits
it is otherwise generally unable to pay its debts as such debts become due, provided, however, that any
disclosure of the Borrower’s ability to continue as a “going concern” shall not be an admission that the Borrower
cannot pay its debts as they become due.

 

    	 	12	 

    	 

    

3.12.          
Maintenance of Assets. The failure by Borrower, during the term of this Note, to maintain
any material intellectual property rights, personal, real property or other assets which are necessary to conduct its business
(whether now or in the future).

3.13.          
Financial Statement Restatement. The restatement of any financial statements filed
by the Borrower with the SEC for any date or period from two years prior to the Issue Date of this Note and until this Note is
no longer outstanding, if the result of such restatement would, by comparison to the unrestated financial statement, have constituted
a material adverse effect on the rights of the Holder with respect to this Note or the Purchase Agreement.

3.14.          
Reverse Splits. The Borrower effectuates a reverse split of its Common Stock without
twenty (20) days prior written notice to the Holder.

3.15.          
Replacement of Transfer Agent. In the event that the Borrower proposes to replace its
transfer agent, the Borrower fails to provide, prior to the effective date of such replacement, a fully executed Irrevocable Transfer
Agent Instructions in a form as initially delivered pursuant to the Purchase Agreement (including but not limited to the provision
to irrevocably reserve shares of Common Stock in the Reserved Amount) signed by the successor transfer agent to Borrower and the
Borrower.

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

Upon the occurrence
and during the continuation of any Event of Default specified in Section 3.1 (solely with respect to failure to pay the
principal hereof or interest thereon when due at the Maturity Date), the Note shall become immediately due and payable and
the Borrower shall pay to the Holder, in full satisfaction of its obligations hereunder, an amount equal to the Default Sum
(as defined herein). UPON THE OCCURRENCE AND DURING THE CONTINUATION OF ANY EVENT OF DEFAULT SPECIFIED IN SECTION 3.2, THE
NOTE SHALL BECOME IMMEDIATELY DUE AND PAYABLE AND THE BORROWER SHALL PAY TO THE HOLDER, IN FULL SATISFACTION OF ITS
OBLIGATIONS HEREUNDER, AN AMOUNT EQUAL TO: (Y) THE DEFAULT SUM (AS DEFINED HEREIN); MULTIPLIED BY (Z) TWO (2). Upon the
occurrence and during the continuation of any Event of Default specified in Sections 3.1 (solely with respect to failure to
pay the principal hereof or interest thereon when due on this Note upon a Trading Market Prepayment Event pursuant to Section
1.7 or upon acceleration), 3.3, 3.4, 3.6, 3.8, 3.9, 3.11, 3.12, 3.13, 3.14, 3.17, 3.18 and/or 3. 15 exercisable through the
delivery of written notice to the Borrower by such Holders (the “Default Notice”), and upon the occurrence of

 

    	 	13	 

    	 

    

 

an Event of Default
specified in the remaining sections of Articles III (other than failure to pay the principal hereof or interest thereon at
the Maturity Date specified in Section 3,1 hereof), the Note shall become immediately due and payable and the Borrower shall
pay to the Holder, in full satisfaction of its obligations hereunder, an amount equal to the greater of (i) 150% times
the sum of (w) the then outstanding principal amount of this Note plus (x) accrued and unpaid interest on the
unpaid principal amount of this Note to the date of payment (the “Mandatory Prepayment Date”) plus (y)
Default Interest, if any, on the amounts referred to in clauses (w) and/or (x) plus (z) any amounts owed to the Holder
pursuant to Sections 1.3 and 1.4(g) hereof (the then outstanding principal amount of this Note to the date of payment plus
the amounts referred to in clauses (x), (y) and (z) shall collectively be known as the “Default Sum”) or (ii) the
“parity value” of the Default Sum to be prepaid, where parity value means (a) the highest number of shares of
Common Stock issuable upon conversion of or otherwise pursuant to such Default Sum in accordance with Article I, treating the
Trading Day immediately preceding the Mandatory Prepayment Date as the “Conversion Date” for purposes of
determining the lowest applicable Conversion Price, unless the Default Event arises as a result of a breach in respect of a
specific Conversion Date in which case such Conversion Date shall be the Conversion Date), multiplied by (b) the
highest Closing Price for the Common Stock during the period beginning on the date of first occurrence of the Event of
Default and ending one day prior to the Mandatory Prepayment Date (the “Default Amount”) and all other amounts
payable hereunder shall immediately become due and payable, all without demand, presentment or notice, all of which hereby
are expressly waived, together with all costs, including, without limitation, legal fees and expenses, of collection, and the
Holder shall be entitled to exercise all other rights and remedies available at law or in equity.

If the Borrower fails to
pay the Default Amount within five (5) business days of written notice that such amount is due and payable, then the Holder shall
have the right at any time, so long as the Borrower remains in default (and so long and to the extent that there are sufficient
authorized shares), to require the Borrower, upon written notice, to immediately issue, in lieu of the Default Amount, the number
of shares of Common Stock of the Borrower equal to the Default Amount divided by the Conversion Price then in effect. The Holder
may still convert any amounts due hereunder, including without limitation the Default Sum, until such time as this Note has been
repaid in full.

3.17.   
Inside Information. The Borrower or its officers, directors, and/or affiliates attempt
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.

3.18
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 OTC Pink, OTCQB or an equivalent replacement
exchange).

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.

 

    	 	14	 

    	 

    

 

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, email 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 or email, with accurate confirmation generated by the transmitting facsimile machine
or computer, at the address, email or number designated in the Purchase Agreement (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.

 

4.3.                                 
Amendments. This Note and any provision hereof may only be amended by an instrument
in writing signed by the Borrower and the Holder. The term “Note” and all reference thereto, as used throughout this
instrument, shall mean this instrument (and the other Notes issued pursuant to the Purchase Agreement) as originally executed,
or if later amended or supplemented, then as so amended or supplemented.

 

4.4.                                 
Assignability. This Note shall be binding upon the Borrower and its successors and
assigns, and shall inure to be the benefit of the Holder and its successors and assigns. Each transferee of this Note must be an
“accredited investor” (as defined in Rule 501(a) of the 1933 Act). Notwithstanding anything in this Note to the contrary,
this Note may be pledged as collateral in connection with a bona fide margin account or other lending arrangement.

 

4.5.                                 
Cost of Collection. If default is made in the payment of this Note, the Borrower shall
pay the Holder hereof costs of collection, including reasonable attorneys’ fees.

 

4.6.                                 
Governing Law. This Note shall be governed by and construed in accordance with
the laws of the State of Nevada without regard to conflicts of laws principles that would result in the application of the substantive
laws of another jurisdiction. Any action brought by either party against the other concerning the transactions contemplated by
this Agreement must be brought only in the civil or state courts of New York or in the federal courts located in the State and
county of New York. Both parties and the individual signing this Agreement on behalf of the Borrower agree to submit to the jurisdiction
of such courts. 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 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 unenforceability of any other provision of this Note. Nothing contained herein shall be deemed or operate to preclude
the Holder from bringing suit or taking other legal action against the Borrower in any other jurisdiction to collect on the Borrower’s
obligations to Holder, to realize on any collateral or any other security for such obligations, or to enforce a judgment or other
decision in favor of the Holder. This Note shall be deemed an unconditional obligation of Borrower for the payment of money
and, without limitation to any other remedies of Holder, may be enforced against Borrower by summary proceeding pursuant
to New York Civil Procedure Law and Rules Section 3213 or any similar rule or statute in the jurisdiction where enforcement is
sought. For purposes of such rule or statute, any other document or agreement to which Holder and Borrower are parties or which
Borrower delivered to Holder, which may be convenient or necessary to determine Holder’s rights hereunder or Borrower’s
obligations to Holder are deemed a part of this Note, whether or not such other document or agreement was delivered together herewith
or was executed apart from this Note.

 

    	 	15	 

    	 

    

 

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.                                 
Disclosure. Upon receipt or delivery by the Company of any notice in accordance with
the terms of this Note, unless the Company has in good faith determined that the matters relating to such notice do not constitute
material, non-public information relating to the Company or any of its Subsidiaries, the Company shall within one (1) Trading Day
after any such receipt or delivery, publicly disclose such material, non-public information on a Current Report on Form 8-K or
otherwise. In the event that the Company believes that a notice contains material, non- public information relating to the Company
or any of its Subsidiaries, the Company so shall indicate to such Holder contemporaneously with delivery of such notice, and in
the absence of any such indication, the Holder shall be allowed to presume that all matters relating to such notice do not constitute
material, non-public information relating to the Company or its Subsidiaries.

 

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.

 

    	 	16	 

    	 

    

 

4.10.                          
Remedies. The Borrower acknowledges that a breach by it of its obligations hereunder
will cause irreparable harm to the Holder, by vitiating the intent and purpose of the transaction contemplated hereby. Accordingly,
the Borrower acknowledges that the remedy at law for a breach of its obligations under this Note will be inadequate and agrees,
in the event of a breach or threatened breach by the Borrower of the provisions of this Note, that the Holder shall be entitled,
in addition to all other available remedies at law or in equity, and in addition to the penalties assessable herein, to an injunction
or injunctions restraining, preventing or curing any breach of this Note and to enforce specifically the terms and provisions thereof,
without the necessity of showing economic loss and without any bond or other security being required.

 

4.11.                          
Usury. This Note shall be subject to the anti-usury limitations contained in the Purchase
Agreement.

 

 

 

 

(Remainder of Page intentionally left blank)

 

    	 	17	 

    	 

    

 

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

 

DRONE GUARDER, INC.

 

By: __________________

Name: Adam Taylor

Title:
CEO

 

    	 	18	 

    	 

    

EXHIBIT A

NOTICE OF
CONVERSION 

The undersigned hereby
elects to convert principal under the 8% Convertible Note of DRONE GUARDER, INC., a Nevada corporation (the Company”),
into shares of common stock (the “Common Stock”), of the Company according to the conditions hereof, as of the
date written below. If shares of Common Stock are to be issued in the name of a person other than the undersigned, the undersigned
will pay all transfer taxes payable with respect thereto and is delivering herewith such certificates and opinions as reasonably
requested by the Company in accordance therewith. No fee will be charged to the holder for any conversion, except for such transfer
taxes, if any.

 

By
the delivery of this Notice of Conversion the undersigned represents and warrants to the Company that its ownership of the Common
Stock does not exceed the amounts specified under Section 1.1 of this Note, as determined in accordance with Section 13(d) of the
Exchange Act.

 

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

 

Conversion calculations:

 

Issue Date of Note: 

Date to Effect Conversion:

 

Conversion Price: 

 

Principal Amount of Note to
be Converted: 

Less applicable fees under
the Note: 

Amount of Note to be Converted:

 

Interest Accrued on Account
of Conversion at Issue: 

 

Additional Principal on Account
of Conversion

Pursuant to Section 1.2(b)
of the Note: 

 

Number of shares of Common
Stock to be issued:

 

Remaining Balance of Note*:

 

Signature: 

 

Name: 

 

Address for Delivery of Common
Stock Certificates: 

 

Or

  

DWAC Instructions:  

Broker No: 

Account
No: 

 

*Sum provided does not include accrued interest

 

    	 	19

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