Document:

Exhibit 10.5

 

INDEMNIFICATION AGREEMENT

 

This INDEMNIFICATION AGREEMENT (this “Agreement”) is effective [·], by and among Smart & Final Stores, Inc., a Delaware corporation (the “Company”), [·] (“Indemnitee”) and, with respect to its guarantee set forth on the signature pages hereto only, Smart & Final Stores LLC, a California limited liability company (“Stores LLC”) and wholly owned subsidiary of the Company.

 

WHEREAS, it is essential to the Company to retain and attract the most capable persons available as directors and officers of the Company and its subsidiaries (including Stores LLC);

 

WHEREAS, Indemnitee is a [director][officer]  of the Company; and

 

WHEREAS, in recognition of Indemnitee’s need for substantial protection against personal liability to enhance Indemnitee’s continued service to the Company and its subsidiaries in an effective manner, the increasing difficulty in obtaining satisfactory directors’ and officers’ liability insurance coverage, and in part to provide Indemnitee with specific contractual assurance that indemnification will be available to Indemnitee (regardless of, among other things, any change in the composition of the Board or acquisition transaction relating to the Company), the Company and Stores LLC wish to provide in this Agreement for the indemnification of and the advancing of Expenses to Indemnitee to the fullest extent (whether partial or complete) permitted by law and as set forth in this Agreement, and, to the extent insurance is maintained, for the continued coverage of Indemnitee under the Company’s directors’ and officers’ liability insurance policies.

 

NOW, THEREFORE, in consideration of the foregoing and of Indemnitee continuing to serve the Company and its subsidiaries (including Stores LLC) directly or, at its request, another enterprise, and intending to be legally bound hereby, the parties hereto agree as follows:

 

1.                                      Certain Definitions.

 

(a)                                 “Affiliate” means, as to any Person, any other Person that, directly or indirectly, is in control of, is controlled by, or is under common control with, such first Person.  For the purposes of this definition, “control” (including, with correlative meanings, the terms “controlled by” and “under common control with”), as applied to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of Voting Securities or other ownership interests, by contract or otherwise.

 

(b)                                 “beneficial owner” has the meaning set forth in Rules 13d-3 and 13d-5 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), except that a Person shall be deemed to have beneficial ownership of all shares that such Person has the right to acquire, whether such right is exercisable immediately or only after the passage of time.  The term “beneficially own” shall have a correlative meaning.

 

(c)                                  “Board” means the Board of Directors of the Company.

 

 

(d)                                 “Bylaws” means the bylaws of the Company, as the same may be amended or amended and restated from time to time.

 

(e)                                  “Change of Control” means the occurrence of any of the following events:

 

(i)                                     a merger or consolidation in which (A) the Company is a constituent party or (B) a subsidiary of the Company is a constituent party and the Company issues shares of its capital stock pursuant to such merger or consolidation, in each case, unless the shares of capital stock of the Company outstanding immediately prior to such merger or consolidation continue to represent, or are converted into or exchanged for, shares of capital stock that represent, immediately following such merger or consolidation, at least a majority, by voting power, of the capital stock of (1) the surviving or resulting entity, or (2) if the surviving or resulting entity is a wholly owned subsidiary of another entity immediately following such merger or consolidation, the parent entity of such surviving or resulting entity;

 

(ii)                                  the sale, lease, transfer, exclusive license or other disposition (whether by merger, consolidation or otherwise), in a single transaction or series of related transactions, by the Company or any subsidiary of the Company of (A) all or substantially all of the assets of the Company and its subsidiaries taken as a whole, or (B) one or more subsidiaries of the Company if all or substantially all of the assets of the Company and its subsidiaries taken as a whole are held by such subsidiary or subsidiaries, in each case except where such sale, lease, transfer, exclusive license or other disposition is to (1) a wholly owned subsidiary of the Company or (2) the Permitted Holders;

 

(iii)                               the acquisition, in a single transaction or a series of related transactions, by any person or group (within the meaning of Section 13(d) or 14(d) of the Exchange Act), other than the Permitted Holders, of (A) beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of securities of the Corporation representing at least 50% of the combined voting power entitled to vote in the election of directors of the Company (including by means of the Company’s issuance of its capital stock or securities convertible into its capital stock) or (B) the contractual right to designate or elect 50% or more of the members of the Board;

 

(iv)                              during any period of two consecutive years, individuals who at the beginning of such period constituted the Board (together with any new members of the Board whose election by such Board or whose nomination for election by the equityholders of the Company was approved by a vote of the majority of the members of the Board then still in office who were either members of the Board at the beginning of such period or whose election or nomination for election was previously so approved including new members of the Board designated in or provided for in an agreement regarding the merger, consolidation or sale, transfer or other conveyance, of all or substantially all of the assets of the Company, if such agreement was approved by a vote of such majority of members of the Board) cease for any reason to constitute a majority of the Board then in office; or

 

(v)                                 the adoption by the holders of capital stock of the Company of any plan or proposal for the liquidation or dissolution of the Company by way of merger, consolidation or otherwise.

 

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(f)                                   “Charter” means the certificate of incorporation of the Company, as the same may be amended or amended and restated from time to time.

 

(g)                                  “Claim” means any threatened, pending or completed action, suit or proceeding, or any inquiry or investigation, whether instituted by the Company or any other Person, that Indemnitee in good faith believes might lead to the institution of any such action, suit or proceeding, whether civil, criminal, administrative, investigative or other.

 

(h)                                 “Expenses” means attorneys’ fees and all other costs, expenses and obligations paid or incurred in connection with investigating, defending, being a witness in or participating in (including on appeal), or preparing to defend, be a witness in or participate in, any Claim relating to any Indemnifiable Event.

 

(i)                                     “Indemnifiable Event” means any event or occurrence related to the fact that Indemnitee is or was a director, officer, employee, agent or fiduciary of the Company or any subsidiary of the Company, or is or was serving at the request of the Company as a director, officer, employee, trustee, agent or fiduciary of another corporation, partnership, joint venture, employee benefit plan, trust or other enterprise, or by reason of anything done or not done by Indemnitee in any such capacity.

 

(j)                                    “Independent Legal Counsel” means an attorney or firm of attorneys, selected in accordance with the provisions of Section 3, who shall not have otherwise performed services for the Company or Indemnitee within the last five years (other than with respect to matters concerning the rights of Indemnitee under this Agreement, or of other indemnitees under similar indemnity agreements).

 

(k)                                 “Permitted Holders” means Ares Corporate Opportunities Fund III, L.P., Ares Corporate Opportunities Fund IV, L.P., Ares Management LLC and Ares Management, L.P. and their respective Affiliates.

 

(l)                                     “Person” means an individual, a corporation, a limited liability company, a partnership, an association, a trust or any other entity.

 

(m)                             “Potential Change of Control” means (i) the Company entering into an agreement, the consummation of which would result in the occurrence of a Change of Control; (ii) any Person (including the Company) publicly announcing an intention to take or to consider taking actions that if consummated would constitute a Change of Control; or (iii) the Board adopting a resolution to the effect that, for purposes of this Agreement, a Potential Change of Control has occurred.

 

(n)                                 “Reviewing Party” means Independent Legal Counsel or any Person or body consisting of a member or members of the Board or any other Person or body appointed by the Board who is not a party to the particular Claim for which Indemnitee is seeking indemnification.

 

(o)                                 “Voting Securities” means any securities of the Company, the holders of which vote generally in the election of directors.

 

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(p)                                 For purposes of this Agreement, except as otherwise expressly provided herein, (i) the words “hereof,” “herein,” “hereto,” and “hereunder” and words of similar import refer to this Agreement as a whole and not to any particular provision hereof; (ii) the meaning assigned to each term defined herein is equally applicable to both the singular and the plural forms of such term and vice versa, and words denoting either gender include both genders; (iii) reference to any Person includes such Person’s successors and assigns, and reference to a Person in a particular capacity excludes such Person in any other capacity or individually; (iv) reference to any agreement, document or instrument means such agreement, document or instrument as amended or modified and in effect from time to time in accordance with the terms thereof; (v) reference to any law, rule or regulation means such law, rule or regulation as amended, modified, codified, replaced or reenacted, in whole or in part, and in effect from time to time, including rules and regulations promulgated thereunder, and reference to any section or other provision of any law, rule or regulation means that provision of such law, rule or regulation from time to time in effect and constituting the substantive amendment, modification, codification, replacement or reenactment of such section or other provision; (vi) numbered or lettered sections and subsections herein contained refer to sections and subsections of this Agreement; (vii) the term “dollars” and character “$” mean United States dollars; (viii) the term “including” means “including, without limitation,” and the words “include” and “includes” have corresponding meanings, and such words do not limit any general statement that they follow to the specific or similar items or matters immediately following them; and (ix) the term “or” is not exclusive.

 

2.                                      Basic Indemnification Arrangement.

 

(a)                                 In the event Indemnitee was, is or becomes a party to or witness or other participant in, or is threatened to be made a party to or witness or other participant in, a Claim by reason of (or arising in part out of) an Indemnifiable Event, the Company shall indemnify Indemnitee to the fullest extent permitted by law as soon as practicable but in any event no later than thirty days after written demand is presented to the Company, against any and all Expenses, judgments, fines, penalties and amounts paid in settlement (including all interest, assessments and other charges paid or payable in connection with or in respect of such Expenses, judgments, fines, penalties or amounts paid in settlement) of such Claim.  If so requested by Indemnitee, the Company shall advance to the fullest extent permitted by law (within ten business days of such request) any and all Expenses to Indemnitee (an “Expense Advance”).  Expense Advances shall be unsecured and interest free.  Expense Advances shall be made without regard to Indemnitee’s ability to repay Expenses and without regard to Indemnitee’s ultimate entitlement to indemnification under the other provisions of this Agreement.  Indemnitee shall qualify for Expense Advances upon the execution and delivery to the Company of this Agreement, which shall constitute an undertaking providing that Indemnitee undertakes to repay the amounts advanced (without interest) to the extent that it is ultimately determined that Indemnitee is not entitled to be indemnified by the Company.  Notwithstanding anything in this Agreement to the contrary, prior to a Change of Control, Indemnitee shall not be entitled to indemnification pursuant to this Agreement in connection with any Claim initiated by Indemnitee unless the Board has authorized or consented to the initiation of such Claim.

 

(b)                                 Notwithstanding the foregoing, the indemnification obligations of the Company under Section 2(a) shall be subject to the condition that the Reviewing Party shall not have determined (in a written opinion if the Independent Legal Counsel referred to in Section 3

 

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hereof is involved) that Indemnitee would not be permitted to be indemnified under applicable law; provided, that if Indemnitee has commenced or thereafter commences legal proceedings in a court of competent jurisdiction to secure a determination that Indemnitee should be indemnified under applicable law, any determination made by the Reviewing Party that Indemnitee would not be permitted to be indemnified under applicable law shall not be binding and Indemnitee shall not be required to reimburse the Company for any Expense Advance until a final judicial determination is made with respect thereto (as to which all rights of appeal therefrom have been exhausted or lapsed).  If there has not been a Change of Control, the Reviewing Party shall be selected by the Board, and if there has been such a Change of Control (other than a Change of Control that has been approved by a majority of the Board who were directors immediately prior to such Change of Control), the Reviewing Party shall be the Independent Legal Counsel referred to in Section 3 hereof.  If there has been no determination by the Reviewing Party or if the Reviewing Party determines that Indemnitee substantively would not be permitted to be indemnified in whole or in part under applicable law, Indemnitee shall have the right to commence litigation in any court in the State of Delaware having subject matter jurisdiction thereof and in which venue is proper seeking an initial determination by the court or challenging any such determination by the Reviewing Party or any aspect thereof, including the legal or factual bases therefor, and the Company hereby consents to service of process and to appear in any such proceeding.  If such litigation has not been commenced, any determination by the Reviewing Party otherwise shall be conclusive and binding on the Company and Indemnitee.

 

3.                                      Change of Control.  If there is a Change of Control (other than a Change of Control that has been approved by a majority of the members of the Board who were directors immediately prior to such Change of Control) then, with respect to all matters thereafter arising concerning the rights of Indemnitee to indemnity payments and Expense Advances under this Agreement or any other agreement or Bylaws now or hereafter in effect relating to Claims for Indemnifiable Events, the Company shall seek legal advice only from Independent Legal Counsel selected by Indemnitee and approved by the Board (which approval shall not be unreasonably withheld).  Such counsel, among other things, shall render its written opinion to the Company and Indemnitee as to whether and to what extent Indemnitee would be permitted to be indemnified under applicable law.  The Company shall pay the reasonable fees of the Independent Legal Counsel referred to above and indemnify fully such counsel against any and all expenses (including attorneys’ fees), claims, liabilities and damages arising out of or relating to this Agreement or the engagement of such counsel pursuant hereto.

 

4.                                      Establishment of Trust.  In the event of a Potential Change of Control, the Company shall, upon written request by Indemnitee, create a trust for the benefit of Indemnitee and from time to time upon written request of Indemnitee shall fund such trust in an amount sufficient to satisfy any and all Expenses reasonably anticipated at the time of each such request to be incurred in connection with investigating, preparing for and defending any Claim relating to an Indemnifiable Event, and any and all judgments, fines, penalties and settlement amounts of any and all Claims relating to an Indemnifiable Event from time to time actually paid or claimed or reasonably anticipated or proposed to be paid, provided that in no event shall more than $250,000 be required to be deposited in any trust created hereunder (and no more than $1,000,000 in the aggregate with respect to any such trusts created under this Agreement and all indemnification agreements with directors and officers) in excess of amounts deposited in respect of reasonably anticipated Expenses.  The amount or amounts to be deposited in the trust

 

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pursuant to the foregoing funding obligation shall be determined by the Reviewing Party, in any case in which determination the Independent Legal Counsel referred to above is involved.  The terms of the trust shall provide that upon a Change of Control (a) the trust shall not be revoked or the principal thereof invaded, without the written consent of Indemnitee, (b) the trustee shall advance, within ten business days of a request by Indemnitee, any and all Expenses to Indemnitee (and Indemnitee hereby agrees to reimburse the trust under the circumstances under which Indemnitee would be required to reimburse the Company under Section 2(a) of this Agreement), (c) the trust shall continue to be funded by the Company in accordance with the funding obligation set forth above, (d) the trustee shall promptly pay to Indemnitee all amounts for which Indemnitee shall be entitled to indemnification pursuant to this Agreement or otherwise, and (e) all unexpended funds in such trust shall revert to the Company upon a final determination by the Reviewing Party or a court of competent jurisdiction, as the case may be, that Indemnitee has been fully indemnified under the terms of this Agreement.  The trustee shall be chosen by Indemnitee.  Nothing in this Section 4 shall relieve the Company of any of its obligations under this Agreement.

 

5.                                      Indemnification for Additional Expenses.  The Company shall indemnify Indemnitee to the fullest extent permitted by applicable law against any and all Expenses (including attorneys’ fees and retainers) and, if requested by Indemnitee, shall (within ten business days of such request) advance such Expenses to Indemnitee, that are incurred by Indemnitee in connection with any action brought by Indemnitee for (a) indemnification or advance payment of Expenses by the Company under this Agreement or any other agreement or Bylaws now or hereafter in effect relating to Claims for Indemnifiable Events or (b) recovery under any directors’ and officers’ liability insurance policies maintained by the Company.

 

6.                                      Partial Indemnity, Etc.  If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of the Expenses, judgments, fines, penalties and amounts paid in settlement of a Claim but not, however, for all of the total amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion thereof to which Indemnitee is entitled.  Moreover, notwithstanding any other provision of this Agreement, to the extent that Indemnitee has been successful on the merits or otherwise in defense of any or all Claims relating in whole or in part to an Indemnifiable Event or in defense of any issue or matter therein, including dismissal without prejudice, Indemnitee shall be indemnified to the fullest extent permitted by applicable law against all Expenses incurred in connection therewith.

 

7.                                      Contribution.

 

(a)                                 Contribution Payment.  To the extent the indemnification provided for under any provision of this Agreement is determined (in the manner herein provided) not to be permitted under applicable law, the Company, in lieu of indemnifying Indemnitee, shall, to the extent permitted by applicable law, contribute to the amount of any and all Expenses, judgments, fines, penalties and amounts paid in settlement (including all interest, assessments and other charges paid or payable in connection with or in respect of such Expenses, judgments, fines, penalties or amounts paid in settlement) of a Claim by reason of (or arising in part out of) an Indemnifiable Event incurred or paid by Indemnitee for which such indemnification is not permitted.  The amount the Company contributes shall be in such proportion as is appropriate to

 

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reflect the relative fault of Indemnitee, on the one hand, and of the Company and any and all other parties (including directors and officers of the Company other than Indemnitee) who may be at fault (collectively, including the Company, the “Third Parties”), on the other hand.

 

(b)                                 Relative Fault.  The relative fault of the Third Parties and Indemnitee shall be determined (i) by reference to the relative fault of Indemnitee as determined by the court or other governmental agency or (ii) to the extent such court or other governmental agency does not apportion relative fault, by the Reviewing Party after giving effect to, among other things, the relative intent, knowledge, access to information, and opportunity to prevent or correct the relevant events, of each party, and other relevant equitable considerations.  The Company and Indemnitee agree that it would not be just and equitable if contribution were determined by pro rata allocation or by any other method of allocation that does not take account of the equitable considerations referred to in this Section 7(b).

 

8.                                      Burden of Proof.  In connection with any determination by the Reviewing Party or otherwise as to whether Indemnitee is entitled to be indemnified or to contribution hereunder the burden of proof shall be on the Company to establish that Indemnitee is not so entitled.

 

9.                                      No Presumptions.  For purposes of this Agreement, the termination or conclusion of any Claim, by judgment, order, settlement (whether with or without court approval) or conviction, or upon a plea of nolo contendere, or its equivalent, shall not create a presumption that Indemnitee did not meet any particular standard of conduct or have any particular belief or that a court has determined that indemnification is not permitted by applicable law.  In addition, neither the failure of the Reviewing Party to have made a determination as to whether Indemnitee has met any particular standard of conduct or had any particular belief, nor an actual determination by the Reviewing Party that Indemnitee has not met such standard of conduct or did not have such belief, prior to the commencement of legal proceedings by Indemnitee to secure a judicial determination that Indemnitee should be indemnified under applicable law shall be a defense to Indemnitee’s Claim or create a presumption that Indemnitee has not met any particular standard of conduct or did not have any particular belief.

 

10.                               Nonexclusivity.  The rights of Indemnitee hereunder shall be in addition to any other rights Indemnitee may have under the Bylaws or the Delaware General Corporation Law or otherwise.  To the extent that a change in the Delaware General Corporation Law (whether by statute or judicial decision) permits greater indemnification by agreement than would be afforded currently under the Bylaws and this Agreement, it is the intent of the parties hereto that Indemnitee shall enjoy by this Agreement the greater benefits so afforded by such change.

 

11.                               Subrogation.

 

(a)                                 The Company hereby acknowledges that Indemnitee may have certain rights to indemnification, advancement of Expenses or insurance provided by one or more of the Permitted Holders or their Affiliates (collectively, the “Fund Indemnitors”).  The Company hereby agrees that it (i) is the indemnitor of first resort with respect to Claims by reason of (or arising in part out of) an Indemnifiable Event (i.e., its obligations to Indemnitee are primary and any obligation of the Fund Indemnitors to indemnify, advance Expenses to or provide insurance for Indemnitee are secondary), (ii) shall be required to advance the full amount of Expenses

 

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incurred by Indemnitee and shall be liable for the full amount of all Expenses to the extent legally permitted, in each case, as set forth in this Agreement, the Charter and the Bylaws (or any other agreement between the Company and Indemnitee), without regard to any rights Indemnitee may have against the Fund Indemnitors, and (iii) irrevocably waives, relinquishes and releases the Fund Indemnitors from any and all claims against the Fund Indemnitors for contribution, subrogation or any other recovery of any kind in respect thereof.  The Company further agrees that no advancement or payment by the Fund Indemnitors on behalf of Indemnitee with respect to any Claim for which Indemnitee has sought advancement or indemnification from the Company hereunder shall affect the foregoing and the Fund Indemnitors shall have a right of contribution or be subrogated to the extent of such advancement or payment to all rights of recovery of Indemnitee against the Company.  The Company and Indemnitee agree that the Fund Indemnitors are express third party beneficiaries of the terms of this Section 11(a).

 

(b)                                 If the Company makes any payment to or for the benefit of Indemnitee pursuant to the terms of this Agreement, the Company shall be subrogated to all of Indemnitee’s rights, claims, and interests against any Person other than the Fund Indemnitors with regard to the subject of the payment.  The Company may proceed on any such claim immediately following any such payment by the Company to Indemnitee.  Indemnitee agrees to execute and deliver any documents requested in good faith by the Company in connection with the Company’s enforcement of Indemnitee’s rights, claims, and interests, including assignments of such rights, claims and interests.  Any such assignment will include a warranty by Indemnitee that it owns the assigned rights, claims, and interests free and clear of the claims and interests of any other Person.

 

12.                               Liability Insurance.  To the extent the Company maintains an insurance policy or policies providing directors’ and officers’ liability insurance, Indemnitee shall be covered by such policy or policies, in accordance with its or their terms, to the maximum extent of the coverage available for any Company director or officer.

 

13.                               Period of Limitations.  To the fullest extent permitted by applicable law, no legal action shall be brought and no cause of action shall be asserted by or in the right of the Company against Indemnitee or Indemnitee’s spouse, heirs, executors or personal or legal representatives after the expiration of two years from the date of the occurrence of the events leading to such cause of action, and any claim or cause of action of the Company shall be extinguished and deemed released unless asserted by the timely filing of a legal action within such two-year period; provided, that if any shorter period of limitations is otherwise applicable to any such cause of action such shorter period shall govern.

 

14.                               Amendments, Etc.  No supplement, modification or amendment of this Agreement shall be binding unless executed in writing by both of the parties hereto.  No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions hereof (whether or not similar) nor shall such waiver constitute a continuing waiver.

 

15.                               No Duplication of Payments.  Except as otherwise provided in Section 11(a), the Company shall not be liable under this Agreement to make any payment in connection with any Claim made against Indemnitee to the extent Indemnitee has otherwise actually received

 

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payment (under any insurance policy, the Bylaws or otherwise) of the amounts otherwise indemnifiable hereunder.

 

16.                               Binding Effect, Etc. This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective successors and assigns (including any direct or indirect successor by purchase, merger, consolidation or otherwise to all or substantially all of the business or assets of the Company), spouses, heirs, executors and personal and legal representatives.  This Agreement shall continue in effect regardless of whether Indemnitee continues to serve as a director or officer of the Company or of any other enterprise at the Company’s request.

 

17.                               Severability.  The provisions of this Agreement shall be severable in the event that any of the provisions hereof (including any provision within a single section, paragraph or sentence) are held by a court of competent jurisdiction to be invalid, void or otherwise unenforceable in any respect, and the validity and enforceability of any such provision in every other respect and of the remaining provisions hereof shall not be in any way impaired and shall remain enforceable to the fullest extent permitted by law.

 

18.                               Integration and Entire Agreement.  Subject to Section 10 hereof, this Agreement sets forth the entire understanding between the parties hereto and supersedes and merges all previous written and oral negotiations, commitments, understandings and agreements relating to the subject matter hereof between the parties hereto.  If the Company and Indemnitee have previously entered into an indemnification agreement providing for indemnification of Indemnitee by the Company, the parties’ entry into this Agreement shall be deemed to amend and restate such indemnification agreement to read in its entirety as, and to be superseded by, this Agreement.

 

19.                               Governing Law.  This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Delaware applicable to contracts made and to be performed in such state without giving effect to the principles of conflicts of laws.

 

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IN WITNESS WHEREOF, the parties hereto have executed this Agreement effective as of the date set forth above.

 

 

	
 
    	
SMART & FINAL STORES, INC.
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
Its:
    	
 
    

 

Signature Page to Indemnification Agreement

 

 

	
 
    	
INDEMNITEE
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
[·]
    

 

Signature Page to Indemnification Agreement

 

 

Smart & Final Stores LLC hereby unconditionally guarantees the due and punctual payment and performance of all obligations of the Company under this Agreement in accordance with the terms set forth herein.

 

	
 
    	
SMART & FINAL STORES LLC
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
 
    	
Name:
    
	
 
    	
 
    	
Title:
    

 

Signature Page to Indemnification AgreementExhibit 4.13

 

 

ANNEX I

 

FORM OF NOTE

 

THIS NOTE HAS NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE SOLD, TRANSFERRED,
OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR RECEIPT BY THE COMPANY OF AN OPINION OF COUNSEL IN THE FORM, SUBSTANCE
AND SCOPE REASONABLY SATISFACTORY TO THE COMPANY THAT THIS NOTE MAY BE SOLD, TRANSFERRED, OR OTHERWISE DISPOSED OF, UNDER AN EXEMPTION
FROM REGISTRATION UNDER THE ACT AND SUCH STATE SECURITIES LAWS.

 

 

SOLAR WIND ENERGY TOWER, INC.

 

Convertible Promissory Note

due _______________, 2014

 

USD$57,500

Dated: _______________, 2013

 

 

 

For value received,
Solar Wind Energy Tower, Inc., a Nevada corporation (the “Company”), hereby promises to pay to the order
of JDF Capital Inc. (together with its successors, representatives, and permitted assigns, the “Holder”),
in accordance with the terms hereinafter provided, up to an aggregate of $57,500 (fifty seven thousand five hundred dollars) (the
“Principal Amount”), which includes the aggregate principal sum of $50,000 (fifty thousand dollars) advanced
by the Holder, $2,500 in expenses incurred by the Holder and 10% prepaid interest per annum over 12 months. The Principal Amount
outstanding shall be due and payable on the date that is 12 months from the Issuance Date.

 

The due dates of any
outstanding principal balance are referred to herein as the “Maturity Date”, respectively.

 

All payments under
or pursuant to this Note refer to and shall be made in United States Dollars in immediately available funds to the Holder at the
address of the Holder first set forth above or at such other place as the Holder may designate from time to time in writing to
the Company or by wire transfer of funds to the Holder’s account, instructions for which are attached hereto as Exhibit
A.

 

ARTICLE I

 

Section 1.1       Purchase
Agreement. This Note has been executed and delivered pursuant to the Security Purchase Agreement dated as of __________, 2013
(the “Purchase Agreement”) by and among the Company and the purchasers listed therein. Capitalized terms used
and not otherwise defined herein shall have the meanings set forth for such terms in the Purchase Agreement. 

 

Section 1.2       Interest.

 

(a)Beginning
on the issuance date of this Note (the “Issuance Date”), the outstanding principal balance of this Note shall
bear interest at a rate per annum equal to 10 percent accruing on an 12 month basis, which shall consist of the pre-paid interest
referred to above, which may be converted to shares of the Company’s common stock, par value $0.0001 per share (the “Common
Stock”) at the option of the Holder on the same terms as the Note.

 

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Section 1.2       Payment
on Non-Business Days. Whenever any payment to be made shall be due on a Saturday, Sunday or a public holiday under the laws
of the State of Nevada, such payment may be due on the next succeeding business day and such next succeeding day shall be included
in the calculation of the amount of accrued interest payable on such date.

 

Section 1.3       Transfer.
This Note may be transferred or sold, subject to the provisions of Section 4.8 of this Note, or pledged, hypothecated or otherwise
granted as security by the Holder.

 

Section 1.4        Replacement.
Upon receipt of a duly executed, notarized and unsecured written statement from the Holder with respect to the loss, theft or destruction
of this Note (or any replacement hereof), and without requiring an indemnity bond or other security, or, in the case of a mutilation
of this Note, upon surrender and cancellation of such Note, the Company shall issue a new Note, of like tenor and amount, in lieu
of such lost, stolen, destroyed or mutilated Note.

 

ARTICLE II

 

EVENTS OF DEFAULT;
REMEDIES

 

Section 2.1       Events of Default.
The occurrence of any of the following events shall be an “Event of Default” under this Note:

 

(a)the Company
shall fail to make the payment of any amount of principal outstanding on the date such payment is due hereunder;

 

(b)the Company
shall fail to make any payment of interest in shares of Common Stock for a period of three (3) days after the date such interest
is due;

 

(c)the suspension
from listing, without subsequent listing on any one of, or the failure of the Common Stock to be listed on at least one of the
OTC Bulletin Board, Nasdaq Small Cap Market, Nasdaq National Market, American Stock Exchange or The New York Stock Exchange, Inc.
for a period of five (5) consecutive Trading Days;

 

(d)the Company’s
notice to the Holder, including by way of public announcement, at any time, of its inability to comply or its intention not to
comply with proper requests for conversion of this Note into shares of Common Stock;

 

(e)the Company
shall fail to (i) timely deliver the shares of Common Stock upon conversion of the Note or any accrued and unpaid interest, or
(ii) make the payment of any fees and/or liquidated damages under this Note or the Purchase Agreement, which failure in the case
of items (i) and (ii) of this Section 2.1(e) is not remedied within three (3) business days after the incurrence thereof;

 

(f)default shall
be made in the performance or observance of (i) any material covenant, condition or agreement contained in this Note (other than
as set forth in clause (e) of this Section 2.1) and such default is not fully cured within five (5) business days after the occurrence
thereof or (ii) any material covenant, condition or agreement contained in the Purchase Agreement or any other Transaction Document
which is not covered by any other provisions of this Section 2.1 and such default is not fully cured within five (5) business days
after the occurrence thereof;

 

    	2

    	 

    

 

(g)any material
representation or warranty made by the Company herein or in the Purchase Agreement or any other Transaction Document shall prove
to have been false or incorrect or breached in a material respect on the date as of which made;

 

(h)the Company
shall (A) default in any payment of any amount or amounts of principal of or interest on any Indebtedness (other than the Indebtedness
hereunder) the aggregate principal amount of which Indebtedness is in excess of $100,000 or (B) default in the observance
or performance of any other agreement or condition relating to any Indebtedness or contained in any instrument or agreement evidencing,
securing or relating thereto, or any other event shall occur or condition exist, the effect of which default or other event or
condition is to cause, or to permit the holder or holders or beneficiary or beneficiaries of such Indebtedness to cause with the
giving of notice if required, such Indebtedness to become due prior to its stated maturity;

 

(i)the Company
shall (i) apply for or consent to the appointment of, or the taking of possession by, a receiver, custodian, trustee or liquidator
of itself or of all or a substantial part of its property or assets, (ii) make a general assignment for the benefit of its creditors,
(iii) commence a voluntary case under the United States Bankruptcy Code (as now or hereafter in effect) or under the comparable
laws of any jurisdiction (foreign or domestic), (iv) file a petition seeking to take advantage of any bankruptcy, insolvency, moratorium,
reorganization or other similar law affecting the enforcement of creditors’ rights generally, (v) acquiesce in writing to
any petition filed against it in an involuntary case under United States Bankruptcy Code (as now or hereafter in effect) or under
the comparable laws of any jurisdiction (foreign or domestic), (vi) issue a notice of bankruptcy or winding down of its operations
or issue a press release regarding same, or (vii) take any action under the laws of any jurisdiction (foreign or domestic) analogous
to any of the foregoing;

 

(j)a proceeding
or case shall be commenced in respect of the Company, without its application or consent, in any court of competent jurisdiction,
seeking (i) the liquidation, reorganization, moratorium, dissolution, winding up, or composition or readjustment of its debts,
(ii) the appointment of a trustee, receiver, custodian, liquidator or the like of it or of all or any substantial part of its assets
in connection with the liquidation or dissolution of the Company or (iii) similar relief in respect of it under any law providing
for the relief of debtors, and such proceeding or case described in clause (i), (ii) or (iii) shall continue undismissed, or unstayed
and in effect, for a period of sixty (60) days or any order for relief shall be entered in an involuntary case under United States
Bankruptcy Code (as now or hereafter in effect) or under the comparable laws of any jurisdiction (foreign or domestic) against
the Company or action under the laws of any jurisdiction (foreign or domestic) analogous to any of the foregoing shall be taken
with respect to the Company and shall continue undismissed, or unstayed and in effect for a period of sixty (60) days; or

 

(k)the failure
of the Company to instruct its transfer agent to remove any legends from shares of Common Stock eligible to be sold under Rule
144 of the Securities Act and issue such unlegended certificates to the Holder within five (5) business days of the Holder’s
request so long as the Holder has provided reasonable assurances and opinions of counsel to the Company that such shares of Common
Stock can be resold pursuant to Rule 144; or

 

(l)the failure
of the Company to pay any amounts due to the Holder herein within three (3) business days of receipt of notice to the Company.

 

Section 2.2       Remedies
Upon An Event of Default. If an Event of Default shall have occurred and shall be continuing, the Holder of this Note may at
any time at its option, (a) declare the entire unpaid principal balance of this Note, together with all interest accrued hereon,
due and payable, and thereupon, the same shall be accelerated and so due and payable, without presentment, demand, protest, or
notice, all of which are hereby expressly unconditionally and irrevocably waived by the Company; provided, however, that upon the
occurrence of an Event of Default described in (i) Sections 2.1 (k) or (l), the outstanding principal balance and interest hereunder
shall be automatically due and payable and (ii) Sections 2.1 (a)-(j) and 2.1(m)-(n), demand the prepayment of this Note pursuant
to Section 3.6 hereof, (b) subject to Section 3.4 hereof, demand that the principal amount of this Note then outstanding shall
be converted into shares of Common Stock at a Conversion Price (as defined in Section 3.2(a) hereof) per share calculated pursuant
to Section 3.1 hereof assuming that the date that the Event of Default occurs is the Conversion Date and demand that all accrued
and unpaid interest under this Note shall be converted into shares of Common Stock in accordance with Section 1.2 hereof, or (c)
exercise or otherwise enforce any one or more of the Holder’s rights, powers, privileges, remedies and interests under this
Note, the Purchase Agreement, other Transaction Document or applicable law. No course of delay on the part of the Holder shall
operate as a waiver thereof or otherwise prejudice the right of the Holder. No remedy conferred hereby shall be exclusive of any
other remedy referred to herein or now or hereafter available at law, in equity, by statute or otherwise.

 

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ARTICLE III

CONVERSION; ANTIDILUTION; PREPAYMENT

 

Section 3.1       Conversion Option.

 

(a)At any time
on or after the Issuance Date, this Note shall be convertible (in whole or in part), at the option of the Holder (the “Conversion
Option”), into such number of fully paid and non-assessable shares of Common Stock (the “Conversion Rate”)
as is determined by dividing that portion of the outstanding principal balance under this Note as of such date that the Holder
elects to convert by the Conversion Price (as defined in Section 3.2(a) hereof) then in effect on the date on which the Holder
faxes a notice of conversion (the “Conversion Notice”), duly executed, to the Company (the “Voluntary
Conversion Date”), provided, however, that the Conversion Price shall be subject to adjustment as described in Section
3.5 below. The Holder shall deliver this Note to the Company at the address designated in the Purchase Agreement at such time that
this Note is fully converted. With respect to partial conversions of this Note, the Company shall keep written records of the amount
of this Note converted as of each Conversion Date.

 

(b)On any Voluntary
Conversion Date, the Holder may cause the any outstanding Principal Amount of this Note plus all accrued and unpaid interest to
convert into a number of fully paid and nonassessable shares of Common Stock equal to the quotient of the elected outstanding principal
amount of this Note plus all accrued interest on the elected outstanding on the Voluntary Conversion Date (as described in this
Section below) divided by the Conversion Price as described in Section 3.2(a) below.

 

Furthermore, upon the occurrence of an
Event of Default (as defined in Section 2.1 hereof), then to the extent permitted by law, the Company will pay interest to the
Holder, payable on demand, on the outstanding principal balance of the Note from the date of the Event of Default until such Event
of Default is cured at the rate of the lesser of fifteen percent (15%) and the maximum applicable legal rate per annum. 

 

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(c)Conversion
Limitations; Holder’s Restriction on Conversion. The Company shall not effect any conversion of this Note, and
the Holder shall not have the right to convert any portion of this Note, to the extent that after giving effect to such conversion,
the Holder (together with the Holder’s affiliates), as set forth on the applicable Conversion Notice, would beneficially
own in excess of 4.99% of the number of shares of the Common Stock outstanding immediately after giving effect to such conversion.
For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder and its affiliates
shall include the number of shares of Common Stock issuable upon conversion of this Note with respect to which the determination
of such sentence is being made, but shall exclude the number of shares of Common Stock which would be issuable upon (A) conversion
of the remaining, nonconverted portion of this Note beneficially owned by the Holder or any of its affiliates and (B) exercise
or conversion of the unexercised or nonconverted portion of any other securities of the Company (including, without limitation,
any other Notes or the Warrants) subject to a limitation on conversion or exercise analogous to the limitation contained herein
beneficially owned by the Holder or any of its affiliates.  Except as set forth in the preceding sentence, for purposes of
this Section, beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act. To the extent that
the limitation contained in this section applies, the determination of whether this Note is convertible (in relation to other securities
owned by the Holder) and of which a portion of this Note is convertible shall be in the sole discretion of such Holder. To ensure
compliance with this restriction, the Holder will be deemed to represent to the Company each time it delivers a Conversion Notice
that such Conversion Notice has not violated the restrictions set forth in this paragraph and the Company shall have no obligation
to verify or confirm the accuracy of such determination. For purposes of this Section, in determining the number of outstanding
shares of Common Stock, the Holder may rely on the number of outstanding shares of Common Stock as reflected in (x) the Company’s
most recent Form 10-Q or Form 10-K (or such related form), as the case may be, (y) a more recent public announcement by the Company
or (z) any other notice by the Company or the Company’s Transfer Agent setting forth the number of shares of Common Stock
outstanding.  Upon the written or oral request of the Holder, the Company shall within two Trading Days confirm orally and
in writing to the Holder the number of shares of Common Stock then outstanding.  In any case, the number of outstanding shares
of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including this
Note, by the Holder or its affiliates since the date as of which such number of outstanding shares of Common Stock was reported.
The provisions of this Section may be waived by the Holder upon, at the election of the Holder, not less than 61 days’ prior
notice to the Company, and the provisions of this Section 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).

 

Section 3.2Conversion Price.

 

(a)The term “Conversion
Price” shall mean a 42% discount to the lowest closing price of the common stock for the 10 trading days immediately
prior to (i) the date of the Purchase Agreement, or (ii) the Voluntary Conversion Date.

 

Section 3.3Mechanics
of Conversion.

 

(a)Not later than
three (3) Trading Days after any Conversion Date, the Company or its designated transfer agent, as applicable, shall issue and
deliver to the Depository Trust Company (“DTC”) account on the Holder’s behalf via the Deposit Withdrawal
Agent Commission System (“DWAC”) as specified in the Conversion Notice, registered in the name of the Holder
or its designee, for the number of shares of Common Stock to which the Holder shall be entitled. In the alternative, not later
than three (3) Trading Days after any Conversion Date, the Company shall deliver to the applicable Holder by express courier a
certificate or certificates which shall be free of restrictive legends and trading restrictions (other than those required by Section
5.1 of the Purchase Agreement) representing the number of shares of Common Stock being acquired upon the conversion of this Note
(the “Delivery Date”). Notwithstanding the foregoing to the contrary, the Company or its transfer agent shall
only be obligated to issue and deliver the shares to the DTC on the Holder’s behalf via DWAC (or certificates free of restrictive
legends) if such conversion is in connection with a sale and the Holder has complied with the applicable prospectus delivery requirements.
If in the case of any Conversion Notice such certificate or certificates are not delivered to or as directed by the applicable
Holder by the Delivery Date, the Holder shall be entitled by written notice to the Company at any time on or before its receipt
of such certificate or certificates thereafter, to rescind such conversion, in which event the Company shall immediately return
this Note if tendered for conversion, whereupon the Company and the Holder shall each be restored to their respective positions
immediately prior to the delivery of such notice of revocation, except that any amounts described in Sections 3.3(b) and (c) shall
be payable through the date notice of rescission is given to the Company.

 

    	5

    	 

    

 

(b)The Company understands
that a delay in the delivery of the shares of Common Stock upon conversion of this Note beyond the Delivery Date could result in
economic loss to the Holder. If the Company fails to deliver to the Holder such shares via DWAC or a certificate or certificates
pursuant to this Section hereunder by the Delivery Date, the Company shall pay to such Holder, in cash, an amount per Trading Day
for each Trading Day until such shares are delivered via DWAC or certificates are delivered, together with interest on such amount
at a rate of 10% per annum, accruing until such amount and any accrued interest thereon is paid in full, equal to the greater of
(A) (i) 1% of the aggregate principal amount of the Note requested to be converted for the first five (5) Trading Days after the
Delivery Date and (ii) 2% of the aggregate principal amount of the Note requested to be converted for each Trading Day thereafter
and (B) $2,000 per day (which amount shall be paid as liquidated damages and not as a penalty). Nothing herein shall limit a Holder’s
right to pursue actual damages for the Company’s failure to deliver certificates representing shares of Common Stock upon
conversion within the period specified herein and such Holder shall have the right to pursue all remedies available to it at law
or in equity (including, without limitation, a decree of specific performance and/or injunctive relief). Notwithstanding anything
to the contrary contained herein, the Holder shall be entitled to withdraw a Conversion Notice, and upon such withdrawal the Company
shall only be obligated to pay the liquidated damages accrued in accordance with this Section 3.3(b) through the date the Conversion
Notice is withdrawn.

 

(c)In addition to
any other rights available to the Holder, if the Company fails to cause its transfer agent to transmit to the Holder a certificate
or certificates representing the shares of Common Stock issuable upon conversion of this Note on or before the Delivery Date, and
if after such date the Holder is required by its broker to purchase (in an open market transaction or otherwise) shares of Common
Stock to deliver in satisfaction of a sale by the Holder of the shares of Common Stock issuable upon conversion of this Note which
the Holder anticipated receiving upon such exercise (a “Buy-In”), then the Company shall (1) pay in cash to
the Holder the amount by which (x) the Holder’s total purchase price (including brokerage commissions, if any) for the shares
of Common Stock so purchased exceeds (y) the amount obtained by multiplying (A) the number of shares of Common Stock issuable upon
conversion of this Note that the Company was required to deliver to the Holder in connection with the conversion at issue times
(B) the price at which the sell order giving rise to such purchase obligation was executed, and (2) at the option of the Holder,
either reinstate the portion of the Note and equivalent number of shares of Common Stock for which such conversion was not honored
or deliver to the Holder the number of shares of Common Stock that would have been issued had the Company timely complied with
its conversion and delivery obligations hereunder. For example, if the Holder purchases Common Stock having a total purchase price
of $11,000 to cover a Buy-In with respect to an attempted conversion of shares of Common Stock with an aggregate sale price giving
rise to such purchase obligation of $10,000, under clause (1) of the immediately preceding sentence the Company shall be required
to pay the Holder $1,000. The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect
of the Buy-In, together with applicable confirmations and other evidence reasonably requested by the Company. Nothing herein shall
limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation,
a decree of specific performance and/or injunctive relief with respect to the Company’s failure to timely deliver certificates
representing shares of Common Stock upon conversion of this Note as required pursuant to the terms hereof.

 

    	6

    	 

    

 

Section 3.4       Ownership Cap
and Certain Conversion Restrictions.

 

Notwithstanding anything
to the contrary set forth in Section 3 of this Note, at no time may the Holder convert all or a portion of this Note if the number
of shares of Common Stock to be issued pursuant to such conversion would exceed, when aggregated with all other shares of Common
Stock owned by the Holder at such time, the number of shares of Common Stock which would result in the Holder beneficially owning
(as determined in accordance with Section 13(d) of the Exchange Act and the rules thereunder) more than 9.9% of all of the Common
Stock outstanding at such time; provided, however, that upon the Holder providing the Company with sixty-one (61) days notice (pursuant
to Section 4.1 hereof) (the “Waiver Notice”) that the Holder would like to waive this Section 3.4 with regard to any
or all shares of Common Stock issuable upon conversion of this Note, this Section 3.4 will be of no force or effect with regard
to all or a portion of the Note referenced in the Waiver Notice; provided, further, that this provision shall be of no further
force or effect during the sixty-one (61) days immediately preceding the Maturity Date.

 

Section 3.5       Adjustment of
Conversion Price.

 

(a)The Conversion
Price shall be subject to adjustment from time to time as follows:

 

(i)Adjustments
for Stock Splits and Combinations. If the Company shall at any time or from time to time after the Issuance Date, effect a
stock split of the outstanding Common Stock, the applicable Conversion Price in effect immediately prior to the stock split shall
be proportionately decreased. If the Company shall at any time or from time to time after the Issuance Date, combine the outstanding
shares of Common Stock, the applicable Conversion Price in effect immediately prior to the combination shall be proportionately
increased. Any adjustments under this Section 3.5(a)(i) shall be effective at the close of business on the date the stock split
or combination occurs.

 

(ii)Adjustments
for Certain Dividends and Distributions. If the Company shall at any time or from time to time after the Issuance Date, make
or issue or set a record date for the determination of holders of Common Stock entitled to receive a dividend or other distribution
payable in shares of Common Stock, then, and in each event, the applicable Conversion Price in effect immediately prior to such
event shall be decreased as of the time of such issuance or, in the event such record date shall have been fixed, as of the close
of business on such record date, by multiplying, the applicable Conversion Price then in effect by a fraction:

 

(1)the
numerator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of
such issuance or the close of business on such record date; and

 

(2)the
denominator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of
such issuance or the close of business on such record date plus the number of shares of Common Stock issuable in payment of such
dividend or distribution.

 

(iii)Adjustment
for Other Dividends and Distributions. If the Company shall at any time or from time to time after the Issuance Date, make
or issue or set a record date for the determination of holders of Common Stock entitled to receive a dividend or other distribution
payable in other than shares of Common Stock, then, and in each event, an appropriate revision to the applicable Conversion Price
shall be made and provision shall be made (by adjustments of the Conversion Price or otherwise) so that the holders of this Note
shall receive upon conversions thereof, in addition to the number of shares of Common Stock receivable thereon, the number of securities
of the Company which they would have received had this Note been converted into Common Stock on the date of such event and had
thereafter, during the period from the date of such event to and including the Conversion Date, retained such securities (together
with any distributions payable thereon during such period), giving application to all adjustments called for during such period
under this Section 3.5(a)(iii) with respect to the rights of the holders of this Note; provided, however, that if
such record date shall have been fixed and such dividend is not fully paid or if such distribution is not fully made on the date
fixed therefor, the Conversion Price shall be adjusted pursuant to this paragraph as of the time of actual payment of such dividends
or distributions.

 

    	7

    	 

    

(iv)Adjustments
for Reclassification, Exchange or Substitution. If the Common Stock issuable upon conversion of this Note at any time or from
time to time after the Issuance Date shall be changed to the same or different number of shares of any class or classes of stock,
whether by reclassification, exchange, substitution or otherwise (other than by way of a stock split or combination of shares or
stock dividends provided for in Sections 3.5(a)(i), (ii) and (iii), or a reorganization, merger, consolidation, or sale of assets
provided for in Section 3.5(a)(v)), then, and in each event, an appropriate revision to the Conversion Price shall be made and
provisions shall be made (by adjustments of the Conversion Price or otherwise) so that the Holder shall have the right thereafter
to convert this Note into the kind and amount of shares of stock and other securities receivable upon reclassification, exchange,
substitution or other change, by holders of the number of shares of Common Stock into which such Note might have been converted
immediately prior to such reclassification, exchange, substitution or other change, all subject to further adjustment as provided
herein.

 

(v)Adjustments
for Reorganization, Merger, Consolidation or Sales of Assets. If at any time or from time to time after the Issuance
Date there shall be a capital reorganization of the Company (other than by way of a stock split or combination of shares or stock
dividends or distributions provided for in Section 3.5(a)(i), (ii) and (iii), or a reclassification, exchange or substitution of
shares provided for in Section 3.5(a)(iv)), or a merger or consolidation of the Company with or into another corporation where
the holders of outstanding voting securities prior to such merger or consolidation do not own over fifty percent (50%) of the outstanding
voting securities of the merged or consolidated entity, immediately after such merger or consolidation, or the sale of all or substantially
all of the Company’s properties or assets to any other person (an “Organic Change”), then as a part of
such Organic Change an appropriate revision to the Conversion Price shall be made and provision shall be made (by adjustments of
the Conversion Price or otherwise) so that the Holder shall have the right thereafter to convert such Note into the kind and amount
of shares of stock and other securities or property of the Company or any successor corporation resulting from Organic Change.
In any such case, appropriate adjustment shall be made in the application of the provisions of this Section 3.5(a)(v) with respect
to the rights of the Holder after the Organic Change to the end that the provisions of this Section 3.5(a)(v) (including any adjustment
in the applicable Conversion Price then in effect and the number of shares of stock or other securities deliverable upon conversion
of this Note) shall be applied after that event in as nearly an equivalent manner as may be practicable.

 

(vi)Issuance
of Common Stock Equivalents. If the Company, at any time after the Issuance Date, shall issue any securities convertible into
or exchangeable for, directly or indirectly, Common Stock (“Convertible Securities”), other than the Note, or
any rights or warrants or options to purchase any such Common Stock or Convertible Securities, shall be issued or sold (collectively,
the “Common Stock Equivalents”) and the aggregate of the price per share for which Additional Shares of Common
Stock may be issuable thereafter pursuant to such Common Stock Equivalent, plus the consideration received by the Company for issuance
of such Common Stock Equivalent divided by the number of shares of Common Stock issuable pursuant to such Common Stock Equivalent
(the “Aggregate Per Common Share Price”) shall be less than the applicable Conversion Price then in effect,
or if, after any such issuance of Common Stock Equivalents, the price per share for which Additional Shares of Common Stock may
be issuable thereafter is amended or adjusted, and such price as so amended shall make the Aggregate Per Share Common Price be
less than the applicable Conversion Price in effect at the time of such amendment or adjustment, then the applicable Conversion
Price upon each such issuance or amendment shall be adjusted as provided in the first sentence of subsection (vi) of this Section
3.5(a) on the basis that (1) the maximum number of Additional Shares of Common Stock issuable pursuant to all such Common Stock
Equivalents shall be deemed to have been issued (whether or not such Common Stock Equivalents are actually then exercisable, convertible
or exchangeable in whole or in part) as of the earlier of (A) the date on which the Company shall enter into a firm contract for
the issuance of such Common Stock Equivalent, or (B) the date of actual issuance of such Common Stock Equivalent. No adjustment
of the applicable Conversion Price shall be made under this subsection (vii) upon the issuance of any Convertible Security which
is issued pursuant to the exercise of any warrants or other subscription or purchase rights therefor, if any adjustment shall previously
have been made to the exercise price of such warrants then in effect upon the issuance of such warrants or other rights pursuant
to this subsection (vii). No adjustment shall be made to the Conversion Price upon the issuance of Common Stock pursuant to the
exercise, conversion or exchange of any Convertible Security or Common Stock Equivalent where an adjustment to the Conversion Price
was made as a result of the issuance or purchase of any Convertible Security or Common Stock Equivalent.

 

    	8

    	 

    

(vii)Consideration
for Stock. In case any shares of Common Stock or any Common Stock Equivalents shall be issued or sold:

 

(1)in connection
with any merger or consolidation in which the Company is the surviving corporation (other than any consolidation or merger in which
the previously outstanding shares of Common Stock of the Company shall be changed to or exchanged for the stock or other securities
of another corporation), the amount of consideration therefor shall be, deemed to be the fair value, as determined reasonably and
in good faith by the Board of Directors of the Company, of such portion of the assets and business of the nonsurviving corporation
as such Board may determine to be attributable to such shares of Common Stock, Convertible Securities, rights or warrants or options,
as the case may be; or

 

(2)in the event
of any consolidation or merger of the Company in which the Company is not the surviving corporation or in which the previously
outstanding shares of Common Stock of the Company shall be changed into or exchanged for the stock or other securities of another
corporation, or in the event of any sale of all or substantially all of the assets of the Company for stock or other securities
of any corporation, the Company shall be deemed to have issued a number of shares of its Common Stock for stock or securities or
other property of the other corporation computed on the basis of the actual exchange ratio on which the transaction was predicated,
and for a consideration equal to the fair market value on the date of such transaction of all such stock or securities or other
property of the other corporation. If any such calculation results in adjustment of the applicable Conversion Price, or the number
of shares of Common Stock issuable upon conversion of the Note, the determination of the applicable Conversion Price or the number
of shares of Common Stock issuable upon conversion of the Note immediately prior to such merger, consolidation or sale, shall be
made after giving effect to such adjustment of the number of shares of Common Stock issuable upon conversion of the Note. In the
event Common Stock is issued with other shares or securities or other assets of the Company for consideration which covers both,
the consideration computed as provided in this Section 3.5(viii) shall be allocated among such securities and assets as determined
in good faith by the Board of Directors of the Company.

 

(b)Record Date.
In case the Company shall take record of the holders of its Common Stock for the purpose of entitling them to subscribe for or
purchase Common Stock or Convertible Securities, then the date of the issue or sale of the shares of Common Stock shall be deemed
to be such record date.

 

    	9

    	 

    

(c)Certain Issues
Excepted. Anything herein to the contrary notwithstanding, the Company shall not be required to make any adjustment to the
Conversion Price in connection with (i) securities issued (other than for cash) in connection with a merger, acquisition, or consolidation,
(ii) securities issued pursuant to a bona fide firm underwritten public offering of the Company’s securities, (iii) securities
issued pursuant to the conversion or exercise of convertible or excercisable securities issued or outstanding on or prior to the
date hereof or issued pursuant to the Purchase Agreement, (iv) the shares of Common Stock issuable upon the exercise of Warrants,
(v) securities issued in connection with strategic license agreements or other partnering arrangements so long as such issuances
are not for the purpose of raising capital, (vi) Common Stock issued or options to purchase Common Stock granted or issued pursuant
to the Company’s stock option plans and employee stock purchase plans as they now exist and (vii) the payment of any accrued
interest in shares of Common Stock pursuant to this Note.

 

(d)No Impairment.
The Company shall not, by amendment of its Certificate of Incorporation or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance
of any of the terms to be observed or performed hereunder by the Company, but will at all times in good faith, assist in the carrying
out of all the provisions of this Section 3.5 and in the taking of all such action as may be necessary or appropriate in order
to protect the Conversion Rights of the Holder against impairment. In the event a Holder shall elect to convert any Note as provided
herein, the Company cannot refuse conversion based on any claim that such Holder or any one associated or affiliated with such
Holder has been engaged in any violation of law, violation of an agreement to which such Holder is a party or for any reason whatsoever,
unless, an injunction from a court, or notice, restraining and or adjoining conversion of all or of said Note shall have issued
and the Company posts a surety bond for the benefit of such Holder in an amount equal to one hundred thirty percent (130%) of the
amount of the Note the Holder has elected to convert, which bond shall remain in effect until the completion of arbitration/litigation
of the dispute and the proceeds of which shall be payable to such Holder in the event it obtains judgment.

 

(e)Certificates
as to Adjustments. Upon occurrence of each adjustment or readjustment of the Conversion Price or number of shares of Common
Stock issuable upon conversion of this Note pursuant to this Section 3.5, the Company at its expense shall promptly compute such
adjustment or readjustment in accordance with the terms hereof and furnish to the Holder a certificate setting forth such adjustment
and readjustment, showing in detail the facts upon which such adjustment or readjustment is based. The Company shall, upon written
request of the Holder, at any time, furnish or cause to be furnished to the Holder a like certificate setting forth such adjustments
and readjustments, the applicable Conversion Price in effect at the time, and 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 the conversion of this Note. Notwithstanding the
foregoing, the Company shall not be obligated to deliver a certificate unless such certificate would reflect an increase or decrease
of at least one percent (1%) of such adjusted amount.

 

(f)Issue Taxes.
The Company shall pay any and all issue and other taxes, excluding federal, state or local income taxes, that may be payable in
respect of any issue or delivery of shares of Common Stock on conversion of this Note pursuant thereto; provided, however,
that the Company shall not be obligated to pay any transfer taxes resulting from any transfer requested by the Holder in connection
with any such conversion.

 

(g)Fractional
Shares. No fractional shares of Common Stock shall be issued upon conversion of this Note. In lieu of any fractional shares
to which the Holder would otherwise be entitled, the Company shall pay cash equal to the product of such fraction multiplied by
the average of the Closing Bid Prices of the Common Stock for the five (5) consecutive Trading Days immediately preceding the Conversion
Date.

 

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(h)Reservation
of Common Stock. The Company shall at all times when this Note shall be outstanding, reserve and keep available out of its
authorized but unissued Common Stock, such number of shares of Common Stock as shall from time to time be sufficient to effect
the conversion of this Note and all interest accrued thereon; provided that the number of shares of Common Stock so reserved
shall at no time be less than one hundred twenty percent (120%) of the number of shares of Common Stock for which this Note and
all interest accrued thereon are at any time convertible. The Company shall, from time to time in accordance with Nevada corporate
law, increase the authorized number of shares of Common Stock if at any time the unissued number of authorized shares shall not
be sufficient to satisfy the Company’s obligations under this Section 3.5(h).

 

(i)Regulatory
Compliance. If any shares of Common Stock to be reserved for the purpose of conversion of this Note or any interest accrued
thereon require registration or listing with or approval of any governmental authority, stock exchange or other regulatory body
under any federal or state law or regulation or otherwise before such shares may be validly issued or delivered upon conversion,
the Company shall, at its sole cost and expense, in good faith and as expeditiously as possible, endeavor to secure such registration,
listing or approval, as the case may be.

 

Section 3.6       Prepayment.

 

(a)Prepayment
Upon an Event of Default. Notwithstanding anything to the contrary contained herein, upon the occurrence of an Event of Default
described in Sections 2.1(a)-(j) and 2.1(m)-(o) hereof, the Holder shall have the right, at such Holder’s option, to require
the Company to prepay in cash all or a portion of this Note at a price equal to one hundred twenty percent (120%) of the aggregate
principal amount of this Note plus all accrued and unpaid interest applicable at the time of such request (the “Event
of Default Prepayment Price”). Nothing in this Section 3.6(a) shall limit the Holder’s rights under Section 2.2
hereof.

 

(b)Prepayment
Option Upon Major Transaction. In addition to all other rights of the Holder contained herein, simultaneous with the occurrence
of a Major Transaction (as defined in Section 3.6(e) hereof), the Holder shall have the right, at the Holder’s option, to
require the Company to prepay all or a portion of the Holder’s Note at a price equal to one hundred ten percent (110%) of
the aggregate principal amount of this Note plus all accrued and unpaid interest (the “Major Transaction Prepayment Price”).

 

(c)Prepayment
Option Upon Triggering Event. In addition to all other rights of the Holder contained herein, after a Triggering Event (as
defined below), the Holder shall have the right, at the Holder’s option, to require the Company to prepay all or a portion
of this Note in cash at a price equal to the sum of (i) the greater of (A) one hundred twenty percent (120%) of the aggregate principal
amount of this Note plus all accrued and unpaid interest and (B) in the event at such time the Holder is unable to obtain the benefit
of its conversion rights through the conversion of this Note and resale of the shares of Common Stock issuable upon conversion
hereof in accordance with the terms of this Note and the other Transaction Documents, the aggregate principal amount of this Note
plus all accrued but unpaid interest hereon, divided by the Conversion Price on (x) the date the Prepayment Price (as defined below)
is demanded or otherwise due or (y) the date the Prepayment Price is paid in full, whichever is less, multiplied by the VWAP on
(x) the date the Prepayment Price is demanded or otherwise due, and (y) the date the Prepayment Price is paid in full, whichever
is greater, and (ii) all other amounts, costs, expenses and liquidated damages due in respect of this Note and the other Transaction
Documents (the “Triggering Event Prepayment Price,” and, collectively with the “Major Transaction Prepayment
Price,” the “Prepayment Price”).

 

    	11

    	 

    

(d) Major Transaction.
A “Major Transaction” shall be deemed to have occurred at such time as any of the following events:

 

(i)the consolidation,
merger or other business combination of the Company with or into another Person (other than (A) pursuant to a migratory merger
effected solely for the purpose of changing the jurisdiction of incorporation of the Company or (B) a consolidation, merger or
other business combination in which holders of the Company’s voting power immediately prior to the transaction continue after
the transaction to hold, directly or indirectly, the voting power of the surviving entity or entities necessary to elect a majority
of the members of the board of directors (or their equivalent if other than a corporation) of such entity or entities); or

 

(ii)the sale or
transfer of more than fifty percent (50%) of the Company’s assets (based on the fair market value as determined in good faith
by the Company’s Board of Directors) other than inventory in the ordinary course of business in one or a related series of
transactions; or

 

(iii)closing of
a purchase, tender or exchange offer made to the holders of more than fifty percent (50%) of the outstanding shares of Common Stock
in which more than fifty percent (50%) of the outstanding shares of Common Stock were tendered and accepted.

 

(e) Triggering
Event. A “Triggering Event” shall be deemed to have occurred at such time as any of the following events:

 

(i)the suspension
from listing, without subsequent listing on any one of, or the failure of the Common Stock to be listed on at least one of the
OTC Bulletin Board, Nasdaq SmallCap Market, Nasdaq National Market, American Stock Exchange or The New York Stock Exchange, Inc.
for a period of five (5) consecutive Trading Days;

 

(ii)the Company’s
notice to any holder of the Note, including by way of public announcement, at any time, of its inability to comply (including for
any of the reasons described in Section 3.8) or its intention not to comply with proper requests for conversion of any Note into
shares of Common Stock; or

 

(iii)the Company’s
failure to comply with a Conversion Notice tendered in accordance with the provisions of this Note within ten (10) business days
after the receipt by the Company of the Conversion Notice; or

 

(iv)the Company
deregisters its shares of Common Stock and as a result such shares of Common Stock are no longer publicly traded; or

 

(v)the Company
consummates a “going private” transaction and as a result the Common Stock is no longer registered under Sections 12(b)
or 12(g) of the Exchange Act.

 

(f)Mechanics of
Prepayment at Option of Holder Upon Major Transaction. No sooner than fifteen (15) days nor later than ten (10) days prior
to the consummation of a Major Transaction, but not prior to the public announcement of such Major Transaction, the Company shall
deliver written notice thereof via facsimile and overnight courier (“Notice of Major Transaction”) to the Holder of
this Note. At any time after receipt of a Notice of Major Transaction (or, in the event a Notice of Major Transaction is not delivered
at least ten (10) days prior to a Major Transaction, at any time within ten (10) days prior to a Major Transaction), any holder
of the Notes then outstanding may require the Company to prepay, effective immediately prior to the consummation of such Major
Transaction, all of the holder’s Notes then outstanding by delivering written notice thereof via facsimile and overnight
courier (“Notice of Prepayment at Option of Holder Upon Major Transaction”) to the Company, which Notice of Prepayment
at Option of Holder Upon Major Transaction shall indicate (i) the number of Notes that such holder is electing to prepay and (ii)
the applicable Major Transaction Prepayment Price, as calculated pursuant to Section 3.6(b) above.

 

    	12

    	 

    

 

(g)Mechanics of
Prepayment at Option of Holder Upon Triggering Event. Within one (1) business day after the occurrence of a Triggering Event,
the Company shall deliver written notice thereof via facsimile and overnight courier (“Notice of Triggering Event”)
to each holder of the Notes. At any time after the earlier of a holder’s receipt of a Notice of Triggering Event and such
holder becoming aware of a Triggering Event, any holder of this Note may require the Company to prepay all of the Notes on a pro
rata basis by delivering written notice thereof via facsimile and overnight courier (“Notice of Prepayment at Option of
Holder Upon Triggering Event”) to the Company, which Notice of Prepayment at Option of Holder Upon Triggering Event shall
indicate (i) the amount of the Note that such holder is electing to have prepaid and (ii) the applicable Triggering Event Prepayment
Price, as calculated pursuant to Section 3.6(c) above. A holder shall only be permitted to require the Company to prepay the Note
pursuant to Section 3.6 hereof for the greater of a period of ten (10) days after receipt by such holder of a Notice of Triggering
Event or for so long as such Triggering Event is continuing.

 

(h) Payment of
Prepayment Price. Upon the Company’s receipt of a Notice(s) of Prepayment at Option of Holder Upon Triggering Event or
a Notice(s) of Prepayment at Option of Holder Upon Major Transaction from any holder of the Notes, the Company shall immediately
notify each holder of the Notes by facsimile of the Company’s receipt of such Notice(s) of Prepayment at Option of Holder
Upon Triggering Event or Notice(s) of Prepayment at Option of Holder Upon Major Transaction and each holder which has sent such
a notice shall promptly submit to the Company such holder’s certificates representing the Notes which such holder has elected
to have prepaid. The Company shall deliver the applicable Triggering Event Prepayment Price, in the case of a prepayment pursuant
to Section 3.6(i), to such holder within five (5) business days after the Company’s receipt of a Notice of Prepayment at
Option of Holder Upon Triggering Event and, in the case of a prepayment pursuant to Section 3.(f), the Company shall deliver the
applicable Major Transaction Prepayment Price immediately prior to the consummation of the Major Transaction; provided that a holder’s
original Note shall have been so delivered to the Company; provided further that if the Company is unable to prepay all of the
Notes to be prepaid, the Company shall prepay an amount from each holder of the Notes being prepaid equal to such holder’s
pro-rata amount (based on the number of Notes held by such holder relative to the number of Notes outstanding) of all Notes being
prepaid. If the Company shall fail to prepay all of the Notes submitted for prepayment (other than pursuant to a dispute as to
the arithmetic calculation of the Prepayment Price), in addition to any remedy such holder of the Notes may have under this Note
and the Purchase Agreement, the applicable Prepayment Price payable in respect of such Notes not prepaid shall bear interest at
the rate of two percent (2%) per month (prorated for partial months) until paid in full. Until the Company pays such unpaid applicable
Prepayment Price in full to a holder of the Notes submitted for prepayment, such holder shall have the option (the “Void
Optional Prepayment Option”) to, in lieu of prepayment, require the Company to promptly return to such holder(s) all of the
Notes that were submitted for prepayment by such holder(s) under this Section 3.6 and for which the applicable Prepayment Price
has not been paid, by sending written notice thereof to the Company via facsimile (the “Void Optional Prepayment Notice”).
Upon the Company’s receipt of such Void Optional Prepayment Notice(s) and prior to payment of the full applicable Prepayment
Price to such holder, (i) the Notice(s) of Prepayment at Option of Holder Upon Triggering Event or the Notice(s) of Prepayment
at Option of Holder Upon Major Transaction, as the case may be, shall be null and void with respect to those Notes submitted for
prepayment and for which the applicable Prepayment Price has not been paid, (ii) the Company shall immediately return any Notes
submitted to the Company by each holder for prepayment under this Section 3.6(h) and for which the applicable Prepayment Price
has not been paid and (iii) the Conversion Price of such returned Notes shall be adjusted to the lesser of (A) the Conversion Price
as in effect on the date on which the Void Optional Prepayment Notice(s) is delivered to the Company and (B) the lowest Closing
Bid Price during the period beginning on the date on which the Notice(s) of Prepayment of Option of Holder Upon Major Transaction
or the Notice(s) of Prepayment at Option of Holder Upon Triggering Event, as the case may be, is delivered to the Company and ending
on the date on which the Void Optional Prepayment Notice(s) is delivered to the Company; provided that no adjustment shall be made
if such adjustment would result in an increase of the Conversion Price then in effect. A holder’s delivery of a Void Optional
Prepayment Notice and exercise of its rights following such notice shall not effect the Company’s obligations to make any
payments which have accrued prior to the date of such notice. Payments provided for in this Section 3.6 shall have priority to
payments to other stockholders in connection with a Major Transaction.

 

    	13

    	 

    

 

(i)Company Prepayment
Option upon Major Transaction. Upon the consummation of a Major Transaction, the Company may prepay in cash all or any portion
of the outstanding principal amount of this Note together with all accrued and unpaid interest thereon upon at least thirty (30)
days prior written notice to the Holder (the “Company’s Prepayment Notice”) at a price equal to one hundred
twenty percent (120%) of the aggregate principal amount of this Note plus any accrued but unpaid interest (the “Company’s
Prepayment Price”); provided, however, that if a holder has delivered a Conversion Notice to the Company or delivers
a Conversion Notice within such thirty (30) day period following delivery of the Company’s Prepayment Notice, the principal
amount of the Notes plus any accrued but unpaid interest designated to be converted may not be prepaid by the Company and shall
be converted in accordance with Section 3.3 hereof; provided further that if during the period between delivery of the Company’s
Prepayment Notice and the Company’s Prepayment Date (as defined below), a holder shall become entitled and elects to deliver
a Notice of Prepayment at Option of Holder Upon Major Transaction or Notice of Prepayment at Option of Holder upon Triggering Event,
then such rights of the holders shall take precedence over the previously delivered Company Prepayment Notice if the holder so
elects. The Company’s Prepayment Notice shall state the date of prepayment which date shall be the date of the consummation
of the Major Transaction (the “Company’s Prepayment Date”), the Company’s Prepayment Price and the principal
amount of Notes plus any accrued but unpaid interest to be prepaid by the Company. The Company shall deliver the Company’s
Prepayment Price on the Company’s Prepayment Date, provided, that if the holder(s) delivers a Conversion Notice before the
Company’s Prepayment Date, then the portion of the Company’s Prepayment Price which would be paid to prepay the Notes
covered by such Conversion Notice shall be returned to the Company upon delivery of the Common Stock issuable in connection with
such Conversion Notice to the holder(s). On the Company’s Prepayment Date, the Company shall pay the Company’s Prepayment
Price, subject to any adjustment pursuant to the immediately preceding sentence, to the holder(s) on a pro rata basis. If the Company
fails to pay the Company’s Prepayment Price by the third (3rd) business day after the Company’s Prepayment Date, the
prepayment will be declared null and void and the Company shall lose its right to serve a Company’s Prepayment Notice pursuant
to this Section 3.6(i) in the future. Notwithstanding the foregoing to the contrary, the Company may effect a prepayment pursuant
to this Section 3.6(i) only if trading in the Common Stock shall not have been suspended by the Securities and Exchange Commission
or the Nasdaq SmallCap Market (or other exchange or market on which the Common Stock is trading), and and the Company is in material
compliance with the terms and conditions of this Note and the other Transaction Documents.

 

Section 3.7       Inability to
Fully Convert.

 

(a)Holder’s
Option if Company Cannot Fully Convert. If, upon the Company’s receipt of a Conversion Notice, the Company cannot issue
shares of Common Stock for any reason, including, without limitation, because the Company (w) does not have a sufficient number
of shares of Common Stock authorized and available, or (x) is otherwise prohibited by applicable law or by the rules or regulations
of any stock exchange, interdealer quotation system or other self-regulatory organization with jurisdiction over the Company or
any of its securities from issuing all of the Common Stock which is to be issued to the Holder pursuant to a Conversion Notice,
then the Company shall issue as many shares of Common Stock as it is able to issue in accordance with the Holder’s Conversion
Notice and, with respect to the unconverted portion of this Note, the Holder, solely at Holder’s option, can elect to:

 

    	14

    	 

    

(i)require the
Company to prepay that portion of this Note for which the Company is unable to issue Common Stock in accordance with the Holder’s
Conversion Notice (the “Mandatory Prepayment”) at a price per share equal to the Triggering Event Prepayment
Price as of such Conversion Date (the “Mandatory Prepayment Price”);

 

(ii)void its Conversion
Notice and retain or have returned, as the case may be, this Note that was to be converted pursuant to the Conversion Notice (provided
that the Holder’s voiding its Conversion Notice shall not effect the Company’s obligations to make any payments which
have accrued prior to the date of such notice).

 

In the event a Holder
shall elect to convert any portion of its Notes as provided herein, the Company cannot refuse conversion based on any claim that
such Holder or any one associated or affiliated with such Holder has been engaged in any violation of law, violation of an agreement
to which such Holder is a party or for any reason whatsoever, unless, an injunction from a court, on notice, restraining and or
adjoining conversion of all or of said Notes shall have been issued and the Company posts a surety bond for the benefit of such
Holder in an amount equal to 130% of the principal amount of the Notes the Holder has elected to convert, which bond shall remain
in effect until the completion of arbitration/litigation of the dispute and the proceeds of which shall be payable to such Holder
in the event it obtains judgment.

 

(b)Mechanics
of Fulfilling Holder’s Election. The Company shall immediately send via facsimile to the Holder, upon receipt of a facsimile
copy of a Conversion Notice from the Holder which cannot be fully satisfied as described in Section 3.7(a) above, a notice of the
Company’s inability to fully satisfy the Conversion Notice (the “Inability to Fully Convert Notice”).
Such Inability to Fully Convert Notice shall indicate (i) the reason why the Company is unable to fully satisfy such holder’s
Conversion Notice, (ii) the amount of this Note which cannot be converted and (iii) the applicable Mandatory Prepayment Price.
The Holder shall notify the Company of its election pursuant to Section 3.7(a) above by delivering written notice via facsimile
to the Company (“Notice in Response to Inability to Convert”).

 

(c)Payment
of Prepayment Price. If the Holder shall elect to have its Notes prepaid pursuant to Section 3.7(a)(i) above, the Company shall
pay the Mandatory Prepayment Price to the Holder within thirty (30) days of the Company’s receipt of the Holder’s Notice
in Response to Inability to Convert, provided that prior to the Company’s receipt of the Holder’s Notice in
Response to Inability to Convert the Company has not delivered a notice to the Holder stating, to the satisfaction of the Holder,
that the event or condition resulting in the Mandatory Prepayment has been cured and all Conversion Shares issuable to the Holder
can and will be delivered to the Holder in accordance with the terms of this Note. If the Company shall fail to pay the applicable
Mandatory Prepayment Price to the Holder on a timely basis as described in this Section 3.7(c) (other than pursuant to a dispute
as to the determination of the arithmetic calculation of the Prepayment Price), in addition to any remedy the Holder may have under
this Note and the Purchase Agreement, such unpaid amount shall bear interest at the rate of two percent (2%) per month (prorated
for partial months) until paid in full. Until the full Mandatory Prepayment Price is paid in full to the Holder, the Holder may
(i) void the Mandatory Prepayment with respect to that portion of the Note for which the full Mandatory Prepayment Price has not
been paid, (ii) receive back such Note, and (iii) require that the Conversion Price of such returned Note be adjusted to the lesser
of (A) the Conversion Price as in effect on the date on which the Holder voided the Mandatory Prepayment and (B) the lowest Closing
Bid Price during the period beginning on the Conversion Date and ending on the date the Holder voided the Mandatory Prepayment.

 

    	15

    	 

    

(d)Pro-rata
Conversion and Prepayment. In the event the Company receives a Conversion Notice from more than one holder of the Notes on
the same day and the Company can convert and prepay some, but not all, of the Notes pursuant to this Section 3.7, the Company shall
convert and prepay from each holder of the Notes electing to have its Notes converted and prepaid at such time an amount equal
to such holder’s pro-rata amount (based on the principal amount of the Notes held by such holder relative to the principal
amount of the Notes outstanding) of all the Notes being converted and prepaid at such time.

 

Section 3.8No
Rights as Shareholder. Nothing contained in this Note shall be construed as conferring upon the Holder, prior to the conversion
of this Note, the right to vote or to receive dividends or to consent or to receive notice as a shareholder in respect of any meeting
of shareholders for the election of directors of the Company or of any other matter, or any other rights as a shareholder of the
Company.

 

ARTICLE IV

MISCELLANEOUS

 

Section 4.1Notices.
Any notice, demand, request, waiver or other communication required or permitted to be given hereunder shall be in writing and
shall be effective (a) upon hand delivery by telex (with correct answer back received), telecopy or facsimile at the address 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. The Company will
give written notice to the Holder at least ten (10) days prior to the date on which the Company takes a record (x) with respect
to any dividend or distribution upon the Common Stock, (y) with respect to any pro rata subscription offer to holders of Common
Stock or (z) for determining rights to vote with respect to any Organic Change, dissolution, liquidation or winding-up and in no
event shall such notice be provided to such holder prior to such information being made known to the public. The Company will also
give written notice to the Holder at least ten (10) days prior to the date on which any Organic Change, dissolution, liquidation
or winding-up will take place and in no event shall such notice be provided to the Holder prior to such information being made
known to the public.

 

Section 4.2Governing
Law. This Note shall be governed by and construed in accordance with the internal laws of the State of Nevada, without giving
effect to any of the conflicts of law principles which would result in the application of the substantive law of another jurisdiction.
This Note shall not be interpreted or construed with any presumption against the party causing this Note to be drafted.

 

Section 4.3Headings.
Article and section headings in this Note are included herein for purposes of convenience of reference only and shall not constitute
a part of this Note for any other purpose.

 

    	16

    	 

    

Section 4.4Remedies,
Characterizations, Other Obligations, Breaches and Injunctive Relief. The remedies provided in this Note shall be cumulative
and in addition to all other remedies available under this Note, at law or in equity (including, without limitation, a decree of
specific performance and/or other injunctive relief), no remedy contained herein shall be deemed a waiver of compliance with the
provisions giving rise to such remedy and nothing herein shall limit a holder’s right to pursue actual damages for any failure
by the Company to comply with the terms of this Note. Amounts set forth or provided for herein with respect to payments, conversion
and the like (and the computation thereof) shall be the amounts to be received by the holder thereof and shall not, except as expressly
provided herein, be subject to any other obligation of the Company (or the performance thereof). The Company acknowledges that
a breach by it of its obligations hereunder will cause irreparable and material harm to the Holder and that the remedy at law for
any such breach may be inadequate. Therefore the Company agrees that, in the event of any such breach or threatened breach, the
Holder shall be entitled, in addition to all other available rights and remedies, at law or in equity, to seek and obtain such
equitable relief, including but not limited to an injunction restraining any such breach or threatened breach, without the necessity
of showing economic loss and without any bond or other security being required.

 

Section 4.5Enforcement
Expenses. The Company agrees to pay all costs and expenses of enforcement of this Note, including, without limitation, reasonable
attorneys’ fees and expenses.

 

Section 4.6Binding
Effect. The obligations of the Company and the Holder set forth herein shall be binding upon the successors and assigns of
each such party, whether or not such successors or assigns are permitted by the terms hereof.

 

Section 4.7Amendments.
This Note may not be modified or amended in any manner except in writing executed by the Company and the Holder.

 

Section 4.8Compliance
with Securities Laws. The Holder of this Note acknowledges that this Note is being acquired solely for the Holder’s own
account and not as a nominee for any other party, and for investment, and that the Holder shall not offer, sell or otherwise dispose
of this Note. This Note and any Note issued in substitution or replacement therefor shall be stamped or imprinted with a legend
in substantially the following form:

 

“THIS NOTE HAS NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE SOLD
OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR RECEIPT BY THE COMPANY OF AN OPINION OF COUNSEL IN THE FORM, SUBSTANCE AND
SCOPE REASONABLY SATISFACTORY TO THE COMPANY THAT THIS NOTE MAY BE SOLD, TRANSFERRED, HYPOTHECATED OR OTHERWISE DISPOSED OF, UNDER
AN EXEMPTION FROM REGISTRATION UNDER THE ACT AND SUCH STATE SECURITIES LAWS.”

 

 

 

Section 4.9Consent
to Jurisdiction. Each of the Company and the Holder (i) hereby irrevocably submits to the exclusive jurisdiction of the State
of Nevada for the purposes of any suit, action or proceeding arising out of or relating to this Note and (ii) hereby waives, and
agrees not to assert in any such suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of
such court, that the suit, action or proceeding is brought in an inconvenient forum or that the venue of the suit, action or proceeding
is improper. Each of the Company and the Holder consents to process being served in any such suit, action or proceeding by mailing
a copy thereof to such party at the address in effect for notices to it under the Purchase Agreement and agrees that such service
shall constitute good and sufficient service of process and notice thereof. Nothing in this Section 4.9 shall affect or limit any
right to serve process in any other manner permitted by law. Each of the Company and the Holder hereby agree that the prevailing
party in any suit, action or proceeding arising out of or relating to this Note shall be entitled to reimbursement for reasonable
legal fees from the non-prevailing party.

 

    	17

    	 

    

Section 4.10Parties
in Interest. This Note shall be binding upon, inure to the benefit of and be enforceable by the Company, the Holder and their
respective successors and permitted assigns.

 

Section 4.11Failure
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 privilege.

 

Section 4.12Company
Waivers. Except as otherwise specifically provided herein, the Company and all others that may become liable for all or any
part of the obligations evidenced by this Note, hereby waive presentment, demand, notice of nonpayment, protest and all other demands’
and notices in connection with the delivery, acceptance, performance and enforcement of this Note, and do hereby consent to any
number of renewals of extensions of the time or payment hereof and agree that any such renewals or extensions may be made without
notice to any such persons and without affecting their liability herein and do further consent to the release of any person liable
hereon, all without affecting the liability of the other persons, firms or Company liable for the payment of this Note, AND DO
HEREBY WAIVE TRIAL BY JURY.

 

(a)No delay or omission
on the part of the Holder in exercising its rights under this Note, or course of conduct relating hereto, shall operate as a waiver
of such rights or any other right of the Holder, nor shall any waiver by the Holder of any such right or rights on any one occasion
be deemed a waiver of the same right or rights on any future occasion.

 

(b)THE COMPANY ACKNOWLEDGES
THAT THE TRANSACTION OF WHICH THIS NOTE IS A PART IS A COMMERCIAL TRANSACTION, AND TO THE EXTENT ALLOWED BY APPLICABLE LAW, HEREBY
WAIVES ITS RIGHT TO NOTICE AND HEARING WITH RESPECT TO ANY PREJUDGMENT REMEDY WHICH THE HOLDER OR ITS SUCCESSORS OR ASSIGNS MAY
DESIRE TO USE.

 

 

 

	 	SOLAR WIND ENERGY TOWER, INC.
	 	 
	 	 
	 	By:  ______________________________
	 	        Name:  
	 	        Title:    

 

    	18

    	 

    

 

EXHIBIT A

 

WIRE INSTRUCTIONS

 

	Payee: 	___________________________________
	Bank:	___________________________________
	Address:	___________________________________
	 	___________________________________
	Bank No.: 	___________________________________
	Account No.: 	____________________________________
	Account Name:	____________________________________
    

 

 

    	19

    	 

    

 

FORM OF

 

NOTICE OF CONVERSION

 

(To be Executed by the Registered Holder in
order to Convert the Note)

 

The undersigned hereby irrevocably elects to
convert $ ________________ of the principal amount of the above Note No. ___ into shares of Common Stock of Solar Wind Energy Tower,
Inc. (the “Company”) according to the conditions hereof, as of the date written below.

 

Date of Conversion: ___________________________________________

 

Applicable Conversion Price: ___________________________________

 

Number of shares of Common Stock beneficially
owned or deemed beneficially owned by the Holder on the Date of Conversion:______________________________

 

	Signature: 	______________________________
	Print Name: 	______________________________
	Address:	______________________________
	 	______________________________
	 	______________________________

 

 

 

 

 

    	20

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