Document:

This Note, and the securities issuable
upon the conversion of this Note, have not been registered under the Securities Act of 1933, as amended (the "Act")
or applicable state law and may not be sold, transferred or otherwise disposed of unless registered under the Act and any applicable
state act or unless the Company receives an opinion from counsel for the holder and is satisfied that this Note and the underlying
securities may be transferred without registration under the Act.

 

 

CONVERTIBLE NOTE – SERIES L - $0.03
CONVERSION

 

 

Date: December 30, 2016

FOR VALUE RECEIVED, GREENESTONE HEALTHCARE
COPORATION, a Colorado corporation (the "Company"), (GRST) hereby promises to pay to the order of ______________________
or any subsequent holder of this Note (the "Payee"), at _________________________________________________ or at such
other place as may be designated by the Payee from time to time by notice to the Company, the principal sum of US$_______________
Such principal may be converted into Greenestone Healthcare Corporation common stock at the Conversion Price as described in Section
4(b) below. Such principal shall be paid in accordance with the terms of Section 1 below, to such account, as the Payee shall
direct.

 

1.        PAYMENTS.

 

(a)       The
unpaid principal amount and any unpaid interest amount of this Note may be converted into Rule 144 Restricted Common Stock of
the Company as provided herein on or before (the “Maturity Date”) at the option of the holder.

 

(b)       Interest
on the unpaid principal balance of this Note at the rate of ZERO percent (0%) per annum shall accrue from the date hereof and
will be payable to the Payee in monthly payments of $0.00, payable at the end of each month and will be paid by check or bank
deposit, as directed by the note holder.

 

(c)       In
the event that any payment of principal and/or interest hereunder becomes due and payable on a Saturday, Sunday or other day on
which commercial banks in the Province of Ontario are authorized or required by law to close, then the maturity thereof shall
be extended to the next succeeding “Business Day” (defined as any days on which national banks in Canada are open
for business); and during any such extension, interest on principal amounts payable shall accrue and be payable at the applicable
rate.

 

2.        RANKING
OF NOTE.  

 

Subject at all times to
the subordination provisions set forth in Section 9 hereof, this Note shall, together with the Series L Convertible Notes, constitute
Senior Securities of Greenstone Healthcare Corporation and, except as provided below, Series L Notes shall be senior to any other
indebtedness for money borrowed by the Company which, by its terms shall be made expressly subject and subordinated to this Note.

 

3.        PREPAYMENT
OF NOTE. 

 

The note shall come due six (6) months from
the date above and shall bear a ZERO (0%) interest rate. The Company shall have the right to prepay the indebtedness created herein
at any time prior to the maturity of the Note, subject only to the Payees option to convert the Note into equity in the Company
as described in paragraph 4 below.

 

4.        CONVERSION.

 

The holders of the Notes shall have the following
conversion rights (the "Conversion Rights"):

 

    	 	
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(a)       Voluntary
Conversion. At any time or from time to time after the Issuance Date, the holder of this Note may elect to convert up to one
hundred (100%) percent of the original principal amount of this Note outstanding together with any accrued and unpaid interest,
into shares of Common Stock of the Company at the Conversion Price, by written notice given to the Company in accordance with
the provisions of Section 4(g) hereof (the “Conversion Notice”). Such right of Conversion shall be effected by the
surrender of this Note to the Company for conversion at any time during normal business hours at the office of the Company, accompanied
(i) by the Conversion Notice, (ii) if so required by the Company, by instruments of transfer, in a form satisfactory to the Company,
duly executed by the registered holder or by his duly authorized attorney and (iii) transfer tax stamps or funds therefore, if
required pursuant to Section 4(f) herein.

 

(b)        Conversion
Price.  Subject to adjustment from time to time as provided in Section 4(d) below, the term “Conversion Price"
shall mean US$0.03 per share of Common Stock and the rate of exchange for CDN dollar denominated notes shall be determined on
the date of conversion.

 

(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 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 Conversion Price in effect immediately prior to the combination shall be proportionately increased. Any adjustments
under this Section 4(c)(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 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 Conversion Price in effect immediately prior to such event shall be decreased
as of the time of such issuance or, in the event such a record date shall have been fixed, as of the close of business on such
record date, by multiplying the Conversion Price then in effect by a fraction;

 

(A) 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

 

(B) 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) Adjustments 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 Conversion Price shall be
made and provision shall be made (by adjustments of the Conversion Price or otherwise) so that the holder 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 4(c)(iii) with respect to the rights of the holders of the Note.

 

    	 	
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(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 into the same or a 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 4(c)(i), (ii) and (iii), or a reorganization, merger, consolidation, or sale
of assets provided for in Section 4(c)(v)), then, and in each event, an appropriate revision to the Conversion Price shall by
made and provisions shall be made (by adjustments of the Conversion Price of otherwise) so that the holder of this Note shall
have the right thereafter to convert such Note into the kind and amount of shares of stock and other securities receivable upon
such 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 4(c)(i), (ii) and (iii), or a reclassification, exchange or substitution of shares provided
for in Section 4(c)(iv)), or a merger or consolidation of the Company with or into another corporation, or the sale of all or
substantially all of the Company's properties or assets to any other person, then as a part of such reorganization, merger, consolidation,
or sale, 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 of this Note shall have the right thereafter to convert this Note into the kind and amount
of shares of stock and other securities or property of the Company or any successor corporation resulting from such reorganization,
merger, consolidation, or sale, to which a holder of Common Stock deliverable upon conversion of such shares would have been entitled
upon such reorganization, merger, consolidation, or sale. In any such case, appropriate adjustment shall be made in the application
of the provisions of this Section 4(c)(v) with respect to the rights of the holders of this Note after the reorganization, merger,
consolidation, or sale to the end that the provisions of this Section 4(c)(v) (including any adjustment in the 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.

 

(c)       No
Impediment. 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 4 and in the taking of all such action as may
be necessary or appropriate in order to protect the conversion rights of the holders of the Note set forth in this Section 4 against
impairment.

 

(d)       Certificate
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 the Note pursuant to this Section 4, the Company at its expense, shall promptly compute such
adjustment or readjustment in accordance with the terms hereof and furnish notice to the holder of this Note, 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 of this Note, at any time, furnish or cause to be furnished to such 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 such 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.

 

    	 	
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(e)       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 hereto; provided, however,
that the Company shall not be obligated to pay any transfer taxes resulting from any transfer requested by any holder in connection
with any such conversion.

 

(f)        Notices
and Delivery of Shares. All notices and other communications hereunder shall be in writing and shall be deemed given (i) on
the same date, if delivered personally or by facsimile by not later than 5:00 p.m. EST time (provided, that a copy of such facsimile
shall be simultaneously sent to 5734 Yonge Street, Suite 300, Toronto, Ontario M2M 4E7 416-222-1932 or (ii) three business days
following being mailed by certified or registered mail, postage prepaid, return-receipt requested, addressed to the party in accordance
with Section 7 hereof. Not later than seven (7) Business Days following receipt of notice of conversion as provided herein (the
“Delivery Date”), the Company shall deliver to the holders of this Note, against delivery of this Note surrendered
for conversion, certificates evidencing all shares of Common Stock into which this Note shall be converted.

 

(g)        Fractional
Shares. No fractional shares of Common Stock shall be issued upon conversion of the 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 Conversion Price of one share of the Company's Common Stock on the applicable Conversion Date.

 

(h)       Reservation
of Common Stock. The Company shall at all times reserve and keep available, out of its authorized but un-issued shares of
Common Stock, solely for the purpose of effecting the conversion of the Note, the full number of shares deliverable upon conversion
of all the Note from time to time outstanding. The Company shall, from time to time in accordance with the Colorado General Corporations
Law, as amended, increase the authorized number of shares of Common Stock if at any time the un-issued number of authorized shares
shall not be sufficient to permit the conversion of all of the Note at the time outstanding. In such connection, the Company shall
hold a special meeting of stockholders not later than 180 days after any date in which the Company shall have insufficient shares
of Common Stock so reserved for the purpose of authorizing additional shares of Common Stock.

 

(i)       Retirement
of Note. Conversion of this Note shall be deemed to have been effected on the applicable Conversion Date. The converting holder
shall be deemed to have become a stockholder of record of the Common Stock on the applicable Conversion Date. Upon conversion
of only a portion of this Note, the Company shall issue and deliver to such holder, at the expense of the Company, against receipt
of the original Note delivered for partial cancellation, a new Note representing the unconverted portion of this Note so surrendered
and Common Stock equal to the portion converted.

 

(j)       Regulatory
Compliance.

 

(i) If any shares of Common
Stock to be reserved for the purpose of conversion of this Note require registration or listing with or approval of any government
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.

 

(ii) The shares of Common
Stock issuable upon the election to convert shall be Rule 144 restricted shares (the "Restricted Securities").

(iii) The holder of such
shares shall have the following registration rights:

 

(A) Neither this
Note nor the Shares underlying it have been registered under the Securities Act of 1933, as amended (the "Act"). The
Company has no intention of and has no obligation to register this Note nor the underlying Shares. Unless and until registered
under the Act, this Note and all replacement Notes shall bear the following legend:

 

    	 	
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This Note, and the securities issuable
upon the conversion of this Note, have not been registered under the Securities Act of 1933, as amended (the "Act")
or applicable state law and may not be sold, transferred or otherwise disposed of unless registered under the Act and any applicable
state act or unless the Company is satisfied that this Note and the underling securities may be transferred without registration
under the Act.

 

(B)       This
offering is being conducted pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended (the "Act"), and Rule
506 of Regulation D promulgated thereunder ("Rule 506") or other applicable provisions and the shares issuable upon
conversion of this Note shall be Rule 144 restricted shares.

 

5.        EVENTS OF DEFAULT.

 

The occurrence and continuance of any one
or more of the following events is herein referred to as an Event of Default:

 

(a)        If
the Company shall default in converting the applicable principal amount of this Note into Common Stock and delivering stock certificates
in respect of such conversion within thirty (30) Business Days from the Company's receipt of the applicable notice of conversion
pursuant to the provisions hereof, whether on the Maturity Date or otherwise; or

 

(b)        If
the Company shall not, at the time of receipt of a Conversion Notice hereunder, have a sufficient number of authorized and un-issued
shares of its Common Stock available for issuance to the holder of this Note upon conversion of all or any portion of this Note
in accordance with the terms hereof, and such default shall not have been remedied within one hundred eighty (180) calendar days
from the date of such Conversion Notice; or

 

(c)        If
the Company shall default in the performance of or compliance with any of its material covenants or agreements contained herein
and such default shall not have been remedied within thirty (30) calendar days after written notice thereof shall have been delivered
to the Company by the holder of this Note in accordance with the notice provisions herein; or

 

(d)        If
any representation or warranty made in writing by or on behalf of the Company in connection with the transactions contemplated
hereby shall prove to have been false or incorrect in any material respect on the date as of which made; or

 

(e)       If
the Company or any of its “Significant Subsidiaries” (as defined herein) shall make an assignment for the benefit
of creditors, or shall admit in writing its inability to pay its debts as they become due, or shall file a voluntary petition
in bankruptcy or shall have an order for relief under the Bankruptcy Act granted against it or them, or shall be adjudicated a
bankrupt or insolvent, or shall file any petition or answer seeking for itself any reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar relief under any present or future statute, law or regulation, or shall file any answer admitting
or not contesting the material allegations of a petition filed against the Company or any of its Significant Subsidiaries in any
such proceeding, or shall seek or consent to or acquiesce in the appointment of any trustee, custodian, receiver or liquidator
of the Company or of all or any substantial part of the properties of the Company or any of its Significant Subsidiaries, or the
Company or its directors shall take any action looking to the dissolution or liquidation of the Company or any of its Significant
Subsidiaries. For purposes of this Section 5(f), the term Significant Subsidiary shall mean and include any other person, firm
or corporation (i) more than 50% of the common stock or equity interests of which are owned of record by the Company or any Subsidiary
of the Company, and (ii) the net income before taxes or total assets of which represent more than 15% of the consolidated net
income before taxes or consolidated assets of the Company and all of its Subsidiaries; or

 

    	 	
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(g)        If,
within sixty (60) days after the commencement of any proceeding against the Company or any Significant Subsidiary seeking any
reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any present or future
statute, law or regulation, such proceeding shall not have been dismissed, or if, within sixty (60) days after the appointment,
without the consent or acquiescence of the Company or any Significant Subsidiary, of any trustee, receiver or liquidator of the
Company or any Significant Subsidiary or of all or any substantial part of the properties of the Company or any Significant Subsidiary,
such appointment shall not have been vacated.

 

6.        REMEDIES
ON DEFAULT; ACCELERATION. 

 

Upon the occurrence and during the continuance
of an Event of Default, the entire unpaid balance of principal and accrued interest on this Note may be accelerated and declared
to be immediately due and payable by the holder in Rule 144 Restricted Shares of the Company’s Common Stock. Unless waived
by the written consent of the holder, such holder may proceed to protect and enforce its rights by an action at law, suit in equity
or other appropriate proceeding, whether for the specific performance of any agreement contained herein, or for an injunction
against a violation of any of the terms hereof, or in aid of the exercise of any power granted hereby or by law. Upon the occurrence
of an Event of Default, the Company agrees to pay to the holder of this Note such further amount as shall be sufficient to cover
the cost and expense of collection, including, without limitation, reasonable attorneys' fees and expenses. No course of dealing
and no delay on the part of the holder of this Note in exercising any right, power or remedy shall operate as a waiver thereof
or otherwise prejudice such holder's rights, powers and remedies. No right, power or remedy conferred hereby upon the holder hereof
shall be exclusive of any other right, power or remedy referred to herein nor now or hereafter available at law, in equity, by
statute or otherwise.

 

7.        NOTICES.

 

All notices, requests, demands or other communications
hereunder shall be in writing and personally addressed or sent by telecopy or by registered or certified mail, return receipt
requested, postage pre-paid, addressed or telescoped as follows or to such other address or telecopy number of which notice has
been given pursuant hereto:

 

If to the Company:Greenestone
Healthcare Corporation

5734 Yonge
Street

Suite
300

Toronto,
Ontario

M2M 4E7

Fax 416 222
1932

 

8.        GOVERNING
LAW. 

 

This Note shall be governed by, and construed
and interpreted in accordance with, the laws of the Province of Ontario and the State of Colorado, without giving effect to conflict
of law principles.

 

9.        SUBORDINATION
TO SENIOR DEBT. 

 

(a)        Payment
of the principal of and interest on this Note is subordinated, to the extent and in the manner provided herein, to the prior payment
of all indebtedness of the Company but not other Subsidiaries of the Company, for money borrowed or other obligations which is
now or may hereafter be owed (collectively, “Senior Debt”) to any bank, commercial finance company, factor, insurance
company or other institution the lending activities of which are regulated by law (individually, a "Senior Lender”
and collectively, "Senior Lenders”), which may, hereafter on any one or more occasions provide financing to the Company
or any of its Subsidiaries, secured by liens on any of the assets and properties of the Company and/or any of its Subsidiaries
(individually and collectively, an "Institutional Borrower”).

 

    	 	
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(b)        Upon
any payment or distribution of assets or securities of the Institutional Borrower, as the case may be, of any kind or character,
whether in cash, property or securities, upon any dissolution or winding up or total or partial liquidation or reorganization
of the Institutional Borrower, whether voluntary or involuntary or in bankruptcy, insolvency, receivership or other proceedings,
all amounts payable under Senior Debt shall first be paid in full in cash, or payment provided for in cash or cash equivalents,
before the holder hereof shall be entitled to receive any payment on account of principal of or interest on this Note. Before
any payment may be made by the Institutional Borrower of the principal of or interest on this Note upon any such dissolution or
winding up or liquidation or reorganization, any payment or distribution of assets or securities of the Institutional Borrower
of any kind of character, whether in cash, property or securities, to which the holder hereof would be entitled, except for the
provisions of this Section 9, shall be made by the Institutional Borrower or by any receiver, trustee in bankruptcy, liquidating
trustee, agent or other person making such payment or distribution, directly to the holders of Senior Debt or their representatives
to the extent necessary to pay all such Senior Debt in full after giving effect to any concurrent payment or distribution to the
holders of such Senior Debt.

 

(c)        Upon
the happening of any default in payment of the principal of or interest on any Senior Debt, then, unless and until such default
shall have been cured or waived or shall have ceased to exist, no direct or indirect payment in cash, property or securities,
by set-off or otherwise, shall be made or agreed to be made by the Institutional Borrower on account of the principal of or interest
on this Note.

 

(d)        Upon
the happening of an event of default (other than under circumstances when the terms of Section 9(c) above are applicable) with
respect to any Senior Debt pursuant to which the holder thereof is entitled under the terms of such Senior Debt to accelerate
the maturity thereof, and upon written notice thereof given to each of the Institutional Borrower and the holder of this Note
by such holder of Senior Debt (“Payment Notice”), then, unless and until such event of default shall have been cured
or waived or shall have ceased to exist, no action shall or may be taken for collection of any amounts under this Note, and no
direct or indirect payment in cash, property or securities, by set-off or otherwise, shall be made or agreed to be made by the
Institutional Borrower an account of the principal of or interest on this Note until such Senior Debt has been paid in full accordance
with its terms.

 

(e)        In
the event that, notwithstanding the provisions of this Section 9, any payment shall be made on account of the principal of or
interest on this Note in contravention of such provisions, then such payment shall be held for the benefit of, and shall be paid
over and delivered to, the holders of such Senior Debt remaining unpaid to the extent necessary to pay in full in cash or cash
equivalents the principal of and interest on such Senior Debt in accordance with its terms after giving effect to any concurrent
payment or distribution to the holders of such Senior Debt.

 

(f)        Nothing
contained in this Section 9 shall:

 

(i) impair the conversion
rights of the holder hereof referred to in Section 4 above,

(ii) impair, as between
the Company and the holder of this Note, the obligation of the Company, which is absolute and unconditional, to pay to the holder
hereof principal and interest as the same shall become due and payable, or

 

    	 	
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(iii) prevent the holder
hereof from exercising all rights, powers, and remedies otherwise provided herein or by applicable law, all subject to the express
limitations provided herein.

(g)        Upon
the occurrence of an Event of Default, if any Senior Debt shall then be outstanding, no acceleration of the maturity of this Note
shall be effective until the earlier of (i) ten (10) days shall have passed following the date of delivery to the Institutional
Borrower by a Senior Lender(s) of written notice of acceleration of any Senior Debt, or (ii) the maturity of any then outstanding
Senior Debt shall have been accelerated by reason of a default hereon. The Company may pay the holder hereof any defaulted payment
and all other amounts due following any such acceleration of the maturity of this Note if this Section 9 would not prohibit such
payment to be made at that time.

 

(h)        Upon
payment in full of all Senior Debt, the Payee of this Note shall be subrogated to the rights of the holder or holders of Senior
Debt to receive all payments or distributions applicable on such Senior Debt to the extent of the prior application thereto of
moneys or other assets which would have been received in respect of this Note, but for these subordination provisions, until the
principal of, and interest on, this Note shall have been paid in full.

 

(i)        The
Payee, by accepting this Note:

 

(i) shall be bound by
all of the foregoing subordination provisions;

 

(ii) agrees expressly
for the benefit of the present and future holders of Senior Debt that this Note is subject to the foregoing subordination provisions;

 

(iii) authorizes such
persons as shall be designated by all holders of Senior Debt at any given time, on his or its benefit to execute and deliver such
agreements, assignments, proofs of claim and other documents appropriate to effectuate the foregoing subordination provisions;
and

 

(iv) hereby appoints the
person so designated his or its attorney-in-fact for such purpose.

 

(j)        The
foregoing subordination provisions shall be for the benefit of all holders of Senior Debt from time to time outstanding, and each
of such holders may proceed to enforce such provisions either directly against the holder hereof or in any other manner provided
by law.

 

10.        PERMITTED
PAYMENTS.

 

Notwithstanding the provisions
of Section 9 of this Note, and provided that no default or event of default (or event which, with the passage of time or giving
of notice or both) has occurred, will occur as a result of the "Permitted Payment" (herein defined), or will occur with
the passage of time or giving of notice or both, under any document or instrument evidencing such Senior Debt, the Company may
pay to the Payee, and the Payee may accept from the Company, the principal payments of, and/or interest payments on, the outstanding
principal amount of this Note when due on an un-accelerated basis (herein, "Permitted Payments"); it being understood
and agreed by the Payee by accepting this Note that neither:

 

(a)        the
payment terms set forth in Section l of this Note;

 

(b)        the
subordination provisions contained in Section 9 of this Note, nor

 

(c)        the
provisions of this Section 10 of this Note may be modified or amended without the prior written consent of each and every holder
of Senior Debt.

 

    	 	
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11.       SUCCESSORS
AND ASSIGNS. 

 

This Note shall be binding upon and inure
to the benefit of the Company and the holder hereof and their respective successors and permitted assigns; provided, however,
that the Company may not transfer or assign any of its rights or obligations hereunder without the prior written consent of the
holder hereof; and provided, further, that transfer or assignment by the holder is in accordance with the rules governing
Restricted Securities.

 

IN WITNESS WHEREOF, the Company has
caused this Note to be executed by its duly authorized officers as of the date first set forth above.

 

Greenestone Healthcare Corporation 

 

By:Shawn E. Leon 

 

________________________________

President

 

    	 	
9EX-10.1

INVENTORY ADVANCE AGREEMENT

This AGREEMENT is entered into as of December 29, 2016 (the “Effective Date”), between CDS
Business Services, Inc. doing business as Newtek Business Credit (“Newtek”) maintaining a principal
place of business at 1981 Marcus Avenue, Suite 130, Lake Success, NY 11042, and Escalon Medical
Corp. (“Client”), a Pennsylvania corporation, maintaining a principal place of business at 435
Devon Park Drive, Building 100, Wayne, PA 19087.

The parties agree as follows:

1. DEFINITIONS AND CONSTRUCTION

1.1 Terms. As used in this Agreement, the following terms shall have the following meanings:

“Accounts”, or alternatively, “Accounts Receivable”, means, in addition to the definition of
accounts in the Code, all presently existing and hereafter arising accounts receivable, contract
rights, and all other forms of obligations owing to Client arising out of the sale, lease, license
or assignment of goods or other property, or the rendition of services by Client, whether or not
earned by performance, all credit insurance, guaranties, and other security therefor, as well as
all merchandise returned to or reclaimed by Client and Client’s Books relating to any of the
foregoing.

“ACH” means, Automated Clearing House, the computer-based clearing and settlement facility
established to process the exchange of electronic transactions between participating depository
institutions.

“Advances” means all loans and extensions of credit made to the Client by Newtek to or for the
benefit of the Client, under the provisions of Section 2.1 and 2.2 of this Agreement.

“Agreement” means collectively this Inventory Advance Agreement, any concurrent or subsequent
exhibit or rider thereto, and any extensions, supplements, amendments, addenda or modifications to
or in connection with this Agreement or any such rider.

“Authorized Officer” means any officer or other representative of Client authorized in writing
delivered to Newtek to transact business with Newtek.

“Business Day” means any day which is not a Saturday, Sunday, or other day on which banks in
the State of New York are authorized or required to close.

“Client” – Has the meaning set forth in the first introductory paragraph above.

“Client’s Books” means all of Client’s books and records including all of the following:
ledgers; records indicating, summarizing, or evidencing Client’s assets or liabilities, or the
Collateral; all information relating to Client’s business operations or financial condition; and
all computer programs, disk or tape files, printouts, runs, or other computer prepared information,
and the facilities containing such information.

“Code” means the New York Uniform Commercial Code, as amended or revised from time to time.

“Collateral” means all assets of the Client, whether now owned or existing, or hereafter
acquired or arising, and wherever located, including, without limitation, all of the following
assets, properties and interests in property of Client (as such capitalized terms are defined in
the Code): all Accounts; all Equipment; all Commercial Tort Claims, all General Intangibles; all
Chattel Paper; all Contract Rights; all Inventory; all Negotiable Collateral; all Investment
Property, all Financial Assets, all Letter of Credit Rights, all Supporting Obligations, all
Deposit Accounts, all money or any assets of Client which hereafter come into the possession,
custody, or control of Newtek; all proceeds and products, whether tangible or intangible, of any of
the foregoing, including proceeds of insurance covering any or all of the foregoing, and any and
all tangible or intangible property resulting from the sale, lease, license or other disposition of
the foregoing, or any portion thereof or interest therein, and all proceeds thereof, and any other
assets of Client or any Guarantor which may be subject to a lien in favor of Newtek as security for
the Obligations (as defined herein below).

“Daily Balance” means the amount of the Obligations (as defined herein below) owed at the end
of a given day.

“Eligible Inventory” means Inventory which Newtek in its sole discretion deems eligible for
Advances, based upon such considerations as Newtek may from time to time deem appropriate. Without
limiting the generality of the foregoing, no Inventory shall be Eligible Inventory unless such
Inventory (i) consists of raw materials and finished goods, in new and saleable condition, which
are not obsolete or unmerchantable, and are not comprised of work in process, packaging materials
or supplies; (ii) meets all standards imposed by any governmental agency or authority, including
without limitation the Federal Fair Labor Standards Act of 1938, as amended, and all rules,
regulations and orders thereunder; (iii) conforms in all respects to all warranties and
representations set forth herein; (iv) is a all times subject to Newtek’s duly perfected, first
priority security interest; (v) is situated at a location with respect to which Newtek is the
recipient of, in Newtek’s determination satisfactory, landlord’s, warehouseman’s or similar waivers
as may be applicable; (vi) is not subject to any limitation or restriction as to sale by reason of
trademarks not owned by Client or licensed to Client but if subject to licensing agreements or
other agreements of a similar nature, unless Newtek is the recipient of in Newtek’s determination,
satisfactory licensor or similar waivers as may be applicable;

“Event of Default” means the events specified in Section 8, below.

“General Intangibles” means in addition to the definition of general intangibles in the Code,
all of Client’s present and future general intangibles and other personal property (including
choses or things in action, goodwill, patents, trade names; trademarks, service marks, copyrights,
blueprints, drawings, purchase orders, customer lists, monies due or recoverable from pension
funds, route lists, infringement claims, computer software, computer hardware, Client’s books,
literature, reports, catalogs, deposit accounts, insurance premium

“Guarantor” means each person or entity which guarantees the Obligations (as defined herein
below) or issues a validity guaranty relating to the Collateral or pledges any assets to Newtek as
additional security for the Obligations (as defined herein below).

“Insolvency Proceeding” means any proceeding commenced by or against any person or entity
under any provision of the federal Bankruptcy Code, as amended, or under any other state or federal
insolvency law, including assignments for the benefit of creditors, formal or informal moratoria,
compositions, or extensions generally with its creditors.

“Instruments” shall have the meaning ascribed to such term in the Code.

“Inventory” means, in addition to the definition of inventory in the Code, all present and
future inventory in which Client has any interest, including goods held for sale or lease or to be
furnished under a contract of service, Client’s present and future raw materials, work in process,
finished goods, tangible property, stock in trade, wares, and materials used in or consumed in
Client’s business, goods which have been returned to, repossessed by, or stopped in transit by
Client, packing and shipping materials, wherever located, any documents of title representing any
of the above, and Client’s Books relating to any of the foregoing.

“Inventory Advance Limit” means the maximum limit for Advances by Newtek to the Client against
Eligible Inventory, which at any time outstanding shall not exceed an aggregate amount equal to Two
Hundred Fifty Thousand and 00/100 ($250,000.00) Dollars.

“Inventory Value” means at any time of calculation the lesser of the cost or market value of
the Eligible Inventory, calculated on a first in first out basis.

“Financing Documents” means, collectively, the Agreement, any note or notes, any security
agreements, pledge agreements, mortgages, deeds of trust, guarantees or other encumbrances or
agreements which secure the Obligations (as defined herein below), and any other agreement entered
into between Client and Newtek or by Client or a Guarantor in favor of Newtek relating to or in
connection with the Agreement or the Obligations (as defined herein below), as each of same may be
amended, modified, renewed, extended or substituted from time to time.

“Negotiable Collateral” means all of Client’s present and future letters of credit, notes,
drafts, Instruments, Documents, leases, and Chattel Paper.

“Merchant Processing Agreement” means the merchant processing agreement between Merchant
Processor and Client for the processing of Client’s credit and debit card transactions or any
replacement thereof if replaced under the provisions set forth pursuant to the terms of Section 2.4
hereof.

“Merchant Processor” means Universal Processing Services of Wisconsin LLC d/b/a Newtek
Merchant Solutions (“NMS”) or any replacement thereof if replaced under the provisions set forth
pursuant to the terms of Section 2.4 hereof.

“Newtek” means, CDS Business Services, Inc. doing business as Newtek Business Credit, its
successors and assigns.

“Newtek Expenses” means all of the following: costs and expenses (whether taxes, assessments,
insurance premiums or otherwise) required to be paid by Client under any of the Financing Documents
which are paid or advanced by Newtek; filing, recording, publication, appraisal and search fees
paid or incurred by Newtek in connection with Newtek’s transactions with Client; costs and expenses
incurred by Newtek in the disbursement or collection of funds to or from Client or its account
debtors; charges resulting from the dishonor of checks; costs and expenses incurred by Newtek to
correct any default or enforce any provision of the Financing Documents, or in gaining possession
of, maintaining, handling, preserving, storing, shipping, selling, preparing for sale, or
advertising to sell the Collateral, or any portion thereof, irrespective of whether a sale is
consummated; and costs and expenses incurred by Newtek in enforcing or defending the Financing
Documents or otherwise exercising its rights and remedies upon the existence of an Event of
Default, including, but not limited to, costs and expenses incurred in connection with any
proceeding, suit, enforcement of judgment, or appeal; and Newtek’s reasonable attorneys’ fees and
expenses, including allocated fees of in-house counsel, incurred in advising, structuring,
drafting, reviewing, administering, amending, modifying, terminating, enforcing, defending, or
otherwise representing Newtek concerning the Financing Documents or the Obligations (as defined
herein below).

“NMS” means Universal Processing Services of Wisconsin LLC d/b/a Newtek Merchant Solutions.

“NMS Merchant Processing Agreement” means collectively all merchant processing agreements
between NMS and Client for the processing of Client’s credit and debit cards transactions in effect
from time to time, including those in effect with respect to the accounts forth on Exhibit A
attached hereto.

“Obligations” means all Advances, extensions of credit, loans, debts, liabilities (including
all interest and amounts charged to the Obligations pursuant to any agreement authorizing Newtek to
charge the Obligations), obligations, lease payments, guaranties, covenants, and duties owing by
Client to Newtek, its subsidiaries or affiliates, of any kind and description (whether pursuant to
or evidenced by the Financing Documents or by any other agreement between Newtek and Client, and
irrespective of whether for the payment of money), whether made or incurred prior to, on, or after
the Termination Date, direct or indirect, absolute or contingent, due or to become due, now
existing or hereafter arising, including any debt, liability or obligation owing from Client to
others which Newtek may obtain by assignment or otherwise, and all interest thereon and all Newtek
Expenses.

“Prime Rate” means the daily rate of interest published as the prime rate of interest in the
Wall Street Journal (as reflected on the website www.bankrate.com), or any successor thereof, from
time to time as its prime rate, which shall not necessarily constitute the lowest available prime
rate.

“Term” means the period from the Effective Date through and including the later of (a) the
Termination Date (as defined herein below) and (b) the payment and performance in full of the
Obligations.

“Termination Date” means (a) the first anniversary date of the Effective Date (the period
through such date the “Initial Term”), unless such date is extended pursuant to Section 3.1 hereof,
and if so extended on one or more occasions the last date of the last such extension, or (b) if
earlier terminated by Newtek pursuant to section 9.1 hereof, the date of such termination.

1.2 Construction. Unless the context of this Agreement clearly requires otherwise,
references to the plural include the singular and to the singular include the plural. The words
hereof, herein, hereby, hereunder, and similar terms in this Agreement refer to this Agreement as
a whole and not to any particular provision of this Agreement. Section, subsection, clause and
exhibit references are to this Agreement unless otherwise specified. Words importing a particular
gender mean and include every other gender.

1.3 Accounting Terms. All accounting terms not specifically defined herein shall be
construed in accordance with generally accepted accounting principles (GAAP) as in effect from
time to time.

1.4 Exhibits. All of the exhibits (if any), addenda or riders attached to this Agreement
shall be deemed incorporated herein by reference.

1.5 Code. Any terms used in this Agreement which are defined in the Code shall be construed
and defined as set forth in the Code, unless otherwise defined herein.

2. ADVANCES AND TERMS OF PAYMENT.

2.1 So long as no Event of Default, or an event which through the passage of time or the
giving of notice or both would constitute an Event of Default, has occurred, Newtek may in its
discretion make loans against the Client’s Eligible Inventory in an aggregate amount outstanding at
any time up to the lesser of (i) fifty percent (50%) of the Inventory Value or (ii) the Inventory
Advance Limit. If, at any time and for any reason, the aggregate amount of the outstanding
Advances under this Agreement exceeds the Inventory Advance Limit or percentage limitation
contained in the preceding sentence, then Client shall, upon demand by Newtek, immediately pay to
Newtek, in cash, the amount of such excess, or at Newtek’s option Newtek may charge such excess
against any reserves held by Newtek. Newtek shall maintain reserves against Client’s availability
for Advances and may maintain reserves against Accounts and/or ineligible Inventory as well, or
maintain a cash collateral deposit account, which NEWTEK in its discretion deems appropriate, and
may increase such reserves or reduce its advance percentages based on Eligible Inventory without
declaring an Event of Default and without prior notice, if it determines, in its discretion, that
such increase in reserves or reduction is necessary, including, without limitation, to protect its
interest in the Collateral and/or against diminution in the value of any Collateral, and/or to
insure the prospect of payment or performance by Client of its Obligations to Newtek are not
impaired.

2.2 Authorization to Make Advances. Newtek is hereby authorized to make the Advances based
upon emailed correspondence in reply to Newtek’s availability report or other acceptable written
instructions received from anyone purporting to be an Authorized Officer, or, at the discretion of
Newtek, if such Advances are necessary to satisfy any Obligations. All requests for Advances
shall specify the date on which such Advance is to be made (which day shall be a Business Day),
the amount of such Advance and if such Advance is to be effectuated through ACH or wire transfer.
Requests for Advances must be received at least two (2) days prior to the day receipt of the
Advance are requested. All Advances made under this Agreement shall be conclusively presumed to
have been made to, at the request of, and for the benefit of Client when deposited to the credit
of Client or otherwise disbursed in accordance with the instructions of Client or in accordance
with the terms and conditions of this Agreement. Unless otherwise requested by Client, all
Advances shall be made by ACH to the deposit account of Client designated on schedule 2.2 annexed
hereto, or such other account as Client shall notify Newtek in writing.

2.3 Interest.

(a) Interest shall accrue on the Daily Balance at the per annum rate of five percent (5.00%)
above the Prime Rate, but not less than five percent (5.0%). The Obligations shall, at the option
of Newtek, (i) from and after the occurrence of an Event of Default, and without constituting a
waiver of any such Event of Default, or (ii) if the Obligations are not paid in full by the
Termination Date, and without waiving the maturity of the Obligations on the Termination Date, bear
interest at the per annum rate of ten percent (10.00%) above the Prime Rate (the “Default Rate”).
All interest payable by under the Financing Documents shall be computed on the basis of a three
hundred sixty (360) day year for the actual number of days elapsed on the Daily Balance. Interest
as provided for herein shall continue to accrue until the Obligations are paid in full.

(b) The interest rate payable by Client under the terms of this Agreement shall be adjusted in
accordance with any change in the Prime Rate from time to time on the date of any such change. All
interest payable by Client shall be due and payable on the first day of each calendar month during
the Term. Newtek may, at its option, add such interest and all Newtek Expenses to the Obligations,
and such amount shall thereafter accrue interest at the rate then applicable under this Agreement.

(c) In no event shall interest on the Obligations exceed the highest lawful rate in effect
from time to time. It is not the intention of the parties hereto to make an agreement which
violates any applicable state or federal usury laws. In no event shall Client pay or Newtek accept
or charge any interest which, together with any other charges upon the principal or any portion
thereof, exceeds the maximum lawful rate of interest allowable under any applicable state or
federal usury laws. Should any provision of this Agreement or any existing or future Notes or
Financing Documents between the parties be construed to require the payment of interest or any
other fees or charges which could be construed as interest which, together with any other charges
upon the principal or any portion thereof and any other fees or charges which could be construed as
interest, exceeds the maximum lawful rate of interest, then any such excess shall be automatically
applied to the remaining principal balance of the Obligations, if any, and the remainder refunded
to Client.

2.4 Crediting Payments. Client acknowledges that ten percent (10.00%) (or such greater
percentage as may be necessary to reduce the Clients Obligations as determined by Newtek from time
to time in its discretion) of all amounts to be paid to Client under the terms of the Merchant
Processing Agreement, shall be paid directly from the Merchant Processor to Newtek and allocated
on a continuing basis toward the payment of the outstanding Advances, interest and other
Obligations under this Agreement. The receipt of any item of payment by Newtek for credit to
Client’s account, shall for purposes of interest calculation, be credited by Newtek to Client’s
account within three (3) Business Days following the date Newtek actually receives such item of
payment. Notwithstanding anything to the contrary contained herein, payments received by Newtek
after 11:00 a.m. Eastern time shall be deemed to have been received by Newtek as of the opening of
business on the immediately following Business Day. In the event that the Client wishes to use a
Merchant Processor other than NMS, it must provide Newtek with at least ninety (90) days prior
written notice which shall include the name of the proposed new merchant processor and such
merchant processor must be approved of in writing by Newtek as the replacement Merchant Processor
and must enter into an agreement with Newtek on terms fully acceptable in all respects to Newtek
pursuant to which, among other things, such replacement merchant processor would agree to make the
payments as required under this Section directly to Newtek. Merchant shall not attempt to
circumvent the requirements and intent of this Section, directly or indirectly, in any way,
including without limitation, by attempting to direct sales though any other person or entity or
by making any arrangements to process its credit and/or debit card transactions though any other
person or entity.

2.5 Minimum Charges. In the event that the rolling three month average daily balance made
and outstanding in any three (3) month period is less than One Hundred Twenty-Five Thousand and
00/100 ($125,000.00) (the “Minimum”), Client shall pay to Newtek an additional fee
(which Newtek may at its option charge to Client’s Inventory financing account) calculated as
follows: twenty five (25%) percent of the Minimum Difference multiplied by the Interest Rate then
in effect pursuant to section 2.3, except that when there is an uncured Event of Default the rate
of interest charged shall be the Default Rate. The Minimum Difference is defined as the
difference between the Minimum and the actual average daily balance during any three month period.

2.6 Field Examination Fee. Client shall pay Newtek a fee (the “Field Examination Fee”) in an
amount equal to Newtek’s standard fee then in effect, charged for such purpose (which as of the
date of this Agreement, is One Thousand Dollars ($1,000) per day per examiner), and which may be
subject to change without prior announcement, plus out-of-pocket expenses for each examination of
Client’s Books or other Collateral performed by Newtek or its designee.

2.7 Initial and Renewal Fee. Upon execution of this Agreement, Client shall pay to
Newtek a closing fee equal to one percent (1.00%) of the Advance Limit. Newtek, at its option,
may fund this fee from the initial advance under this Agreement. Upon any renewal of this
Agreement, an annual fee will be due from Client equal to one percent (1.00%) of the Advance
Limit.

2.8 Collateral Monitoring Fee. In consideration of monitoring, ledgering and other
administrative functions undertaken by NEWTEK in connection with the Inventory, and the Merchant
Processor, Client shall pay NEWTEK a monthly Collateral Monitoring Fee calculated by multiplying
(i) seventy basis points (0.70%) (except during the existence of an Event of Default at which time
it shall be one (1%) percent) by (ii) the amount of the average daily balances during the calendar
month preceding the month for which the calculation is made. The Collateral Monitoring Fee shall
be charged to Client’s account at the beginning of each calendar month for the prior month end of
each calendar month.

2.9 Offset. Newtek and/or any of its affiliates may offset any amounts owed by Client
hereunder against any amounts owed by Newtek and/or any of its affiliates to Client or any of its
affiliates under this Agreement or any other agreement between Newtek or any of its affiliates, on
the one hand, and Client and/or any of its affiliates, on the other.

3. TERM

3.1 Term and Renewal Date. This Agreement shall become as of the Effective Date and shall
continue in full force through the Initial Term and from year to year thereafter (a “Renewal
Term”) if Newtek, at its option, in writing agrees to extend the Term for one (1)
year(s) from the then Termination Date, provided that Client has not exercised its termination
right in accordance with this Section. Client may terminate this Agreement as of the Termination
Date (then in effect) by giving Newtek written notice at least ninety (90) days prior to such
Termination Date by registered or certified mail, return receipt requested. In addition, Newtek
shall have the right to terminate this Agreement at any time upon thirty (30) days prior written
notice delivered to Client by mail, e-mail or telefax or immediately at any time upon the
occurrence of an Event of Default. This Agreement shall also terminate immediately without
notice, and all Obligations shall become immediately due and payable, without presentment, demand,
protest or other requirements of any kind, all of which are hereby expressly waived solely by
Client, upon the commencement of any voluntary or involuntary proceeding under any bankruptcy or
any other insolvency law against Client or any Guarantor. No such termination shall relieve or
discharge Client of its duties, Obligations and covenants hereunder, until all Obligations have
been paid and performed in full, and Newtek’s continuing security interest in the Collateral shall
remain in effect until the Obligations have been fully and irrevocably paid and satisfied in cash
or cash equivalent. On the Termination Date of this Agreement, the Obligations shall be
immediately due and payable in full.

3.2 Termination Fee. In the event of the early termination of this Agreement prior to the
first or any subsequent anniversary hereof, whether by virtue of an Event of Default or at
Client’s election, Client agrees to pay to Newtek as liquidated damages in cash or other
immediately available funds, and in addition to all other Obligations, an amount equal to the
Minimum Charge as calculated under Section 2.5 for each three month period (or part thereof) then
remaining through to the Termination Date calculated on the basis of the rolling three month
average daily balances made and outstanding in each three (3) month period being Zero ($0.00)
Dollars.

4. CREATION OF CONTINUING SECURITY INTEREST

4.1 Grant of Continuing Security Interest. Client hereby grants to Newtek, its subsidiaries
and affiliates, a continuing first priority lien and security interest in all presently existing
and hereafter acquired or arising Inventory, Accounts and other Collateral in order to secure
prompt repayment of the Obligations and in order to secure prompt performance by Client of each
and all of its covenants and Obligations under the Financing Documents and otherwise. Newtek’s
continuing security interest in the Collateral shall attach to all Collateral without further act
on the part of Newtek or Client.

4.2 Authority to file Financing Statements. Client hereby authorizes Newtek to file,
continue, assign and/or terminate financing statements as necessary under the Code to perfect its
lien on the Collateral.

5. REPRESENTATIONS AND WARRANTIES AND COVENANTS

Client represents and warrants to Newtek, and covenants, the following and acknowledges:

5.1 No Prior Encumbrances; Security Interests. Client has good and marketable title to the
Collateral, free and clear of liens, claims, security interests or encumbrances, except for the
security interests disclosed on Schedule 5.1 annexed hereto. Other than those expressly permitted
by this Agreement, Client will not create or permit to be created any security interest, lien,
pledge, mortgage or encumbrance on any Collateral or any of its other assets.

5.2 Bona Fide Accounts. All Accounts due from the Merchant Processor represent bona fide
sales or leases of goods and/or services for which Client has an unconditional right to payment.
None of the Accounts due from Merchant Processor are subject to any rights of offset,
counterclaim, cancellation or contractual rights of return.

5.3 Merchantable Inventory. All inventory is now and at all times hereafter shall be of good
and merchantable quality, free from defects, liens.

5.4 Location of Collateral. Client shall keep the Collateral exclusively at its address set
forth on the first page hereof and at the locations set forth in the Perfection Certificate
annexed hereto. The Collateral is not now and shall not at any time or times hereafter be stored
with a bailee, warehouseman, processor, or similar party. If the Collateral is located at a
premises not owned by the Client, Client agrees to deliver to Newtek, in a form satisfactory to
Newtek, a landlord waiver, consent and subordination, duly signed by the landlord or such other
party having an interest in said premises. Client agrees to keep Newtek advised at all times of
the location of the Collateral and to provide prior written advance notice of any change of
location.

5.5 Relocation of Principal Place of Business. The principal place of business of Client and
the location of all books and records of Client relating to the Collateral is at the address
indicated on the first page of this Agreement and Client will not, without thirty (30) days’ prior
written notice to Newtek and compliance with Section 5.4 hereof, relocate such office.

5.6 Inventory Records. Client now keeps and hereafter at all times shall keep correct and
accurate records itemizing and describing the kind, type, quality and quantity of the Inventory as
well as Client’s cost of said items, and none of Client’s Inventory contains any labels,
trademarks, trade-names or other identifying characteristics which are the properties of third
parties unless Newtek has received an agreement from any such third parties in form and substance
satisfactory to Newtek waiving any restrictions on the sale of such Inventory should Newtek have
to dispose of same in the exercise of its remedies. Client shall conduct a physical count of the
Inventory at such intervals as Newtek requests and promptly supply Newtek with a copy of such
counts accompanied by a report of the value (calculated at the lower of cost or market value on a
first in, first out basis) of the Inventory and such additional information with respect to the
Inventory as Newtek may request from time to time.

5.7 Due Incorporation and Qualification. Client is, and shall at all times hereafter, be a
corporation duly organized and existing under the laws of the state of its
[incorporation] [formation] [organization] as set forth on the first page
hereof, and Client is, and shall at all times hereafter be, qualified and licensed to do business
and is in good standing in any state in which the conduct of its business or its ownership of
assets requires that it be so qualified. Client’s organizational identification number (if any)
as issued by the state in which it is incorporated is set forth in the Perfection Certificate
annexed hereto.

5.8 Actual and Fictitious Name. Client’s exact name is set forth on the first page hereof
and except as set forth in the Perfection Certificate annexed hereto Client has not changed its
name within the last five (5) years. Client is conducting its business under the trade or
fictitious name(s) set forth in the Perfection Certificate annexed hereto, and no others. Client
has complied with the fictitious name laws of all jurisdictions in which compliance is required in
connection with its use of such name(s).

5.9 Permits and Licenses. Client holds all licenses, permits, franchises, approvals and
consents required for the conduct of its business and the ownership and operation of its assets.

5.10 Due Authorization. Client has the right and power and is duly authorized to enter into
the Financing Documents to which it is a party.

5.11 Compliance with Articles, Bylaws, Operating Agreement or Similar Governance Documents.
The execution by Client of the Financing Documents to which it is a party does not constitute a
breach of any provision contained in Client’s Certificate or Articles of Incorporation,
Organization or Formation or its Bylaws or Operating Agreement, or similar governance docs, nor
does it constitute an event of default under any material agreement to which Client is now or may
hereafter become a party.

5.12 Litigation. There are no actions, proceedings or claims pending by or against Client,
whether or not before any court or administrative agency and Client has no knowledge or notice of
any pending, threatened or imminent litigation, governmental investigations, or claims,
complaints, actions, or prosecutions involving Client, except for ongoing collection matters in
which Client is the plaintiff. If any such actions, proceedings or claims presently exist or
arise during the Term, Client shall promptly notify Newtek in writing and shall, from time to
time, notify Newtek of all material events relating thereto.

5.13 Accuracy of Information and No Material Adverse Change in Financial Statements. All
information furnished by Client to Newtek, and all statements made by Client to Newtek, including,
without limitation, information set forth in any application, client profile, and in the annexed
Perfection Certificate, are true, accurate and complete in all respects and do not contain any
misstatement of fact or omit to state any facts necessary to make the statements or information
contained therein not misleading. All financial statements relating to Client which have been or
may hereafter be delivered to Newtek (i) have been prepared in accordance with GAAP; (ii) fairly
present Client’s financial condition as of the date thereof and Client’s results of operations for
the period then ended; and (iii) disclose all contingent obligations of Client. In addition no
material adverse change in the financial condition of Client has occurred since the date of the
most recent of such financial statements.

5.14 Books and Records. Client shall at all times maintain, at its sole cost and expense,
books and records showing all sales and all claims, allowances, disputes and similar information
with respect to the Accounts and the Goods and services relating thereto. Newtek or its
representative shall have the right at any time during normal business hours to examine all of
Client’s books which may pertain to merchandise or Accounts.

5.15 Solvency. Client is now, and shall be at all times through the Term, solvent and able to
pay its debts (including trade debts) as they mature.

5.16 Environmental Laws and Hazardous Materials. Client has complied, and at all times
through the Term will comply, with all Environmental Laws. Environmental Law means the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended, the
Resource Conservation and Recovery Act of 1976, the Hazardous Materials Transportation Act, the
Toxic Substances Control Act, the regulations pertaining to such statutes, and any other safety,
health or environmental statutes, laws, regulations or ordinances of the United States or of any
state, county or municipality in which Client conducts its business or the Collateral is located.

5.17 Tax Compliance. Client has filed all tax returns required to be filed by it and has
paid all taxes due and payable on said returns and on any assessment made against it or its
assets.

5.18 Reliance by Newtek; Cumulative. Each warranty, representation and agreement contained
in this Agreement shall be automatically deemed repeated by Client with each request for an
Advance and shall be conclusively presumed to have been relied on by Newtek regardless of any
investigation made or information possessed by Newtek. The warranties, representations and
agreements set forth herein shall be cumulative and in addition to any and all other warranties,
representations and agreements which Client shall now or hereafter give, or cause to be given, to
Newtek.

5.19 Use of Proceeds. The proceeds of Advances will be used by Client solely for its
business operations.

6. AFFIRMATIVE COVENANTS

Client covenants and acknowledges that during the Term Client shall comply with all of the
following:

6.1 Merchant Services. Client hereby agrees that so long as it has any Obligations
outstanding under this Agreement, a Merchant Processing Agreement shall be in effect, it shall not
have more than one Merchant Agreement in effect at any time during the term of this Agreement or
thereafter for so long as any Obligations hereunder remain outstanding and that it shall have an
agreement in place with the Merchant Processor thereunder authorizing the Merchant Processor
thereunder to make payments otherwise due to Client under the Merchant Processing Agreement
directly to Newtek as required by Section 2.4. Client shall not grant any right to any amounts
due to it under the Merchant Agreement to any person or entity other than the Merchant Processor.

6.2 Collateral and Other Reports. Client shall, with each Advance request and on the first
Business Day of each calendar month, furnish to Newtek a borrowing base report satisfactory in
form and substance to Newtek, (including a then current Designation of Inventory Report in the
form described in Section 6.3 below) and report to Newtek all sales arising since its most recent
report to Newtek and shall execute and deliver to Newtek, no later than the fifteenth (15th) day
of each month during the Term, a reconciliation statement and a summary aging, by vendor, of all
accounts payable of Client and any book overdraft. Client shall deliver to Newtek, as Newtek may
from time to time require, collection reports, sales journals, invoices, original delivery
receipts, customers’ purchase orders, shipping instructions, bills of lading and other
documentation respecting shipment arrangements, and other matters requested by Newtek. Absent
such a request by Newtek, copies of all such documentation shall be held by Client as custodian
for Newtek. Client shall at all times provide Newtek with all current “passwords” or similar
access requirements relative to all computer systems available to Client with its Merchant
Processor so as to enable Newtek to have access to said computer systems so as to verify the
status of Accounts owing to Client from the Merchant Processor.

6.3 Returns. Returns and allowances, if any, as between Client and any account debtors,
shall be permitted on the same basis and in accordance with the usual customary practices of
Client as they exist at the date of the execution and delivery of this Agreement. If at any time
prior to the occurrence of an Event of Default any account debtor returns any Inventory to Client,
Client shall promptly determine the reason for such return and, if Client accepts such return,
issue a credit memorandum (with a copy to be sent to Newtek) in the appropriate amount to such
account debtor. Client shall promptly notify Newtek of all returns and recoveries and of all
disputes and claims.

6.4 Designation of Inventory. Client shall contemporaneous with the execution hereof and
thereafter within fifteen (15) days after the end of each month during the Term, execute and
deliver to Newtek a designation of Inventory specifying the cost and the wholesale market value of
Client’s raw materials, work in process and finished goods, and further specifying such other
information as Newtek may reasonably request. Client shall promptly, in writing, notify Newtek if
any of Client’s Inventory contains any labels, trademarks, trade-names or other identifying
characteristics which are the properties of third parties.

6.5 Financial Statements, Reports, Certificates. Client shall deliver to Newtek: (a) as
soon as available, but in any event within thirty (30) days after the end of each month during the
Term, a balance sheet and profit and loss statement prepared by Client covering Client’s
operations during such period; and (b) as soon as available, but in any event within ninety (90)
days after the end of each of Client’s fiscal years, financial statements of Client for each such
fiscal period, prepared on a review basis by independent certified public accountants acceptable
to Newtek. Such financial statements shall include a balance sheet and profit and loss statement,
and the accountants’ management letter, if any, and shall be prepared in accordance with GAAP,
consistently applied. Together with the above, Client shall also deliver Client’s Form 10-Qs,
10-Ks or 8-Ks, if any, as soon as the same become available, and any other report reasonably
requested by Newtek relating to the Collateral and the financial condition of Client and a
certificate signed by its chief financial officer to the effect that all reports, statements or
computer prepared information of any kind or nature delivered or caused to be delivered to Newtek
under this Section fairly present its financial condition and that there exists on the date of
delivery of such certificate to Newtek no condition or event which constitutes an Event of
Default.

6.6 Tax Returns, Receipts. Client shall deliver to Newtek copies of each of its future
federal income tax returns, extensions and any amendments thereto, within thirty (30) days of the
filing thereof. Client further shall promptly deliver to Newtek, upon request, satisfactory
evidence of Client’s payment of all withholding and other taxes required to be paid by it.

6.7 Guarantor Reports. Client agrees to cause each Guarantor to deliver to Newtek (a) its
annual financial statements as soon as available and in any event within ninety (90) days of each
fiscal year end, demonstrating among other things, such guarantor’s net worth, accompanied by
supporting documentation related to any assets or liabilities listed on such financial statement
and (b) copies of all federal and state income tax returns as soon as the same are available and
in any event no later than thirty (30) days after the same are required to be filed by law.

6.8 Taxes. All Federal, state and local assessments and taxes, whether real, personal or
otherwise, due or payable by, or imposed, levied or assessed against Client or any of its assets
or in connection with Client’s business shall hereafter be paid in full, before they become
delinquent or before the expiration of any extension period or proof of installment payment plan
acceptable by Newtek Business Credit. Client shall make due and timely payment or deposit of all
federal, state and local taxes, assessments or contributions required of it by law, and will
execute and deliver to Newtek, on demand, appropriate certificates attesting to the payment or
deposit thereof.

6.9 Insurance. Client, at its expense, shall keep and maintain insurance to protect the
Collateral against all risk of loss covered under a Special property form (If any of the tangible
Collateral is located in a flood zone, Client must also have flood insurance). The coverage shall
be written on a replacement cost basis. The property limit(s) shall be no less than those
necessary to satisfy the coinsurance requirement contained in the insurance policy. The Client,
at its expense, shall keep and maintain Business Income Coverage. The Business Income Coverage
shall insure against loss covered under a Special policy form. The limit must contemplate a
benefit period of no less than twelve months and meet the minimum limit needed to satisfy the
coinsurance requirement contained in the policy. All policies of insurance covering business
personal property and business income shall designate Newtek as Loss Payee. All policies insuring
real property on which Newtek has a mortgage or other lien shall contain a Mortgagee endorsement
in form satisfactory to Newtek. Either, or both, form(s) shall contain a waiver of warranties.
All proceeds payable under such policies shall be payable to Newtek and applied to the
Obligations. Client shall cause to be delivered to Newtek a properly executed Evidence of
Property Insurance form along with a copy of the Newtek’s Loss Payable and/or Mortgagee
endorsement(s) as applicable, in advance of the first Advance to be made under this Agreement and
thereafter at least thirty (30) days prior to the expiration date(s) of the policy(ies). All
Mortgagee and Newtek’s Loss Payable endorsements shall contain the following address for
notification purposes, or such other address as NEWTEK may, from time to time, notify the Client:

CDS BUSINESS SERVICES, INC. d/b/a NEWTEK BUSINESS CREDIT

1981 Marcus Avenue, Suite 130

Lake Success, NY 11042

Attn: Client Services

Email: clientservices@thesba.com

Phone: (212) 273-8100 or 1(800)338-7353

Client, at its expense, shall keep and maintain Commercial General Liability Coverage insuring
against all risks relating to or arising from Client’s ownership and use of the Collateral and its
other assets, its products, and its operations. Newtek shall be named as Loss Payee for Commercial
General Liability on Client’s policy. Client shall cause to be delivered to Newtek a properly
executed Certificate of Insurance, containing the required additional insured wording, before the
first Advance is made under this Agreement and thereafter at least thirty (30) days prior the
expiration date of the policy. Along with the Certificate of Insurance, Client shall also deliver
a copy of the General Liability endorsement whereby CDS Business Services, Inc. doing business as
Newtek Business Credit, its successors and/or assigns, are added to the policy as additional
insureds.

All required policies shall be in such form, with such companies and in such amounts as may be
satisfactory to Newtek. All policies shall contain a 30 day notice for cancellation or
non-renewal. Newtek reserves the right on a reasonable basis to change insurance specifications in
a reasonable manner at any time.

6.10 Prompt Payment of Newtek Expenses. Client shall immediately and without demand reimburse
Newtek for all Newtek Expenses and Client hereby authorizes the payment of such Newtek Expenses.

6.11 Compliance with Law. Client shall comply with the requirements of all applicable laws,
rules, regulations and orders of governmental authorities, of any material nature, relating to
Client and the conduct of its business.

6.12 Power of Attorney. Client hereby designates and appoints Newtek and its designees or
agents as attorney-in-fact of Client, irrevocably and with power of substitution, with authority:
(i) to exclusively provide instruction to the Merchant Processor with respect to the distribution
and direction of funds from the proceeds of the Merchant Processing Agreement , (ii) endorse the
name of Client on any notes, acceptances, checks, drafts, money orders or other evidences of
payment or proceeds of the Collateral that my come into Newtek’s possession, (iii) to sign the
name of Client on any invoices, documents, drafts against and notices to account debtors of Client,
assignments and requests for verification of accounts, (iv) to execute proofs of claim and loss; to
execute any endorsements, assignments, or other instruments of conveyance or transfer, to adjust
and compromise any claims under insurance policies, (v) to execute releases; during the existence
of an Event of Default to receive, open and dispose of all mail addressed to Client and to notify
the U.S. Post Office authorities to change the address for delivery of mail addressed to Client to
such address as Newtek may designate, and (iv) to do all other acts and things necessary and
advisable in the sole discretion of Newtek to carry out and enforce this Agreement. All acts of
said attorney or designee are hereby ratified and approved and said attorney or designee shall not
be liable for any acts of commission or omission (other than by reason of gross negligence or
willful misconduct of Newtek determined by a court of competent jurisdiction in a final
non-appealable judgment), nor for any error of judgment or mistake of fact or law. This power of
attorney being coupled with an interest is irrevocable while any Obligations shall remain
outstanding.

7. NEGATIVE COVENANTS

Client covenants and acknowledges that during the Term Client shall not undertake any of the
following without prior consent of Newtek:

7.1 Extraordinary Transactions and Disposal of Assets. (A) Enter into any transaction not in
the ordinary and usual course of its business as conducted on the date hereof, including but not
limited to the sale, lease, disposal, movement, relocation or transfer, whether by sale or
otherwise, of any its assets other than sales of Inventory in the ordinary and usual course of its
business as presently conducted; (B) grant a lien on any of its assets except (i) in favor of
Newtek, or (ii) the continuing security interests, if any, set forth on Schedule 5.1.

7.2 Change Name, etc. Change its name, business structure, jurisdiction of incorporation or
formation as applicable, or identity, or add any new fictitious name.

7.3 Merge, Acquire. Merge, acquire, or consolidate with or into any other business
organization.

7.4 Prepayments. Prepay any existing indebtedness owing to any third party other than trade
payables.

7.5 Change of Ownership. Cause, permit or suffer any change, direct or indirect, in the
ownership of the equity interests of Client or any entity that directly or indirectly owns the
capital stock or equity interests in Client or its parent entities, or enter into any agreement
with any person or entity that provides for a payment to such person or entity based upon the
income of Client.

7.6 Consignments of Inventory. Consign any Inventory to any third party or obtain any
Inventory on a consignment basis from any third party.

7.7 Business Suspension. Suspend or go out of business.

7.8 Distributions. Make any distribution or declare or pay any dividends (in cash or in
stock) on, or purchase, acquire, redeem or retire any of its capital stock, of any class, whether
now or hereafter outstanding.

8. EVENTS OF DEFAULT

The occurrence of any one or more of the following events shall constitute an Event of Default
by Client hereunder:

8.1 Failure to Pay. Client’s failure to pay when due and payable, or when declared due and
payable, any portion of the Obligations (whether principal, interest, taxes, Newtek Expenses, or
otherwise);

8.2 Failure to Perform. Client’s or a Guarantor’s failure to perform, keep or observe any
term, provision, condition, representation, warranty, covenant or agreement contained in this
Agreement, in any of the Financing Documents or in any other present or future agreement between
Client, and/or a Guarantor and NEWTEK;

8.3 Misrepresentation. Any misstatement or misrepresentation now or hereafter exists in any
warranty, representation, statement, aging or report made to Newtek by, Client and/or a Guarantor
or any officer, employee, agent or director thereof, or if any such warranty, representation,
statement, aging or report is withdrawn by such person;

8.4 Material Adverse Change. There is a material adverse change in Client’s, or a
Guarantor’s, business or financial condition;

8.5 Material Impairment. There is a material impairment of the prospect of repayment of the
Obligations or a material impairment of Newtek’s continuing security interests in the Collateral;

8.6 Levy or Attachment. Any material portion of Client’s assets are attached, seized,
subjected to a writ or distress warrant or is levied upon, or comes into the possession of any
judicial officer or assignee;

8.7 Insolvency by Client or Guarantor. An Insolvency Proceeding is commenced by Client or by
a Guarantor;

8.8 Insolvency Against Client or Guarantor. An Insolvency Proceeding is commenced against
Client or a Guarantor which is not dismissed within 30 days of its commencement (provided that
NEWTEK may choose not to make Advances during such 30 day period);

8.9 Injunction Against Client. Client is enjoined, restrained or in any way prevented by
court order from continuing to conduct all or any material part of its business;

8.10 Government Lien. A notice of lien, levy or assessment is filed of record with respect to
any of Client’s or a Guarantor’s assets by the United States Government, or any department, agency
or instrumentality thereof, or by any state, county, municipal or other governmental agency;

8.11 Judgment. A judgment is entered against Client or a Guarantor;

8.12 Default to Third Party. There is a default in any material agreement to which Client or
a Guarantor is a party which binds Client or a Guarantor or any of their assets;

8.13 Subordinated Debt Payments. Client makes any payment on account of indebtedness which
has now or hereafter been subordinated to the Obligations, except to the extent such payment is
allowed under any agreement entered into with Newtek;

8.14 Termination of Guarantor. A Guarantor dies or terminates its guaranty;

8.15 Change in Management. If Richard J. DePiano, Jr. ceases to be actively engaged
in the management of Client;

8.16 Loss of License, etc. If any license, permit, distributor, franchise or similar
agreement, necessary for the continued operation of Client’s ordinary course of business is
revoked, suspended or terminated.

Notwithstanding anything contained in this Agreement to the contrary, Newtek shall refrain
from exercising its rights and remedies and an Event of Default shall not be deemed to have
occurred by reason of the occurrence of any of the events set forth in Sections 8.6, 8.10 or 8.11
hereof if, within ten (10) days from the date thereof, the same is released, discharged, dismissed,
bonded against or satisfied; provided, however, Newtek shall may not make Advances to Client during
such periods.

9. NEWTEK’S RIGHTS AND REMEDIES

9.1 Rights and Remedies. Upon the occurrence of an Event of Default, Newtek, in addition to
all remedies available to it under the UCC, may, at its election, without notice of such election
and without demand, do any one or more of the following:

(a) Declare all Obligations, whether evidenced by the Financing Documents or otherwise,
immediately due and payable in full;

(b) Cease advancing money or extending credit to or for the benefit of Client under the
Financing Documents or under any other agreement between Client and Newtek;

(c) Terminate this Agreement as to any future liability or obligation of Newtek, but without
affecting Newtek’s rights and security interest in the Collateral and without affecting the
Obligations;

(d) Cause Client to hold all returned Inventory in trust for Newtek, segregate all returned
Inventory from all other property of Client or in Client’s possession and conspicuously label said
returned Inventory as the property of Newtek;

(e) Without notice to or demand upon Client or a Guarantor, make such payments and do such
acts as Newtek considers necessary or reasonable to protect its security interest in the
Collateral. Client shall assemble the Collateral if Newtek so requires and deliver or make the
Collateral available to Newtek at a place designated by Newtek. Client authorizes Newtek to enter
any premises where the Collateral is located, to take and maintain possession of the Collateral, or
any part of it, and to pay, purchase, contest or compromise any encumbrance, charge or lien on the
Collateral which in Newtek’s determination appears to be prior or superior to its security interest
or lien, and to pay all expenses incurred in connection therewith;

(f) Ship, reclaim, recover, store, finish, maintain, repair, prepare for sale, lease, license
or other disposition, advertise for sale, lease, license or other disposition, and sell, lease,
license or otherwise dispose (in the manner provided for herein or in the Code) the Collateral.
Newtek is hereby granted a license or other right to use, without charge, Client’s labels, patents,
copyrights, rights of use of any name, trade secrets, trade names, trademarks, service marks, and
advertising matter, or any asset of a similar nature, pertaining to the Collateral, in completing
the production of, advertising for sale, lease, license or other disposition, and sale, lease,
license or other disposition of the Collateral. Client’s rights under all licenses and all
franchise agreements shall inure to Newtek’s benefit;

(g) Sell, lease, license or otherwise dispose of the Collateral at either a public or private
proceeding, or both, by way of one or more contracts or transactions, for cash or on terms, in such
manner and at such places (including Client’s premises) as Newtek determines is commercially
reasonable. It is not necessary that the Collateral be present at any such sale;

(h) Newtek shall give notice of the disposition of the Collateral as follows:

(1) To Client and each holder of a security interest in the Collateral who has filed with
NEWTEK a written request for notice, a notice in writing of the time and place of public sale or
other disposition or, if the sale or other disposition is a private sale or some other disposition
other than a public sale is to be made, then the time on or after which the private sale or other
disposition is to be made;

(2) The notice hereunder shall be personally delivered or mailed, postage prepaid, to Client
as provided in Section 12 hereof, at least ten (10) calendar days before the date fixed for the
sale or other disposition, or at least ten (10) calendar days before the date on or after which the
private sale or other disposition is to be made, unless the Collateral is perishable or threatens
to decline speedily in value. Notice to persons other than Client claiming an interest in the
Collateral shall be sent to such addresses as they have furnished to Newtek

(i) NEWTEK may credit bid and purchase at any public sale:

(j) Any deficiency that exists after disposition of the Collateral, as provided herein, shall
be immediately paid by Client. Any excess will be remitted without interest by Newtek to the party
or parties legally entitled to such excess; and

(k) In addition to the foregoing, Newtek shall have all rights and remedies provided by law
(including those set forth in the Code) and any rights and remedies contained in any Purchase

(l) In connection with the exercise of the foregoing remedies, Newtek is granted permission
to use all of each Client’s trademarks, trade styles, trade names, patents, patent applications,
licenses, franchises and other proprietary rights which are used in connection with (a) Inventory
for the purpose of disposing of such Inventory and (b) Equipment for the purpose of completing the
manufacture of unfinished goods.

9.2 No Waiver. No delay on the part of Newtek in exercising any right, power or privilege
under any Purchase Document shall operate as a waiver, nor shall any single or partial exercise of
any right, power or privilege under such Financing Documents or otherwise, preclude other or
further exercise of any such right, power or privilege.

10. TAXES AND EXPENSES REGARDING THE COLLATERAL.

If Client fails to pay any monies (whether taxes, assessments, insurance premiums or
otherwise) due to third persons or entities, or fails to make any deposits or furnish any required
proof of payment or deposit, or fails to perform any of Client’s other covenants under any of the
Financing Documents, then in its discretion and without prior notice to Client, Newtek may do any
or all of the following: (a) make any payment which Client has failed to pay or any part thereof;
(b) set up such reserves in Client’s account as Newtek deems necessary to protect Newtek from the
exposure created by such failure; (c) obtain and maintain insurance policies of the type described
in Section 6.10 hereof and take any action with respect to such policies as Newtek deems prudent;
or (d) take any other action deemed necessary to preserve and protect its interests and rights
under the Financing Documents. Any payments made by Newtek shall not constitute: (a) an agreement
by Newtek to make similar payments in the future or (b) a waiver by Newtek of any Event of Default.
Newtek need not inquire as to, or contest the validity of, any such expense, tax, security
interest, encumbrance or lien and the receipt of notice for the payment thereof shall be conclusive
evidence that the same was validly due and owing.

11. WAIVERS

11.1 Demand, Protest. Client waives demand, protest, notice of protest, notice of default or
dishonor, notice of payment and nonpayment, notice of any default, notice of intention to
accelerate, notice of acceleration, and notice of nonpayment at maturity and acknowledges that
Newtek may compromise, settle or release, without notice to Client, any Collateral and/or
guaranties at any time held by Newtek. Client hereby consents to any extensions of time of payment
or partial payment at, before or after the Termination Date.

11.2 No Marshaling. Client, on its own behalf and on behalf of its successors and assigns
hereby expressly waives all rights, if any, to require a marshaling of assets by Newtek or to
require that Newtek first resort to some portion(s) of the Collateral before foreclosing upon,
selling or otherwise realizing on any other portion thereof.

11.3 Newtek’s Non-Liability for Inventory or Equipment or for Protection of Rights. So long
as Newtek complies with its obligations, if any, under the Code, Newtek shall not in any way or
manner be liable or responsible for: (a) the safekeeping of the Inventory or Equipment; (b) any
loss or damage thereto occurring or arising in any manner or fashion from any cause; (c) any
diminution in the value thereof; or (d) any act or default of any carrier, warehouseman, bailee,
forwarding agency or other person whomsoever. All risk of loss, damage or destruction of the
Inventory or Equipment shall be borne by Client. Newtek shall have no obligation to protect any
rights of Client against any person obligated on any Collateral

11.4 Limitation of Damages. In any action or other proceeding against Newtek under this
Agreement or relating to the transactions between Newtek and Client, Client waives the right to
seek any consequential or punitive damages.

12. NOTICES

Unless otherwise provided herein, all consents, waivers, notices or demands by any party
relating to the Financing Documents shall be in writing and (except for financial statements and
other informational documents which may be sent by first-class mail, postage prepaid) shall be
emailed (followed up by a mailing), personally delivered or sent by registered or certified mail,
postage prepaid, return receipt requested, or by receipted overnight delivery service to Client or
to Newtek, as the case may be, at their addresses set forth below

If to Client:

Escalon Medical Corp.

435 Devon Park Drive, Building 100

Wayne, PA 19087

Attn: Richard J. DePiano, Jr., CEO

If to Newtek:

CDS Business Services, Inc. d/b/a Newtek Business Credit

1981 Marcus Avenue, Suite 130

Lake Success, NY 11042

Attn: President

With a copy to:

NEWTEK Business Services Corp.

Attn: Legal Department

1981 Marcus Avenue, Suite 130

Lake Success, NY 11042

Any party may change the address at which it is to receive notices hereunder by notice in
writing in the foregoing manner given to the other. All notices or demands sent in accordance with
this Section shall be deemed received on the earlier of the date of actual delivery or five (5)
calendar days after the deposit thereof in the mail.

13. DESTRUCTION OF CLIENT’S DOCUMENTS

All documents, schedules, invoices, aging or other papers delivered to Newtek may be destroyed
or otherwise disposed of by Newtek six (6) months after they are delivered to or received by
Newtek, unless Client requests, in writing, the return of the said documents, schedules, invoices
or other papers and makes arrangements, at Client’s expense, for their return.

14. GENERAL PROVISIONS

14.1 Effectiveness. This Agreement shall be binding and deemed effective when executed by
Client and executed and delivered by Newtek.

14.2 Successors and Assigns. This Agreement shall bind and inure to the benefit of the
respective successors and assigns of each of the parties; provided, however, that Client may not
assign this Agreement or any rights hereunder and any prohibited assignment shall be absolutely
void. No consent to an assignment by Newtek shall release Client from its Obligations. Without
notice to or the consent of Client, Newtek may assign this Agreement and its rights and duties
hereunder and Newtek reserves the right to sell, assign, transfer, negotiate or grant
participations in all or any part of, or any interest in Newtek’s rights and benefits hereunder.
In connection therewith, Newtek may disclose all documents and information which Newtek now or
hereafter may have relating to Client or Client’s business. Client hereby consents to, and
authorizes Newtek to, prepare and distribute a “tombstone”, to issue a press release, or otherwise
disseminate information to newspapers, trade journals, and other sources, describing the nature of,
and closing of the credit facilities provided for herein, which may include Client’s name as well
as other general information about Client and the credit facilities. Client and Newtek do not
intend any of the benefits of the Financing Documents to inure to any third party, and no third
party shall be a third party beneficiary hereof or thereof.

14.3 Section Headings. Headings and numbers have been set forth herein for convenience only.

14.4 Interpretation. Neither this Agreement nor any uncertainty or ambiguity herein shall be
construed or resolved against Newtek or Client, whether under any rule of construction or
otherwise. On the contrary, this Agreement has been reviewed by each party and shall be construed
and interpreted according to the ordinary meaning of the words used so as to fairly accomplish the
purposes and intentions of the parties hereto.

14.5 Severability of Provisions. Each provision of this Agreement shall be severable from
every other provision of this Agreement for the purpose of determining the legal enforceability of
such provision.

14.6 Amendments in Writing. This Agreement cannot be changed or terminated orally. This
Agreement supersedes all prior agreements, understandings and negotiations, if any, all of which
are merged into this Agreement. THIS AGREEMENT, TOGETHER WITH THE OTHER FINANCING DOCUMENTS,
REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES REGARDING THE SUBJECT MATTER HEREIN AND THEREIN,
AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF
THE PARTIES HERETO. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

14.7 Counterparts and Facsimile Signatures. This Agreement may be executed in any number of
counterparts each of which, when executed and delivered, shall be deemed to be an original and all
of which, when taken together, shall constitute but one and the same Agreement. Any signature to a
Purchase Document delivered by a party via telecopy transmission or other electronic means shall be
deemed to be an original signature.

14.8 Indemnification. Client hereby indemnifies, protects, defends and saves harmless Newtek,
its affiliates and any member, officer, director, official, agent, employee, agent, consultant and
attorney of Newtek and each of its affiliates, and their respective heirs, successors and assigns
(collectively, the “Indemnified Parties”), from and against any and all losses, damages, expenses
or liabilities of any kind or nature and from any suits, claims or demands, including reasonable
counsel fees incurred in investigating or defending such claim, suffered by any of them and caused
by, relating to, arising out of, resulting from, or in any way connected with the Financing
Documents and the transactions contemplated therein or the Collateral (unless caused by the gross
negligence or willful misconduct of the Indemnified Parties) including, without limitation: (a)
losses, damages, expenses or liabilities sustained by Newtek in connection with any environmental
cleanup or other remedy required or mandated by any Environmental Law; (b) any untrue statement of
a material fact contained in information submitted to Newtek by Client or a Guarantor or the
omission of any material fact necessary to be stated therein in order to make such statement not
misleading or incomplete; (c) the failure of Client or a Guarantor to perform any obligations
required to be performed by Client or a Guarantor under the Financing Documents; and (d) the
ownership, construction, occupancy, operations, use and maintenance of any of Client’s or a
Guarantor’s assets. The provisions of this paragraph 14.8 shall survive termination of this
Agreement and the other Financing Documents

14.9 Disclosure of Information. Client hereby authorizes both Newtek and Merchant Processor
to freely exchange any and all information related to Client and any of affiliates.

14.10 Joint and Several Liability. Each Client signing below shall be jointly and severally
liable for the obligations under this Agreement of each other Client signing below and any other
agreement, document or instrument executed in connection herewith.

15. CHOICE OF LAW, VENUE AND JURY TRIAL WAIVER

THE VALIDITY OF THE FINANCING DOCUMENTS, THEIR CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT
AND THE RIGHTS OF THE PARTIES HERETO SHALL BE DETERMINED UNDER, GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF
CONFLICTS OF LAW. THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THE
FINANCING DOCUMENTS SHALL BE TRIED AND LITIGATED ONLY IN THE STATE COURTS LOCATED IN THE STATE NEW
YORK COUNTY OF NASSAU, THE FEDERAL COURTS WHOSE VENUE INCLUDES THE EASTERN DISTRICT OF NEW YORK, OR
AT THE SOLE OPTION OF NEWTEK, IN ANY OTHER COURT IN WHICH NEWTEK SHALL INITIATE LEGAL OR EQUITABLE
PROCEEDINGS AND WHICH HAS SUBJECT MATTER JURISDICTION OVER THE MATTER IN CONTROVERSY. CLIENT AND
NEWTEK EACH WAIVES, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, THE RIGHT TO A TRIAL BY JURY IN
ANY PROCEEDING UNDER THE FINANCING DOCUMENTS OR RELATING TO THE DEALINGS OF CLIENT AND NEWTEK AND
ANY RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE OF “FORUM NON CONVENIENS” OR TO OBJECT TO VENUE TO
THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION.

[Signatures follow on next page]

1

By their signatures below, Client and Newtek enter into this Inventory Advance Agreement as of the
Effective Date first written above.

ESCALON MEDICAL CORP.

By:       /s/     

Richard J. DePiano, Jr., CEO

CDS BUSINESS SERVICES, INC. d/b/a

NEWTEK BUSINESS CREDIT

By: /s/

Gary Taylor, President & COO

2

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