Document:

EXHIBIT 10.1

 

Exhibit
10.1

 

TARGETED
MEDICAL PHARMA, INC.

SECURITIES
PURCHASE AGREEMENT

 

THIS
SECURITIES PURCHASE AGREEMENT (the “Purchase Agreement”) made as of this 13th day of January 2015, between
Targeted Medical Pharma, Inc., a Delaware corporation with offices located at 2980 Beverly Glen Circle, Suite 301, Los Angeles,
CA 90077 (the “Company”), and the undersigned (the “Purchaser”).

 

WHEREAS,
subject to the terms and conditions set forth in this Purchase Agreement and pursuant to Section 4(a)(2) of the Securities Act
of 1933, as amended (the “Securities Act”), and Rule 506 promulgated thereunder, and/or Regulation S under
the Securities Act, the Company desires to sell and the Purchaser desires to purchase from the Company, securities of the Company
as more fully described in this Purchase Agreement in a private placement (the “Offering”) on the terms and conditions
set forth herein;

 

NOW,
THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Purchase Agreement, and for other good and valuable consideration,
the receipt and adequacy of which are hereby acknowledged, the Company and each Purchaser agree as follows:

 

	 	I.	PURCHASE
                                         OF SECURITIES; REPRESENTATIONS BY AND COVENANTS OF PURCHASER

 

1.1 Purchase
of Securities. Subject to the terms and conditions hereinafter set forth, the Purchaser hereby subscribes for and agrees to
purchase from the Company 4% Senior Secured Convertible Debentures due, subject to the terms therein, three years from their date
of issuance, issued by the Company to the Purchaser hereunder, in the form of Exhibit A attached hereto (the “Securities”).

 

1.2 Closing.
The parties to this Purchase Agreement shall consummate the transactions contemplated by this
Purchase Agreement at a closing (the “Closing”) contemporaneously with the execution of the Purchase Agreement. The
Closing shall take place at the offices of counsel to the Company, or at such other place as may be mutually agreed upon by the
Company and the Purchaser. 

 

1.3
Deliveries at Closing.

 

(a) At
Closing, the Company shall deliver or cause to be delivered to Purchaser the following:

 

(i) this
Purchase Agreement duly executed by the Company;

 

(ii) a
Debenture with a Principal Amount equal to Purchaser’s Subscription Amount, registered in the name of such Purchaser; and

 

(iii) the
Security Agreement in the form of Exhibit B attached hereto, duly executed by the Company and each Subsidiary.

 

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(b) At
Closing, the Purchaser shall deliver or cause to be delivered to the Company the following:

 

(i) this
Purchase Agreement duly executed by such Purchaser;

 

(ii) such
Purchaser’s cash Subscription Amount by wire transfer to the account specified in writing by the Company; and

 

(iii) the
Security Agreement duly executed by such Purchaser.

 

1.4 Reliance
on Exemptions. The Purchaser acknowledges that the Offering has not been reviewed by the United States Securities and Exchange
Commission (the “SEC”) or any state agency because it is intended to be a nonpublic offering exempt from the registration
requirements of the Securities Act and state securities laws. The Purchaser understands that the Company is relying in part upon
the truth and accuracy of, and the Purchaser’s compliance with the representations, warranties, agreements, acknowledgments
and understandings of the Purchaser set forth herein in order to determine the availability of such exemptions and the eligibility
of the Purchaser to acquire the Securities.

 

1.5 Investment
Purpose. The Purchaser represents that the Securities are being purchased for its own account, for investment purposes only
and not for distribution or resale to others in contravention of the registration requirements of the Securities Act. The Purchaser
agrees that it will not sell or otherwise transfer the Securities unless they are registered under the Securities Act or unless
an exemption from such registration is available.

 

1.6 Accredited
Investor. The Purchaser represents and warrants that it is an “accredited investor” as such term is defined in
Rule 501 of Regulation D promulgated under the Securities Act, and that it is able to bear the economic risk of any investment
in the Securities. The Purchaser further represents and warrants that the information furnished in the accompanying accredited
investor questionnaire, which is attached hereto as Exhibit C, is accurate and complete in all material respects.

 

1.7 Risk
of Investment. The Purchaser recognizes that the purchase of the Securities involves a high degree of risk in that: (a) an
investment in the Company is highly speculative and only investors who can afford the loss of their entire investment should consider
investing in the Company and the Securities; (b) transferability of the Securities is limited; and (c) the Company may require
substantial additional funds to operate its business and subsequent equity financings will dilute the ownership and voting interests
of Purchaser.

 

1.8 Prior
Investment Experience. The Purchaser acknowledges that it has prior investment experience and that it recognizes the highly
speculative nature of this investment.

 

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1.9 Information.
The Purchaser acknowledges careful review of this Purchase Agreement and the Company’s SEC Reports (as defined in Section
2.6 hereof) , which SEC Reports are available on the Internet at www.sec.gov (collectively,
the “Offering Documents”). The Purchaser has been given the opportunity
to ask questions of, and receive answers from, the Company concerning the terms and conditions of this Offering and the information
in the Offering Documents and to obtain such additional information, to the extent
the Company possesses such information or can acquire it without unreasonable effort or expense, necessary to verify the accuracy
of same as the Purchaser reasonably desires in order to evaluate the investment. The Purchaser understands the Offering
Documents, and the Purchaser has had the opportunity to discuss any questions regarding
any of the Offering Documents with its counsel or other advisors.. The Purchaser
has independently evaluated the merits of its decision to purchase the Securities pursuant to the Offering Documents. The
Purchaser is not relying on the Company, its employees, agents or attorneys with respect to the legal, tax, and other economic
or technical considerations of the Purchaser’s purchase of the Securities and, and in regard to such considerations, the
Purchaser has relied on the advice of, or has consulted with, only its own advisors. 

 

1.10 No
Representations. The Purchaser hereby represents that, except as expressly set forth in this Purchase Agreement, no representations
or warranties have been made to the Purchaser by the Company or any agent, employee or affiliate of the Company, and in entering
into this transaction the Purchaser is not relying on any information other than that contained in the Offering Documents and
the results of independent investigation by the Purchaser.

 

1.11 Transfer
or Resale. The Purchaser understands and hereby acknowledges that the Company is under no obligation to register the Securities
under the Securities Act. The Purchaser consents that the Company may, if it desires, permit the transfer of the Securities out
of the Purchaser’s name only when the Purchaser’s request for transfer is accompanied by an opinion of counsel reasonably
satisfactory to the Company that neither the sale nor the proposed transfer results in a violation of the Securities Act or any
applicable state “blue sky” laws.

 

1.12 Legends.
The Purchaser understands that if the Securities are converted into shares of the Company’s common stock, $.001 par
value per share (“Common Stock”), then the certificates representing the Common Stock shall bear a restrictive
legend in substantially the following form (and a stop-transfer order may be placed against transfer of such certificates or other
instruments):

 

THE
SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES LAWS. THE SHARES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SHARES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS, OR (B)
AN OPINION OF COUNSEL, IN A REASONABLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES
LAWS, OR (II) UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT.

 

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The
legend set forth above shall be removed and the Company shall issue a certificate without such legend to the holder of the Securities
upon which it is stamped, if (a) such Securities are being sold pursuant to a registration statement under the Securities Act,
(b) such holder delivers to the Company an opinion of counsel, in a reasonably acceptable form, to the Company that a disposition
of the Securities is being made pursuant to an exemption from such registration, or (c) such holder provides the Company with
reasonable assurance that a disposition of the Securities may be made pursuant to Rule 144 under the Securities Act without any
restriction as to the number of securities acquired as of a particular date that can then be immediately sold.

 

1.14 Use
of Proceeds. The Company shall use the net proceeds from the sale of the Securities hereunder for payment of United States
federal payroll tax liabilities due to the Internal Revenue Service from the Company and its Subsidiaries.

 

1.15 No
General Solicitation. The Purchaser represents that the Purchaser was not induced to invest by any form of general solicitation
or general advertising including, but not limited to, the following: (a) any advertisement, article, notice or other communication
published in any newspaper, magazine or similar media or broadcast over the news or radio; and (b) any seminar or meeting whose
attendees were invited by any general solicitation or advertising.

 

1.16 Validity;
Enforcement. If the Purchaser is a corporation, partnership, trust or other entity, the Purchaser represents and warrants
that: (a) it is authorized and otherwise duly qualified to purchase and hold the Securities; and (b) that this Purchase Agreement
has been duly and validly authorized, executed and delivered and constitutes the legal, binding and enforceable obligation of
the Purchaser. If the Purchaser is an individual, the Purchaser represents and warrants that this Purchase Agreement has been
duly and validly executed and delivered and constitutes the legal, binding and enforceable obligation of the Purchaser.

 

1.17 Residency.
The Purchaser hereby represents that the address of the Purchaser furnished by the Purchaser at the end of this Purchase Agreement
is the Purchaser’s principal residence if the Purchaser is an individual or its principal business address if it is a corporation
or other entity.

 

	 	II.	REPRESENTATIONS
                                         BY THE COMPANY

 

The
Company represents and warrants to the Purchaser:

 

2.1
Organization. The Company
is duly organized and validly existing in good standing under the laws of the jurisdiction of its organization. The Company has
full power and authority to own, operate and occupy its properties and to conduct its business as presently conducted, and is
registered or qualified to do business and in good standing in each jurisdiction in which the nature of the business conducted
by it or the location of the properties owned or leased by it requires such qualification and where the failure to be so qualified
would have a material adverse effect upon the Company’s financial condition (a “Material Adverse Effect”), and
no proceeding has been instituted in any such jurisdiction revoking, limiting or curtailing, or seeking to revoke, limit or curtail,
such power and authority or qualification.

 

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2.2
Due Authorization and Valid Issuance.
The Company has all requisite power and authority to execute, deliver and perform its obligations under this Purchase Agreement,
and when executed and delivered by the Company in accordance with the terms hereof, will constitute legal, valid and binding obligation
of the Company enforceable against the Company in accordance with its terms, except as rights to indemnity and contribution may
be limited by state or federal securities laws or the public policy underlying such laws, and except as enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors’ and contracting
parties’ rights generally, and except as enforceability may be subject to general principles of equity (regardless of whether
such enforceability is considered in a proceeding in equity or at law).

 

2.3
No Violation. The Company
is not (a) in violation of its charter, bylaws or other organizational document; (b) in violation of any law, administrative regulation,
ordinance or order of any court or governmental agency, arbitration panel or authority applicable to the Company, which violation,
individually or in the aggregate, would be reasonably likely to have a Material Adverse Effect; or (c) in default (and there exists
no condition that, with the passage of time or otherwise, would constitute a default) in any material respect in the performance
of material agreement or instrument to which the Company is a party or by which the Company is bound or by which the properties
of the Company are bound, that would be reasonably likely to have a Material Adverse Effect. The business of the Company is not
being conducted in violation of any law, ordinance, rule, regulation, order, judgment or decree of any governmental entity, court
or arbitration tribunal, except for possible violations the sanctions for which either singly or in the aggregate would not be
reasonably likely to have a Material Adverse Effect.

 

2.4
Legal Proceedings. Except
as otherwise disclosed in the Company’s filings with the Securities and Exchange Commission, there is no action, suit, proceeding,
or to the knowledge of the Company, inquiry or investigation before or by any court, public board, governmental agency or authority,
or self-regulatory organization or body pending or, to the knowledge of the Company, threatened against or affecting the Company
or any of its directors or officers in their capacities as such, wherein an unfavorable decision, ruling or finding would have
a Material Adverse Effect or would adversely affect the Offering or that would adversely affect the validity or enforceability
of, or the authority or ability of the Company to consummate the Offering.

 

2.5
Governmental Permits, etc.
The Company has all necessary franchises, licenses, certificates and other authorizations from any foreign, federal, state or
local government or governmental agency, department, or body that are currently necessary for the operation of the business of
the Company as currently conducted, except where the failure to currently possess would not reasonably be expected to have a Material
Adverse Effect.

 

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2.6
Disclosure. The Company has filed all reports required to be filed by it under the Securities Exchange Act of 1934, as
amended, for the 12 months preceding this Purchase Agreement (the “SEC Reports”). None of the SEC Reports, when filed,
contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances under which they were made, not misleading.

 

	 	III.	MISCELLANEOUS

 

3.1
Notice. Any notices, consents, waivers or other communications required or permitted to be given under the terms of this
Purchase Agreement must be in writing and will be deemed to have been delivered: (a) upon receipt, when delivered personally,
(b) upon receipt, when sent by facsimile (provided confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party), or (c) one (1) business day after deposit with an overnight courier service, in each case
properly addressed to the party to receive the same. The addresses and facsimile numbers for such communications shall be:

 

If
to the Company:

Targeted
Medical Pharma, Inc.

2980
Beverly Glen Circle, Suite 301

Los
Angeles, CA 90077

Attn:
William B. Horne

Facsimile:
(310) 474-3869

 

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

 

Perkins
Coie LLP

1201
Third Avenue, Suite 4900

Seattle,
WA 98101

Attn:
Bryan Smith, Esq.

Facsimile:
(206) 359-7740

 

If
to the Purchaser, to its address and facsimile number set forth at the end of this Purchase Agreement, or to such other address
and/or facsimile number and/or to the attention of such other person as specified by written notice given to the Company five
(5) days prior to the effectiveness of such change. Written confirmation of receipt (a) given by the recipient of such notice,
consent, waiver or other communication, (b) mechanically or electronically generated by the sender’s facsimile machine containing
the time, date, recipient facsimile number and an image of the first page of such transmission, or (c) provided by an overnight
courier service shall be rebuttable evidence of personal service, receipt by facsimile or receipt from an overnight courier service
in accordance with clause (a), (b) or (c) above, respectively.

 

3.2
Entire Agreement; Amendment. This Purchase Agreement supersedes all other prior oral or written agreements between the
Purchaser, the Company, their affiliates and persons acting on their behalf with respect to the matters discussed herein, and
this Purchase Agreement and the instruments referenced herein contain the entire understanding of the parties with respect to
the matters covered herein and therein and, except as specifically set forth herein or therein, neither the Company nor the Purchaser
makes any representation, warranty, covenant or undertaking with respect to such matters. No provision of this Purchase Agreement
may be amended or waived other than by an instrument in writing signed by the Company and the Purchaser.

 

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3.3
Severability. If any provision of this Purchase Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity
or unenforceability shall not affect the validity or enforceability of the remainder of this Purchase Agreement in that jurisdiction
or the validity or enforceability of any provision of this Purchase Agreement in any other jurisdiction.

 

3.4
Governing Law; Jurisdiction; Waiver of Jury Trial. All questions concerning the construction, validity, enforcement and
interpretation of this Purchase Agreement shall be governed by the internal laws of the State of California, without giving effect
to any choice of law or conflict of law provision or rule (whether of the State of California or any other jurisdictions) that
would cause the application of the laws of any jurisdictions other than the State of California. Each party hereby irrevocably
submits to the non-exclusive jurisdiction of the state and federal courts sitting in Los Angeles County, California for the adjudication
of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby
irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to
the jurisdiction of any such court, that such suit, action or proceeding is brought in an inconvenient forum or that the venue
of such suit, action or proceeding is improper. Each party hereby irrevocably waives personal service of process and consents
to process being served in any such suit, action or proceeding by mailing a copy thereof to such party at the address for such
notices to it under this Purchase Agreement and agrees that such service shall constitute good and sufficient service of process
and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted
by law. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION
OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS PURCHASE AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.

 

3.5
Headings. The headings of this Purchase Agreement are for convenience of reference and shall not form part of, or affect
the interpretation of, this Purchase Agreement.

 

3.6
Successors And Assigns. This Purchase Agreement shall be binding upon and inure to the benefit of the parties and their
respective successors and permitted assigns. The Company shall not assign this Purchase Agreement or any rights or obligations
hereunder without the prior written consent of the Purchaser, except by merger or consolidation. The Purchaser shall not assign
its rights hereunder without the prior written consent of the Company.

 

3.7
No Third Party Beneficiaries. This Purchase Agreement is intended for the benefit of the parties hereto and their respective
permitted successors and assigns, and is not for the benefit of, nor may any provision hereof be enforced by, any other person.

 

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3.8
Survival. The representations and warranties of the Company and the Purchaser contained in Articles I and II and the agreements
set forth this Article III shall survive closing for a period of one year.

 

3.9
Further Assurances. Each party shall do and perform, or cause to be done and performed, all such further acts and things,
and shall execute and deliver all such other agreements, certificates, instruments and documents, as the other party may reasonably
request in order to carry out the intent and accomplish the purposes of this Purchase Agreement and the consummation of the transactions
contemplated hereby.

 

3.10
No Strict Construction. The language used in this Purchase Agreement will be deemed to be the language chosen by the parties
to express their mutual intent, and no rules of strict construction will be applied against any party.

 

3.11
Counterparts. This Purchase Agreement may be executed in two or more identical counterparts, all of which shall be considered
one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other
party; provided that a facsimile signature shall be considered due execution and shall be binding upon the signatory thereto with
the same force and effect as if the signature were an original, not a facsimile signature.

 

[Signature
page follows.]

 

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IN
WITNESS WHEREOF, the parties have executed this Purchase Agreement as of the day and year first written above.

 

	 	 	 
	Name
    of Purchaser	 	 
	 	 	 
	 	 	 
	Signature	 	 
	 	 	 
	 	 	 
	Name
    (Please Print)	 	 
	 	 	 
	 	 	 
	Title	 	 
	 	 	 
	 	 	 
	 	 	 
	 	 	 
	 	 	 
	 	 	 
	Address
    of Purchaser	 	 
	 	 	 
	 	 	 
	Taxpayer
    Identification Number of Purchaser	 	 
	 	 	 
	 	Subscription
                                         Accepted:

 

TARGETED
MEDICAL PHARMA, INC.

	 	 
	 	By:	 
	 	Name:	 
	 	Title:	 

 

    	9EXHIBIT 10.2

  

Exhibit
10.2

 

NEITHER
THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO,
THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A
LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY.
THIS SECURITY AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN
ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.

 

Original
Issue Date: January 13, 2015

Original
Conversion Price (subject to adjustment herein): $0.30

 

$650,000

 

4%
SENIOR SECURED CONVERTIBLE DEBENTURE

DUE
JANUARY 12, 2018

 

THIS
4% SENIOR SECURED CONVERTIBLE DEBENTURE is one of a series of duly authorized and validly issued 4% Senior Secured Convertible
Debentures of Targeted Medical Pharma, Inc., a Delaware corporation, (the “Company”), having its principal
place of business at 2980 Beverly Glen Circle, Suite 301, Los Angeles, CA 90077, designated as its 4% Senior Secured Convertible
Debenture due January 12, 2018 (the “Debenture”).

 

FOR
VALUE RECEIVED, the Company promises to pay to _______________________ or its registered assigns (the “Holder”),
or shall have paid pursuant to the terms hereunder, the principal sum of $650,000 on January 12, 2018 (the “Maturity
Date”) or such earlier date as this Debenture is required or permitted to be repaid as provided hereunder, and to pay
interest to the Holder on the aggregate unconverted and then outstanding principal amount of this Debenture in accordance with
the provisions hereof. This Debenture is subject to the following additional provisions:

 

Section
1.Definitions. For the purposes hereof, in addition to the terms defined elsewhere in this Debenture, (a) capitalized
terms not otherwise defined herein shall have the meanings set forth in the Purchase Agreement (as defined below) and (b) the
following terms shall have the following meanings:

 

“Affiliate”
means any Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common
control with a Person, as such terms are used in and construed under Rule 405 under the Securities Act.

 

    	 

    	 

    

 

“Alternate
Consideration” shall have the meaning set forth in Section 5(e).

 

“Bankruptcy
Event” means any of the following events: (a) the Company or any Significant Subsidiary (as such term is defined in
Rule 1-02(w) of Regulation S-X) thereof commences a case or other proceeding under any bankruptcy, reorganization, arrangement,
adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction relating to the
Company or any Significant Subsidiary thereof, (b) there is commenced against the Company or any Significant Subsidiary thereof
any such case or proceeding that is not dismissed within 60 days after commencement, (c) the Company or any Significant Subsidiary
thereof is adjudicated insolvent or bankrupt or any order of relief or other order approving any such case or proceeding is entered,
(d) the Company or any Significant Subsidiary thereof suffers any appointment of any custodian or the like for it or any substantial
part of its property that is not discharged or stayed within 60 calendar days after such appointment, (e) the Company or any Significant
Subsidiary thereof makes a general assignment for the benefit of creditors, (f) the Company or any Significant Subsidiary thereof
calls a meeting of its creditors with a view to arranging a composition, adjustment or restructuring of its debts or (g) the Company
or any Significant Subsidiary thereof, by any act or failure to act, expressly indicates its consent to, approval of or acquiescence
in any of the foregoing or takes any corporate or other action for the purpose of effecting any of the foregoing.

 

“Base
Conversion Price” shall have the meaning set forth in Section 5(b).

 

“Business
Day” means any day except any Saturday, any Sunday, any day which is a federal legal holiday in the United States or
any day on which banking institutions in the State of New York are authorized or required by law or other governmental action
to close.

 

“Change
of Control Transaction” means the occurrence after the date hereof of any of (a) an acquisition after the date hereof
by an individual or legal entity or “group” (as described in Rule 13d-5(b)(1) promulgated under the Exchange Act)
of effective control (whether through legal or beneficial ownership of capital stock of the Company, by contract or otherwise)
of in excess of 50% of the voting securities of the Company (other than by means of conversion or exercise of this Debenture,
outstanding warrants exercisable or exchangeable for, or that otherwise entitles the holder thereof to receive, Common Stock and
Common Stock issued pursuant to the Company’s stock option plans), (b) the Company merges into or consolidates with any
other Person, or any Person merges into or consolidates with the Company and, after giving effect to such transaction, the stockholders
of the Company immediately prior to such transaction own less than 50% of the aggregate voting power of the Company or the successor
entity of such transaction, (c) the Company sells or transfers all or substantially all of its assets to another Person and the
stockholders of the Company immediately prior to such transaction own less than 50% of the aggregate voting power of the acquiring
entity immediately after the transaction, or (d) a replacement at one time or within a three year period of more than one-half
of the members of the Board of Directors which is not approved by a majority of those individuals who are members of the Board
of Directors on the Original Issue Date (or by those individuals who are serving as members of the Board of Directors on any date
whose nomination to the Board of Directors was approved by a majority of the members of the Board of Directors who are members
on the date hereof).

 

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“Charter
Documents” means the articles of organization, articles of incorporation, bylaws, certificate of formation, limited
liability company agreement, certificate of incorporation, declaration of trust and any other organizational documents, as amended
or restated (or both) to date, of the Company and its Subsidiaries, as applicable.

 

“Commission”
means the United States Securities and Exchange Commission.

 

“Common
Stock” means the common stock of the Company, par value $0.001 per share, and any other class of securities into which
such securities may hereafter be reclassified or changed.

 

“Common
Stock Equivalents” means any securities of the Company or the Subsidiaries which would entitle the holder thereof to
acquire at any time Common Stock, including, without limitation, any debt, preferred stock, right, option, warrant or other instrument
that is at any time convertible into or exercisable or exchangeable for, or otherwise entitles the holder thereof to receive,
Common Stock.

 

“Conversion”
shall have the meaning ascribed to such term in Section 4.

 

“Conversion
Date” shall have the meaning set forth in Section 4(a).

 

“Conversion
Price” shall have the meaning set forth in Section 4(b).

 

“Conversion
Shares” means, collectively, the shares of Common Stock issuable upon conversion of this Debenture in accordance with
the terms hereof.

 

“Debenture
Register” shall have the meaning set forth in Section 2(b).

 

“Dilutive
Issuance” shall have the meaning set forth in Section 5(b).

 

“Dilutive
Issuance Notice” shall have the meaning set forth in Section 5(b).

 

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“Effective
Date” means the earliest of the date that (a) a registration statement covering the Registrable Securities has been
declared effective by the Commission, (b) all of the Underlying Shares have been sold pursuant to Rule 144 or may be sold pursuant
to Rule 144 without the requirement for the Company to be in compliance with the current public information required under Rule
144 and without volume or manner-of-sale restrictions or (c) following the one year anniversary of the Closing Date provided that
a holder of Underlying Shares is not an Affiliate of the Company, all of the Underlying Shares may be sold pursuant to an exemption
from registration under Section 4(1) of the Securities Act without volume or manner-of-sale restrictions and Company counsel has
delivered to such holders a standing written unqualified opinion that resales may then be made by such holders of the Underlying
Shares pursuant to such exemption which opinion shall be in form and substance reasonably acceptable to such holders.

 

“Equity
Conditions” means, during the period in question, (a) the Company shall have duly honored all conversions and redemptions
scheduled to occur or occurring by virtue of one or more Notices of Conversion of the Holder, if any, (b) the Company shall have
paid all amounts owing to the Holder in respect of this Debenture, (c) there is a sufficient number of authorized but unissued
and otherwise unreserved shares of Common Stock for the issuance of all of the shares then issuable pursuant to this Debenture,
(d) there is no existing Event of Default and no existing event which, with the passage of time or the giving of notice, would
constitute an Event of Default, (e) there has been no public announcement of a pending or proposed Fundamental Transaction or
Change of Control Transaction that has not been consummated, and (f) to the extent that the Holder voluntarily converted a portion
of the principal amount hereunder, the Company complied in all respects with its obligations under Section 4 hereof.

 

“Event
of Default” shall have the meaning set forth in Section 7(a).

 

“Exchange
Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

 

“Exempt
Issuance” means the issuance of (a) shares of Common Stock or options to employees, officers or directors of the Company
pursuant to any stock or option plan duly adopted for such purpose, by a majority of the non-employee members of the Board of
Directors or a majority of the members of a committee of non-employee directors established for such purpose, (b) securities upon
the exercise or exchange of or conversion of any Securities issued hereunder and/or other securities exercisable or exchangeable
for or convertible into shares of Common Stock issued and outstanding on the date of this Agreement, provided that such securities
have not been amended since the date of this Agreement to increase the number of such securities or to decrease the exercise price,
exchange price or conversion price of such securities and (c) securities issued pursuant to acquisitions or strategic transactions
approved by a majority of the disinterested directors of the Company, provided that any such issuance shall only be to a Person
(or to the equity holders of a Person) which is, itself or through its subsidiaries, an operating company or an owner of an asset
in a business synergistic with the business of the Company and shall provide to the Company additional benefits in addition to
the investment of funds, but shall not include a transaction in which the Company is issuing securities primarily for the purpose
of raising capital or to an entity whose primary business is investing in securities.

 

    	4

    	 

    

 

“Fundamental
Transaction” shall have the meaning set forth in Section 5(d).

 

“Interest
Payment Date” shall have the meaning set forth in Section 2(a).

 

“Late
Fees” shall have the meaning set forth in Section 2(c).

 

“Liens”
means a lien, charge, pledge, security interest, encumbrance, right of first refusal, preemptive right or other restriction.

 

“Mandatory
Default Amount” means the sum of the outstanding principal amount of this Debenture, plus 100% of accrued and unpaid
interest hereon, and (b) all other amounts, costs, and expenses due in respect of this Debenture.

 

“California
Courts” shall have the meaning set forth in Section 8(d).

 

“Notice
of Conversion” shall have the meaning set forth in Section 4(a).

 

“Original
Issue Date” means the date of the first issuance of this Debenture, regardless of any transfers of this Debenture.

 

“Permitted
Indebtedness” means (a) the indebtedness evidenced by the Debentures, (b) lease obligations and purchase money indebtedness
of up to $150,000, in the aggregate, incurred in connection with the acquisition of capital assets and lease obligations with
respect to newly acquired or leased assets and (c) the assignment of the future proceeds of accounts receivable of workers compensation
benefit claims with dates of service between the year 2007 and December 31, 2012, to Raven Asset-Based Opportunity Fund I LP,
a Delaware limited partnership.

 

“Permitted
Lien” means the individual and collective reference to the following: (a) Liens for taxes, assessments and other governmental
charges or levies which, with the exception of unpaid payroll tax liabilities that are currently due, are not yet due or Liens
for taxes, assessments and other governmental charges or levies being contested in good faith and by appropriate proceedings for
which adequate reserves (in the good faith judgment of the management of the Company) have been established in accordance with
GAAP, (b) Liens imposed by law which were incurred in the ordinary course of the Company’s business, such as carriers’,
warehousemen’s and mechanics’ Liens, statutory landlords’ Liens, and other similar Liens arising in the ordinary
course of the Company’s business, and which (x) do not individually or in the aggregate materially detract from the value
of such property or assets or materially impair the use thereof in the operation of the business of the Company and its consolidated
Subsidiaries or (y) are being contested in good faith by appropriate proceedings, which proceedings have the effect of preventing
for the foreseeable future the forfeiture or sale of the property or asset subject to such Lien, (c) Liens incurred in connection
with Permitted Indebtedness under clause (a) thereunder, and (d) Liens incurred in connection with Permitted Indebtedness under
clause (b) thereunder, provided that such Liens are not secured by assets of the Company or its Subsidiaries other than the assets
so acquired or leased.

 

    	5

    	 

    

 

“Person”
means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind.

 

“Purchase
Agreement” means the Securities Purchase Agreement, dated as of January 13, 2015 among the Company and the original
Holder, as amended, modified or supplemented from time to time in accordance with its terms.

 

“Registration
Statement” means a registration statement covering the resale of the Securities by the Holder.

 

“Rule
144” means Rule 144 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time
to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule.

 

“Securities
Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

 

“Significant
Subsidiary” shall have the meaning set forth in Rule 1-02(w) of Regulation S-X).

 

“Share
Delivery Date” shall have the meaning set forth in Section 4(c)(ii).

 

“Subsidiaries”
shall refer to all of the direct and indirect subsidiaries of the Company. The Company owns, directly or indirectly, all of the
capital stock or other equity interests of each Subsidiary free and clear of any Liens, and all of the issued and outstanding
shares of capital stock of each Subsidiary are validly issued and are fully paid, non-assessable and free of preemptive and similar
rights to subscribe for or purchase securities.

 

“Successor
Entity” shall have the meaning set forth in Section 5(d).

 

“Trading
Day” means a day on which the principal Trading Market is open for trading.

 

“Trading
Market” means any of the following markets or exchanges on which the Common Stock is listed or quoted for trading on
the date in question: the NYSE MKT, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the
New York Stock Exchange or the OTCQB Marketplace maintained by OTC Markets Group, Inc. (or any successors to any of the foregoing).

  

    	6

    	 

    

  

“Transaction
Documents” means the Purchase Agreement, this Debenture, the Security Agreement, all exhibits and schedules thereto
and hereto and any other documents or agreements executed in connection with the transactions contemplated hereunder.

 

“Transfer
Agent” means Transfer Online, Inc., the current transfer agent of the Company, with a mailing address of 512 SE Salmon
Street, Portland, OR 97214 and a facsimile number of (503) 227-6874, and any successor transfer agent of the Company.

 

“Underlying
Shares” means the shares of Common Stock issued and issuable upon conversion or redemption of this Debenture in accordance
with the terms of this Debenture.

 

Section
2.Interest.

 

a)Payment
of Interest in Cash or Kind. The Company shall pay interest in cash or Common Stock to the Holder on the aggregate unconverted
and then outstanding principal amount of this Debenture at the rate of 4% per annum, payable semi-annually in arrears on January
1 and July 1, beginning on the Original Issue Date, on each Conversion Date (as to that principal amount then being converted)
and on the Maturity Date (each such date, an “Interest Payment Date”) (if any Interest Payment Date is not
a Business Day, then the applicable payment shall be due on the next succeeding Business Day), in cash. The decision whether to
pay interest in cash or shares of Common Stock shall be at the sole discretion of the Company. If the Company elects to pay interest
in shares of Common Stock, then the Shares shall be duly authorized, validly issued, fully paid and non-assessable shares of Common
Stock, which the number issued shall be based upon the Conversion Price.

 

b)Interest
Calculations. Interest shall be calculated on the basis of a 365-day year and the actual number of days elapsed, and shall
accrue monthly commencing on the Original Issue Date until payment in full of the outstanding principal, together with all accrued
and unpaid interest and other amounts which may become due hereunder, has been made. Interest hereunder will be paid to the Person
in whose name this Debenture is registered on the records of the Company regarding registration and transfers of this Debenture
(the “Debenture Register”).

 

c)Late
Fee. All overdue accrued and unpaid interest to be paid hereunder shall entail a late fee at an interest rate equal to the
lesser of 8% per annum or the maximum rate permitted by applicable law (the “Late Fees”) which shall accrue
daily from the date such interest is due hereunder through and including the date of actual payment in full. All interest paid
hereunder in shares of Common Stock will be deemed timely paid provided such shares are issued in accordance with Section 4(c)(ii).

 

    	7

    	 

    

 

d)Prepayment.
Except as otherwise set forth in this Debenture, the Company may not prepay any portion of the principal amount of this Debenture
without the prior written consent of the Holder.

 

Section
3.Registration of Transfers and Exchanges.

 

a)Different
Denominations. This Debenture is exchangeable for an equal aggregate principal amount of Debentures of different authorized
denominations, as requested by the Holder surrendering the same. No service charge will be payable for such registration of transfer
or exchange.

 

b)Investment
Representations. This Debenture has been issued subject to certain investment representations of the original Holder set forth
in the Purchase Agreement and may be transferred or exchanged only in compliance with the Purchase Agreement and applicable federal
and state securities laws and regulations.

 

c)Reliance
on Debenture Register. Prior to due presentment for transfer to the Company of this Debenture, the Company and any agent of
the Company may treat the Person in whose name this Debenture is duly registered on the Debenture Register as the owner hereof
for the purpose of receiving payment as herein provided and for all other purposes, whether or not this Debenture is overdue,
and neither the Company nor any such agent shall be affected by notice to the contrary.

 

Section
4.Conversion.

 

a)Voluntary
Conversion. At any time after the Original Issue Date until this Debenture is no longer outstanding, this Debenture shall
be convertible, in whole or in part, into shares of Common Stock at the option of the Holder, at any time and from time to time.
The Holder shall effect conversions by delivering to the Company a Notice of Conversion, the form of which is attached hereto
as Annex A (each, a “Notice of Conversion”), specifying therein the principal amount of this Debenture
to be converted and the date on which such conversion shall be effected (such date, the “Conversion Date”).
If no Conversion Date is specified in a Notice of Conversion, the Conversion Date shall be the date that such Notice of Conversion
is deemed delivered hereunder. No ink-original Notice of Conversion shall be required, nor shall any medallion guarantee (or other
type of guarantee or notarization) of any Notice of Conversion form be required. To effect conversions hereunder, the Holder
shall not be required to physically surrender this Debenture to the Company unless the entire principal amount of this Debenture,
plus all accrued and unpaid interest thereon, has been so converted. Conversions hereunder shall have the effect of lowering the
outstanding principal amount of this Debenture in an amount equal to the applicable conversion. The Holder and the Company shall
maintain records showing the principal amount(s) converted and the date of such conversion(s). The Holder, and any assignee
by acceptance of this Debenture, acknowledge and agree that, by reason of the provisions of this paragraph, following conversion
of a portion of this Debenture, the unpaid and unconverted principal amount of this Debenture may be less than the amount stated
on the face hereof.

 

    	8

    	 

    

 

b)Conversion
Price. The conversion price in effect on any Conversion Date shall be equal to $.30 subject to adjustment herein (the “Conversion
Price”).

 

c)
Mechanics of Conversion.

 

i.Conversion
Shares Issuable Upon Conversion of Principal Amount. The number of Conversion Shares issuable upon a conversion hereunder
shall be determined by the quotient obtained by dividing (x) the outstanding principal amount of this Debenture to be converted
by (y) the Conversion Price.

 

ii.Delivery
of Certificate Upon Conversion. Not later than seven (7) Trading Days after each Conversion Date (the “Share Delivery
Date”), the Company shall deliver, or cause to be delivered, to the Holder (A) a certificate or certificates representing
the Conversion Shares which, on or after the earlier of (i) the six month anniversary of the Original Issue Date or (ii) the Effective
Date, shall be free of restrictive legends and trading restrictions (other than those which may then be required by the Purchase
Agreement) representing the number of Conversion Shares being acquired upon the conversion of this Debenture and (B) a bank check
in the amount of accrued and unpaid interest.

 

iii.Failure
to Deliver Certificates. If, in the case of any Notice of Conversion, and as a result of the Company’s fault or failure
to act, such certificate or certificates are not delivered to or as directed by the applicable Holder by the Share Delivery Date,
the Holder shall be entitled to elect by written notice to the Company at any time on or before its receipt of such certificate
or certificates, to rescind such Conversion, in which event the Company shall promptly return to the Holder any original Debenture
delivered to the Company and the Holder shall promptly return to the Company the Common Stock certificates issued to such Holder
pursuant to the rescinded Conversion Notice.

 

iv.Obligation
Absolute. The Company’s obligations to issue and deliver the Conversion Shares upon conversion of this Debenture in
accordance with the terms hereof are absolute and unconditional, irrespective of any action or inaction by the Holder to enforce
the same, any waiver or consent with respect to any provision hereof, the recovery of any judgment against any Person or any action
to enforce the same, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the
Holder or any other Person of any obligation to the Company or any violation or alleged violation of law by the Holder or any
other Person, and irrespective of any other circumstance which might otherwise limit such obligation of the Company to the Holder
in connection with the issuance of such Conversion Shares; provided, however, that such delivery shall not operate
as a waiver by the Company of any such action the Company may have against the Holder. In the event the Holder of this Debenture
shall elect to convert any or all of the outstanding principal amount hereof, the Company may not refuse conversion based on any
claim that the Holder or anyone associated or affiliated with the Holder has been engaged in any violation of law, agreement or
for any other reason, unless an injunction from a court, on notice to Holder, restraining and or enjoining conversion of all or
part of this Debenture shall have been sought and obtained. In the absence of such injunction, the Company shall issue Conversion
Shares or, if applicable, cash, upon a properly noticed conversion. If the Company fails for any reason to deliver to the Holder
such certificate or certificates pursuant to Section 4(c)(ii) by the Share Delivery Date, the Holder shall have the right to pursue
all remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or
injunctive relief. The exercise of any such rights shall not prohibit the Holder from seeking to enforce damages pursuant to any
other Section hereof or under applicable law.

 

    	9

    	 

    

 

v.Reservation
of Shares Issuable Upon Conversion. The Company covenants that it will at all times reserve and keep available out of its
authorized and unissued shares of Common Stock for the sole purpose of issuance upon conversion of this Debenture, free from preemptive
rights or any other actual contingent purchase rights of Persons other than the Holder (and the other holders of the Debentures),
not less than such aggregate number of shares of the Common Stock as shall be issuable (taking into account the adjustments and
restrictions of Section 5) upon the conversion of the then outstanding principal amount of this Debenture. The Company covenants
that all shares of Common Stock that shall be so issuable shall, upon issue, be duly authorized, validly issued, fully paid and
nonassessable and, if a Registration Statement is then effective under the Securities Act, shall be registered for public resale
in accordance with such Registration Statement (subject to such Holder’s compliance with its obligations under the Purchase
Agreement).

 

vi.Fractional
Shares. No fractional shares or scrip representing fractional shares shall be issued upon the conversion of this Debenture.
As to any fraction of a share which the Holder would otherwise be entitled to purchase upon such conversion, the Company shall
at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied
by the Conversion Price or round up to the next whole share.

 

vii.Transfer
Taxes and Expenses. The issuance of certificates for shares of the Common Stock on conversion of this Debenture shall be made
without charge to the Holder hereof for any documentary stamp or similar taxes that may be payable in respect of the issue or
delivery of such certificates, provided that, the Company shall not be required to pay any tax that may be payable in respect
of any transfer involved in the issuance and delivery of any such certificate upon conversion in a name other than that of the
Holder of this Debenture so converted and the Company shall not be required to issue or deliver such certificates unless or until
the Person or Persons requesting the issuance thereof shall have paid to the Company the amount of such tax or shall have established
to the satisfaction of the Company that such tax has been paid. The Company shall pay all Transfer Agent fees required for same-day
processing of any Notice of Conversion and all fees to the Depository Trust Company (or another established clearing corporation
performing similar functions) required for same-day electronic delivery of the Conversion Shares.

 

    	10

    	 

    

 

Section
5.Certain Adjustments.

 

a)Stock
Dividends and Stock Splits. If the Company, at any time while this Debenture is outstanding: (i) pays a stock dividend or
otherwise makes a distribution or distributions payable in shares of Common Stock on shares of Common Stock or any Common Stock
Equivalents, (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines (including by way
of a reverse stock split) outstanding shares of Common Stock into a smaller number of shares or (iv) issues, in the event of a
reclassification of shares of the Common Stock, any shares of capital stock of the Company, then the Conversion Price shall be
multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding any treasury shares of
the Company) outstanding immediately before such event, and of which the denominator shall be the number of shares of Common Stock
outstanding immediately after such event. Any adjustment made pursuant to this Section shall become effective immediately after
the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective
immediately after the effective date in the case of a subdivision, combination or re-classification.

 

b)Subsequent
Equity Sales. If, at any time while this Debenture is outstanding, the Company or any Subsidiary, as applicable, sells or
grants any option to purchase or sells or grants any right to reprice, or otherwise disposes of or issues, any Common Stock or
Common Stock Equivalents entitling any Person to acquire shares of Common Stock at an effective price per share that is lower
than the then Conversion Price (such issuances, collectively, a “Dilutive Issuance”) (if the holder of the
Common Stock or Common Stock Equivalents so issued shall at any time, whether by operation of purchase price adjustments, reset
provisions, floating conversion, exercise or exchange prices or otherwise, or due to warrants, options or rights per share which
are issued in connection with such issuance, be potentially entitled to receive shares of Common Stock at an effective price per
share that is lower than the Conversion Price as a result of the occurrence of a future event, such issuance shall only be deemed
to have occurred for less than the Conversion Price upon the occurrence of the future event), then the Conversion Price shall
be reduced and only reduced by multiplying the Conversion Price by a fraction, the numerator of which is the number of shares
of Common Stock issued and outstanding immediately prior to the Dilutive Issuance plus the number of shares of Common Stock which
the offering price for such Dilutive Issuance would purchase at the then Conversion Price, and the denominator of which shall
be the sum of the number of shares of Common Stock issued and outstanding immediately prior to the Dilutive Issuance plus the
number of shares of Common Stock so issued or issuable in connection with the Dilutive Issuance (such lower price, the “Base
Conversion Price”). Such adjustment shall be made whenever such Common Stock or Common Stock Equivalents are issued.
Notwithstanding the foregoing, no adjustment will be made under this Section 5(b) in respect of an Exempt Issuance. The Company
shall notify the Holder in writing, no later than the Trading Day following the issuance of any Common Stock or Common Stock Equivalents
subject to this Section 5(b), indicating therein the applicable issuance price, or applicable reset price, exchange price, conversion
price and other pricing terms (such notice, the “Dilutive Issuance Notice”). For purposes of clarification,
whether or not the Company provides a Dilutive Issuance Notice pursuant to this Section 5(b), upon the occurrence of any Dilutive
Issuance, the Holder is entitled to receive a number of Conversion Shares based upon the Base Conversion Price on or after the
date of such Dilutive Issuance, regardless of whether the Holder accurately refers to the Base Conversion Price in the Notice
of Conversion.

 

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c)Pro
Rata Distributions. During such time as this Debenture is outstanding, if the Company shall declare or make any dividend or
other distribution of its assets (or rights to acquire its assets) to holders of shares of Common Stock, by way of return of capital
or otherwise (including, without limitation, any distribution of cash, stock or other securities, property or options by way of
a dividend, spin off, reclassification, corporate rearrangement, scheme of arrangement or other similar transaction) (a “Distribution”),
at any time after the issuance of this Debenture, then, in each such case, at the sole option of the Holder, the Holder shall
be provided an opportunity to affect a Voluntary Conversion of this Debenture immediately prior to the dividend or other distribution.

 

d)Fundamental
Transaction. If, at any time while this Debenture is outstanding, (i) the Company, directly or indirectly, in one or more
related transactions effects any merger or consolidation of the Company with or into another Person, (ii) the Company, directly
or indirectly, effects any sale, lease, license, assignment, transfer, conveyance or other disposition of all or substantially
all of its assets in one or a series of related transactions, (iii) any, direct or indirect, purchase offer, tender offer or exchange
offer (whether by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to sell,
tender or exchange their shares for other securities, cash or property and has been accepted by the holders of 50% or more of
the outstanding Common Stock, (iv) the Company, directly or indirectly, in one or more related transactions effects any reclassification,
reorganization or recapitalization of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is
effectively converted into or exchanged for other securities, cash or property, (v) the Company, directly or indirectly, in one
or more related transactions consummates a stock or share purchase agreement or other business combination (including, without
limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with another Person whereby such other Person
acquires more than 50% of the outstanding shares of Common Stock (not including any shares of Common Stock held by the other Person
or other Persons making or party to, or associated or affiliated with the other Persons making or party to, such stock or share
purchase agreement or other business combination) (each a “Fundamental Transaction”), then, upon any subsequent
conversion of this Debenture, the Holder shall have the right to receive, for each Conversion Share that would have been issuable
upon such conversion immediately prior to the occurrence of such Fundamental Transaction, the number of shares of Common Stock
of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and any additional consideration
(the “Alternate Consideration”) receivable as a result of such Fundamental Transaction by a holder of the number
of shares of Common Stock for which this Debenture is convertible immediately prior to such Fundamental Transaction. For purposes
of any such conversion, the determination of the Conversion Price shall be appropriately adjusted to apply to such Alternate Consideration
based on the amount of Alternate Consideration issuable in respect of one (1) share of Common Stock in such Fundamental Transaction,
and the Company shall apportion the Conversion Price among the Alternate Consideration in a reasonable manner reflecting the relative
value of any different components of the Alternate Consideration. If holders of Common Stock are given any choice as to the securities,
cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate
Consideration it receives upon any conversion of this Debenture following such Fundamental Transaction. The Company shall cause
any successor entity in a Fundamental Transaction in which the Company is not the survivor (the “Successor Entity”)
to assume in writing all of the obligations of the Company under this Debenture and the other Transaction Documents in accordance
with the provisions of this Section 5(d) pursuant to written agreements in form and substance reasonably satisfactory to the Holder
and approved by the Holder (without unreasonable delay and in no event more than five (5) days from receipt of the written agreements)
prior to such Fundamental Transaction and shall, at the option of the holder of this Debenture, deliver to the Holder in exchange
for this Debenture a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance
to this Debenture which is convertible for a corresponding number of shares of capital stock of such Successor Entity (or its
parent entity) equivalent to the shares of Common Stock acquirable and receivable upon conversion of this Debenture prior to such
Fundamental Transaction, and with a conversion price which applies the conversion price hereunder to such shares of capital stock
(but taking into account the relative value of the shares of Common Stock pursuant to such Fundamental Transaction and the value
of such shares of capital stock, such number of shares of capital stock and such conversion price being for the purpose of protecting
the economic value of this Debenture immediately prior to the consummation of such Fundamental Transaction), and which is reasonably
satisfactory in form and substance to the Holder. Upon the occurrence of any such Fundamental Transaction, the Successor Entity
shall succeed to, and be substituted for (so that from and after the date of such Fundamental Transaction, the provisions of this
Debenture and the other Transaction Documents referring to the “Company” shall refer instead to the Successor Entity),
and may exercise every right and power of the Company and shall assume all of the obligations of the Company under this Debenture
and the other Transaction Documents with the same effect as if such Successor Entity had been named as the Company herein.

 

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e)Calculations.
All calculations under this Section 5 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be.
For purposes of this Section 5, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall
be the sum of the number of shares of Common Stock (excluding any treasury shares of the Company) issued and outstanding.

 

f)Notice
to the Holder.

 

i.Adjustment
to Conversion Price. Whenever the Conversion Price is adjusted pursuant to any provision of this Section 5, the Company shall
promptly deliver to each Holder a notice setting forth the Conversion Price after such adjustment and setting forth a brief statement
of the facts requiring such adjustment.

 

ii.Notice
to Allow Conversion by Holder. If (A) the Company shall declare a dividend (or any other distribution in whatever form) on
the Common Stock, (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock, (C)
the Company shall authorize the granting to all holders of the Common Stock of rights or warrants to subscribe for or purchase
any shares of capital stock of any class or of any rights, (D) the approval of any stockholders of the Company shall be required
in connection with any reclassification of the Common Stock, any consolidation or merger to which the Company is a party, any
sale or transfer of all or substantially all of the assets of the Company, or any compulsory share exchange whereby the Common
Stock is converted into other securities, cash or property or (E) the Company shall authorize the voluntary or involuntary dissolution,
liquidation or winding up of the affairs of the Company, then, in each case, the Company shall cause to be filed at each office
or agency maintained for the purpose of conversion of this Debenture, and shall cause to be delivered to the Holder at its last
address as it shall appear upon the Debenture Register, at least twenty (20) calendar days prior to the applicable record or effective
date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution,
redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record
to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such
reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date
as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common
Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or
share exchange, provided that the failure to deliver such notice or any defect therein or in the delivery thereof shall not affect
the validity of the corporate action required to be specified in such notice. To the extent that any notice provided hereunder
constitutes, or contains, material, non-public information regarding the Company or any of the Subsidiaries, the Company shall
simultaneously file such notice with the Commission pursuant to a Current Report on Form 8-K. The Holder shall remain entitled
to convert this Debenture during the 20-day period commencing on the date of such notice through the effective date of the event
triggering such notice except as may otherwise be expressly set forth herein.

 

    	13

    	 

    

 

Section
6.Negative Covenants. As long as any portion of this Debenture remains outstanding, unless the holders of at least
50.1% in principal amount of the then outstanding Debentures shall have otherwise given prior written consent, the Company shall
not, and shall not permit any of the Subsidiaries to, directly or indirectly:

 

a)amend
its Charter Documents, including, without limitation, its certificate of incorporation and bylaws, in any manner that materially
and adversely affects any rights of the Holder;

 

b)repay,
repurchase or offer to repay, repurchase or otherwise acquire any Indebtedness, other than the Debentures if on a pro-rata basis,
other than regularly scheduled principal and interest payments as such terms are in effect as of the Original Issue Date;

 

c)pay
cash dividends or distributions on any equity securities of the Company;

 

d)enter
into any transaction with any Affiliate of the Company which would be required to be disclosed in any public filing with the Commission,
unless such transaction is made on an arm’s-length basis and expressly approved by a majority of the disinterested directors
of the Company (even if less than a quorum otherwise required for board approval); or

 

e)enter
into any agreement with respect to any of the foregoing.

  

    	14

    	 

    

 

Section
7.Events of Default.

 

a)“Event
of Default” means, wherever used herein, any of the following events (whatever the reason for such event and whether
such event shall be voluntary or involuntary or effected by operation of law or pursuant to any judgment, decree or order of any
court, or any order, rule or regulation of any administrative or governmental body):

 

i.any
default in the payment of (A) the principal amount of any Debenture or (B) interest and other amounts owing to a Holder on any
Debenture, as and when the same shall become due and payable (whether on a Conversion Date or the Maturity Date or by acceleration
or otherwise) which default is not cured within 5 Trading Days;

 

ii.the
Company shall fail to observe or perform any other material covenant or agreement contained in this Debenture (other than a breach
by the Company of its obligations to deliver shares of Common Stock to the Holder upon conversion, which breach is addressed in
clause (ix) below) which failure is not cured, if possible to cure, within the earlier to occur of (A) 5 Trading Days after notice
of such failure sent by the Holder or by any other Holder to the Company and (B) 10 Trading Days after the Company has become
or should have become aware of such failure;

 

iii.a
default or event of default (subject to any grace or cure period provided in the applicable agreement, document or instrument)
shall occur under (A) any of the Transaction Documents or (B) any other material agreement, lease, document or instrument to which
the Company or any Subsidiary is obligated (and not covered by clause (vi) below);

 

iv.any
representation or warranty made in this Debenture, any other Transaction Documents, any written statement pursuant hereto or thereto
or any other report, financial statement or certificate made or delivered to the Holder or any other Holder shall be untrue or
incorrect in any material respect as of the date when made or deemed made;

 

v.the
Company or any Significant Subsidiary (as such term is defined in Rule 1-02(w) of Regulation S-X) shall be subject to a Bankruptcy
Event;

 

vi.the
Company or any Subsidiary shall default on any of its obligations under any mortgage, credit agreement or other facility, indenture
agreement, factoring agreement or other instrument under which there may be issued, or by which there may be secured or evidenced,
any indebtedness for borrowed money or money due under any long term leasing or factoring arrangement that (a) involves an obligation
greater than $150,000, whether such indebtedness now exists or shall hereafter be created, and (b) results in such indebtedness
becoming or being declared due and payable prior to the date on which it would otherwise become due and payable;

 

    	15

    	 

    

 

vii.the
Common Stock shall not be eligible for listing or quotation for trading on a Trading Market and shall not be eligible to resume
listing or quotation for trading thereon within five Trading Days;

 

viii.the
Company shall be a party to any Change of Control Transaction or Fundamental Transaction or shall agree to sell or dispose of
all or in excess of 50% of its assets in one transaction or a series of related transactions (whether or not such sale would constitute
a Change of Control Transaction);

 

ix.the
Company shall fail for any reason to deliver certificates to a Holder prior to the tenth Trading Day after a Conversion Date pursuant
to Section 4(c) or the Company shall provide at any time notice to the Holder, including by way of public announcement, of the
Company’s intention to not honor requests for conversions of any Debentures in accordance with the terms hereof;

 

x.any
Person shall breach any agreement delivered to the initial Holder pursuant to Section 1.3 of the Purchase Agreement;

 

xi.the
Company fails to meet the current public information requirements under Rule 144 for more than five consecutive Trading Days;
or

 

xii.any
monetary judgment, writ or similar final process shall be entered or filed against the Company, any subsidiary or any of their
respective property or other assets for more than $50,000, and such judgment, writ or similar final process shall remain unvacated,
unbonded or unstayed for a period of 45 calendar days.

  

b)Remedies
Upon Event of Default. If any Event of Default occurs, the outstanding principal amount of this Debenture, plus accrued but
unpaid interest and other amounts owing in respect thereof through the date of acceleration, shall become, at the Holder’s
election, immediately due and payable in cash at the Mandatory Default Amount. Commencing 5 days after the occurrence of any Event
of Default that results in the eventual acceleration of this Debenture, the interest rate on this Debenture shall accrue at an
interest rate equal to the lesser of 8% per annum or the maximum rate permitted under applicable law. Upon the payment
in full of the Mandatory Default Amount, the Holder shall promptly surrender this Debenture to or as directed by the Company.
In connection with such acceleration described herein, the Holder need not provide, and the Company hereby waives, any presentment,
demand, protest or other notice of any kind, and the Holder may immediately and without expiration of any grace period enforce
any and all of its rights and remedies hereunder and all other remedies available to it under applicable law. Such acceleration
may be rescinded and annulled by Holder at any time prior to payment hereunder and the Holder shall have all rights as a holder
of the Debenture until such time, if any, as the Holder receives full payment pursuant to this Section 7(b). No such rescission
or annulment shall affect any subsequent Event of Default or impair any right consequent thereon.

 

    	16

    	 

    

 

Section
8.Miscellaneous.

 

a)Notices.
Any and all notices or other communications or deliveries to be provided by the Holder hereunder, including, without limitation,
any Notice of Conversion, shall be in writing and delivered personally, by facsimile, by email attachment, or sent by a nationally
recognized overnight courier service, addressed to the Company, at the address set forth above, or such other facsimile number,
email address, or address as the Company may specify for such purposes by notice to the Holder delivered in accordance with this
Section 8(a). Any and all notices or other communications or deliveries to be provided by the Company hereunder shall be in writing
and delivered personally, by facsimile, by email attachment, or sent by a nationally recognized overnight courier service addressed
to each Holder at the facsimile number or email address or address of the Holder appearing on the books of the Company, or if
no such facsimile number or email attachment or address appears on the books of the Company, at the principal place of business
of such Holder, as set forth in the Purchase Agreement. Any notice or other communication or deliveries hereunder shall be deemed
given and effective on the earliest of (i) the date of transmission, if such notice or communication is delivered via facsimile
at the facsimile number or email attachment to the email address set forth on the signature pages attached hereto prior to 5:30
p.m. (New York City time) on any date, (ii) the next Trading Day after the date of transmission, if such notice or communication
is delivered via facsimile at the facsimile number or email attachment to the email address set forth on the signature pages attached
hereto on a day that is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading Day, (iii) the second Trading
Day following the date of mailing, if sent by U.S. nationally recognized overnight courier service or (iv) upon actual receipt
by the party to whom such notice is required to be given.

 

b)Absolute
Obligation. Except as expressly provided herein, no provision of this Debenture shall alter or impair the obligation of the
Company, which is absolute and unconditional, to pay the principal of and accrued interest, as applicable, on this Debenture at
the time, place, and rate, and in the coin or currency, herein prescribed. This Debenture is a direct debt obligation of the Company.

 

c)Lost
or Mutilated Debenture. If this Debenture shall be mutilated, lost, stolen or destroyed, the Company shall execute and deliver,
in exchange and substitution for and upon cancellation of a mutilated Debenture, or in lieu of or in substitution for a lost,
stolen or destroyed Debenture, a new Debenture for the principal amount of this Debenture so mutilated, lost, stolen or destroyed,
but only upon receipt of evidence of such loss, theft or destruction of such Debenture, and of the ownership hereof, reasonably
satisfactory to the Company.

 

    	17

    	 

    

 

d)Governing
Law. All questions concerning the construction, validity, enforcement and interpretation of this Debenture shall be governed
by and construed and enforced in accordance with the internal laws of the State of California, without regard to the principles
of conflict of laws thereof. Each party agrees that all legal proceedings concerning the interpretation, enforcement and defense
of the transactions contemplated by any of the Transaction Documents (whether brought against a party hereto or its respective
Affiliates, directors, officers, shareholders, employees or agents) shall be commenced in the state and federal courts sitting
in Los Angeles County, California (the “California Courts”). Each party hereto hereby irrevocably submits to
the exclusive jurisdiction of the California Courts for the adjudication of any dispute hereunder or in connection herewith or
with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of any of the Transaction
Documents), and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not
personally subject to the jurisdiction of such California Courts, or such California Courts are improper or inconvenient venue
for such proceeding. Each party hereby irrevocably waives personal service of process and consents to process being served in
any such suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence
of delivery) to such party at the address in effect for notices to it under this Debenture and agrees that such service shall
constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any
way any right to serve process in any other manner permitted by applicable law. Each party hereto hereby irrevocably waives, to
the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating
to this Debenture or the transactions contemplated hereby. If any party shall commence an action or proceeding to enforce any
provisions of this Debenture, then the prevailing party in such action or proceeding shall be reimbursed by the other party for
its attorneys’ fees and other costs and expenses incurred in the investigation, preparation and prosecution of such action
or proceeding.

 

e)Waiver.
Any waiver by the Company or the Holder of a breach of any provision of this Debenture shall not operate as or be construed to
be a waiver of any other breach of such provision or of any breach of any other provision of this Debenture. The failure of the
Company or the Holder to insist upon strict adherence to any term of this Debenture on one or more occasions shall not be considered
a waiver or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this
Debenture on any other occasion. Any waiver by the Company or the Holder must be in writing.

 

f)Severability.
If any provision of this Debenture is invalid, illegal or unenforceable, the balance of this Debenture shall remain in effect,
and if any provision is inapplicable to any Person or circumstance, it shall nevertheless remain applicable to all other Persons
and circumstances. If it shall be found that any interest or other amount deemed interest due hereunder violates the applicable
law governing usury, the applicable rate of interest due hereunder shall automatically be lowered to equal the maximum rate of
interest permitted under applicable law. The Company covenants (to the extent that it may lawfully do so) that it shall not at
any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury
law or other law which would prohibit or forgive the Company from paying all or any portion of the principal of or interest on
this Debenture as contemplated herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants
or the performance of this Debenture, and the Company (to the extent it may lawfully do so) hereby expressly waives all benefits
or advantage of any such law, and covenants that it will not, by resort to any such law, hinder, delay or impede the execution
of any power herein granted to the Holder, but will suffer and permit the execution of every such as though no such law has been
enacted.

 

    	18

    	 

    

 

g)Remedies,
Characterizations, Other Obligations, Breaches and Injunctive Relief. The remedies provided in this Debenture shall be cumulative
and in addition to all other remedies available under this Debenture and any of the other Transaction Documents at law or in equity
(including a decree of specific performance and/or other injunctive relief), and nothing herein shall limit the Holder’s
right to pursue actual and consequential damages for any failure by the Company to comply with the terms of this Debenture. The
Company covenants to the Holder that there shall be no characterization concerning this instrument other than as expressly provided
herein. Amounts set forth or provided for herein with respect to payments, conversion and the like (and the computation thereof)
shall be the amounts to be received by the Holder and shall not, except as expressly provided herein, be subject to any other
obligation of the Company (or the performance thereof). The Company acknowledges that a breach by it of its obligations hereunder
will cause irreparable harm to the Holder and that the remedy at law for any such breach may be inadequate. The Company therefore
agrees that, in the event of any such breach or threatened breach, the Holder shall be entitled, in addition to all other available
remedies, to an injunction restraining any such breach or any such threatened breach, without the necessity of showing economic
loss and without any bond or other security being required. The Company shall provide all information and documentation to the
Holder that is requested by the Holder to enable the Holder to confirm the Company’s compliance with the terms and conditions
of this Debenture.

 

h)Next
Business Day. Whenever any payment or other obligation hereunder shall be due on a day other than a Business Day, such payment
shall be made on the next succeeding Business Day.

 

i)Headings.
The headings contained herein are for convenience only, do not constitute a part of this Debenture and shall not be deemed to
limit or affect any of the provisions hereof.

 

j)Secured
Obligation. The obligations of the Company under this Debenture are secured by all assets of the Company and each Subsidiary
pursuant to the Security Agreement, dated as of January 13, 2015 between the Company, the Subsidiaries of the Company and the
Secured Parties (as defined therein).

 

*********************

  

(Signature
Pages Follow)

 

    	19

    	 

    

 

IN
WITNESS WHEREOF, the Company has caused this Debenture to be duly executed by a duly authorized officer as of the date first above
indicated.

  

	 	Targeted
    Medical Pharma, Inc.
	 	 
	 	By:	
	 	Name:	Kim Giffoni
	 	Title:	Chief Executive
    Officer
	 	 	 
	 	Facsimile
    No. for delivery of Notices:                                 

 

    	20

    	 

    

 

ANNEX
A

 

NOTICE
OF CONVERSION

 

The
undersigned hereby elects to convert principal under the 4% Senior Secured Convertible Debenture due January 13, 2018 of Targeted
Medical Pharma, Inc., a Delaware corporation (the “Company”), into shares of common stock (the “Common
Stock”), of the Company according to the conditions hereof, as of the date written below. If shares of Common Stock
are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with
respect thereto and is delivering herewith such certificates and opinions as reasonably requested by the Company in accordance
therewith. No fee will be charged to the holder for any conversion, except for such transfer taxes, if any.

 

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

 

Conversion
calculations:

 

	 	Date
    to Effect Conversion:
	 	 
	 	Principal Amount
    of Debenture to be Converted:
	 	 
	 	Payment of Interest
    in Common Stock ____ yes ____ no
	 	If
    yes, $_____ of Interest Accrued on Account of Conversion at Issue.
	 	 
	 	Number of shares
    of Common Stock to be issued:
	 	 
	 	Signature:
	 	 
	 	Name:
	 	 
	 	Address for Delivery
    of Common Stock Certificates:
	 	 
	 	Or
	 	 
	 	DWAC Instructions:
	 	 
	 	Broker No:                                 
	 	Account No:

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