Document:

eh1300824_ex0405.htm

EXHIBIT 4.5

 

 

 

 

PRECISION DRILLING CORPORATION

 

 

	
 

 

DEFERRED SHARE UNIT PLAN

 

 

 

 

 

 

Effective

January 1, 2012

 

 

 

 

 

  

  

  

 

PRECISION DRILLING CORPORATION

 

DEFERRED SHARE UNIT PLAN

 

ARTICLE 1

INTRODUCTION AND INTERPRETATION

 

	
1.1

	
Purpose

 

The purposes of the Plan are:

 

	
  

	
(a)

	
to promote a greater alignment of interests between directors of Precision Drilling Corporation (the "Corporation") and the shareholders of the Corporation;

 

	
  

	
(b)

	
to provide a compensation system for directors that, together with the other director compensation mechanisms of the Corporation, is reflective of the responsibility, commitment and risk accompanying membership on the Board of Directors and the performance of the duties required of the various committees of the Board of Directors;

 

	
  

	
(c)

	
to assist the Corporation to attract and retain individuals with experience and ability to act as directors; and

 

	
  

	
(d)

	
to allow directors of the Corporation to participate in the long-term success of the Corporation.

 

	
1.2

	
Definitions

 

Wherever used in this Plan, the following words and terms have the respective meanings set out below unless the context otherwise requires:

 

	
  

	
(a)

	
"Account" has the meaning ascribed thereto in Section 7.1(b);

 

	
  

	
(b)

	
"Affiliate" means an affiliate of the Corporation, as applicable, as the term "affiliate" is defined in paragraph 8 of the Canada Revenue Agency's Interpretation Bulletin IT-337R4, Retiring Allowances [Consolidated], or any successor publication thereto;

 

	
  

	
(c)

	
"Aggregate Purchase Price" has the meaning ascribed thereto in Section 8.3;

 

	
  

	
(d)

	
"Annual Retainer" means the annual retainer payable to an Eligible Director by the Corporation for serving on the Board of Directors in a calendar year, which for greater certainty, does not include any amounts payable to an Eligible Director for any other employment or services to the Corporation or an Affiliate (including, without limitation, any chairman, vice-chairman, or lead director fees, committee chair fees, per diem meeting fees, director and committee meeting fees, reimbursements for expenses, or any equity-based compensation);

 

 

 

  

  

  

 

	
  

	
(e)

	
"Applicable Law" with respect to a Person, property, transaction or event, means any applicable provision of law, domestic or foreign, including the common law, principles of equity, statutes, regulations, treaties, by-laws, ordinances, judgments and decrees, and further including applicable securities legislation, together with (whether or not having the force of law) all regulations, rules, policy statements, rulings, notices, orders or other instruments promulgated thereunder and the rules of any stock exchange upon which the Shares are listed, and further including (whether or not having the force of law) all applicable official directives, rules, consents, approvals, authorizations, guidelines, standards, codes of practice, orders (including judicial or administrative orders) and policies of any governmental authority having, or purporting to have authority over, or application to, that Person, property, transaction or event, as the same may be amended from time to time;

 

	
  

	
(f)

	
"Applicable Withholding Taxes" has the meaning ascribed thereto in Section 2.2(c);

 

	
  

	
(g)

	
"Automatic DSU Retainer" means, in respect of any particular calendar year, (i) where the particular Eligible Director is in compliance with the Director Ownership Guidelines determined as of the applicable Determination Date, nil; and (ii) where the particular Eligible Director is not in compliance with the Director Ownership Guidelines determined as of the applicable Determination Date, the percentage portion of an Eligible Director's Annual Retainer that is required to be satisfied in the form of Deferred Share Units credited to each Eligible Director's Account under the Plan, as determined by a resolution of the Board of Directors, as contemplated in Section 5.1; provided, however, that the applicable percentage determined pursuant to (i) or (ii) above shall remain in effect for the entire applicable calendar year;

 

	
  

	
(h)

	
"Beneficiary" means, subject to Applicable Law, an individual who has been designated by an Eligible Director as contemplated by Section 9.7, in the form of Schedule "B" hereto or in such other form and manner as the Committee may determine, to receive benefits payable under the Plan upon the death of the Eligible Director, or, where no such designation is validly in effect at the time of death, or where the designated individual does not survive the Eligible Director, the Eligible Director's estate;

 

	
  

	
(i)

	
"Board of Directors" means the board of directors of the Corporation as constituted from time to time or, if established and duly authorized to act with respect to the Plan, any committee of the board of directors of the Corporation;

 

	
  

	
(j)

	
"Broker" means a broker who is independent (pursuant to the rules and policies of the Exchange) from the Corporation and any Affiliate and who is a member of the Exchange and who has been designated by an Eligible Director;

 

 

 

 

  

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(k)

	
"Business Day" means each day other than a Saturday, Sunday, a statutory holiday in Alberta or any day on which the principal chartered banks located in Edmonton, Alberta are not open for business during normal business hours;

 

	
  

	
(l)

	
"Cease Trade Date" has the meaning ascribed thereto in Section 8.1(c);

 

	
  

	
(m)

	
"Chairman" means the chairman of the Committee;

 

	
  

	
(n)

	
"Code" means the United States Internal Revenue Code of 1986, as amended from time to time and any applicable Treasury Regulations and other binding regulatory guidance thereunder;

 

	
  

	
(o)

	
"Committee" means the Compensation Committee of the Board of Directors, or such other Persons as are designated by the Board of Directors for purposes of the Plan, provided, however, that if no Compensation Committee is in existence at any particular time and the Board of Directors has not appointed another committee of the Board of Directors to administer the Plan, all references in the Plan to "Committee" shall at such time be in reference to the Board of Directors;

 

	
  

	
(p)

	
"Corporation" means Precision Drilling Corporation and includes any successor corporation thereof, and any reference in the Plan to action by the Corporation means action by or under the authority of the Board of Directors or the Committee, as the case may be;

 

	
  

	
(q)

	
"Deferred Share Unit" means a unit credited by the Corporation to the Account of an Eligible Director by way of a bookkeeping entry in the books of the Corporation and administered pursuant to the terms of the Plan, the value of which on a particular date shall be equal to the Fair Market Value at that date;

 

	
  

	
(r)

	
"Determination Date" means, (i) for the calendar year which includes the Effective Date, December 31, 2011; and (ii) for each subsequent calendar year, December 31st of the year prior to the applicable calendar year;

 

	
  

	
(s)

	
"Director Ownership Guidelines" means any requirements or guidelines of the Corporation specifying the number, or value, of Shares required to be held by a member of the Board of Directors;

 

	
  

	
(t)

	
"Dividend Payment Date" has the meaning ascribed thereto in Section 7.4;

 

	
  

	
(u)

	
"Dividend Record Date" has the meaning ascribed thereto in Section 7.4;

 

 

 

 

  

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(v)

	
"DSU Eligible Retainer" means, in respect of any particular calendar year, (i) that portion of an Eligible Director's Annual Retainer that is not the Automatic DSU Retainer, and (ii) any additional compensation (other than equity-based compensation) payable to the Eligible Director in his or her capacity as a member of the Board of Directors, including, without limitation, any chairman fees, vice-chairman, or lead director fees, committee chair fees, per diem meeting fees, and director and committee meeting fees), that the Eligible Director may elect to have satisfied in the form of Deferred Share Units credited to his or her Account under the Plan, as contemplated in Article 6;

 

	
  

	
(w)

	
"Effective Date" has the meaning ascribed thereto in Section 1.4;

 

	
  

	
(x)

	
"Eligible Director" means a director of the Corporation who is not otherwise an employee of the Corporation or any Affiliate;

 

	
  

	
(y)

	
"Eligible Director Information" has the meaning ascribed thereto in Section 2.3(a);

 

	
  

	
(z)

	
"Exchange" means the Toronto Stock Exchange, or if the Shares are not then listed on the Toronto Stock Exchange, the New York Stock Exchange, or if the Shares are not then listed on either the Toronto Stock Exchange or the New York Stock Exchange, such other stock exchange on which the Shares are listed, or if the Shares are not listed on any stock exchange, then on the over-the-counter market;

 

	
  

	
(aa)

	
"Exchange Business Day" means any date on which the Exchange is open for the trading of Shares and on which Shares may be traded;

 

	
  

	
(bb)

	
"Fair Market Value" means, with respect to any particular date, the weighted average closing price for a Share on the Exchange on the five (5) Trading Days immediately prior to that date, and, if in US dollars, converted to Canadian dollars using the Noon Buying Rate, or, in the event of a Cease Trade Date, such other value as may be determined pursuant to Section 8.1(c);

 

	
  

	
(cc)

	
"Financial Black-out Period" has the meaning ascribed thereto in the Corporation's insider trading policy in force, and as may be amended, from time to time;

 

	
  

	
(dd)

	
"Insider" means an "insider" of the Corporation as defined in Part I of the Toronto Stock Exchange Company Manual as amended from time to time or any successor or replacement provision thereto;

 

	
  

	
(ee)

	
"Noon Buying Rate" means the noon buying rate for the applicable currency published by the Bank of Canada on the relevant date;

 

	
  

	
(ff)

	
"Other Black-out Period" has the meaning ascribed thereto in the Corporation's insider trading policy in force, and as may be amended, from time to time;

 

 

 

 

 

 

  

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(gg)

	
"Participation and Election Agreement" has the meaning ascribed thereto in Section 3.2;

 

	
  

	
(hh)

	
"Person" means any individual, sole proprietorship, partnership, firm, entity, unincorporated association, unincorporated syndicate, unincorporated organization, trust, body corporate, fund, organization or other group of organized persons, government, government regulatory authority, governmental department, agency, commission, board, tribunal, dispute settlement panel or body, bureau, court, and where the context requires any of the foregoing when they are acting as trustee, executor, administrator or other legal representative;

 

	
  

	
(ii)

	
"Plan" means this Precision Drilling Corporation Deferred Share Unit Plan, including all Schedules hereto, as amended and restated from time to time in accordance with its terms;

 

	
  

	
(jj)

	
"Quarter" means a fiscal quarter of the Corporation, which, until changed by the Corporation, shall be any three month period ending December 31, March 31, June 30 or September 30, as the case may be;

 

	
  

	
(kk)

	
"Redemption Date" has the meaning ascribed thereto in Section 8.1(a);

 

	
  

	
(ll)

	
"Related Corporation" means a corporation which is related to the Corporation for the purposes of the Income Tax Act (Canada);

 

	
  

	
(mm)

	
"Related Plan" means any other account balance plan providing for the deferral of compensation at the election of an Eligible Director that is required to be aggregated with this Plan pursuant to Treas. Reg. § 1.409A-1(c)(2)(i)(A);

 

	
  

	
(nn)

	
"Separation from Service" has the meaning ascribed thereto in Schedule "A";

 

	
  

	
(oo)

	
"Share" means a common share of the Corporation and such other share that may be substituted therefore as a result of amendments to the articles of the Corporation, reorganization or otherwise, including any rights that form a part of the common share or substituted share but not including any other rights that are attached thereto and trade therewith or any other share that is added thereto;

 

	
  

	
(pp)

	
"Specified Employee" has the meaning ascribed thereto in Schedule "A";

 

	
  

	
(qq)

	
"Tax Act" means the Income Tax Act (Canada) and any regulations thereto, as may be amended from time to time;

 

	
  

	
(rr)

	
"Termination Date" means, in respect of an Eligible Director, the earliest date on which both of the following conditions are satisfied:  (i) the Eligible Director is not a member of the Board of Directors nor a member of the board of directors of an Affiliate, and (ii) the Eligible Director is not an employee of the Corporation or any Affiliate; and

 

 

 

 

 

  

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(ss)

	
"U.S. Taxpayer" means an Eligible Director who is a citizen or permanent resident of the United States for purposes of the Code or an Eligible Director for whom the compensation subject to deferral under this Plan would otherwise be subject to United States federal income taxation under the Code.

 

	
1.3

	
Construction and Interpretation

 

	
  

	
(a)

	
In this Plan, all references to the masculine include the feminine; references to the singular shall include the plural and vice versa, as the context shall require.

 

	
  

	
(b)

	
The headings of all articles, sections and paragraphs in the Plan are inserted for convenience of reference only and shall not affect the construction or interpretation of the Plan.  References to "Article", "Section" or "Paragraph" mean an article, section or paragraph contained in the Plan unless expressly stated otherwise.

 

	
  

	
(c)

	
In this Plan, "including" and "includes" mean including or includes, as the case may be, without limitation.  The words "hereto", "herein", "hereby", "hereunder", "hereof" and similar expressions mean or refer to the Plan as a whole and not to any particular article, section, paragraph or other part hereof.

 

	
  

	
(d)

	
Whenever the Board of Directors or, where applicable, the Committee or any sub-delegate of the Committee is to exercise discretion in the administration of the terms and conditions of this Plan, the term "discretion" means the sole and absolute discretion of the Board of Directors, the Committee or the sub-delegate of the Committee, as the case may be.

 

	
1.4

	
Effective Date

 

The Plan shall be effective as of January 1, 2012 (the "Effective Date").  Subject to Section 9.16, the Board of Directors shall review and confirm the terms of the Plan from time to time.

 

1.5           Schedules Incorporated by Reference

 

The following Schedules are attached to the Plan and are incorporated by reference:

 

Schedule "A" – Plan Provisions Applicable to U.S. Taxpayers

 

Schedule "B" – Beneficiary Designation Form

 

Schedule "C" – Participation and Election Agreement

 

Schedule "D" – Redemption Notice (not applicable to any Eligible Director who is a U.S. Taxpayer)

 

 

 

 

  

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ARTICLE 2

ADMINISTRATION OF THE PLAN

 

	
2.1

	
Administration of the Plan

 

	
  

	
(a)

	
Except for matters that are under the jurisdiction of the Board of Directors as specified under the Plan or as required by law or as required to ensure that the Plan continues to meet the requirements of the exception to the definition of "salary deferral arrangement" in paragraph 6801(d) of the regulations to the Tax Act or any successor to such provision, and subject to Section 2.1(b), this Plan will be administered by the Committee and the Committee has the sole and complete authority, in its discretion, to:

 

	
  

	
(i)

	
interpret the Plan and prescribe, modify and rescind rules and regulations relating to the Plan;

 

	
  

	
(ii)

	
correct any defect or supply any omission or reconcile any inconsistency in the Plan in the manner and to the extent it considers necessary or advisable for the implementation and administration of the Plan;

 

	
  

	
(iii)

	
exercise rights reserved to the Corporation under the Plan;

 

	
  

	
(iv)

	
prescribe forms for notices to be prescribed by the Corporation under the Plan; and

 

	
  

	
(v)

	
make all other determinations and take all other actions as it considers necessary or advisable for the implementation and administration of the Plan.

 

The Committee's determinations and actions under this Plan are final, conclusive and binding on the Corporation, the Eligible Directors and all other Persons.

 

	
  

	
(b)

	
To the extent permitted by Applicable Law, the Committee may, from time to time, delegate to any specified officer of the Corporation all or any of the powers of the Committee.  In such event, the specified officer will exercise the powers delegated to it by the Committee in the manner and on the terms authorized by the Committee.  Any decision made or action taken by the specified officer arising out of or in connection with the administration or interpretation of this Plan in this context is final, binding and conclusive on the Corporation, the Eligible Directors and all other Persons.

 

	
  

	
(c)

	
All expenses of administration of the Plan shall be borne by the Corporation.

 

 

 

 

 

  

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2.2

	
Taxes and Other Source Deductions

 

	
  

	
(a)

	
The Corporation shall not be liable for any tax imposed on any Eligible Director or any Beneficiary as a result of the crediting, holding or redemption of Deferred Share Units, amounts paid or credited to such Eligible Director (or Beneficiary), or securities issued or transferred to such Eligible Director (or Beneficiary) under this Plan.

 

	
  

	
(b)

	
It is the responsibility of the Eligible Director (or Beneficiary) to complete and file any tax returns which may be required under any applicable tax laws within the period prescribed by such laws.

 

	
  

	
(c)

	
The Corporation and any Affiliate shall be authorized to deduct, withhold and/or remit from any amount paid or credited hereunder (whether in Shares or cash), or otherwise, such amount as may be necessary so as to ensure the Corporation and any Affiliate will be able to comply with the applicable provisions of any federal, provincial, state or local law relating to the withholding of tax or other required deductions, including on the amount, if any, includable in the income of a Eligible Director or Beneficiary, as the case may be (the "Applicable Withholding Taxes").  For greater certainty, the Corporation or any Affiliate shall have the right, in its discretion, to satisfy any such liability for Applicable Withholding Taxes amounts by:  (i) making additional withholdings on cash remuneration paid to the Eligible Director in the calendar year as that containing the redemption of a Deferred Share Unit; (ii) retaining any Shares or any amount payable, which would otherwise be issued or delivered, provided or paid to an Eligible Director hereunder; and/or (iii) requiring an Eligible Director, as a condition to the redemption of a Deferred Share Unit, to pay or reimburse the Corporation for any Applicable Withholding Taxes.

 

	
2.3

	
Eligible Director Information

 

	
  

	
(a)

	
Each Eligible Director shall provide the Corporation with all information (including personal information) the Committee requires in order to administer the Plan (the "Eligible Director Information").

 

	
  

	
(b)

	
The Corporation may from time to time transfer or provide access to Eligible Director Information to a third party service provider for purposes of the administration of the Plan provided that such service providers will be provided with such information for the sole purpose of providing services to the Corporation in connection with the operation and administration of the Plan.  The Corporation may also transfer and provide access to Eligible Director Information to its Affiliates for purposes of preparing financial statements or other necessary reports and facilitating payment or reimbursement of Plan expenses.  By participating in the Plan, each Eligible Director acknowledges that Eligible Director Information may be so provided and agrees and consents to its provision on the terms set forth herein.

 

 

 

 

  

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(c)

	
The Corporation shall not disclose Eligible Director Information except:

 

	
  

	
(i)

	
as specifically contemplated in Section 2.3(b) above;

 

	
  

	
(ii)

	
in response to regulatory filings or other requirements for the information by a governmental authority or regulatory body, or

 

	
  

	
(iii)

	
for the purpose of complying with a subpoena, warrant or other order by a court, Person or body having jurisdiction over the Corporation to compel production of the information.

 

	
2.4

	
Director Ownership Guidelines

 

The number of Deferred Share Units from time to time held by an Eligible Director in the Eligible Director's Account shall be counted as if each Deferred Share Unit were one Share solely for the purposes of determining if such Eligible Director has met the share ownership requirements of the Director Ownership Guidelines.

ARTICLE 3

PLAN PARTICIPATION

 

	
3.1

	
Eligibility

 

	
  

	
(a)

	
Any individual who at the relevant time is an Eligible Director shall participate in the Plan with respect to the Automatic DSU Retainer and is eligible to participate in the Plan with respect to the DSU Eligible Retainer.  Except for Deferred Share Units which are credited to an Eligible Director's Account in satisfaction of the Automatic DSU Retainer, eligibility to participate does not confer upon any individual a right to receive an award of Deferred Share Units in satisfaction of any other amounts or to receive any payment (whether in cash or Shares) pursuant to the Plan.

 

	
  

	
(b)

	
If an Eligible Director should become an employee of the Corporation or an Affiliate (otherwise than by becoming a member of the board of directors of an Affiliate) while remaining as a member of the Board of Directors, his or her eligibility for participation in the Plan shall be suspended effective the date of the commencement of his or her employment and shall resume upon termination of such employment provided he or she continues as a director of the Corporation.  During the period of such ineligibility, such individual shall be paid his or her Annual Retainer fully in cash and the Account of such individual shall not be credited with any new Deferred Share Units pursuant to Article 4, Article 5, or Article 6 of the Plan, provided that the Account of such individual shall continue to be credited with Deferred Share Units pursuant to Sections 7.3 and 7.4 of the Plan.

 

 

 

 

  

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(c)

	
Notwithstanding any other provision of the Plan, if an Eligible Director is resident or otherwise subject to taxation in a jurisdiction in which an award of Deferred Share Units may reasonably be considered to be income which is subject to taxation at the time of such award, the Eligible Director may elect not to participate in the Plan by providing a written notice to the Chairman, provided that such election shall be irrevocable and further provided that any notification by an Eligible Director under this Section 3.1(c) shall be delivered prior to the date any Deferred Share Units are credited to the Eligible Director's Account under this Plan and, in any case, within 30 days of the date on which the Eligible Director first becomes eligible to participate in this Plan.

 

	
3.2

	
Participation and Election Agreement

 

Any individual who is, or will be, an Eligible Director in a particular calendar year shall complete and deliver a written participation and election agreement in the form attached to the Plan as Schedule "C" (or a similar form as determined by the Committee) to the Chairman (the "Participation and Election Agreement") within the time period specified by the Committee.  Participation in the Plan by an Eligible Director shall be construed as acceptance by the Eligible Director of the terms and conditions of the Plan and all rules and procedures adopted hereunder and as amended from time to time.

 

ARTICLE 4

DISCRETIONARY GRANTS OF DEFERRED SHARE UNITS

 

	
4.1

	
Discretionary Grant of Deferred Share Units

 

The Board of Directors (or, if duly authorized by the Board of Directors, the Committee) may, subject to Section 9.12(a), in its sole discretion, grant such number of Deferred Share Units to an Eligible Director as the Board of Directors determines to be appropriate in respect of the services the Eligible Director renders to the Corporation as a member of the Board of Directors. All grants of Deferred Share Units pursuant to this Section 4.1 shall be in addition to any grants of Deferred Share Units pursuant to Article 5 or Article 6.  The Board of Directors (or, if duly authorized by the Board of Directors, the Committee) shall determine the date on which such Deferred Share Units shall be granted and credited to an Eligible Director's Account.

 

ARTICLE 5

GRANT OF DEFERRED SHARE UNITS FOR AUTOMATIC DSU RETAINER

 

	
5.1

	
Determination of Automatic DSU Retainer

 

	
  

	
(a)

	
Subject to Section 5.1(b), at such time as the Board of Directors may determine, but in any case prior to December 31 of a particular calendar year, the Board of Directors shall pass a resolution specifying the percentage of the Annual Retainer which will constitute the Automatic DSU Retainer for the following calendar year for each Eligible Director who is not in compliance with the Director Ownership Guidelines as at the applicable Determination Date.

 

 

 

  

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(b)

	
In respect of the calendar year in which the Plan becomes effective, the Board of Directors shall pass a resolution specifying the percentage portion of the Annual Retainer that is payable to the Eligible Directors as compensation for services to be performed after the passage of the resolution which will constitute the Automatic DSU Retainer for such calendar year in which the Plan becomes effective for each Eligible Director who is not in compliance with the Director Ownership Guidelines as at the applicable Determination Date, provided that such resolution shall be passed on or before December 31, 2011.

 

	
  

	
(c)

	
Where no resolution is passed by the Board of Directors pursuant to Section 5.1(a) or 5.1(b), the Automatic DSU Retainer shall be equal to 30% of the Annual Retainer for the applicable calendar year for each Eligible Director who is not in compliance with the Director Ownership Guidelines as at the applicable Determination Date.

 

	
5.2

	
Payment of Automatic DSU Retainer

 

Any Deferred Share Units credited to the Account of an Eligible Director pursuant to this Article 5 in satisfaction of such Eligible Director's Automatic DSU Retainer shall be credited in quarterly instalments on the final Business Day of each Quarter, with the number of Deferred Share Units (including fractions thereof, calculated to two decimal places) to be credited on each such day to be determined by dividing:

 

	
  

	
(i)

	
the dollar amount of the portion of the Eligible Director's Automatic DSU Retainer for the applicable Quarter, by

 

	
  

	
(ii)

	
the Fair Market Value on such day.

 

ARTICLE 6

GRANT OF DEFERRED SHARE UNITS FOR DSU ELIGIBLE RETAINER

 

	
6.1

	
Election for DSU Eligible Retainer

 

	
  

	
(a)

	
Subject to Section 6.2 and such rules, regulations, approvals and conditions as the Committee, in its sole discretion, may impose, an Eligible Director may elect, in advance, to have all or a portion of his or her DSU Eligible Retainer satisfied by way of Deferred Share Units credited to his or her Account under this Article 6 (with the remainder, if any, to be received in cash).

 

	
  

	
(b)

	
Notwithstanding an election under Section 6.2 by an Eligible Director to have his or her DSU Eligible Retainer satisfied in the form of Deferred Share Units or cash or a combination thereof, the Board of Directors may decline to award Deferred Share Units to an Eligible Director in respect of his or her DSU Eligible Retainer in a particular calendar year.

 

 

 

  

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(c)

	
Any Deferred Share Units credited to the Account of an Eligible Director pursuant to this Article 6 in satisfaction of all or a portion of such Eligible Director's DSU Eligible Retainer shall be credited in quarterly instalments on the final Business Day of each Quarter, with the number of Deferred Share Units (including fractions thereof, calculated to two decimal places) to be credited on each such day to be determined by dividing:

 

	
  

	
(i)

	
the dollar amount of the portion of the Eligible Director's DSU Eligible Retainer for the applicable Quarter to be satisfied by Deferred Share Units as elected by the Eligible Director pursuant to this Article 6, by

 

	
  

	
(ii)

	
the Fair Market Value on such day.

 

	
6.2

	
Method of Election

 

	
  

	
(a)

	
In respect of the calendar year in which this Plan becomes effective, an Eligible Director may elect, on an irrevocable basis, to receive all or a percentage of such Eligible Director's DSU Eligible Retainer that would otherwise be payable to the Eligible Director as compensation for services to be performed after the date of the election in the form of Deferred Share Units, by completing and delivering to the Corporation an initial written election, in the form specified in Section 6.2(e), on or before December 31, 2011.  Such election shall set out the percentage of each Eligible Director's DSU Eligible Retainer that the Eligible Director wishes to be satisfied in the form of Deferred Share Units (with the remaining percentage to be paid in cash), within the limitations of Section 6.2(e), for the calendar year in which this Plan becomes effective and for subsequent years unless the Eligible Director amends his or her election under Section 6.2(c).

 

	
  

	
(b)

	
In respect of the calendar year in which an Eligible Director is first elected or appointed to the Board of Directors, the Eligible Director may elect, on an irrevocable basis, to receive all or a percentage of such Eligible Director's DSU Eligible Retainer that would otherwise be payable to the Eligible Director as compensation for services to be performed after the date of the election in the form of Deferred Share Units, by completing and delivering to the Corporation an initial written election, in the form specified in Section 6.2(e), on or before the date that, subject to Section 6.2(d), is the later of (i) 10 Business Days after the date on which the Eligible Director is first elected or appointed to the Board of Directors, and (ii) the last Business Day of the month in which the Eligible Director is first elected or appointed to the Board of Directors.  Such election shall set out the percentage of each Eligible Director's DSU Eligible Retainer that the Eligible Director wishes to be satisfied in the form of Deferred Share Units (with the remaining percentage to be paid in cash), within the limitations of Section 6.2(e), for the remaining months of the calendar year after the Eligible Director makes the election and for subsequent years unless the Eligible Director amends his or her election under Section 6.2(c).

 

 

 

 

  

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(c)

	
Subject to Section 6.2(d), an Eligible Director may initiate or change the percentage of his or her DSU Eligible Retainer to be satisfied in the form of Deferred Share Units for any subsequent calendar year by completing and delivering to the Corporation a new written election no later than December 31 of the calendar year immediately preceding the calendar year to which the DSU Eligible Retainer relates.

 

	
  

	
(d)

	
Notwithstanding anything in Sections 6.2(a), 6.2(b) or 6.2(c), an election may not be made during a Financial Black-out Period or an Other Black-out Period.  In the event that an election would otherwise be required to be made within a Financial Black-out Period or an Other Black-out Period, the deadline for the making of such election will be extended to the tenth Exchange Business Day following the expiry of the Financial Black-out Period or Other Black-out Period, as the case may be; provided that, if the Financial Black-out Period or Other Black-out Period continues to and includes December 31 of a calendar year, no election may be made in respect of the subsequent calendar year.

 

	
  

	
(e)

	
Any election made by the Eligible Director under this Section 6.2 shall be in the form attached to the Plan as Schedule "C", or such other form as may be prescribed by the Committee, and shall designate the percentage, if any, of the DSU Eligible Retainer that is to be satisfied in the form of Deferred Share Units, all such designations to be in percentages of 0, 50 or 100.

 

	
  

	
(f)

	
An Eligible Director's latest election received by the Corporation under Sections 6.2(a), 6.2(b), or 6.2(c) shall be irrevocable and shall continue to apply with respect to his or her DSU Eligible Retainer for the calendar year in respect of which the election was made and for any subsequent calendar year unless the Eligible Director amends his or her election under Section 6.2(c).

 

	
  

	
(g)

	
Where there is no election that complies with Sections 6.2(a), 6.2(b), or 6.2(c), as applicable, in effect for an Eligible Director for a calendar year, such Eligible Director shall be deemed to have elected to receive his or her DSU Eligible Retainer for the applicable year in cash.

 

ARTICLE 7

ACCOUNTS AND REORGANIZATIONS

 

	
7.1

	
Records and Accounts

 

	
  

	
(a)

	
The Committee shall keep or cause to be kept such records and accounts as may be necessary or appropriate in connection with the administration of the Plan and the discharge of its duties, which records shall, absent manifest error, be considered conclusively determinative of all information contained therein.

 

	
  

	
(b)

	
The Corporation shall maintain in its books an account for each Eligible Director (an "Account") recording at all times the number of Deferred Share Units standing to the credit of an Eligible Director.

 

 

 

  

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(c)

	
A written statement confirming the balance in each Eligible Director's Account shall be provided by the Corporation to the Eligible Director at least annually.  Statements shall contain such information as the Committee may determine from time to time.  Such statement shall be deemed to have been accepted by the Eligible Director as correct unless written notice to the contrary is given to the Chairman within thirty (30) days after such statement is provided to the Eligible Director.  For greater certainty, in the event of any discrepancy between the records of the Corporation and any statement provided to an Eligible Director pursuant to this Section 7.1(c), the records of the Committee shall govern and the rights and obligations of the Corporation and the Eligible Director shall be determined on the basis of such records.

 

	
7.2

	
Vesting of Deferred Share Units

 

Deferred Share Units granted under Article 4, Article 5, or Article 6 or under Sections 7.3 or 7.4 shall be fully vested upon being credited to an Eligible Director's Account and the Eligible Director's entitlement to payment of such Deferred Share Units at his or her Termination Date shall not thereafter be subject to satisfaction of any requirements as to any minimum period of membership on the Board of Directors.

 

	
7.3

	
Adjustments and Reorganizations

 

In the event of any subdivision, consolidation or distribution of Shares to the shareholders of the Corporation (excluding by way of dividend payment in the ordinary course or a distribution of Shares under any compensation arrangement of the Corporation or any of its subsidiaries or other affiliates controlled by the Corporation, that contemplates the issuance of Shares from treasury), or upon a capital reorganization, reclassification, exchange, or other change with respect to the Shares, or a consolidation, amalgamation, arrangement or other form of business combination of the Corporation with another Person, or a sale, lease or exchange of all or substantially all of the property of the Corporation or other distribution of the Corporation's assets to shareholders (other than by way of dividend payment in the ordinary course), then the Account of each Eligible Director and the Deferred Share Units outstanding under the Plan shall be adjusted in such manner, if any, as the Board of Directors and the Committee deem appropriate in order to preserve, proportionally, the interests of the Eligible Directors under the Plan, provided that the dollar value of Deferred Share Units credited to an Eligible Director's Account immediately after such an adjustment shall not exceed the dollar value of the Deferred Share Units in such Eligible Director's Account immediately prior thereto and provided further that the value of Deferred Share Units shall always depend on the fair market value of Shares (or shares of a Related Corporation).  All adjustments under this Section 7.3 shall, at all times, be in compliance with the provisions of paragraph 6801(d) of the regulations to the Tax Act.

 

 

 

 

 

 

  

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7.4

	
Dividend Equivalents

 

Unless otherwise determined by the Committee in its sole discretion or as may otherwise be set out in the applicable Participation and Election Agreement, on the payment date for cash dividends paid on Shares (the "Dividend Payment Date"), the Account of each Eligible Director shall be credited with additional Deferred Share Units in respect of Deferred Share Units credited to the Eligible Director's Account as of the record date for payment of such dividends (the "Dividend Record Date").  The number of such additional Deferred Share Units to be credited to the Eligible Director's Account will be calculated (to two decimal places) by dividing the total amount of the dividends that would have been paid to such Eligible Director if the Deferred Share Units in the Eligible Director's Account (including fractions thereof), as of the Dividend Record Date, were Shares, by the Fair Market Value on the Dividend Payment Date.  However, no Deferred Share Units will be credited to an Eligible Director's Account in respect of dividends paid on Shares where the Dividend Record Date relating to such dividends falls after such Eligible Director's Termination Date.

 

ARTICLE 8

REDEMPTION AND PAYMENT OF DEFERRED SHARE UNITS

 

	
8.1

	
Redemption of Deferred Share Units

 

	
  

	
(a)

	
At any date prior to an Eligible Director's Termination Date, an Eligible Director may elect up to two (2) separate dates as of which either a portion (specified in whole percentages or number of Deferred Share Units on any one date) or all of the Deferred Share Units credited to the Eligible Director's Account shall be redeemed (each such date being a "Redemption Date") by the Eligible Director by filing one (1) or two (2) irrevocable written redemption elections in the form of Schedule "D" hereto (or such other form as may be prescribed by the Committee) with the Chairman.  No Redemption Date elected by an Eligible Director pursuant to this Section 8.1(a) shall (i) be before the Eligible Director's Termination Date, (ii) fall within a Financial Black-out Period or an Other Black-out Period that the Eligible Director knows or reasonably expects will be in effect, or (iii) be later than December 15 of the first (1st) calendar year commencing immediately after the Eligible Director's Termination Date.  Where an Eligible Director does not elect a particular date or dates by such Eligible Director's Termination Date or within the permissible period set out above as his or her Redemption Date or Redemption Dates, as the case may be, there shall be a single Redemption Date for such Eligible Director which shall, subject to Section 8.1(e), be the date which is six months after the Eligible Director's Termination Date.  Notwithstanding any of the foregoing provisions of this Section 8.1(a), if a Redemption Date would otherwise fall within a Financial Black-out Period or an Other Black-out Period, the Redemption Date shall be the earlier of (i) the first Exchange Business Day following the expiry of the Financial Black-out Period or Other Black-out Period, as the case may be, and (ii) December 15 of the first (1st) calendar year commencing immediately after the Eligible Director's Termination Date.

 

 

 

 

  

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(b)

	
Subject to Section 8.1(c), the value of the Deferred Share Units redeemed by or in respect of an Eligible Director as of a Redemption Date pursuant to this Section 8.1 shall be the Fair Market Value on such Redemption Date and shall, subject to Sections 8.2 and 8.6, be paid by the Corporation to the Eligible Director (or if the Eligible Director has died, to the Eligible Director's Beneficiary) in the form of a lump sum cash payment, less Applicable Withholding Taxes, as soon as practicable after such Redemption Date, provided that in any event such payment date shall be no later than December 31 of the first (1st) calendar year commencing immediately after the Eligible Director's Termination Date.

 

	
  

	
(c)

	
In the event that any Redemption Date is after the date on which the Shares ceased to be traded on the Exchange, provided such cessation in trading is not reasonably expected to be temporary (the "Cease Trade Date"), the value of the Deferred Share Units redeemed by or in respect of the Eligible Director pursuant to Section 8.1(a) shall be determined in accordance with the following:

 

	
  

	
(i)

	
where the Eligible Director's Termination Date is before or not more than three hundred and sixty-five (365) days after the last Trading Day before the Cease Trade Date, the value of each Deferred Share Unit credited to the Eligible Director's Account at his or her Redemption Date shall be equal to the Fair Market Value on the last Trading Day before the Cease Trade Date; and

 

	
  

	
(ii)

	
where the Eligible Director's Termination Date is after the date that is three hundred and sixty-five (365) days after the last Trading Day before the Cease Trade Date, the value of each Deferred Share Unit credited to the Eligible Director's Account at his or her Redemption Date shall be based on the fair market value of a common share of the Corporation or of a Related Corporation at his or her Redemption Date as determined on a reasonable and equitable basis by the Board of Directors after receiving the advice of one or more independent firms of investment bankers of national repute.

 

Subject to Sections 8.2 and 8.6, the value of an Eligible Director's Deferred Share Units determined in accordance with subparagraph (i) or (ii) of this Section 8.1(c), as applicable, shall be paid to the Eligible Director (or, if the Eligible Director has died, to his or her Beneficiary) in the form of a lump sum cash payment, less Applicable Withholding Taxes, as soon as practicable after the Eligible Director's Redemption Date, provided that, in any event, such payment date shall be no later than December 31 of the first (1st) calendar year commencing immediately after the Eligible Director's Termination Date.

 

	
  

	
(d)

	
Upon payment of any amount pursuant to this Section 8.1 in satisfaction of Deferred Share Units credited to the Account of an Eligible Director, the particular Deferred Share Units in respect of which such payment was made shall be cancelled and no further payments shall be made from the Plan in relation to such Deferred Share Units.

 

 

 

 

 

  

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(e)

	
Notwithstanding any other provision of the Plan, all amounts payable to, or in respect of, an Eligible Director hereunder, including, without limitation, the delivery of Shares or a lump sum cash payment, shall be paid on or before December 31 of the first (1st) calendar year commencing immediately after the Eligible Director's Termination Date.

 

	
8.2

	
Discretion to Pay in Shares

 

	
  

	
(a)

	
Subject to Sections 8.1(e), 8.3, 8.6 and 8.7, and the receipt of all necessary shareholder approvals as required under the rules, regulations and policies of the Exchange and any other stock exchange on which the Shares are listed or traded, the Corporation shall have the right, in its sole discretion, to require that the cash value of the Deferred Share Units redeemed by or in respect of an Eligible Director shall, after deduction of any Applicable Withholding Taxes, be:

 

	
  

	
(i)

	
applied to the subscription price for Shares to be issued from treasury to the Eligible Director or the Eligible Director's Beneficiary, as applicable, at a price per Share equal to the Fair Market Value on the Redemption Date; or

 

	
  

	
(ii)

	
used to purchase on behalf of such Eligible Director or the Eligible Director's Beneficiary, as applicable, Shares on the open market in accordance with the provisions of Sections 8.3 and 8.5.

 

	
  

	
(b)

	
On delivery or credit of Shares issued or purchased on behalf of an Eligible Director or the Eligible Director's Beneficiary, as applicable, in accordance with Section 8.2(a) to or for the account of the Eligible Director or the Eligible Director's Beneficiary, as applicable, the Corporation shall be fully discharged of its obligations pursuant to the Plan in so doing and the Deferred Share Units in respect of which such payment was made shall be cancelled and no further payments shall be made from the Plan in respect of such Deferred Share Units.

 

	
8.3

	
Purchase of Shares

 

In the event the Corporation exercises its right under Section 8.2(a)(ii), prior to 11:00 a.m. on the Eligible Director's Redemption Date (or, where such Redemption Date is not a Exchange Business Day, on the next Exchange Business Day), the Committee shall notify the Broker as to the cash value of the redeemed Deferred Share Units in the Eligible Director's Account, after deduction of Applicable Withholding Taxes as provided herein, to be used by the Broker to purchase Shares on behalf of the Eligible Director on the open market.  As soon as practicable thereafter, and subject to Section 8.1(e), the Broker shall purchase on the open market the maximum number of Shares possible at such time with the cash value disclosed by the Committee and shall notify the Eligible Director and the Committee of:  (i) the number of Shares purchased; (ii) the aggregate purchase price of the Shares ("Aggregate Purchase Price"); (iii) the purchase price per share or, if the Shares were purchased at different prices, the average purchase price (computed on a weighted average basis) per share; (iv) the amount of any related

 

 

 

 

 

  

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brokerage commission; and (v) the settlement date for the purchase of the Shares.  On the settlement date in respect of the Shares purchased hereunder, upon payment of the Aggregate Purchase Price and related brokerage commission by the Corporation, the Broker shall, in accordance with the instructions of the Eligible Director or the Eligible Director's Beneficiary, as applicable, deliver to the Eligible Director or the Eligible Director's Beneficiary, as applicable, a certificate representing such Shares, or credit such Shares to an account with the Broker in the name of the Eligible Director or the Eligible Director's Beneficiary, as applicable.

 

	
8.4

	
Payment of Balance Remaining on Share Purchase

 

If, after the Corporation or the Broker applies the value of an Eligible Director's Deferred Share Units to the subscription for whole Shares from treasury as provided for in Section 8.2(a)(i), or the purchase of whole Shares as provided for in Section 8.3, an amount remains payable under the Plan in respect of the Eligible Director, the Corporation shall pay such amount in cash, net of Applicable Withholding Taxes, to the Eligible Director or the Eligible Director's Beneficiary, as applicable.

 

	
8.5

	
Purchase by Broker

 

Purchases of Shares pursuant to the Plan shall be made on the open market by the Broker.  Any designation of a Broker may be changed by the Eligible Director from time to time.  Upon designation of a Broker or at any time thereafter, the Committee may on behalf of the Corporation elect to provide the designated Broker with a letter agreement to be executed by the Broker and entered into with the Eligible Director and to which the Corporation would also be a party, setting forth, inter alia, (i) the Broker's concurrence to being so designated, and agreement to act for the Eligible Director's account in accordance with customary usage of the trade with a view to obtaining the best share price for the Eligible Director and to settle the purchase by delivering share certificates for the Shares purchased or by crediting such Shares to an account in the name of the Eligible Director or the Eligible Director's Beneficiary, as applicable, in accordance with the instructions of the Eligible Director or the Eligible Director's Beneficiary, as applicable, upon payment by the Corporation of the purchase price and related reasonable brokerage commission; and (ii) the Corporation's agreement to notify the Broker of the number of Shares to be purchased and to pay the purchase price and the related reasonable brokerage commission on behalf of the Eligible Director or the Eligible Director's Beneficiary, as applicable, provided however that no terms of said letter agreement shall have the effect of making the Broker or deeming the Broker to be an affiliate of (or not independent from) the Corporation and any Related Corporation for purposes of any applicable corporate, securities or stock exchange requirement.

 

 

 

 

 

  

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8.6

	
Payment Where No Market for Common Shares

 

In the event that, at the time contemplated for the purchase of Shares under the Plan, there is no public market for the Shares, the obligations of the Corporation under the Plan shall be met by a payment in cash in such amount as is reasonably determined by the Board of Directors to be equitable in the circumstances based on the value of the Shares at the time of payment, less Applicable Withholding Taxes, such determination to be final and binding for all purposes.

 

	
8.7

	
Shares Available for Issuance

 

	
  

	
(a)

	
This Section 8.7 applies to any securities that may be acquired by Eligible Directors on any Redemption Date pursuant to Section 8.2(a)(i) that consist(s) of authorized but unissued Shares.

 

	
  

	
(b)

	
The aggregate number of Shares available for issuance hereunder from treasury shall be 1% of the issued and outstanding Shares, subject to adjustment for any subdivision, consolidation or distribution of Shares as contemplated by, and in accordance with, Section 7.3.

 

	
  

	
(c)

	
The number of Shares available for issuance from treasury pursuant to the Deferred Share Units credited to Insiders under this Plan, together with any other compensation arrangement of the Corporation that provides for the issuance of Shares from treasury, shall not exceed ten percent (10%) of the issued and outstanding Shares.

 

	
  

	
(d)

	
The number of Shares issued to Insiders from treasury pursuant to the Deferred Share Units credited under this Plan, together with any other compensation arrangement of the Corporation that provides for the issuance of Shares from treasury, shall not, within a one (1) year period, exceed ten percent (10%) of the issued and outstanding Shares.

 

	
  

	
(e)

	
This Section 8.7 and the Corporation's right to issue Shares under Section 8.2(a)(i) will be effective only upon receipt of all necessary shareholder approvals of this Plan, as amended from time to time, as required by the rules, regulations and policies of the Exchange.

 

 

 

 

  

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ARTICLE 9

GENERAL

 

	
9.1

	
Plan Amendment

 

Subject to the rules, regulations and policies of the Exchange and any other stock exchange on which the Shares are listed or traded, the Board of Directors may amend the Plan as it deems necessary or appropriate without shareholder approval, but no such amendment shall, without the consent of each Eligible Director affected or unless required by Applicable Law, adversely affect the rights of an Eligible Director with respect to Deferred Share Units to which the Eligible Director is then entitled under the Plan.  Notwithstanding the foregoing, any amendment of the Plan shall be such that the Plan and any Deferred Share Units credited thereunder continuously meet the requirements of paragraph 6801(d) of the regulations to the Tax Act or any successor to such provision.

 

	
9.2

	
Plan Termination

 

	
  

	
(a)

	
The Board of Directors may terminate the Plan at any time, but no such termination shall, without the consent of any Eligible Director affected or unless required by Applicable Law, adversely affect the rights of an Eligible Director with respect to Deferred Share Units to which the Eligible Director is then entitled under the Plan.  Notwithstanding the foregoing, termination of the Plan shall be such that any Deferred Share Units continuously meet the requirements of paragraph 6801(d) of the regulations to the Tax Act or any successor to such provision.

 

	
  

	
(b)

	
If the Board of Directors terminates the Plan, no new Deferred Share Units will be credited to the Account of an Eligible Director, whether under Article 4, Article 5, Article 6 or Section 7.4, provided that the Account of each Eligible Director shall, where applicable, be credited with Deferred Share Units pursuant to Section 7.3 of the Plan.

 

	
  

	
(c)

	
If the Board of Directors terminates the Plan, prior grants of Deferred Share Units shall remain outstanding and in effect and shall be redeemed and paid in due course upon the Eligible Director's Termination Date in accordance with the terms and conditions of the Plan existing at the time of its termination.  The Plan will finally cease to operate for all purposes when the last remaining Eligible Director receives payment of all Deferred Share Units recorded in the Eligible Director's Account.

 

	
9.3

	
Compliance with Applicable Law

 

The administration of the Plan shall be subject to and made in conformity with all Applicable Law.

 

 

 

  

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9.4

	
Reorganization of the Corporation

 

The existence of any Deferred Share Units shall not affect in any way the right or power of the Corporation or its shareholders to make or authorize any adjustment, recapitalization, reorganization or other change in the Corporation's capital structure or its business, or to create or issue any bonds, debentures, shares or other securities of the Corporation or to amend or modify the rights and conditions attaching thereto or to effect the dissolution or liquidation of the Corporation, or any amalgamation, combination, merger or consolidation involving the Corporation or any sale or transfer of all or any part of its assets or business, or any other corporate act or proceeding, whether of a similar nature or otherwise.

 

	
9.5

	
Assignment

 

	
  

	
(a)

	
Rights and obligations under the Plan may be assigned by the Corporation to a corporate successor in the business of the Corporation, any corporation resulting from any amalgamation, reorganization, combination, merger or arrangement of the Corporation, or any corporation acquiring all or substantially all of the assets or business of the Corporation.

 

	
  

	
(b)

	
In no event may the rights or interests of an Eligible Director under the Plan be assigned, encumbered, pledged, transferred or alienated in any way, except to the extent that certain rights may pass to a Beneficiary upon death of an Eligible Director pursuant to the terms of the Plan.

 

	
9.6

	
Units Non-Transferable

 

Deferred Share Units are non-transferable.  Certificates representing Deferred Share Units will not be issued by the Corporation.

 

	
9.7

	
Designation of Beneficiary

 

Subject to the requirements of Applicable Law, an Eligible Director shall designate in writing a person who is a dependant or relation of the Eligible Director as a beneficiary to receive any benefits that are payable under the Plan upon the death of such Eligible Director.  The Eligible Director may, subject to Applicable Law, change such designation from time to time.  Such designation or change shall be in the form of Schedule "B".  The initial designation of each Eligible Director shall be executed and filed with the Chairman: (a) in the case of an existing director, within thirty (30) days following the Effective Date of the Plan; or (b) in the case of a new director, within thirty (30) days after the Eligible Director's appointment to the Board of Directors.  Changes to such designation may be filed from time to time thereafter, subject to Applicable Law.

 

 

 

 

  

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9.8

	
Death of Eligible Director

 

In the event of an Eligible Director's death, any and all Deferred Share Units then credited to the Eligible Director's Account shall become payable to the Eligible Director's Beneficiary in accordance with Article 8 and, for greater certainty, the date of death shall be deemed to be the Eligible Director's Termination Date.

 

	
9.9

	
No Additional Rights

 

	
  

	
(a)

	
The participation of any Eligible Director in the Plan shall not be interpreted as conferring upon such Eligible Director any rights or privileges other than those rights and privileges expressly provided in the Plan.

 

	
  

	
(b)

	
Without limiting the generality of Section 9.9(a), neither participation in the Plan nor any action taken under the Plan shall give or be deemed to give any Eligible Director a right to continued service to or employment with the Corporation or an Affiliate or to remain a director of the Corporation.

 

	
  

	
(c)

	
Without limiting the generality of Section 9.9(a), nothing in this Plan or the Eligible Director's opportunity to participate in this Plan shall be construed to provide the Eligible Director with any rights whatsoever to participate or to continue participation in this Plan, or to compensation or damages in lieu of participation or the right to participate in this Plan upon the termination of the Eligible Director's service as a member of the Board of Directors or the termination of his or her employment with the Corporation for any reason (including, without limitation, any breach of contract by the Corporation) or in consequence of any other circumstances whatsoever.

 

	
9.10

	
No Shareholder Rights

 

Other than in the limited circumstances set out in Section 2.4, under no circumstances shall Deferred Share Units be considered Shares or other securities of the Corporation, nor shall they entitle any Eligible Director to exercise voting rights or any other rights attaching to the ownership of Shares or other securities of the Corporation, including, without limitation, voting rights, dividend entitlement rights (other than as provided in Section 7.4) or rights on liquidation, nor shall any Eligible Director be considered the owner of Shares by virtue of the award of Deferred Share Units, until and unless Shares have been issued or transferred to the Participant upon redemption of his or her Deferred Share Units.

 

	
9.11

	
Unfunded and Unsecured Plan

 

Unless otherwise determined by the Board of Directors, the Plan shall be unfunded and the Corporation will not secure its obligations under the Plan.  To the extent any Eligible Director or his or her Beneficiary holds any rights by virtue of a grant of Deferred Share Units under the Plan, such rights (unless otherwise determined by the Board of Directors) shall be no greater than the rights of an unsecured creditor of the Corporation.

 

 

 

  

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9.12

	
Market Fluctuations

 

	
  

	
(a)

	
No amount will be paid to, or in respect of, an Eligible Director under the Plan or otherwise, to compensate for a downward fluctuation in the price of Shares, nor will any other form of benefit be conferred upon, or in respect of, an Eligible Director (or a person with whom the Eligible Director does not deal at arm's length within the meaning of the Tax Act) for such purpose.

 

	
  

	
(b)

	
The Corporation makes no representations or warranties to Eligible Directors with respect to the Plan or the Deferred Share Units whatsoever.  In seeking the benefits of participation in the Plan, an Eligible Director agrees to exclusively accept all risks associated with a decline in the Fair Market Value of Shares and all other risks associated with the holding of Deferred Share Units.

 

	
9.13

	
Currency

 

All payments and benefits under the Plan shall be determined in the lawful currency of Canada and paid in the local currency of the Eligible Director's country of residence using the Noon Buying Rate or such other currency exchange rate available to the Corporation at the time of payment.

 

	
9.14

	
Governing Law

 

The Plan shall be governed by, and interpreted in accordance with, the laws of the Province of Alberta and the laws of Canada applicable therein, without regard to principles of conflict of laws.

 

	
9.15

	
Severability

 

The invalidity or unenforceability of any provision of this Plan shall not affect the validity or enforceability of any other provision and any invalid or unenforceable provision shall be severed from the Plan.

 

	
9.16

	
Term

 

Unless terminated earlier in accordance with the provisions contained herein, this Plan shall remain in effect for a period of ten (10) years from the Effective Date, at which time it shall terminate unless reconfirmed for a further ten (10) year term by resolution passed by a majority (or such greater percentage (or with such number of votes as may be excluded) as may be specified by the rules, regulations or policies of the Toronto Stock Exchange or the New York Stock Exchange) of votes cast by all holders of Shares who vote in respect of such reconfirmation at the annual general meeting of the Corporation immediately preceding the tenth (10th) anniversary of the Effective Date.

 

 

 

 

 

  

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SCHEDULE "A"

 

Precision Drilling Corporation

Deferred Share Unit Plan (the "Plan")

 

Plan Provisions Applicable to U.S. Taxpayers

 

This Schedule "A" is an integral part of the Plan.  The provisions of this Schedule "A" apply to U.S. Taxpayers notwithstanding anything to the contrary in the Plan or in any Participation and Election Agreement.  Except as specifically defined in this Schedule "A", all capitalized terms used in this Schedule "A" have the meaning attributed to them in the Plan.

 

	
1.

	
Notwithstanding Section 1.2(oo) of the Plan to the contrary, the "Termination Date" for an Eligible Director who is a U.S. Taxpayer shall be the date on which such Eligible Director incurs a "Separation from Service" within the meaning of Treas. Reg. § 1.409A-1(h).

 

	
2.

	
Notwithstanding anything in Article 6 of the Plan to the contrary, with respect to an election made by a U.S. Taxpayer pursuant to Article 6 of the Plan, the following rules shall apply:

 

	
  

	
(a)

	
The Eligible Director may elect to defer all or a portion of his or her DSU Eligible Retainer with respect to services performed in the calendar year by filing a written election, in the form specified in Section 6.2(e) of the Plan, with the Corporation not later than the last day of the preceding calendar year; provided that (i) such election must be irrevocable not later than the last day of such preceding calendar year; (ii) the Committee may establish an earlier deadline for such elections; and (iii) the form of the election, and the filing thereof, shall be subject to such other rules (not inconsistent with the foregoing) as may be established by the Committee.

 

	
  

	
(b)

	
For the first calendar year in which an Eligible Director becomes eligible to participate in any of the Plan and the Related Plans, the individual may elect to have all or a portion of his or her DSU Eligible Retainer satisfied in the form of Deferred Share Units by filing a written election in the form specified in Section 6.2(e) of the Plan, provided that any such election may only apply to that portion of any DSU Eligible Retainer that is compensation for services to be performed after the election is filed, and further provided that such election must be made by filing an election on or before the date that is the later of (i) 10 Business Days after the date the individual initially becomes eligible to participate in any of the Plan and the Related Plans, and (ii) such later date as may be determined by the Committee in its sole discretion, provided that such later date shall not be later than 30 days after the Eligible Director becomes eligible to participate in any of the Plan and the Related Plans.

 

 

 

 

  

A-1

  

 

	
  

	
(c)

	
Subject to such rules as the Committee may establish (including, without limitation, rules relating to verification as to date and time), an election shall be deemed filed at the time it is received by the Corporation.  Such election may be filed by personal delivery, by mail, by prepaid overnight courier, by facsimile, by telephone, by on-line internet or intranet access to the extent that such methods are permitted by the Committee or by such other means as may be permitted by the Committee.

 

	
  

	
(d)

	
An Eligible Director's latest election received by the Corporation pursuant to paragraph 2(a) or 2(b) of this Schedule "A" shall become irrevocable when submitted for the first calendar year in which he or she becomes eligible to participate and as to any other year shall become irrevocable not later than December 31 of the calendar year that immediately precedes the calendar year to which the election applies, and shall continue to apply with respect to his or her DSU Eligible Retainer for the calendar year in respect of which the election was made and for any subsequent calendar year unless the Eligible Director files a new election in accordance with the rules set forth at paragraph 2(a) of this Schedule "A".

 

	
  

	
(e)

	
Where there is no election that complies with paragraph 2(a) or 2(b) of this Schedule "A", as applicable, in effect for an Eligible Director for a calendar year, such Eligible Director shall be deemed to have elected to receive his or her DSU Eligible Retainer for the applicable year in cash.

 

	
  

	
(f)

	
If an Eligible Director has a taxable year that is other than the calendar year, then, to the extent required by Section 409A, the term "calendar year" (when used in the Plan) shall instead mean the Eligible Director's taxable year.

 

	
3.

	
Notwithstanding Section 8.1(a) of the Plan, in the case of an Eligible Director who is a U.S. Taxpayer, such U.S. Taxpayer shall not select a Redemption Date for his or her Deferred Share Units and shall not have a right to make any election regarding the time or form of any payment due under the Plan.  Instead, the Redemption Date for any Deferred Share Units payable to an Eligible Director who is a U.S. Taxpayer shall be the Termination Date as defined in paragraph 1 of this Schedule "A" and the Fair Market Value of the Deferred Share Units redeemed on the U.S. Taxpayer's Redemption Date shall, subject to paragraph 4 of this Schedule "A", be paid in the form of a lump sum cash payment, less Applicable Withholding Taxes, on the Termination Date.  Notwithstanding the preceding sentence, in the event that a U.S. Taxpayer is a "Specified Employee" within the meaning of Treas. Reg. § 1.409A-1(i) on his or her Termination Date and to the extent a delay in payment to such Specified Employee is required by Treas. Reg. § 1.409A-3(i)(2), the Redemption Date and date on which a lump sum cash payment shall be made to the U.S. Taxpayer shall be the date that is 6 months after the U.S. Taxpayer's Termination Date.

 

 

 

 

 

  

A-2

  

 

	
4.

	
If the Corporation exercises its right, pursuant to Section 8.2 of the Plan, to require that the cash value of the Deferred Share Units redeemed by or in respect of an Eligible Director be used to subscribe for Shares from treasury or to purchase Shares on the open market, then the Redemption Date shall be the Termination Date and the Shares shall be delivered to the Eligible Director or the Eligible Director's Beneficiary as soon as practicable following the Termination Date, but in no event later than the end of the calendar year in which the Termination Date occurs or, if later, the fifteenth (15th) day of the third calendar month following the Termination Date.  Notwithstanding the preceding sentence, in the event that a U.S. Taxpayer is a "Specified Employee" within the meaning of Treas. Reg. § 1.409A-1(i) on his or her Termination Date and to the extent a delay in payment to such Specified Employee is required by Treas. Reg. § 1.409A-3(i)(2), the Redemption Date shall be the date that is 6 months after the U.S. Taxpayer's Termination Date and the Shares shall be delivered to the Eligible Director as soon as practicable following the Redemption Date.

 

	
5.

	
The provisions of Section 3.1(b) of the Plan shall apply only to the extent permitted under Section 409A of the Code.

 

	
6.

	
The Board of Directors shall not exercise its discretion under Section 6.1(b) of the Plan to modify a U.S. Taxpayer's election to defer all or a portion of his or her DSU Eligible Retainer with respect to a calendar year after the U.S. Taxpayer's election with respect to that calendar year has become irrevocable.

 

	
7.

	
For greater certainty, any Deferred Share Units credited to the Account of a U.S. Taxpayer pursuant to Sections 7.3 or 7.4 of the Plan shall be redeemed and paid out at the same time and in the same form as all other Deferred Share Units credited to the U.S. Taxpayer's Account.

 

	
8.

	
Notwithstanding any other provision of the Plan to the contrary, the time of any payment under this Schedule "A" may not be accelerated except as provided in Treas. Reg. § 1.409A-3(j)(4). In addition, under no circumstances may the time of any payment described in this Schedule "A" be subject to a further deferral except as otherwise permitted or required pursuant to regulations and other guidance issued pursuant to Section 409A of the Code.

 

	
9.

	
If the Corporation fails to make any distribution, either intentionally or unintentionally, within the time period specified in this Schedule "A", but the payment is made within the same calendar year as the Redemption Date or, if later, by the 15th day of the third calendar month following the Redemption Date, such distribution will be treated as made within the time period specified in this Schedule "A" pursuant to Treas. Reg. § 1.409A-3(d), provided that the Eligible Director is not permitted, directly or indirectly, to designate the taxable year of the payment.  In addition, if a distribution is not made due to a dispute with respect to such distribution, the distribution may be delayed in accordance with Treas. Reg. § 1.409A-3(g).

 

 

 

 

  

A-3

  

 

	
10.

	
It is the Corporation's intent that this Plan comply with the requirements of Section 409A and the Corporation has made good faith efforts to draft the Plan accordingly.  In the event of any ambiguity in the language or any agreement entered into under the Plan or in the operation of the Plan, the Plan and any agreement shall be construed, interpreted and operated in a manner that will result in compliance with the requirements of Section 409A.  Notwithstanding the foregoing, any amendment of the Plan shall be such that the Plan continuously meets the requirements of paragraph 6801(d) of the regulations to the Tax Act or any successor to such provision.

 

	
11.

	
Notwithstanding the generality of paragraph 10 of this Schedule "A", if any provision of the Plan or any agreement entered into under the Plan or in the operation of the Plan contravenes any regulations or Treasury guidance promulgated under Section 409A of the Code or would cause the Deferred Share Units to be subject to the interest and penalties under Section 409A of the Code such provision of the Plan shall, to the extent that it applies to U.S. Taxpayers, be modified, without the consent of any Participant, to maintain, to the maximum extent practicable, the original intent of the applicable provision without violating the provisions of Section 409A of the Code.  Notwithstanding the foregoing, any amendment of the Plan shall be such that the Plan continuously meets the requirements of paragraph 6801(d) of the regulations to the Tax Act or any successor to such provision.

 

	
12.

	
All provisions of the Plan shall continue to apply to a U.S. Taxpayer to the extent that they have not been specifically modified by this Schedule "A" or by the Participation and Election Agreement attached to the Plan as Schedule "C".

 

 

 

 

 

 

 

 

 

 

 

 

  

A-4

  

 

SCHEDULE "B"

 

Precision Drilling Corporation

Deferred Share Unit Plan

 

Beneficiary Designation

 

	
To:

	
The Chairman, [Corporate Governance Committee] of the Board of Directors of Precision Drilling Corporation

 

I,                                                             , being a participant in the Precision Drilling Corporation Deferred Share Unit Plan (the "Plan") hereby designate the following individual as my Beneficiary for purposes of the Plan:

 

	
Name of Beneficiary:

 

	  	
(please print)

	
Address of Beneficiary:

 

	  	  
	  	
  

 

	  

 

This designation revokes any previous Beneficiary designation made by me under the Plan.  Under the terms of the Plan and subject to Applicable Law, I reserve the right to revoke this designation and to designate another individual as my Beneficiary.

 

	
Date:

 

	  	  
	
Name:

 

	  	
(please print)

	
Signature:

 

	  	  

 

Choosing your Beneficiary is an important decision and this is an important document.  We recommend that you consider your options carefully and that you seek appropriate advice before completing it if you require clarification.

 

All capitalized terms used in this Beneficiary Designation shall have the same meaning as in the Plan unless otherwise defined herein.

 

 

  

B-1

  

SCHEDULE "C"

 

Precision Drilling Corporation

Deferred Share Unit Plan (the "Plan")

 

Participation and Election Agreement

 

I hereby confirm that, as of the date written below, I am a non-employee member of the Board of Directors of Precision Drilling Corporation (the "Corporation") and acknowledge that I have been or will be granted Deferred Share Units under Article 4 or Article 5 of the Plan and/or have elected or will elect herein to have all or a portion of my DSU Eligible Retainer satisfied in the form of Deferred Share Units under Article 6, subject to and in accordance with the terms of the Plan.

 

The terms and conditions of the Plan are hereby incorporated by reference as terms and conditions of this Participation and Election Agreement and all capitalized terms used herein, unless expressly defined in a different manner, have the meanings ascribed thereto in the Plan.

 

I hereby acknowledge and confirm that:

 

	
  

	
1.

	
One hundred percent (100%) of my Automatic DSU Retainer will be satisfied by the crediting to my Account of Deferred Share Units.

 

	
  

	
2.

	
[select option which is applicable]

 

(a)           I elect to receive my DSU Eligible Retainer for the remaining months of the calendar year in which the Plan becomes effective, or in which I am first elected or appointed to the Board of Directors, as applicable, as to:

 

____ 0% ____ 50% ____ 100%, in Deferred Share Units

 

(b)           I elect to receive my DSU Eligible Retainer for the calendar year commencing January 1, [______] as to:

 

____ 0% ____ 50% ____ 100%, in Deferred Share Units

 

	
  

	
3.

	
I ____am / ___ am not [please check one] a U.S. Taxpayer.

 

	
  

	
4.

	
I have received and reviewed a copy of the Plan and agree to be bound by the terms and conditions of the Plan.  In the event of any conflict between the terms of the Plan and this Participation and Election Agreement, the terms of the Plan will prevail and govern.

 

	
  

	
5.

	
I understand that 100% of the Automatic DSU Retainer and any portion of the DSU Eligible Retainer I elect to receive in the form of Deferred Share Units shall be credited to my Account in quarterly instalments on the final

 

 

  

C-1

  

 

	
  

	
 

	
Business Day of each Quarter, with the number of Deferred Share Units calculated in accordance with the provisions of the Plan.

 

	
  

	
6.

	
I understand that any election I make with respect to my DSU Eligible Retainer shall be effective only with respect to compensation paid for services performed after this Participation and Election Agreement is filed, and shall be irrevocable in respect of the calendar year it is made for and shall remain in effect until modified or revoked by the filing of a new election form in accordance with the terms of the Plan.

 

	
  

	
7.

	
I understand that I will not be able to cause the Corporation to redeem Deferred Share Units granted under the Plan until I am no longer either a director or an employee of the Corporation or of an Affiliate.

 

	
  

	
8.

	
Subject to the provisions of the Plan, if I am a U.S. Taxpayer, I hereby acknowledge and agree that the value of Deferred Share Units credited to my Account as of the Redemption Date (determined in accordance with the terms of the Plan, including Schedule "A"), less Applicable Withholding Taxes, shall be distributed to me as of my Termination Date (subject to any required delay in payment if I am a Specified Employee).

 

	
  

	
9.

	
I recognize that when Deferred Share Units credited pursuant to the Plan are redeemed in accordance with the terms of the Plan after I am no longer either a director or employee of the Corporation or of an Affiliate, income tax and other withholdings as required will arise at that time.  Upon redemption of the Deferred Share Units, the Corporation or an Affiliate, as applicable, will make all appropriate withholdings as required by law at that time.  Neither the Corporation nor any Affiliate has provided me with any tax advice with respect to the Plan and I acknowledge that I should confirm the tax treatment with my own advisor(s).

 

	
  

	
10.

	
The value of Deferred Share Units is based on the value of the Shares of the Corporation from time to time and therefore is not guaranteed.

 

	
  

	
11.

	
No funds will be set aside to guarantee the payment of Deferred Share Units.  Future payment of Deferred Share Units will remain an unfunded and unsecured liability recorded on the books of the Corporation.

 

	
  

	
12.

	
I understand that all distributions in respect of any Deferred Share Units in my Account will be in the form of cash unless the Committee, in its sole discretion, requires that the cash value of the Deferred Share Units redeemed be used to subscribe for Shares from treasury or purchase Shares on the open market pursuant to Section 8.2 of the Plan.

 

 

 

 

 

  

C-2

  

 

	
  

	
13.

	
As a participant in the Plan, I am required to provide the Corporation with all information (including personal information) required to administer and operate the Plan and I hereby consent to the collection and use of all such information by the Corporation and the Committee.  I understand that the Corporation may from time to time transfer or provide access to Eligible Director Information to (i) third party service providers for purposes of the administration of the Plan and, (ii) its Affiliates for purposes of preparing financial statements or other necessary reports and facilitating payment or reimbursement of Plan expense, and that such Persons will be provided with such information for such purposes only.  I also understand that the Corporation may from time to time disclose personal information about me in response to regulatory filings or other requirements for the information by a governmental authority or regulatory body, or for the purpose of complying with a subpoena, warrant or other order by a court, Person or body having jurisdiction over the Corporation to compel production of the information.

 

The foregoing is only a brief outline of certain key provisions of the Plan.  For more complete information, reference should be made to the Plan text.  In the event of any conflict between the terms of the Plan and this Participation and Election Agreement, the terms of the Plan will prevail and govern.

 

 

	  	  	  
	  	  	  
	
Date

	  	
(Name of Director) [Please Print]

	  	  	  
	  	  	  
	  	  	  
	  	  	
(Signature of Director)

 

 

 

 

 

 

 

 

 

  

C-3

  

 

SCHEDULE "D"

 

Precision Drilling Corporation

Deferred Share Unit Plan (the "Plan")

 

Redemption Notice

 

(Not applicable to any Eligible Director who is a U.S. Taxpayer.)

 

 

Pursuant to Section 8.1 of the Plan, I hereby advise Precision Drilling Corporation (the "Corporation") that I wish to redeem                  [specify whole percentage or number of Deferred Shares Units to be redeemed] of the Deferred Share Units credited to my account under the Plan on                                [insert Redemption Date, which (i) must be after the Eligible Director's Termination Date and (ii) cannot fall within a Financial Black-out Period or an Other Black-out Period that the Eligible Director knows or reasonably expects will be in effect; and in any event cannot be later than December 15 of the first calendar year commencing after the year in which the Director ceases to be any of a director or an employee of the Corporation or of an Affiliate.].

 

I understand and direct that any lump sum payment in cash (or Shares pursuant to the Corporation's right to elect to deliver Shares in lieu of cash) owing to me pursuant to the terms of this Plan and this Redemption Notice, less Applicable Withholding Taxes, will be forwarded to me, by registered mail, at the following address in the form of a cheque from the Corporation.

 

	
Address:

	  
	  	
  

 

 

	  	  	  
	  	  	  
	
Date

	  	
(Name of Director)

	  	  	  
	  	  	  
	  	  	  
	  	  	
(Signature of Director)

 

All capitalized terms used in this Redemption Form have the meaning attributed to them in the Plan, unless otherwise defined herein.

 

If the Redemption Notice is signed by a legal representative, documents providing the authority of such signature must be provided to the Corporation.

 

 

 

 

D-1Exhibit 10.49

 

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

 

	Principal Amount: $16,500.00	Issue Date:   December 12, 2012
	Purchase Price: $16,500.00	 

CONVERTIBLE PROMISSORY NOTE

 

FOR VALUE RECEIVED,
EPAZZ, INC., an Illinois corporation (hereinafter called the “Borrower”), hereby promises to pay to the order
of ASHER ENTERPRISES, INC., a Delaware corporation, or registered assigns (the “Holder”) the sum of $16,500.00
together with any interest as set forth herein, on September 14, 2013 (the “Maturity Date”), and to pay interest on
the unpaid principal balance hereof at the rate of eight percent (8%) (the “Interest Rate”) per annum from the date
hereof (the “Issue Date”) until the same becomes due and payable, whether at maturity or upon acceleration or by prepayment
or otherwise. This Note may not be prepaid in whole or in part except as otherwise explicitly set forth herein in accordance with
section 1.9 of the Note.Any amount of principal or interest on this Note which is not paid when due shall bear interest at the
rate of twenty two percent (22%) per annum from the due date thereof until the same is paid (“Default Interest”). Interest
shall commence accruing on the date that the Note is fully paid and shall be computed on the basis of a 365-day year and
the actual number of days elapsed. All payments due hereunder (to the extent not converted into common stock, $0.01 par value per
share (the “Common Stock”) in accordance with the terms hereof) shall be made in lawful money of the United States
of America. All payments shall be made at such address as the Holder shall hereafter give to the Borrower by written notice made
in accordance with the provisions of this Note. Whenever any amount expressed to be due by the terms of this Note is due on any
day which is not a business day, the same shall instead be due on the next succeeding day which is a business day and, in the case
of any interest payment date which is not the date on which this Note is paid in full, the extension of the due date thereof shall
not be taken into account for purposes of determining the amount of interest due on such date. As used in this Note, the term “business
day” shall mean any day other than a Saturday, Sunday or a day on which commercial banks in the city of New York, New York
are authorized or required by law or executive order to remain closed. Each capitalized term used herein, and not otherwise defined,
shall have the meaning ascribed thereto in that certain Securities Purchase Agreement dated the date hereof, pursuant to which
this Note was originally issued (the “Purchase Agreement”).

 

    	1

    	 

    

 

This Note is free from
all taxes, liens, claims and encumbrances with respect to the issue thereof and shall not be subject to preemptive rights or other
similar rights of shareholders of the Borrower and will not impose personal liability upon the holder thereof.

 

The following terms
shall apply to this Note:

 

Article
I. CONVERSION RIGHTS

 

1.1 
Conversion Right.The Holder shall have the right from time to time, and at any time during the period beginning on
the date which is one hundred eighty (180) days following the date of this Note and ending on the later of: (i) the Maturity Date
and (ii) the date of payment of the Default Amount (as defined in Article III) pursuant to Section 1.6(a) or Article III, each
in respect of the remaining outstanding principal amount of this Note to convert all or any part of the outstanding and unpaid
principal amount of this Note into fully paid and non-assessable shares of Common Stock, as such Common Stock exists on the Issue
Date, or any shares of capital stock or other securities of the Borrower into which such Common Stock shall hereafter be changed
or reclassified at the conversion price (the “Conversion Price”) determined as provided herein (a “Conversion”);
provided, however, that in no event shall the Holder be entitled to convert any portion of this Note in excess of
that portion of this Note upon conversion of which the sum of (1) the number of shares of Common Stock beneficially owned by the
Holder and its affiliates (other than shares of Common Stock which may be deemed beneficially owned through the ownership of the
unconverted portion of the Notes or the unexercised or unconverted portion of any other security of the Borrower subject to a limitation
on conversion or exercise analogous to the limitations contained herein) and (2) the number of shares of Common Stock issuable
upon the conversion of the portion of this Note with respect to which the determination of this proviso is being made, would result
in beneficial ownership by the Holder and its affiliates of more than 4.99% of the outstanding shares of Common Stock. For purposes
of the proviso to the immediately preceding sentence, beneficial ownership shall be determined in accordance with Section 13(d)
of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Regulations 13D-G thereunder, except as
otherwise provided in clause (1) of such proviso, provided, further, however, that the limitations on conversion
may be waived by the Holder upon, at the election of the Holder, not less than 61 days’ prior notice to the Borrower, and
the provisions of the conversion limitation shall continue to apply until such 61st day (or such later date, as determined by the
Holder, as may be specified in such notice of waiver). The number of shares of Common Stock to be issued upon each conversion of
this Note shall be determined by dividing the Conversion Amount (as defined below) by the applicable Conversion Price then in effect
on the date specified in the notice of conversion, in the form attached hereto as Exhibit A (the “Notice of Conversion”),
delivered to the Borrower by the Holder in accordance with Section 1.4 below; provided that the Notice of Conversion is submitted
by facsimile or e-mail (or by other means resulting in, or reasonably expected to result in, notice) to the Borrower before 6:00
p.m., New York, New York time on such conversion date (the “Conversion Date”). The term “Conversion Amount”
means, with respect to any conversion of this Note, the sum of (1) the principal amount of this Note to be converted in such conversion
plus (2) at the Holder’s option, accrued and unpaid interest, if any, on such principal amount at the interest rates
provided in this Note to the Conversion Date, plus (3) at the Holder’s option, Default Interest, if any, on the amounts
referred to in the immediately preceding clauses (1) and/or (2) plus (4) at the Holder’s option, any amounts owed
to the Holder pursuant to Sections 1.3 and 1.4(g) hereof.

 

    	2

    	 

    

 

1.2 
Conversion Price.

 

(a)   
Calculation of Conversion Price. The conversion price (the “Conversion Price”)
shall equal the Variable Conversion Price (as defined herein)(subject to equitable adjustments for stock splits, stock dividends
or rights offerings by the Borrower relating to the Borrower’s securities or the securities of any subsidiary of the Borrower,
combinations, recapitalization, reclassifications, extraordinary distributions and similar events). The "Variable Conversion
Price" shall mean 41% multiplied by the Market Price (as defined herein) (representing a discount rate of 59%). 
“Market Price” means the average of the lowest three (3) Trading Prices (as defined below) for the Common Stock during
the ninety (90) Trading Day period ending on the latest complete Trading Day prior to theConversion Date. “Trading Price”
means, for any security as of any date, the closing bid price on the Over-the-Counter Bulletin Board, or applicable trading market
(the “OTCBB”) as reported by a reliable reporting service (“Reporting Service”) designated by the Holder
(i.e. Bloomberg) or, if the OTCBB is not the principal trading market for such security, the closing bid price of such security
on the principal securities exchange or trading market where such security is listed or traded or, if no closing bid price of such
security is available in any of the foregoing manners, the average of the closing bid prices of any market makers for such security
that are listed in the “pink sheets” by the National Quotation Bureau, Inc. If the Trading Price cannot be calculated
for such security on such date in the manner provided above, the Trading Price shall be the fair market value as mutually determined
by the Borrower and the holders of a majority in interest of the Notes being converted for which the calculation of the Trading
Price is required in order to determine the Conversion Price of such Notes. “Trading Day” shall mean any day on which
the Common Stock is tradable for any period on the OTCBB, or on the principal securities exchange or other securities market on
which the Common Stock is then being traded.

 

(b)  
Conversion Price During Major Announcements. Notwithstanding anything contained in Section 1.2(a) to the contrary,
in the event the Borrower (i) makes a public announcement that it intends to consolidate or merge with any other corporation (other
than a merger in which the Borrower is the surviving or continuing corporation and its capital stock is unchanged) or sell or transfer
all or substantially all of the assets of the Borrower or (ii) any person, group or entity (including the Borrower) publicly announces
a tender offer to purchase 50% or more of the Borrower’s Common Stock (or any other takeover scheme) (the date of the announcement
referred to in clause (i) or (ii) is hereinafter referred to as the “Announcement Date”), then the Conversion Price
shall, effective upon the Announcement Date and continuing through the Adjusted Conversion Price Termination Date (as defined below),
be equal to the lower of (x) the Conversion Price which would have been applicable for a Conversion occurring on the Announcement
Date and (y) the Conversion Price that would otherwise be in effect. From and after the Adjusted Conversion Price Termination Date,
the Conversion Price shall be determined as set forth in this Section 1.2(a). For purposes hereof, “Adjusted Conversion Price
Termination Date” shall mean, with respect to any proposed transaction or tender offer (or takeover scheme) for which a public
announcement as contemplated by this Section 1.2(b) has been made, the date upon which the Borrower (in the case of clause (i)
above) or the person, group or entity (in the case of clause (ii) above) consummates or publicly announces the termination or abandonment
of the proposed transaction or tender offer (or takeover scheme) which caused this Section 1.2(b) to become operative.

 

    	3

    	 

    

 

1.3 
Authorized Shares. The Borrower covenants that during the period the conversion right exists, the Borrower will reserve
from its authorized and unissued Common Stock a sufficient number of shares, free from preemptive rights, to provide for the issuance
of Common Stock upon the full conversion of this Note issued pursuant to the Purchase Agreement. The Borrower is required at all
times to have authorized and reserved five times the number of shares that is actually issuable upon full conversion of the Note
(based on the Conversion Price of the Notes in effect from time to time)(the “Reserved Amount”). The Reserved Amount
shall be increased from time to time in accordance with the Borrower’s obligations pursuant to Section 4(g) of the Purchase
Agreement. The Borrower represents that upon issuance, such shares will be duly and validly issued, fully paid and non-assessable.
In addition, if the Borrower shall issue any securities or make any change to its capital structure which would change the number
of shares of Common Stock into which the Notes shall be convertible at the then current Conversion Price, the Borrower shall at
the same time make proper provision so that thereafter there shall be a sufficient number of shares of Common Stock authorized
and reserved, free from preemptive rights, for conversion of the outstanding Notes. The Borrower (i) acknowledges that it has irrevocably
instructed its transfer agent to issue certificates for the Common Stock issuable upon conversion of this Note, and (ii) agrees
that its issuance of this Note shall constitute full authority to its officers and agents who are charged with the duty of executing
stock certificates to execute and issue the necessary certificates for shares of Common Stock in accordance with the terms and
conditions of this Note.

 

If, at any time the Borrower
does not maintain the Reserved Amount it will be considered an Event of Default under Section 3.2 of the Note, provided that the
Borrower shall have 15 Business Days to cure the default.

 

1.4 
Method of Conversion.

 

(a)   
Mechanics of Conversion. Subject to Section 1.1, this Note may be converted by the Holder in whole or in part at
any time from time to time after the Issue Date, by (A) submitting to the Borrower a Notice of Conversion (by facsimile, e-mail
or other reasonable means of communication dispatched on the Conversion Date prior to 6:00 p.m., New York, New York time) and (B) subject
to Section 1.4(b), surrendering this Note at the principal office of the Borrower.

 

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

 

    	4

    	 

    

 

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

 

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

 

(e)   
Obligation of Borrower to Deliver Common Stock. Upon receipt by the Borrower of a Notice of Conversion, the Holder
shall be deemed to be the holder of record of the Common Stock issuable upon such conversion, the outstanding principal amount
and the amount of accrued and unpaid interest on this Note shall be reduced to reflect such conversion, and, unless the Borrower
defaults on its obligations under this Article I, all rights with respect to the portion of this Note being so converted shall
forthwith terminate except the right to receive the Common Stock or other securities, cash or other assets, as herein provided,
on such conversion. If the Holder shall have given a Notice of Conversion as provided herein, the Borrower’s obligation to
issue and deliver the certificates for Common Stock shall be absolute and unconditional, irrespective of the absence of any action
by the Holder to enforce the same, any waiver or consent with respect to any provision thereof, the recovery of any judgment against
any person or any action to enforce the same, any failure or delay in the enforcement of any other obligation of the Borrower to
the holder of record, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the
Holder of any obligation to the Borrower, and irrespective of any other circumstance which might otherwise limit such obligation
of the Borrower to the Holder in connection with such conversion. The Conversion Date specified in the Notice of Conversion shall
be the Conversion Date so long as the Notice of Conversion is received by the Borrower before 6:00 p.m., New York, New York time,
on such date.

 

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

 

    	5

    	 

    

 

(g)  
Failure to Deliver Common Stock Prior to Deadline. Without in any way limiting the Holder’s
right to pursue other remedies, including actual damages and/or equitable relief, the parties agree that if delivery of the Common
Stock issuable upon conversion of this Note is not delivered by the Deadline (other than a failure due to the circumstances described
in Section 1.3 above, which failure shall be governed by such Section) the Borrower shall pay to the Holder $2,000 per day in cash,
for each day beyond the Deadline that the Borrower fails to deliver such Common Stock. Such cash amount shall be paid to Holder
by the fifth day of the month following the month in which it has accrued or, at the option of the Holder (by written notice to
the Borrower by the first day of the month following the month in which it has accrued), shall be added to the principal amount
of this Note, in which event interest shall accrue thereon in accordance with the terms of this Note and such additional principal
amount shall be convertible into Common Stock in accordance with the terms of this Note. The Borrower agrees that the right to
convert is a valuable right to the Holder. The damages resulting from a failure, attempt to frustrate, interference with such conversion
right are difficult if not impossible to qualify. Accordingly the parties acknowledge that the liquidated damages provision contained
in this Section 1.4(g) are justified.

 

1.5 
Concerning the Shares. The shares of Common Stock issuable upon conversion of this Note may not be sold or transferred
unless (i) such shares are sold pursuant to an effective registration statement under the Act or (ii) the Borrower or its transfer
agent shall have been furnished with an opinion of counsel (in the form of the Form of Opinion attached
as Exhibit A to the Purchase Agreement)which opinion shall be in form, substance and scope customary for opinions of counsel
in comparable transactions) to the effect that the shares to be sold or transferred may be sold or transferred pursuant to an exemption
from such registration or (iii) such shares are sold or transferred pursuant to Rule 144 under the Act (or a successor rule)
(“Rule 144”) or (iv) such shares are transferred to an “affiliate” (as defined in Rule 144) of the Borrower
who agrees to sell or otherwise transfer the shares only in accordance with this Section 1.5 and who is an Accredited Investor
(as defined in the Purchase Agreement). Except as otherwise provided in the Purchase Agreement (and subject to the removal provisions
set forth below), until such time as the shares of Common Stock issuable upon conversion of this Note have been registered under
the Act or otherwise may be sold pursuant to Rule 144 without any restriction as to the number of securities as of a particular
date that can then be immediately sold, each certificate for shares of Common Stock issuable upon conversion of this Note that
has not been so included in an effective registration statement or that has not been sold pursuant to an effective registration
statement or an exemption that permits removal of the legend, shall bear a legend substantially in the following form, as appropriate:

 

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

 

    	6

    	 

    

 

The
legend set forth above shall be removed and the Borrower shall issue to the Holder a new certificate therefore free of any transfer
legend if (i) the Borrower or its transfer agent shall have received an opinion of counsel, in Form of Opinion attached as Exhibit
A to the Purchase Agreement, to the effect that a public sale or transfer of such Common Stock may be made without registration
under the Act, which opinion shall be accepted by the Company so that the sale or transfer is effected or (ii) in the case of the
Common Stock issuable upon conversion of this Note, such security is registered for sale by the Holder under an effective registration
statement filed under the Act or otherwise may be sold pursuant to Rule 144 without any restriction as to the number of securities
as of a particular date that can then be immediately sold.In the event that the Company does not accept the opinion of counsel
provided by the Buyer with respect to the transfer of Securities pursuant to an exemption from registration, such as Rule 144 or
Regulation S, at the Deadline, it will be considered an Event of Default pursuant to Section 3.2 of the Note.

 

1.6 
Effect of Certain Events.

 

(a)   
Effect of Merger, Consolidation, Etc. At the option of the Holder, the sale, conveyance or disposition of all or
substantially all of the assets of the Borrower, the effectuation by the Borrower of a transaction or series of related transactions
in which more than 50% of the voting power of the Borrower is disposed of, or the consolidation, merger or other business combination
of the Borrower with or into any other Person (as defined below) or Persons when the Borrower is not the survivor shall either:
(i) be deemed to be an Event of Default (as defined in Article III) pursuant to which the Borrower shall be required to pay to
the Holder upon the consummation of and as a condition to such transaction an amount equal to the Default Amount (as defined in
Article III) or (ii) be treated pursuant to Section 1.6(b) hereof. “Person” shall mean any individual, corporation,
limited liability company, partnership, association, trust or other entity or organization.

 

(b)  
Adjustment Due to Merger, Consolidation, Etc. If, at any time when this Note is issued and outstanding and prior
to conversion of all of the Notes, there shall be any merger, consolidation, exchange of shares, recapitalization, reorganization,
or other similar event, as a result of which shares of Common Stock of the Borrower shall be changed into the same or a different
number of shares of another class or classes of stock or securities of the Borrower or another entity, or in case of any sale or
conveyance of all or substantially all of the assets of the Borrower other than in connection with a plan of complete liquidation
of the Borrower, then the Holder of this Note shall thereafter have the right to receive upon conversion of this Note, upon the
basis and upon the terms and conditions specified herein and in lieu of the shares of Common Stock immediately theretofore issuable
upon conversion, such stock, securities or assets which the Holder would have been entitled to receive in such transaction had
this Note been converted in full immediately prior to such transaction (without regard to any limitations on conversion set forth
herein), and in any such case appropriate provisions shall be made with respect to the rights and interests of the Holder of this
Note to the end that the provisions hereof (including, without limitation, provisions for adjustment of the Conversion Price and
of the number of shares issuable upon conversion of the Note) shall thereafter be applicable, as nearly as may be practicable in
relation to any securities or assets thereafter deliverable upon the conversion hereof. The Borrower shall not affect any transaction
described in this Section 1.6(b) unless (a) it first gives, to the extent practicable, thirty (30) days prior written notice (but
in any event at least fifteen (15) days prior written notice) of the record date of the special meeting of shareholders to approve,
or if there is no such record date, the consummation of, such merger, consolidation, exchange of shares, recapitalization, reorganization
or other similar event or sale of assets (during which time the Holder shall be entitled to convert this Note) and (b) the resulting
successor or acquiring entity (if not the Borrower) assumes by written instrument the obligations of this Section 1.6(b). The above
provisions shall similarly apply to successive consolidations, mergers, sales, transfers or share exchanges.

 

    	7

    	 

    

 

(c)   
Adjustment Due to Distribution. If the Borrower shall declare or make any distribution of its assets (or rights to
acquire its assets) to holders of Common Stock as a dividend, stock repurchase, by way of return of capital or otherwise (including
any dividend or distribution to the Borrower’s shareholders in cash or shares (or rights to acquire shares) of capital stock
of a subsidiary (i.e., a spin-off)) (a “Distribution”), then the Holder of this Note shall be entitled, upon any conversion
of this Note after the date of record for determining shareholders entitled to such Distribution, to receive the amount of such
assets which would have been payable to the Holder with respect to the shares of Common Stock issuable upon such conversion had
such Holder been the holder of such shares of Common Stock on the record date for the determination of shareholders entitled to
such Distribution.

 

(d)  
Adjustment Due to Dilutive Issuance. If, at any time when any Notes are issued and outstanding, the Borrower issues
or sells, or in accordance with this Section 1.6(d) hereof is deemed to have issued or sold,any shares of Common Stock for no consideration
or for a consideration per share (before deduction of reasonable expenses or commissions or underwriting discounts or allowances
in connection therewith) less than the Conversion Price in effect on the date of such issuance (or deemed issuance) of such shares
of Common Stock (a “Dilutive Issuance”), then immediately upon the Dilutive Issuance, the Conversion Price will be
reduced to the amount of the consideration per share received by the Borrower in such Dilutive Issuance.

 

The Borrower shall
be deemed to have issued or sold shares of Common Stock if the Borrower in any manner issues or grants any warrants, rights or
options (not including employee stock option plans), whether or not immediately exercisable, to subscribe for or to purchase Common
Stock or other securities convertible into or exchangeable for Common Stock (“Convertible Securities”) (such warrants,
rights and options to purchase Common Stock or Convertible Securities are hereinafter referred to as “Options”) and
the price per share for which Common Stock is issuable upon the exercise of such Options is less than the Conversion Price then
in effect, then the Conversion Price shall be equal to such price per share. For purposes of the preceding sentence, the “price
per share for which Common Stock is issuable upon the exercise of such Options” is determined by dividing (i) the total amount,
if any, received or receivable by the Borrower as consideration for the issuance or granting of all such Options, plus the minimum
aggregate amount of additional consideration, if any, payable to the Borrower upon the exercise of all such Options, plus, in the
case of Convertible Securities issuable upon the exercise of such Options, the minimum aggregate amount of additional consideration
payable upon the conversion or exchange thereof at the time such Convertible Securities first become convertible or exchangeable,
by (ii) the maximum total number of shares of Common Stock issuable upon the exercise of all such Options (assuming full conversion
of Convertible Securities, if applicable). No further adjustment to the Conversion Price will be made upon the actual issuance
of such Common Stock upon the exercise of such Options or upon the conversion or exchange of Convertible Securities issuable upon
exercise of such Options.

 

    	8

    	 

    

 

Additionally, the Borrower
shall be deemed to have issued or sold shares of Common Stock if the Borrower in any manner issues or sells any Convertible Securities,
whether or not immediately convertible (other than where the same are issuable upon the exercise of Options), and the price per
share for which Common Stock is issuable upon such conversion or exchange is less than the Conversion Price then in effect, then
the Conversion Price shall be equal to such price per share. For the purposes of the preceding sentence, the “price per share
for which Common Stock is issuable upon such conversion or exchange” is determined by dividing (i) the total amount, if any,
received or receivable by the Borrower as consideration for the issuance or sale of all such Convertible Securities, plus the minimum
aggregate amount of additional consideration, if any, payable to the Borrower upon the conversion or exchange thereof at the time
such Convertible Securities first become convertible or exchangeable, by (ii) the maximum total number of shares of Common Stock
issuable upon the conversion or exchange of all such Convertible Securities. No further adjustment to the Conversion Price will
be made upon the actual issuance of such Common Stock upon conversion or exchange of such Convertible Securities.

 

(e)   
Purchase Rights. If, at any time when any Notes are issued and outstanding, the Borrower issues any convertible securities
or rights to purchase stock, warrants, securities or other property (the “Purchase Rights”) pro rata to the record
holders of any class of Common Stock, then the Holder of this Note will be entitled to acquire, upon the terms applicable to such
Purchase Rights, the aggregate Purchase Rights which such Holder could have acquired if such Holder had held the number of shares
of Common Stock acquirable upon complete conversion of this Note (without regard to any limitations on conversion contained herein)
immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights or, if no such record
is taken, the date as of which the record holders of Common Stock are to be determined for the grant, issue or sale of such Purchase
Rights.

 

(f)   
Notice of Adjustments. Upon the occurrence of each adjustment or readjustment of the Conversion Price as a result
of the events described in this Section 1.6, the Borrower, at its expense, shall promptly compute such adjustment or readjustment
and prepare and furnish to the Holder a certificate setting forth such adjustment or readjustment and showing in detail the facts
upon which such adjustment or readjustment is based. The Borrower shall, upon the written request at any time of the Holder, furnish
to such Holder a like certificate setting forth (i) such adjustment or readjustment, (ii) the Conversion Price at the time in effect
and (iii) the number of shares of Common Stock and the amount, if any, of other securities or property which at the time would
be received upon conversion of the Note.

 

1.7 
Trading Market Limitations. Unless permitted by the applicable rules and regulations of
the principal securities market on which the Common Stock is then listed or traded, in no event shall the Borrower issue upon conversion
of or otherwise pursuant to this Note and the other Notes issued pursuant to the Purchase Agreement more than the maximum number
of shares of Common Stock that the Borrower can issue pursuant to any rule of the principal United States securities market on
which the Common Stock is then traded (the “Maximum Share Amount”), which shall be 4.99% of the total shares outstanding
on the Closing Date (as defined in the Purchase Agreement), subject to equitable adjustment from time to time for stock splits,
stock dividends, combinations, capital reorganizations and similar events relating to the Common Stock occurring after the date
hereof. Once the Maximum Share Amount has been issued, if the Borrower fails to eliminate any prohibitions under applicable law
or the rules or regulations of any stock exchange, interdealer quotation system or other self-regulatory organization with jurisdiction
over the Borrower or any of its securities on the Borrower’s ability to issue shares of Common Stock in excess of the Maximum
Share Amount, in lieu of any further right to convert this Note, this will be considered an Event of Default under Section 3.3
of the Note.

 

    	9

    	 

    

 

1.8 
Status as Shareholder. Upon submission of a Notice of Conversion by a Holder, (i) the shares covered thereby (other
than the shares, if any, which cannot be issued because their issuance would exceed such Holder’s allocated portion of the
Reserved Amount or Maximum Share Amount) shall be deemed converted into shares of Common Stock and (ii) the Holder’s rights
as a Holder of such converted portion of this Note shall cease and terminate, excepting only the right to receive certificates
for such shares of Common Stock and to any remedies provided herein or otherwise available at law or in equity to such Holder because
of a failure by the Borrower to comply with the terms of this Note. Notwithstanding the foregoing, if a Holder has not received
certificates for all shares of Common Stock prior to the tenth (10th) business day after the expiration of the Deadline with respect
to a conversion of any portion of this Note for any reason, then (unless the Holder otherwise elects to retain its status as a
holder of Common Stock by so notifying the Borrower) the Holder shall regain the rights of a Holder of this Note with respect to
such unconverted portions of this Note and the Borrower shall, as soon as practicable, return such unconverted Note to the Holder
or, if the Note has not been surrendered, adjust its records to reflect that such portion of this Note has not been converted.
In all cases, the Holder shall retain all of its rights and remedies (including, without limitation, (i) the right to receive Conversion
Default Payments pursuant to Section 1.3 to the extent required thereby for such Conversion Default and any subsequent Conversion
Default and (ii) the right to have the Conversion Price with respect to subsequent conversions determined in accordance with Section
1.3) for the Borrower’s failure to convert this Note.

 

1.9 
Prepayment. Notwithstanding anything to the contrary contained in this Note, so long asthe
Borrower has not received a Notice of Conversion from the Holder, then at any time during the period beginning on the Issue Date
and ending on the date which is one hundred eighty (180) days following the issue date, the Borrower shall have the right, exercisable
on not less than three (3) Trading Days prior written notice to the Holder of the Note to prepay the outstanding Note (principal
and accrued interest), in full, in accordance with this Section 1.9. Any notice of prepayment hereunder (an “Optional Prepayment
Notice”) shall be delivered to the Holder of the Note at its registered addresses and shall state: (1) that the Borrower
is exercising its right to prepay the Note, and (2) the date of prepayment which shall be not more than three (3) Trading Days
from the date of the Optional Prepayment Notice. On the date fixed for prepayment (the “Optional Prepayment Date”),
the Borrower shall make payment of the Optional Prepayment Amount (as defined below) to or upon the order of the Holder as specified
by the Holder in writing to the Borrower at least one (1) business day prior to the Optional Prepayment Date. If the Borrower exercises
its right to prepay the Note, the Borrower shall make payment to the Holder of an amount in cash (the “Optional Prepayment
Amount”) equal to 175%, multiplied by the sum of: (w) the then outstanding principal amount of this Note plus (x) accrued
and unpaid interest on the unpaid principal amount of this Note to the Optional Prepayment Date plus (y) Default Interest,
if any, on the amounts referred to in clauses (w) and (x) plus (z) any amounts owed to the Holder pursuant to Sections 1.3
and 1.4(g) hereof. If the Borrower delivers an Optional Prepayment Notice and fails to pay the Optional Prepayment Amount due to
the Holder of the Note within two (2) business days following the Optional Prepayment Date, the Borrower shall forever forfeit
its right to prepay the Note pursuant to this Section 1.9.

 

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

 

    	10

    	 

    

 

Article
II. CERTAIN COVENANTS

 

2.1 
Distributions on Capital Stock. So long as the Borrower shall have any obligation under this Note, the Borrower shall
not without the Holder’s written consent (a) pay, declare or set apart for such payment, any dividend or other distribution
(whether in cash, property or other securities) on shares of capital stock other than dividends on shares of Common Stock solely
in the form of additional shares of Common Stock or (b) directly or indirectly or through any subsidiary make any other payment
or distribution in respect of its capital stock except for distributions pursuant to any shareholders’ rights plan which
is approved by a majority of the Borrower’s disinterested directors.

 

2.2 
Restriction on Stock Repurchases. So long as the Borrower shall have any obligation under this Note, the Borrower
shall not without the Holder’s written consent redeem, repurchase or otherwise acquire (whether for cash or in exchange for
property or other securities or otherwise) in any one transaction or series of related transactions any shares of capital stock
of the Borrower or any warrants, rights or options to purchase or acquire any such shares.

 

2.3 
Borrowings.So long as the Borrower shall have any obligation under this Note, the Borrower
shall not, without the Holder’s written consent, (a) create, incur, assume guarantee, endorse, contingently agree to purchase
or otherwise become liable upon the obligation of any other person, firm, partnership, joint venture or corporation, except by
the endorsement of negotiable instruments for deposit or collection, or (b) suffer to exist any liability for borrowed money, except
any borrowings that do not render the Company a "Shell" company as defined in Rule 12b-2 under the Securities Exchange
Act of 1934.

 

2.4 
Sale of Assets. So long as the Borrower shall have any obligation under this Note, the Borrower shall not, without
the Holder’s written consent, sell, lease or otherwise dispose of any significant portion of its assets outside the ordinary
course of business. Any consent to the disposition of any assets may be conditioned on a specified use of the proceeds of disposition.

 

2.5  Advances and Loans.
So long as the Borrower shall have any obligation under this Note, the Borrower shall not, without the Holder’s written
consent, lend money, give credit or make advances to any person, firm, joint venture or corporation, including, without limitation,
officers, directors, employees, subsidiaries and affiliates of the Borrower, except loans, credits or advances (a) in existence
or committed on the date hereof and which the Borrower has informed Holder in writing prior to the date hereof, (b) made in the
ordinary course of business or (c) not in excess of $100,000.

 

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Article
III. EVENTS OF DEFAULT

 

If any of the following
events of default (each, an “Event of Default”) shall occur:

 

3.1 
Failure to Pay Principal or Interest.The Borrower fails to pay the principal hereof or
interest thereon when due on this Note, whether at maturity, upon acceleration or otherwise.

 

3.2 
Conversion and the Shares.The Borrower fails to issue shares of Common Stock to the Holder
(or announces or threatens in writing that it will not honor its obligation to do so) upon exercise by the Holder of the conversion
rights of the Holder in accordance with the terms of this Note,fails to transfer or cause its transfer agent to transfer (issue)
(electronically or in certificated form) any certificate for shares of Common Stock issued to the Holder upon conversion of or
otherwise pursuant to this Note as and when required by this Note, the Borrower directs its transfer agent not to transfer or delays,
impairs, and/or hinders its transfer agent in transferring (or issuing) (electronically or in certificated form) any certificate
for shares of Common Stock to be issued to the Holder upon conversion of or otherwise pursuant to this Note as and when required
by this Note, or fails to remove (or directs its transfer agent not to remove or impairs, delays, and/or hinders its transfer agent
from removing) any restrictive legend (or to withdraw any stop transfer instructions in respect thereof) on any certificate for
any shares of Common Stock issued to the Holder upon conversion of or otherwise pursuant to this Note as and when required by this
Note (or makes any written announcement, statement or threat that it does not intend to honor the obligations described in this
paragraph) and any such failure shall continue uncured (or any written announcement, statement or threat not to honor its obligations
shall not be rescinded in writing) for three (3) business days after the Holder shall have delivered a Notice of Conversion. It
is an obligation of the Borrower to remain current in its obligations to its transfer agent. It shall be an event of default of
this Note, if a conversion of this Note is delayed, hindered or frustrated due to a balance owed by the Borrower to its transfer
agent. If at the option of the Holder, the Holder advances any funds to the Borrower’s transfer agent in order to process
a conversion, such advanced funds shall be paid by the Borrower to the Holder within forty eight (48) hours of a demand from the
Holder.

 

3.3 
Breach of Covenants. The Borrower breaches any material covenant or other material term or condition contained in
this Note and any collateral documents including but not limited to the Purchase Agreement and such breach continues for a period
of ten (10) days after written notice thereof to the Borrower from the Holder.

 

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

 

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

 

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3.6 
Judgments. Any money judgment, writ or similar process shall be entered or filed against the Borrower or any subsidiary
of the Borrower or any of its property or other assets for more than $50,000, and shall remain unvacated, unbonded or unstayed
for a period of twenty (20) days unless otherwise consented to by the Holder, which consent will not be unreasonably withheld.

 

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

 

3.8  Delisting of Common
Stock. The Borrower shall fail to maintain the listing of the Common Stock on at least one of the OTCBB or an equivalent replacement
exchange, the Nasdaq National Market, the NasdaqSmallCap Market, the New York Stock Exchange, or the American Stock Exchange,
provided that so long as it is being traded on the Pink Sheets the Borrower has 10 Business Days to cure the default.

 

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

 

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

 

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

 

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

 

3.13  Financial Statement Restatement.The restatement of any financial statements filed by the Borrower with the SEC
for any date or period from two years prior to the Issue Date of this Note and until this Note is no longer outstanding, if the
result of such restatement would, by comparison to the unrestated financial statement, have constituted a material adverse effect
on the rights of the Holder with respect to this Note or the Purchase Agreement. Provided that the Borrower within thirty (30)
days of the date of the Note restates its Form 10-K and Form 10-Q that it required to restate pursuant to the Form 8-K filed by
the Borrower on August 16, 2011, those restatements shall not constitute an Event of Default.

 

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

   

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

 

    	13

    	 

    

  

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

 

Upon the occurrence
and during the continuation of any Event of Default specified in Section 3.1 (solely with respect to failure to pay the principal
hereof or interest thereon when due at the Maturity Date), the Note shall become immediately due and payable and the Borrower shall
pay to the Holder, in full satisfaction of its obligations hereunder, an amount equal to the Default Sum (as defined herein). 
UPON THE OCCURRENCE AND DURING THE CONTINUATION OF ANY EVENT OF DEFAULT SPECIFIED IN SECTION 3.2, THE NOTE SHALL BECOME IMMEDIATELY
DUE AND PAYABLE AND THE BORROWER SHALL PAY TO THE HOLDER, IN FULL SATISFACTION OF ITS OBLIGATIONS HEREUNDER, AN AMOUNT EQUAL TO:
(Y) THE DEFAULT SUM (AS DEFINED HEREIN); MULTIPLIED BY (Z) TWO (2). Upon the occurrence and during the continuation of any Event
of Default specified in Sections 3.1 (solely with respect to failure to pay the principal hereof or interest thereon when due on
this Note upon a Trading Market Prepayment Event pursuant to Section 1.7 or upon acceleration), 3.3, 3.4, 3.6, 3.8, 3.9, 3.11,
3.12, 3.13, 3.14, and/or 3. 15 exercisable through the delivery of written notice to the Borrower by such Holders (the “Default
Notice”), and upon the occurrence of an Event of Default specified the remaining sections of Articles III (other than failure
to pay the principal hereof or interest thereon at the Maturity Date specified in Section 3,1 hereof), the Note shall become immediately
due and payable and the Borrower shall pay to the Holder, in full satisfaction of its obligations hereunder, an amount equal to
the greater of (i) 150% times the sum of (w) the then outstanding principal amount of this Note plus (x) accrued
and unpaid interest on the unpaid principal amount of this Note to the date of payment (the “Mandatory Prepayment Date”)
plus (y) Default Interest, if any, on the amounts referred to in clauses (w) and/or (x) plus (z) any amounts owed
to the Holder pursuant to Sections 1.3 and 1.4(g) hereof (the then outstanding principal amount of this Note to the date of payment
plus the amounts referred to in clauses (x), (y) and (z) shall collectively be known as the “Default Sum”) or
(ii) the “parity value” of the Default Sum to be prepaid, where parity value means (a) the highest number of shares
of Common Stock issuable upon conversion of or otherwise pursuant to such Default Sum in accordance with Article I, treating the
Trading Day immediately preceding the Mandatory Prepayment Date as the “Conversion Date” for purposes of determining
the lowest applicable Conversion Price, unless the Default Event arises as a result of a breach in respect of a specific Conversion
Date in which case such Conversion Date shall be the Conversion Date), multiplied by (b) the highest Closing Price for the
Common Stock during the period beginning on the date of first occurrence of the Event of Default and ending one day prior to the
Mandatory Prepayment Date (the “Default Amount”) and all other amounts payable hereunder shall immediately become due
and payable, all without demand, presentment or notice, all of which hereby are expressly waived, together with all costs, including,
without limitation, legal fees and expenses, of collection, and the Holder shall be entitled to exercise all other rights and remedies
available at law or in equity. 

 

    	14

    	 

    

 

If the Borrower fails
to pay the Default Amount within five (5) business days of written notice that such amount is due and payable, then the Holder
shall have the right at any time, so long as the Borrower remains in default (and so long and to the extent that there are sufficient
authorized shares), to require the Borrower, upon written notice, to immediately issue, in lieu of the Default Amount, the number
of shares of Common Stock of the Borrower equal to the Default Amount divided by the Conversion Price then in effect.

 

Article
IV. MISCELLANEOUS

 

4.1 
Failure or Indulgence Not Waiver. No failure or delay on the part of the Holder in the exercise of any power, right
or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or
privilege preclude other or further exercise thereof or of any other right, power or privileges. All rights and remedies existing
hereunder are cumulative to, and not exclusive of, any rights or remedies otherwise available.

 

4.2 
Notices. All notices, demands, requests, consents, approvals, and other communications required or permitted hereunder
shall be in writing and, unless otherwise specified herein, shall be (i) personally served, (ii) deposited in the mail, registered
or certified, return receipt requested, postage prepaid, (iii) delivered by reputable air courier service with charges prepaid,
or (iv) transmitted by hand delivery, telegram, or facsimile, addressed as set forth below or to such other address as such party
shall have specified most recently by written notice. Any notice or other communication required or permitted to be given hereunder
shall be deemed effective (a) upon hand delivery or delivery by facsimile, with accurate confirmation generated by the transmitting
facsimile machine, at the address or number designated below (if delivered on a business day during normal business hours where
such notice is to be received), or the first business day following such delivery (if delivered other than on a business day during
normal business hours where such notice is to be received) or (b) on the second business day following the date of mailing by express
courier service, fully prepaid, addressed to such address, or upon actual receipt of such mailing, whichever shall first occur.
The addresses for such communications shall be:

 

If to the
Borrower, to:

EPAZZ, INC.

309 West Washington Street - Suite
1225

Chicago, IL 60606

Attn:
SHAUN PASSLEY, Chief Executive Officer

facsimile:

 

    	15

    	 

    

 

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

The Loev
Law Firm, P.C.

Attn: David
M. Loev

6300 West
Loop South, Suite 280

Bellaire,
Texas 77041

facsimile:
713-524-4122

phone:
713-524-4110

 

If to the Holder:

ASHER ENTERPRISES, INC.

1 Linden
Pl., Suite 207

Great Neck,
NY. 11021

Attn:
Curt Kramer, President

facsimile:
516-498-9894

 

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

Naidich
Wurman Birnbaum & Maday, LLP

80 Cuttermill
Road, Suite 410

Great Neck,
NY 11021

Attn: Bernard S. Feldman, Esq.

facsimile:
516-466-3555

 

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

 

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

 

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

 

4.6 
Governing Law.This Note shall be governed by and construed in accordance with the laws of the State of New York without
regard to principles of conflicts of laws. Any action brought by either party against the other concerning the transactions contemplated
by this Note shall be brought only in the state courts of New York or in the federal courts located in the state and county of
Nassau. The parties to this Note hereby irrevocably waive any objection to jurisdiction and venue of any action instituted hereunder
and shall not assert any defense based on lack of jurisdiction or venue or based upon forum non conveniens. The Borrower
and Holder waive trial by jury. The prevailing party shall be entitled to recover from the other party its reasonable attorney's
fees and costs. In the event that any provision of this Note or any other agreement delivered in connection herewith is invalid
or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that
it may conflict therewith and shall be deemed modified to conform with such statute or rule of law. Any such provision which may
prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision of any agreement.
Each party hereby irrevocably waives personal service of process and consents to process being served in any suit, action or proceeding
in connection with this Agreement or any other Transaction Document by mailing a copy thereof via registered or certified mail
or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement
and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein
shall be deemed to limit in any way any right to serve process in any other manner permitted by law.

 

    	16

    	 

    

 

4.7 
Certain Amounts. Whenever pursuant to this Note the Borrower is required to pay an amount in excess of the outstanding
principal amount (or the portion thereof required to be paid at that time) plus accrued and unpaid interest plus Default Interest
on such interest, the Borrower and the Holder agree that the actual damages to the Holder from the receipt of cash payment on this
Note may be difficult to determine and the amount to be so paid by the Borrower represents stipulated damages and not a penalty
and is intended to compensate the Holder in part for loss of the opportunity to convert this Note and to earn a return from the
sale of shares of Common Stock acquired upon conversion of this Note at a price in excess of the price paid for such shares pursuant
to this Note. The Borrower and the Holder hereby agree that such amount of stipulated damages is not plainly disproportionate to
the possible loss to the Holder from the receipt of a cash payment without the opportunity to convert this Note into shares of
Common Stock.

 

4.8 
Purchase Agreement. By its acceptance of this Note, each party agrees to be bound by the applicable terms of the
Purchase Agreement.

 

4.9 
Notice of Corporate Events. Except as otherwise provided below, the Holder of this Note shall have no rights as a
Holder of Common Stock unless and only to the extent that it converts this Note into Common Stock. The Borrower shall provide the
Holder with prior notification of any meeting of the Borrower’s shareholders (and copies of proxy materials and other information
sent to shareholders). In the event of any taking by the Borrower of a record of its shareholders for the purpose of determining
shareholders who are entitled to receive payment of any dividend or other distribution, any right to subscribe for, purchase or
otherwise acquire (including by way of merger, consolidation, reclassification or recapitalization) any share of any class or any
other securities or property, or to receive any other right, or for the purpose of determining shareholders who are entitled to
vote in connection with any proposed sale, lease or conveyance of all or substantially all of the assets of the Borrower or any
proposed liquidation, dissolution or winding up of the Borrower, the Borrower shall mail a notice to the Holder, at least twenty
(20) days prior to the record date specified therein (or thirty (30) days prior to the consummation of the transaction or event,
whichever is earlier), of the date on which any such record is to be taken for the purpose of such dividend, distribution, right
or other event, and a brief statement regarding the amount and character of such dividend, distribution, right or other event to
the extent known at such time. The Borrower shall make a public announcement of any event requiring notification to the Holder
hereunder substantially simultaneously with the notification to the Holder in accordance with the terms of this Section 4.9.

 

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

 

    	17

    	 

    

 

IN WITNESS WHEREOF,
Borrower has caused this Note to be signed in its name by its duly authorized officer this December 12, 2012.

 

EPAZZ, INC.

 

By: _______________________________

SHAUN PASSLEY

Chief
Executive Officer

 

 

    	18

    	 

    

 

EXHIBIT A

NOTICE
OF CONVERSION 

 

The undersigned hereby
elects to convert $_________________principal amount of the Note (defined below) into that number
of shares of Common Stock to be issued pursuant to the conversion of the Note (“Common Stock”) as set forth
below, of EPAZZ, INC., anIllinois corporation (the “Borrower”) according to the conditions of the convertible note
of the Borrower dated as of December 12, 2012 (the “Note”), as of the date written below. No fee will be charged to
the Holder for any conversion, except for transfer taxes, if any.

 

Box Checked as to applicable
instructions:

 

	£		The Borrower shall electronically transmit the Common Stock issuable pursuant
to this Notice of Conversion to the account of the undersigned or its nominee with DTC through its Deposit Withdrawal Agent Commission
system (“DWAC Transfer”).

 

Name of DTC Prime Broker:

Account Number:

 

	£		The undersigned hereby requests that the Borrower issue a certificate or certificates
for the number of shares of Common Stock set forth below (which numbers are based on the Holder’s calculation attached hereto)
in the name(s) specified immediately below or, if additional space is necessary, on an attachment hereto:

 

ASHER ENTERPRISES, INC.

1 Linden
Pl., Suite 207

Great Neck,
NY. 11021

Attention:
Certificate Delivery

(516) 498-9890

 

Date of Conversion:  _____________

Applicable Conversion Price: $____________

Number of Shares of Common Stock
to be Issued

Pursuant to
Conversion of the Notes: ______________

Amount of Principal Balance Due
remaining

Under the Note
after this conversion: ______________

 

ASHER ENTERPRISES, INC.

 

By:_____________________________

Name:Curt Kramer

Title: President

Date: ______________

1 Linden
Pl., Suite 207

Great Neck,
NY 11021

 

    	19

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