Document:

pfllcsd1ex10d4d3d2012.htm

 

 

Exhibit 10.4

CONFIDENTIAL TREATMENT REQUESTED BY PROSPER FUNDING LLC

 

 

 

 

 

SERVICING AGREEMENT

between

 

PROSPER FUNDING LLC,

 

as the Company

 

and

 

PROSPER MARKETPLACE, INC.,

 

as the Servicer

 

Dated as of _________, 2012

 

 

 

 

 

 

 

 

  

  

  

	
TABLE OF CONTENTS

	
ARTICLE I

	
 DEFINITIONS

	
1

	
1.1

	
    Certain Defined Terms.

	
1

	
ARTICLE II

	
LICENSE OF THE PROSPER SYSTEM

	
5

	
2.1

	
    Grant of License.

	
5

	
ARTICLE III

	
AGREEMENTS OF THE SERVICER

	
6

	
3.1

	
    General.

	
6

	
3.2

	
    General Services.

	
6

	
3.3

	
    Securities‐Related Services.

	
9

	
3.4

	
    Servicing of Borrower Loans.

	
10

	
3.5

	
    Posting and Funding of Borrower Loans.

	
10

	
3.6

	
    Prosper Ratings and Borrower Verification.

	
11

	
3.7

	
    General Servicing Procedures.

	
11

	
3.8

	
    Collection of Borrower Loan Payments.

	
12

	
3.9

	
    Delinquency Control.

	
12

	
3.1

	
    Servicer Reports; Additional Duties.

	
13

	
3.11

	
    Books and Records.

	
13

	
3.12

	
    Repurchase Obligation.

	
14

	
3.13

	
    Servicer Advances.

	
15

	
3.14

	
    Reimbursement of the Servicer.

	
15

	
3.15

	
    Licenses.

	
16

	
3.16

	
    Power of Attorney.

	
16

	
ARTICLE IV

	
AGREEMENTS OF THE COMPANY

	
16

	
4.1

	
    Documentation.

	
16

	
4.2

	
    Servicing Compensation.

	
16

	
ARTICLE V

	
TERM AND TERMINATION

	
17

	
5.1

	
    Term.

	
17

	
5.2

	
    Termination.

	
17

	
5.3

	
    Transfer Upon Termination; Costs and Expenses.

	
17

	
5.4

	
    Reimbursement.

	
18

	
5.5

	
    Survival.

	
18

  

i

  

	
ARTICLE VI

	
REPRESENTATIONS AND WARRANTIES OF THE COMPANY

	
18

	
6.1

	
    Authority.

	
18

	
6.2

	
    Authorization, Enforceability and Execution.

	
19

	
6.3

	
    No Conflict.

	
19

	
6.4

	
    No Consent.

	
19

	
6.5

	
    No Litigation.

	
19

	
6.6

	
    The Borrower Loans.

	
20

	
ARTICLE VII

	
REPRESENTATIONS AND WARRANTIES OF THE SERVICER

	
20

	
7.1

	
    Authority.

	
20

	
7.2

	
    Authorization, Enforceability and Execution.

	
20

	
7.3

	
    No Conflict.

	
20

	
7.4

	
    No Consent.

	
21

	
7.5

	
    No Litigation.

	
21

	
7.6

	
    License Warranty.

	
21

	
ARTICLE VIII

	
INDEMNIFICATION AND LIABILITY

	
21

	
8.1

	
    Standard of Liability; Indemnification.

	
21

	
8.2

	
    Procedure for Indemnification.

	
22

	
ARTICLE IX

	
ANNUAL REPORTING

	
23

	
9.1

	
    Servicer Compliance Statement.

	
23

	
ARTICLE X

	
MISCELLANEOUS

	
23

	
10.1

	
    Independence of Parties.

	
23

	
10.2

	
    Assignment of Servicing.

	
23

	
10.3

	
    Entire Agreement.

	
24

	
10.4

	
    Invalidity.

	
24

	
10.5

	
    Effect.

	
24

	
10.6

	
    Damage Limitation.

	
24

	
10.7

	
    Applicable Law.

	
24

	
10.8

	
    Notices.

	
25

	
10.9

	
    Waivers.

	
25

	
10.1

	
    Binding Effect.

	
25

	
10.11

	
    Headings and Section References.

	
25

	
10.12

	
    Exhibits.

	
25

	
10.13

	
    Counterparts.

	
25

	
10.14

	
    Confidentiality.

	
25

	
10.15

	
    Insurance.

	
27

	
10.16

	
    Disaster Recovery.

	
27

	
10.17

	
    Background Check.

	
27

	
10.18

	
    Separate Identity.

	
28

	
10.19

	
    No Third Party Beneficiary.

	
28

	
10.2

	
    Limited Recourse.

	
28

	
10.21

	
    No Petition.

	
29

	
10.22

	
    Informal Dispute Resolution.

	
29

	
10.23

	
    Taxes.

	
29

	  	  	  
	  	  	  
	
Exhibit A:

	
Borrower Registration Agreement

	
A‐1

	
Exhibit B:

	
Lender Registration Agreement

	
B‐1

	
Exhibit C:

	
Servicing Fee

	
C‐1

  

ii

  

 

This SERVICING AGREEMENT is made as of ________, 2012 by and between PROSPER FUNDING LLC (the “Company”), and PROSPER MARKETPLACE, INC. (the “Servicer”).

 

RECITALS:

 

WHEREAS, the Company desires to operate the Prosper System and from time to time to acquire Borrower Loans and issue and sell Securities (each as defined herein); and

 

WHEREAS, the Company and the Servicer desire for the Servicer to provide certain administrative services to the Company relating to the operation of the Prosper System, in each case subject to the terms and conditions hereof;

 

NOW, THEREFORE, in consideration of the mutual promises contained herein and for other good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

 

ARTICLE I

 

 

DEFINITIONS

 

1.1 Certain Defined Terms.

 

Each term defined in this Section 1.1, when used in this Agreement, shall have the meaning set forth below.  Capitalized terms used but not defined herein shall have the respective meanings assigned to such terms in the Indenture (as defined below).

 

“Account Bank” means the Trustee or any other Eligible Bank at which the Company maintains the FBO Account.

 

“Account Bank City” means the city in which the Account Bank maintains the FBO Account (which, for the avoidance of doubt, on the Closing Date is San Francisco, California).

 

“Affiliate” means with respect to any specified Person, any other Person controlling or controlled by or under common control with such specified Person.  For the purposes of this definition, “control” when used with respect to any specified Persons means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise and the terms “controlling” and “controlled” have meanings correlative to the foregoing.

 

“Agreement” means this Servicing Agreement, including all exhibits hereto, as the same may be from time to time amended, restated or supplemented.

 

“Applicable Requirements” means, as of any time of reference, all of the following, as applicable: (i) all of the Servicer’s contractual obligations under this Agreement and each other Program Document, and (ii) all federal, state and local legal and regulatory requirements (including statutes, rules, regulations and ordinances) binding upon the Servicer in relation to the Prosper System.

 

 

  

1

  

 

“Back-Up Servicing Agreement” means the CSI Logic Processing Agreement, dated as of the Closing Date, among the Company, the Servicer and CSI Logic, Inc., as Back-Up Servicer, as from time to time amended, restated or supplemented.

 

“Bank” means WebBank, a Utah-chartered industrial bank.

 

“Borrower” means, with respect to any Borrower Loan, the Borrower-Member obligated to make payments on the related Loan Note.

 

“Borrower-Member” means any Person who has executed a Borrower Registration Agreement with the Company.

 

“Borrower Registration Agreement” means an agreement in the form of Exhibit A hereto or in such other form as the Company and the Servicer may approve in writing.

 

“Business Day” means any day other than a Saturday, Sunday or other day on which banking and savings and loan institutions in San Francisco, California or the Account Bank City are authorized or obligated by law or executive order to be closed.

 

“Closing Date” means ______, 2012.

 

“Code” means the Internal Revenue Code of 1986, as amended.

 

“Company” means Prosper Funding LLC, a Delaware limited liability company.

 

“Core Documents” means this Agreement and the Indenture.

 

“Delinquent Loan” means any Borrower Loan on which one or more payments is past due.

 

“Eligible Bank” means any federal or State-chartered depository institution that (i) has combined capital and surplus of at least $200,000,000, and (ii) short-term debt ratings of at least (A) “P-2” by Moody’s (or, if such institution does not have a Moody’s short-term debt rating, has a long-term debt rating from Moody’s of at least “A3”), and (ii) at least “A-2” by S&P (or, if such institution does not have an S&P short-term debt rating, has a long-term debt rating from S&P of at least “A-”).

 

“FBO Account” means the special purpose segregated, non-interest bearing pooled account established at the Account Bank in the Account Bank City and which shall never be considered a general deposit account and as such shall not be available for set off by the Account Bank or garnishment by creditors of the Account Bank, such account being entitled “Prosper Funding LLC for the benefit of its lender members” (Account No. _____).

 

“Indenture” means the Indenture, dated as of _____, 2012, between the Company and the Trustee, as from to time amended, restated or supplemented.

 

  

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“Lender” means any Person who holds a Security (including, for the avoidance of doubt, Persons who have purchased Securities through the Prosper System or through the Note Trader Platform).

 

“Lender Registration Agreement” means an agreement in the form of Exhibit B hereto or in such other form as the Company and the Servicer may approve in writing.

 

“Lender-Member” means any Person who has executed a Lender Registration Agreement with the Company.

 

“Loan Documents” means, with respect to any Borrower Loan, the Borrower Registration Agreement and the Loan Note executed by the applicable Borrower.

 

“Loan Funding Date” means any date on which the principal amount of a Borrower Loan is funded.

 

“Loan Listing” means any loan requested by a Borrower-Member through the Prosper System.

 

“Loan Note” means the original executed promissory note evidencing the indebtedness of a Borrower under a Borrower Loan (it being understood that each Loan Note will be executed electronically).

 

“Loan Rate” means the annual rate of interest borne by a Loan Note as set forth therein.

 

“Loan Sale Agreement” means the Loan Sale Agreement, dated as of the Closing Date, between the Bank and the Company, as from time to time amended, restated or supplemented.

 

“Member” means any Borrower-Member or Lender-Member.

 

“Moody’s” means Moody’s Investors Service, Inc., or any successor thereto.

 

“Note Trader Platform” means the Folio Investing Note Trader platform operated and maintained by FOLIOfn Investments, Inc. or any additional or successor system approved by the Company and the Servicer through which Lender-Members may resell their Securities.

 

“Performance Information” means information regarding the payment performance of any Borrower (or group of Borrowers) on any Borrower Loan (or group of Borrower Loans).

 

“Person” means an individual, partnership, corporation (including a statutory trust), joint stock company, limited liability company, trust, association, joint venture, governmental authority or any other entity of whatever nature.

 

“PMI” means Prosper Marketplace, Inc., a Delaware corporation.

 

“Privacy Policy” means the written privacy policies employed by the Company to protect the confidentiality of Member information and to comply with applicable privacy laws, both as in effect on the Closing Date and as from time to time amended.

 

  

3

  

 

“Program Documents” means the Core Documents, the Back-Up Servicing Agreement, the Borrower Registration Agreements and the Lender Registration Agreements.

 

“Prohibited Information” shall have the meaning assigned thereto in the Borrower Registration Agreements.

 

“Prospectus” means the prospectus included in the registration statement pursuant to which the Company has registered the Securities under the Securities Act.

 

“Prosper Account” means the bookkeeping account maintained by the Company for each Member pursuant to the Prosper System.

 

“Prosper Rating” means the proprietary credit rating assigned by the Servicer to each Loan Listing.

 

“Prosper System” means the person-to-person online credit platform developed and owned by PMI that the Company operates pursuant to the license granted to the Company by PMI hereunder.

 

“Prosper Website” means the Company’s website on which Borrower-Members may submit requests for Loans and Lender-Members may purchase Securities.

 

“Rating Procedures” means the proprietary rating procedures that the Servicer uses to determine Prosper Ratings for Loan Listings.

 

“Responsible Officer” means any executive officer of the Servicer and any non-executive officer or employee of the Servicer regularly engaged in providing services to the Company under this Agreement.

 

“Rule 15Ga-1” means Rule 15Ga-1 under the Securities Exchange Act of 1934, as amended.

 

“S&P” means Standard and Poor’s Ratings Services, a division of The McGraw-Hill Companies, Inc., or any successor thereto.

 

“Scheduled Termination Date” means May 31, 2023 or, if applicable, such later date as the Company and the Servicer shall agree upon in writing.

 

“SEC” means the Securities and Exchange Commission.

 

“Securities Act” means the Securities Act of 1933, as amended.

 

“Servicer” means PMI, or any successor or permitted assign under the terms of this Agreement.

 

“Servicing Fee” shall have the meaning assigned thereto in Section 4.2.

 

“Servicing Standard” shall have the meaning assigned thereto in Section 3.1(c).

 

  

4

  

 

“Termination Date” means the date on which this Agreement terminates and shall be the earliest of (i) the Scheduled Termination Date, or (ii) the date fixed for such termination pursuant to (A) the mutual written consent of the Company and the Servicer, or (B) Section 5.2.

 

“Trustee” means Well Fargo Bank, National Association, as Trustee under the Indenture, or any successor thereto in such capacity.

 

ARTICLE II

 

LICENSE OF THE PROSPER SYSTEM

 

2.1 Grant of License.

 

(a) PMI hereby grants to the Company an exclusive, non-transferable, worldwide license to use, reproduce, publish, display and distribute the Prosper System, including without limitation any associated logos, trademarks and tradenames (the “License”).

 

(b) The Company acknowledges that PMI owns any and all patents, copyrights, trademarks, trade secrets and other proprietary rights in and to the Prosper System as well as any documentation relating to the Prosper System and any enhancements, updates, or other modifications to the Prosper System, whether made by PMI or a third party.

 

(c) The Servicer acknowledges that the fees due to it for the License are included in the Servicing Fee and that no separate licensing fees will be payable by the Company.

 

(d) The License shall terminate on the Termination Date or on the date of any earlier termination that occurs pursuant to Section 2.1(e).

 

(e) The Servicer may by written notice to the Company terminate the License if (i) the Company assigns, or attempts to assign, the License to any other Person without the Servicer’s prior written consent, (ii) the Company ceases to operate the Prosper System or declines to make the Prosper System available to new registrants, or announces an intention to take any such action, in each case without the Company’s prior written consent, or (iii) the Company operates the Prosper System in violation of any applicable laws and such violation (A) materially impairs the value of the Prosper System or materially reduces the availability of the Prosper System to existing or potential registrants, and (B) did not result from any breach by the Servicer of its obligations under this Agreement.

 

(f) The Servicer and the Company agree that, if the License terminates for any reason prior to the Scheduled Termination Date, the Company may nonetheless continue to operate the Prosper System in relation to any Borrower Loans or Securities that are then outstanding or, if the Servicer so directs, the Servicer will assume the operation of the Prosper System in relation to such Borrower Loans and Securities or the License will be transferred to a new licensee selected by the Servicer, in each case in a manner that does not adversely affect the Borrowers under such Borrower Loans or the Holders of such Securities.

 

  

5

  

 

ARTICLE III

 

AGREEMENTS OF THE SERVICER

 

3.1 General.

 

(a) Appointment.  The Company hereby appoints the Servicer, and the Servicer hereby accepts such appointment, to manage the Prosper System and service the Borrower Loans on the Company’s behalf and otherwise provide services to the Company in accordance with the terms of this Agreement.

 

(b) Authority.  The Servicer shall have full power and authority, acting alone or through agents (but subject to Section 10.2), to do or cause to be done any and all things in connection with such servicing and administration which the Servicer may deem necessary or desirable, subject to and consistent with the terms of this Agreement and the Servicing Standard, and any and all things that may or must otherwise be authorized by the Company.

 

(c) Servicing Standard.  The Servicer shall use commercially reasonable efforts to service and collect the Borrower Loans in accordance with industry standards customary for loans of the same general type and character as the Borrower Loans, in each case (i) in accordance with the Applicable Requirements, and (ii) without regard to:

 

(A) any relationship that the Servicer or any Affiliate of the Servicer may have with the related Borrower or Lender-Member; or

 

(B) the Servicer’s right to receive compensation for its services hereunder.

 

The standard set forth in the immediately preceding sentence shall be referred to herein as the “Servicing Standard.”

 

3.2  General Services.

 

The Company and the Servicer agree that the duties of the Servicer under this Agreement shall include:

 

(a) managing the Prosper System on the Company’s behalf, servicing the Borrower Loans and otherwise administering the Company’s day-to-day operations, including supervision of (i) the issuance, sale and timely payment of the Securities, (ii) the purchase by the Company of Borrower Loans, (iii) the operation of the Prosper Website, and (iv) the payment of the Company’s related fees and expenses, in each case including the specific duties set forth below;

 

(b) giving on the Company’s behalf such notices and communications as the Company may from time to time be required to give under this Agreement and the other Program Documents or that the Servicer, in accordance with the Applicable Requirements, deems it appropriate for the Company to give;

 

(c) maintaining the general accounting records of the Company and preparing such monthly, quarterly and annual financial statements as may be necessary or appropriate (it being understood that the Servicer shall not have any responsibility for the auditing of such financial statements other than to provide the same to the Company’s independent accountants for certification by such accountants);

 

  

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(d) retaining on behalf of and for the account of the Company an accounting firm to audit the Company’s year-end financial statements;

 

(e) (i) preparing, or arranging for the preparation of, such income, franchise or other tax returns of the Company as shall be required to be filed by applicable law, (ii) filing, or arranging for the filing of, any such required tax returns, (iii) causing to be paid (but only from Company funds available for such purpose) any taxes required to be paid by the Company under applicable law, and (iv) not knowingly causing the Company to engage in any activity that would cause the Company to be subject to income or franchise tax on a net income basis by any taxing jurisdiction outside of the United States;

 

(f) retaining on behalf of and for the account of the Company outside counsel to provide on behalf of the Company such services as the Servicer from time to time deems appropriate;

 

(g) reviewing and analyzing any agreements entered into by the Company and establishing, in consultation with the Company, operating procedures to enable the Company to comply with the terms of such agreements;

 

(h) providing recordkeeping and maintenance, as required, to maintain the Company’s limited liability company existence;

 

(i) preparing resolutions for consideration by the Company’s board of directors in accordance with the Company’s limited liability company agreement;

 

(j) preparing and having executed and filed all documents necessary to qualify the Company to do business in any jurisdiction in which such qualification is necessary or appropriate in connection with the Company’s issuance of Securities, purchase of Borrower Loans or other activities under the Program Documents;

 

(k) in conjunction with the Company’s counsel, monitoring (A) the federal and State licensing requirements that apply or may apply to the Company, including lender licensing requirements, and (B) the Company’s compliance with applicable consumer protection laws including, without limitation, the Consumer Credit Protection Act, the Truth-in-Lending Act, the Equal Credit Opportunity Act, the Fair Credit Reporting Act, the Fair Debt Collection Practices Act, the Electronic Fund Transfer Act and the Electronic Signatures in Global and National Commerce Act, and arranging for the Company to obtain such licenses, to make such disclosures, to file such reports, and otherwise to take or refrain from taking all such actions, as will, to the best of the Servicer’s knowledge, result in compliance with all such licensing requirements and laws;

 

  

7

  

 

 

(l) in conjunction with the Company’s counsel, confirming that the Lender-Members will not, solely by reason of their purchase of Securities through the Prosper System, become subject to lender licensing requirements or other licensing requirements in any State in which Securities are offered for sale;

 

(m) receiving notices on the Company’s behalf to the extent that any Program Document designates the Servicer as the person to whom notices to the Company thereunder are to be directed;

 

(n) notifying the Company promptly, and in any event not more than one Business Day after becoming aware of the institution thereof, of the institution of any action, suit or proceeding against, or regulatory investigation of, the Company;

 

(o) monitoring the disclosures concerning the Company made on the Prosper Website and confirming on the Company’s behalf that all such disclosures are accurate and complete in all material respects; and further confirming, on a continuing basis, that the Prosper System is so structured that (i) Borrower Loans cannot be obtained except by Borrower-Members, and (ii) Securities cannot be purchased except by Lender-Members;

 

(p) monitoring the operating terms of the Note Trader Platform; advising the Company if it determines, at any time, that any changes to such terms are desirable; and confirming, on a continuing basis, that Securities cannot be purchased through the Note Trader Platform except by Lender-Members;

 

(q) confirming that the Account Bank at all times remains an Eligible Bank; and if the Account Bank ceases to be an Eligible Bank, arranging for the transfer of the FBO Account and any funds therein to an Eligible Bank;

 

(r) arranging for the Company to comply with the Privacy Policy in the operation of the Prosper System and, in conjunction with the Company’s counsel, updating the Privacy Policy as needed to conform to changes in applicable law;

 

(s) to the extent that a Responsible Officer of the Servicer has actual knowledge of any failure of a party to a Core Document to perform any of its obligations to the Company, notifying the Company, as soon as practicable, of such failure;

 

(t) from time to time taking at the Company’s expense such actions as the Company may reasonably request, or as the Servicer deems appropriate under the Servicing Standard, to enforce the Company’s rights under any Program Document or document related thereto;

 

(u) arranging for the execution by the Company of any documents and instruments necessary or incidental to the Program Documents and arranging for the execution of amendments to and waivers of the Program Documents deliverable by the Company thereunder or in connection therewith; provided that the Servicer shall not execute on behalf of the Company any amendment to this Agreement or waiver hereunder;

 

  

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(v) at the direction of the Company, from time to time designating employees and agents of the Servicer to as act as attorneys-in-fact for the Company; and 

 

(w) otherwise assisting the Company to the extent provided in this Agreement to enable the Company to perform its obligations and duties under and in connection with, and to comply with the terms of, each of the Program Documents.

 

3.3 Securities-Related Services.

 

The Servicer’s duties on behalf of the Company in connection with the Company’s issuance, sale and payment of its Securities shall include:

 

(a) from time to time arranging for the issuance by the Company of Securities pursuant to the Prosper System and the Indenture and applying the proceeds of each series of Securities to the Company’s purchase of the Corresponding Borrower Loan from the Bank pursuant to the Loan Sale Agreement;

 

(b) confirming prior to the issuance of any series of Securities that each Lender-Member who is purchasing any such Security has sufficient available funds in the FBO Account to pay the purchase price of its Security;

 

(c) supervising the preparation, and arranging for the filing, of all registration statements, prospectus supplements, consents or other documents that the Company is required to prepare or file in connection with its offering of Securities, including any required filings with the SEC (including, for the avoidance of doubt, any filings required under the Securities Act or Rule 15Ga-1) and State securities commissions; 

 

(d) without limitation to Section 3.3(c), in conjunction with the Company’s counsel confirming that at the time any Securities are issued (i) the Company’s registration statement with the SEC remains effective, and (ii) the Company’s registration statement in each State in which such Securities will be sold (other than any such State in which registration is not required) remains effective;

 

(e) in conjunction with the Company’s counsel, confirming that any eligibility criteria that apply under the laws of any State to Lender-Members located in such State are appropriately disclosed on the Prosper Website; and further confirming that  each Lender-Member located in any such State is required to confirm, as a condition precedent to the purchase of any Securities, that it satisfies the applicable eligibility criteria;

 

(f) supervising the payment by the Company of principal and interest amounts due on the Securities in accordance with the Indenture; and

 

(g) holding, maintaining and preserving books and records with respect to the Company’s issuance, sale and payment of the Securities.

 

 

  

9

  

 

3.4 Servicing of Borrower Loans.

 

The Servicer’s duties on behalf of the Company in connection with the origination and servicing of Borrower Loans shall include those set forth in Sections 3.5 through 3.15 below.

 

3.5 Posting and Funding of Borrower Loans.

 

The Servicer’s duties in connection with the posting of Loan Listings on the Prosper Website and the funding of Borrower Loans shall include the following:

(a) confirming that each Borrower-Member for whom any Loan Listing is posted satisfies the eligibility criteria then applicable to borrowers under the Prosper System (including any required minimum credit score);

 

(b) determining with reference to (i) the applicable Prosper Rating, and (ii) such other factors as the Servicer deems appropriate in accordance with the Prosper System, the Loan Rate for each Loan Listing;

 

(c) arranging for each Loan Listing to include the requested loan amount, the Loan Rate, the Prosper Score, the Prosper Rating, the lender’s yield percentage, whether partial funding will be permitted and such other relevant information as the Prosper System or the Prospectus may then require (including any disclosures required for the Company to satisfy its undertakings regarding the content of loan listings set forth in the Prospectus under the heading “About Prosper — Posted Borrower Loan Listings” (as such disclosure is from time to time amended or replaced));

 

(d) except as the Company and the Servicer may otherwise agree in writing, confirming that each Borrower Loan has a term of between one month and seven years and is repayable in monthly installments;

 

(e) monitoring the transfer from the Bank to the applicable Borrower on the Loan Funding Date of the principal amount of the relevant Borrower Loan, net of any origination fees or other fees and expenses then payable by the Borrower pursuant to the Borrower Registration Agreement;

 

(f) on each Loan Funding Date, monitoring the receipt by the Company of any fees related to borrower origination fees due from the Bank to the Company;

 

(g) on behalf of the Company as authorized agent for each Borrower under its Borrower Registration Agreement, executing a Loan Note on each Loan Funding Date to evidence the applicable Borrower Loan; and

 

(h) holding, maintaining and preserving records with respect to the Company’s purchase of Borrower Loans and all related funds transfers. 

 

  

10

  

 

3.6 Prosper Ratings and Borrower Verification.

 

The Servicer shall assign a Prosper Rating to each Loan Listing in accordance with the Rating Procedures.  The Company acknowledges that the Servicer has disclosed to it the Rating Procedures that are in effect on the Closing Date.  The Servicer shall not amend the Rating Procedures without the Company’s prior written consent; provided that (i) the Company shall not unreasonably withhold any such consent, and (ii) the Company’s consent shall not be required in connection with (A) technical changes to the Rating Procedures that correct any errors, inconsistencies or ambiguities therein (as determined by the Servicer in its sole good faith discretion), or (B) changes made to the Prosper Rating of any Loan Listing to correct any error made in the Prosper Rating originally assigned to it.  The Servicer agrees to monitor the performance of the Loans, relative to their respective Prosper Ratings, and from time to time to notify the Company if it determines that changes should be made to the Rating Procedures to improve the accuracy of the Prosper Ratings.  The Servicer further agrees that it will verify the identity of each Borrower and will verify income and employment information for a subset of Borrowers, and based on the results of its investigations will cancel certain Loan Listings, in each case in the manner, and to the extent, contemplated by the Company’s disclosures under the heading “About the Platform — Borrower Identity and Financial Information Verification?” in the Prospectus (as such disclosure is from time to time amended or replaced).

 

3.7 General Servicing Procedures.

 

Until the principal and interest of each Borrower Loan is paid in full, the Servicer shall:

 

(a) Require all Borrowers to make all Borrower Loan Payments into the Deposit Account in accordance with the applicable Borrower Loan Documents.

 

(b) Apply all Borrower Loan Payments collected from the Borrowers in accordance with the Indenture, and maintain permanent account records capable of producing, in chronological order, the date and amount of each payment made or due on any Borrower Loan and each other transaction affecting the amounts due from or to the Borrowers and indicating the latest outstanding balance of each Borrower Loan.

 

(c) Post on the Prosper Website, for access by the applicable Lender-Member, information regarding the delinquency status of any Borrower Loan that is at least 30 days past due.

 

(d) Make available to each Member through the Prosper Website specified information concerning his or her Prosper Account as contemplated by the Prosper System.

 

(e) Maintain safe custody on the Company’s behalf of all Borrower Loan Documents and maintain in connection therewith, and in connection with all other books and records created or held by the Servicer in accordance with this Agreement, such backup computer systems and files as shall conform to industry standards and as the Servicer shall otherwise deem prudent.

 

  

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(f) Be responsible for monitoring and reconciling the balances in the Members’ Prosper Accounts in accordance with the Applicable Requirements.  The Servicer shall attempt to promptly resolve any discrepancies and, unless the discrepancy has resulted from the mistake or negligence of the Account Bank, the Trustee or other Person that is not an Affiliate of the Servicer, or has resulted from causes not within the Servicer’s control, shall be responsible for all expenses and consequences for failure to reconcile and resolve such discrepancies.

 

(g) Upon payment of a Borrower Loan in full and receipt from the Company of any documents or information necessary to effect such release, prepare and file any necessary release or satisfaction documents and continue servicing such Borrower Loan pending final settlement.

 

3.8 Collection of Borrower Loan Payments.

 

The Servicer shall make commercially reasonable efforts to service and collect all Borrower Loans, in good faith, accurately and in accordance with the Servicing Standard.  The Servicer may, subject to the Servicing Standard, waive, modify or vary any non-material term of any Borrower Loan or consent to the postponement of strict compliance with any such term or in any manner grant a non-material indulgence to any Borrower.  Notwithstanding the foregoing, in the event that any Borrower Loan is in default, or in the judgment of the Servicer, such default is reasonably foreseeable, or the Servicer otherwise determines that such action would be consistent with the Servicing Standard, and provided that the Servicer has reasonably and prudently determined that such action will not be materially adverse to the interests of the relevant Lender-Members, the Servicer may also waive, modify or vary any term of any Borrower Loan (including material modifications that would change the Loan Rate, defer or forgive the payment of principal or interest, change the payment dates or change the place and manner of making payments on such Borrower Loan), accept payment from the related Borrower of an amount less than the principal balance in final satisfaction of such Borrower Loan or consent to the postponement of strict compliance with any term or otherwise grant any indulgence to any Borrower.  If the Servicer approves modifications to the terms of any Borrower Loan it shall promptly on behalf of the Company notify the corresponding Lender-Members by email of the material terms of such modifications and the effect such modifications will have on their Securities, including any changes to the payments they will receive under the Securities.  The Servicer shall not make material modifications to any Borrower Loan that would conflict with the terms of this Agreement unless authorized in writing by the Company to do so.

 

3.9 Delinquency Control.

 

(a) Subject to the Servicing Standard, the Servicer shall be responsible for protecting the Company’s interest in the Borrower Loans by dealing effectively with Borrowers who are delinquent or in default.  The Servicer’s Delinquent Loan servicing program shall include an adequate accounting system which will immediately and positively indicate the existence of Delinquent Loans, a procedure that provides for sending delinquent notices, and assessing late charges, and a procedure for the individual analysis of distressed or chronically delinquent Borrower Loans.

 

  

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(b) The Servicer shall provide the Company with a month-end collection and delinquency report identifying any Delinquent Loans, and from time to time as the need may arise, provide the Company with Borrower Loan service reports relating to any items of information which the Servicer is otherwise required to provide hereunder, or detailing any matters the Servicer believes should be brought to the special attention of the Company.

 

(c) Without limitation to Section 3.8 or Section 3.9(a), but subject to the Servicing Standard, the Servicer shall have sole discretion to determine (i) the timing and content of communications sent to delinquent Borrowers, and (ii) when and whether to (A) refer a Delinquent Loan for collection, (B) initiate legal action to collect a Delinquent Loan (any such legal action to be at the Company’s expense), (C) sell a Delinquent Loan to a third party, (D) accelerate the maturity of a Delinquent Loan that is at least 30 days past due, and/or (E) write off a Delinquent Loan or any portion thereof.  The Servicer shall be authorized to select and engage on the Company’s behalf any collection agency to which any Delinquent Loan is referred and to determine the amount of its compensation (which shall not, however, exceed 30% of the amount of collections obtained except as the Company may otherwise approve in writing).  The Company acknowledges and agrees that the Servicer shall be deemed to have undertaken commercially reasonable servicing and collection efforts if it refers a Delinquent Loan to a collection agency with five Business Days after such Borrower Loan first became thirty days past due.  The Company further acknowledges and agrees that the Servicer will write off Borrower Loans that are 120 days past due (and may also write off Delinquent Loans that are less than 120 days (but at least 31 days) past due if the Servicer deems such action appropriate).

 

3.10 Servicer Reports; Additional Duties.

 

The Servicer shall:

 

(a) Furnish to the Company such reports concerning the Borrower Loans, the Securities and/or the Servicer’s performance of its duties hereunder as may be agreed between the parties.  Each such report shall be in such format and delivered on such dates as may be agreed between the parties.

 

(b) Represent the Company at, or provide to the Company all such assistance as the Company may reasonably request in connection with, any arbitration proceedings initiated by the Company or by Members pursuant to the Borrower Registration Agreements, the Loan Notes or the Lender Registration Agreements and, when deemed appropriate by the Servicer in light of the Servicing Standard, initiate arbitration proceedings under any such agreement or Loan Note on the Company’s behalf.

 

(c) Perform such other customary duties and execute such other customary documents in connection with its duties under this Agreement as the Company from time to time reasonably may require.

 

3.11 Books and Records.

 

(a) The Servicer shall provide to the Company an audited financial statement not later than ninety (90) days after the close of each of the Servicer’s fiscal years.  The Servicer shall make its servicing personnel available during regular business hours to respond to reasonable inquiries from the Company and upon the Company’s request shall give the Company’s authorized representative(s) opportunity upon notice at any time during the Servicer’s normal business hours to examine the Servicer’s books and records relating to its services hereunder.  The Servicer will keep records in accordance with industry standards pertaining to each Borrower Loan and Security, and such records shall be the property of the Company and upon termination of this Agreement shall be delivered to the Company at the Company’s expense.

 

  

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(b) Without limiting the generality of Section 3.11(a), the Servicer shall permit any officer, employee or designated representative of the Company, as well as any governmental regulator having supervisory authority over the Company, at any reasonable time during regular business hours and upon reasonable advance notice by the Company, to conduct an audit and examination on the Servicer’s premises of the Servicer’s books and records, operating procedures, collection guidelines and Borrower Loan Documents including, but not limited to, the Servicer’s compliance with the terms, conditions, requirements, procedures, covenants, representations, and warranties of this Agreement, with respect to the Borrower Loans, the Securities and the Servicer’s management of the Prosper System; provided, however, that any such examination or audit shall be conducted upon prior notice and during normal business hours and shall be conducted so as not to materially disrupt the Servicer’s business activities.  The Servicer shall make its officers, employees and/or designated representatives available to the Company for all such audits and examinations and shall cooperate with the Company in all such audits and examinations.  All such access, audits, or examinations shall be conducted without charge to the Company.  For the purposes of this Agreement with respect to any such examination or audit, the regular business hours of the Servicer are Monday through Friday, 9:00 am to 5:00 pm Pacific Standard Time; provided, however, that any audit and examination of the Servicer’s books and records, operating procedures, collection guidelines and practices, the Borrower Loan Documents, the Securities or the Prosper System, and the Servicer’s compliance with the terms, conditions, requirements, procedures, covenants, representations, and warranties of this Agreement, by the Company, any regulatory agency having supervisory authority over the Company or the Servicer or by any third party engaged by the Company shall in no way diminish, reduce, eliminate, or nullify the Servicer’s liabilities or indemnification obligations or other obligations, responsibilities, or duties under this Agreement.

 

3.12 Repurchase Obligation. 

 

The Servicer acknowledges that pursuant to Sections 8 and 9 of the Lender Registration Agreements the Company is required under certain circumstances to repurchase Securities from Lenders, to indemnify the Lenders against losses resulting from the breach by the Company of certain of its representations in the Lender Registration Agreements, or to cure such breaches of representations (any such circumstance, a “Repurchase Event”).  The Servicer further acknowledges the Company is relying upon the Servicer, through the services it provides under this Agreement, to prevent the occurrence of Repurchase Events.  Accordingly, the Servicer agrees that if any Repurchase Event occurs it will at its election either (i) promptly cure such Repurchase Event, or (ii) if (A) the Company cannot satisfy its obligations to the applicable Lenders by curing such Repurchase Event, (B) such Repurchase Event is not susceptible of cure (as determined by the Servicer in its sole discretion), or (C) the Servicer elects in its sole discretion not to attempt any such cure, provide the Company with all funds it requires to repurchase the applicable Securities from the applicable Lenders at the time, and for the purchase price, specified in the applicable Lender Registration Agreement or to pay any indemnities due to such Lenders (“Repurchase Funds”).  The Servicer will deposit in the FBO Account any Repurchase Funds due from it hereunder and promptly apply the same on the Company’s behalf to repurchase the applicable Securities or to pay the required indemnities to the applicable Holders (as applicable).  The Company will promptly transfer to the Servicer any Security repurchased by the Company with Repurchase Funds but otherwise has no obligation to repay any Repurchase Funds that the Servicer may provide.  Each of the Company and the Servicer shall promptly notify the other party of any Repurchase Event that comes to its attention; provided that (i) the Company shall not be required to provide notice to the Servicer of any Repurchase Event that it reasonably believes is already known to the Servicer, and (ii) any failure by the Company to provide such notice shall not limit or otherwise affect the Servicer’s repurchase obligations under this Section 3.12.  The Company acknowledges that (i) the Servicer has no obligation to purchase Securities or Loan Notes, and has no obligation to provide the Company with Repurchase Funds, except as stated in this Section 3.12, and that (ii) the Servicer does not guarantee the payment of any Security or Loan Note in whole or in part.

 

 

  

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3.13 Servicer Advances.

 

(a)           The Servicer shall not be obligated to make any advances at any time for principal or interest payments on any Borrower Loan.  The Servicer may (but is not obligated to) advance from its own funds amounts due from the Company to third-party service providers (including, without limitation, collection agencies) in connection with the servicing and/or collection of Borrower Loans and/or the administration of the Company’s business.  Subject to Section 3.14, the Company shall reimburse the Servicer upon request for any amounts so paid by the Servicer but no such reimbursement shall be paid from any funds that, under the Indenture, are allocated to the payment of Securities.  This Section 3.13 shall not be construed to limit the Servicer’s obligations under Section 3.12.

 

(b)           Anything herein contained in this Agreement to the contrary notwithstanding, the representations, warranties and covenants of the Servicer in this Agreement shall not be construed as a warranty or guarantee by the Servicer as to future payments by any Borrower.

 

3.14 Reimbursement of the Servicer.

 

(a) In the event the Servicer is entitled under this Agreement to reimbursement for any expenses incurred by it under this Agreement, it shall send the Company a written request for such reimbursement reasonably documented by the Servicer in accordance with the Servicing Standard.  The Company may request additional information if the same is reasonably required by the Company to determine the accuracy and validity of the reimbursement request.

 

(b) If the Company in good faith disputes the Servicer’s right to reimbursement for any charge or the amount of any requested reimbursement, it shall notify the Servicer within ten (10) Business Days after receipt of the request for reimbursement.  Initial notification should be verbal, followed by written notification by such deadline, describing the basis of the dispute and the disputed amount if such dispute cannot be resolved immediately.  The Company shall pay the amounts due under this Agreement less the amount disputed, and the parties shall diligently and in good faith proceed to resolve such disputed amount.

 

  

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(c) The Servicer is authorized to pay to itself from the Deposit Account, in the same manner as the Servicing Fee (but only from funds not allocated to the payment of Securities), any reimbursement amount not disputed by the Company within ten (10) Business Days of the date the Servicer submits the related reimbursement request to the Company and any disputed amount that is resolved in the Servicer’s favor.  If the Company determines after such tenth Business Day that it has good cause to dispute any reimbursement amount submitted by the Servicer, it shall promptly so notify the Servicer and the parties shall diligently and in good faith proceed to resolve the disputed amount.  Any such disputed amount that has previously been paid by the Company and is resolved in the Company’s favor shall be promptly refunded to the Company by the Servicer.

 

3.15 Licenses.

 

The Servicer shall maintain at all times during the term of this Agreement all material licenses and approvals required by applicable regulatory agencies and governmental authorities, including all material licenses and approvals necessary in each state where Members are located if the laws of such state require licensing or qualification in order to conduct the business of the Servicer with respect to the Borrower Loans, the Securities or the Members, including as contemplated in this Agreement, and in any event the Servicer shall remain in compliance with the laws and regulations of any such state to the extent necessary to ensure the enforceability of the Borrower Loans.

 

3.16 Power of Attorney.

 

The Company shall furnish the Servicer with any reasonably required documents related to the servicing of the Borrower Loans as the Servicer shall reasonably request to enable the Servicer to carry out its servicing and administrative duties hereunder.  The Company shall execute any documentation furnished to it by the Servicer for recordation by the Servicer in the appropriate jurisdictions, as shall be necessary to effectuate the foregoing.

 

ARTICLE IV

 

AGREEMENTS OF THE COMPANY

 

4.1 Documentation.

 

The Company shall provide the Servicer with all Borrower Loan Documents or records in its possession or that are executed by Borrowers through the Prosper System.  The Servicer shall maintain safe custody of each such Borrower Loan Document in accordance with Section 3.7(e).

 

4.2 Servicing Compensation.

 

The Company shall pay to the Servicer from time to time the fee described in Exhibit C hereto (the “Servicing Fee”).  The Company hereby authorizes the Servicer to deduct and withdraw from the Deposit Account any Servicing Fees due to the Servicer.

 

 

  

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ARTICLE V

 

TERM AND TERMINATION

 

5.1 Term.

 

The term of this Agreement shall commence on the date hereof and shall extend to the Termination Date.

 

5.2 Termination.

 

(a) In the event that the Servicer breaches any of its obligations under this Agreement in any material respect, the Company shall give prompt written notice to the Servicer.  If the Servicer’s breach is the Servicer’s failure to arrange for the payment of amounts due on any Security from funds available for such purpose under the Indenture and such breach (if not the result of breach of duty or nonperformance by the Trustee) is not cured by the Servicer within two (2) Business Days from the date that the Servicer receives the Company’s notice of breach, the Company may terminate this Agreement.  If the Servicer breaches any of its other obligations under this Agreement and does not cure such breach within thirty (30) days from the date that the Servicer receives the Company’s notice of breach, the Company may terminate this Agreement.

 

(b) In the event that the Company breaches any of its obligations under this Agreement in any material respect, the Servicer shall give prompt written notice to the Company.  If the Company’s breach is of the Company’s obligation to pay the Servicer as required pursuant to Sections 3.14 or 4.2 and such nonpayment (i) did not result from the Servicer’s own failure to process the payment under the Indenture or from the application of Section 10.20, and (ii) is not cured by the Company within two (2) Business Days from the date that the Company receives the Servicer’s notice of breach, the Servicer may terminate this Agreement.  If the Company commits any other breach of its obligations under this Agreement, and such breach is not cured by the Company within thirty (30) days from the date that the Company receives the Servicer’s notice of breach, the Servicer may terminate this Agreement.

 

(c) Upon one hundred eighty (180) calendar days’ notice to the Servicer, the Company may terminate this Agreement without cause and at its sole option; provided, however, that the Company may not terminate this Agreement pursuant to this Section 5.2.(c) prior to the third anniversary of the effective date of this Agreement.

 

(d) Upon one hundred eighty (180) calendar days’ notice to the Company, the Servicer may terminate this Agreement without cause and at its sole option; provided, however, that no such termination by the Servicer shall be effective unless a successor servicer acceptable to the Company has accepted appointment on terms acceptable to the Company.

 

5.3 Transfer Upon Termination; Costs and Expenses.

 

The Servicer agrees in connection with any termination of this Agreement to transfer the servicing of the Borrower Loans that remain outstanding to the Company or a successor servicer designated by the Company as soon as reasonably practicable.  Until such time of transfer, the servicing and obligations of the parties hereto and the Servicer’s obligations to provide termination assistance shall continue in full force and effect, provided that Company shall use good faith, commercially reasonable efforts to cause the transfer of servicing as promptly as possible, and shall pay all fees, compensation or other amounts due under this Agreement, and otherwise perform all of its obligations under this Agreement, during such period.  Upon any termination of this Agreement, the Servicer shall prepare, execute and deliver to the successor entity designated by the Company any and all Borrower Loan Documents and other instruments in its possession with respect to the Borrower Loans, place in such successor’s possession all of the Borrower Loans, and, in a timely manner, do or cause to be done all other acts or things necessary or appropriate to effect the purposes of such notice of termination, including but not limited to the transfer of the Borrower Loans and Borrower Loan Documents and data (i) at the Servicer’s sole cost and expense if the termination is pursuant to Sections 5.2(a) or 5.2(d), or (ii) at the Company’s sole cost and expense if the termination is for any other reason.  Upon any transfer of servicing upon the termination of this Agreement, the Company and Servicer shall cooperatively send all transfer of servicing notices from the transferor servicer required by the Applicable Requirements to the Borrowers entitled to said notice.  Notwithstanding anything in this Agreement to the contrary, no termination fees shall be payable by either party upon any termination of this Agreement.

 

  

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5.4 Reimbursement.

 

In connection with any termination or transfer, on the servicing transfer date, the Company shall reimburse the Servicer for all related expenses subject to recovery or reimbursement hereunder, and any related unpaid Servicing Fees, net of any amounts owed to the Company by the Servicer pursuant to this Agreement.

 

5.5 Survival.

 

The indemnification and repurchase obligations of the Servicer and the representations and warranties of the parties set forth in this Agreement, and any obligations of the parties in this Agreement that by their terms survive termination, shall survive the termination or assignment of this Agreement.

 

 

ARTICLE VI                                

 

 

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

 

As of the date hereof and as of each Loan Funding Date, the Company warrants and represents to the Servicer as follows:

 

6.1 Authority.

 

The Company (i) is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Delaware, and (ii) subject to compliance by the Servicer with its obligations under Sections 3.2(j), 3.2(k) and 3.3(d), (A) has all material licenses or charters and approvals necessary to carry on its business as now being conducted, including all licenses, charters or approvals required by applicable regulatory agencies and governmental authorities, and (B) is licensed, qualified and in good standing in each state where Members are located if the laws of such state require licensing or qualification in order to conduct business of the type conducted by the Company as contemplated in this Agreement or the Company is otherwise exempt under applicable law from such licensing and qualification.

 

  

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6.2 Authorization, Enforceability and Execution.

 

The Company has the absolute and unrestricted right, power, authority, and capacity to execute and deliver this Agreement and to perform its obligations hereunder. The Company has duly authorized, executed, and delivered this Agreement.  This Agreement constitutes the legal, valid, and binding obligation of the Company, enforceable against it in accordance with its terms, except as such enforcement may be limited by (i) any applicable bankruptcy, insolvency, reorganization, moratorium or similar law affecting creditors’ rights generally, or (ii) the effect of general principles of equity (regardless of whether considered in a proceeding in equity or at law).  The signatory executing this Agreement on behalf of the Company is duly authorized to execute and deliver such document.

 

6.3 No Conflict.

 

Neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated hereby, nor compliance with its terms and conditions, will (i) violate, conflict with, result in the breach of, or constitute a default under, be prohibited by, or require any additional approval under any of the terms, conditions or provisions of the Company’s limited liability company agreement or other formative documents, if any, or of any indenture or other agreement to which the Company is now a party or by which it is bound, or of any order, judgment or decree of any court or governmental authority applicable to the Company, (ii) result in the violation of any law, rule, regulation, order, judgment or decree to which the Company or its property is subject, or impair the ability of the Servicer to service the Borrower Loans or Securities or (iii) result in the creation or imposition of any lien, charge or encumbrance of any material nature upon any of the properties, Borrower Loans or Securities of the Company.

 

6.4 No Consent.

 

No consent, approval, authorization or order of any court or governmental agency, instrumentality or body is required for the execution, delivery and performance by or compliance by the Company with this Agreement or if required, such approval has been obtained prior to the date of execution hereof.

 

6.5 No Litigation.

 

Except as otherwise disclosed by the Company to the Servicer in writing, there is no litigation, proceeding, claim, demand or governmental investigation pending or, to the knowledge of the Company, threatened, nor is there any order, injunction or decree outstanding against or relating to the Company, the Borrower Loans or the Securities, which could result in any material liability to the Servicer or materially impair the ability of the Company or the Servicer to perform its obligations hereunder.  The Company is not in default in any material respect with respect to any order of any court, governmental authority or arbitration board or tribunal to which the Company is a party or is subject, and the Company is not in violation of any laws, ordinances, governmental rules or regulations to which it is subject, which default or violation might materially and adversely affect any of the Borrower Loans or Securities or result in material cost or liability to the Servicer.

 

  

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6.6 The Borrower Loans.

 

The Company hereby makes the following representations, warranties to the Servicer in relation to each Borrower Loan to the best of the Company’s knowledge as of the related Loan Funding Date only:

 

(a) The Company has, on or before the Loan Funding Date, delivered or caused to be delivered to the Servicer, all of the books, records, data, files and other Borrower Loan Documents relating to such Borrower Loan, to the extent in the Company’s possession.

 

(b) After giving effect to the Company’s purchase from the Bank of each Borrower Loan, the Company is the record holder of such Borrower Loan.

 

ARTICLE VII

 

REPRESENTATIONS AND WARRANTIES OF THE SERVICER

 

As of the date hereof and as of each Loan Funding Date, the Servicer warrants and represents to the Company as follows:

 

7.1  Authority.

 

The Servicer is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization and has all material licenses and approvals necessary to carry on its business as now being conducted, including all licenses and approvals required by applicable regulatory agencies and governmental authorities, and is licensed, qualified and in good standing in each state where Members are located if the laws of such state require licensing or qualification in order to conduct business of the type conducted by the Servicer as contemplated in this Agreement.

 

7.2 Authorization, Enforceability and Execution.

 

The Servicer has the absolute and unrestricted right, power, authority, and capacity to execute and deliver this Agreement, and to perform its obligations hereunder. The Servicer has duly authorized, executed, and delivered this Agreement.  This Agreement constitutes the legal, valid, and binding obligation of the Servicer, enforceable against it in accordance with its terms, except as such enforcement may be limited by (i) any applicable bankruptcy, insolvency, reorganization, moratorium or similar law affecting creditors’ rights generally, or (ii) the effect of general principles of equity (regardless of whether considered in a proceeding in equity or at law).  The signatory executing this Agreement on behalf of the Servicer is duly authorized to execute and deliver such document.

 

7.3 No Conflict.

 

Neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated hereby, nor compliance with its terms and conditions, (i) violates, conflicts with, results in the breach of, or constitutes a default under, is prohibited by, or requires any additional approval under any of the terms, conditions or provisions of the Servicer’s certificate of incorporation or other formative documents or of any mortgage, indenture, deed of trust, loan or credit agreement or instrument to which the Servicer is now a party or by which it is bound, or of any order, judgment or decree of any court or governmental authority applicable to the Servicer, (ii) results in the violation of any law, rule, regulation, order, judgment or decree to which the Servicer or its property is subject, or impairs the ability of the Servicer to service the Borrower Loans or the Securities or (iii) results in the creation or imposition of any lien, charge or encumbrance of any material nature upon any of the Borrower Loans or Securities or any properties of the Servicer.

 

 

  

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7.4 No Consent.

 

No consent, approval, authorization or order of any court or governmental agency, instrumentality or body is required for the execution, delivery and performance by or compliance by the Servicer with this Agreement or if required, such consent, approval, authorization or order has been obtained prior to the date of execution hereof.

 

7.5 No Litigation.

 

Except as otherwise disclosed by the Servicer in the Servicer’s periodic reports under the Exchange Act under the heading “Legal Proceedings”, there is no litigation, proceeding, claim, demand or governmental investigation pending or, to the knowledge of the Servicer, threatened, nor is there any order, injunction or decree outstanding against or relating to the Servicer, which, if decided against the Servicer, could have a material adverse effect upon any of the Borrower Loans or Securities or materially impair the ability of the Servicer to perform its obligations hereunder.  The Servicer is not in default in any material respect with respect to any order of any court, governmental authority or arbitration board or tribunal to which the Servicer is a party or is subject, and the Servicer is not in violation of any laws, ordinances, governmental rules or regulations to which it is subject, which default or violation might materially and adversely affect any of the Borrower Loans or Securities or result in material cost or liability to the Company.

 

7.6 License Warranty.

 

PMI warrants (a) that it is the sole and exclusive owner of the Prosper System with the requisite power and authority to license the Prosper System in accordance with this Agreement; and (b) that neither the Prosper System nor the Company’s operation of the Prosper System nor the Servicer’s performance of its obligations hereunder will infringe any patent, copyright, trademark, trade secret or other proprietary right of any third party.

 

ARTICLE VIII

 

INDEMNIFICATION AND LIABILITY

 

8.1 Standard of Liability; Indemnification.

 

The Servicer shall not be liable to the Company or its successors, assigns, officers, directors, employees or agents, for any actions or omissions to act in connection with the servicing of the Borrower Loans pursuant to this Agreement or for errors in judgment, except as expressly provided in Section 3.12 and in the following paragraph.  The Servicer and any director, officer, employee or agent of the Servicer may rely in good faith on any document of any kind prima facie properly executed and submitted by any Person respecting any matters arising hereunder, except to the extent the Servicer knows that such document is false, misleading, inaccurate or incomplete.

 

  

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The Servicer agrees to indemnify, defend, and hold the Company and its successors, assigns, officers, directors, employees and agents harmless from and against any and all claims, damages, losses, liabilities and expenses (including, without limitation, reasonable fees and disbursements of counsel), joint or several (collectively, “Damages”), directly or indirectly resulting from or arising out of (i) the failure of the Servicer to perform its duties in accordance with the terms of this Agreement, (ii) the material breach of any of the Servicer’s representations, warranties, covenants or agreements  contained in this Agreement including, but not limited to, confidentiality provisions, or (iii) except as otherwise provided in this Agreement, the acts or omissions of any permitted subservicer or service provider engaged by the Servicer to service the Borrower Loans as provided in Section 10.2; and (iv) infringement or misappropriation by the Servicer of any patent, copyright, trademark, servicemark, trade secret or other proprietary right of any other Person; provided, however, that the Servicer shall not be responsible for any Damages resulting from or arising out of (i) the failure of the Company to perform its duties in accordance with the terms of this Agreement (unless such failure resulted from the actions or omissions of the Servicer), (ii) the material breach of any of the Company’s representations, warranties, covenants or agreements contained in this Agreement, (iii) the origination, making, funding, sale or servicing of any Borrower Loans or Securities after the Termination Date, (iv) the absence or unavailability of any books, records, data, files and other Borrower Loan Documents or other documents evidencing or relating to a Borrower Loan, in any form, including but not limited to any documents necessary to service the Borrower Loans in accordance with Applicable Requirements, other than to the extent resulting from the actions or omissions of the Servicer, (v) compliance with any instructions of the Company to the extent that compliance with such instructions does not comply with Applicable Requirements.

 

Except as otherwise expressly provided herein, the Servicer shall not be under any obligation to appear in, prosecute or defend any legal action which is not incidental to its duties to manage the Prosper System and service the Borrower Loans in accordance with this Agreement and which in its opinion may involve it in any expense or liability; provided, however, that the Servicer may, with the consent of the Company, which consent may be exercised by the Company in its sole and exclusive discretion, undertake any such action which it may deem necessary or desirable in respect of this Agreement and the rights and duties of the parties hereto.  In such event, or if the Servicer deems it necessary to defend any such action, the Servicer shall be entitled to reimbursement from the Company for its reasonable legal expenses and costs of such action.

 

8.2 Procedure for Indemnification.

 

Promptly upon receipt of notice of any claim, demand or assessment or the commencement of any suit, demand, action or proceeding in respect of which indemnity may be sought pursuant to Section 8.1, the Company will use its best efforts to notify the Servicer in writing thereof in sufficient time for the Servicer to respond to such claim or answer or otherwise plead in such action.  Except to the extent that the Servicer is prejudiced thereby, the omission of the Company to promptly notify the Servicer of any such claim or action shall not relieve the Servicer from any liability which it may have to the Company in connection therewith.  If any claim, demand or assessment shall be asserted or suit, action or proceeding commenced against the Company, the Servicer will be entitled to participate therein, and to the extent it may wish to assume the defense, conduct or settlement thereof, with counsel reasonably satisfactory to the Company.  After notice from the Servicer to the Company of its election to assume the defense, conduct, or settlement thereof, the Servicer will not be liable to the Company for any legal or other expenses consequently incurred by the Company in connection with the defense, conduct or settlement thereof.  The Company will cooperate with the Servicer in connection with any such claim and make its personnel, books and records relevant to the claim available to the Servicer.  In the event the Servicer does not wish to assume the defense, conduct or settlement of any claim, demand or assessment, the Company will not settle such claim, demand or assessment without the prior written consent of the Servicer, which consent shall not be unreasonably withheld.

 

  

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ARTICLE IX 

 

ANNUAL REPORTING

9.1 Servicer Compliance Statement.

 

On or before March 31 of each calendar year, commencing in 2013, the Servicer shall deliver to the Company one or more statements of compliance addressed to the Company and signed by an authorized officer of the Servicer, to the effect that (i) a review of the Servicer’s activities during the immediately preceding calendar year (or applicable portion thereof) and of its performance under this Agreement during such period has been made under such officer’s supervision, and (ii) to the best of such officer’s knowledge, based on such review, the Servicer has fulfilled all of its obligations under this Agreement in all material respects throughout such calendar year (or applicable portion thereof) or, if there has been a failure to fulfill any such obligation in any material respect, specifically identifying each such failure known to such officer and the nature and the status thereof.

 

ARTICLE X

 

MISCELLANEOUS

 

10.1 Independence of Parties.

 

The Servicer shall have the status of, and act as, an independent contractor.  Nothing herein contained shall be construed to create a partnership or joint venture between the Company and the Servicer.

 

10.2 Assignment of Servicing.

 

This Agreement may not be assigned by the Servicer without the prior written consent of the Company; provided, however, that this Agreement shall be assumed by any entity into which the Servicer may be merged or consolidated, or any entity succeeding to the business of the Servicer.  This Section does not prohibit the Servicer from engaging service providers to assist the Servicer in the performance of specific functions related to its obligations under this Agreement or to perform component services required for the servicing; provided, however, the Servicer shall not engage the services of a subservicer or other service provider to perform a substantial portion of the primary day-to-day servicing obligations of the Servicer under this Agreement without the prior written consent of the Company, which consent may be exercised in the Company’s sole and exclusive discretion; and provided, further any such subservicer or service provider shall be engaged at the sole cost and expense of the Servicer, and shall be subject to the terms and conditions of this Agreement, the Servicer shall be fully liable for the acts and omissions of said subservicer or service provider, and the Servicer’s repurchase and indemnification obligations shall apply with respect to the acts or omissions of said subservicer or service providers as if the Servicer had performed the services directly.  This Section does not limit or impair the Servicer’s right to terminate this Agreement in accordance with Section 5.2(d) of this Agreement.  The Company may not assign this Agreement without the prior written consent of the Servicer; provided, however, that (i) the parties acknowledge and agree that the Company will pledge its rights under this Agreement to the Trustee pursuant to the Indenture, and (ii) this Agreement can be assigned to any entity into which the Company may be merged or consolidated, or any entity succeeding to the business of the Company.

 

  

23

  

 

10.3 Entire Agreement.

 

This Agreement contains the entire agreement between the parties hereto and cannot be modified in any respect except by an amendment in writing signed by both parties.

 

10.4 Invalidity.

 

The invalidity of any portion of this Agreement shall in no way affect the remaining portions hereof.

 

10.5 Effect.

 

Except as otherwise stated herein, this Agreement shall remain in effect until the Termination Date, unless sooner terminated pursuant to the terms hereof.

 

10.6 Damage Limitation.

 

IN NO EVENT WILL EITHER PARTY BE LIABLE TO THE OTHER FOR ANY INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES OF ANY KIND INCLUDING, BUT NOT LIMITED TO LOST PROFITS, LOSS OF GOODWILL OR BUSINESS INTERRUPTION, ARISING OUT OF THIS AGREEMENT.

 

10.7 Applicable Law.

 

THIS AGREEMENT SHALL BE CONSTRUED AND GOVERNED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, EXCLUDING CONFLICTS OF LAW PROVISIONS.  ANY ISSUE REGARDING ENFORCEABILITY OF THE BORROWER LOAN DOCUMENTS SHALL BE DETERMINED IN ACCORDANCE WITH THE LAWS SPECIFIED THEREIN, OR APPLICABLE UNDER APPLICABLE LAW.

 

  

24

  

 

10.8 Notices.

 

Except as otherwise specifically provided in this Agreement, all notices, requests, demands and other communications which are required or permitted to be given under this Agreement shall be in writing and shall be deemed to have been duly given upon receipt or upon three (3) Business Days after the mailing thereof, sent by certified mail, return receipt requested, to the attention of the person named at the address set forth on the signature page hereof.

 

10.9 Waivers.

 

The Company and the Servicer may, in writing:

 

(a) Waive compliance with any of the terms, conditions or covenants required to be complied with by the other hereunder; and

 

(b) Waive or modify performance of any of the obligations of the other hereunder.

 

The waiver by either party hereto of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any other subsequent breach.

 

10.10 Binding Effect.

 

This Agreement shall inure to the benefit of and be binding upon the parties hereto and their successors and assigns.

 

10.11 Headings and Section References.

 

Headings of the Articles and Sections in this Agreement are for reference purposes only and shall not be deemed to have any substantive effect.  All references in this Agreement to Sections or subsections are references to Sections or subsections of this Agreement unless otherwise specified.

 

10.12 Exhibits.

 

The exhibits to this Agreement are hereby incorporated and made a part hereof and are integral parts of this Agreement.

 

10.13 Counterparts.

 

This Agreement may be executed simultaneously in any number of counterparts.  Each counterpart shall be deemed to be an original, and all such counterparts shall constitute one and the same instrument.

 

10.14 Confidentiality.

 

(a) Confidential Information.  The Company and the Servicer agree that “Confidential Information” means nonpublic information revealed by or through a party (the “Disclosing Party”) to the other party (a “Receiving Party”) including (i) information expressly or implicitly identified as originating with or belonging to third parties, or marked or disclosed as confidential in writing, (ii) information traditionally recognized as proprietary trade secrets or reasonably understood to be confidential, (iii) information about the Borrower Loans and the Members, including Member Information as defined below, and (iv) all copies of all of the foregoing.  Except for Member Information (as defined below) where the obligations of confidentiality always apply except as stated in Section 10.14(d), Confidential Information shall not include information which: (1) is publicly available through no action of the Receiving Party and through no breach of any confidentiality obligation owed to the Disclosing Party; (2) has been in the Receiving Party’s possession without restrictions on disclosure prior to disclosure by the Disclosing Party; (3) has been developed by or become known to the Receiving Party without access to any Confidential Information of the Disclosing Party and without breach of a confidentiality obligation owed to the Disclosing Party and outside the scope of any agreement with the Disclosing Party; or (4) is obtained rightfully from third parties not bound by an obligation of confidentiality.

 

 

  

25

  

 

(b) Member Information.  For the purposes of this Agreement, “Member Information” shall mean any non-public, personally-identifiable information about a Member, including any combination of a Member’s name plus any of his or her social security number, driver’s license or other identification number or credit or debit card number, or other account number utilized by the Servicer, revealed by or through a Disclosing Party to a Receiving Party.

 

(c) Safeguards.  The Servicer and the Company agree to maintain appropriate administrative, technical and physical safeguards for all Confidential Information (including, for the avoidance of doubt, all Member Information).  These safeguards shall (i) ensure the confidentiality of Confidential Information; (ii) protect against any anticipated threats or hazards to the security or integrity of Confidential Information; (iii) protect against unauthorized access to or use of Confidential Information that could result in substantial harm or inconvenience to the Disclosing Party or any Member; and (iv) provide for proper disposal of all Confidential Information to ensure that unauthorized Persons do not obtain access thereto.  The Company and the Servicer agree to maintain all such safeguards in accordance with applicable laws, rules, regulation and guidance.

 

(d) Certain Permitted Disclosures.  For the avoidance of doubt, nothing in Sections 10.14(a) - (c) shall prevent the Servicer from (i) disclosing Performance Information to credit reporting agencies, (ii) posting (or permitting Members to post) information on the Prosper Website or the Note Trader Platform in connection with Loan Listings, Borrower Loans or Securities, or (iii) posting on the Prosper Website or disclosing in the Prospectus pooled Performance Information concerning the Borrower Loans; provided that each posting or disclosure made by the Servicer pursuant to clause (ii) or (iii) shall comply with the Privacy Policy and no such posting or disclosure by the Servicer shall include any Prohibited Information.  The Servicer shall not be responsible to the Company for any Prohibited Information posted on the Prosper Website by a Borrower-Member without the Servicer’s consent; provided that if the Servicer becomes aware that any Borrower-Member has posted Prohibited Information, the Servicer shall take in relation thereto such actions as the Servicer then deems to be in the Company’s best interest (including, if the Servicer so determines, cancellation of the relevant Loan Listing or deletion of the Prohibited Information).

 

 

  

26

  

 

(e) Privacy Laws.  In addition to the above, each of the Company and the Servicer shall comply with all applicable federal and state laws, rules and regulations of regulatory agencies governing the privacy rights of each party hereto and the Members.

 

(f) Breach. Each party hereto agrees to notify the other party hereto promptly upon knowledge of any breach in security resulting in unauthorized access to Confidential Information or Member Information.  Each party hereto agrees to provide any assistance to the other party hereto that is necessary to contain and control the incident to prevent further unauthorized access to or use of Confidential Information or Member Information including preserving records and other evidence, compiling information enabling the preparation and filing of any necessary reports and notifying regulators and any affected Members.

 

 

10.15 Insurance.

 

The Servicer shall at all times during the term of this Agreement obtain and maintain insurance with responsible companies in such amounts and against such risks as are customarily carried by business entities engaged in similar businesses similarly situated, and will furnish the Company on request full information as to all such insurance, and provide within fifteen (15) days after receipt of such request the certificates or other documents evidencing such policies.  Without limitation to the foregoing, the Servicer shall maintain insurance coverage for itself and its subsidiaries that encompasses employee dishonesty, forgery or alteration, theft, disappearance and destruction, robbery and safe burglary, property (other than money and securities) and computer fraud in an aggregate amount of at least $1,000,000 per occurrence.

 

10.16 Disaster Recovery.

 

The Servicer shall have in place comprehensive disaster recovery and business continuity plans including contact information that specifies the procedures to be followed with respect to the continued provision of services described in this Agreement in the event the Servicer’s (or any of its subservicer’s) facilities or equipment are destroyed or damaged.  The Servicer shall make such plans or summaries thereof available to the Company for review.  Such plans shall provide for backup and record protection for records relating to the Securities and the servicing of the Borrower Loans for such time as records are required to be retained in accordance with the Applicable Requirements.  The Servicer shall test the operation and effectiveness of such plan at least annually and furnish to the Company a summary of the test results thereof.  In the event that the Servicer’s plan fails in whole or in part the test required hereby, the Servicer shall conduct a re-test.

 

10.17 Background Check.

 

The Servicer shall conduct, or has conducted, a criminal background check at its own expense on each of its employees engaged in providing services under this Agreement prior to the commencement of such services.  No Servicer employee shall be eligible to perform services for the Company if he or she, to the Servicer’s knowledge: (1) has been convicted of or was placed in a pre-trial diversion program for any crime involving dishonesty or breach of trust including, but not limited to, check kiting or passing bad checks; embezzlement; drug trafficking; forgery; burglary; robbery; theft; perjury; possession of stolen property; identity theft; fraud; money laundering; shoplifting; larceny; falsification of documents and/or (2) has been convicted of any sex, weapons, or violent crime including but not limited to homicide; attempted homicide; rape; child molestation; extortion; terrorism or terrorist threats; kidnapping; assault; battery; and illegal weapon possession, sale or use.

 

 

  

27

  

 

10.18 Separate Identity.

 

The Servicer undertakes to the Company that for so long as any Securities are outstanding the Servicer will (i) maintain its own books, records and bank accounts separate from those of the Company, (ii) hold itself out to the public and all other Persons as a legal entity separate from the Company, (iii) have a board of directors separate from that of the Company, (iv) not commingle its assets with those of the Company, (v) maintain financial statements separate from those of the Company; provided that the Servicer’s consolidated financial statements may include the Company’s financial information subject to disclosure in such consolidated financial statements that the Servicer’s assets are not available to satisfy Company obligations and that the Company’s assets are not available to satisfy Servicer obligations, (vi) maintain an arm’s-length relationship with the Company, (vii) allocate fairly and reasonably between itself and the Company any overhead for shared office space, (viii) use stationery, invoices and checks separate from those of the Company, (ix) correct any known misunderstanding regarding its separate identity from the Company, (x) not use Company assets to pay its own obligations or hold out its own assets as being available to satisfy Company obligations, and (xi) not guarantee any obligations of the Company (it being understood that the Servicer’s obligations under Sections 3.12 and 8.1 shall not be deemed to contravene this Section 10.18).  The terms of this Section 10.18 shall survive any termination of this Agreement.

 

10.19 No Third Party Beneficiary.

 

There are no third party beneficiaries to this Agreement.

 

10.20 Limited Recourse.

 

The obligations of the Company under this Agreement are solely the obligations of the Company.  No recourse shall be had for the payment of any amount owing by the Company under this Agreement or for the payment by the Company of any fee in respect hereof or any other obligation or claim of or against the Company arising out of or based upon this Agreement, against any organizer, member, director, officer, manager or employee of the Company or any of its Affiliates; provided, however, that the foregoing shall not relieve any such Person of any liability it might otherwise have as a result of fraudulent actions or omissions taken by it.  The Servicer agrees that the Company shall be liable for any claims that the Servicer may have against the Company (including, without limitation, any claim for the payment of Servicing Fees or expense reimbursements) only to the extent that the Company has funds available to pay such claims that are not, under the Indenture, allocated to the payment of Securities, and that, to the extent that any such claims remain unpaid after the application of such funds in accordance with the Indenture, such claims shall be extinguished.  The terms of this Section 10.20 shall survive any termination of this Agreement.

 

 

  

28

  

 

10.21 No Petition.

 

The Servicer hereby covenants and agrees that it will not institute against, or join or assist any other person in instituting against, the Company any bankruptcy, reorganization, arrangement, insolvency or liquidation proceeding or other similar proceeding under the laws of any jurisdiction for one year and a day after all of the Securities have been paid in full.  The terms of this Section 10.21 shall survive any termination of this Agreement.

 

10.22 Informal Dispute Resolution.

 

Each party shall appoint one or more responsible persons to administer this Agreement.  In the event of a dispute, those persons shall attempt to resolve the dispute in good faith.  Prior to bringing any formal or legal action, a senior executive, at the level of president or above, of each party shall meet and attempt to resolve the dispute.

 

10.23 Taxes.

 

Under no circumstances shall the Company be responsible for any taxes of the Servicer.

 

[SIGNATURE PAGE FOLLOWS]

  

29

  

IN WITNESS WHEREOF, each party has caused this Agreement to be signed in its corporate name on its behalf by its proper official duly authorized as of the day, month and year first above written.

 

Company:

 

PROSPER FUNDING LLC

 

By:                                                                           

Name:

Title:

	
  

	
Address:

	
111 Sutter Street, 22nd Floor

San Francisco, CA  94104

Tax Identification No.:                                                      

 

Servicer:

 

PROSPER MARKETPLACE, INC.

 

By:                                                                           

Name:

Title:

Address:               111 Sutter Street, 22nd Floor

San Francisco, CA  94104

Tax Identification No.:                                                      

Signature page to Servicing Agreement

  

  

  

Exhibit A

Borrower Registration Agreement

 

 

 

 

A-1

  

  

  

Exhibit B

Lender Registration Agreement

 

 

 

 

B-1

  

  

  

Exhibit C

Servicing Fee

For any period during the term of this Agreement, the fee payable to the Servicer by the Company for providing the services described in this Agreement will be equal to:

	
(i)  

	
the sum of:

	
  

	
(A)

	
all servicing fees and insufficient funds fees collected by or on behalf of the Company with respect to Securities during such period; and

	
  

	
(B)

	
[*] of all origination fees paid by Borrower-Members with respect to Borrower Loans during such period

minus

	
(ii)  

	
the sum of:

	
  

	
(A)

	
all fees and expenses owed by the Company for such period under any agreement relating to the operation of the Prosper System between the Company, on the one hand, and any service provider (including without limitation, the Account Bank, the Bank, the Trustee, FOLIOfn Investments, Inc. or CSC Logic), on the other hand; and

	
  

	
(B)

	
the amount accrued by the Company for such period for its repurchase obligations under the Lender Registration Agreements with respect to Securities sold during such period.

  

*  Confidential treatment requested

 

C-1Exhibit 4.1

 

Exhibit 4.1

 

SECURITIES PURCHASE AGREEMENT

 

This SECURITIES
PURCHASE AGREEMENT (the “Agreement”), dated as of February 27, 2012, by and betweenTHE PAWS PET COMPANY,
INC., an Illinois corporation, with headquarters located at 2001 Gateway Place - Suite 410, San Jose, CA 95110(the
“Company”), and ASHER ENTERPRISES, INC., a Delaware corporation, with its address at 1 Linden Place, Suite
207, Great Neck, NY 11021 (the “Buyer”).

 

WHEREAS:

 

A.           The
Company and the Buyer are executing and delivering this Agreement in reliance upon the exemption from securities registration afforded
by the rules and regulations as promulgated by the United States Securities and Exchange Commission (the “SEC”) under
the Securities Act of 1933, as amended (the “1933 Act”);

 

B.           Buyer
desires to purchase and the Company desires to issue and sell, upon the terms and conditions set forth in this Agreement an
8% convertible note of the Company, in the form attached hereto as Exhibit A, in the aggregate principal amount of
$47,500.00(together with any note(s) issued in replacement thereof or as a dividend thereon or otherwise with respect thereto
in accordance with the terms thereof, the “Note”), convertible into shares of common stock, $NO par value per
share, of the Company (the “Common Stock”), upon the terms and subject to the limitations and conditions set
forth in such Note.

 

C.           The
Buyer wishes to purchase, upon the terms and conditions stated in this Agreement, such principal amount of Note as is set forth
immediately below its name on the signature pages hereto; and

 

NOW THEREFORE, the
Company and the Buyer severally (and not jointly) hereby agree as follows:

 

1.           Purchase
and Sale of Note.

 

a.           Purchase
of Note. On the Closing Date (as defined below), the Company shall issue and sell to the Buyer and the Buyer agrees to purchase
from the Company such principal amount of Note as is set forth immediately below the Buyer’s name on the signature pages
hereto.

 

b.           Form
of Payment. On the Closing Date (as defined below), (i) the Buyer shall pay the purchase price for the Note to be issued
and sold to it at the Closing (as defined below) (the “Purchase Price”) by wire transfer of immediately available
funds to the Company, in accordance with the Company’s written wiring instructions, against delivery of the Note in the
principal amount equal to the Purchase Price as is set forth immediately below the Buyer’s name on the signature pages
hereto, and (ii) the Company shall deliver such duly executed Note on behalf of the Company, to the Buyer, against
delivery of such Purchase Price. 

 

c.           Closing
Date. Subject to the satisfaction (or written waiver) of the conditions thereto set forth in Section 6 and Section 7 below,
the date and time of the issuance and sale of the Note pursuant to this Agreement (the “Closing Date”) shall be 12:00
noon, Eastern Standard Time on or aboutFebruary 29, 2012, or such other mutually agreed upon
time. The closing of the transactions contemplated by this Agreement (the “Closing”) shall occur on the Closing Date
at such location as may be agreed to by the parties.

 

2.           Buyer’s
Representations and Warranties.The Buyer represents and warrants to the Company that:

 

a.           Investment
Purpose. As of the date hereof, the Buyer is purchasing the Note and the shares of Common Stock issuable upon conversion of
or otherwise pursuant to the Note (including, without limitation, such additional shares of Common Stock, if any, as are issuable
(i) on account of interest on the Note, (ii) as a result of the events described in Sections 1.3 and 1.4(g) of the Note
or (iii) in payment of the Standard Liquidated Damages Amount (as defined in Section 2(f) below) pursuant to this Agreement,
such shares of Common Stock being collectively referred to herein as the “Conversion Shares” and, collectively with
the Note,the “Securities”) for its own account and not with a present view towards the public sale or distribution
thereof, except pursuant to sales registered or exempted from registration under the 1933 Act; provided, however,
that by making the representations herein, the Buyer does not agree to hold any of the Securities for any minimum or other specific
term and reserves the right to dispose of the Securities at any time in accordance with or pursuant to a registration statement
or an exemption under the 1933 Act.

 

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b.           Accredited
Investor Status. The Buyer is an “accredited investor” as that term is defined in Rule 501(a) of Regulation D (an
“Accredited Investor”).

 

c.           Reliance
on Exemptions. The Buyer understands that the Securities are being offered and sold to it in reliance upon specific exemptions
from the registration requirements of United States federal and state securities laws and that the Company is relying upon the
truth and accuracy of, and the Buyer’s compliance with, the representations, warranties, agreements, acknowledgments and
understandings of the Buyer set forth herein in order to determine the availability of such exemptions and the eligibility of the
Buyer to acquire the Securities.

 

d.           Information.
The Buyer and its advisors, if any, have been, and for so long as the Note remain outstanding will continue to be, furnished
with all materials relating to the business, finances and operations of the Company and materials relating to the offer and
sale of the Securities which have been reasonably requested by the Buyer or its advisors. The Buyer and its advisors, if any,
have been, and for so long as the Note remain outstanding will continue to be, afforded the opportunity to ask questions of
the Company. Notwithstanding the foregoing, the Company has not disclosed to the Buyer any material nonpublic information and
will not disclose such information unless such information is disclosed to the public prior to or promptly following such
disclosure to the Buyer. Neither such inquiries nor any other due diligence investigation conducted by Buyer or any of its
advisors or representatives shall modify, amend or affect Buyer’s right to rely on the Company’s representations
and warranties contained in Section 3 below. The Buyer understands that its investment in the Securities involves a
significant degree of risk. The Buyer is not aware of any facts that may constitute a breach of any of the Company's
representations and warranties made herein.

 

e.           Governmental
Review. The Buyer understands that no United States federal or state agency or any other government or governmental agency
has passed upon or made any recommendation or endorsement of the Securities.

 

f.           Transfer
or Re-sale. The Buyer understands that (i) the sale or re-sale of the Securities has not been and is not being registered under
the 1933 Act or any applicable state securities laws, and the Securities may not be transferred unless (a) the Securities
are sold pursuant to an effective registration statement under the 1933 Act, (b) the Buyer shall have delivered to the Company,
at the cost of the Buyer, an opinion of counsel that shall be in the form of the Form of Opinion attached as Exhibit B to the Note,
which opinion shall not be issued until the 6 month anniversary from the date this note is funded by the Holder, to the effect
that the Securities to be sold or transferred may be sold or transferred pursuant to an exemption from such registration, which
opinion shall be accepted by the Company (provided the Borrower or counsel will have a 24 hour window in which can question the
calculation of the Conversion Price (as defined in the Note)), (c) the Securities are sold or transferred to an “affiliate”
(as defined in Rule 144 promulgated under the 1933 Act (or a successor rule) (“Rule 144”)) of the Buyer who agrees
to sell or otherwise transfer the Securities only in accordance with this Section 2(f) and who is an Accredited Investor, (d) the
Securities are sold pursuant to Rule 144, or (e) the Securities are sold pursuant to Regulation S under the 1933 Act (or a
successor rule) (“Regulation S”), and the Buyer shall have delivered to the Company, at the cost of the Buyer, an opinion
of counsel that shall be in form, substance and scope customary for opinions of counsel in corporate transactions, which opinion
shall be accepted by the Company; (ii) any sale of such Securities made in reliance on Rule 144 may be made only in accordance
with the terms of said Rule and further, if said Rule is not applicable, any re-sale of such Securities under circumstances in
which the seller (or the person through whom the sale is made) may be deemed to be an underwriter (as that term is defined in the
1933 Act) may require compliance with some other exemption under the 1933 Act or the rules and regulations of the SEC thereunder;
and (iii) neither the Company nor any other person is under any obligation to register such Securities under the 1933 Act or any
state securities laws or to comply with the terms and conditions of any exemption thereunder (in each case). Notwithstanding the
foregoing or anything else contained herein to the contrary, the Securities may be pledged as collateral in connection with a bonafide
margin account or other lending arrangement. 

 

    	2

    	 

    

 

 

g.           Legends.
The Buyer understands that the Note and, until such time as the Conversion Shares have been registered under the 1933 Act may be
sold pursuant to Rule 144 or Regulation S without any restriction as to the number of securities as of a particular date that can
then be immediately sold, the Conversion Shares shall bear a restrictive legend in substantially the following form (and a stop-transfer
order may be placed against transfer of the certificates for such Securities):

 

“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 ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT
OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.”

 

The legend set forth above
shall be removed and the Company shall issue a certificate without such legend to the holder of any Security upon which it is stamped,
if, unless otherwise required by applicable state securities laws, (a) such Security is registered for sale under an effective
registration statement filed under the 1933 Act or otherwise may be sold pursuant to Rule 144 or Regulation S without any restriction
as to the number of securities as of a particular date that can then be immediately sold, or (b) such holder provides the Company
with an opinion of counsel, in the form of the Form of Opinion attached as Exhibit B to this Note, which opinion shall not be issued
until the 6 month anniversary from the date this note is funded by the Holder, to the effect that a public sale or transfer of
such Security may be made without registration under the 1933 Act, which opinion shall be accepted by the Company (provided the
Borrower or counsel will have a 24 hour window in which can question the calculation of the Conversion Price (as defined in the
Note)) so that the sale or transfer is effected. The Buyer agrees to sell all Securities, including those represented by a certificate(s)
from which the legend has been removed, in compliance with applicable prospectus delivery requirements, if any. 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.

 

h.           Authorization;
Enforcement. This Agreement has been duly and validly authorized. This Agreement has been duly executed and delivered on behalf
of the Buyer, and this Agreement constitutes a valid and binding agreement of the Buyer enforceable in accordance with its terms.

 

i.           Residency.
The Buyer is a resident of the jurisdiction set forth immediately below the Buyer’s name on the signature pages hereto. 

 

    	3

    	 

    

  

3.           Representations
and Warranties of the Company. The Company represents and warrants to the Buyer that:

 

a.           Organization
and Qualification. The Company and each of its Subsidiaries (as defined below), if any, is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction in which it is incorporated, with full power and authority (corporate
and other) to own, lease, use and operate its properties and to carry on its business as and where now owned, leased, used, operated
and conducted. Schedule 3(a) sets forth a list of all of the Subsidiaries of the Company and the jurisdiction in which each is
incorporated. The Company and each of its Subsidiaries is duly qualified as a foreign corporation to do business and is in good
standing in every jurisdiction in which its ownership or use of property or the nature of the business conducted by it makes such
qualification necessary except where the failure to be so qualified or in good standing would not have a Material Adverse Effect.
“Material Adverse Effect” means any material adverse effect on the business, operations, assets, financial condition
or prospects of the Company or its Subsidiaries, if any, taken as a whole, or on the transactions contemplated hereby or by the
agreements or instruments to be entered into in connection herewith. “Subsidiaries” means any corporation or other
organization, whether incorporated or unincorporated, in which the Company owns, directly or indirectly, any equity or other ownership
interest.

 

b.           Authorization;
Enforcement. (i) The Company has all requisite corporate power and authority to enter into and perform this Agreement, the
Note and to consummate the transactions contemplated hereby and thereby and to issue the Securities, in accordance with the terms
hereof and thereof, (ii) the execution and delivery of this Agreement, the Note by the Company and the consummation by it of the
transactions contemplated hereby and thereby (including without limitation, the issuance of the Note and the issuance and reservation
for issuance of the Conversion Shares issuable upon conversion or exercise thereof) have been duly authorized by the Company’s
Board of Directors and no further consent or authorization of the Company, its Board of Directors, or its shareholders is required,
(iii) this Agreement has been duly executed and delivered by the Company by its authorized representative, and such authorized
representative is the true and official representative with authority to sign this Agreement and the other documents executed in
connection herewith and bind the Company accordingly, and (iv) this Agreement constitutes, and upon execution and delivery by the
Company of the Note, each of such instruments will constitute, a legal, valid and binding obligation of the Company enforceable
against the Company in accordance with its terms.

 

c.           Capitalization.
As of the date hereof, the authorized capital stock of the Company consists of: (i) 100,000,000 shares of Common Stock,
no par value per share, of which 45,607,273 shares are issued and outstanding; and (ii) 10,000,000 shares of Preferred
Stock, no par value per share, of which no shares are issued and outstanding. Except as disclosed on Schedule 3(c) hereof,no
shares are reserved for issuance pursuant to the Company’s stock option plans. Except as disclosed in the SEC Documents
no shares are reserved for issuance pursuant to securities (other than the Note) exercisable for, or convertible into or
exchangeable for shares of Common Stock and 6,824,713 shares are reserved for issuance upon conversion of the Note. All of
such outstanding shares of capital stock are, or upon issuance will be, duly authorized, validly issued, fully paid and
non-assessable. No shares of capital stock of the Company are subject to preemptive rights or any other similar rights of the
shareholders of the Company or any liens or encumbrances imposed through the actions or failure to act of the Company. As of
the effective date of this Agreement, and except as disclosed in the SEC Documents, (i) there are no outstanding options,
warrants, scrip, rights to subscribe for, puts, calls, rights of first refusal, agreements, understandings, claims or other
commitments or rights of any character whatsoever relating to, or securities or rights convertible into or exchangeable for
any shares of capital stock of the Company or any of its Subsidiaries, or arrangements by which the Company or any of its
Subsidiaries is or may become bound to issue additional shares of capital stock of the Company or any of its Subsidiaries,
(ii) there are no agreements or arrangements under which the Company or any of its Subsidiaries is obligated to register the
sale of any of its or their securities under the 1933 Act and (iii) there are no anti-dilution or price adjustment provisions
contained in any security issued by the Company (or in any agreement providing rights to security holders) that will be
triggered by the issuance of the Note or the Conversion Shares. The Company has furnished to the Buyer true and correct
copies of the Company’s Certificate of Incorporation as in effect on the date hereof (“Certificate
of Incorporation”), the Company’s By-laws, as in effect on the date hereof (the “By-laws”), and
the terms of all securities convertible into or exercisable for Common Stock of the Company and the material rights of
the holders thereof in respect thereto. The Company shall provide the Buyer with a written update of this representation
signed by the Company’s Chief Executive on behalf of the Company as of the Closing Date.

 

    	4

    	 

    

  

d.           Issuance
of Shares. The Conversion Shares are duly authorized and reserved for issuance and, upon conversion of the Note in accordance
with its respective terms, will be validly issued, fully paid and non-assessable, and 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
Company and will not impose personal liability upon the holder thereof.

 

e.           Acknowledgment
of Dilution. The Company understands and acknowledges the potentially dilutive effect to the Common Stock upon the issuance
of the Conversion Shares upon conversion of the Note. The Company further acknowledges that its obligation to issue Conversion
Shares upon conversion of the Note in accordance with this Agreement, the Note is absolute and unconditional regardless of the
dilutive effect that such issuance may have on the ownership interests of other shareholders of the Company.

 

f.           No
Conflicts. The execution, delivery and performance of this Agreement, the Note by the Company and the consummation by the Company
of the transactions contemplated hereby and thereby (including, without limitation, the issuance and reservation for issuance of
the Conversion Shares) will not (i) conflict with or result in a violation of any provision of the Certificate of Incorporation
or By-laws, or (ii) violate or conflict with, or result in a breach of any provision of, or constitute a default (or an event which
with notice or lapse of time or both could become a default) under, or give to others any rights of termination, amendment, acceleration
or cancellation of, any agreement, indenture, patent, patent license or instrument to which the Company or any of its Subsidiaries
is a party and that is not filed as an SEC Document, or (iii) result in a violation of any law, rule, regulation, order, judgment
or decree (including federal and state securities laws and regulations and regulations of any self-regulatory organizations to
which the Company or its securities are subject) applicable to the Company or any of its Subsidiaries or by which any property
or asset of the Company or any of its Subsidiaries is bound or affected (except for such conflicts, defaults, terminations, amendments,
accelerations, cancellations and violations as would not, individually or in the aggregate, have a Material Adverse Effect). Neither
the Company nor any of its Subsidiaries is in violation of its Certificate of Incorporation, By-laws or other organizational documents
and neither the Company nor any of its Subsidiaries is in default (and no event has occurred which with notice or lapse of time
or both could put the Company or any of its Subsidiaries in default) under, and neither the Company nor any of its Subsidiaries
has taken any action or failed to take any action that would give to others any rights of termination, amendment, acceleration
or cancellation of, any agreement, indenture or instrument to which the Company or any of its Subsidiaries is a party or by which
any property or assets of the Company or any of its Subsidiaries is bound or affected, except for possible defaults as would not,
individually or in the aggregate, have a Material Adverse Effect. The businesses of the Company and its Subsidiaries, if any, are
not being conducted, and shall not be conducted so long as the Buyer owns any of the Securities, in violation of any law, ordinance
or regulation of any governmental entity. Except as specifically contemplated by this Agreement and as required under the 1933
Act and any applicable state securities laws, the Company is not required to obtain any consent, authorization or order of, or
make any filing or registration with, any court, governmental agency, regulatory agency, self regulatory organization or stock
market or any third party in order for it to execute, deliver or perform any of its obligations under this Agreement, the Note
in accordance with the terms hereof or thereof or to issue and sell the Note in accordance with the terms hereof and to issue the
Conversion Shares upon conversion of the Note. All consents, authorizations, orders, filings and registrations which the Company
is required to obtain pursuant to the preceding sentence have been obtained or effected on or prior to the date hereof. The Company
is not in violation of the listing requirements of the Over-the-Counter Bulletin Board (the “OTCQB”) and does not reasonably
anticipate that the Common Stock will be delisted by the OTCQB in the foreseeable future. The Company and its Subsidiaries are
unaware of any facts or circumstances which might give rise to any of the foregoing. 

 

    	5

    	 

    

  

g.           SEC
Documents; Financial Statements. The Company has timely filed all reports, schedules, forms, statements and other documents
required to be filed by it with the SEC pursuant to the reporting requirements of the Securities Exchange Act of 1934, as amended
(the “1934 Act”) (all of the foregoing filed prior to the date hereof and all exhibits included therein and financial
statements and schedules thereto and documents (other than exhibits to such documents) incorporated by reference therein, being
hereinafter referred to herein as the “SEC Documents”). Upon written request the Company will deliver to the Buyer
true and complete copies of the SEC Documents, except for such exhibits and incorporated documents. As of their respective dates,
the SEC Documents complied in all material respects with the requirements of the 1934 Act and the rules and regulations of the
SEC promulgated thereunder applicable to the SEC Documents, and none of the SEC Documents, at the time they were filed with the
SEC, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances under which they were made, not misleading. None of the
statements made in any such SEC Documents is, or has been, required to be amended or updated under applicable law (except for such
statements as have been amended or updated in subsequent filings prior the date hereof). As of their respective dates, the financial
statements of the Company included in the SEC Documents complied as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC with respect thereto. Such financial statements have been prepared
in accordance with United States generally accepted accounting principles, consistently applied, during the periods involved and
fairly present in all material respects the consolidated financial position of the Company and its consolidated Subsidiaries as
of the dates thereof and the consolidated results of their operations and cash flows for the periods then ended (subject, in the
case of unaudited statements, to normal year-end audit adjustments). Except as set forth in the financial statements of the Company
included in the SEC Documents, the Company has no liabilities, contingent or otherwise, other than (i) liabilities incurred in
the ordinary course of business subsequent to September 30, 2011, and (ii) obligations under contracts and commitments incurred
in the ordinary course of business and not required under generally accepted accounting principles to be reflected in such financial
statements, which, individually or in the aggregate, are not material to the financial condition or operating results of the Company.
The Company is subject to the reporting requirements of the 1934 Act.

 

h.           Absence
of Certain Changes.Since September 30, 2011, there has been no material adverse change and no material adverse development
in the assets, liabilities, business, properties, operations, financial condition, results of operations, prospects or 1934 Act
reporting status of the Company or any of its Subsidiaries.

 

i.           Absence
of Litigation.There is no action, suit, claim, proceeding, inquiry or investigation before or by any court, public board, government
agency, self-regulatory organization or body pending or, to the knowledge of the Company or any of its Subsidiaries, threatened
against or affecting the Company or any of its Subsidiaries, or their officers or directors in their capacity as such, that could
have a Material Adverse Effect. Schedule 3(i) contains a complete list and summary description of any pending or, to the knowledge
of the Company, threatened proceeding against or affecting the Company or any of its Subsidiaries, without regard to whether it
would have a Material Adverse Effect. The Company and its Subsidiaries are unaware of any facts or circumstances which might give
rise to any of the foregoing.

 

j.           Patents,
Copyrights, etc. The Company and each of its Subsidiaries owns or possesses the requisite licenses or rights to use all patents,
patent applications, patent rights, inventions, know-how, trade secrets, trademarks, trademark applications, service marks, service
names, trade names and copyrights (“Intellectual Property”) necessary to enable it to conduct its business as now operated
(and, as presently contemplated to be operated in the future); there is no claim or action by any person pertaining to, or proceeding
pending, or to the Company’s knowledge threatened, which challenges the right of the Company or of a Subsidiary with respect
to any Intellectual Property necessary to enable it to conduct its business as now operated (and, as presently contemplated to
be operated in the future); to the best of the Company’s knowledge, the Company’s or its Subsidiaries’ current
and intended products, services and processes do not infringe on any Intellectual Property or other rights held by any person;
and the Company is unaware of any facts or circumstances which might give rise to any of the foregoing. The Company and each of
its Subsidiaries have taken reasonable security measures to protect the secrecy, confidentiality and value of their Intellectual
Property.

 

k.           No
Materially Adverse Contracts, Etc. Neither the Company nor any of its Subsidiaries is subject to any charter, corporate or
other legal restriction, or any judgment, decree, order, rule or regulation which in the judgment of the Company’s officers
has or is expected in the future to have a Material Adverse Effect. Neither the Company nor any of its Subsidiaries is a party
to any contract or agreement which in the judgment of the Company’s officers has or is expected to have a Material Adverse
Effect.

 

    	6

    	 

    

  

l.           Tax
Status.Except as set forth on Schedule 3(l), the Company and each of its Subsidiaries has made or filed all
federal, state and foreign income and all other tax returns, reports and declarations required by any jurisdiction to which
it is subject (unless and only to the extent that the Company and each of its Subsidiaries has set aside on its books
provisions reasonably adequate for the payment of all unpaid and unreported taxes) and has paid all taxes and other
governmental assessments and charges that are material in amount, shown or determined to be due on such returns, reports and
declarations, except those being contested in good faith and has set aside on its books provisions reasonably adequate for
the payment of all taxes for periods subsequent to the periods to which such returns, reports or declarations apply. There
are no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and the officers of
the Company know of no basis for any such claim. The Company has not executed a waiver with respect to the statute of
limitations relating to the assessment or collection of any foreign, federal, state or local tax. None of the Company’s
tax returns is presently being audited by any taxing authority.

 

m.           Certain
Transactions. Except for arm’s length transactions pursuant to which the Company or any of its Subsidiaries makes payments
in the ordinary course of business upon terms no less favorable than the Company or any of its Subsidiaries could obtain from third
parties and other than the grant of stock options disclosed on Schedule 3(c), none of the officers, directors, or employees of
the Company is presently a party to any transaction with the Company or any of its Subsidiaries (other than for services as employees,
officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or
by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any officer, director
or such employee or, to the knowledge of the Company, any corporation, partnership, trust or other entity in which any officer,
director, or any such employee has a substantial interest or is an officer, director, trustee or partner.

 

n.           Disclosure.
All information relating to or concerning the Company or any of its Subsidiaries set forth in this Agreement and provided to the
Buyer pursuant to Section 2(d) hereof and otherwise in connection with the transactions contemplated hereby is true and correct
in all material respects and the Company has not omitted to state any material fact necessary in order to make the statements made
herein or therein, in light of the circumstances under which they were made, not misleading. No event or circumstance has occurred
or exists with respect to the Company or any of its Subsidiaries or its or their business, properties, prospects, operations or
financial conditions, which, under applicable law, rule or regulation, requires public disclosure or announcement by the Company
but which has not been so publicly announced or disclosed (assuming for this purpose that the Company’s reports filed under
the 1934 Act are being incorporated into an effective registration statement filed by the Company under the 1933 Act).

 

o.           Acknowledgment
Regarding Buyer’ Purchase of Securities. The Company acknowledges and agrees that the Buyer is acting solely in the capacity
of arm’s length purchasers with respect to this Agreement and the transactions contemplated hereby. The Company further acknowledges
that the Buyer is not acting as a financial advisor or fiduciary of the Company (or in any similar capacity) with respect to this
Agreement and the transactions contemplated hereby and any statement made by the Buyer or any of its respective representatives
or agents in connection with this Agreement and the transactions contemplated hereby is not advice or a recommendation and is merely
incidental to the Buyer’ purchase of the Securities. 

 

p.           No
Integrated Offering. Neither the Company, nor any of its affiliates, nor any person acting on its or their behalf, has directly
or indirectly made any offers or sales in any security or solicited any offers to buy any security under circumstances that would
require registration under the 1933 Act of the issuance of the Securities to the Buyer. The issuance of the Securities to the Buyer
will not be integrated with any other issuance of the Company’s securities (past, current or future) for purposes of any
shareholder approval provisions applicable to the Company or its securities.

 

q.           No
Brokers. The Company has taken no action which would give rise to any claim by any person for brokerage commissions, transaction
fees or similar payments relating to this Agreement or the transactions contemplated hereby. 

 

r.           Permits;
Compliance. The Company and each of its Subsidiaries is in possession of all franchises, grants, authorizations, licenses,
permits, easements, variances, exemptions, consents, certificates, approvals and orders necessary to own, lease and operate its
properties and to carry on its business as it is now being conducted (collectively, the “Company Permits”), and there
is no action pending or, to the knowledge of the Company, threatened regarding suspension or cancellation of any of the Company
Permits. Neither the Company nor any of its Subsidiaries is in conflict with, or in default or violation of, any of the Company
Permits, except for any such conflicts, defaults or violations which, individually or in the aggregate, would not reasonably be
expected to have a Material Adverse Effect. Since September 30, 2011, neither the Company nor any of its Subsidiaries has received
any notification with respect to possible conflicts, defaults or violations of applicable laws, except for notices relating to
possible conflicts, defaults or violations, which conflicts, defaults or violations would not have a Material Adverse Effect.

 

    	7

    	 

    

  

s.           Environmental
Matters.

 

(i)           There
are, to the Company’s knowledge, with respect to the Company or any of its Subsidiaries or any predecessor of the
Company, no past or present violations of Environmental Laws (as defined below), releases of any material into the
environment, actions, activities, circumstances, conditions, events, incidents, or contractual obligations which may give
rise to any common law environmental liability or any liability under the Comprehensive Environmental Response, Compensation
and Liability Act of 1980 or similar federal, state, local or foreign laws and neither the Company nor any of its
Subsidiaries has received any notice with respect to any of the foregoing, nor is any action pending or, to the
Company’s knowledge, threatened in connection with any of the foregoing. The term “Environmental Laws”
means all federal, state, local or foreign laws relating to pollution or protection of human health or the environment
(including, without limitation, ambient air, surface water, ground water, land surface or subsurface strata), including,
without limitation, laws relating to emissions, discharges, releases or threatened releases of chemicals,
pollutants contaminants, or toxic or hazardous substances or wastes (collectively, “Hazardous Materials”) into
the environment, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Hazardous Materials, as well as all authorizations, codes, decrees, demands or demand letters,
injunctions, judgments, licenses, notices or notice letters, orders, permits, plans or regulations issued, entered,
promulgated or approved thereunder.

 

(ii)           Other
than those that are or were stored, used or disposed of in compliance with applicable law, no Hazardous Materials are contained
on or about any real property currently owned, leased or used by the Company or any of its Subsidiaries, and no Hazardous Materials
were released on or about any real property previously owned, leased or used by the Company or any of its Subsidiaries during the
period the property was owned, leased or used by the Company or any of its Subsidiaries, except in the normal course of the Company’s
or any of its Subsidiaries’ business.

 

(iii)           There
are no underground storage tanks on or under any real property owned, leased or used by the Company or any of its Subsidiaries
that are not in compliance with applicable law.

 

t.           Title
to Property. The Company and its Subsidiaries have good and marketable title in fee simple to all real property and good and
marketable title to all personal property owned by them which is material to the business of the Company and its Subsidiaries,
in each case free and clear of all liens, encumbrances and defects except such as are described in Schedule 3(t) or such as would
not have a Material Adverse Effect. Any real property and facilities held under lease by the Company and its Subsidiaries are held
by them under valid, subsisting and enforceable leases with such exceptions as would not have a Material Adverse Effect.

 

u.           Insurance.
The Company and each of its Subsidiaries are insured by insurers of recognized financial responsibility against such losses and
risks and in such amounts as management of the Company believes to be prudent and customary in the businesses in which the Company
and its Subsidiaries are engaged. Neither the Company nor any such Subsidiary has any reason to believe that it will not be able
to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers
as may be necessary to continue its business at a cost that would not have a Material Adverse Effect. Upon written request the
Company will provide to the Buyer true and correct copies of all policies relating to directors’ and officers’ liability
coverage, errors and omissions coverage, and commercial general liability coverage.

 

    	8

    	 

    

  

v.           Internal
Accounting Controls. Except as disclosed in the SEC Documents, the Company and each of its Subsidiaries maintain a system of
internal accounting controls sufficient, in the judgment of the Company’s board of directors, to provide reasonable assurance
that (i) transactions are executed in accordance with management’s general or specific authorizations, (ii) transactions
are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles
and to maintain asset accountability, (iii) access to assets is permitted only in accordance with management’s general or
specific authorization and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals
and appropriate action is taken with respect to any differences.

 

w.           Foreign
Corrupt Practices. Neither the Company, nor any of its Subsidiaries, nor any director, officer, agent, employee or other person
acting on behalf of the Company or any Subsidiary has, in the course of his actions for, or on behalf of, the Company, used any
corporate funds for any unlawful contribution, gift, entertainment or other unlawful expenses relating to political activity; made
any direct or indirect unlawful payment to any foreign or domestic government official or employee from corporate funds; violated
or is in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977, as amended, or made any bribe, rebate, payoff,
influence payment, kickback or other unlawful payment to any foreign or domestic government official or employee.

 

x.           Solvency.
Except as disclosed in the SEC Documents, the Company (after giving effect to the transactions contemplated by this Agreement)
is solvent (i.e., its assets have a fair market value in excess of the amount required to pay its probable liabilities on
its existing debts as they become absolute and matured) and currently the Company has no information that would lead it to reasonably
conclude that the Company would not, after giving effect to the transaction contemplated by this Agreement, have the ability to,
nor does it intend to take any action that would impair its ability to, pay its debts from time to time incurred in connection
therewith as such debts mature. The Company did not receive a qualified opinion from its auditors with respect to its most recent
fiscal year end and, after giving effect to the transactions contemplated by this Agreement, does not anticipate or know of any
basis upon which its auditors might issue a qualified opinion in respect of its current fiscal year.

 

y.           No
Investment Company. The Company is not, and upon the issuance and sale of the Securities as contemplated by this Agreement
will not be an “investment company” required to be registered under the Investment Company Act of 1940 (an “Investment
Company”). The Company is not controlled by an Investment Company.

 

z.           Breach
of Representations and Warranties by the Company. If the Company breaches any of the representations or warranties set forth
in this Section 3, and in addition to any other remedies available to the Buyer pursuant to this Agreement, it will be considered
an Event of default under Section 3.4 of the Note.

 

4.           COVENANTS.

 

a.           Best
Efforts. The parties shall use their best efforts to satisfy timely each of the conditions described in Section 6 and 7 of
this Agreement. 

 

b.           Form
D; Blue Sky Laws. The Company agrees to file a Form D with respect to the Securities as required under Regulation D and to
provide a copy thereof to the Buyer promptly after such filing. The Company shall, on or before the Closing Date, take such action
as the Company shall reasonably determine is necessary to qualify the Securities for sale to the Buyer at the applicable closing
pursuant to this Agreement under applicable securities or “blue sky” laws of the states of the United States (or to
obtain an exemption from such qualification), and shall provide evidence of any such action so taken to the Buyer on or prior to
the Closing Date.

 

c.           Use
of Proceeds. The Company shall use the proceeds for general working capital purposes.

 

    	9

    	 

    

  

d.           Right
of First Refusal. Unless it shall have first delivered to the Buyer, at least seventy two (72) hours prior to the closing of
such Future Offering (as defined herein), written notice describing the proposed Future Offering, including the terms and conditions
thereof and proposed definitive documentation to be entered into in connection therewith, and providing the Buyer an option during
the seventy two (72) hour period following delivery of such notice to purchase the securities being offered in the Future Offering
on the same terms as contemplated by such Future Offering (the limitations referred to in this sentence and the preceding sentence
are collectively referred to as the “Right of First Refusal”) (and subject to the exceptions described below), the
Company will not conduct any equity financing (including debt with an equity component) (“Future Offerings”) during
the period beginning on the Closing Date and ending twelve (12) months following the Closing Date. In the event the terms and conditions
of a proposed Future Offering are amended in any respect after delivery of the notice to the Buyer concerning the proposed Future
Offering, the Company shall deliver a new notice to the Buyer describing the amended terms and conditions of the proposed Future
Offering and the Buyer thereafter shall have an option during the seventy two (72) hour period following delivery of such new notice
to purchase its pro rata share of the securities being offered on the same terms as contemplated by such proposed Future Offering,
as amended. The foregoing sentence shall apply to successive amendments to the terms and conditions of any proposed Future Offering.
The Right of First Refusal shall not apply to any transaction involving (i) issuances of securities in a firm commitment underwritten
public offering (excluding a continuous offering pursuant to Rule 415 under the 1933 Act) or (ii) issuances of securities as consideration
for a merger, consolidation or purchase of assets, or in connection with any strategic partnership or joint venture (the primary
purpose of which is not to raise equity capital), or in connection with the disposition or acquisition of a business, product or
license by the Company. The Right of First Refusal also shall not apply to the issuance of securities upon exercise or conversion
of the Company’s options, warrants or other convertible securities outstanding as of the date hereof or to the grant of additional
options or warrants, or the issuance of additional securities, under any Company stock option or restricted stock plan approved
by the shareholders of the Company. 

 

e.           Expenses.
At the Closing, the Company shall reimburse Buyer for expenses incurred by them in connection with the negotiation,
preparation, execution, delivery and performance of this Agreement and the other agreements to be executed in connection
herewith (“Documents”), including, without limitation, reasonable attorneys’ and consultants’ fees
and expenses, transfer agent fees, fees for stock quotation services, fees relating to any amendments or modifications of the
Documents or any consents or waivers of provisions in the Documents, fees for the preparation of opinions of counsel, escrow
fees, and costs of restructuring the transactions contemplated by the Documents. When possible, the Company must pay these
fees directly, otherwise the Company must make immediate payment for reimbursement to the Buyer for all fees and expenses
immediately upon written notice by the Buyer or the submission of an invoice by the Buyer. The Company’s obligation
with respect to this transaction is to reimburse Buyer’ expenses up to$2,500.

 

f.           Financial
Information. Upon written request the Company agrees to send or make available the following reports to the Buyer until the
Buyer transfers, assigns, or sells all of the Securities: (i) within ten (10) days after the filing with the SEC, a copy of
its Annual Report on Form 10-K its Quarterly Reports on Form 10-Q and any Current Reports on Form 8-K; (ii) within one (1)
day after release, copies of all press releases issued by the Company or any of its Subsidiaries; and (iii) contemporaneously
with the making available or giving to the shareholders of the Company, copies of any notices or other information the Company
makes available or gives to such shareholders.

 

g.           [INTENTIONALLY
DELETED]

 

h.           Listing.
The Company shall promptly secure the listing of the Conversion Shares upon each national securities exchange or automated quotation
system, if any, upon which shares of Common Stock are then listed (subject to official notice of issuance) and, so long as the
Buyer owns any of the Securities, shall maintain, so long as any other shares of Common Stock shall be so listed, such listing
of all Conversion Shares from time to time issuable upon conversion of the Note. The Company will obtain and, so long as the Buyer
owns any of the Securities, maintain the listing and trading of its Common Stock on the OTCQB or any equivalent replacement exchange,
the Nasdaq National Market (“Nasdaq”), the Nasdaq SmallCap Market (“Nasdaq SmallCap”), the New York Stock
Exchange (“NYSE”), or the American Stock Exchange (“AMEX”) and will comply in all respects with the Company’s
reporting, filing and other obligations under the bylaws or rules of the Financial Industry Regulatory Authority (“FINRA”)
and such exchanges, as applicable. The Company shall promptly provide to the Buyer copies of any notices it receives from the OTCQB
and any other exchanges or quotation systems on which the Common Stock is then listed regarding the continued eligibility of the
Common Stock for listing on such exchanges and quotation systems.

 

    	10

    	 

    

  

i.           Corporate
Existence. So long as the Buyer beneficially owns any Note, the Company shall maintain its corporate existence and shall not
sell all or substantially all of the Company’s assets, except in the event of a merger or consolidation or sale of all or
substantially all of the Company’s assets, where the surviving or successor entity in such transaction (i) assumes the Company’s
obligations hereunder and under the agreements and instruments entered into in connection herewith and (ii) is a publicly traded
corporation whose Common Stock is listed for trading on the OTCQB, Nasdaq, Nasdaq SmallCap, NYSE or AMEX.

 

j.           No
Integration. The Company shall not make any offers or sales of any security (other than the Securities) under circumstances
that would require registration of the Securities being offered or sold hereunder under the 1933 Act or cause the offering of the
Securities to be integrated with any other offering of securities by the Company for the purpose of any stockholder approval provision
applicable to the Company or its securities.

 

k.           Breach
of Covenants. If the Company breaches any of the covenants set forth in this Section 4, and in addition to any other remedies
available to the Buyer pursuant to this Agreement, it will be considered an event of default under Section 3.4 of the Note.

 

l.           Failure
to Comply with the 1934 Act. So long as the Buyer beneficially owns the Note, the Company shall comply with the reporting requirements
of the 1934 Act; and the Company shall continue to be subject to the reporting requirements of the 1934 Act.

 

m.           Trading
Activities. Neither the Buyer nor its affiliates has an open short position in the common stock of the Company and the Buyer
agree that it shall not, and that it will cause its affiliates not to, engage in any short sales of or hedging transactions with
respect to the common stock of the Company. 

 

5.           Transfer
Agent Instructions. Upon receipt of a duly executed Notice of Conversion, the Company shall issue irrevocable instructions
to its transfer agent to issue certificates, registered in the name of the Buyer or its nominee, for the Conversion Shares in such
amounts as specified from time to time by the Buyer to the Company upon conversion of the Note in accordance with the terms thereof
(the “Irrevocable Transfer Agent Instructions”).  In the event that the Borrower proposes to replace its transfer
agent, the Borrower shall 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.
Prior to registration of the Conversion Shares under the 1933 Act or the date on which the Conversion Shares 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, all
such certificates shall bear the restrictive legend specified in Section 2(g) of this Agreement.  The Company warrants that:
(i) no instruction other than the Irrevocable Transfer Agent Instructions referred to in this Section 5, and stop transfer instructions
to give effect to Section 2(f) hereof (in the case of the Conversion Shares, prior to registration of the Conversion Shares under
the 1933 Act or the date on which the Conversion Shares 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), will be given by the Company to its transfer agent and
that the Securities shall otherwise be freely transferable on the books and records of the Company as and to the extent provided
in this Agreement and the Note; (ii) it will not direct its transfer agent not to transfer or delay, impair, and/or hinder its
transfer agent in transferring (or issuing)(electronically or in certificated form) any certificate for Conversion Shares to be
issued to the Buyer upon conversion of or otherwise pursuant to the Note as and when required by the Note and this Agreement; and
(iii) it will not fail 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 Conversion Shares issued to the Buyer upon conversion of or otherwise pursuant to the Note as and when required by the Note
and this Agreement.  Nothing in this Section shall affect in any way the Buyer’s obligations and agreement set forth
in Section 2(g) hereof to comply with all applicable prospectus delivery requirements, if any, upon re-sale of the Securities. 
If the Buyer provides the Company, at the cost of the Buyer, with (i) an opinion of counsel in form, substance and scope customary
for opinions in comparable transactions, to the effect that a public sale or transfer of such Securities may be made without registration
under the 1933 Act and such sale or transfer is effected or (ii) the Buyer provides reasonable assurances that the Securities can
be sold pursuant to Rule 144, the Company shall permit the transfer, and, in the case of the Conversion Shares, promptly instruct
its transfer agent to issue one or more certificates, free from restrictive legend, in such name and in such denominations as specified
by the Buyer.  The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the
Buyer, by vitiating the intent and purpose of the transactions contemplated hereby.  Accordingly, the Company acknowledges
that the remedy at law for a breach of its obligations under this Section 5 may be inadequate and agrees, in the event of a breach
or threatened breach by the Company of the provisions of this Section, that the Buyer shall be entitled, in addition to all other
available remedies, to an injunction restraining any breach and requiring immediate transfer, without the necessity of showing
economic loss and without any bond or other security being required.

 

    	11

    	 

    

  

6.           Conditions
to the Company’s Obligation to Sell. The obligation of the Company hereunder to issue and sell the Note to the Buyer
at the Closing is subject to the satisfaction, at or before the Closing Date of each of the following conditions thereto, provided
that these conditions are for the Company’s sole benefit and may be waived by the Company at any time in its sole discretion:

 

a.           The
Buyer shall have executed this Agreement and delivered the same to the Company.

 

b.           The
Buyer shall have delivered the Purchase Price in accordance with Section 1(b) above.

 

c.           The
representations and warranties of the Buyer shall be true and correct in all material respects as of the date when made and as
of the Closing Date as though made at that time (except for representations and warranties that speak as of a specific date), and
the Buyer shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required
by this Agreement to be performed, satisfied or complied with by the Buyer at or prior to the Closing Date. 

 

d.           No
litigation, statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated
or endorsed by or in any court or governmental authority of competent jurisdiction or any self-regulatory organization having authority
over the matters contemplated hereby which prohibits the consummation of any of the transactions contemplated by this Agreement.

 

7.           Conditions
to The Buyer’s Obligation to Purchase. The obligation of the Buyer hereunder to purchase the Note at the Closing is subject
to the satisfaction, at or before the Closing Date of each of the following conditions, provided that these conditions are for
the Buyer’s sole benefit and may be waived by the Buyer at any time in its sole discretion:

 

a.           The
Company shall have executed this Agreement and delivered the same to the Buyer.

 

b.           The
Company shall have delivered to the Buyer the duly executed Note (in such denominations as the Buyer shall request) in
accordance with Section 1(b) above.

 

c.           The
Irrevocable Transfer Agent Instructions, in form and substance satisfactory to a majority-in-interest of the Buyer, shall have
been delivered to and acknowledged in writing by the Company’s Transfer Agent.

 

d.           The
representations and warranties of the Company shall be true and correct in all material respects as of the date when made and as
of the Closing Date as though made at such time (except for representations and warranties that speak as of a specific date) and
the Company shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions
required by this Agreement to be performed, satisfied or complied with by the Company at or prior to the Closing Date. The Buyer
shall have received a certificate or certificates, executed by the chief executive officer of the Company, dated as of the Closing
Date, to the foregoing effect and as to such other matters as may be reasonably requested by the Buyer including, but not limited
to certificates with respect to the Company’s Certificate of Incorporation, By-laws and Board of Directors’ resolutions
relating to the transactions contemplated hereby.

 

    	12

    	 

    

  

e.           No
litigation, statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated
or endorsed by or in any court or governmental authority of competent jurisdiction or any self-regulatory organization having authority
over the matters contemplated hereby which prohibits the consummation of any of the transactions contemplated by this Agreement.

 

f.           No
event shall have occurred which could reasonably be expected to have a Material Adverse Effect on the Company including but not
limited to a change in the 1934 Act reporting status of the Company or the failure of the Company to be timely in its 1934 Act
reporting obligations.

 

g.           The
Common Stock Shares shall continue to be authorized for quotation on the OTCQB and trading in the Common Stock on the OTCQB shall
not have been suspended by the SEC or the OTCQB.

 

8.           Governing
Law; Miscellaneous.

 

a.           Governing
Law.This Agreement 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 Agreement 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 Agreement 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
Company and Buyer 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 Agreement 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.

 

b.           Counterparts.
This Agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which shall constitute
one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other
party. 

 

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

 

d.           Severability.
In the event that any provision of this Agreement 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 provision hereof which may prove invalid or unenforceable under any law shall not affect
the validity or enforceability of any other provision hereof.

 

e.           Entire
Agreement; Amendments. This Agreement and the instruments referenced herein contain the entire understanding of the parties
with respect to the matters covered herein and therein and, except as specifically set forth herein or therein, neither the Company
nor the Buyer makes any representation, warranty, covenant or undertaking with respect to such matters. No provision of this Agreement
may be waived or amended other than by an instrument in writing signed by the majority in interest of the Buyer.

 

    	13

    	 

    

  

f.           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 Company,
to:

 

THE PAWS PET
COMPANY, INC.

2001 Gateway
Place - Suite 410

San Jose, CA
95110

Attn: DAN WIESEL, Chief Executive
Officer

facsimile: [enter fax number]

 

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

 

Sichenzia Ross
Friedman Ference LLP

Attn: Greg
Sichenzia, Esq.

61 Broadway,
32nd Floor

New York, NY
10006

facsimile:
(212) 930-9725

 

If to the Buyer:

 

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

 

Each party shall provide
notice to the other party of any change in address.

 

g.           Successors
and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their successors and assigns.
Neither the Company nor the Buyer shall assign this Agreement or any rights or obligations hereunder without the prior written
consent of the other. Notwithstanding the foregoing, subject to Section 2(f), the Buyer may assign its rights hereunder to
any person that purchases Securities in a private transaction from the Buyer or to any of its “affiliates,” as that
term is defined under the 1934 Act, without the consent of the Company.

 

    	14

    	 

    

  

h.           Third
Party Beneficiaries. This Agreement is intended for the benefit of the parties hereto and their respective permitted successors
and assigns, and is not for the benefit of, nor may any provision hereof be enforced by, any other person.

 

i.           Survival.
The representations and warranties of the Company and the agreements and covenants set forth in this Agreement shall survive the
closing hereunder notwithstanding any due diligence investigation conducted by or on behalf of the Buyer. The Company agrees to
indemnify and hold harmless the Buyer and all their officers, directors, employees and agents for loss or damage arising as a result
of or related to any breach or alleged breach by the Company of any of its representations, warranties and covenants set forth
in this Agreement or any of its covenants and obligations under this Agreement, including advancement of expenses as they are incurred.

 

j.           Publicity.
The Company, and the Buyer shall have the right to review a reasonable period of time before issuance of any press releases, SEC,
OTCQB or FINRA filings, or any other public statements with respect to the transactions contemplated hereby; provided, however,
that the Company shall be entitled, without the prior approval of the Buyer, to make any press release or SEC, OTCQB (or other
applicable trading market) or FINRA filings with respect to such transactions as is required by applicable law and regulations
(although the Buyer shall be consulted by the Company in connection with any such press release prior to its release and shall
be provided with a copy thereof and be given an opportunity to comment thereon).

 

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

 

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

 

m.           Remedies.
The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Buyer by vitiating
the intent and purpose of the transaction contemplated hereby. Accordingly, the Company acknowledges that the remedy at law for
a breach of its obligations under this Agreement will be inadequate and agrees, in the event of a breach or threatened breach by
the Company of the provisions of this Agreement, that the Buyer 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 Agreement and to enforce specifically the terms and provisions hereof, without the necessity of showing
economic loss and without any bond or other security being required.

 

    	15

    	 

    

  

IN WITNESS WHEREOF, the
undersigned Buyer and the Company have caused this Agreement to be duly executed as of the date first above written.

 

THE PAWS PET COMPANY, INC.

 

	By: 	 	 
	 	DAN WIESEL
	 	Chief Executive Officer

 

ASHER ENTERPRISES, INC.

 

	By: 	 	 
	Name: Curt Kramer
	Title:   President

 

1 Linden Pl., Suite 207

Great Neck, NY. 11021

 

AGGREGATE SUBSCRIPTION AMOUNT:

 

	Aggregate Principal Amount of Note:	 	$	47,500.00	 
	 	 	 	 	 
	Aggregate Purchase Price:	 	$	47,500.00	 

 

    	16

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