Principal Amount: $42,000Issue Date: November 1, 2016

Conversion Right. The Junior Holder shall have the right from time to time, from the Issue Date and ending on the later of: (i) the Maturity Date and (ii) the date of payment of the Default Amount (as defined in Article II) pursuant to Section 1.6(a) or Article II, each in respect of the remaining outstanding principal amount of this Junior Note to convert all or any part of the outstanding and unpaid principal amount of this Junior Note into fully paid and non- assessable shares of Common Stock, as such Common Stock exists on the Issue Date, or any shares of capital stock or other securities of the Borrower into which such Common Stock shall hereafter be changed or reclassified at the conversion price (the “Conversion Price”) determined as provided herein (a “Conversion”); provided, however, that in no event shall the Junior Holder be entitled to convert any portion of this Junior Note (A) at a time when the market price is less than $0.15 per share, as reported on the Principle Market (defined in Section 2.8), subject to equitable adjustments for stock splits, stock dividends or rights offerings by the Borrower relating to the Borrower’s securities or the securities of any subsidiary of the Borrower, combinations, recapitalization, reclassifications, extraordinary distributions and similar events, or (B)  in excess of that portion of this Junior Note upon conversion of which the sum of (1) the number of shares of Common Stock beneficially owned by the Junior Holder and its affiliates (other than shares of Common Stock which may be deemed beneficially owned through the ownership of the unconverted portion of the Junior Note or the unexercised or unconverted portion of any other security of the Borrower subject to a limitation on conversion or exercise analogous to the limitations contained herein) and (2) the number of shares of Common Stock issuable upon the conversion of the portion of this Junior Note with respect to which the determination of this proviso is being made, would result in beneficial ownership by the Junior Holder and its affiliates of more than 4.99% of the outstanding shares of Common Stock. For purposes of the proviso to the immediately preceding sentence, beneficial ownership shall be determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Regulations 13D-G thereunder, except as otherwise provided in clause (1) of such proviso, provided, further, however, that the maximum percentage limitations on conversion may be waived by the Junior Holder upon, at the election of the Junior Holder, not less than 61 days’ prior notice to the Borrower, and the provisions of the conversion limitation shall continue to apply until such 61st day (or such later date, as determined by the Junior Holder, as may be specified in such notice of waiver). The number of shares of Common Stock to be issued upon each conversion of this Junior Note shall be determined by dividing the Conversion Amount (as defined below) by the applicable Conversion Price then in effect on the date specified in the notice of conversion, in the form attached hereto as Exhibit A (the “Notice of Conversion”), delivered to the Borrower by the Junior Holder in accordance with Section 1.4 below; provided that the Notice of Conversion is submitted by facsimile or e-mail (or by other means resulting in, or reasonably expected to result in, notice) to the Borrower before 6:00 p.m., New York, New York time on such conversion date (the “Conversion Date”). The term “Conversion Amount” means, with respect to any conversion of this Junior Note, the sum of (1) the principal amount of this Junior Note to be converted in such conversion plus (2) at the Junior Holder’s option, accrued and unpaid interest, if any, on such principal amount at the interest rates provided in this Junior Note to the Conversion Date, plus (3) at the Junior Holder’s option, Default Interest, if any, on the amounts referred to in the immediately preceding clauses (1) and/or (2) plus (4) at the Junior Holder’s option, any amounts owed to the Junior Holder pursuant to Sections 1.3 and 1.4(g) hereof.

Conversion Price. The conversion price (the “Conversion Price”) is set at $0.007 (subject to equitable adjustments for stock splits, stock dividends or rights offerings by the Borrower relating to the Borrower’s securities or the securities of any subsidiary of the Borrower, combinations, recapitalization, reclassifications, extraordinary distributions and similar events).  Other than as set forth in the foregoing sentence, the Conversion Price will not be otherwise reduced, for any reason, without the express written permission of the Senior Holder.  The Borrower undertakes to take all reasonable action to prevent the conversion of this Junior Note at a price less than the Conversion Price.

Authorized Shares. The Borrower covenants that during the period the conversion right exists, the Borrower will reserve from its authorized and unissued Common Stock a sufficient number of shares (the “Reserved Amount”), free from pre-emptive rights, to provide for the issuance of Common Stock upon the full conversion of this Junior Note. Subject to the limitations set forth in this Junior Note, the Borrower (i) acknowledges that it has irrevocably instructed its transfer agent to issue certificates for the Common Stock issuable upon conversion of this Junior Note, and (ii) agrees that its issuance of this Junior Note shall constitute full authority to its officers and agents who are charged with the duty of executing stock certificates to execute and issue the necessary certificates for shares of Common Stock in accordance with the terms and conditions of this Junior Note.

 

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

1.7

Trading Market Limitations. Unless permitted by the applicable rules and regulations of the principal securities market on which the Common Stock is then listed or traded, in no event shall the Borrower issue upon conversion of or otherwise pursuant to this Junior Note more than the maximum number of shares of Common Stock that the Borrower can issue pursuant to any rule of the principal United States securities market on which the Common Stock is then traded (the “Maximum Share Amount”), which shall be 4.99% of the total shares outstanding on the Closing Date (as defined in the Exchange Agreement), subject to equitable adjustment from time to time for stock splits, stock dividends, combinations, capital reorganizations and similar events relating to the Common Stock occurring after the date hereof. Once the Maximum Share Amount has been issued, if the Borrower fails to eliminate any prohibitions under applicable law or the rules or regulations of any stock exchange, interdealer quotation system or other self-regulatory organization with jurisdiction over the Borrower or any of its securities on the Borrower’s ability to issue shares of Common Stock in excess of the Maximum Share Amount, in lieu of any further right to convert this Junior Note, this will be considered an Event of Default under Section 2.3 of the Junior Note.

1.8

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

1.9

Prepayment. The Borrower has no right of prepayment.

2.1

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

2.2

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

2.3

Breach of Covenants. The Borrower breaches any material covenant or other material term or condition contained in this Junior Note and such breach continues for a period of ten (10) days after written notice thereof to the Borrower from the Junior Holder.

2.4

Breach of Representations and Warranties. Any representation or warranty of the Borrower made herein or in statement or certificate given in writing pursuant hereto, shall be false or misleading in any material respect when made and the breach of which has (or with the passage of time will have) a material adverse effect on the rights of the Junior Holder with respect to this Junior Note.

2.5

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

2.6

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

2.7

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

2.8

 Delisting of Common Stock. The Borrower shall fail to maintain the listing of the Common Stock on at least one of OCT Markets or an equivalent replacement exchange, the Nasdaq National Market, the Nasdaq SmallCap Market, the New York Stock Exchange, the American Stock Exchange or such other means to allow the Company’s common stock to be traded electronically (referred to as the “Principle Market”).

2.9

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

2.10

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

2.11

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

2.12

Financial Statement Restatement. The restatement of any financial statements filed by the Borrower with the SEC for any date or period from two years prior to the Issue Date of this Junior Note and until this Junior Note is no longer outstanding, if the result of such restatement would, by comparison to the unrestated financial statement, have constituted a material adverse effect on the rights of the Junior Holder with respect to this Junior Note or the Exchange Agreement.

2.13

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

2.14

Replacement of Transfer Agent. In the event that the Borrower proposes to replace its transfer agent, the Borrower fails to provide, prior to the effective date of such replacement, a fully executed Irrevocable Transfer Agent Instructions in a form as initially delivered pursuant to the Exchange Agreement between the Senior Holder and the Borrower (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.

2.15

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

 

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

 

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

 

3.3 Amendments. This Junior Note and any provision hereof may only be amended by an instrument in writing signed by the Borrower and the Junior Holder. The term “Junior Note” and all reference thereto, as used throughout this instrument, shall mean this instrument as originally executed, or if later amended or supplemented, then as so amended or supplemented.

 

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

 

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

 

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

 

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

 

3.8 [Reserved]

 

3.9 Notice of Corporate Events. Except as otherwise provided below, the Junior Holder of this Junior Note shall have no rights as a Junior Holder of Common Stock unless and only to the extent that it converts this Junior Note into Common Stock. The Borrower shall provide the Junior Holder with prior notification of any meeting of the Borrower’s shareholders (and copies of proxy materials and other information sent to shareholders). In the event of any taking by the Borrower of a record of its shareholders for the purpose of determining shareholders who are entitled to receive payment of any dividend or other distribution, any right to subscribe for, purchase or otherwise acquire (including by way of merger, consolidation, reclassification or recapitalization) any share of any class or any other securities or property, or to receive any other right, or for the purpose of determining shareholders who are entitled to vote in connection with any proposed sale, lease or conveyance of all or substantially all of the assets of the Borrower or any proposed liquidation, dissolution or winding up of the Borrower, the Borrower shall mail a notice to the Junior Holder, at least twenty (20) days prior to the record date specified therein (or thirty (30) days prior to the consummation of the transaction or event, whichever is earlier), of the date on which any such record is to be taken for the purpose of such dividend, distribution, right or other event, and a brief statement regarding the amount and character of such dividend, distribution, right or other event to the extent known at such time. The Borrower shall make a public announcement of any event requiring notification to the Junior Holder hereunder substantially simultaneously with the notification to the Junior Holder in accordance with the terms of this Section 3.9.

 

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