Page 39 of 67 SEC Filing
4.
Security Agreement. Pursuant to a Security Agreement between the Company and the Payee dated as of the Issue Date
(the “Security Agreement”), this Debenture is secured by substantially all of the assets of the Company.
5.
Conversion.
(i)
Optional Conversion by the Company. To the extent
outstanding and prior to prepayment being tendered by the Company or the Maturity Date, the principal amount of this Debenture
outstanding from time to time and all accrued and outstanding interest thereon may be converted, in whole, at the option of the
Company at any time so long as both (i) the Twenty Day Moving Average Price of the Common Stock is at least 125% of the Conversion
Price as of the date this Debenture is to be converted hereunder and (ii) the Current Market Price of the Common Stock has been
greater than the Conversion Price for ten consecutive days. A conversion of this Debenture into shares of Common Stock shall be
effected at a conversion price equal to $0.17 per share (as adjusted for stock splits and recapitalizations) (the “Conversion
Price”). For the purposes of this Section 5(i), the “Current Market Price” means, generally,
(y) the VWAP, for the 10 consecutive trading days ending on the applicable date or (z) if the Common Shares are not listed or quoted
on the Nasdaq Capital Market or another securities exchange or market, the fair value as reasonably determined by the Board of
Directors and the Payee. For the purposes of this Section 5(i), the “VWAP” means the volume weighted
average trading price of the Common Stock for the applicable period (which must be calculated utilizing days in which the Common
Stock actually trade) on the Nasdaq Capital Market (or if the Common Stock is no longer traded on the Nasdaq Capital Market, on
such other exchange as the Common Stock are then traded). In the event of a conversion of the entire outstanding principal amount
outstanding from time to time under this Section 5(i) prior to the Maturity Date, the Debenture shall convert into such
amount of shares as if the Debenture had been held until the Maturity Date. Further, for the purposes of this Section 5(i),
the “Twenty Day Moving Average Price” means an amount equal to the sum of the closing price of the Common Stock
on the Nasdaq Capital Market Market (or if the Common Stock is no longer traded on the Nasdaq Capital Market, on such other exchange
as the Common Stock are then traded) on each of the immediately preceding twenty trading days, divided by twenty.
(ii)
Optional Conversion by the Payee before Maturity Date. The outstanding principal amount of this Debenture outstanding
from time to time and all accrued and unpaid interest as of date of conversion (such date, the “Optional Conversion Date”)
may be converted, in whole, at the option of the Payee into shares of Common Stock so long as the Subsequent Closing contemplated
by the Purchase Agreement has occurred, upon any of the following events:
(a)
for such period beginning on the occurrence of a Company Cash Deficiency and ending 15 days thereafter; for the purposes
hereof, a “Company Cash Deficiency” means such time that the Company’s cash balance and short-term investments,
net of debt or borrowed funds that are payable within one year, is less than Two Million One Hundred Thousand Dollars ($2,100,000),
calculated at the month’s end;
(b)
the Company effecting a Change in Control other than in connection with the Payee or its affiliates; and
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