UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

_______________________

FORM 8-K

CURRENT REPORT
Pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): November 24, 2015

VISCOUNT SYSTEMS, INC.
(Exact name of registrant as specified in its charter)

Nevada 000-49746 88-0498181
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)

4585 Tillicum Street, Burnaby, British Columbia, Canada V5J 5K9 
(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code: (604) 327-9446


(Former name or former address, if changed since last report)

_______________________

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation to the registrant under any of the following provisions:

[     ]     Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

[     ]     Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a -12)

[     ]     Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d -2(b))

[     ]     Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e -4(c))



Item 1.01 Entry Into a Material Definitive Agreement

     On November 24, 2015 (the “Closing Date”), Viscount Systems, Inc. (the “Company”) consummated a series of transactions with three of its current preferred equity holders (the “Purchasers”) to raise $300,000 for the Company (the “Financing”). For purposes of this Current Report on Form 8-K (the “Report”), “Transaction Documents” refers to the Series B Demand Notes (as defined below), the Certificate of Designation (as defined below), the Series B Preferred Stock (as defined below), that certain transfer agent letter executed by the Company and its transfer agent instructing the Company’s transfer agent to reserve initially 147,000,000 shares for issuance in connection with the Financing, the Security Agreement (defined below), the IP Security Agreement (defined below), the Subsidiary Guaranty (defined below), the Certificate of Amendment (as defined below) and any and all instruments, certificates and/or other documents used to perfect all of the Purchasers’ security interests in the collateral including, but not limited to, any UCC-1 financing statements.

Series B Demand Notes

     On the Closing Date, in consideration for $300,000, the Company issued to the Purchasers Senior Secured Convertible Demand Promissory B Notes (the “Series B Demand Notes”) in the aggregate principal amount of $330,000 with an original issue discount of $30,000. The Series B Demand Notes are due and payable upon receipt of a written demand notice from the Purchasers and failure to repay the Series B Demand Note upon receipt of a written demand notice constitutes an event of default. The Series B Demand Notes accrue interest at 8% for each 30 days that the Series B Demand Notes remain outstanding and the interest rate will be increased upon an event of default to the lesser of 21% per annum and the highest amount permitted by applicable law. Interest payments must be made quarterly and may be made in cash or in the form of Series B Demand Notes.

     The Series B Demand Notes may be converted (subject to certain beneficial ownership limitations), at the option of the holder, into shares (the “Conversion Shares”) of the Company’s common stock (the “Common Stock”) at a conversion price equal to sixty percent (60%) multiplied by the lowest bid price (or lowest sale price, as the case may be) of a share of Common Stock during the 20 consecutive trading days prior to the date of any conversion. The Company’s obligations to issue and deliver the Conversion Shares upon a conversion in accordance with the terms of the Series B Demand Note is absolute and unconditional. If a holder elects to convert the Series B Demand Note and the Company fails to deliver to the holder a certificate without a restrictive legend, the Company is required to pay the holder, in cash, as liquidated damages, for each $10,000 of conversion amount, $200 per trading day commencing the day after the date on which the shares were to have been delivered (increasing to $400 per trading day on the fifth (5th) trading day after such damages begin to accrue) for each trading day until the earlier of the date such certificates are delivered without restrictive legend or the holder rescinds the conversion.

     The conversion price of the Series B Demand Notes is subject to adjustment upon issuance of certain dividends and distributions, reorganization, consolidation or merger, stock splits, and issuance by the Company of a security at a lower price than the conversion price.

     In addition to failing to repay the Series B Demand Note in a timely manner as described above, the following also constitute events of default under the Series B Demand Notes:

  • the Company’s failure to pay when due any interest or other payment due on and/or under the Series B Demand Note within two (2) days following the due date hereunder;

  • a breach of any provision and/or default or event of default (subject to any grace or cure period provided in the applicable agreement, document or instrument) shall occur under any of the Transaction Documents and/or any other document related to the Series B Demand Notes;
  • the Company shall fail for any reason to obtain the consent of the holders for the Restricted Company Actions (as defined below);
  • the Common Stock shall not be eligible for listing or quotation for trading on a trading market and shall not be eligible to resume listing or quotation for trading thereon within five (5) consecutive trading days from the first date of lack of eligibility;
  • the electronic transfer by the Company of shares of Common Stock through the Depository Trust Company or another established clearing corporation is no longer available or is subject to a “chill” (i.e., the Depository Trust Company announces that it will not accept the deposit of shares of Common Stock into its participants’ street name accounts);
  • failure to reserve and keep available out of its authorized and unissued Common Stock the number of shares of Common Stock as described in the Series B Demand Notes (initially 147,000,000 shares);
  • the Company shall (i) apply for or consent to the appointment of a receiver, trustee, liquidator or custodian of itself or of all or a substantial part of its property, (ii) be unable, or admit in writing its inability, to pay its debts as they mature, (iii) make a general assignment for the benefit of its or any of its creditors, (iv) be dissolved or liquidated, (v) commence a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or consent to any such relief or to the appointment of or taking possession of its property by any official in an involuntary case or other proceeding commenced against it, or (vi) take any action for the purpose of effecting any of the foregoing;
  • proceedings for the appointment of a receiver, trustee, liquidator or custodian of the Company or of all or a substantial part of the property thereof, or an involuntary case or other proceedings seeking liquidation, reorganization or other relief with respect to the Company or the debts thereof under any bankruptcy, insolvency or other similar law now or hereafter in effect shall be commenced and an order for relief entered or such proceeding shall not be dismissed or discharged within 60 days of commencement;
  • any default in any of the other Transaction Documents and/or other indebtedness of the Company and/or any of its subsidiaries; or
  • a breach of any other provision of the Series B Demand Notes.

     For as long as any of the Series B Demand Notes remain outstanding, the Company must obtain express written consent from the holders of at least 50.1% of the aggregate principal amount of all of the Series B Demand Notes then outstanding to take the following actions (collectively, the “Restricted Company Actions”):

  • amend, alter, change, waive or repeal any provision of the Company’s Articles of Incorporation or By-Laws, each as amended (the “Articles of Incorporation” and “By-Laws,” respectively) (and/or those of any of its subsidiaries), in any manner that could, directly and/or indirectly, adversely affect the rights of the holders;
  • alter, waive, repeal, amend, and/or change any provision of the Series B Demand Note;
  • incur any indebtedness (other than that outstanding and in such principal amount outstanding as of June 5, 2012 and that represented by the Series B Demand Notes and Series A Demand Notes (as defined below, and collectively, the “Notes”), Transaction Documents and the transaction documents for the Series A Demand Notes) which if any such amount is permitted to be paid down, in whole or in part, pursuant to the Series B Demand Note and is paid down, in whole or in part, cannot be borrowed again except (A) if such indebtedness constitutes permitted debt (as defined in the Series B Demand Notes), and (B) any such reborrowed permitted debt is counted on a dollar for dollar basis against the Permitted Debt Cap (as defined below); provided, however, that subject to the limitations provided in the Series B Demand Note, the Company and/or its subsidiaries may borrow together in the aggregate up to $1,000,000 principal amount of Permitted Debt (the “Permitted Debt Cap”);

  • pay and/or make dividends, distributions and/or any other payment (whether in cash, securities or property) on any securities of the Company and/or any subsidiary other than to the holders of the Notes;
  • enter into any transaction with any affiliate (as defined under the Securities Act of 1933, as amended, the “1933 Act”), which would be required to be disclosed in any public filing with the Securities and Exchange Commission (the “SEC”) pursuant to SEC laws, rules and/or regulations, other than any transaction pursuant to which an affiliate of the Company and/or subsidiary is employed pursuant to a written agreement by the Company and/or any subsidiary which is negotiated on an arms-length basis, is approved by the independent directors of the Company’s Board of Directors (the “Board”) and does not exceed industry standards, based upon the Company’s industry, the revenues and income of the Company and the work that such affiliate will perform pursuant to such arrangement;
  • redeem, repurchase and/or otherwise enter into or effectuate a similar transaction for any securities of the Company and/or any subsidiary other than the Notes;
  • other than the Notes, repay any indebtedness and/or other obligation other than (1) any bank debt outstanding as of June 5, 2012, but only in accordance with and to the extent of the terms and conditions of such bank debt as of June 5, 2012; provided, however, that notwithstanding anything to the contrary provided herein or elsewhere, no bank debt and/or any other indebtedness may be pre-paid, (2) any accounts payable incurred in the normal course of the Company’s historical and ordinary business, (3) $45,000 aggregate principal amount loan advanced on March 26, 2012 plus accrued, but unpaid simple interest of 8% per annum to a shareholder of the Company (the “ Lender”), provided that simultaneously with and as a condition to the repayment (including, but not limited to, accrued, but unpaid interest) to the Lender of such loan, the Lender provides to the Company (A) written evidence signed by the Lender that no other amounts are owed by the Company to the Lender pursuant to such loan, and (B) a full written release signed by the Lender of any and all claims by the Lender against the Company and/or its subsidiaries in respect of such loan (“Release Documents”), (4) up to $60,000 of outstanding principal on loans due to shareholders and related parties as disclosed on the Company’s balance sheet dated March 31, 2012 filed with the SEC on or about May 15, 2012, provided that in each case, Release Documents are obtained, and (5) any Permitted Debt in accordance with the terms and conditions in the Note;
  • Other than the Notes, effect or enter into an agreement to effect any sale and/or issuance of Common Stock or common stock equivalents directly and/or indirectly involving a variable rate transaction;
  • enter into any agreement or understanding (whether in writing, orally or otherwise) to do any of the above; or
  • directly and/or indirectly create and/or otherwise permit to exist any liens on any assets of the Company and/or any of its subsidiaries except (i) any lien for taxes not yet due or delinquent or being contested in good faith by appropriate proceedings for which adequate reserves have been established in accordance with GAAP, (ii) any statutory lien arising in the ordinary course of business by operation of law with respect to a liability that is not yet due or delinquent, (iii) any lien created by operation of law, such as materialmen’s liens, mechanics’ liens and other similar liens, arising in the ordinary course of business with respect to a liability that is not yet due or delinquent or that are being contested in good faith by appropriate proceedings, or (iv) any liens securing any obligations of the Company and/or any subsidiary under the Notes.

     Additionally, without the consent of the holders of at least 50.1% of the Notes, the Company cannot take the following actions:

  • effect any merger, acquisition, sale, consolidation, reorganization and/or similar transaction or a change of control (each, an “Event”), except any Event which upon the date of the occurrence or closing of any Event, as the case may be, (i) the holder receives in exchange for the Note, cash in an amount not less than two (2) times the then principal amount of the Note immediately prior to the occurrence or closing of such Event, plus all accrued, but unpaid interest and other payments owed to the holder by the Company and/or its subsidiaries, or (ii) if an Event is structured whereby the holder receives securities of a non-affiliated, third-party entity, the common stock of such entity is listed on a National Securities Exchange (as defined in the 1933 Act) and such common stock for the twenty (20) consecutive trading days has a daily market capitalization of no less than $100 million;
  • decrease or increase the authorized size of the Company’s (and/or any of its subsidiaries’) Board other than as expressly provided in the Series B Demand Notes; or
  • directly and/or indirectly, adopt, amend and/or supplement any new stock option plan and/or similar plan (the “SOP Plans”), except where the maximum number of shares of Common Stock that may be acquired directly and/or indirectly upon exercise of stock options issued under the SOP Plans, when aggregated with the maximum number of shares of Common Stock that may be acquired directly and/or indirectly under all other stock option plans and/or stock options outstanding as of the date hereof (including, but not limited to, all stock options issued prior to the date hereof under any SOP Plans and/or otherwise, regardless of whether any such SOP Plans and/or other stock options have terminated and/or expired with or without being exercised) does not and will not at any time prior to and including March 3, 2017, exceed in the aggregate 32,500,000 shares of Common Stock (which 32,500,000 shall be proportionately adjusted to take into account each stock split and/or reverse stock split occurring following March 31, 2014).

     The Series B Demand Note also requires the Company to reserve from its authorized shares of Common Stock a number of shares of Common Stock sufficient to convert all of the Purchaser’s Series B Demand Notes into shares of Common Stock. In order to do so, the Company has covenanted to increase its authorized shares to 3,000,000,000 shares as soon as possible. If the Company is unable to satisfy this covenant, the Company will owe to the Purchasers an amount equal to 2% of such Purchaser’s Series B Demand Notes plus all accrued but unpaid interest.

     The Series B Demand Notes further provide that all of the Company’s directors except for Mr. Ned L. Siegel and Mr. Alexander Buehler resign from their positions on the Board, that the maximum number of directors to be appointed to the Board be decrease from seven (7) to five (5) and that the holders owning 50.1% of the Notes have the right to appoint three (3) directors to the Board (to hold their positions until all amounts owed under the Notes and related Transaction Documents are paid in full, the “Note Directors”). In the event that the required holders of the Notes elect to replace any one of the three Note Directors during the period in which they have a right to do so and the replacement does not occur within five business days, the Company must pay to each Note holder $2,500 per day until the Note Directors are replaced. The Series B Demand Notes also provide that the Purchasers will have the right to appoint an observer to the Board.

Series A Demand Notes

     On the Closing Date, in consideration for consenting to the Financing and in exchange for their outstanding shares of Series A Preferred Stock (the “Series A Preferred Stock”), the Company issued to the Purchasers Senior Secured Convertible Demand Promissory A Notes (the “Series A Demand Notes”) in the aggregate principal amount of $2,172,978. The Series A Demand Notes contain substantially the same terms and conditions as the Series B Demand Notes except that interest accrues at 14% per annum if all or any portion of the interest payable on the Series A Demand Notes is paid in cash (increasing to the lesser of 21% per annum and the highest amount permitted by applicable law in case of an event of default) and it accrues at 5% for each 30 days if all or any portion of the interest payable on the Series A Demand Notes is paid in Series A Demand Notes (increasing to 8% for each 30 days in case of an event of default);


Security Interests in the Company’s Assets

     On the Closing Date and in connection with the Financing, the Company and its subsidiary entered into a Security and Pledge Agreement (the “Security Agreement”) and an Intellectual Property Security Agreement (the “IP Security Agreement”) with the Purchasers pursuant to which the Purchasers received a security interest in all of the Company’s assets, including its intellectual property. Upon any event of default under the Notes or related Transaction Documents, the Purchasers are entitled to take possession of the Company’s assets. The Company also entered into a Subsidiary Guarantee (the “Subsidiary Guarantee”) with its subsidiary pursuant to which the Company’s subsidiary agreed to guaranty the obligations of the Company with respect to Financing.

     The foregoing descriptions of the Series B Demand Note, the Series A Demand Note, the Security Agreement, the IP Security Agreement and the Subsidiary Guarantee are qualified in their entirety by reference to the provisions of such agreements filed as exhibits 4.1, 4.2, 10.1, 10.2 and 10.3 to this Report, respectively, which are incorporated herein by reference.

Item 2.03 Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant

The disclosure set forth above in Item 1.01 of this Report is incorporated by reference herein.

Item 3.02 Unregistered Sale of Equity Securities

     The disclosure set forth above in Item 1.01 of this Report is incorporated by reference herein. The Notes were issued by the Company under the exemption from registration afforded by Section 4(a)(2) of the 1933 Act and/or Regulation D promulgated thereunder, as the securities were issued to accredited investors, without a view to distribution, and were not issued through any general solicitation or advertisement.

Item 5.02 Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers

     On November 24, 2015, in connection with the Financing, Craig Nemiroff was appointed as a director of the Company. Mr.Nemiroff has not been involved in any transaction with the Company that would require disclosure under Item 404(a) of the Regulation S-K.

Item 5.03 Amendments to Articles of Incorporation or Bylaws; Change in Fiscal Year.

     On November 24, 2015, in connection with the Financing, the Company filed its Certificate of Designation of Viscount Systems, Inc. Establishing the Designations, Preferences, Limitations and Relative Rights of its Series B Preferred Stock (the “Certificate of Designation,” and the series of preferred stock created upon filing of the Certificate of Designation, the “Series B Preferred Stock”) with the Secretary of State of Nevada. The Certificate of Designation, which amends the Articles of Incorporation, provides that the Company may issue up to 1,000 shares of Series B Preferred Stock. Holders of Series B Preferred Stock are entitled only to certain voting rights as described below. The Series B Preferred Stock is not entitled to receive dividends, any liquidation preference or conversion rights. The holders of Series B Preferred Stock have the following voting rights:


  • For so long as the Series B Preferred Stock is outstanding, the holders owning at least 50.01% of the outstanding Series B Preferred Stock, voting separately as a class, have the right to vote in an amount equal to 80% of the total votes on all matters that the holders of Common Stock have the right to vote on and/or consent to, no matter how many shares of common stock are outstanding;
  • The Company cannot (i) amend, alter or repeal any provision of the Articles of Incorporation or the By-laws of the Company so as to adversely affect the designations, preferences, limitations and relative rights of the Series B Preferred Stock, (ii) effect any reclassification of the Series B Preferred Stock, excluding a reverse stock split or forward split, or (iii) designate any additional series of preferred stock, the designation of which adversely effects the rights, privileges, preferences or limitations of the Series B Preferred Stock set forth herein; and
  • amend, alter or repeal any provision of the Certificate of Designation; provided, however, that the Company may, by any means authorized by law and without any vote of the holders of shares of the Series B Preferred Stock, make technical, corrective, administrative or similar changes in the Certificate of Designation that do not, individually or in the aggregate, directly and/or indirectly adversely affect the rights or preferences of the holders of shares of the Series B Preferred Stock.

     On November 24, 2015, in connection with the Financing, the Company, with the consent of a majority of the holders of Series A Preferred Stock, amended its Certificate of Designation, Preferences and Rights of the Series A Convertible Redeemable Preferred Stock of Viscount Systems, Inc., as amended (the “A Certificate”), by filing the Certificate of Fourth Amendment to the Certificate of Designation, Preferences and Rights of the Series A Convertible Redeemable Preferred Stock of Viscount Systems, Inc. (the “Certificate of Amendment”). The Certificate of Amendment amended the rights of the holders of Series A Preferred Stock as follows:

  • Removed Section 1(b) of the A Certificate eliminating the right of the holders of Series A Preferred Stock to consent to certain Company actions;
  • Removed Section 8 of the A Certificate eliminating the restriction that the Company may not create, authorize and/or issue any securities that are senior to the Series A Preferred Stock;
  • Removed Section 5(b) of the A Certificate requiring an adjustment to the conversion price of the Series A Preferred Stock upon the consummation of an offering of Series B Preferred Stock;
  • Removed Section 10 of the A Certificate dictating the terms by which the shares of Series A Preferred Stock may be transferred;
  • Removed Section 11 of the A Certificate requiring the Company to redeem the Series A Preferred Stock in certain circumstances;
  • Removed Section 12 of the A Certificate requiring the vote of 67% of the aggregate stated value of the then outstanding shares of Series A Preferred Stock in order to amend the A Certificate;
  • Removed Section 17 of the A Certificate eliminating the right of the holders of Series A Preferred Stock to appoint a board observer, or in certain circumstances a director, to the Board; and

  • Removed Section 19 of the A Certificate eliminating certain penalties upon the Company’s failure to pay any amounts owed under the A Certificate.

     The foregoing descriptions of the Certificate of Designation and Certificate of Amendment are qualified in their entirety by reference to the provisions of such certificates filed as exhibits 3.1 and 3.2 to this Report, respectively, which are incorporated herein by reference.

Item 9.01 Financial Statements and Exhibits.

(d) Exhibits.
   
3.1

Certificate of Designation of Viscount Systems, Inc. Establishing the Designations, Preferences, Limitations and Relative Rights of its Series B Preferred Stock

3.2

Certificate of Fourth Amendment to the Certificate of Designation, Preferences and Rights of the Series A Convertible Redeemable Preferred Stock of Viscount Systems, Inc.

4.1

Senior Secured Convertible Demand Promissory B Notes

4.2

Senior Secured Convertible Demand Promissory A Notes

10.1

Security and Pledge Agreement

10.2

Intellectual Property Security Agreement

10.3

Subsidiary Guarantee



SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Dated: December 1, 2015

  VISCOUNT SYSTEMS, INC.
   
  By:/s/ Scott Sieracki
           Name: Scott Sieracki
           Title: Interim Chief Executive Officer


EXHIBIT INDEX

Exhibit No.    Description
   
3.1 Certificate of Designation of Viscount Systems, Inc. Establishing the Designations, Preferences, Limitations and Relative Rights of its Series B Preferred Stock
3.2 Certificate of Fourth Amendment to the Certificate of Designation, Preferences and Rights of the Series A Convertible Redeemable Preferred Stock of Viscount Systems, Inc.
4.1 Senior Secured Convertible Demand Promissory B Notes
4.2 Senior Secured Convertible Demand Promissory A Notes
10.1 Security and Pledge Agreement
10.2 Intellectual Property Security Agreement
10.3 Subsidiary Guarantee





CERTIFICATE OF DESIGNATION OF
VISCOUNT SYSTEMS, INC.
ESTABLISHING THE DESIGNATIONS, PREFERENCES, LIMITATIONS
AND RELATIVE RIGHTS OF ITS SERIES B PREFERRED STOCK

On behalf of Viscount Systems, Inc., a Nevada corporation (the "Corporation"), the undersigned hereby certifies that the following resolution has been duly adopted by the board of directors of the Corporation (the "Board"):

RESOLVED, that, pursuant to the authority granted to and vested in the Board by the provisions of the articles of incorporation of the Corporation (the "Articles of Incorporation") and the provisions of Section 78.1955 of the Nevada General Corporation Law, there hereby is created, out of the twenty thousand (20,000) shares of preferred stock, par value U.S. $0.001 per share, of the Company authorized by the Articles of Incorporation, Series B Preferred Stock, consisting of one thousand (1,000) shares, which series shall have the following powers, designations, preferences and relative participating, optional and other special rights, and the following qualifications, limitations and restrictions:

SECTION 1. DESIGNATION OF SERIES. The shares of such series shall be designated as the "Series B Preferred Stock" (the "Series B Preferred Stock") and the number of shares initially constituting such series shall be up to One Thousand (1,000) shares.

SECTION 2. DIVIDENDS. The holders of the Series B Preferred Stock shall not be entitled to receive dividends paid on the Common Stock.

SECTION 3. LIQUIDATION PREFERENCE. The holders of the Series B Preferred Stock shall not be entitled to any liquidation preference.

SECTION 4. VOTING.

4.1     Voting Rights. The holders of the Series B Preferred Stock will have the shareholder voting rights as described in this Section 4 and as required by law. For so long as any shares of the Series B Preferred Stock are issued and outstanding, the holders owning at least 50.01% or greater of the then issued and outstanding Series B Preferred Stock (regardless of how many shares of Series B Preferred Stock are issued and outstanding), voting separately as a class, shall have the right to vote in an amount equal to eighty percent (80%) of the total vote on all matters that the holders of the Common Stock have the right to vote and/or consent to, no matter how many shares of Common Stock or other voting stock of the Company are issued and outstanding.

4.2     Amendments to Articles and Bylaws. So long as the Series B Preferred Stock is outstanding, the Company shall not, without the affirmative vote of the holders of at least 50.01% of all outstanding shares of Series B Preferred Stock, voting separately as a class (i) amend, alter or repeal any provision of the Articles of Incorporation or the Bylaws of the Company so as to adversely affect the designations, preferences, limitations and relative rights of the Series B Preferred Stock, (ii) effect any reclassification of the Series B Preferred Stock, excluding a reverse stock split or forward split, or (iii) designate any additional series of preferred stock, the designation of which adversely effects the rights, privileges, preferences or limitations of the Series B Preferred Stock set forth herein.

4.3     Amendment of Rights of Series A Preferred Stock. The Company shall not, without the affirmative vote of the holders of at least 50.01% of all outstanding shares of the Series B Preferred Stock, amend, alter or repeal any provision of this Certificate of Designation; provided, however, that the Company may, by any means authorized by law and without any vote of the holders of shares of the Series B Preferred Stock, make technical, corrective, administrative or similar changes in this Certificate of Designation that do not, individually or in the aggregate, directly and/or indirectly adversely affect the rights or preferences of the holders of shares of the Series B Preferred Stock.


SECTION 5. CONVERSION RIGHTS. The shares of the Series A Preferred Stock shall have no conversion rights.

SECTION 6. NOTICES. Any notice required hereby to be given to the holders of shares of the Series A Preferred Stock shall be deemed given if deposited in the United States mail, postage prepaid, and addressed to each holder of record at his, her or its address appearing on the books of the Company.

SECTION 7. MISCELLANEOUS.

(a)          The headings of the various sections and subsections of this Certificate of Designation are for convenience of reference only and shall not affect the interpretation of any of the provisions of this Certificate of Designation.

(b)          Whenever possible, each provision of this Certificate of Designation shall be interpreted in a manner as to be effective and valid under applicable law and public policy. If any provision set forth herein is held to be invalid, unlawful or incapable of being enforced by reason of any rule of law or public policy, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating or otherwise adversely affecting the remaining provisions of this Certificate of Designation. No provision herein set forth shall be deemed dependent upon any other provision unless so expressed herein. If a court of competent jurisdiction should determine that a provision of this Certificate of Designation would be valid or enforceable if a period of time were extended or shortened, then such court may make such change as shall be necessary to render the provision in question effective and valid under applicable law.

(c)          Except as may otherwise be required by law, the shares of the Series B Preferred Stock shall not have any powers, designations, preferences or other special rights, other than those specifically set forth in this Certificate of Designation.

IN WITNESS WHEREOF, this Certificate of Designations has been executed by a duly authorized officer of the Company on this 3rd day of November 2015.

VISCOUNT SYSTEMS, INC.

  By: /s/ Scott Sieracki
    Scott Sieracki
    Interim Chief Executive Officer






Certificate of Fourth Amendment
 
to the Certificate of Designation, Preferences and Rights of the
 
Series A Convertible Redeemable Preferred Stock of Viscount Systems, Inc.

Pursuant to NRS 78.1955 – After Issuance of Class or Series

I, Scott Sieracki, Interim Chief Executive Officer of Viscount Systems, Inc., a corporation organized under the laws of the State of Nevada (the “Company”), hereby certify the following:

FIRST:          The Certificate of Designation, Preferences and Rights of the Series A Convertible Redeemable Preferred Stock of the Company (the “A Certificate”) was filed with the Secretary of State of the State of Nevada (the “Secretary”) creating and establishing the designations, preferences and rights of the Series A Convertible Redeemable Preferred Stock of the Company (the “A Shares”) on June 5, 2012 and Certificates of Amendment to the A Certificate were filed by the Company with the Secretary on each of October 17, 2012, March 21, 2014 and January 21, 2015, (such amendments together with the A Certificate, collectively, the “Certificate”).

SECOND:        The board of directors of the Company on November 9, 2015 duly adopted the following resolutions further amending the Certificate:

RESOLVED, that the Certificate be further amended as follows:

  1.

Section 1(b) of the Certificate is hereby deleted in its entirety;

  2.

Section 8 of the Certificate is hereby deleted in its entirety;

  3.

Section 5(g) of the Certificate is hereby deleted in its entirety;

  4.

Section 10 of the Certificate is hereby deleted in its entirety;

  5.

Section 11 of the Certificate is hereby deleted in its entirety;

  6.

Section 12 of the Certificate is hereby deleted in its entirety; and

  7.

Section 17 of the Certificate is hereby deleted in its entirety;

  8.

Section 19 of the Certificate is hereby deleted in its entirety;

THIRD:          The approval of holders representing no less than 67% of the aggregate Stated Value of the issued and outstanding A Shares has been obtained in accordance with NRS 78.1955.

IN WITNESS WHEREOF, the undersigned has executed and subscribed this Certificate and does affirm the foregoing as true this 9th day of November, 2015.

  VISCOUNT SYSTEMS, INC.
   
  By: /s/ Scott Sieracki
  Name: Scott Sieracki
  Title: Interim CEO





B Note

THIS NOTE AND THE SECURITIES ISSUABLE UPON CONVERSION HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “1933 ACT”), OR THE SECURITIES LAWS OF ANY STATE. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH 1933 ACT AND/OR APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED OR UNLESS SOLD PURSUANT TO RULE 144 OF SUCH 1933 ACT. THIS NOTE AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS NOTE MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.

VISCOUNT SYSTEMS, INC.

SENIOR SECURED CONVERTIBLE DEMAND PROMISSORY B NOTE

B Note No:  ____________ Original Issuance Date: November 24, 2015
       Original Principal Amount: $ ____________

Viscount Systems, Inc. a Nevada corporation (and together with each and every of its current and future Subsidiaries (as defined below), collectively, the “Company”), hereby promises to pay to _________________or registered assigns (the “Holder”) _______________(the “Original Principal Amount”) (as reduced pursuant to the terms hereof pursuant to payment, conversion or otherwise, the “Principal”) and to pay interest (“Interest”) on any outstanding Principal at the applicable Interest Rate from the date set forth above as the Original Issuance Date (the “Issuance Date”) through and including the date all Principal, all accrued but unpaid Interest thereon and all other amounts due hereunder is received by the Holder in immediately available funds by wire transfer pursuant to wire transfer instructions provided to the Company by the Holder. This Senior Secured Convertible Promissory Demand B Note (including all Senior Secured Convertible Demand B Notes issued in exchange, transfer or replacement hereof, and/or as Interest pursuant to Section 1 below), is hereinafter referred to as this “Note,” and together with all other Notes, collectively, the “Notes”. All Principal, together with all accrued but unpaid Interest, and all other amounts due hereunder shall be due and payable on the Demand Payment Date to the Holder upon delivery by the Holder to the Company of written demand in cash by wire transfer pursuant to wiring instructions provided to the Company by the Holder.

This Note is one of a series of Senior Secured Convertible Demand Promissory B Notes issued and sold by the Company in an original aggregate principal amount equal to no less than $330,000 (but not to exceed $660,000 without the consent of the Company’s Board of Directors). The $330,000 original aggregate principal amount of the Notes ($660,000 if all Notes are sold) includes ten (10%) percent original issue discount $30,000 (or $60,000 if all Notes are sold). For example and for clarity purposes only, if the Company sold to 3 purchasers $330,000 aggregate principal amount of Notes with each of the 3 such purchasers purchasing an equal amount of such Notes, the aggregate purchase price paid by such three (3) persons would be $300,000 (or $100,000 per person) with the $10,000 difference between the $110,000 aggregate principal amount of each Note and the $100,000 purchase price paid for each Note by a purchaser constituting 10% original issue discount).

The following is a statement of the rights of the Holder of this Note and the conditions to which this Note is subject, and to which the Holder, by the acceptance of this Note, agrees:


1.                  Interest; Certain Definitions; Transaction Documents. Interest on this Note shall commence accruing on the Issuance Date at the Interest Rate (as defined below) and shall continue accruing interest until all amounts under this Note and the other Transaction Documents owed to the Holder are received in full in cash by the Holder), shall accrue daily on a compounding basis, be payable quarterly in arrears on each of March 31, June 30, September 30 and December 31 or if any such date falls on a Holiday (as defined below), the next day that is not a Holiday (each an “Interest Payment Date”). Interest shall be payable on each Interest Payment Date to the record Holder of this Note at the option of the Company in (i) cash and/or (ii) Notes with the aggregate principal amount of any Note issued as Interest in lieu of cash equal to the amount of Interest due on such Interest Payment Date, with the first Interest Payment Date being December 31. For purposes of this Note, the term “Interest Rate” means eight (8%) percent for each 30 days (pro-rata for any period of less than 30 days), (which Interest Rate shall increase to the lesser of (x) 21% per annum, and (y) the highest amount permitted by applicable law), for each 30 days (pro-rata for any period of less than 30 days) commencing on the date of an Event of Default and continuing through and including the date all amounts hereunder are paid in full in immediately available funds by wire transfer pursuant to wire transfer instructions provided by the Holder to the Company. For purposes of this Note, the term “Holiday” means any day other than a Business Day; “Business Day” means any day other than Saturday, Sunday or other day on which commercial banks in the City of New York are authorized or required by law to remain closed; “Demand Payment Date” means the next Business Day following the date the Holder sends to the Company written notice that the Holder demands that all Principal, accrued but unpaid Interest and all other amounts owed to the Holder under this Note and the other Transaction Documents is due and payable; and “Trading Market” means any of the following markets or exchanges on which the Common Stock (or any other common stock of any other Person that references the Trading Market for its common stock) is listed or quoted for trading on the date in question: the OTC Bulletin Board, The NASDAQ Global Market, The NASDAQ Global Select Market, The NASDAQ Capital Market, the New York Stock Exchange, NYSE Arca, the NYSE MKT, or the OTCQX Marketplace, the OTCQB Marketplace, the OTCPink Marketplace or any other tier operated by OTC Markets Group Inc. (or any successor to any of the foregoing). “Transaction Documents” means all Notes issued to the Holder and the other holders of Notes, the B Certificate, the B Shares, the TA Letter, the Security and Pledge Agreement, the IP Security Agreement, the Subsidiary Guaranty, the A Share Amendment and any and all instruments, certificates and/or other documents used to perfect all of the Holders security interests in the Collateral (as defined in the Pledge Security Agreement and the IP Security Agreement) including, but not limited to any UCC-1 financing statements, all of which, and related documents necessary and/or advisable to effectuate the transaction contemplated in the above documents and all supplements, exhibits, amendments, schedules and/or annexes to any such documents. The term “TA Letter” means the irrevocable instructions to the Company’s transfer agent in the form annexed hereto as Exhibit 1; the term “IP Security Agreement” means the Intellectual Property Security Agreement annexed hereto as Exhibit 2; the term “Security and Pledge Agreement” means the Security and Pledge Agreement annexed hereto as Exhibit 3; the term “Subsidiary Guaranty” means the Subsidiary Guaranty Agreement annexed hereto as Exhibit 4; the Stock Power of Attorney (the “SPA”) and the stock certificate (the “Certificate”) for the 120 Class A Voting Common Shares of Viscount Communications and Control Systems, Inc., a British Columbia corporation and wholly-owned Subsidiary of the Company in the name of the Company (FKA, OMV 4 Corp.) are all annexed here to as Exhibit 5; the term “A Share Amendment” means the amendment to the Certificate of Designation for the Company’s Series A Preferred Stock (as amended), annexed hereto as Exhibit 6; and the term “B Certificate” means the Company’s Certificate of Designation Establishing the Designations, Preferences and Rights of its Series B Preferred Stock, a copy of which the Company previously filed with the Secretary of State of Nevada, a copy of which, together with the stock certificates representing the Company’s Series B Preferred Stock (the “B Stock”) issued to certain holders of Notes and Other Notes (as defined below) and the proof of filing of such B Certificate with the Nevada Secretary of State are annexed hereto as Exhibit 7.

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2.                  Conversion.

2.1                  Optional Conversion. All Principal, accrued, but unpaid Interest and all other amounts due herein and/or pursuant to the Transaction Documents may be converted at the sole option of the Holder, at any time and from time to time into such number of shares (“Conversion Shares”) of common stock, par value $0.001 per share (the “Common Stock”) as shall equal the quotient of (i) all Principal, all accrued but unpaid Interest and any other funds owed to the Holder by the Company under this Note and/or any other Transaction Document that the Holder has elected to convert any Conversion Amount (a “Conversion”) into Conversion Shares (the “Conversion Amount”), divided by (ii) the Conversion Price. “Trading Day” means a day on which the Common Stock is eligible for quotation on the OTC Market, or, if the Common Stock is not then eligible for quotation on the Trading Market then any day that the Common Stock is traded or eligible for quotation on any other United States commonly acceptable trading medium or market place where the Common Stock is then traded or eligible for quotation. “Conversion Price” shall mean the product of (x) sixty (60%) percent multiplied by (y) the lowest bid price (or lowest sale price, as the case may be) of a share of Common Stock during the 20 consecutive Trading Days prior to the date of any Conversion with the last Trading Day being the Trading Day immediately prior to the Trading Day the Holder informs the Company in writing by a Conversion Notice (as defined below) that the Holder is converting all or any part of this Note into shares of Common Stock.

2.2                  Mechanics of Conversion. To effectuate a Conversion pursuant to this Section 2, the Holder shall transmit by hand, facsimile or email (or otherwise deliver), for receipt on or prior to 11:59 p.m., New York time on such date, a copy of a fully completed executed notice of conversion in the form attached hereto as Annex 1 (the “Conversion Notice”) to the Company. The date of any Conversion shall be deemed the date a Conversion Notice is deemed given pursuant to Section 13.8 hereof (the “Conversion Date”). If, but only if, all Principal and accrued but unpaid Interest and all other amounts owed to the Holder under this Note and the other Transaction Documents is being converted into Conversion Shares, a Holder shall deliver to the Company this Note, but in no other event shall this Note be required to be delivered to the Company to effectuate a Conversion. The calculations and entries set forth on a Conversion Notice shall control in the absence of manifest or mathematical error. On or before the third (3rd) Trading Day following the Conversion Date (the “Share Delivery Date”), the Company shall (x) issue and deliver to the address as specified in the Conversion Notice, a certificate, registered in the name of the Holder or its designee, for the number of Conversion Shares to which the holder shall be entitled, or (y) provided that the Company’s transfer agent (the “Transfer Agent”) is participating in The Depository Trust Company (“DTC”) Fast Automated Securities Transfer Program, upon the request of the Holder, credit such aggregate number of Conversion Shares to which the Holder shall be entitled to the Holder’s or its designee’s balance account with DTC through its Deposit Withdrawal Agent Commission system. If a Holder elects to deliver this Note, and the entire Principal, all accrued but unpaid Interest and all other amounts owed under this Note and the other Transaction Documents is not being converted, then the Company shall, as soon as practicable after receipt of the Note (but in no event later than five (5) Trading Days), cause to be issued and delivered to the Holder a new Note representing the remaining amount of Principal on the Note not converted. The person or persons entitled to receive the Conversion Shares issuable upon a Conversion shall be treated for all purposes as the record holder or holders of such Conversion Shares on the date such Conversion Shares are issued. Each Note shall be converted into such number of Conversion Shares, as provided in this Section 2.

2.3                  Failure to Deliver Certificates. If, in the case of any Conversion Notice, the required Common Stock certificate or certificates are not delivered to or as directed by the applicable Holder without restrictive legend by the Share Delivery Date, the Holder shall be entitled to elect by written notice to the Company at any time, to rescind such conversion, in which event the Company shall promptly return to the Holder any Note delivered to the Company and the Holder shall promptly return to the Company any Common Stock certificates issued to such Holder pursuant to the rescinding Conversion Notice.

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2.4                  Obligation Absolute; Partial Liquidated Damages. The Company’s obligations to issue and delivery the Conversion Shares upon a Conversion in accordance with the terms hereof are absolute and unconditional, irrespective of any action or inaction by the Holder to enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any judgment against any Person or any action to enforce the same, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder or any other Person of any obligation to the Company or any violation or alleged violation of law by the Holder or any other person, and irrespective of any other circumstance which might otherwise limit such obligation of the Company to such Holder in connection with the issuance of such Conversion Shares. In the event a Holder shall elect to convert any Conversion Amount into Conversion Shares, the Company may not refuse conversion based on any claim that such Holder or anyone associated or affiliated with such Holder has been engaged in any violation of law, agreement or for any other reason, unless an injunction from a court, on notice to Holder, expressly restraining and/or enjoining conversion of all or part of the Conversion Amount shall have been sought and obtained by the Company, and the Company posts a cash surety bond for the benefit of such Holder in the amount of 300% of the Principal, all accrued but unpaid Interest thereon and all other amounts hereunder this Note and the Transaction Documents which is subject to the injunction, which bond shall remain in effect until the completion of arbitration/litigation of the underlying dispute and the proceeds of which shall be payable to such Holder to the extend it obtains judgment. In the absence of such injunction, the Company shall issue Conversion Shares and, if applicable, cash, by the Share Delivery Date. If the Company fails to deliver to a Holder such certificate or certificates without restrictive legend, by the Share Delivery Date applicable to such conversion, or in the event of a dispute, fails to post the surety bond in accordance with this paragraph, the Company shall pay to such Holder, in cash, as liquidated damages and not as a penalty, for each $10,000 of Conversion Amount, $200 per Trading Day commencing the day after the Share Delivery Date (increasing to $400 per Trading Day on the fifth (5th) Trading Day after such damages begin to accrue) for each Trading Day after such Share Delivery Date until the earlier of the date such certificates are delivered without restrictive legend or Holder rescinds such conversion. Nothing herein shall limit a Holder’s right to pursue actual damages for the Company’s failure to deliver the required amount of Conversion Shares without restrictive legend and such Holder shall have the right to pursue all remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief without the need by any Holder to post any bond which the Company hereby waives such requirement. The exercise of any such rights shall not prohibit a Holder from seeking to enforce damages pursuant to any other Section hereof or under applicable law. “Person” means an individual, a corporation, a partnership, an association, a joint-stock company, a Trust, any unincorporated organization, or government or political sub-division thereof.

2.5                  Compensation for Buy-In on Failure to Timely Deliver Certificates Upon Conversion. In addition to any other rights available to the Holder, if the Company fails for any reason or no reason to deliver to a Holder the applicable certificate or certificates by the Share Delivery Date and if after such Share Delivery Date such Holder is required by its brokerage firm to purchase (in an open market transaction or otherwise), or the Holder’s brokerage firm otherwise purchases, shares of Common Stock to deliver in satisfaction of a sale by such Holder (or a deemed sale) of the Conversion Shares which such Holder was entitled to receive upon the conversion relating to such Share Delivery Date (a “Buy-In”), then the Company shall (A) pay in cash to such Holder (in addition to any other remedies available to or elected by such Holder) the amount, if any, by which (x) such Holder’s total purchase price (including any brokerage commissions) for the Common Stock so purchased exceeds (y) the product of (1) the aggregate number of shares of Common Stock that such Holder was entitle to receive from the conversion at issue multiplied by (2) the actual sale price at which the sell order giving rise to such purchase obligation was executed (including any brokerage commissions) and (B) at the option of such Holder, either reissue (if surrendered) the Note (in which case, such conversion shall be deemed rescinded) or deliver to such Holder the number of shares of Common Stock that would have been issued if the Company delivered the required amount of Conversion Shares by the Share Delivery Date. For example, if a Holder purchases shares of Common Stock having total purchase price of $11,000 to cover a Buy-In with respect to an attempted conversion of the Note with respect to which the actual sale price of the Conversion Shares (including any brokerage commissions) giving rise to such purchase obligation was a total of $10,000 under clause (A) above, the Company shall be required to pay such Holder $1,000. The Holder shall provide the Company written notice indicating the amounts payable to such Holder in respect of the Buy-In and, upon request of the Company, evidence of the amount of such loss. Nothing herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company’s failure to timely delivery certificates representing shares of Common Stock upon conversion of the Note as required pursuant to the terms hereof.

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3.                  Default; Events of Default; Remedies.

3.1                  Default. Notwithstanding that this Note is a demand note and all amounts due hereunder become due and payable pursuant to and in accordance with the first paragraph of this Note, the Company shall be in default under this Note upon the happening of any condition or event set forth below (each, an “Event of Default”):

(a)                  the Company’s failure (i) to pay when due any Principal on the due date hereunder, or (ii) to pay any Interest or other payment due on and/or under this Note within two (2) days following the due date hereunder;

(b)                  a breach of any provision and/or default or event of default (subject to any grace or cure period provided in the applicable agreement, document or instrument) shall occur under any of the Transaction Documents and/or any other document related to the Other Notes;

(c)                  the Company shall fail for any reason to obtain the consent of the Holder pursuant to Section 4 to take any of the actions enumerated in Section 4;

(d)                  the Common Stock shall not be eligible for listing or quotation for trading on a Trading Market and shall not be eligible to resume listing or quotation for trading thereon within five (5) consecutive Trading Days from the first date of lack of eligibility;

(e)                  the electronic transfer by the Company of shares of Common Stock through the Depository Trust Company or another established clearing corporation is no longer available or is subject to a “chill” (i.e., the Depository Trust Company announces that it will not accept the deposit of shares of Common Stock into its participants’ street name accounts);

(f)                  failure to reserve and keep available out of its authorized and unissued Common Stock the number of shares of Common Stock as described in Section 6 and/or otherwise comply with any other provision of Section 6;

(g)                  the Company shall (i) apply for or consent to the appointment of a receiver, trustee, liquidator or custodian of itself or of all or a substantial part of its property, (ii) be unable, or admit in writing its inability, to pay its debts as they mature, (iii) make a general assignment for the benefit of its or any of its creditors, (iv) be dissolved or liquidated, (v) commence a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or consent to any such relief or to the appointment of or taking possession of its property by any official in an involuntary case or other proceeding commenced against it, or (vi) take any action for the purpose of effecting any of the foregoing;

(h)                  proceedings for the appointment of a receiver, trustee, liquidator or custodian of the Company or of all or a substantial part of the property thereof, or an involuntary case or other proceedings seeking liquidation, reorganization or other relief with respect to the Company or the debts thereof under any bankruptcy, insolvency or other similar law now or hereafter in effect shall be commenced and an order for relief entered or such proceeding shall not be dismissed or discharged within 60 days of commencement;

(i)                  any default in any of the other Transaction Documents and/or other Indebtedness of the Company and/or any of its Subsidiaries (as defined below) including, but not limited to any Other Notes (as defined below) and/or any documents related thereto; or

(j)                  a breach of any other provision of this Agreement

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4.                  Limitations on Company Actions.

4.1                  Notwithstanding anything to the contrary provided herein or elsewhere, as long as this Note is issued and outstanding, the Company shall not, and shall not permit any current or future, direct or indirect, wholly-owned or partially owned subsidiary (a “Subsidiary,” and collectively, the “Subsidiaries”) to, without the express written consent of Holders, directly and/or indirectly, owning no less than 50.1% of the aggregate Principal of all of the Notes then outstanding:

(a)                  amend, alter, change, waive or repeal any provision of the Articles of Incorporation or By-Laws, each as amended (the “Articles of Incorporation” and “By-Laws,” respectively) (and/or those of any of its Subsidiaries), in any manner that could, directly and/or indirectly, adversely affect the rights of the Holders;

(b)                  alter, waive, repeal, amend, and/or change any provision of this Note;

(c)                  incur any Indebtedness (other than that outstanding and in such principal amount outstanding as of June 5, 2012 and that represented by the Notes and the Other Notes, Transaction Documents and the transaction documents for the Other Notes) which if any such amount is permitted to be paid down, in whole or in part, pursuant to this Note and is paid down, in whole or in part, cannot be borrowed again except (A) if such Indebtedness constitutes Permitted Debt (as defined below), and (B) any such reborrowed Permitted Debt is counted on a dollar for dollar basis against the Permitted Debt Cap (as defined in below); provided, however, that subject to the limitations provided in this subparagraph, the Company and/or its Subsidiaries may borrow together in the aggregate up to $1,000,000 principal amount of Permitted Debt (the “Permitted Debt Cap”). For the purposes hereof, the term “Permitted Debt” shall mean (A) non-convertible, non-equity linked bank debt from a federal or state-chartered bank on commercially reasonable terms, which borrowed funds shall be used by the Company and/or its Subsidiaries in their respective historical and ordinary course of business; and (B) no equity of the Company and/or any of its Subsidiaries (including, but not limited to, warrants, stock options and/or other securities) is issued directly and/or indirectly in connection with any borrowings of such Permitted Debt. For purposes hereof, “Indebtedness” of any Person means, without duplication (A) all indebtedness for borrowed money, (B) all obligations issued, undertaken or assumed as the deferred purchase price of property or services, including, without limitation, “capital leases” in accordance with United States generally accepted accounting principles (other than trade payables entered into in the ordinary course of business), (C) all reimbursement or payment obligations with respect to letters of credit, surety bonds and other similar instruments, (D) all obligations evidenced by notes, bonds, debentures or similar instruments, including obligations so evidenced incurred in connection with the acquisition of property, assets or businesses, (E) all indebtedness created or arising under any conditional sale or other title retention agreement, or incurred as financing, in either case with respect to any property or assets acquired with the proceeds of such indebtedness (even though the rights and remedies of the seller or bank under such agreement in the event of default are limited to repossession or sale of such property), (F) all monetary obligations under any leasing or similar arrangement which, in connection with generally accepted accounting principles, consistently applied for the periods covered thereby, is classified as a capital lease, (G) all indebtedness referred to in clauses (A) through (F) above secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any mortgage, lien, pledge, charge, security interest or other encumbrance upon or in any property or assets (including accounts and contract rights) owned by any Person, even though the Person which owns such assets or property has not assumed or become liable for the payment of such indebtedness, and (H) all Contingent Obligations in respect of indebtedness or obligations of others of the kinds referred to in clauses (A) through (G). For purposes of this Note, “Contingent Obligations” shall mean, as to any Person, any direct or indirect liability, contingent or otherwise, of that Person with respect to any indebtedness, lease, dividend and/or other obligation of another Person if a purpose or intent of the Person incurring such liability, or the direct and/or indirect effect thereof, is to provide assurance (whether in writing, orally, and/or by any other means, which shall include, but not be limited to, any direct and/or indirect guaranty) to the obligee of such liability that such liability will be paid or discharged, or that any agreements relating thereto will be complied with, or that the holders of such liability will be protected (in whole or in part) against loss with respect thereto;

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(d)                  pay and/or make dividends, distributions and/or any other payment (whether in cash, securities or property) on any securities of the Company and/or any Subsidiary other than to the Holders of the Notes and the Other Notes;

(e)                  enter into any transaction with any Affiliate (as defined under the Securities Act of 1933, as amended, the “1933 Act”), which would be required to be disclosed in any public filing with the Securities and Exchange Commission (the “SEC”) pursuant to SEC laws, rules and/or regulations, other than any transaction pursuant to which an Affiliate of the Company and/or Subsidiary is employed pursuant to a written agreement by the Company and/or any Subsidiary which is negotiated on an arms-length basis, is approved by the independent directors of the Board of Directors and does not exceed industry standards, based upon the Company’s industry, the revenues and income of the Company and the work that such Affiliate will perform pursuant to such arrangement;

(f)                  redeem, repurchase and/or otherwise enter into or effectuate a similar transaction for any securities of the Company and/or any Subsidiary other than the Note and the Other Notes;

(g)                  other than the Notes and the Other Notes, repay any Indebtedness and/or other obligation other than (1) any bank debt outstanding as of June 5, 2012, but only in accordance with and to the extent of the terms and conditions of such bank debt as of June 5, 2012; provided, however, that notwithstanding anything to the contrary provided herein or elsewhere, no bank debt and/or any other Indebtedness may be pre-paid, (2) any accounts payable incurred in the normal course of the Company’s historical and ordinary business, (3) $45,000 aggregate principal amount loan advanced on March 26, 2012 plus accrued, but unpaid simple interest of 8% per annum to a shareholder of the Company (the “Lender”), provided that simultaneously with and as a condition to the repayment (including, but not limited to, accrued, but unpaid interest) to the Lender of such loan, the Lender provides to the Company (A) written evidence signed by the Lender that no other amounts are owed by the Company to the Lender pursuant to such loan, and (B) a full written release signed by the Lender of any and all claims by the Lender against the Company and/or its Subsidiaries in respect of such loan (“Release Documents”), (4) up to $60,000 of outstanding principal on loans due to shareholders and related parties as disclosed on the Company’s balance sheet dated March 31, 2012 filed with the SEC on or about May 15, 2012, provided that in each case, Release Documents are obtained, and (5) any Permitted Debt in accordance with the terms and conditions in this Note;

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(h)                  Other than the Notes and/or the Other Notes, effect or enter into an agreement to effect any sale and/or issuance of Common Stock or Common Stock Equivalents (as defined below) directly and/or indirectly involving a Variable Rate Transaction. For purposes of this Note, the term “Variable Rate Transaction” means a transaction in which the Company and/or its Subsidiaries (a) issues or sells any debt or equity securities that are convertible into, exchangeable or exercisable for, or include the right to receive, additional shares of Common Stock either (1) at a conversion price, exercise price or exchange rate or other price that is based upon, and/or varies with, the trading prices of or quotations for the shares of Common Stock at any time after the initial issuance of such debt or equity securities or (2) with a conversion, exercise or exchange price that is subject to being reset at some future date after the initial issuance of such debt or equity security or upon the occurrence of specified or contingent events directly or indirectly related to the business of the Company or the market for the Common Stock; (b) enters into any agreement, including, but not limited to, an equity line of credit, whereby the Company may sell securities at a future determined price, or (c) enters into any type of equity line of credit or similar agreement and/or transaction. For purposes of this Note, the term “Common Stock Equivalents” means any securities of the Company and/or its Subsidiaries which would entitle the holder thereof to acquire at any time Common Stock, including, without limitation, any debt, preferred stock, rights, options, warrants or other instrument that is at any time convertible into or exercisable or exchangeable for, or otherwise entitles the holder thereof to receive, Common Stock;

(i)                  enter into any agreement or understanding (whether in writing, orally or otherwise) to do any of the above; or

(j)                  directly and/or indirectly create and/or otherwise permit to exist any Liens on any assets of the Company and/or any of its Subsidiaries except (i) any Lien for taxes not yet due or delinquent or being contested in good faith by appropriate proceedings for which adequate reserves have been established in accordance with GAAP, (ii) any statutory Lien arising in the ordinary course of business by operation of law with respect to a liability that is not yet due or delinquent, (iii) any Lien created by operation of law, such as materialmen’s liens, mechanics’ liens and other similar liens, arising in the ordinary course of business with respect to a liability that is not yet due or delinquent or that are being contested in good faith by appropriate proceedings, or (iv) any Liens securing any obligations of the Company and/or any Subsidiary under the Notes and Other Notes; (the terms “Lien” or “lien” shall mean a lien, mortgage, charge, pledge, security interest, encumbrance, right of first refusal, preemptive right or other restrictions, clouds on title and/or encumbrances).

4.2                  Notwithstanding anything to the contrary provided herein or elsewhere, without the express written consent of holders owning 50.1% of the aggregate principal amount of all notes and Other Notes then outstanding (“Required Amount”), the Company shall not, and shall not permit any Subsidiaries to:

(a)                  effect any merger, acquisition, sale, consolidation, reorganization and/or similar transaction or a Change of Control (as defined below), (each, an “Event”) except any Event which upon the date of the occurrence or closing of any Event, as the case may be, (i) the Holder receives in exchange for this Note, cash in an amount not less than two (2) times the then Principal amount of the Note immediately prior to the occurrence or closing of such Event, plus all accrued, but unpaid interest and other payments owed to the Holder by the Company and/or its Subsidiaries, or (ii) if an Event is structured whereby the Holder receives securities of a non-affiliated, third-party entity, the common stock of such entity is listed on a National Securities Exchange (as defined in the 1933 Act) and such common stock for the twenty (20) consecutive Trading Days with the last Trading Day being the Trading Day prior to the occurrence or closing of such Event has a daily market capitalization of no less than $100 million. For purposes of this Note, the term “Change of Control” means the occurrence after the date hereof of any of (i) an acquisition after the date hereof by an individual or legal entity or "group" (as described in Rule 13d-5(b)(1) promulgated under the Securities Exchange Act of 1934, as amended (the “1934 Act”) of effective control (whether through legal or beneficial ownership of capital stock of the Company, by contract or otherwise) of in excess of 50% of the voting securities of the Company, (ii) the Company merges into or consolidates with any other Person, or any Person merges into or consolidates with the Company and, after giving effect to such transaction, the stockholders of the Company immediately prior to such transaction own less than 50% of the aggregate voting power of the Company or the successor entity of such transaction, (iii) the Company sells or transfers all or substantially all of its assets to another Person and the stockholders of the Company immediately prior to such transaction own less than 50% of the aggregate voting power of the acquiring entity immediately after the transaction, (iv) a replacement at one time or within a six (6) month period of more than one-half of the members of the Board of Directors which is not approved by a majority of those individuals who were members of the Board of Directors on June 5, 2012 (or by those individuals who are serving as members of the Board of Directors on any date whose nomination to the Board of Directors was approved by a majority of the members of the Board of Directors who were members on June 5, 2012), or (v) the execution by the Company and/or any of its shareholders of an agreement to which the Company is a party or by which either is bound, providing for any of the events set forth in clauses (i) through (v) above.

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(b)                  decrease or increase the authorized size of the Company’s (and/or any of its Subsidiaries’), Board of Directors, other than as expressly provided herein; or

(c)                  directly and/or indirectly, adopt, amend and/or supplement any new stock option plan and/or similar plan (the “SOP Plans”), except where the maximum number of shares of Common Stock that may be acquired directly and/or indirectly upon exercise of stock options issued under the SOP Plans, when aggregated with the maximum number of shares of Common Stock that may be acquired directly and/or indirectly under all other stock option plans and/or stock options outstanding as of the date hereof (including, but not limited to, all stock options issued prior to the date hereof under any SOP Plans and/or otherwise, regardless of whether any such SOP Plans and/or other stock options have terminated and/or expired with or without being exercised) does not and will not at any time prior to and including March 3, 2017, exceed in the aggregate 32,500,000 shares of Common Stock (which 32,500,000 shall be proportionately adjusted to take into account each stock split and/or reverse stock split occurring following March 31, 2014).

5.                  Anti-Dilution Provisions. The Conversion Price in effect at any time and the number and kind of securities issuable upon conversion of the Note shall be subject to adjustment from time to time upon the happening of the events as follows:

5.1                  Adjustment for Dividends in Other Stock and Property Reclassifications. In case at any time, or from time to time, the holders of the Common Stock (or any shares of stock or other securities at the time receivable upon any conversion of the Note) shall have received, or, on or after the record date fixed for the determination of eligible stockholders, shall have become entitled to receive, without payment therefor:

(a)                  other or additional stock or other securities or property (other than cash) by way of dividend;

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(b)                  any cash or other property paid or payable out of any source other than retained earnings (determined in accordance with generally accepted accounting principles); or

(c)                  other or additional stock or other securities or property (including cash) by way of stock-split, spin-off, reclassification, combination of shares or similar corporate rearrangement (other than (x) additional shares of Common Stock or any other stock or securities into which such Common Stock shall have been changed, (y) any other stock or securities convertible into or exchangeable for such Common Stock or such other stock or securities or (z) any stock purchase rights, issued as a stock dividend or stock-split, adjustments in respect of which shall be covered by the terms of Section 5.3 or Section 5.4, then and in each such case, the Holder, upon any conversion of the Note, shall be entitled to receive the amount of stock and other securities and property (including cash in the cases referred to in clauses (a) and (b) above) which such Holder would have been entitled to receive had such Holder been the holder of record, on the date of any such issuances described in clauses (a), (b) or this clause (c), of the number of shares of Common Stock into which the Note is being converted, giving effect to all adjustments called for during such period by Section 5.1 and Section 5.2.

5.2                  Adjustment for Reorganization, Consolidation and Merger. In case of any reorganization of the Company (or any other corporation the stock or other securities of which are at the time receivable on the conversion of the Note) after the Issuance Date, or in case, after such date, the Company (or any such other corporation) shall consolidate with or merge into another corporation or entity or convey all or substantially all its assets to another corporation or entity (any such reorganization or other event hereafter being referred to as a “Reorganization”), then and in each such case the Note, upon conversion, as and at any time after the consummation of such Reorganization, shall be converted into, in lieu of the stock or other securities and property into which the Note would have been convertible prior to such Reorganization, such stock or other securities or property to which the Note would have converted if they had been converted immediately prior to any such Reorganization, subject to further adjustment as provided in Sections 5.1, Section 5.3, and Section 5.4, in each such case.

5.3                  Adjustment for Certain Dividends and Distributions. If the Company at any time, or from time to time, makes, or fixes a record date for the determination of holders of Common Stock entitled to receive, a dividend or other distribution payable in additional shares of Common Stock, then and in each such event, the Conversion Price then in effect shall be decreased as of the time of such issuance or, in the event such record date is fixed, as of the close of business on such record date, by multiplying the Conversion Price then in effect by a fraction (A) the numerator of which is the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date, and (B) the denominator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date as the case may be, plus the number of shares of Common Stock issuable in payment of such dividend or distribution; provided, however, that if such record date is fixed and such dividend is not fully paid or if such distribution is not fully made on the date fixed therefor, the Conversion Price shall be recomputed accordingly as of the close of business on such record date, and thereafter the Conversion Price shall be adjusted pursuant to this Section 5.3 as of the time of actual payment of such dividends or distributions.

5.4                  Stock Split and Reverse Stock Split. If the Company at any time, or from time to time, effects a stock split or subdivision of the outstanding Common Stock, the Conversion Price then in effect immediately before that stock split or subdivision shall be proportionately reduced. If the Company at any time, or from time to time, effects a reverse stock split or combines the outstanding shares of Common Stock into a smaller number of shares, the Conversion Price then in effect immediately before that reverse stock split or combination shall be proportionately increased. Each adjustment under this Section 5.4 shall become effective at the close of business on the date the stock split, subdivision, reverse stock split or combination becomes effective.

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5.5                  Fundamental Transaction. If, at any time while any the Note is outstanding, (A) the Company effects any merger, means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind, consolidation or similar transaction of the Company with or into another Person, (B) the Company effects any sale of all or substantially all of its assets in one or a series of transactions, (C) any tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to tender or exchange their shares for other securities, cash or property, or (D) the Company effects any reclassification of the Common Stock or any share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property (each a “Fundamental Transaction”), then, upon any subsequent conversion of the Note, the Holder shall have the right to receive, for each share of Common Stock that would have been issuable upon such conversion immediately prior to the occurrence of such Fundamental Transaction, the number of shares of Common Stock of the successor or acquiring Person or of the Company, if it is the surviving corporation, and any additional consideration (the “Alternate Consideration”) receivable as a result of such merger, consolidation, or disposition of assets or other similar transaction by a holder of the number of shares of Common Stock for which the Note is convertible immediately prior to such event. For purposes of any such conversion, the determination of the Conversion Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one share of Common Stock in such Fundamental Transaction, and the Company shall apportion Conversion Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any conversion of the Note following such Fundamental Transaction. The terms of any agreement pursuant to which a Fundamental Transaction is effected shall include terms requiring any such successor or surviving Person to comply with the provisions of this Section 5.5 and insuring that the Note (or any such replacement security) will be similarly adjusted upon any subsequent transaction analogous to a Fundamental Transaction.

5.6                  Other Events. Notwithstanding anything to the contrary provided in this Note or elsewhere, if the Company, at any time and from time to time commencing on the Issuance Date and expiring at the end of the day February 24, 2019, Easter Standard Time, sells and/or issues shares of Common Stock and/or issues and/or sells Common Stock Equivalents, as defined below (a “New Common Offering”) having a sale and/or exercise, conversion or exchange price (the “Subsequent Lower Issuance Price”) at a price less than the Additional Share Trigger Price (as defined below) (a “Subsequent Lower Issuance”), then and in each such case the (i) Conversion Price shall be automatically adjusted to the Subsequent Lower Issue Price, and (ii) Company shall issue (without cost to the Holder), such number of additional shares of Common Stock (the “Additional Common Stock”) calculated as follows:

A = [((B/C) – 1) x D] – A1

A is the number of additional shares of Common Stock to be issued to the Holder.

B is the Additional Share Trigger Price

C is the greater of (I) the Subsequent Lower Issuance Price and (II) the Conversion Price.

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D is the number of shares of Common Stock issuable to the Holder on conversion of this Note as at the date of the Subsequent Lower Issuance.

A1 is the aggregate number of shares of Additional Common Stock previously issued to the Holder pursuant to one of more prior Subsequent Lower Issuances.

For example; assuming an Additional Share Trigger Price of $0.10 and a Subsequent Lower Issuance Price of $0.08, and assuming the number of shares of Common Stock issuable to a Holder on conversion of such Holder’s Note at the Subsequent Lower Issuance is 100, and further assuming no prior Subsequent Lower Issuances, the number of additional shares of Common Stock to be issued to the Holder would be 25.

The reduction in the Conversion Price and the Common Stock issuances set forth in this Section 5.6 shall occur each time the Company issues and/or sells shares of Common Stock and/or Common Stock Equivalents with a price and/or an exercise, exchange and/or conversion price, as the case may be, less than the Additional Share Trigger Price and/or the Conversion Price. The Additional Share Trigger Price shall also be adjusted for stock splits, reverse stock splits and related items as provided in this Note affecting all the issued and outstanding shares of Common Stock in the same manner. Notwithstanding anything to the contrary provided herein, the Additional Share Trigger Price shall not increase as a result of further issuances of securities by the Company. For purposes of this Section, “Additional Share Trigger Price” means $0.09 per share of Common Stock.

6.                  Reservation of Authorized Shares.

6.1                  So long as any Notes and/or any other securities of the Company are owned by the Holder (and/or any transferee thereof) beneficially and/or of record, the Company covenants and agrees that no later than the date 60 days from the Original Issuance Date (the “Required Date”) it will at all times reserve and keep available out of its authorized and unissued shares of Common Stock a number of shares of Common Stock at least equal to (the “Required Reserve Amount”) (i) 300%, multiplied by (ii) the Required Minimum (as defined below) for the sole purpose of issuance upon conversion of this Note and all other Notes issued and outstanding on the date of any determination, free from preemptive rights or any other actual and/or contingent purchase rights of any other persons and/or entity. The Company covenants that all shares of Common Stock that shall be so issuable shall, upon issue, be duly authorized, validly issued, fully paid and nonassessable, and, at such times as a registration statement covering such shares is then effective under the Securities Act, will be registered for public resale in accordance with such registration statement. For purposes of this Note, the “Required Minimum” shall mean the product of (A) the quotient obtained by dividing (I) the sum of (i) all outstanding Principal represented by this Note and all other Notes issued and outstanding on the date of any determination, (ii) all Interest hereon and thereon (whether accrued or not), and (iii) all other amounts owed under this Note and the other Transaction Documents by (II) the Conversion Price, and the resulting number multiplied by (B) 300%. The Company shall be required to calculate the Required Minimum on the first Trading Day of every other week that any amounts are owed by the Company under this Note, any other Notes and/or the other Transaction Documents and provide such calculation to each Holder of Notes and the Transfer Agent in writing on such date. For purposes of calculating the Required Minimum, the Company shall assume that all Principal of this Note and any other Notes outstanding will remain outstanding for eighteen (18) months and Interest is paid in Notes and accrues at the Interest Rate and is all paid on the date 18 months from the Issuance Date. The covenant by the Company set forth above in this Section 6.1 as it relates to the first time the Company is required to satisfy the Required Reserve Amount (the “6.1 Covenant), shall be calculated and satisfied for and on the earliest date possible but in no event later than the Required Date. In addition, the Company’s authorized but unissued and unreserved shares of Common Stock shall have been increased (the “Initial Increase”) to 3 billion shares of Common Stock (all in accordance with all applicable rules, laws and regulations including, but not limited to those of FINRA, Nevada law and the SEC), as soon as possible by the Company using its best-efforts, but in no event shall such Initial Increase occur later than the Required Date. Failure by the Company to satisfy the 6.1 Covenant and the Initial Increase, as soon as possible but in no event later than the Required Date, to file the Information Statement (as defined below) with the SEC for the Initial Increase within 5 Business Days from the date hereof and/or the Company not using its best efforts to satisfy such conditions will result in the payment by the Company to the Holder of the 2% Amount (as defined below) per day commencing on the first day of any breach of any such conditions, which shall be in addition to any and all other rights and remedies that the Holder may take against the Company in law and/or equity under this Note, the Transaction Documents, applicable law and/or otherwise, all of which shall be cumulative.

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6.2                  Initial Reservation; Subsequent Authorized Deficiency; and Subsequent Reserve Amount Deficiency. On the Issuance Date, the Company shall have 300,000,000 shares of Common Stock authorized, approximately 127,000,000, shares of Common Stock issued and outstanding and reserved out of its authorized but unissued and unreserved shares of Common Stock 162,000,000 shares of Common Stock solely for issuance upon conversion of the Other Notes. At any time and from time to time following the Required Date, and notwithstanding anything to the contrary provided herein or elsewhere, in the event that the Company, the Holder, any other holder of Notes and/or the Collateral Agent shall determine that the Company (i) has not satisfied the Required Reserve Amount ( a "Subsequent Reserve Amount Deficiency"), and/ or (ii) does have sufficient shares of Common Stock authorized and unissued and unreserved to satisfy the Required Reserve Amount ( a "Subsequent Authorized Deficiency"), the Company shall immediately notify the holders of the Notes and the Collateral Agent in writing of 1 or both deficiencies, as the case may be (and /or the Holder, any other holders of the Notes and/or the Collateral Agent shall determine and inform the Company of one or both deficiencies, as the case may be), then the Company shall file within 5 Business Days an Information Statement on Form 14A or Form 14B, as applicable (an "Information Statement"), with the SEC and take all such other action to cure the Subsequent Reserve Deficiency and/or the Subsequent Authorized Deficiency, as the case may be, no later than 45 days from the date the Company becomes or should have become aware of one and/or both deficiencies, as the case may be (the "Last Day"). Failure by the Company to file an Information Statement as part of curing 1 or both such deficiencies as required pursuant to this Section 6.2 and in the time frame so required by this Section 6.2, use its best efforts to cure 1 or both of such deficiencies, as the case may be, by Last Day, either or both deficiencies , as the case may be, are not cured by the Last Day and/or if either or both deficiencies appear to be cured by the Last Day, but the cure of either or both deficiencies, as the case may be, did not comply with all applicable laws, rules and regulations, including but not limited to the laws of the State of Nevada and the Securities and Exchange Commission (each a “Breach”), then the Company shall pay to the Holder and each other holder of Notes (or the Collateral Agent for the benefit of itself and the Holder and the other holders of the Notes, for each day that the Company has not cured each Breach including the first date of any Breach, in cash by wire transfer to the Holder and each other holder of Notes (or the Collateral Agent for the benefit of itself, the Holder and the other holders of the Notes), an amount equal to 2% of the Holder’s and each other holder of Notes aggregate principal amount of their respective Notes and all accrued but unpaid Interest and other amounts due to the Holder and each other holder under this Note and each other Note as well as each other Transaction Document through and including the datel all Breaches are cured and all amounts owed to the Holder and each other holder of Notes are received in full in cash by the Holder and each other holder (or the Collateral Agent by wire transfer pursuant to wiring instructions provided to the Company from the Holder and each other holder or the Collateral Agent (the “2% Amount”). Notwithstanding anything to the contrary provided herein, holders owning at least 50.1% of the aggregate principal amount of Notes then outstanding (or the Collateral Agent may declare an Event of Default under the Notes and obtain any other relief available under applicable law, whether in equity or otherwise, and/or in any of the Transaction Documents. In no event shall any action or non-action by the Holder, any other holder of Notes and/or the Collateral Agent under Section 6.1 and/or this Section 6.2 constitute a waiver of any right and/or remedy any such persons may have under law, and/or the Transaction Documents. Once the Initial Increase is in effect and any Subsequent Share Deficiency has been cured , as the case may be, the Company shall immediately calculate the Required Reserve Amount for the Holder and each other holder and immediately provide a draft of an irrevocable instruction to its transfer agent to the Holder and each other holder of Notes, and the Collateral Agent which once approved by the Holder and each other holder and/ or the Collateral Agent shall immediately be signed by the Company and delivered to the Company’s transfer agent to meet the Required Reserve Amount.

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7.                  Security; Subsidiary Guaranty. This Note, all other Notes and the Other Notes shall rank pari passu with each other in all respects and all of the Company’s and its Subsidiaries’ obligations to the Holder, the other holders of the Notes and the holders of the Other Notes and in the other Transaction Documents are secured on a pari passu basis by all of the assets of the Company and its Subsidiaries pursuant to the IP Security Agreement, the Security and Pledge Agreement and all obligations of the Company to the Holder hereunder including, but not limited to, the payment of Principal, Interest and all other amounts due hereunder and/or pursuant to the other Transaction Documents are guaranteed by the Company’s Subsidiaries pursuant to the Guaranty Agreement. Pursuant to the Security and Pledge Agreement, all shares of issued and outstanding capital stock of the Company’s represented by the Certificate have been pledged by the Company to the Collateral Agent for the benefit of the Collateral Agent and such other holders of Notes and Other Notes. Notwithstanding anything to the contrary provided herein or elsewhere, prior to any payments of principal to the holders of the Other Notes from (i) the sale of any assets of the Company and/or any of its Subsidiaries, and/or (ii) cash flow of the Company and/or its Subsidiaries (“Payment Events”), the holders of the Notes shall be entitled to receive the full payment of all amounts owed to them under their respective Notes, provided, however, notwithstanding anything to the contrary provided herein or elsewhere (x) at the election of each holder of Notes, any such payments due to any such holders of Notes of principal based upon Payment Events, shall be payable in whole and/or part to reduce on a dollar for dollar basis any amounts owed by the Company and/or any Subsidiary to any Other Notes owned, if any, by such holder of Notes, all in the sole discretion of the particular holder of a Note in the following order: first to all amounts owed other than Principal and Interest, second to all Interest owed and third to all outstanding Principal.

8.                  Limitation on Number of Shares Issuable to Holder

8.1                  Other than as provided elsewhere in this Section 8, at no time may the Holder convert any portion of this Note if the number of shares of Common Stock to be issued pursuant to such conversion would exceed, when aggregated with all other shares of Common Stock owned by such Holder at such time, the number of shares of Common Stock which would result in such holder beneficially owning (as determined in accordance with Section 13(d) of the 1934 Act), more than 4.99% of all of the Common Stock outstanding at such time; provided, however, that upon the Holder providing the Company with sixty-one (61) days notice that such holder would like to waive this Section 8.1 with regard to any or all shares of Common Stock issuable upon conversion of the Note, this Section 8.1 shall be of no force or effect with regard to the principal amount referenced in the Waiver Notice.

8.2                  Other than as provided elsewhere in this Section 8, at no time may the Holder convert any portion of the Note if the number of shares of Common Stock to be issued pursuant to such conversion would exceed, when aggregated with all other shares of Common Stock owned by such Holder at such time, the number of shares of Common Stock which would result in such holder beneficially owning (as determined in accordance with Section 13(d) of the 1934 Act) in excess of 9.99% of all of the Common Stock outstanding at such time; provided, however, that upon the Holder providing the Company with sixty-one (61) days notice that such Holder would like to waive this Section 8.2 with regard to any or all shares of Common Stock issuable upon conversion of the Note, this Section 8.2 shall be of no force or effect with regard to the principal amount referenced in the Waiver Notice.

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9.                  Lost or Stolen Note. Upon receipt by the Company of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of the Note, and, in the case of loss, theft or destruction, of any indemnification undertaking by the Holder to the Company in customary form and, in the case of mutilation, upon surrender and cancellation of the Note, the Company shall execute and deliver a new promissory note of like tenor and date.

10.                  Information Rights. Unless otherwise publicly available in electronic format on the website of the Company or filed with the SEC, the Company shall furnish to the Holder within one hundred and five (105) days after the end of each fiscal year, audited financial statements of the Company and its consolidated subsidiaries and, within sixty (60) days after the end of each of the quarters of each fiscal year, unaudited financial statements of the Company.

11.                  Failure to Pay. Notwithstanding anything to the contrary provided herein or elsewhere and in addition to all other remedies available to the Holder under this Note, any other Transaction Documents and/or elsewhere, if any payment hereunder or elsewhere is due to the Holder, and such payment is not made (even if a payment is not permitted to be paid because insufficient capital is available under applicable law to make such payment), Interest on such payment (in addition to any other Interest and/or penalties that become due), shall accrue at the rate of the lesser of (i) 22% per annum, and (ii) the maximum amount permitted by applicable law, and all Interest shall accrue and compound daily until all payments are made, including Interest and penalties. Nothing in this Section 11 shall be deemed to constitute a waiver and/or election of remedies by a Holder, all of which other remedies a Holder reserves its rights to pursue, whether in law or equity.

12.                  Certain Payments. Notwithstanding anything to the contrary provided herein or elsewhere, in the event (i) any of the Transaction Documents are not in form and substance reasonably satisfactory to the Collateral Agent, and properly executed and delivered to the Holder no later than November 3, 2015, except for the documents set forth in Section 12(ii), and/or (ii) the Collateral Agent has not received by November 8, 2015 (a) the original Certificate, (b) the executed but undated SPA, which SPA under applicable Canadian law will transfer all right, interest and the title (free and clear of all liens, encumbrances and/or preemptive rights) of the 120 shares represented by the Certificate to the Collateral Agent as required by and pursuant to the Security and Pledge Agreement, (c) the executed Security and Pledge Agreement, the IP Security Agreement and the Guaranty in form and substance reasonably satisfactory to the Collateral Agent and/or (d) the security interests created by the Security and Pledge Agreement, and the IP Security Agreement have not been perfected in accordance with all applicable laws, rules and regulations to provide the Collateral Agent, with a perfected and a first priority senior lien on and in all of the Collateral (as defined in the Security and Pledge Agreement), and all other assets of the Company and its Subsidiaries subject only to any lien created pursuant to the Full Factoring Agreement dated March 24, 2015 by and between Viscount Communication & Control Systems, Inc. (the Company’s wholly-owned subsidiary) and Liquid Capital Exchange Corp. (the “Factoring Agreement”), provided such Factoring Agreement is not and has not been amended, supplemented and/or otherwise changed since September 15, 2015, all to the satisfaction of the Collateral Agent based upon evidence commercially reasonably satisfactory to the Collateral Agent, then for each calendar day during which one or more of such events have occurred, the Company shall pay to the Holder and each other holder of Notes, $2,500 per day in immediately available funds upon demand by the Holder, any other holder of Notes (and/or the Collateral Agent for itself and the other Note holders) by wire transfer to the bank account of the Holder and each other holder of Notes (or the Collateral Agent for itself and each other Note holder), pursuant to wiring instructions provided by the Holder and the other holders of Notes to the Company in writing or to the Collateral Agent’s bank account (for the benefit of itself and the other holders of Notes). If any such $2,500 payments are not received in full, in cash when due, Interest on such payments shall accrue at the lower of (i) 22% per annum, and (ii) the highest interest rate permitted by applicable law compounding daily through and including the date all amounts owed to the Holder and the other holders of Notes (or the Collateral Agent for the benefit of itself and all holders of Notes), are received in full in cash by such persons. The failure of the Holder, any other holder of Notes or the Collateral Agent to take action and/or to not take any action, shall not directly and/or indirectly constitute a waiver and/or an election of remedies by any such person(s), all of which other remedies such persons reserve their respective rights to pursue whether in law or equity.

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13.                  Miscellaneous.

13.1                  Waivers and Amendments. This Note and the other Notes may only be amended, waived, discharged or terminated (either generally or in a particular instance, either retroactively or prospectively and either for a specified period of time or indefinitely) with the written consent of holders owning no less than 50.1% of the aggregate outstanding principal amount of all Notes at such time. This Note may not be changed, waived, discharged or terminated orally but only by a signed statement in writing.

13.2                  Severability. In the event that any provision of this Note becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Note shall continue in full force and effect without said provision; provided that no such severability shall be effective if it materially changes the economic benefit of this Note to any party.

13.3                  Assignment. Subject to compliance with applicable federal and state securities laws by the transferor and the transferee (including the delivery of investment representation letters and legal opinions reasonably satisfactory to the Company, if such are reasonably requested by the Company), this Note and all rights therein, may be transferred or assigned in whole or in part by the Holder. The Company agrees to use its best-efforts and take all reasonably requested action to facilitate and effectuate the transfer and/or assignment of this Note (in whole or in part), by the Holder and in the time frame so requested by the Holder.

13.4                  Titles and Subtitles. The titles of the paragraphs and subparagraphs of this Note are for convenience of reference only and are not to be considered in construing this Note.

13.5                  Construction. The language used in this Note 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.

13.6                  Governing Law. All questions concerning the construction, validity, enforcement and interpretation of this Note shall be governed solely and exclusively by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflict of laws thereof. The Company expressly and irrevocably agrees that all legal proceedings concerning the interpretation, enforcement and defense of the transactions contemplated by this Note shall be commenced exclusively in the state and/or federal courts sitting in the State, City, and County of New York (the “New York Courts”). The Company expressly and irrevocably submits to the exclusive jurisdiction of the New York Courts for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably and expressly waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of such New York Courts, or such New York Courts are improper or inconvenient venue for such proceeding. The Company hereby expressly and irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Note and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by applicable law. In any action brought by the Company concerning and/or arising directly and/or indirectly out of this Note, the prevailing party shall be entitled to recover all of its legal fees and expenses incurred by it with respect to any such legal action. THE COMPANY EXPRESSLY AND IRREVOCABLY WAIVES ITS RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS NOTE.

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13.7                  Rank of Notes. Except as otherwise provided herein, this Note and, all other Notes and the Other Notes shall rank senior in all respects to all other Indebtedness or other monetary obligations of the Company and/or its Subsidiaries, whether such Indebtedness or other obligations are outstanding as of the date of this Note or incurred after the date of this Note, such that all such other Indebtedness or other obligations shall be subordinated in right of payment to this Note.

13.8                  Notices. Any and all notices or other communications or deliveries to be provided by the Holder hereunder including, without limitation, any Notice of Conversion, shall be in writing and delivered personally, by facsimile (to facsimile number 1-604-327-3859) and email (to scott.sieracki@viscount.com), or sent by a nationally recognized overnight courier service, addressed to the Company, at the following address 4585 Tillicum Street, Burnaby, British Columbia, Canada V5J 5K9, Attention: Scott Sieracki, President or such other facsimile number, or address, or email as the Company may specify for such purposes by notice to the Holders delivered in accordance with this Section 13.8. Any and all notices or other communications or deliveries to be provided by the Company hereunder shall be in writing and delivered personally, by facsimile, email or sent by a nationally recognized overnight courier service addressed to each Holder at the facsimile number, email or address of such Holder appearing on the books of the Company. Any notice or other communication or deliveries hereunder shall be deemed given and effective on the earliest of (i) the date of transmission, if such notice or communication is delivered via facsimile or email at the facsimile number or email address (as the case may be), set forth in this Section prior to 5:30 p.m. (New York City time) on any date, (ii) the next Trading Day after the date of transmission, if such notice or communication is delivered via facsimile or email at the facsimile number or email address (as the case may be), set forth in this Section on a day that is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading Day, (iii) the second Trading Day following the date of mailing, if sent by U.S. nationally recognized overnight courier service, or (iv) upon actual receipt by the party to whom such notice is required to be given.

13.9                  Board Observer/Director. Commencing on the Issuance Date, at any time and from time to time that any amounts due to the Holder and/or the other Holders of Notes by the Company under this Note and/or the other Transaction Documents are outstanding, the holders of 50.1% of the then outstanding aggregate principal amount of the Notes and the Other Notes shall have the right to appoint an observer to the Board of Directors of the Company (the “Observer”). The Company shall (i) provide any such Observer with written notification of all Board Meetings (whether an in person or telephonic Board meeting); and (ii) all information given to any Board member, all in the same manner and at the same time as a Board member gets or is entitled to receive any such notification and/or information. Effective on the Issuance Date, all Directors of the Company’s Board of Directors shall resign except for Mr. Ned L. Siegel and Mr. Alexander Buehler; and the maximum number of Directors of the Company shall be five (5), of which Messrs. Siegel and Buehler shall constitute 2 Directors and the other 3 Directors (the “Note Directors”), shall be appointed by the holders owning 50.1% of the aggregate issued and outstanding principal amount of the Notes and the Other Notes, which notwithstanding anything to the contrary provided herein or elsewhere, the Board shall remain at no more than 5 Directors and the three (3) Note Directors (and/or their successors and/or replacements) shall remain Directors on the Board until such time as all amounts owed to all holders of the Notes and the Other Notes including, but not limited to all principal, interest and/or other amounts under the Transaction Documents and documents related to the Other Notes are paid to all such holders in full in cash by wire transfer pursuant to wire transfer instructions provided by each holder to the Company, at which time the Note Directors at the request of the CEO of the Company shall resign as directors of the Company and the Board shall be reconstituted to be the same Board as existed on October 29, 2015; provided, however, that notwithstanding anything to the contrary provided herein or elsewhere, in the event that at any time and from time to time the required holders of the Notes and Other Notes seek to replace one or more of the three (3) Note Directors during the period that such persons have the right to appoint the 3 Note Directors as provided in this Note, and such does not occur by the date 5 Business Days following the date of such written request by the holders of 50.01% of the then issued and outstanding aggregate principal amount of the Notes and Other Notes to the Company (the “5th Business Day”), the Company shall pay to each holder of Notes and Other Notes $2,500 per day in cash by wire transfer commencing on the first day following the 5th Business Day through and including the date such new Note Director(s) become directors of the Company in compliance with all applicable laws, rules and regulations, subject to the holders of the Notes and Other Notes not intentionally acting or failing to act in a manner reasonably necessary to replace the particular Note Director(s). The Note Directors shall be entitled to receive from the Company the highest compensation that any other Director of the Company receives and shall be entitled to all costs and expenses (including, but not limited to, air fare, other travel costs, meals and lodging), to attend all Board of Directors meeting. At any time and from time to time, holders owning no less than 50.1% of the aggregate principal amount of all Notes and Other Notes then outstanding can replace by written notice one or more of the Note Directors. Whenever any Note Director is on the Board, the Company shall maintain Directors and Officers Liability Insurance and each such Note Director shall be named as a covered party thereunder, which insurance shall be in the form and substance satisfactory to each Note Director; and following the resignation of each Note Director the Company shall have the obligation to maintain Director and Officer Liability Insurance for each Note Director for a period until all potential liability to each Note Director has expired as a result of the expiration of all statutes of limitations. Moreover, the Company and each of its Subsidiaries shall indemnify and hold harmless each Note Director for the same periods to the maximum extent permitted by law.

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14.                  Simultaneous Closing. Substantially simultaneously with the sale and issuance of Notes to the Holder and other purchasers of Notes, the Company shall issue 14% Senior Secured Convertible Demand Promissory A Notes (the “Other Notes”) to (i) holders of the Series A Convertible Preferred Stock of the Company (“A Shares”) in an amount equal to 150% of all amounts owed to each holder of A Shares by the Company including, but not limited to, the purchase price paid by each holder of A Shares for such A Shares and all accrued but unpaid dividends thereon in exchange for their A Shares, and (ii) to each purchaser of Notes in an amount equal to the aggregate principal amount of such purchaser’s Notes purchased.

15.                  Series B Preferred Stock. As a condition to the closing of the issuance and sale of the Notes and the Other Notes, the Company shall have filed the B Certificate with the Nevada Secretary of State creating 1,000 B Shares. For each $50,000 aggregate principal amount of Notes and Other Notes sold and/or issued to any person pursuant to the terms set forth in the Transaction Documents and the documents for the Other Notes, such person shall receive one (1) B Share. As long as the B Shares are issued and outstanding, the B Shares shall be entitled to vote (and/or consent if a written consent of shareholders is being sought) with respect to any matter upon which the holders of the Common Stock have the right to vote with the holders of 50.01% of the then aggregate Principal amount of Notes and Other Notes outstanding being entitled to vote all B Shares then outstanding, with the B Shares being entitled to eighty (80%) percent of the total votes of Common Stock at each election and/or written consent of stockholders regardless of how many B Shares and/or shares of Common Stock are then issued and outstanding (and to call and/or to constitute a quorum for a shareholders’ meeting of the holders of the Common Stock). See the B Certificate annexed hereto as part of Exhibit 7. Notwithstanding anything to the contrary provided herein, any conflict between the description of the B Shares and/or the B Certificate set forth herein and/or in any other Transaction Document and the B Certificate shall be governed by the B Certificate.

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IN WITNESS WHEREOF, the undersigned has executed this Note on and as of the date first above written.

  VISCOUNT SYSTEMS, INC.,
  a Nevada corporation
     
     
     
  By:  
    Name: Scott Sieracki
    Title: Interim Chief Executive Officer

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Annex I

NOTICE OF CONVERSION

The undersigned hereby elects to convert $________________of the principal amount of the Note (defined below) into shares of Common Stock of Viscount Systems, Inc., a Nevada corporation (the “Company”) according to the term conditions of the Senior Secured Convertible Demand Promissory B Note of the Company; Original Issuance Date: October 30, 2015 (the “Note”). No fee will be charged to the Holder or Holder’s Custodian for any conversion, except for transfer taxes, if any.

Box Checked as to applicable instructions:

[  ]

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

     
    Name of DTC Prime Broker:  _____________________________________________________________
     
    Account Number:  ____________________________________________________________________
     
     
     
[  ]

The undersigned hereby requests that the Company issue a certificate or certificates for the number of shares of Common Stock set forth below (which numbers are based on the Holder’s calculation attached hereto) in the name(s) specified immediately below:

     
                        ________________________________________

  Date of Conversion:    
       
  Conversion Price:    
       
  Shares to Be Delivered:    
       
  Remaining Principal Balance    
       
  Due After This Conversion:    
       
  Signature:    
       
  Print Name:    





A NOTE

THIS NOTE AND THE SECURITIES ISSUABLE UPON CONVERSION HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “1933 ACT”), OR THE SECURITIES LAWS OF ANY STATE. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH 1933 ACT AND/OR APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED OR UNLESS SOLD PURSUANT TO RULE 144 OF SUCH 1933 ACT. THIS NOTE AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS NOTE MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.

VISCOUNT SYSTEMS, INC.

14% SENIOR SECURED CONVERTIBLE DEMAND PROMISSORY A NOTE

A Note No: Original Issuance Date: November 24, 2015
  Original Principal Amount: $ __________

Viscount Systems, Inc. a Nevada corporation (and together with each and every of its current and future Subsidiaries (as defined below), collectively, the “Company”), hereby promises to pay to __________________or registered assigns (the “Holder”) __________________(the “Original Principal Amount”) (as reduced pursuant to the terms hereof pursuant to payment, conversion or otherwise, the “Principal”) and to pay interest (“Interest”) on any outstanding Principal at the applicable Interest Rate from the date set forth above as the Original Issuance Date (the “Issuance Date”) through and including the date all Principal, all accrued but unpaid Interest thereon and all other amounts due hereunder are received by the Holder in immediately available funds by wire transfer pursuant to wire transfer instructions provided to the Company by the Holder. This 14% Senior Secured Convertible Promissory Demand A Note (including all 14% Senior Secured Convertible Demand A Notes issued in exchange, transfer or replacement hereof, and/or as Interest pursuant to Section 1 below), is hereinafter referred to as this “Note,” and together with all other Notes, collectively, the “Notes”. All Principal, together with all accrued but unpaid Interest, and all other amounts due hereunder shall be due and payable on the Demand Payment Date (as defined below) to the Holder upon delivery by the Holder to the Company of written demand in cash by wire transfer pursuant to wiring instructions provided to the Company by the Holder.

This Note is one of a series of 14% Senior Secured Convertible Demand Promissory A Notes issued by the Company to certain holders of the A Shares (as defined below), including, but not limited to, the Holder, in exchange for, among other consideration, the A Shares held by the Holder and certain other holders of the Notes pursuant to the Consent by Series A Holders as of February 24, 2014 (the “A Consent”) and the Certificate of Designation, as amended (the “Certificate”) for its Series A Preferred Stock (the “A Shares”), and, in part, to settle certain disputes between the parties. Notes also may be issued (i) as payment of interest on Notes in lieu of the payment of cash interest at the option of the Company pursuant to Section 2, and (ii) to purchasers of the Other Notes (as defined in Section 14 below) as described generally in Section 14.

The following is a statement of the rights of the Holder of this Note and the conditions to which this Note is subject, and to which the Holder, by the acceptance of this Note, agrees:


1.                  Interest; Certain Definitions; Transaction Documents. Interest on this Note shall commence accruing on the Issuance Date at the Interest Rate (as defined below), shall accrue daily on a compounding basis and shall continue accruing Interest until all amounts under this Note and the other Transaction Documents (as defined below) owed to the Holder are received in full in cash by the Holder. Interest on this Note shall be payable in arrears quarterly on each of March 31, June 30, September 30 and December 31 or if any such date falls on a Holiday (as defined below), the next day that is not a Holiday (each an “Interest Payment Date”). Interest shall be payable on each Interest Payment Date to the record Holder of this Note at the option of the Company in (i) cash and/or (ii) Notes with the aggregate principal amount of any Note issued as Interest in lieu of cash equal to the amount of Interest due on such Interest Payment Date, with the first Interest Payment Date being December 31. For purposes of this Note, the term “Interest Rate” means (i) if all or any portion of Interest on any Interest Payment Date and/or otherwise is paid in cash, the Interest paid in cash shall be at the rate of fourteen (14%) percent per annum, (which Interest Rate shall increase to the lesser of (x) 21% per annum, and (y) the highest amount permitted by applicable law, commencing upon an Event of Default (as defined below)), or (ii) if all or any portion of Interest paid on any Interest Payment Date and/or otherwise is paid in Notes, the Interest paid in Notes shall be at the rate of five (5%) percent for each 30 days (pro-rata for any period of less than 30 days), increasing to eight (8%) percent commencing on the date of an Event of Default, for each 30 days (pro-rata for any period of less than 30 days) and continuing through and including the date all amounts due to the Holder hereunder and under the other Transaction Documents are received in full in immediately available funds by wire transfer pursuant to wire transfer instructions provided by the Holder to the Company; The term “Holiday” means any day other than a Business Day; “Business Day” means any day other than Saturday, Sunday or other day on which commercial banks in the City of New York are authorized or required by law to remain closed; “Demand Payment Date” means the next Business Day following the date the Holder sends to the Company written notice that the Holder demands that all Principal, Interest and all other amounts owed to the Holder under this Note and the other Transaction Documents is due and payable; and “Trading Market” means any of the following markets or exchanges on which the Common Stock (or any other common stock of any other Person that references the Trading Market for its common stock) is listed or quoted for trading on the date in question: the OTC Bulletin Board, The NASDAQ Global Market, The NASDAQ Global Select Market, The NASDAQ Capital Market, the New York Stock Exchange, NYSE Arca, the NYSE MKT, or the OTCQX Marketplace, the OTCQB Marketplace, the OTCPink Marketplace or any other tier operated by OTC Markets Group Inc. (or any successor to any of the foregoing); “Transaction Documents” means all Notes issued to the Holder, the B Certificate, the B Shares, the TA Letter, the Security and Pledge Agreement, the IP Security Agreement, the Subsidiary Guaranty, the A Share Amendment and any and all instruments, certificates and/or other documents used to perfect all of the Holders security interests in the Collateral (as defined in the Pledge Security Agreement and the IP Security Agreement) including, but not limited to any UCC-1 financing statements, all of which, and related documents necessary and/or advisable to effectuate the transaction contemplated in the above documents and all supplements, exhibits, amendments, schedules and/or annexes to any such documents. The term “TA Letter” means the irrevocable instructions to the Company’s transfer agent in the form annexed hereto as Exhibit 1; the term “IP Security Agreement” means the Intellectual Property Security Agreement annexed hereto as Exhibit 2; the term “Security and Pledge Agreement” means the Security and Pledge Agreement annexed hereto as Exhibit 3; the term “Subsidiary Guaranty” means the Subsidiary Guaranty Agreement annexed hereto as Exhibit 4; the Stock Power of Attorney (the “SPA”) and the stock certificate (the “Certificate”) for the 120 Class A Voting Common Shares of Viscount Communications and Control Systems, Inc., a British Columbia corporation and wholly-owned Subsidiary of the Company in the name of the Company (FKA, OMV 4 Corp.) are all annexed h ere to as Exhibit 5; the term “A Share Amendment” means the amendment to the Certificate of Designation for the Company’s Series A Preferred Stock (as amended), annexed hereto as Exhibit 6; and the term “B Certificate” means the Company’s Certificate of Designation Establishing the Designations, Preferences and Rights of its Series B Preferred Stock, a copy of which the Company previously filed with the Secretary of State of Nevada, a copy of which, together with the stock certificates representing the Company’s Series B Preferred Stock (the “B Stock”) issued to certain holders of Notes and Other Notes (as defined below) and the proof of filing of such B Certificate with the Nevada Secretary of State are annexed hereto as Exhibit 7.

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2.                  Conversion.

2.1                  Optional Conversion. All Principal, accrued, but unpaid Interest and all other amounts due herein and/or pursuant to the Transaction Documents may be converted at the sole option of the Holder, at any time and from time to time into such number of shares (“Conversion Shares”) of common stock, par value $0.001 per share (the “Common Stock”) as shall equal the quotient of (i) all Principal, all accrued but unpaid Interest and any other funds owed to the Holder by the Company under this Note and/or any other Transaction Document that the Holder has elected to convert any Conversion Amount (a “Conversion”) into Conversion Shares (the “Conversion Amount”), divided by (ii) the Conversion Price. “Trading Day” means a day on which the Common Stock is eligible for quotation on the OTC Market, or, if the Common Stock is not then eligible for quotation on the Trading Market then any day that the Common Stock is traded or eligible for quotation on any other United States commonly acceptable trading medium or market place where the Common Stock is then traded or eligible for quotation. “Conversion Price” shall mean the product of (x) sixty (60%) percent multiplied by (y) the lowest bid price (or lowest sale price, as the case may be) of a share of Common Stock during the 20 consecutive Trading Days prior to the date of any Conversion with the last Trading Day being the Trading Day immediately prior to the Trading Day the Holder informs the Company in writing by a Conversion Notice (as defined below) that the Holder is converting all or any part of this Note into shares of Common Stock.

2.2                   Mechanics of Conversion. To effectuate a Conversion pursuant to this Section 2, the Holder shall transmit by hand, facsimile or email (or otherwise deliver), for receipt on or prior to 11:59 p.m., New York time on such date, a copy of a fully completed executed notice of conversion in the form attached hereto as Annex 1 (the “Conversion Notice”) to the Company. The date of any Conversion shall be deemed the date a Conversion Notice is deemed given pursuant to Section 13.8 hereof (the “Conversion Date”). If, but only if, all Principal and accrued but unpaid Interest and all other amounts owed to the Holder under this Note and the other Transaction Documents is being converted into Conversion Shares, a Holder shall deliver to the Company this Note, but in no other event shall this Note be required to be delivered to the Company to effectuate a Conversion. The calculations and entries set forth on a Conversion Notice shall control in the absence of manifest or mathematical error. On or before the third (3rd) Trading Day following the Conversion Date (the “Share Delivery Date”), the Company shall (x) issue and deliver to the address as specified in the Conversion Notice, a certificate, registered in the name of the Holder or its designee, for the number of Conversion Shares to which the holder shall be entitled, or (y) provided that the Company’s transfer agent (the “Transfer Agent”) is participating in The Depository Trust Company (“DTC”) Fast Automated Securities Transfer Program, upon the request of the Holder, credit such aggregate number of Conversion Shares to which the Holder shall be entitled to the Holder’s or its designee’s balance account with DTC through its Deposit Withdrawal Agent Commission system. If a Holder elects to deliver this Note, and the entire Principal, all accrued but unpaid Interest and all other amounts owed under this Note and the other Transaction Documents is not being converted, then the Company shall, as soon as practicable after receipt of the Note (but in no event later than five (5) Trading Days), cause to be issued and delivered to the Holder a new Note representing the remaining amount of Principal on the Note not converted. The person or persons entitled to receive the Conversion Shares issuable upon a Conversion shall be treated for all purposes as the record holder or holders of such Conversion Shares on the date such Conversion Shares are issued. Each Note shall be converted into such number of Conversion Shares, as provided in this Section 2.

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2.3                   Failure to Deliver Certificates. If, in the case of any Conversion Notice, the required Common Stock certificate or certificates are not delivered to or as directed by the applicable Holder without restrictive legend by the Share Delivery Date, the Holder shall be entitled to elect by written notice to the Company at any time, to rescind such conversion, in which event the Company shall promptly return to the Holder any Note delivered to the Company and the Holder shall promptly return to the Company any Common Stock certificates issued to such Holder pursuant to the rescinding Conversion Notice.

2.4                   Obligation Absolute; Partial Liquidated Damages. The Company’s obligations to issue and delivery the Conversion Shares upon a Conversion in accordance with the terms hereof are absolute and unconditional, irrespective of any action or inaction by the Holder to enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any judgment against any Person or any action to enforce the same, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder or any other Person of any obligation to the Company or any violation or alleged violation of law by the Holder or any other person, and irrespective of any other circumstance which might otherwise limit such obligation of the Company to such Holder in connection with the issuance of such Conversion Shares. In the event a Holder shall elect to convert any Conversion Amount into Conversion Shares, the Company may not refuse conversion based on any claim that such Holder or anyone associated or affiliated with such Holder has been engaged in any violation of law, agreement or for any other reason, unless an injunction from a court, on notice to Holder, expressly restraining and/or enjoining conversion of all or part of the Conversion Amount shall have been sought and obtained by the Company, and the Company posts a cash surety bond for the benefit of such Holder in the amount of 300% of the Principal, all accrued but unpaid Interest thereon and all other amounts hereunder this Note and the Transaction Documents which is subject to the injunction, which bond shall remain in effect until the completion of arbitration/litigation of the underlying dispute and the proceeds of which shall be payable to such Holder to the extend it obtains judgment. In the absence of such injunction, the Company shall issue Conversion Shares and, if applicable, cash, by the Share Delivery Date. If the Company fails to deliver to a Holder such certificate or certificates without restrictive legend, by the Share Delivery Date applicable to such conversion, or in the event of a dispute, fails to post the surety bond in accordance with this paragraph, the Company shall pay to such Holder, in cash, as liquidated damages and not as a penalty, for each $10,000 of Conversion Amount, $200 per Trading Day commencing the day after the Share Delivery Date (increasing to $400 per Trading Day on the fifth (5th) Trading Day after such damages begin to accrue) for each Trading Day after such Share Delivery Date until the earlier of the date such certificates are delivered without restrictive legend or Holder rescinds such conversion. Nothing herein shall limit a Holder’s right to pursue actual damages for the Company’s failure to deliver the required amount of Conversion Shares without restrictive legend and such Holder shall have the right to pursue all remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief without the need by any Holder to post any bond which the Company hereby waives such requirement. The exercise of any such rights shall not prohibit a Holder from seeking to enforce damages pursuant to any other Section hereof or under applicable law. “Person” means an individual, a corporation, a partnership, an association, a joint-stock company, a Trust, any unincorporated organization, or government or political sub-division thereof.

2.5                   Compensation for Buy-In on Failure to Timely Deliver Certificates Upon Conversion. In addition to any other rights available to the Holder, if the Company fails for any reason or no reason to deliver to a Holder the applicable certificate or certificates by the Share Delivery Date and if after such Share Delivery Date such Holder is required by its brokerage firm to purchase (in an open market transaction or otherwise), or the Holder’s brokerage firm otherwise purchases, shares of Common Stock to deliver in satisfaction of a sale by such Holder (or a deemed sale) of the Conversion Shares which such Holder was entitled to receive upon the conversion relating to such Share Delivery Date (a “Buy-In”), then the Company shall (A) pay in cash to such Holder (in addition to any other remedies available to or elected by such Holder) the amount, if any, by which (x) such Holder’s total purchase price (including any brokerage commissions) for the Common Stock so purchased exceeds (y) the product of (1) the aggregate number of shares of Common Stock that such Holder was entitle to receive from the conversion at issue multiplied by (2) the actual sale price at which the sell order giving rise to such purchase obligation was executed (including any brokerage commissions) and (B) at the option of such Holder, either reissue (if surrendered) the Note (in which case, such conversion shall be deemed rescinded) or deliver to such Holder the number of shares of Common Stock that would have been issued if the Company delivered the required amount of Conversion Shares by the Share Delivery Date. For example, if a Holder purchases shares of Common Stock having total purchase price of $11,000 to cover a Buy-In with respect to an attempted conversion of the Note with respect to which the actual sale price of the Conversion Shares (including any brokerage commissions) giving rise to such purchase obligation was a total of $10,000 under clause (A) above, the Company shall be required to pay such Holder $1,000. The Holder shall provide the Company written notice indicating the amounts payable to such Holder in respect of the Buy-In and, upon request of the Company, evidence of the amount of such loss. Nothing herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company’s failure to timely delivery certificates representing shares of Common Stock upon conversion of the Note as required pursuant to the terms hereof.

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3.                   Default; Events of Default; Remedies.

3.1                   Default. Notwithstanding that this Note is a demand note and all amounts due hereunder become due and payable pursuant to and in accordance with the first paragraph of this Note, the Company shall be in default under this Note upon the happening of any condition or event set forth below (each, an “Event of Default”):

(a)                   the Company’s failure (i) to pay when due any Principal on the due date hereunder, or (ii) to pay any Interest or other payment due on and/or under this Note within two (2) days following the due date hereunder;

(b)                   a breach of any provision and/or default or event of default (subject to any grace or cure period provided in the applicable agreement, document or instrument) shall occur under any of the Transaction Documents and/or any other document related to the Other Notes;

(c)                   the Company shall fail for any reason to obtain the consent of the Holder pursuant to Section 4 to take any of the actions enumerated in Section 4;

(d)                   the Common Stock shall not be eligible for listing or quotation for trading on a Trading Market and shall not be eligible to resume listing or quotation for trading thereon within five (5) consecutive Trading Days from the first date of lack of eligibility;

(e)                   the electronic transfer by the Company of shares of Common Stock through the Depository Trust Company or another established clearing corporation is no longer available or is subject to a “chill” (i.e., the Depository Trust Company announces that it will not accept the deposit of shares of Common Stock into its participants’ street name accounts);

(f)                   failure to reserve and keep available out of its authorized and unissued Common Stock the number of shares of Common Stock as described in Section 6 and/or otherwise comply with any other provision of Section 6;

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(g)                   the Company shall (i) apply for or consent to the appointment of a receiver, trustee, liquidator or custodian of itself or of all or a substantial part of its property, (ii) be unable, or admit in writing its inability, to pay its debts as they mature, (iii) make a general assignment for the benefit of its or any of its creditors, (iv) be dissolved or liquidated, (v) commence a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or consent to any such relief or to the appointment of or taking possession of its property by any official in an involuntary case or other proceeding commenced against it, or (vi) take any action for the purpose of effecting any of the foregoing;

(h)                   proceedings for the appointment of a receiver, trustee, liquidator or custodian of the Company or of all or a substantial part of the property thereof, or an involuntary case or other proceedings seeking liquidation, reorganization or other relief with respect to the Company or the debts thereof under any bankruptcy, insolvency or other similar law now or hereafter in effect shall be commenced and an order for relief entered or such proceeding shall not be dismissed or discharged within 60 days of commencement;

(i)                   any default in any of the other Transaction Documents and/or other Indebtedness of the Company and/or any of its Subsidiaries (as defined below) including, but not limited to any Other Notes (as defined below) and/or any documents related thereto; or

(j)                   a breach of any other provision of this Agreement

4.                   Limitations on Company Actions.

4.1                   Notwithstanding anything to the contrary provided herein or elsewhere, as long as this Note is issued and outstanding, the Company shall not, and shall not permit any current or future, direct or indirect, wholly-owned or partially owned subsidiary (a “Subsidiary,” and collectively, the “Subsidiaries”) to, without the express written consent of Holders, directly and/or indirectly, owning no less than 50.1% of the aggregate Principal of all of the Notes then outstanding:

(a)                   amend, alter, change, waive or repeal any provision of the Articles of Incorporation or By-Laws, each as amended (the “Articles of Incorporation” and “By-Laws,” respectively) (and/or those of any of its Subsidiaries), in any manner that could, directly and/or indirectly, adversely affect the rights of the Holders;

(b)                   alter, waive, repeal, amend, and/or change any provision of this Note;

(c)                   incur any Indebtedness (other than that outstanding and in such principal amount outstanding as of June 5, 2012 and that represented by the Notes and the Other Notes, Transaction Documents and the transaction documents for the Other Notes) which if any such amount is permitted to be paid down, in whole or in part, pursuant to this Note and is paid down, in whole or in part, cannot be borrowed again except (A) if such Indebtedness constitutes Permitted Debt (as defined below), and (B) any such reborrowed Permitted Debt is counted on a dollar for dollar basis against the Permitted Debt Cap (as defined in below); provided, however, that subject to the limitations provided in this subparagraph, the Company and/or its Subsidiaries may borrow together in the aggregate up to $1,000,000 principal amount of Permitted Debt (the “Permitted Debt Cap”). For the purposes hereof, the term “Permitted Debt” shall mean (A) non-convertible, non-equity linked bank debt from a federal or state-chartered bank on commercially reasonable terms, which borrowed funds shall be used by the Company and/or its Subsidiaries in their respective historical and ordinary course of business; and (B) no equity of the Company and/or any of its Subsidiaries (including, but not limited to, warrants, stock options and/or other securities) is issued directly and/or indirectly in connection with any borrowings of such Permitted Debt. For purposes hereof, “Indebtedness” of any Person means, without duplication (A) all indebtedness for borrowed money, (B) all obligations issued, undertaken or assumed as the deferred purchase price of property or services, including, without limitation, “capital leases” in accordance with United States generally accepted accounting principles (other than trade payables entered into in the ordinary course of business), (C) all reimbursement or payment obligations with respect to letters of credit, surety bonds and other similar instruments, (D) all obligations evidenced by notes, bonds, debentures or similar instruments, including obligations so evidenced incurred in connection with the acquisition of property, assets or businesses, (E) all indebtedness created or arising under any conditional sale or other title retention agreement, or incurred as financing, in either case with respect to any property or assets acquired with the proceeds of such indebtedness (even though the rights and remedies of the seller or bank under such agreement in the event of default are limited to repossession or sale of such property), (F) all monetary obligations under any leasing or similar arrangement which, in connection with generally accepted accounting principles, consistently applied for the periods covered thereby, is classified as a capital lease, (G) all indebtedness referred to in clauses (A) through (F) above secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any mortgage, lien, pledge, charge, security interest or other encumbrance upon or in any property or assets (including accounts and contract rights) owned by any Person, even though the Person which owns such assets or property has not assumed or become liable for the payment of such indebtedness, and (H) all Contingent Obligations in respect of indebtedness or obligations of others of the kinds referred to in clauses (A) through (G). For purposes of this Note, “Contingent Obligations” shall mean, as to any Person, any direct or indirect liability, contingent or otherwise, of that Person with respect to any indebtedness, lease, dividend and/or other obligation of another Person if a purpose or intent of the Person incurring such liability, or the direct and/or indirect effect thereof, is to provide assurance (whether in writing, orally, and/or by any other means, which shall include, but not be limited to, any direct and/or indirect guaranty) to the obligee of such liability that such liability will be paid or discharged, or that any agreements relating thereto will be complied with, or that the holders of such liability will be protected (in whole or in part) against loss with respect thereto;

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(d)                   pay and/or make dividends, distributions and/or any other payment (whether in cash, securities or property) on any securities of the Company and/or any Subsidiary other than to the Holders of the Notes and the Other Notes;

(e)                   enter into any transaction with any Affiliate (as defined under the Securities Act of 1933, as amended, the “1933 Act”), which would be required to be disclosed in any public filing with the Securities and Exchange Commission (the “SEC”) pursuant to SEC laws, rules and/or regulations, other than any transaction pursuant to which an Affiliate of the Company and/or Subsidiary is employed pursuant to a written agreement by the Company and/or any Subsidiary which is negotiated on an arms-length basis, is approved by the independent directors of the Board of Directors and does not exceed industry standards, based upon the Company’s industry, the revenues and income of the Company and the work that such Affiliate will perform pursuant to such arrangement;

(f)                   redeem, repurchase and/or otherwise enter into or effectuate a similar transaction for any securities of the Company and/or any Subsidiary other than the Note and the Other Notes;

(g)                   repay any Indebtedness and/or other obligation other than (1) any bank debt outstanding as of June 5, 2012, but only in accordance with and to the extent of the terms and conditions of such bank debt as of June 5, 2012; provided, however, that notwithstanding anything to the contrary provided herein or elsewhere, no bank debt and/or any other Indebtedness may be pre-paid, (2) any accounts payable incurred in the normal course of the Company’s historical and ordinary business, (3) $45,000 aggregate principal amount loan advanced on March 26, 2012 plus accrued, but unpaid simple interest of 8% per annum to a shareholder of the Company (the “Lender”), provided that simultaneously with and as a condition to the repayment (including, but not limited to, accrued, but unpaid interest) to the Lender of such loan, the Lender provides to the Company (A) written evidence signed by the Lender that no other amounts are owed by the Company to the Lender pursuant to such loan, and (B) a full written release signed by the Lender of any and all claims by the Lender against the Company and/or its Subsidiaries in respect of such loan (“Release Documents”), (4) up to $60,000 of outstanding principal on loans due to shareholders and related parties as disclosed on the Company’s balance sheet dated March 31, 2012 filed with the SEC on or about May 15, 2012, provided that in each case, Release Documents are obtained, and (5) any Permitted Debt in accordance with the terms and conditions in this Note;

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(h)                   Other than the Notes and/or the Other Notes, effect or enter into an agreement to effect any sale and/or issuance of Common Stock or Common Stock Equivalents (as defined below) directly and/or indirectly involving a Variable Rate Transaction. For purposes of this Note, the term “Variable Rate Transaction” means a transaction in which the Company and/or its Subsidiaries (a) issues or sells any debt or equity securities that are convertible into, exchangeable or exercisable for, or include the right to receive, additional shares of Common Stock either (1) at a conversion price, exercise price or exchange rate or other price that is based upon, and/or varies with, the trading prices of or quotations for the shares of Common Stock at any time after the initial issuance of such debt or equity securities or (2) with a conversion, exercise or exchange price that is subject to being reset at some future date after the initial issuance of such debt or equity security or upon the occurrence of specified or contingent events directly or indirectly related to the business of the Company or the market for the Common Stock; (b) enters into any agreement, including, but not limited to, an equity line of credit, whereby the Company may sell securities at a future determined price, or (c) enters into any type of equity line of credit or similar agreement and/or transaction. For purposes of this Note, the term “Common Stock Equivalents” means any securities of the Company and/or its Subsidiaries which would entitle the holder thereof to acquire at any time Common Stock, including, without limitation, any debt, preferred stock, rights, options, warrants or other instrument that is at any time convertible into or exercisable or exchangeable for, or otherwise entitles the holder thereof to receive, Common Stock;

(i)                   enter into any agreement or understanding (whether in writing, orally or otherwise) to do any of the above; or

(j)                   directly and/or indirectly create and/or otherwise permit to exist any Liens on any assets of the Company and/or any of its Subsidiaries except (i) any Lien for taxes not yet due or delinquent or being contested in good faith by appropriate proceedings for which adequate reserves have been established in accordance with GAAP, (ii) any statutory Lien arising in the ordinary course of business by operation of law with respect to a liability that is not yet due or delinquent, (iii) any Lien created by operation of law, such as materialmen’s liens, mechanics’ liens and other similar liens, arising in the ordinary course of business with respect to a liability that is not yet due or delinquent or that are being contested in good faith by appropriate proceedings, or (iv) any Liens securing any obligations of the Company and/or any Subsidiary under the Notes and Other Notes; (the terms “Lien” or “lien” shall mean a lien, mortgage, charge, pledge, security interest, encumbrance, right of first refusal, preemptive right or other restrictions, clouds on title and/or encumbrances).

4.2                   Notwithstanding anything to the contrary provided herein or elsewhere, without the express written consent of holders owning 50.1% of the aggregate principal amount of the Notes and Other Notes then outstanding (“Required Amount”), the Company shall not, and shall not permit any Subsidiaries to:

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(a)                   effect any merger, acquisition, sale, consolidation, reorganization and/or similar transaction or a Change of Control (as defined below), (each, an “Event”) except any Event which upon the date of the occurrence or closing of any Event, as the case may be, (i) the Holder receives in exchange for this Note, cash in an amount not less than two (2) times the then Principal amount of the Note immediately prior to the occurrence or closing of such Event, plus all accrued, but unpaid interest and other payments owed to the Holder by the Company and/or its Subsidiaries, or (ii) if an Event is structured whereby the Holder receives securities of a non-affiliated, third-party entity, the common stock of such entity is listed on a National Securities Exchange (as defined in the 1933 Act) and such common stock for the twenty (20) consecutive Trading Days with the last Trading Day being the Trading Day prior to the occurrence or closing of such Event has a daily market capitalization of no less than $100 million. For purposes of this Note, the term “Change of Control” means the occurrence after the date hereof of any of (i) an acquisition after the date hereof by an individual or legal entity or "group" (as described in Rule 13d-5(b)(1) promulgated under the Securities Exchange Act of 1934, as amended (the “1934 Act”) of effective control (whether through legal or beneficial ownership of capital stock of the Company, by contract or otherwise) of in excess of 50% of the voting securities of the Company, (ii) the Company merges into or consolidates with any other Person, or any Person merges into or consolidates with the Company and, after giving effect to such transaction, the stockholders of the Company immediately prior to such transaction own less than 50% of the aggregate voting power of the Company or the successor entity of such transaction, (iii) the Company sells or transfers all or substantially all of its assets to another Person and the stockholders of the Company immediately prior to such transaction own less than 50% of the aggregate voting power of the acquiring entity immediately after the transaction, (iv) a replacement at one time or within a six (6) month period of more than one-half of the members of the Board of Directors which is not approved by a majority of those individuals who were members of the Board of Directors on June 5, 2012 (or by those individuals who are serving as members of the Board of Directors on any date whose nomination to the Board of Directors was approved by a majority of the members of the Board of Directors who were members on June 5, 2012), or (v) the execution by the Company and/or any of its shareholders of an agreement to which the Company is a party or by which either is bound, providing for any of the events set forth in clauses (i) through (v) above.

(b)                   decrease or increase the authorized size of the Company’s (and/or any of its Subsidiaries’), Board of Directors, other than as expressly provided herein; or

(c)                   directly and/or indirectly, adopt, amend and/or supplement any new stock option plan and/or similar plan (the “SOP Plans”), except where the maximum number of shares of Common Stock that may be acquired directly and/or indirectly upon exercise of stock options issued under the SOP Plans, when aggregated with the maximum number of shares of Common Stock that may be acquired directly and/or indirectly under all other stock option plans and/or stock options outstanding as of the date hereof (including, but not limited to, all stock options issued prior to the date hereof under any SOP Plans and/or otherwise, regardless of whether any such SOP Plans and/or other stock options have terminated and/or expired with or without being exercised) does not and will not at any time prior to and including March 3, 2017, exceed in the aggregate 32,500,000 shares of Common Stock (which 32,500,000 shall be proportionately adjusted to take into account each stock split and/or reverse stock split occurring following March 31, 2014).

5.                   Anti-Dilution Provisions. The Conversion Price in effect at any time and the number and kind of securities issuable upon conversion of the Note shall be subject to adjustment from time to time upon the happening of the events as follows:

5.1                   Adjustment for Dividends in Other Stock and Property Reclassifications. In case at any time, or from time to time, the holders of the Common Stock (or any shares of stock or other securities at the time receivable upon any conversion of the Note) shall have received, or, on or after the record date fixed for the determination of eligible stockholders, shall have become entitled to receive, without payment therefor:

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(a)                   other or additional stock or other securities or property (other than cash) by way of dividend;

(b)                   any cash or other property paid or payable out of any source other than retained earnings (determined in accordance with generally accepted accounting principles); or

(c)                   other or additional stock or other securities or property (including cash) by way of stock-split, spin-off, reclassification, combination of shares or similar corporate rearrangement (other than (x) additional shares of Common Stock or any other stock or securities into which such Common Stock shall have been changed, (y) any other stock or securities convertible into or exchangeable for such Common Stock or such other stock or securities or (z) any stock purchase rights, issued as a stock dividend or stock-split, adjustments in respect of which shall be covered by the terms of Section 5.3 or Section 5.4, then and in each such case, the Holder, upon any conversion of the Note, shall be entitled to receive the amount of stock and other securities and property (including cash in the cases referred to in clauses (a) and (b) above) which such Holder would have been entitled to receive had such Holder been the holder of record, on the date of any such issuances described in clauses (a), (b) or this clause (c), of the number of shares of Common Stock into which the Note is being converted, giving effect to all adjustments called for during such period by Section 5.1 and Section 5.2.

5.2                   Adjustment for Reorganization, Consolidation and Merger. In case of any reorganization of the Company (or any other corporation the stock or other securities of which are at the time receivable on the conversion of the Note) after the Issuance Date, or in case, after such date, the Company (or any such other corporation) shall consolidate with or merge into another corporation or entity or convey all or substantially all its assets to another corporation or entity (any such reorganization or other event hereafter being referred to as a “Reorganization”), then and in each such case the Note, upon conversion, as and at any time after the consummation of such Reorganization, shall be converted into, in lieu of the stock or other securities and property into which the Note would have been convertible prior to such Reorganization, such stock or other securities or property to which the Note would have converted if they had been converted immediately prior to any such Reorganization, subject to further adjustment as provided in Sections 5.1, Section 5.3, and Section 5.4, in each such case.

5.3                   Adjustment for Certain Dividends and Distributions. If the Company at any time, or from time to time, makes, or fixes a record date for the determination of holders of Common Stock entitled to receive, a dividend or other distribution payable in additional shares of Common Stock, then and in each such event, the Conversion Price then in effect shall be decreased as of the time of such issuance or, in the event such record date is fixed, as of the close of business on such record date, by multiplying the Conversion Price then in effect by a fraction (A) the numerator of which is the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date, and (B) the denominator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date as the case may be, plus the number of shares of Common Stock issuable in payment of such dividend or distribution; provided, however, that if such record date is fixed and such dividend is not fully paid or if such distribution is not fully made on the date fixed therefor, the Conversion Price shall be recomputed accordingly as of the close of business on such record date, and thereafter the Conversion Price shall be adjusted pursuant to this Section 5.3 as of the time of actual payment of such dividends or distributions.

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5.4                   Stock Split and Reverse Stock Split. If the Company at any time, or from time to time, effects a stock split or subdivision of the outstanding Common Stock, the Conversion Price then in effect immediately before that stock split or subdivision shall be proportionately reduced. If the Company at any time, or from time to time, effects a reverse stock split or combines the outstanding shares of Common Stock into a smaller number of shares, the Conversion Price then in effect immediately before that reverse stock split or combination shall be proportionately increased. Each adjustment under this Section 5.4 shall become effective at the close of business on the date the stock split, subdivision, reverse stock split or combination becomes effective.

5.5                   Fundamental Transaction. If, at any time while any the Note is outstanding, (A) the Company effects any merger, means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind, consolidation or similar transaction of the Company with or into another Person, (B) the Company effects any sale of all or substantially all of its assets in one or a series of transactions, (C) any tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to tender or exchange their shares for other securities, cash or property, or (D) the Company effects any reclassification of the Common Stock or any share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property (each a “Fundamental Transaction”), then, upon any subsequent conversion of the Note, the Holder shall have the right to receive, for each share of Common Stock that would have been issuable upon such conversion immediately prior to the occurrence of such Fundamental Transaction, the number of shares of Common Stock of the successor or acquiring Person or of the Company, if it is the surviving corporation, and any additional consideration (the “Alternate Consideration”) receivable as a result of such merger, consolidation, or disposition of assets or other similar transaction by a holder of the number of shares of Common Stock for which the Note is convertible immediately prior to such event. For purposes of any such conversion, the determination of the Conversion Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one share of Common Stock in such Fundamental Transaction, and the Company shall apportion Conversion Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any conversion of the Note following such Fundamental Transaction. The terms of any agreement pursuant to which a Fundamental Transaction is effected shall include terms requiring any such successor or surviving Person to comply with the provisions of this Section 5.5 and insuring that the Note (or any such replacement security) will be similarly adjusted upon any subsequent transaction analogous to a Fundamental Transaction.

5.6                   Other Events. Notwithstanding anything to the contrary provided in this Note or elsewhere, if the Company, at any time and from time to time commencing on the Issuance Date and expiring at the end of the day February 24, 2019, Easter Standard Time, sells and/or issues shares of Common Stock and/or issues and/or sells Common Stock Equivalents, as defined below (a “New Common Offering”) having a sale and/or exercise, conversion or exchange price (the “Subsequent Lower Issuance Price”) at a price less than the Additional Share Trigger Price (as defined below) (a “Subsequent Lower Issuance”), then and in each such case the (i) Conversion Price shall be automatically adjusted to the Subsequent Lower Issue Price, and (ii) Company shall issue (without cost to the Holder), such number of additional shares of Common Stock (the “Additional Common Stock”) calculated as follows:

A = [((B/C) – 1) x D] – A1

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A is the number of additional shares of Common Stock to be issued to the Holder.

B is the Additional Share Trigger Price

C is the greater of (I) the Subsequent Lower Issuance Price and (II) the Conversion Price.

D is the number of shares of Common Stock issuable to the Holder on conversion of this Note as at the date of the Subsequent Lower Issuance.

A1 is the aggregate number of shares of Additional Common Stock previously issued to the Holder pursuant to one of more prior Subsequent Lower Issuances.

For example; assuming an Additional Share Trigger Price of $0.10 and a Subsequent Lower Issuance Price of $0.08, and assuming the number of shares of Common Stock issuable to a Holder on conversion of such Holder’s Note at the Subsequent Lower Issuance is 100, and further assuming no prior Subsequent Lower Issuances, the number of additional shares of Common Stock to be issued to the Holder would be 25.

The reduction in the Conversion Price and the Common Stock issuances set forth in this Section 5.6 shall occur each time the Company issues and/or sells shares of Common Stock and/or Common Stock Equivalents with a price and/or an exercise, exchange and/or conversion price, as the case may be, less than the Additional Share Trigger Price and/or the Conversion Price. The Additional Share Trigger Price shall also be adjusted for stock splits, reverse stock splits and related items as provided in this Note affecting all the issued and outstanding shares of Common Stock in the same manner. Notwithstanding anything to the contrary provided herein, the Additional Share Trigger Price shall not increase as a result of further issuances of securities by the Company. For purposes of this Section, “Additional Share Trigger Price” means $0.09 per share of Common Stock.

6.                   Reservation of Authorized Shares.

6.1                   So long as any Notes and/or any other securities of the Company are owned by the Holder (and/or any transferee thereof) beneficially and/or of record, the Company covenants and agrees that no later than the date 60 days from the Issuance Date (the “Required Date”) it will at all times reserve and keep available out of its authorized and unissued shares of Common Stock a number of shares of Common Stock at least equal to (the “Required Reserve Amount”) (i) 300%, multiplied by (ii) the Required Minimum (as defined below) for the sole purpose of issuance upon conversion of this Note and all other Notes issued and outstanding on the date of any determination, free from preemptive rights or any other actual and/or contingent purchase rights of any other persons and/or entity. The Company covenants that all shares of Common Stock that shall be so issuable shall, upon issue, be duly authorized, validly issued, fully paid and nonassessable, and, at such times as a registration statement covering such shares is then effective under the Securities Act, will be registered for public resale in accordance with such registration statement. For purposes of this Note, the “Required Minimum” shall mean the product of (A) the quotient obtained by dividing (I) the sum of (i) all outstanding Principal represented by this Note and all other Notes issued and outstanding on the date of any determination, (ii) all Interest hereon and thereon (whether accrued or not), and (iii) all other amounts owed under this Note and the other Transaction Documents by (II) the Conversion Price, and the resulting number multiplied by (B) 300%. The Company shall be required to calculate the Required Minimum on the first Trading Day of every other week that any amounts are owed by the Company under this Note, any other Notes and/or the other Transaction Documents and provide such calculation to each holder of Notes and the Transfer Agent in writing on such date. For purposes of calculating the Required Minimum, the Company shall assume that all Principal of this Note and any other Notes outstanding will remain outstanding for eighteen (18) months, Interest is paid in Notes, accrues and compounds daily at the Interest Rate and is paid on the date 18 months from the Issuance Date. The covenant by the Company set forth above in this Section 6.1 as it relates to the first time the Company is required to satisfy the Required Reserve Amount (the “6.1 Covenant), shall be calculated and satisfied for and on the earliest date possible but in no event later than the Required Date. In addition, the Company’s authorized but unissued and unreserved shares of Common Stock shall have been increased (the “Initial Increase”) to 3 billion shares of Common Stock (all in accordance with all applicable rules, laws and regulations including, but not limited to those of FINRA, Nevada law and the SEC), as soon as possible by the Company using its best-efforts, but in no event shall such Initial Increase occur later than the Required Date. Failure by the Company to satisfy the 6.1 Covenant and the Initial Increase, as soon as possible but in no event later than the Required Date, to file the Information Statement (as defined below) with the SEC for the Initial Increase within 5 Business Days from the date hereof and/or the Company not using its best efforts to satisfy such conditions will result in the payment by the Company to the Holder of the 2% Amount (as defined below) per day commencing on the first day of any breach of any such conditions, which shall be in addition to any and all other rights and remedies that the Holder may take against the Company in law and/or equity under this Note, the Transaction Documents, applicable law and/or otherwise, all of which shall be cumulative.

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6.2                   Initial Reservation; Subsequent Authorized Deficiency; and Subsequent Reserve Amount Deficiency. On the Issuance Date, the Company shall have 300,000,000 shares of Common Stock authorized, approximately 127,000,000, shares of Common Stock issued and outstanding and reserved out of its authorized but unissued and unreserved shares of Common Stock and 162,000,000 shares of Common Stock reserved solely for issuance upon conversion of the Notes. At any time and from time to time following the Required Date, and notwithstanding anything to the contrary provided herein or elsewhere, in the event that the Company, the Holder, any other holder of Notes and/or the Collateral Agent shall determine that the Company (i) has not satisfied the Required Reserve Amount ( a "Subsequent Reserve Amount Deficiency"), and/ or (ii) does have sufficient shares of Common Stock authorized and unissued and unreserved to satisfy the Required Reserve Amount ( a "Subsequent Authorized Deficiency"), the Company shall immediately notify the holders of the Notes and the Collateral Agent in writing of 1 or both deficiencies, as the case may be (and /or the Holder, any other holders of the Notes and/or the Collateral Agent shall determine and inform the Company of one or both deficiencies, as the case may be), then the Company shall file within 5 Business Days an Information Statement on Form 14A or Form 14B, as applicable (an "Information Statement"), with the SEC and take all such other action to cure the Subsequent Reserve Deficiency and/or the Subsequent Authorized Deficiency, as the case may be, no later than 45 days from the date the Company becomes or should have become aware of one and/or both deficiencies, as the case may be (the "Last Day"). Failure by the Company to file an Information Statement as part of curing 1 or both such deficiencies as required pursuant to this Section 6.2 and in the time frame so required by this Section 6.2, use its best efforts to cure 1 or both of such deficiencies, as the case may be, by the Last Day, either or both deficiencies , as the case may be, are not cured by the Last Day and/or if either or both deficiencies appear to be cured by the Last Day, but the cure of either or both deficiencies, as the case may be, did not comply with all applicable laws, rules and regulations, including but not limited to the laws of the State of Nevada and the Securities and Exchange Commission (each a “Breach”), then the Company shall pay to the Holder and each other holder of Notes (or the Collateral Agent for the benefit of itself and the Holder and the other holders of the Notes), for each day that the Company has not cured each Breach including the first date of any Breach, in cash by wire transfer to the Holder and each other holder of Notes (or the Collateral Agent for the benefit of itself, the Holder and the other holders of the Notes), an amount equal to 2% of the Holder’s and each other holder's aggregate principal amount of their respective Notes and all accrued but unpaid Interest and other amounts due to the Holder and each other holder of Notes, under this Note and each other Note as well as each other Transaction Document through and including the date all Breaches are cured and all amounts owed to the Holder and each other holder of Notes are received in full in cash by the Holder and each other holder (or the Collateral Agent for itself and each other holder of Notes, by wire transfer pursuant to wiring instructions provided to the Company from the Holder (and each other holder or the Collateral Agent) (the “2% Amount”). Notwithstanding anything to the contrary provided herein, the holders owning at least 50.1% of the aggregate principal amount of all Notes then outstanding (or the Collateral Agent), may declare an Event of Default under the Notes and obtain any other relief available under applicable law, whether in equity or otherwise, and/or in any of the Transaction Documents. In no event shall any action or non-action by the Holder, any other holder of Notes and/or the Collateral Agent under Section 6.1 and/or this Section 6.2 constitute a waiver of any right and/or remedy any such persons may have under law, equity and/or any of the Transaction Documents. Once the Initial Increase is in effect and any Subsequent Share Deficiency has been cured , as the case may be, the Company shall immediately calculate the Required Reserve Amount for the Holder and each other holder and immediately provide a draft of an irrevocable instruction to its transfer agent to the Holder and each other holder of Notes, and the Collateral Agent which once approved by the Holder and each other holder and/ or the Collateral Agent shall immediately be signed by the Company and delivered to the Company’s transfer agent to meet the Required Reserve Amount.

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7.                   Security; Subsidiary Guaranty. This Note, all other Notes and the Other Notes shall rank pari passu with each other in all respects and all of the Company’s and its Subsidiaries’ obligations to the Holder, the other holders of the Notes and the holders of the Other Notes and in the other Transaction Documents are secured on a pari passu basis by all of the assets of the Company and its Subsidiaries pursuant to the IP Security Agreement, the Security and Pledge Agreement and all obligations of the Company to the Holder hereunder including, but not limited to, the payment of Principal, Interest and all other amounts due hereunder and/or pursuant to the other Transaction Documents are guaranteed by the Company’s Subsidiaries pursuant to the Guaranty Agreement. Pursuant to the Security and Pledge Agreement, all shares of issued and outstanding capital stock of the Company’s represented by the Certificate have been pledged by the Company to the Collateral Agent for the benefit of the Collateral Agent, the Holder and all other holders of Notes and Other Notes. Notwithstanding anything to the contrary provided herein or elsewhere, prior to any payments of principal to the holders of the Notes from (i) the sale of any assets of the Company and/or any of its Subsidiaries, and/or (ii) cash flow of the Company and/or its Subsidiaries (“Payment Events”), the holders of the Other Notes shall be entitled to receive the full payment of all amounts owed to them under their respective Notes, provided, however, notwithstanding anything to the contrary provided herein or elsewhere (x) at the election of each holder of Other Notes, any such payments due to any holder of Other Notes of principal based upon Payment Events shall be payable in whole and/or part to reduce on a dollar for dollar basis any amounts owed by the Company and/or any Subsidiary to any Notes owned, if any, by such holder of Other Notes, all in the sole discretion of the particular holder of Other Notes in the following order: first to all amounts owed other than Principal and Interest, second to all Interest owed and third to all outstanding Principal.

8.                   Limitation on Number of Shares Issuable to Holder

8.1                   Other than as provided elsewhere in this Section 8, at no time may the Holder convert any portion of this Note if the number of shares of Common Stock to be issued pursuant to such conversion would exceed, when aggregated with all other shares of Common Stock owned by such Holder at such time, the number of shares of Common Stock which would result in such holder beneficially owning (as determined in accordance with Section 13(d) of the 1934 Act), more than 4.99% of all of the Common Stock outstanding at such time; provided, however, that upon the Holder providing the Company with sixty-one (61) days notice that such holder would like to waive this Section 8.1 with regard to any or all shares of Common Stock issuable upon conversion of the Note, this Section 8.1 shall be of no force or effect with regard to the principal amount referenced in the Waiver Notice.

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8.2                   Other than as provided elsewhere in this Section 8, at no time may the Holder convert any portion of the Note if the number of shares of Common Stock to be issued pursuant to such conversion would exceed, when aggregated with all other shares of Common Stock owned by such Holder at such time, the number of shares of Common Stock which would result in such holder beneficially owning (as determined in accordance with Section 13(d) of the 1934 Act) in excess of 9.99% of all of the Common Stock outstanding at such time; provided, however, that upon the Holder providing the Company with sixty-one (61) days notice that such Holder would like to waive this Section 8.2 with regard to any or all shares of Common Stock issuable upon conversion of the Note, this Section 8.2 shall be of no force or effect with regard to the principal amount referenced in the Waiver Notice.

9.                   Lost or Stolen Note. Upon receipt by the Company of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of the Note, and, in the case of loss, theft or destruction, of any indemnification undertaking by the Holder to the Company in customary form and, in the case of mutilation, upon surrender and cancellation of the Note, the Company shall execute and deliver a new promissory note of like tenor and date.

10.                   Information Rights. Unless otherwise publicly available in electronic format on the website of the Company or filed with the SEC, the Company shall furnish to the Holder within one hundred and five (105) days after the end of each fiscal year, audited financial statements of the Company and its consolidated subsidiaries and, within sixty (60) days after the end of each of the quarters of each fiscal year, unaudited financial statements of the Company.

11.                   Failure to Pay. Notwithstanding anything to the contrary provided herein or elsewhere and in addition to all other remedies available to the Holder under this Note, any other Transaction Documents and/or elsewhere, if any payment hereunder or elsewhere is due to the Holder, and such payment is not made (even if a payment is not permitted to be paid because insufficient capital is available under applicable law to make such payment), Interest on such payment (in addition to any other Interest and/or penalties that become due), shall accrue at the rate of the lesser of (i) 22% per annum, and (ii) the maximum amount permitted by applicable law, and all Interest shall accrue and compound daily until all payments are made, including Interest and penalties. Nothing in this Section 11 shall be deemed to constitute a waiver and/or election of remedies by the Holder, all of which other remedies a Holder reserves its rights to pursue, whether in law or equity.

12.                   Certain Payments. Notwithstanding anything to the contrary provided herein or elsewhere, in the event (i) any of the Transaction Documents are not in form and substance reasonably satisfactory to the Collateral Agent, and properly executed and delivered to the Holder no later than November 3, 2015, except for the documents set forth in Section 12(ii), and/or (ii) the Collateral Agent has not received by November 8, 2015 (a) the original Certificate, (b) the executed but undated SPA, which SPA under applicable Canadian law will transfer all right, interest and the title (free and clear of all liens, encumbrances and/or preemptive rights) of the 120 shares represented by the Certificate to the Collateral Agent as required by and pursuant to the Security and Pledge Agreement, (c) the executed Security and Pledge Agreement, the IP Security Agreement and the Guaranty in form and substance reasonably satisfactory to the Collateral Agent and/or (d) the security interests created by the Security and Pledge Agreement, and the IP Security Agreement have not been perfected in accordance with all applicable laws, rules and regulations to provide the Collateral Agent, with a perfected and a first priority senior lien on and in all of the Collateral (as defined in the Security and Pledge Agreement), and all other assets of the Company and its Subsidiaries subject only to any lien created pursuant to the Full Factoring Agreement dated March 24, 2015 by and between Viscount Communication & Control Systems, Inc. (the Company’s wholly-owned subsidiary) and Liquid Capital Exchange Corp. (the “Factoring Agreement”), provided such Factoring Agreement is not and has not been amended, supplemented and/or otherwise changed since September 15, 2015, all to the satisfaction of the Collateral Agent based upon evidence commercially reasonably satisfactory to the Collateral Agent, then for each calendar day during which one or more of such events have occurred, the Company shall pay to the Holder and each other holder of Notes, $2,500 per day in immediately available funds upon demand by the Holder, any other holder of Notes (and/or the Collateral Agent for itself and the other Note holders) by wire transfer to the bank account of the Holder and each other holder of Notes or the Collateral Agent for itself and each other Note holder, pursuant to wiring instructions as provided by the Holder and the other holders of Notes to the Company in writing or to the Collateral Agent’s bank account (for the benefit of itself and the other Note holders). If any such $2,500 payments are not received in full, in cash when due, Interest on such payments shall accrue at the lower of (i) 22% per annum, and (ii) the highest interest rate permitted by applicable law compounding daily through and including the date all amounts owed to the Holder and the other holders of Notes (or the Collateral Agent for the benefit of itself and all holders of Notes), are received in full in cash by such persons. The failure of the Holder, any other holder of Notes or the Collateral Agent to take action and/or to not take any action, shall not directly and/or indirectly constitute a waiver and/or an election of remedies by any such person(s), all of which other remedies such persons reserve their respective rights to pursue whether in law or equity.

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13.                   Miscellaneous.

13.1                   Waivers and Amendments. This Note and the other Notes may only be amended, waived, discharged or terminated (either generally or in a particular instance, either retroactively or prospectively and either for a specified period of time or indefinitely) with the written consent of holders owning no less than 50.1% of the aggregate outstanding principal amount of all Notes at such time. This Note may not be changed, waived, discharged or terminated orally but only by a signed statement in writing.

13.2                   Severability. In the event that any provision of this Note becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Note shall continue in full force and effect without said provision; provided that no such severability shall be effective if it materially changes the economic benefit of this Note to any party.

13.3                   Assignment. Subject to compliance with applicable federal and state securities laws by the transferor and the transferee (including the delivery of investment representation letters and legal opinions reasonably satisfactory to the Company, if such are reasonably requested by the Company), this Note and all rights therein, may be transferred or assigned in whole or in part by the Holder at any time and from time to time. The Company agrees to use its best-efforts and take all reasonably requested action to facilitate and effectuate the transfer and/or assignment of this Note (in whole or in part), by the Holder and in the time frame so requested by the Holder.

13.4                   Titles and Subtitles. The titles of the paragraphs and subparagraphs of this Note are for convenience of reference only and are not to be considered in construing this Note.

13.5                   Construction. The language used in this Note 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.

13.6                   Governing Law. All questions concerning the construction, validity, enforcement and interpretation of this Note shall be governed solely and exclusively by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflict of laws thereof. The Company expressly and irrevocably agrees that all legal proceedings concerning the interpretation, enforcement and defense of the transactions contemplated by this Note shall be commenced exclusively in the state and/or federal courts sitting in the State, City, and County of New York (the “New York Courts”). The Company expressly and irrevocably submits to the exclusive jurisdiction of the New York Courts for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably and expressly waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of such New York Courts, or such New York Courts are improper or inconvenient venue for such proceeding. The Company hereby expressly and irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Note and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by applicable law. In any action brought concerning and/or arising directly and/or indirectly out of this Note, the prevailing party shall be entitled to recover all of its legal fees and expenses incurred by it with respect to any such legal action.

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THE COMPANY EXPRESSLY AND IRREVOCABLY WAIVES ITS RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS NOTE.

13.7                   Rank of Notes. Except as otherwise provided herein, this Note and, all other Notes and the Other Notes shall rank senior in all respects to all other Indebtedness or other monetary obligations of the Company and/or its Subsidiaries, whether such Indebtedness or other obligations are outstanding as of the date of this Note or incurred after the date of this Note, such that all such other Indebtedness or other obligations shall be subordinated in right of payment to this Note.

13.8                   Notices. Any and all notices or other communications or deliveries to be provided by the Holder hereunder including, without limitation, any Notice of Conversion, shall be in writing and delivered personally, by facsimile (to facsimile number 1-604-327-3859) and email (to scott.sieracki@viscount.com), or sent by a nationally recognized overnight courier service, addressed to the Company, at the following address 4585 Tillicum Street, Burnaby, British Columbia, Canada V5J 5K9, Attention: Scott Sieracki, President or such other facsimile number, or address, or email as the Company may specify for such purposes by notice to the Holders delivered in accordance with this Section 13.8. Any and all notices or other communications or deliveries to be provided by the Company hereunder shall be in writing and delivered personally, by facsimile, email or sent by a nationally recognized overnight courier service addressed to each Holder at the facsimile number, email or address of such Holder appearing on the books of the Company. Any notice or other communication or deliveries hereunder shall be deemed given and effective on the earliest of (i) the date of transmission, if such notice or communication is delivered via facsimile or email at the facsimile number or email address (as the case may be), set forth in this Section prior to 5:30 p.m. (New York City time) on any date, (ii) the next Trading Day after the date of transmission, if such notice or communication is delivered via facsimile or email at the facsimile number or email address (as the case may be), set forth in this Section on a day that is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading Day, (iii) the second Trading Day following the date of mailing, if sent by U.S. nationally recognized overnight courier service, or (iv) upon actual receipt by the party to whom such notice is required to be given.

13.9                   Board Observer/Director. Commencing on the Issuance Date, at any time and from time to time that any amounts due to the holders of Notes by the Company under this Note and/or the other Transaction Documents are outstanding, the holders of 50.1% of the then outstanding aggregate principal amount of the Notes and the Other Notes shall have the right to appoint an observer to the Board of Directors of the Company (the “Observer”). The Company shall (i) provide any such Observer with written notification of all Board Meetings (whether an in person or telephonic Board meeting); and (ii) all information given to any Board member, all in the same manner and at the same time as a Board member gets or is entitled to receive any such notification and/or information. Effective on the Issuance Date, all Directors of the Company’s Board of Directors shall resign except for Mr. Ned L. Siegel and Mr. Alexander Buehler; and the maximum number of Directors of the Company shall be five (5), of which Messrs. Siegel and Buehler shall constitute 2 Directors and the other 3 Directors (the “Note Directors”), shall be appointed by the holders owning 50.1% of the then aggregate issued and outstanding principal amount of the Notes and the Other Notes, which notwithstanding anything to the contrary provided herein or elsewhere, the Board shall remain at no more than 5 Directors and the three (3) Note Directors (and/or their successors and/or replacements) shall remain Directors on the Board until such time as all amounts owed to all holders of the Notes and the Other Notes including, but not limited to all principal, interest and all other amounts under the Notes and the Transaction Documents and documents related to the Other Notes are received in full by all such holders in cash by wire transfer pursuant to wire transfer instructions provided by each holder to the Company, at which time the Note Directors at the request of the CEO of the Company shall resign as directors of the Company; and the Board shall be reconstituted to be the same Board that existed on October 29, 2015; provided, however, that notwithstanding anything to the contrary provided herein or elsewhere, in the event that at any time and from time to time the required holders of the Notes and Other Notes seek to replace one or more of the three (3) Note Directors during the period that such persons have the right to appoint the 3 Note Directors as provided in this Note, and such does not occur by the date 5 Business Days following the date of such written request by the holders of 50.01% of the then issued and outstanding aggregate principal amount of the Notes and Other Notes to the Company (the “5th Business Day”), the Company shall pay to each holder of Notes and Other Notes $2,500 per day in cash by wire transfer commencing on the first day following the 5th Business Day through and including the date such new Note Director(s) become directors of the Company in compliance with all applicable laws, rules and regulations, subject to the holders of the Notes and Other Notes not intentionally acting or failing to act in a manner reasonably necessary to replace the particular Note Director(s). The Note Directors shall be entitled to receive from the Company the highest compensation that any other Director of the Company receives and shall be entitled to all costs and expenses (including, but not limited to, air fare, other travel costs, meals and lodging), to attend all Board of Directors meeting. At any time and from time to time, holders owning no less than 50.1% of the aggregate principal amount of all Notes and Other Notes then outstanding can replace by written notice one or more of the Note Directors. Whenever any Note Director is on the Board, the Company shall maintain Directors and Officers Liability Insurance and each such Note Director shall be named as a covered party thereunder, which insurance shall be in the form and substance satisfactory to each Note Director; and following the resignation of each Note Director the Company shall have the obligation to maintain Director and Officer Liability Insurance for each Note Director for a period until all potential liability to each Note Director has expired as a result of the expiration of all statutes of limitations. Moreover, the Company and each of its Subsidiaries shall indemnify and hold harmless each Note Director for the same periods to the maximum extent permitted by law.

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14.                   Simultaneous Closing. Substantially simultaneously with the issuance of the Notes to the Holder and the other holders, the Company shall effectuate a closing (the “Other Note Offering”) of no less than $330,000 (and no more than $660,000) aggregate principal amount Senior Secured Convertible Demand Promissory B Notes (the “Other Notes”) for an aggregate purchase price of $300,000 ($600,000 if all $660,000 aggregate principal amount of Other Notes are sold), with the $30,000 or $60,000, as the case may be, difference representing original issuance discount, 10% per Other Note. In the Other Note Offering, for each $1.00 paid by a purchaser of Other Notes, such purchaser shall receive $1.10 of principal of Notes with the $0.10 difference constituting original issue discount.

15.                   Series B Preferred Stock. As a condition to the closing of the issuance and sale of the Notes and the Other Notes, the Company shall have filed the B Certificate with the Nevada Secretary of State creating 1,000 B Shares. For each $50,000 aggregate principal amount of Notes and Other Notes sold and/or issued to any person pursuant to the terms set forth in the Transaction Documents and the transaction documents for the Other Notes, such person shall receive one (1) B Share. As long as the B Shares are issued and outstanding, the B Shares shall be entitled to vote with respect to any matter upon which the holders of the Common Stock have the right to vote (and/or consent if a written consent of shareholders is being sought) with the holders of 50.01% of the then aggregate principal amount of Notes and Other Notes outstanding being entitled to vote all B Shares then outstanding, with the B Shares being entitled to eighty (80%) percent of the total votes of Common Stock at each election and/or written consent of stockholders regardless of how many B Shares and/or shares of Common Stock are then issued and outstanding (and to call and/or to constitute a quorum for a shareholders’ meeting of the holders of the Common Stock). See the B Certificate annexed hereto as part of Exhibit 7. Notwithstanding anything to the contrary provided herein, any conflict between the description of the B Shares and/or the B Certificate set forth herein and/or in any other Transaction Document and the B Certificate shall be governed by the B Certificate.

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IN WITNESS WHEREOF, the undersigned has executed this Note on and as of the date first above written.

  VISCOUNT SYSTEMS, INC.,
  a Nevada corporation
     
     
     
  By:  
    Name: Scott Sieracki
  Title: Interim Chief Executive Officer

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Annex I

NOTICE OF CONVERSION

The undersigned hereby elects to convert $________________of the principal amount of the Note (defined below) into shares of Common Stock of Viscount Systems, Inc., a Nevada corporation (the “Company”) according to the term conditions of the 14% Senior Secured Convertible Demand Promissory A Note of the Company; Original Issuance Date: October 30, 2015 (the “Note”). No fee will be charged to the Holder or Holder’s Custodian for any conversion, except for transfer taxes, if any.

Box Checked as to applicable instructions:

[ ]

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

   

 

   

Name of DTC Prime Broker:  _____________________________________________________________

   

 

   

Account Number:  ____________________________________________________________________

   

[ ]

The undersigned hereby requests that the Company issue a certificate or certificates for the number of shares of Common Stock set forth below (which numbers are based on the Holder’s calculation attached hereto) in the name(s) specified immediately below:

     
                 ___________________________________________________

  Date of Conversion:    
       
  Conversion Price:    
       
  Shares to Be Delivered:    
       
  Remaining Principal Balance    
       
  Due After This Conversion:    
       
  Signature:    
       
  Print Name:    





SECURITY AND PLEDGE AGREEMENT

This SECURITY AND PLEDGE AGREEMENT, dated as of November 24, 2015 (this “Agreement”), is among Viscount Systems, Inc., a Nevada corporation (the “Company”), all of the subsidiaries of the Company (such subsidiaries, the “Guarantors” and together with the Company, collectively, the “Debtors”) and the holders of the Company’s (i) 14% Senior Secured Convertible Promissory A Notes (the “A Notes”) and (ii) Senior Secured Convertible Promissory B Notes (the “B Notes”, and collectively with the A Notes, the “Notes”) following their issuance, signatory hereto, their respective endorsees, transferees and assigns (each a Secured Party collectively, the “Secured Parties”).

W I T N E S S E T H:

WHEREAS, the Company is selling B Notes and issuing the A Notes as provided in the Notes;

WHEREAS, pursuant to a certain Subsidiary Guarantee, dated as of the date hereof (the “Guarantee”), the Guarantors have jointly and severally guaranteed and act as surety for payment to the Secured Parties of the Notes including, but not limited to all future Notes issued; and

WHEREAS, each Debtor has agreed to execute and deliver to the Secured Parties this Agreement and to grant the Secured Parties, pari passu with each other Secured Party and through the Agent (as defined in Section 17 hereof), a security interest in all of the assets of each such Debtor to secure the prompt payment, performance and discharge in full of each of the Debtor’s obligations under the Notes and the other Transaction Documents (as defined in Section 1(e)) and the Guarantors’ obligations under the Guarantee.

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

1.      Certain Definitions. As used in this Agreement, the following terms shall have the meanings set forth in this Section 1. Terms used but not otherwise defined in this Agreement that are defined in Article 9 of the UCC (such as “account”, “chattel paper”, “commercial tort claim”, “deposit account”, “document”, “equipment”, “fixtures”, “general intangibles”, “goods”, “instruments”, “inventory”, “investment property”, “letter-of-credit rights”, “proceeds” and “supporting obligations”) shall have the respective meanings given such terms in Article 9 of the UCC.

(a)        “Collateral” means the collateral in which the Agent on behalf of the Secured Parties is granted a security interest by this Agreement and which shall include the following personal property of the Debtors, whether presently owned or existing or hereafter acquired or coming into existence, wherever situated, and all additions and accessions thereto and all substitutions and replacements thereof, and all proceeds, products and accounts thereof, including, without limitation, all proceeds from the sale or transfer of the Collateral and of insurance covering the same and of any tort claims in connection therewith, and all dividends, interest, cash, notes, securities, equity interest and/or other property at any time and from time to time acquired, receivable or otherwise distributed in respect of, or in exchange for, any and all of the following:

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(i)      All goods, including, without limitation, (A) all machinery, equipment, computers, motor vehicles, trucks, tanks, boats, ships, appliances, furniture, special and general tools, fixtures, test and quality control devices and other equipment of every kind and nature and wherever situated, together with all documents of title and documents representing the same, all additions and accessions thereto, replacements therefor, all parts therefor, and all substitutes for any of the foregoing and all other items used and useful in connection with any Debtor’s businesses and all improvements thereto; and (B) all inventory;

(ii)      All contract rights and other general intangibles, including, without limitation, all partnership interests, membership interests, stock or other securities, rights under any of the Organizational Documents, agreements related to the Pledged Securities, licenses, distribution and other agreements, computer software (whether “off-the-shelf”, licensed from any third party or developed by any Debtor), computer software development rights, leases, franchises, customer lists, quality control procedures, grants and rights, goodwill, Intellectual Property and income tax refunds;

(iii)      All accounts, together with all instruments, all documents of title representing any of the foregoing, all rights in any merchandising, goods, equipment, motor vehicles and trucks which any of the same may represent, and all right, title, security and guaranties with respect to each account, including any right of stoppage in transit;

(iv)      All documents, letter-of-credit rights, instruments and chattel paper;

(v)      All commercial tort claims;

(vi)      All deposit accounts and all cash (whether or not deposited in such deposit accounts);

(vii)      All investment property;

(viii)      All supporting obligations; and

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(ix)      All files, records, books of account, business papers, and computer programs;

(x)      the Pledged Securities; and

(xi)      the products and proceeds of all of the foregoing Collateral set forth in clauses (i)-(x) above.

     Without limiting the generality of the foregoing, the “Collateral” shall include all investment property and general intangibles respecting ownership and/or other equity interests in each Subsidiary of each Debtor, including, without limitation, the shares of capital stock and the other equity interests listed on Schedule A hereto (as the same may be modified from time to time pursuant to the terms hereof), and any other shares of capital stock and/or other equity interests of any Subsidiary of any Debtor obtained in the future, and, in each case, all certificates representing such shares and/or equity interests and, in each case, all rights, options, warrants, stock, other securities and/or equity interests that may hereafter be received, receivable or distributed in respect of, or exchanged for, any of the foregoing and all rights arising under or in connection with the Pledged Securities, including, but not limited to, all dividends, interest and cash.

Notwithstanding the foregoing, nothing herein shall be deemed to constitute an assignment of any asset which, in the event of an assignment, becomes void by operation of applicable law or the assignment of which is otherwise prohibited by applicable law (in each case to the extent that such applicable law is not overridden by Sections 9-406, 9-407 and/or 9-408 of the UCC or other similar applicable law); provided, however, that to the extent permitted by applicable law, this Agreement shall create a valid security interest in such asset and, to the extent permitted by applicable law, this Agreement shall create a valid security interest in the proceeds of such asset.

(b)      “Intellectual Property” means the collective reference to all rights, priorities and privileges relating to intellectual property, whether arising under United States, multinational or foreign laws or otherwise, including, without limitation, (i) all copyrights arising under the laws of the United States, any other country or any political subdivision thereof, whether registered or unregistered and whether published or unpublished, all registrations and recordings thereof, and all applications in connection therewith, including, without limitation, all registrations, recordings and applications in the United States Copyright Office, (ii) all letters patent of the United States, any other country or any political subdivision thereof, all reissues and extensions thereof, and all applications for letters patent of the United States or any other country and all divisions, continuations and continuations-in-part thereof, (iii) all trademarks, trade names, corporate names, company names, business names, fictitious business names, trade dress, service marks, logos, domain names and other source or business identifiers, and all goodwill associated therewith, now existing or hereafter adopted or acquired, all registrations and recordings thereof, and all applications in connection therewith, whether in the United States Patent and Trademark Office or in any similar office or agency of the United States, any State thereof or any other country or any political subdivision thereof, or otherwise, and all common law rights related thereto, (iv) all trade secrets arising under the laws of the United States, any other country or any political subdivision thereof, (v) all rights to obtain any reissues, renewals or extensions of the foregoing, (vi) all licenses for any of the foregoing, and (vii) all causes of action for infringement of the foregoing.

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(c)      “Majority in Interest” means, at any time of determination, at least 50.01% of the then aggregate outstanding principal amount of Notes.

(d)      “Necessary Endorsement” means undated stock powers endorsed in blank medallion guaranteed (or notarized for the Company’s wholly owned Canadian subsidiary, Viscount Communication and Control Systems Inc.) or other proper instruments of assignment duly executed and such other instruments or documents as the Agent (as that term is defined below) may reasonably request.

(e)      “Obligations” means all of the liabilities and obligations (primary, secondary, direct, contingent, sole, joint or several) due or to become due, or that are now or may be hereafter contracted or acquired, or owing to, of any Debtor to the Secured Parties including, but not limited to all obligations under the Transaction Documents for the A Notes and the Transaction Documents for the B Notes (each as defined in the A Note and the B Note, respectively (collectively, the “Transaction Documents”) and any other instruments, agreements or other documents executed and/or delivered in connection herewith or therewith, in each case, whether now or hereafter existing, voluntary or involuntary, direct or indirect, absolute or contingent, liquidated or unliquidated, whether or not jointly owed with others, and whether or not from time to time decreased or extinguished and later increased, created or incurred, and all or any portion of such obligations or liabilities that are paid, to the extent all or any part of such payment is avoided or recovered directly or indirectly from any of the Secured Parties as a preference, fraudulent transfer or otherwise as such obligations may be amended, supplemented, converted, extended or modified from time to time. Without limiting the generality of the foregoing, the term “Obligations” shall include, without limitation: (i) principal of, and interest on the Notes; (ii) any and all other fees, indemnities, costs, obligations and liabilities of the Debtors from time to time under or in connection with the Transaction Documents and any other instruments, agreements or other documents executed and/or delivered in connection herewith or therewith including, but not limited to, liquidated damages, late fees, default interest; and (iii) all amounts (including but not limited to post-petition interest) in respect of the foregoing that would be payable but for the fact that the obligations to pay such amounts are unenforceable or not allowable due to the existence of a bankruptcy, reorganization or similar proceeding involving any Debtor.

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(f)      “Organizational Documents” means with respect to any Debtor, the documents by which such Debtor was organized (such as a certificate of incorporation, certificate of limited partnership or articles of organization, and including, without limitation, any certificates of designation for preferred stock or other forms of preferred equity) and which relate to the internal governance of such Debtor (such as bylaws, a partnership agreement or an operating, limited liability or members agreement).

(g)      “Pledged Interest” has the meaning set forth on Section 4(_) hereto.

(h)      “Pledged Securities” have the meaning set forth on Section 4(_) hereto.

(i)      “Subsidiary” means, with respect to any Person, a corporation, partnership, limited liability company or other entity of which shares of stock or other ownership interests having ordinary voting power (other than stock or such other ownership interests having such power only by reason of the happening of a contingency) to elect a majority of the board of directors or other managers of such corporation, partnership or other entity are at the time owned, or the management of which is otherwise controlled, directly or indirectly through one or more intermediaries, or both, by such Person and “Subsidiaries” means collectively each and every Subsidiary of a Person. The signature page hereto of the Debtors lists, in addition to the Company, all Subsidiaries of the Company.

(j) “UCC” means the Uniform Commercial Code of the State of New York and or any other applicable law of any state or states which has jurisdiction with respect to all, or any portion of, the Collateral or this Agreement, from time to time. It is the intent of the parties that defined terms in the UCC should be construed in their broadest sense so that the term “Collateral” will be construed in its broadest sense. Accordingly if there are, from time to time, changes to defined terms in the UCC that broaden the definitions, they are incorporated herein and if existing definitions in the UCC are broader than the amended definitions, the existing ones shall be controlling.

2.      Grant of Security Interest in Collateral. To secure the complete and timely payment, performance and discharge in full, as the case may be, of all of the Obligations, each Debtor hereby unconditionally and irrevocably pledges, grants and hypothecates to the Agent, on behalf of the Secured Parties, a security interest in and to, a lien upon and a right of set-off against all of their respective right, title and interest of whatsoever kind and nature in and to, the Collateral (a “Security Interest” and, collectively, the “Security Interests”).

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3.      Delivery of Certain Collateral. Contemporaneously or prior to the execution of this Agreement, each Debtor shall deliver or cause to be delivered to the Agent (a) any and all certificates and other instruments representing or evidencing the Pledged Securities, and (b) any and all certificates and other instruments or documents representing any of the other Collateral, in each case, together with all Necessary Endorsements. The Debtors are, contemporaneously with the execution hereof, delivering to Agent, or have previously delivered to Agent, a true and correct copy of each Organizational Document governing any of the Pledged Securities.

4.      Representations, Warranties, Covenants and Agreements of the Debtors. Except as set forth under the corresponding section of the disclosure schedules delivered to the Secured Parties concurrently herewith and attached hereto (the “Disclosure Schedules”), which Disclosure Schedules shall be deemed a part hereof, each jointly and severely Debtor represents, warrants, covenants and agrees to and with each Secured Party as follows:

(a)      Organization and Qualification. Each Debtor is a corporation, duly incorporated, validly existing and in good standing under the laws of the applicable jurisdiction set forth on Schedule     , with the requisite corporate power and authority to own and use its properties and assets and to carry on its business as currently conducted. Each Debtor has no Subsidiaries other than those identified as such on Schedule      hereto. Each Debtor is duly qualified to do business and is in good standing as a foreign corporation in each jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary, except where the failure to be so qualified or in good standing, as the case may be, could not, individually or in the aggregate, (x) adversely affect the legality, validity or enforceability of any of this Guarantee in any material respect, (y) have a material adverse effect on the results of operations, assets, prospects, or financial condition of the Guarantor or (z) adversely impair in any material respect the Guarantor's ability to perform fully on a timely basis its obligations under this Guarantee (a “Material Adverse Effect”).

(b)      Authorization; Enforcement. Each Debtor has the requisite corporate power and authority to enter into and to consummate the transactions contemplated by this Agreement, and otherwise to carry out its obligations hereunder . The execution, delivery and performance of this Agreement and the other Transaction Documents by each Debtor and the consummation by such Debtor of the transactions contemplated hereby (including all filings) have been duly authorized by all requisite corporate action on the part of such Debtor. This Agreement and the other Transaction Documents have been duly executed and delivered by each Debtor and constitutes the valid and binding obligation of each Debtor enforceable against such Debtor in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally the enforcement of, creditors' rights and remedies or by other equitable principles of general application.

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(c)      No Conflicts. The execution, delivery and performance of this Agreement and the other Transaction Documents by each Debtor and the consummation by each Debtor of the transactions contemplated hereby and thereby do not and will not (i) conflict with or violate any provision of any of its Organizational Documents, each as amended, or (ii) conflict with, constitute a default (or an event which with notice or lapse of time or both would become a default), and/or event of default under, or give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, indenture, credit facility or instrument and/or other undersigned to which such Debtor is a party (evidencing Debtor’s debt or otherwise) or by which any property and/or other assets are bound or affected, or (iii) result in a violation of any law, rule, regulation, order, judgment, injunction, decree or other restriction of any court or governmental authority to which such Debtor is subject (including Federal and State securities laws and regulations), or by which any material property or asset of such Debtor is bound or affected, except in the case of each of clauses (ii) and (iii), such conflicts, defaults, terminations, amendments, accelerations, cancellations and violations as could not, individually or in the aggregate, have or result in a Material Adverse Effect. The business of each Debtor is not being conducted in violation of any law, ordinance or regulation of any governmental authority, except for violations which, individually or in the aggregate, do not have a Material Adverse Effect.

(d)      Consents and Approvals. No Debtor is required to obtain any consent, approval, (including, but not limited to, from stockholder and/or creditors of each Debtor) waiver, authorization or order of, or make any filing or registration with, any court or other federal, state, local, foreign or other governmental authority or other person in connection with the execution, delivery and performance by such Debtor of this Agreement and the other Transaction Documents.

(e)      Transaction Documents. The representations and warranties of each Debtor set forth in the Transaction Documents as they relate to such Debtor, each of which is hereby incorporated herein by reference, are true and correct as of each time such representations are deemed to be made pursuant to such Transaction Documents, and the Secured Parties shall be entitled to rely on each of them as if they were fully set forth herein, provided that each reference in each such representation and warranty to the Company's knowledge shall, for the purposes of this Section 4, be deemed to be a reference to such Debtor's knowledge.

(f)      Foreign Law. Each Debtor has consulted with appropriate foreign legal counsel with respect to any of the above representations for which non-U.S. law is applicable. Such foreign counsel have advised each applicable Debtor that such counsel knows of no reason why any of the above representations would not be true and accurate. Such foreign counsel were provided with copies of this Agreement and the other Transaction Documents prior to rendering their advice.

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(g)      Each Debtor has no place of business or offices where their respective books of account and records are kept (other than temporarily at the offices of its attorneys or accountants) or places where Collateral is stored or located, except as set forth on Schedule      attached hereto. Except as specifically set forth on Schedule     , Debtors are the record owner of the real property where such Collateral is located, and there exist no mortgages or other liens on any such real property. Except as disclosed on Schedule     , none of such Collateral is in the possession of any consignee, bailee, warehouseman, agent or processor.

(h)      Except as set forth on Schedule     attached hereto, the Debtors are the sole owner of the Collateral (except for non-exclusive licenses granted by Debtors in the ordinary course of business), free and clear of any liens, security interests, encumbrances, rights or claims, and is fully authorized to grant the Security Interests. Except as set forth on Schedule      attached hereto, there is not on file in any governmental or regulatory authority, agency or recording office an effective financing statement, security agreement, license or transfer or any notice of any of the foregoing (other than those that will be filed in favor of the Secured Parties pursuant to this Agreement) covering or affecting any of the Collateral. Except as set forth on Schedule      attached hereto and except pursuant to this Agreement and the other Transaction Documents, as long as this Agreement and/or the other Transaction Documents shall be in effect, the Debtors shall not execute and shall not knowingly permit to be on file in any such office or agency any other financing statement or other document or instrument (except to the extent filed or recorded in favor of the Secured Parties pursuant to the terms of this Agreement).

(i)      Except as set forth on Schedule      attached hereto, no written claim has been received that any Collateral or Debtors’ use of any Collateral violates the rights of any third party. Except as set forth on Schedule      attached hereto, there has been no adverse decision to Debtors’ claim of ownership rights in or exclusive rights to use the Collateral in any jurisdiction or to Debtors’ right to keep and maintain such Collateral in full force and effect, and there is no proceeding involving said rights pending or, to the best knowledge of Debtors, threatened before any court, judicial body, administrative or regulatory agency, arbitrator or other governmental authority.

(j)      The Debtors shall at all times maintain its books of account and records relating to the Collateral at its principal place of business and its Collateral at the locations set forth on Schedule      attached hereto and may not relocate such books of account and records or tangible Collateral unless it delivers to the Secured Parties at least 30 days prior to such relocation (i) written notice of such relocation and the new location thereof (which must be within the United States) and (ii) evidence that appropriate financing statements under the UCC and other necessary documents have been filed and recorded and other steps have been taken to perfect the Security Interests to create in favor of the Secured Parties a valid, perfected and continuing perfected first priority lien in the Collateral.

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(k)      This Agreement creates in favor of the Secured Parties a valid security interest in the Collateral securing the payment and performance of the Obligations. Upon making the filings described in the immediately following paragraph, all security interests created hereunder in any Collateral which may be perfected by filing Uniform Commercial Code financing statements shall have been duly perfected. Except for the filing of the Uniform Commercial Code financing statements referred to in the immediately following paragraph, the recordation of the Intellectual Property Security Agreement and other required documents with respect to, among other items, patents, patents pending, trademarks and related items with the United States Patent and Trademark Office and copyrights and copyright applications in the United States Copyright Office, the execution and delivery of the Canadian Financing Statement to perfect the security interest in any Collateral Located in Canada in favor of the Agent on behalf of the Secured Parties satisfying the requirements of Section ___ of the Canada’s Personal Property Security Act, the execution on delivery of the Guarantee and the delivery of the certificates and other instruments provided in Section 3 and delivery of the Pledged Securities to the Agent, no action is necessary to create, perfect or protect the security interests created hereunder and in the other Transaction Documents. Without limiting the generality of the foregoing, except for the taking of the above actions, the filing of the Canadian Financing Agreement with the Ministry of Finance and Corporate Relations of British Columbia, no consent of any third parties and no authorization, approval or other action by, and no notice to or filing with, any governmental authority or regulatory body is required for (i) the execution, delivery and performance of this Agreement and/or the other Transaction Documents, (ii) the creation or perfection of the Security Interests created hereunder in the Collateral or (iii) the enforcement of the rights of the Agent and the Secured Parties hereunder and thereunder.

(l)      Debtors hereby authorize the Agent to file one or more (i) financing statements under the UCC or any other similar law (domestic and/or foreign) with respect to the Obligations of the Debtors to the Secured Parties, (ii) amend and restate all prior financing statements under the UCC, and (iii) take all such other actions so that all Obligations hereunder are pari passu between each of the Secured Parties with respect to the Security Interests, with the proper filing and recording agencies in any jurisdiction deemed proper by it, including foreign jurisdictions, including but not limited to filing a fixed and floating charge over the Security Interests in the

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(m)      The capital stock and other equity interests listed on Schedule __ hereto (the “Pledged Securities”) represent all of the capital stock and other equity interests of all of the subsidiaries of the Debtors, and represent all capital stock and other equity interests owned, directly or indirectly, by the Debtors. All of the Pledged Securities are validly issued, fully paid and nonassessable, and except as set forth on Schedule __ attached hereto, the Debtors are the legal and beneficial owner of the Pledged Securities, free and clear of any lien, security interest or other encumbrance except for the security interests created by this Agreement.

(n)      The ownership and other equity interests in partnerships and limited liability companies (if any) included in the Collateral (the “Pledged Interests”) by their express terms do not provide that they are securities governed by Article 8 of the UCC and/or any other equivalent and/or similar law, rule and/or regulation in Canada and are not held in a securities account or by any financial intermediary.

(o)      Except as set forth on Schedule __, Debtors shall at all times maintain the liens and Security Interests provided for hereunder as valid and perfected first priority liens and security interests in the Collateral in favor of the Secured Parties until this Agreement, the other Transaction Documents and the Security Interests hereunder and thereunder shall be terminated in accordance with and with the other Transaction Documents. Debtors hereby agree to defend the same against the claims of any and all persons and entities. Debtors shall safeguard and protect all Collateral for the account of the Secured Parties. At the request of the Agent, Debtors will sign and deliver to the Agent on behalf of the Secured Parties at any time or from time to time one or more financing statements pursuant to the UCC in form reasonably satisfactory to the Agent and will pay the cost of filing the same in all public offices wherever filing is, or is deemed by the Agent to be, necessary or desirable to effect the rights and obligations provided for herein. Without limiting the generality of the foregoing, Debtors shall pay all fees, taxes and other amounts necessary to maintain the Collateral and the Security Interests hereunder and in the other Transaction Documents, and Debtors shall obtain and furnish to the Agent from time to time, upon demand, such releases and/or subordinations of claims and liens which may be required to maintain the priority of the Security Interests hereunder and thereunder.

(p)      Debtors will not transfer, pledge, hypothecate, encumber, license, sell or otherwise dispose of any of the Collateral (except for non-exclusive licenses granted by Debtors in their ordinary course of business (and sales of inventory by Debtors in their ordinary course of business) without the prior written consent as provided herein.

(q)      Debtors shall keep and preserve its equipment, inventory and other tangible Collateral in good condition, repair and order and shall not operate or locate any such Collateral (or cause to be operated or located) in any area excluded from insurance coverage.

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(r)      Debtors shall maintain with financially sound and reputable insurers, insurance with respect to the Collateral, including Collateral hereafter acquired, against loss or damage of the kinds and in the amounts customarily insured against by entities of established reputation having similar properties similarly situated and in such amounts as are customarily carried under similar circumstances by other such entities and otherwise as is prudent for entities engaged in similar businesses but in any event sufficient to cover the full replacement cost thereof. Debtors shall cause each insurance policy issued in connection herewith to provide, and the insurer issuing such policy to certify to the Agent, that (a) the Agent will be named as lender loss payee and additional insured under each such insurance policy; (b) if such insurance be proposed to be cancelled or materially changed for any reason whatsoever, such insurer will promptly notify the Agent and such cancellation or change shall not be effective as to the Agent for at least thirty (30) days after receipt by the Agent of such notice, unless the effect of such change is to extend or increase coverage under the policy; and (c) the Agent will have the right (but no obligation) at its election to remedy any default in the payment of premiums within thirty (30) days of notice from the insurer of such default. If no Event of Default (as defined in the Notes) exists and if the proceeds arising out of any claim or series of related claims do not exceed $50,000, loss payments in each instance will be applied by the Debtors to the repair and/or replacement of property with respect to which the loss was incurred to the extent reasonably feasible, and any loss payments or the balance thereof remaining, to the extent not so applied, shall be payable to the Debtors; provided, however, that payments received by Debtors after an Event of Default occurs and is continuing or in excess of $50,000 for any occurrence or series of related occurrences shall be paid to the Agent on behalf of the Secured Parties and, if received by Debtors, shall be held in trust for the Secured Parties and immediately paid over to the Agent unless otherwise directed in writing by the Agent. Copies of such policies or the related certificates, in each case, naming the Agent as lender loss payee and additional insured shall be delivered to the Agent at least annually and at the time any new policy of insurance is issued.

(s)      Debtors shall promptly but in no event later than two (2) days of obtaining knowledge thereof, advise the Secured Parties, in sufficient detail, of any material adverse change in the Collateral, and of the occurrence of any event which would have a material adverse effect on the value of the Collateral or on the Secured Parties’ security interest, through the Agent, therein.

(t)      Debtors shall promptly execute and deliver to the Agent such further deeds, mortgages, assignments, security agreements, financing statements or other instruments, documents, certificates and assurances and take such further action as the Agent may from time to time request and may in its sole discretion deem necessary to perfect, protect or enforce the Secured Parties’ security interest in the Collateral including, without limitation, if applicable, the execution and delivery of a separate security agreement with respect to Debtors’ Intellectual Property in which the Secured Parties have been granted a security interest hereunder, in form and substance acceptable to the Agent, which Intellectual Property Security Agreement, other than as stated therein, shall be subject to all of the terms and conditions hereof.

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(u)      Debtors shall permit the Agent and its representatives and agents to inspect the Collateral during normal business hours and upon reasonable prior notice, and to make copies of records pertaining to the Collateral as may be reasonably requested by the Agent from time to time (except upon an Event of Default, an event of default (and/or an event of default or an event of default that would occur upon the passage of time and/or the giving of notice), in which event inspection shall be at any time as requested by all of the above parties.

(v)      Debtors shall take all steps reasonably necessary to diligently pursue and seek to preserve, enforce and collect any rights, claims, causes of action and accounts receivable in respect of the Collateral.

(w)      Debtors shall promptly notify the Secured Parties in sufficient detail upon becoming aware of any attachment, garnishment, execution or other legal process levied against any Collateral and of any other information received by Debtors that may materially affect the value of the Collateral, the Security Interest or the rights and remedies of the Secured Parties hereunder.

(x)      All information heretofore, herein or hereafter supplied to the Secured Parties by or on behalf of Debtors with respect to the Collateral is accurate and complete in all material respects as of the date furnished.

(y)      The Debtors shall at all times preserve and keep in full force and effect their respective valid existence and good standing and any rights and franchises material to its business.

(z)      Debtors will not change its name, type of organization, jurisdiction of organization, organizational identification number (if it has one), legal or corporate structure, or identity, or add any new fictitious name unless it provides at least 30 days prior written notice to the Secured Parties of such change and, at the time of such written notification, Debtors provide any financing statements or fixture filings necessary to perfect and continue the perfection of the Security Interests granted and evidenced by this Agreement.

(aa)      Except in the ordinary course of business, Debtors may not consign any of its inventory or sell any of its inventory on bill and hold, sale or return, sale on approval, or other conditional terms of sale without the consent of the Agent which shall not be unreasonably withheld.

(bb)      Debtors may not relocate their chief executive office to a new location without providing 30 days prior written notification thereof to the Secured Parties and so long as, at the time of such written notification, Debtors provide any financing statements or fixture filings necessary to perfect and continue the perfection of the Security Interests granted and evidenced by this Agreement.

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(cc)      (i) The actual name of Debtors are the name set forth in Schedule      attached hereto; (ii) Debtors have no trade names except as set forth on Schedule     attached hereto; (iii) Debtors have not used any name other than that stated in the preamble hereto or as set forth on Schedule     for the preceding five years; and (iv) no entity has merged into Debtors or been acquired by Debtors within the past five years except as set forth on Schedule     .

(dd)      At any time and from time to time that any Collateral consists of instruments, certificated securities or other items that require or permit possession by the secured party to perfect the security interest created hereby, the Debtors shall deliver such Collateral to the Agent.

(ee)      Debtors, in their capacity as issuer, hereby agree to comply with any and all orders and instructions of Agent regarding the Pledged Interests and Pledged Securities consistent with the terms of this Agreement and the other Transaction Documents without the further consent of Debtors as contemplated by Section 8-106 (or any successor section) of the UCC and applicable Canadian law. Further, Debtors agree that they shall not enter into a similar agreement (or one that would confer “control” within the meaning of Article 8 of the UCC and applicable Canadian law) with any other person or entity.

(ff)      Debtors shall cause all tangible chattel paper constituting Collateral to be delivered to the Agent, or, if such delivery is not possible, then to cause such tangible chattel paper to contain a legend noting that it is subject to the security interest created by this Agreement. To the extent that any Collateral consists of electronic chattel paper, the Debtors shall cause the underlying chattel paper to be “marked” within the meaning of Section 9-105 of the UCC (or successor section thereto).

(gg)      If there is any investment property or deposit account included as Collateral that can be perfected by “control” through an account control agreement, the Debtors shall cause such an account control agreement, in form and substance in each case satisfactory to the Agent, to be entered into and delivered to the Agent for the benefit of the Secured Parties.

(hh)      To the extent that any Collateral consists of letter-of-credit rights, the Debtors shall cause the issuer of each underlying letter of credit to consent to an assignment of the proceeds thereof to the Secured Parties.

(ii)      To the extent that any Collateral is in the possession of any third party, the Debtors shall join with the Agent in notifying such third party of the Secured Parties’ security interest in such Collateral and shall use its best efforts to obtain an acknowledgement and agreement from such third party with respect to the Collateral, in form and substance reasonably satisfactory to the Agent.

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(jj)      If Debtors shall at any time hold or acquire a commercial tort claim, Debtors shall promptly notify the Secured Parties in a writing signed by Debtors of the particulars thereof and grant to the Secured Parties in such writing a security interest therein and in the proceeds thereof, all upon the terms of this Agreement, with such writing to be in form and substance satisfactory to the Agent.

(kk)      Debtors shall immediately provide written notice to the Secured Parties of any and all accounts which arise out of contracts with any governmental authority and, to the extent necessary to perfect or continue the perfected status of the Security Interests in such accounts and proceeds thereof, shall execute and deliver to the Agent an assignment of claims for such accounts and cooperate with the Agent in taking any other steps required, in its judgment, under the Federal Assignment of Claims Act or any similar federal, state or local statute or rule to perfect or continue the perfected status of the Security Interests in such accounts and proceeds thereof.

(ll)      Debtors shall cause each Subsidiary of Debtors to immediately become a party hereto (an “Additional Debtor”), by executing and delivering an Additional Debtor Joinder in substantially the form of Annex B attached hereto and comply with the provisions hereof applicable to the Debtors. Concurrent therewith, the Additional Debtor shall deliver replacement schedules for, or supplements to all other Schedules to (or referred to in) this Agreement and the other Transaction Documents, as applicable, which replacement schedules shall supersede, or supplements shall modify, the Schedules then in effect. The Additional Debtor shall also deliver such opinions of counsel, authorizing resolutions, good standing certificates, incumbency certificates, organizational documents, financing statements and other information and documentation as the Agent may reasonably request. Upon delivery of the foregoing to the Agent, the Additional Debtor shall be and become a party to this Agreement with the same rights and obligations as the Debtors, for all purposes hereof as fully and to the same extent as if it were an original signatory hereto and shall be deemed to have made the representations, warranties and covenants set forth herein as of the date of execution and delivery of such Additional Debtor Joinder, and all references herein to the “Debtor” shall be deemed to include each Additional Debtor.

(mm)      Debtors shall vote the Pledged Securities to comply with the covenants and agreements set forth herein and in the Notes.

(nn)      Upon execution of this Agreement, Debtors shall provide the Agent (i) undated Necessary Endorsements for the transfer to and in the name of the Agent of all Pledged Securities so that all such Pledged Securities can be dealt with by the Agent upon the occurrence and in the manner as provided herein, and (ii) all Pledged Securities to the Agent. Upon execution of this Agreement register the pledge of the applicable Pledged Securities on the books of Debtors. Debtors shall notify each issuer of Pledged Securities to register the pledge of the applicable Pledged Securities in the name of the Secured Parties on the books of such issuer. Further, except with respect to certificated securities delivered to the Agent, the Debtors shall deliver to Agent an acknowledgement of pledge (which, where appropriate, shall comply with the requirements of the relevant UCC and applicable Canadian law with respect to perfection by registration) signed by the issuer of the applicable Pledged Securities, which acknowledgement shall confirm that: (a) it has registered the pledge on its books and records; and (b) at any time directed by Agent during the continuation of an Event of Default, such issuer will transfer the record ownership of such Pledged Securities into the name of any designee of Agent, will take such steps as may be necessary to effect the transfer, and will comply with all other instructions of Agent regarding such Pledged Securities without the further consent of the Debtors.

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(oo)      In the event that, upon an occurrence of an Event of Default, Agent shall sell all or any of the Pledged Securities to another party or parties (herein called the “Transferee”) or shall purchase or retain all or any of the Pledged Securities, Debtors shall, to the extent applicable: (i) deliver to Agent or the Transferee, as the case may be, the articles of incorporation, bylaws, minute books, stock certificate books, corporate seals, deeds, leases, indentures, agreements, evidences of indebtedness, books of account, financial records and all other Organizational Documents and records of the Debtors and their direct and indirect subsidiaries; (ii) use its best efforts to obtain resignations of the persons then serving as officers and directors of the Debtors and their direct and indirect subsidiaries, if so requested; and (iii) use its best efforts to obtain any approvals that are required by any governmental or regulatory body in order to permit the sale of the Pledged Securities to the Transferee or the purchase or retention of the Pledged Securities by Agent and allow the Transferee or Agent to continue the business of the Debtors and their direct and indirect subsidiaries.

(pp)      Without limiting the generality of the other obligations of the Debtors hereunder, Debtors shall promptly (i) cause to be registered at the United States Copyright Office all of its material copyrights, (ii) cause the security interest contemplated hereby with respect to all Intellectual Property registered at the United States Copyright Office and the United States Patent and Trademark Office to be duly recorded at the applicable office, and (iii) give the Agent notice whenever it acquires (whether absolutely or by license) or creates any additional material Intellectual Property.

(qq)      Debtors will from time to time promptly execute and deliver all such further instruments and documents, and take all such further action as may be necessary or desirable, or as the Agent may reasonably request, in order to perfect and protect any security interest granted or purported to be granted hereby or to enable the Secured Parties to exercise and enforce their rights and remedies hereunder and with respect to any Collateral or to otherwise carry out the purposes of this Agreement.

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(rr)      Schedule __ attached hereto lists all of the patents, patent applications, trademarks, trademark applications, registered copyrights, and domain names owned by the Debtors as of the date hereof. Schedule     lists all material licenses in favor of Debtors for the use of any patents, trademarks, copyrights and domain names as of the date hereof. All material patents and trademarks of the Debtors have been duly recorded at the United States Patent and Trademark Office and all material copyrights of the Debtors have been duly recorded at the United States Copyright Office.

(ss)      Except as set forth on Schedule __ attached hereto, none of the account debtors or other persons or entities obligated on any of the Collateral is a governmental authority covered by the Federal Assignment of Claims Act or any similar federal, state or local statute or rule in respect of such Collateral.

5.      Effect of Pledge on Certain Rights. If any of the Collateral subject to this Agreement consists of nonvoting equity or ownership interests (regardless of class, designation, preference or rights) that may be converted into voting equity or ownership interests upon the occurrence of certain events (including, without limitation, upon the transfer of all or any of the other stock or assets of the issuer), it is agreed that the pledge of such equity or ownership interests pursuant to this Agreement or the enforcement of any of Agent’s and/or Secured Parties rights hereunder shall not be deemed to be the type of event which would trigger such conversion rights notwithstanding any provisions in the Organizational Documents or agreements to which any Debtor is subject or to which any Debtor is party.

6.      Defaults. The following events shall be “Events of Default”:

  (a)

The occurrence of an Event of Default (as defined in the Notes) under the Notes and/or event of default under any other Transaction Documents; or

     
  (b)

Any representation or warranty of Debtors in this Agreement shall prove to have been incorrect in any material respect when made;

     
  (c)

The failure by Debtors to observe or perform any of its obligations hereunder for five (5) days after delivery to Debtors of notice of such failure by or on behalf of a Secured Party unless such default is capable of cure but cannot be cured within such time frame and Debtors are using best efforts to cure same in a timely fashion; or

     
  (d)

Any material diminution in the value of the Collateral as determined by the Agent in its reasonable discretion; or

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  (e)

If any provision of this Agreement shall at any time for any reason be declared to be null and void, or the validity or enforceability thereof shall be contested by any Debtor, or a proceeding shall be commenced by any Debtor, or by any governmental authority having jurisdiction over any Debtor, seeking to establish the invalidity or unenforceability thereof, or any Debtor shall deny that any Debtor has any liability or obligation purported to be created under this Agreement;

7.      Duty To Hold In Trust.

(a)      Upon the occurrence of any Event of Default and at any time thereafter, each Debtor shall, upon receipt of any revenue, income, dividend, interest or other sums subject to the Security Interests, whether payable pursuant to the Notes or otherwise, or of any check, draft, note, trade acceptance or other instrument evidencing an obligation to pay any such sum, hold the same in trust for the Agent for the benefit of the Secured Parties and shall forthwith endorse and transfer any such sums or instruments, or both, to the Agent for the benefit of the Secured Parties pro-rata in proportion to their respective then-currently outstanding aggregate principal amount of Notes for application to the satisfaction of the Obligations (and if any Note is not outstanding, pro-rata in proportion to the initial purchasers of the remaining Notes).

(b)      If any Debtor shall become entitled to receive or shall receive any securities or other property (including, without limitation, shares of Pledged Securities or instruments representing Pledged Securities acquired after the date hereof, or any options, warrants, rights or other similar property or certificates representing a dividend, or any distribution in connection with any recapitalization, reclassification or increase or reduction of capital, or issued in connection with any reorganization of such Debtor or any of its direct or indirect subsidiaries) in respect of the Pledged Securities (whether as an addition to, in substitution of, or in exchange for, such Pledged Securities or otherwise), such Debtor agrees to (i) accept the same as the agent of the Secured Parties; (ii) hold the same in trust for the Agent for the benefit of the Secured Parties; and (iii) to deliver any and all certificates or instruments evidencing the same to Agent on or before the close of business on the fifth business day following the receipt thereof by such Debtor, in the exact form received together with the Necessary Endorsements, to be held by Agent subject to the terms of this Agreement as Collateral.

8.      Rights and Remedies Upon Default.

(a)      Upon the occurrence of any Event of Default and at any time thereafter, the Secured Parties, acting through the Agent, shall have the right to exercise all of the remedies conferred hereunder and under the Notes, and the Agent shall have all the rights and remedies of a secured party under the UCC. Without limitation, the Agent, for the benefit of the Secured Parties, shall have the following rights and powers:

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(i)      The Agent shall have the right to take possession of the Collateral and, for that purpose, enter, with the aid and assistance of any person, any premises where the Collateral, or any part thereof, is or may be placed and remove the same, and each Debtor shall assemble the Collateral and make it available to the Agent at places which the Agent shall reasonably select, whether at such Debtor's premises or elsewhere, and make available to the Agent, without rent, all of such Debtor’s respective premises and facilities for the purpose of the Agent taking possession of, removing or putting the Collateral in saleable or disposable form.

(ii)      Upon notice to the Debtors by Agent, all rights of each Debtor to exercise the voting and other consensual rights which it would otherwise be entitled to exercise and all rights of each Debtor to receive the dividends and interest which it would otherwise be authorized to receive and retain, shall cease. Upon such notice, Agent shall have the right to receive, for the benefit of the Secured Parties, any interest, cash dividends or other payments on the Collateral and, at the option of Agent, to exercise in such Agent’s discretion all voting rights pertaining thereto. Without limiting the generality of the foregoing, Agent shall have the right (but not the obligation) to exercise all rights with respect to the Collateral as it were the sole and absolute owner thereof, including, without limitation, to vote and/or to exchange, at its sole discretion, any or all of the Collateral in connection with a merger, reorganization, consolidation, recapitalization or other readjustment concerning or involving the Collateral or any Debtor or any of its direct or indirect subsidiaries.

(iii)      The Agent shall have the right to operate the business of each Debtor using the Collateral and shall have the right to assign, sell, lease or otherwise dispose of and deliver all or any part of the Collateral, at public or private sale or otherwise, either with or without special conditions or stipulations, for cash or on credit or for future delivery, in such parcel or parcels and at such time or times and at such place or places, and upon such terms and conditions as the Agent may deem commercially reasonable, all without (except as shall be required by applicable statute and cannot be waived) advertisement or demand upon or notice to any Debtor or right of redemption of a Debtor, which are hereby expressly waived. Upon each such sale, lease, assignment or other transfer of Collateral, the Agent, for the benefit of the Secured Parties, may, unless prohibited by applicable law which cannot be waived, purchase all or any part of the Collateral being sold, free from and discharged of all trusts, claims, right of redemption and equities of any Debtor, which are hereby waived and released.

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(iv)      The Agent shall have the right (but not the obligation) to notify any account debtors and any obligors under instruments or accounts to make payments directly to the Agent, on behalf of the Secured Parties, and to enforce the Debtors’ rights against such account debtors and obligors.

(v)      The Agent, for the benefit of the Secured Parties, may (but is not obligated to) direct any financial intermediary or any other person or entity holding any investment property to transfer the same to the Agent, on behalf of the Secured Parties, or its designee.

(vi)      The Agent may (but is not obligated to) transfer any or all Intellectual Property registered in the name of any Debtor at the United States Patent and Trademark Office and/or Copyright Office into the name of the Secured Parties or any designee or any purchaser of any Collateral.

(b)      The Agent shall comply with any applicable law in connection with a disposition of Collateral and such compliance will not be considered adversely to affect the commercial reasonableness of any sale of the Collateral. The Agent may sell the Collateral without giving any warranties and may specifically disclaim such warranties. If the Agent sells any of the Collateral on credit, the Debtors will only be credited with payments actually made by the purchaser. In addition, each Debtor waives any and all rights that it may have to a judicial hearing in advance of the enforcement of any of the Agent’s rights and remedies hereunder, including, without limitation, its right following an Event of Default to take immediate possession of the Collateral and to exercise its rights and remedies with respect thereto.

(c)      For the purpose of enabling the Agent to further exercise rights and remedies under this Section 8 or elsewhere provided by agreement or applicable law, each Debtor hereby grants to the Agent, for the benefit of the Agent and the Secured Parties, an irrevocable, nonexclusive license (exercisable without payment of royalty or other compensation to such Debtor) to use, license or sublicense following an Event of Default, any Intellectual Property now owned or hereafter acquired by such Debtor, and wherever the same may be located, and including in such license access to all media in which any of the licensed items may be recorded or stored and to all computer software and programs used for the compilation or printout thereof.

9.      Applications of Proceeds. The proceeds of any such sale, lease or other disposition of the Collateral hereunder or from payments made on account of any insurance policy insuring any portion of the Collateral shall be applied first, to the expenses of retaking, holding, storing, processing and preparing for sale, selling, and the like (including, without limitation, any taxes, fees and other costs incurred in connection therewith) of the Collateral, to the reasonable attorneys’ fees and expenses incurred by the Agent in enforcing the Secured Parties’ rights hereunder and in connection with collecting, storing and disposing of the Collateral, and then to satisfaction of the Obligations pro rata among the Secured Parties (based on then-outstanding principal amounts of Notes at the time of any such determination), and to the payment of any other amounts required by applicable law, after which the Secured Parties shall pay to the applicable Debtor any surplus proceeds. If, upon the sale, license or other disposition of the Collateral, the proceeds thereof are insufficient to pay all amounts to which the Secured Parties are legally entitled, the Debtors will be jointly and severally liable for the deficiency, together with interest thereon, at the rate of 22% per annum or the lesser amount permitted by applicable law (the “Default Rate”), and the reasonable fees and expenses of any attorneys employed by the Secured Parties to collect such deficiency. To the extent permitted by applicable law, each Debtor waives all claims, damages and demands against the Secured Parties arising out of the repossession, removal, retention or sale of the Collateral, unless due solely to the gross negligence or willful misconduct of the Secured Parties as determined by a final judgment (not subject to further appeal) of a court of competent jurisdiction.

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10.      Securities Law Provision. Each Debtor recognizes that Agent may be limited in its ability to effect a sale to the public of all or part of the Pledged Securities by reason of certain prohibitions in the Securities Act of 1933, as amended, or other federal or state securities laws (collectively, the “Securities Laws”), and may be compelled to resort to one or more sales to a restricted group of purchasers who may be required to agree to acquire the Pledged Securities for their own account, for investment and not with a view to the distribution or resale thereof. Each Debtor agrees that sales so made may be at prices and on terms less favorable than if the Pledged Securities were sold to the public, and that Agent has no obligation to delay the sale of any Pledged Securities for the period of time necessary to register the Pledged Securities for sale to the public under the Securities Laws. Each Debtor shall cooperate with Agent in its attempt to satisfy any requirements under the Securities Laws (including, without limitation, registration thereunder if requested by Agent) applicable to the sale of the Pledged Securities by Agent.

11.      Responsibility for Collateral. The Debtors assume all liabilities and responsibility in connection with all Collateral, and the Obligations shall in no way be affected or diminished by reason of the loss, destruction, damage or theft of any of the Collateral or its unavailability for any reason. Without limiting the generality of the foregoing, (a) neither the Agent nor any Secured Party (i) has any duty (either before or after an Event of Default) to collect any amounts in respect of the Collateral or to preserve any rights relating to the Collateral, or (ii) has any obligation to clean-up or otherwise prepare the Collateral for sale, and (b) each Debtor shall remain obligated and liable under each contract or agreement included in the Collateral to be observed or performed by such Debtor thereunder. Neither the Agent nor any Secured Party shall have any obligation or liability under any such contract or agreement by reason of or arising out of this Agreement or the receipt by the Agent or any Secured Party of any payment relating to any of the Collateral, nor shall the Agent or any Secured Party be obligated in any manner to perform any of the obligations of any Debtor under or pursuant to any such contract or agreement, to make inquiry as to the nature or sufficiency of any payment received by the Agent or any Secured Party in respect of the Collateral or as to the sufficiency of any performance by any party under any such contract or agreement, to present or file any claim, to take any action to enforce any performance or to collect the payment of any amounts which may have been assigned to the Agent or to which the Agent or any Secured Party may be entitled at any time or times.

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12.      Security Interests Absolute. All rights of the Secured Parties and all obligations of the Debtors hereunder, shall be absolute and unconditional, irrespective of: (a) any lack of validity or enforceability of this Agreement, the Notes or any agreement entered into in connection with the foregoing, or any portion hereof or thereof; (b) any change in the time, manner or place of payment or performance of, or in any other term of, all or any of the Obligations, or any other amendment or waiver of or any consent to any departure from the Notes or any other agreement entered into in connection with the foregoing; (c) any exchange, release or nonperfection of any of the Collateral, or any release or amendment or waiver of or consent to departure from any other collateral for, or any guarantee, or any other security, for all or any of the Obligations; (d) any action by the Secured Parties to obtain, adjust, settle and cancel in its sole discretion any insurance claims or matters made or arising in connection with the Collateral; or (e) any other circumstance which might otherwise constitute any legal or equitable defense available to a Debtor, or a discharge of all or any part of the Security Interests granted hereby. Until the Obligations shall have been paid and performed in full, the rights of the Secured Parties shall continue even if the Obligations are barred for any reason, including, without limitation, the running of the statute of limitations or bankruptcy. Each Debtor expressly waives presentment, protest, notice of protest, demand, notice of nonpayment and demand for performance. In the event that at any time any transfer of any Collateral or any payment received by the Secured Parties hereunder shall be deemed by final order of a court of competent jurisdiction to have been a voidable preference or fraudulent conveyance under the bankruptcy or insolvency laws of the United States, or shall be deemed to be otherwise due to any party other than the Secured Parties, then, in any such event, each Debtor’s obligations hereunder shall survive cancellation of this Agreement, and shall not be discharged or satisfied by any prior payment thereof and/or cancellation of this Agreement, but shall remain a valid and binding obligation enforceable in accordance with the terms and provisions hereof. Each Debtor waives all right to require the Secured Parties to proceed against any other person or entity or to apply any Collateral which the Secured Parties may hold at any time, or to marshal assets, or to pursue any other remedy. Each Debtor waives any defense arising by reason of the application of the statute of limitations to any obligation secured hereby.

13.      Term of Agreement. This Agreement and the Security Interests shall terminate on the date on which all payments under the Notes have been indefeasibly paid in full and all other Obligations have been paid or discharged; provided, however, that all indemnities of the Debtors contained in this Agreement (including, without limitation, Annex A hereto) shall survive and remain operative and in full force and effect regardless of the termination of this Agreement.

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14.      Power of Attorney; Further Assurances.

(a)      Each Debtor authorizes the Agent, and does hereby make, constitute and appoint the Agent and its officers, agents, successors or assigns with full power of substitution, as such Debtor’s true and lawful attorney-in-fact, with power, in the name of the Agent or such Debtor, to, after the occurrence and during the continuance of an Event of Default, (i) endorse any note, checks, drafts, money orders or other instruments of payment (including payments payable under or in respect of any policy of insurance) in respect of the Collateral that may come into possession of the Agent; (ii) to sign and endorse any financing statement pursuant to the UCC or any invoice, freight or express bill, bill of lading, storage or warehouse receipts, drafts against debtors, assignments, verifications and notices in connection with accounts, and other documents relating to the Collateral; (iii) to pay or discharge taxes, liens, security interests or other encumbrances at any time levied or placed on or threatened against the Collateral; (iv) to demand, collect, receipt for, compromise, settle and sue for monies due in respect of the Collateral; (v) to transfer any Intellectual Property or provide licenses respecting any Intellectual Property; and (vi) generally, at the option of the Agent, and at the expense of the Debtors, at any time, or from time to time, to execute and deliver any and all documents and instruments and to do all acts and things which the Agent deems necessary to protect, preserve and realize upon the Collateral and the Security Interests granted therein in order to effect the intent of this Agreement and the Notes all as fully and effectually as the Debtors might or could do; and each Debtor hereby ratifies all that said attorney shall lawfully do or cause to be done by virtue hereof. This power of attorney is coupled with an interest and shall be irrevocable for the term of this Agreement and thereafter as long as any of the Obligations shall be outstanding. The designation set forth herein shall be deemed to amend and supersede any inconsistent provision in the Organizational Documents or other documents or agreements to which any Debtor is subject or to which any Debtor is a party. Without limiting the generality of the foregoing, after the occurrence and during the continuance of an Event of Default, each Secured Party is specifically authorized to execute and file any applications for or instruments of transfer and assignment of any patents, trademarks, copyrights or other Intellectual Property with the United States Patent and Trademark Office and the United States Copyright Office.

(b)      On a continuing basis, each Debtor will make, execute, acknowledge, deliver, file and record, as the case may be, with the proper filing and recording agencies in any jurisdiction, including, without limitation, the jurisdictions indicated on Schedule __ attached hereto, all such instruments, and take all such action as may reasonably be deemed necessary or advisable, or as reasonably requested by the Agent, to perfect the Security Interests granted hereunder and otherwise to carry out the intent and purposes of this Agreement, or for assuring and confirming to the Agent the grant or perfection of a perfected security interest in all the Collateral under the UCC.

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(c)      Each Debtor hereby irrevocably appoints the Agent as such Debtor’s attorney-in-fact, with full authority in the place and instead of such Debtor and in the name of such Debtor, from time to time in the Agent’s discretion, to take any action and to execute any instrument which the Agent may deem necessary or advisable to accomplish the purposes of this Agreement, including the filing, in its sole discretion, of one or more financing or continuation statements and amendments thereto, relative to any of the Collateral without the signature of such Debtor where permitted by law, which financing statements may (but need not) describe the Collateral as “all assets” or “all personal property” or words of like import, and ratifies all such actions taken by the Agent. This power of attorney is coupled with an interest and shall be irrevocable for the term of this Agreement and thereafter as long as any of the Obligations shall be outstanding.

15.       Notices. All notices, requests, demands and other communications hereunder shall be subject to the notice provision of the Notes.

16.        Other Security. To the extent that the Obligations are now or hereafter secured by property other than the Collateral or by the guarantee, endorsement or property of any other person, firm, corporation or other entity, then the Agent shall have the right, in its sole discretion, to pursue, relinquish, subordinate, modify or take any other action with respect thereto, without in any way modifying or affecting any of the Secured Parties’ rights and remedies hereunder.

17.      Appointment of Agent. By execution of this Agreement, each Secured Party hereby appoint One East Capital Advisors, L.P. to act as their agent (“Agent”) for purposes of exercising any and all rights and remedies of the Secured Parties hereunder, in Annex A hereto, in the Intellectual Property Security Agreement, the Guaranty and in any other documents, instruments and/or agreements relating to securing all obligations of each Debtor to any Secured Party under the Transaction Documents by all of the assets of each Debtor and perfecting such security interests. Such appointment shall continue until revoked in writing by a Majority in Interest, at which time a Majority in Interest shall appoint a new Agent. In addition to those hereunder, the Agent shall have the rights, responsibilities and immunities set forth in Annex A hereto.

18.      Costs and Expenses. Each Debtor agree that it is jointly and severally obligated to pay and shall pay upon demand by the Agent and/or the Secured Parties all reasonable out-of-pocket fees, costs and expenses incurred in connection with any filing required hereunder, including without limitation, any financing statements pursuant to the UCC and Canadian law, continuation statements, partial releases and/or termination statements related thereto or any expenses of any searches reasonably required by the Agent. The Debtors shall also pay all other claims and charges which in the reasonable opinion of the Agent is reasonably likely to prejudice, imperil or otherwise affect the Collateral or the Security Interests therein. The Debtors will also, upon demand, pay to the Agent the amount of any and all reasonable expenses, including the reasonable fees and expenses of its counsel and of any experts and agents, which the Agent, for the benefit of the Secured Parties, may incur in connection with the creation, perfection, protection, satisfaction, foreclosure, collection or enforcement of the Security Interest and the preparation, administration, continuance, amendment or enforcement of this Agreement and pay to the Agent the amount of any and all reasonable expenses, including the reasonable fees and expenses of its counsel and of any experts and agents, which the Agent, for the benefit of the Secured Parties, and the Secured Parties may incur in connection with (i) the enforcement of this Agreement, (ii) the custody or preservation of, or the sale of, collection from, or other realization upon, any of the Collateral, or (iii) the exercise or enforcement of any of the rights of the Secured Parties under the Notes and/or the other Transaction Documents. Until so paid, any fees payable hereunder shall be added to the principal amount of the Notes and shall bear interest at the highest default rate provided in any of the Notes.

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19.      Miscellaneous.

(a)      No course of dealing between the Debtors and the Secured Parties and/or the Agent, nor any failure to exercise, nor any delay in exercising, on the part of the Secured Parties and/or the Agent, any right, power or privilege hereunder or under the Notes shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or privilege hereunder or thereunder preclude any other or further exercise thereof or the exercise of any other right, power or privilege.

(b)      All of the rights and remedies of the Agent, on behalf of the Secured Parties, with respect to the Collateral, whether established hereby or by the Notes or by any other agreements, instruments or documents or by law shall be cumulative and may be exercised singly or concurrently.

(c)      This Agreement, together with the exhibits and schedules hereto, contain the entire understanding of the parties with respect to the subject matter hereof and supersede all prior agreements and understandings, oral or written, with respect to such matters, which the parties acknowledge have been merged into this Agreement and the exhibits and schedules hereto. No provision of this Agreement may be waived, modified, supplemented or amended except in a written instrument signed, in the case of an amendment, by the Debtors and the Agent, or, in the case of a waiver, by the party against whom enforcement of any such waived provision is sought.

(d)      If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their commercially reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable.

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(e)      No waiver of any default with respect to any provision, condition or requirement of this Agreement shall be deemed to be a continuing waiver in the future or a waiver of any subsequent default or a waiver of any other provision, condition or requirement hereof, nor shall any delay or omission of any party to exercise any right hereunder in any manner impair the exercise of any such right.

(f)      This Agreement shall be binding upon and inure to the benefit of the parties and their successors and permitted assigns. No Debtor may assign this Agreement or any rights or obligations hereunder without the prior written consent of each Secured Party (other than by merger). Any Secured Party may assign any or all of its rights under this Agreement to any Person (as defined in the Notes) to whom such Secured Party assigns or transfers any Obligations, provided such transferee agrees in writing to be bound, with respect to the transferred Obligations, by the provisions of this Agreement that apply to the “Secured Parties.”

(g)      Each party shall take such further action and execute and deliver such further documents as may be necessary or appropriate in order to carry out the provisions and purposes of this Agreement.

(h)      Except to the extent mandatorily governed by the jurisdiction or situs where the Collateral is located, all questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflicts of law thereof. Except to the extent mandatorily governed by the jurisdiction or situs where the Collateral is located, each Debtor agrees that all proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by this Agreement, the Notes and/or the other Transaction Documents (whether brought against a party hereto or its respective affiliates, directors, officers, shareholders, partners, members, employees or agents) shall be commenced exclusively in the state and federal courts sitting in the City of New York, Borough of Manhattan. Except to the extent mandatorily governed by the jurisdiction or situs where the Collateral is located, each Debtor hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the City of New York, Borough of Manhattan for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such proceeding is improper. Each party hereto hereby irrevocably waives personal service of process and consents to process being served in any such proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. Each party hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Agreement or the transactions contemplated hereby.

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(i)      This Agreement may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original and, all of which taken together shall constitute one and the same Agreement. In the event that any signature is delivered by facsimile transmission, such signature shall create a valid binding obligation of the party executing (or on whose behalf such signature is executed) the same with the same force and effect as if such facsimile signature were the original thereof.

(j)      Each Debtor shall be jointly and severally liable for all Obligations.

(k)      Each Debtor shall indemnify, reimburse and hold harmless the Agent and the Secured Parties and their respective partners, successors, predecessors, Affiliates (as defined under the Federal Securities Laws) members, shareholders, attorneys, officers, directors, employees, representatives and agents (and any other persons with other titles that have similar functions) (collectively, “Indemnitees”) from and against any and all losses, claims, liabilities, damages, penalties, suits, costs and expenses, of any kind or nature, (including fees relating to the cost of investigating and defending any of the foregoing) imposed on, incurred by or asserted against such Indemnitee in any way related to or arising from or alleged to arise from this Agreement or the Collateral, except any such losses, claims, liabilities, damages, penalties, suits, costs and expenses which result from the gross negligence or willful misconduct of the Indemnitee as determined by a final, nonappealable decision of a court of competent jurisdiction. This indemnification provision is in addition to, and not in limitation of, any other indemnification provision in the Notes or any other agreement, instrument or other document executed or delivered in connection herewith or therewith (including, but not limited to the other Transaction Documents).

(l)      Nothing in this Agreement shall be construed to subject Agent or any Secured Party to liability as a partner in any Debtor or any if its direct or indirect Subsidiaries that is a partnership or as a member in any Debtor or any of its direct or indirect subsidiaries that is a limited liability company, nor shall Agent or any Secured Party be deemed to have assumed any obligations under any partnership agreement or limited liability company agreement, as applicable, of any such Debtor or any of its direct or indirect Subsidiaries or otherwise, unless and until any such Secured Party exercises its right to be substituted for such Debtor as a partner or member, as applicable, pursuant hereto.

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(m)      To the extent that the grant of the security interest in the Collateral and the enforcement of the terms hereof require the consent, approval or action of any partner or member, as applicable, of any Debtor or any direct or indirect subsidiary of any Debtor or compliance with any provisions of any of the Organizational Documents, the Debtors hereby grant such consent and approval and waive any such noncompliance with the terms of said documents.

20.      Seniority, Etc. Except for the right of each holder of B Notes to allocate certain payments related to their B Notes to the A Notes owned by the holder, if any, as provided and to the extent so provided in the B Notes, all payments under this Agreement, the Notes and the other Transaction Documents to be made and/or required to be made to the Secured Parties (or the Agent on behalf of itself and the other Secured Parties) shall be paid pari passu to each Secured Party on a pro-rated basis based upon the accrued but unpaid principal amount of each holder’s Note on the date of determination, and senior in all respects to all other Indebtedness of any Debtors including, but not limited to any Permitted Indebtedness (as both terms are defined in the Notes).

[SIGNATURE PAGES FOLLOW]

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IN WITNESS WHEREOF, the parties hereto have caused this Security Agreement to be duly executed on the day and year first above written.

VISCOUNT SYSTEMS, INC. (a Nevada corporation)
   
By:  
        Name:  
        Title:  

VISCOUNT COMMUNICATION AND CONTROL SYSTEMS INC.
 
By:  
        Name:  
        Title:  

[SIGNATURE PAGE OF HOLDERS FOLLOWS]

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[SIGNATURE PAGE OF SECURED PARTIES TO SECURITY AND PLEDGE AGREEMENT]
   
Name of Investing Entity:  
   
Signature of Authorized Signatory of Investing entity:  
   
Name of Authorized Signatory:  
   
Title of Authorized Signatory:  
   
Aggregate Principal Amount of A Notes owned: $  
   
Aggregate Principal Amount of B Notes owned: $  

Appointment as Collateral Agent accepted and agreed to:  
   
ONE EAST CAPITAL ADVISORS, L.P.  
   
Signature of Authorized Signatory of Investing entity:  
   
Name of Authorized Signatory:  
   
Title of Authorized Signatory:  

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ANNEX A
to
SECURITY
AGREEMENT


THE AGENT

1. Appointment. The Secured Parties (all capitalized terms used herein and not otherwise defined shall have the respective meanings provided in the Security and Pledge Agreement dated as of November 24, 2015 to which this Annex A is attached (the "Agreement")), by their acceptance of the benefits of the Agreement, hereby designate One East Capital Advisors L.P. (“Agent”) as the Agent to act as specified herein and in the Agreement. Each Secured Party shall be deemed irrevocably to authorize the Agent to take such action on its behalf under the provisions of the Agreement and the Notes and to exercise such powers and to perform such duties hereunder and thereunder as are specifically delegated to or required of the Agent by the terms hereof and thereof and such other powers as are reasonably incidental thereto. The Agent may perform any of its duties hereunder by or through its agents or employees.

2. Nature of Duties. The Agent shall have no duties or responsibilities except those expressly set forth in the Agreement. Neither the Agent nor any of its partners, members, shareholders, officers, directors, employees or agents shall be liable for any action taken or omitted by it as such under the Agreement or hereunder or in connection herewith or therewith, be responsible for the consequence of any oversight or error of judgment or answerable for any loss, unless caused solely by its or their gross negligence or willful misconduct as determined by a final judgment (not subject to further appeal) of a court of competent jurisdiction. The duties of the Agent shall be mechanical and administrative in nature; the Agent shall not have by reason of the Agreement or any other Transaction Document a fiduciary relationship in respect of any Debtor or any Secured Party; and nothing in the Agreement or any other Transaction Document, expressed or implied, is intended to or shall be so construed as to impose upon the Agent any obligations in respect of the Agreement or any other Transaction Document except as expressly set forth herein and therein.

3. Lack of Reliance on the Agent. Independently and without reliance upon the Agent, each Secured Party, to the extent it deems appropriate, has made and shall continue to make (i) its own independent investigation of the financial condition and affairs of the Company and its subsidiaries in connection with such Secured Party’s investment in the Debtors, the creation and continuance of the Obligations, the transactions contemplated by the Transaction Documents, and the taking or not taking of any action in connection therewith, and (ii) its own appraisal of the creditworthiness of each Debtor, and of the value of the Collateral from time to time, and the Agent shall have no duty or responsibility, either initially or on a continuing basis, to provide any Secured Party with any credit, market or other information with respect thereto, whether coming into its possession before any Obligations are incurred or at any time or times thereafter. The Agent shall not be responsible to the Debtors or any Secured Party for any recitals, statements, information, representations or warranties herein or in any document, certificate or other writing delivered in connection herewith, or for the execution, effectiveness, genuineness, validity, enforceability, perfection, collectibility, priority or sufficiency of the Agreement or any other Transaction Document, or for the financial condition of the Debtors or the value of any of the Collateral, or be required to make any inquiry concerning either the performance or observance of any of the terms, provisions or conditions of the Agreement or any other Transaction Document, or the financial condition of the Debtors, or the value of any of the Collateral, or the existence or possible existence of any default or Event of Default under the Agreement, the Notes or any of the other Transaction Documents.

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4. Certain Rights of the Agent. The Agent shall have the right to take any action with respect to the Collateral, on behalf of all of the Secured Parties. To the extent practical, the Agent shall request instructions from the Secured Parties with respect to any material act or action (including failure to act) in connection with the Agreement or any other Transaction Document, and shall be entitled to act or refrain from acting in accordance with the instructions of a Majority in Interest; if such instructions are not provided despite the Agent’s request therefor, the Agent shall be entitled to refrain from such act or taking such action, and if such action is taken, shall be entitled to appropriate indemnification from the Secured Parties in respect of actions to be taken by the Agent; and the Agent shall not incur liability to any person or entity by reason of so refraining. Without limiting the foregoing, (a) no Secured Party shall have any right of action whatsoever against the Agent as a result of the Agent acting or refraining from acting hereunder in accordance with the terms of the Agreement or any other Transaction Document, and the Debtors shall have no right to question or challenge the authority of, or the instructions given to, the Agent pursuant to the foregoing and (b) the Agent shall not be required to take any action which the Agent believes (i) could reasonably be expected to expose it to personal liability or (ii) is contrary to this Agreement, the Transaction Documents or applicable law.

5. Reliance. The Agent shall be entitled to rely, and shall be fully protected in relying, upon any writing, resolution, notice, statement, certificate, telex, teletype or telecopier message, cablegram, radiogram, order or other document or telephone message signed, sent or made by the proper person or entity, and, with respect to all legal matters pertaining to the Agreement and the other Transaction Documents and its duties thereunder, upon advice of counsel selected by it and upon all other matters pertaining to this Agreement and the other Transaction Documents and its duties thereunder, upon advice of other experts selected by it. Anything to the contrary notwithstanding, the Agent shall have no obligation whatsoever to any Secured Party to assure that the Collateral exists or is owned by the Debtors or is cared for, protected or insured or that the liens granted pursuant to the Agreement have been properly or sufficiently or lawfully created, perfected, or enforced or are entitled to any particular priority.

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6. Indemnification. To the extent that the Agent is not reimbursed and indemnified by the Debtors, the Secured Parties will jointly and severally reimburse and indemnify the Agent, in proportion to their initially purchased respective principal amounts of Notes, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever which may be imposed on, incurred by or asserted against the Agent in performing its duties hereunder or under the Agreement or any other Transaction Document, or in any way relating to or arising out of the Agreement or any other Transaction Document except for those determined by a final judgment (not subject to further appeal) of a court of competent jurisdiction to have resulted solely from the Agent's own gross negligence or willful misconduct. Prior to taking any action hereunder as Agent, the Agent may require each Secured Party to deposit with it sufficient sums as it determines in good faith is necessary to protect the Agent for costs and expenses associated with taking such action.

7. Resignation by the Agent.

(a) The Agent may resign from the performance of all its functions and duties under the Agreement and the other Transaction Documents at any time by giving 30 days' prior written notice (as provided in the Agreement) to the Debtors and the Secured Parties. Such resignation shall take effect upon the appointment of a successor Agent pursuant to clauses (b) and (c) below.

(b) Upon any such notice of resignation, the Secured Parties, acting by a Majority in Interest, shall appoint a successor Agent hereunder.

(c) If a successor Agent shall not have been so appointed within said 30-day period, the Agent shall then appoint a successor Agent who shall serve as Agent until such time, if any, as the Secured Parties appoint a successor Agent as provided above. If a successor Agent has not been appointed within such 30-day period, the Agent may petition any court of competent jurisdiction or may interplead the Debtors and the Secured Parties in a proceeding for the appointment of a successor Agent, and all fees, including, but not limited to, extraordinary fees associated with the filing of interpleader and expenses associated therewith, shall be payable by the Debtors on demand.

8. Rights with respect to Collateral. Each Secured Party agrees with all other Secured Parties and the Agent (i) that it shall not, and shall not attempt to, exercise any rights with respect to its security interest in the Collateral, whether pursuant to any other agreement or otherwise (other than pursuant to this Agreement), or take or institute any action against the Agent or any of the other Secured Parties in respect of the Collateral or its rights hereunder (other than any such action arising from the breach of this Agreement) and (ii) that such Secured Party has no other rights with respect to the Collateral other than as set forth in this Agreement and the other Transaction Documents. Upon the acceptance of any appointment as Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent and the retiring Agent shall be discharged from its duties and obligations under the Agreement. After any retiring Agent’s resignation or removal hereunder as Agent, the provisions of the Agreement including this Annex A shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent.

32


ANNEX B
to
SECURITY
AGREEMENT

FORM OF ADDITIONAL DEBTOR JOINDER

Security and Pledge Agreement dated as of November 24, 2015 made by
VISCOUNT SYSTEMS INC (a Nevada corporation)
and each of its Subsidiaries party thereto from time to time, as Debtors
to and in favor of
the Secured Parties identified therein (the “Security Agreement”)

Reference is made to the Security Agreement as defined above; capitalized terms used herein and not otherwise defined herein shall have the meanings given to such terms in, or by reference in, the Security Agreement.

The undersigned hereby agrees that upon delivery of this Additional Debtor Joinder to the Secured Parties referred to above, the undersigned shall (a) be an Additional Debtor under the Security Agreement, (b) have all the rights and obligations of the Debtor under the Security Agreement as fully and to the same extent as if the undersigned was an original signatory thereto and (c) be deemed to have made the representations and warranties set forth therein as of the date of execution and delivery of this Additional Debtor Joinder. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, THE UNDERSIGNED SPECIFICALLY GRANTS TO THE SECURED PARTIES A SECURITY INTEREST IN THE COLLATERAL AS MORE FULLY SET FORTH IN THE SECURITY AGREEMENT AND ACKNOWLEDGES AND AGREES TO THE WAIVER OF JURY TRIAL PROVISIONS SET FORTH THEREIN.

Attached hereto are supplemental and/or replacement Schedules to the Security Agreement, as applicable.

An executed copy of this Joinder shall be delivered to the Secured Parties, and the Secured Parties may rely on the matters set forth herein on or after the date hereof. This Joinder shall not be modified, amended or terminated without the prior written consent of the Secured Parties.

33


IN WITNESS WHEREOF, the undersigned has caused this Joinder to executed in the name and on behalf of the undersigned.

[Name of Additional Debtor]
By:  
   
Name:  
   
Title:  
   
Address:  
   
Dated:  

34





INTELLECTUAL PROPERTY SECURITY AGREEMENT

This INTELLECTUAL PROPERTY SECURITY AGREEMENT (this “IP Security Agreement”), dated as of November 24, 2015, is made by and among Viscount Systems, Inc., a Nevada corporation, with a principal place of business at 4585 Tillicum Street, Burnaby, British Columbia V5J 5K9, Canada (the “Company”) all of the subsidiaries of the Company and the guarantors listed on the signature pages hereto (together with the Company, the “Grantors”) in favor of One East Capital Advisors, 225 N.E. Mizner Boulevard, Suite 720, Boca Raton, Florida 33432, a Delaware limited partnership, as collateral agent for the current and future holders (the “Secured Parties”) of the Secured Notes (as defined below).

WHEREAS, the Company has agreed to (i) issue its 14% Senior Secured Convertible Demand Promissory A Notes, (each an “A Note” and collectively, the “A Notes”) to the Secured Parties in exchange (the “Exchange”) for (and as otherwise provided in the A Notes), shares of the Company’s Series A Convertible Redeemable Preferred Stock (the “Series A Shares”) held by such Secured Parties, and (ii) sell its Senior Secured Convertible Demand Promissory B Notes (each a “B Note” and collectively, the “B Notes”, and together with the A Notes, the “Secured Notes”);

WHEREAS, in connection with, as partial consideration and as an inducement for the Exchange and the purchase of B Notes, the Company and the other Grantors have agreed to enter into and perform, among other documents and instruments, this Agreement, the Security Agreement and the Subsidiary Guaranty each dated on or about as of the date hereof and defined in the Secured Notes, for the benefit of the Secured Parties; and

WHEREAS, under the terms of the Security Agreement, the Grantors have, among other items, granted to the Collateral Agent, for the benefit of itself and the other Secured Parties, a security interest in, among other property, all intellectual property of the Grantors, and have agreed to execute and deliver this Agreement, for recording with national, federal and state government authorities, including, but not limited to, the United States Patent and Trademark Office and the United States Copyright Office.

WHEREAS, pursuant to the Security Agreement, the Secured Parties appointed the Collateral Agent to act for all Secured Parties (including itself) with respect to, among other items, all security agreements, instruments, collateral and/or related items relating to, among other items, securing each Debtor’s obligations to the Secured Parties under the Transaction Documents (as defined in Section 1(e) hereof) including, but not limited to pursuant to this Agreement.

WHEREAS, the parties hereto are parties to that Security Agreement dated on or about the date hereof.

WHEREAS, defined terms that are not otherwise defined herein shall have the meanings given to them in the Security Agreement.


ARTICLE I

NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, each Grantor, jointly and severely, agrees with the Collateral Agent as follows:

1.                  Grant of Security. Each Grantor hereby pledges and grants to the Collateral Agent for the ratable benefit of the Secured Parties a security interest in and to all of the right, title and interest of such Grantor in, to and under the following (the “IP Collateral”):

(a)                  the patents and patent applications set forth in Schedule 1 hereto and all reissues, divisions, continuations, continuations-in-part, renewals, extensions and reexaminations thereof and amendments thereto (the “Patents”);

(b)                  the trademark registrations and applications set forth in Schedule 2 hereto, together with the goodwill connected with the use thereof and symbolized thereby and all extensions and renewals thereof (the “Trademarks”) , excluding only United States intent-to-use trademark applications to the extent that, and solely during the period in which, the grant, attachment or enforcement of a security interest therein would, under applicable federal law, impair the registrability of such applications or the validity or enforceability of registrations issuing from such applications;

(c)                  all copyright registrations, applications and copyright registrations and applications exclusively licensed to each Grantor set forth in Schedule 3 hereto, and all extensions and renewals thereof (the “Copyrights”);

(d)                  all rights of any kind whatsoever of such Grantor accruing under any of the foregoing provided by applicable law of any jurisdiction, by international treaties and conventions and otherwise throughout the world;

(e)                  any and all royalties, fees, income, payments and other proceeds now or hereafter due or payable with respect to any and all of the foregoing; and

(f)                  any and all claims and causes of action with respect to any of the foregoing, whether occurring before, on or after the date hereof, including all rights to and claims for damages, restitution and injunctive and other legal and equitable relief for past, present and future infringement, dilution, misappropriation, violation, misuse, breach or default, with the right but no obligation to sue for such legal and equitable relief and to collect, or otherwise recover, any such damages.

2.                  Recordation. Each Grantor authorizes the Commissioner for Patents, the Commissioner for Trademarks and the Register of Copyrights and any other government officials to record and register this IP Security Agreement upon request by the Collateral Agent.

2


3.                  Documents. This IP Security Agreement has been entered into pursuant to and in conjunction with the Security Agreement and the Secured Notes, which are hereby incorporated by reference. The provisions of the Secured Notes shall supersede and control over any conflicting or inconsistent provision herein. The rights and remedies of the Collateral Agent with respect to the IP Collateral are as provided by the Note, the Security Agreement and related documents, and nothing in this IP Security Agreement shall be deemed to limit such rights and remedies.

4.                  Representations, Warranties and Agreements. Each Grantor represents, warrants and agrees as follows:

  (a)

Existence; Authority. Each Grantor is a corporation duly organized, validly existing and in good standing under the laws of its state and/or place of incorporation, and this IP Security Agreement has been duly and validly authorized by all necessary company and other action on the part of each Grantor.

     
  (b)

Patents. Schedule 1 accurately lists all Patents owned or controlled by Grantors as of the date hereof, or to which any Grantor has a right as of the date hereof to have assigned to it and accurately reflects the existence and status of all applications and letters pertaining to the Patents as of the date hereof. If after the date hereof and prior to the satisfaction of all of the Grantors obligations to the Secured Parties including, but not limited to, payment of all funds owed under the Secured Notes and/or otherwise, any Grantor owns, controls or has a right to have assigned to it any Patents not listed on Schedule 1, or if Schedule 1 ceases to accurately include and reflect the existence and status of Grantor’s applications pertaining to Patents, then the Grantors shall within 10 days provide written notice to the Secured Parties with a replacement Schedule 1, which upon acceptance by the Secured Parties shall become part of this IP Security Agreement.

   
     
  (c) Trademarks.    Schedule 2 accurately lists all Trademarks owned or controlled by each Grantor as of the date hereof and accurately reflects the existence and status of Trademarks o f t he G r a nt ors and all applications and registrations pertaining thereto as of the date hereof; provided, however, that Schedule 2 d o e s not list common law marks (i.e., trademarks for which there are no applications or registrations) which are not material to any Grantor or any Affiliate’s business(es), either individually and/or as a whole. If after the date hereof , and satisfaction of all of the Grantors obligations to the Secured Parties including, but not limited to, payment of all funds owed under the Secured Notes and/or otherwise, any Grantor owns or controls any Trademarks not listed on Schedule 2 (other than common law marks which are not material to any Grantor’s or any Affiliate’s business(es), or if Schedule 2 ceases to accurately reflect the existence and status of applications and registrations pertaining to the Trademarks prior to the satisfaction of all of the Grantors obligations to the Secured Parties including, but not limited to, payment of all funds owed under the Secured Notes and/or otherwise, then Grantors shall within 10 days provide written notice to the Secured Parties with a replacement Schedule 2, which upon acceptance by the Secured Parties shall become part of this this IP Security Agreement.

3



 

(d)

Affiliates. As of the date hereof, no Affiliate owns, controls, or has a right to have assigned to it any items that would, if such item were owned by any Grantor, constitute Patents, Trademarks or Copyrights. If after the date hereof any Affiliate owns, controls, or has a right to have assigned to it any such items, then Grantors shall promptly either: (i) cause such Affiliate to assign all of its rights in such item(s) to Grantors; or (ii) notify the Secured Parties of such item(s) and cause such Affiliate to execute and deliver to the Secured Parties an intellectual property security agreement substantially in the form of this IP Security Agreement.

 

 

(e)

Title. Grantors have absolute title to each Patent, each Trademark and each Copyright listed on Schedule 1 2, and 3, respectively, free and clear of all Liens (as defined in the Secured Notes) except those related to the Factoring Agreement (as defined in the Secured Notes). Grantors (i) will have, at the time Grantors acquires any rights in Patents, Trademarks or Copyrights hereafter arising, absolute title to each such Patents, Trademarks and Copyrights free and clear of all Liens, and (ii) will keep all Patents, Trademarks and Copyrights free and clear of all Liens except Permitted Liens (as defined in the Secured Notes).

 

 

(f)

No Sale. Except as expressly permitted in the Security Agreement, no Grantor will not assign, transfer, encumber (whether by a Lien or otherwise), or otherwise dispose of a n y o f the Patents, Trademarks or Copyrights, or any interest therein, without the Secured Parties’ prior written consent.

 

 

 
 

(g)

Defense. Grantors will at their own expense and using all its commercially best efforts, maintain, prosecute, enforce, protect and defend the Patents, Trademarks and Copyrights against all claims or demands of all persons.

 

 

(h)

Maintenance. Grantors will at its own expense maintain Patents, Trademarks and Copyright, including, but not limited to, filing all applications to obtain letters patent or trademark registrations and all affidavits, maintenance fees, annuities, and renewals possible with respect to letters patent, trademark registrations and applications therefor necessary and/or reasonably requested by the Collateral Agent. Grantors covenants that it will not abandon nor fail to pay any maintenance fee or annuity due and payable on any Patent, Trademark or Copyright, nor fail to file any required affidavit or renewal in support thereof.

 

 

(i)

The Secured Parties’ Right to Take Action. If any Grantor fails to perform or observe any of its covenants or agreements set forth in this Section 4, and If such failure continues for a period of five (5) calendar days after any Secured Party (or the Collateral Agent) gives any Grantor written notice thereof (or, in the case of the agreements contained in subsection (h), immediately upon the occurrence of such failure, without notice or lapse of time), or if any Grantor notifies the Secured Parties (or the Collateral Agent) that it intends to abandon a Patent, Trademark or Copyright, the Secured Parties (or the Collateral Agent) may require Grantors to take steps to prevent such intended abandonment, and may (but need not) take any and all other actions which the Secured Parties may reasonably deem necessary to cure or correct such failure or prevent such intended abandonment at Grantors sole cost and expense.

4



  (j)

Costs and Expenses. Except to the extent that the effect of such payment would be to render any loan or forbearance of money usurious or otherwise illegal under any applicable law, Grantors shall pay the Secured Parties (or the Collateral Agent) on demand the amount of all moneys expended and all costs and expenses (including reasonable attorneys’ fees and disbursements) incurred by the Secured Parties (or the Collateral Agent) in connection with or as a result of the Secured Parties’ (or the Collateral Agent) taking action under subsection (i) or exercising its rights under Section 6, together with interest thereon from the date expended or incurred by the Secured Parties at the lower of (i) 22% and (ii) the maximum amount permitted by applicable law.

     
  (k)

Power of Attorney. To facilitate the Secured Parties’ (or the Collateral Agent) taking action under subsection (i) and exercising its rights under Section 6, Grantors hereby irrevocably appoints (which appointment is coupled with an interest) the Collateral Agent, or its delegate, as the attorney-in-fact of Grantors with the right (but not the duty) from time to time to create, prepare, complete, execute, deliver, endorse or file, in the name and on behalf of Grantors, any and all instruments, documents, applications, financing statements, and other agreements and writings required to be obtained, executed, delivered or endorsed by Grantors under this Section 4, or, necessary for the Collateral Agent, after an Event of Default, to enforce or use the Patents, Copyrights and/or Trademarks or to grant or issue any exclusive or non- exclusive license under the Patents or Trademarks to any third party, or to sell, assign, transfer, pledge, encumber or otherwise transfer title in or dispose of the Patents, Copyrights and/or Trademarks to any third party. Grantors hereby ratifies all action that such attorney shall lawfully do or cause to be done by virtue hereof. The power of attorney granted herein shall terminate upon the receipt by each Secured Party of all amounts owed to them by all Grantors under the Secured Notes and related Transaction Documents in full and in cash.

5.                  Use of the Patents, Trademarks or Copyrights. Grantors shall be permitted to control and manage the Patents, Trademarks or Copyrights, including the right to exclude others from making, using or selling items covered by the Patents, Trademarks and Copyrights and any licenses thereunder, in the same manner and with the same effect as if this this IP Security Agreement had not been entered into, so long as no Event of Default occurs and remains uncured.

6.                  Events of Default. Each of the following occurrences shall constitute an event of default under this this IP Security Agreement (herein called “Event of Default”): (a) an Event of Default, as defined in any of the Secured Note, shall occur; or (b) any Grantor shall fail promptly to observe or perform any covenant or agreement herein binding on it; or (c) any of the representations or warranties contained in any of the Secured Notes, Security Agreement and/or other Transaction Documents shall prove to have been incorrect in any material respect when made.

5


(a)                  Remedies. Upon the occurrence of an Event of Default and at any time thereafter, the Collateral Agent may, at its option, take any or all of the following actions:

 

(a)

the Collateral Agent may exercise any or all remedies available under the Secured Notes or the Security Agreement and/or any Transaction Documents.

 

 

(b)

the Collateral Agent may institute an action to and/or sell, assign transfer, pledge, encumber or otherwise dispose of the Patents, Trademarks and/or Copyrights.

 

 

 

(c)

the Collateral Agent may enforce the Patents, Trademarks and Copyrights and any licenses thereunder, and if the Collateral Agent shall commence any suit for such enforcement, Grantors shall, at the request of the Secured Parties, do any and all lawful acts and execute any and all proper documents required by the Secured Parties in aid of such enforcement.

7.                  Miscellaneous. This IP Security Agreement can be waived, modified, amended, terminated or discharged, and the IP Collateral can be released, only explicitly in a writing signed by the Collateral Agent. At such time as all funds owed to each holder of Secured Notes has been received in cash by each such holder from the Grantors, the Secured Parties shall release the IP Collateral and execute such documentation provided by the Grantors (at Grantors sale cost and expense) that Grantor deems reasonably necessary to release the IP Collateral, provided no such document could have a material adverse effect on any Secured Party and/or the Collateral Agent and the Grantors provided to each Secured Party and the Collateral Agent a general release. A waiver signed by the Secured Parties shall be effective only in the specific instance and for the specific purpose given. Mere delay or failure to act shall not preclude the exercise or enforcement of any of the Secured Parties’ rights or remedies. All rights and remedies of the Secured Parties shall be cumulative and may be exercised singularly or concurrently, at the Secured Parties’ option, and the exercise or enforcement of any one such right or remedy shall neither be a condition to nor bar the exercise or enforcement of any other. All notices to be given to Grantors under this this IP Security Agreement shall be given in the manner and with the effect provided in the SecuredNote. The Secured Parties shall not be obligated to preserve any rights Grantors may have against prior parties, to realize on the Patents, Trademarks and Copyrights at all or in any particular manner or order, or to apply any cash proceeds of Patents, Trademarks or Copyrights in any particular order of application. This IP Security Agreement shall be binding upon and inure to the benefit of Grantors and the Secured Parties and their respective participants, successors and assigns and shall take effect when signed by Grantors and delivered to the Secured Parties, and Grantors waive notice of the Secured Parties’ acceptance hereof. The Secured Parties may execute this IP Security Agreement if appropriate for the purpose of filing, but the failure of the Secured Parties to execute this IP Security Agreement shall not affect or impair the validity or effectiveness of this IP Security Agreement. A carbon, photographic or other reproduction of this IP Security Agreement or of any financing statement signed by Grantors shall have the same force and effect as the original for all purposes of a financing statement. This IP Security Agreement shall be governed by the internal law of New York without regard to conflicts of law provisions. If any provision or application of this IP Security Agreement is held unlawful or unenforceable in any respect, such illegality or unenforceability shall not affect other provisions or applications which can be given effect and this IP Security Agreement shall be construed as if the unlawful or unenforceable provision or application had never been contained herein or prescribed hereby. All representations and warranties contained in this IP Security Agreement shall survive the execution, delivery and performance of this IP Security Agreement and the creation and payment of all amounts owed to each holder of Secured Notes by the Grantors under the Secured Notes and/or the Transaction Documents.

6


8.                  Execution in Counterparts. This IP Security Agreement may be executed in counterparts (and by different parties hereto in different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. Delivery of an executed counterpart of a signature page to this IP Security Agreement by facsimile or in electronic (i.e., "pdf" or "tif") format shall be effective as delivery of a manually executed counterpart of this IP Security Agreement.

9.                  Successors and Assigns. This IP Security Agreement will be binding on and shall inure to the benefit of the parties hereto and their respective successors and assigns. No Grantor may assign this Agreement, any IP Collateral and/or obligation hereunder without the express written consent of the Collateral Agent.

10.                  Governing Law. This IP Security Agreement and the terms and conditions set forth herein, shall be governed by and construed solely and exclusively in accordance with the internal laws of the State of New York without regard to the conflicts of laws principles thereof. The parties hereto hereby expressly and irrevocably agree that any suit or proceeding arising directly and/or indirectly pursuant to or under this Agreement shall be brought solely in a federal or state court located in the City, County and State of New York. By its execution hereof, the parties hereto covenant and irrevocably submit to the in personam jurisdiction of the federal and state courts located in the City, County and State of New York and agree that any process in any such action may be served upon any of them personally, or by certified mail or registered mail upon them or their agent, return receipt requested, with the same full force and effect as if personally served upon them in New York, New York. The parties hereto expressly and irrevocably waive any claim that any such jurisdiction is not a convenient forum for any such suit or proceeding and any defense or lack of in personam jurisdiction with respect thereto. In the event of any such action or proceeding, the party prevailing therein shall be entitled to payment from the other parties hereto of all of its reasonable counsel fees and disbursements.

7


[SIGNATURE PAGE FOLLOWS]

8


IN WITNESS WHEREOF, each Grantor has caused this IP Security Agreement to be duly executed and delivered by its officer thereunto duly authorized as of the date first above written.

VISCOUNT SYSTEMS, INC.,
a Nevada corporation

By:    
     
Name:    
     
Title:    
     
Date:    

VISCOUNT COMMUNICATION AND CONTROL SYSTEMS INC.
A British Columbia corporation

By:    
     
Name:    
     
Title:    
     
Date:    

AGREED TO AND ACCEPTED:
as Collateral Agent
ONE EAST CAPITAL ADVISORS, L.P.

By:    
     
Name:    
     
Title:    
     
Date:    

9


SCHEDULE 1 – ISSUED PATENTS AND PATENT APPLICATIONS

United States Patent No. 8854177, issued October 7, 2014, in the name of Viscount Security Systems Inc., entitled “System, Method and Database for Managing Permissions to Use Physical Devices and Logical Assets;”

United States Patent No. 8907763, issued December 9, 2014, in the name of Viscount Security Systems Inc., entitled “System, Station and Method for Mustering;”

United States Patent No. 8941465, issued January 27, 2015, in the name of Viscount Security Systems Inc., entitled “System and Method for Secure Entry Using Door Tokens;”

United States Patent No. 8836470, issued September 16, 2014, in the name of Viscount Security Systems, Inc., entitled “System and Method for Interfacing Facility Access with Control;”

United States Patent Application No. 14/014,351, filed August 30, 2013, for “Door Lock, System and Method for Remotely Controlled Access;”

Canadian Patent No. 2870058, issued September 29, 2015, in the name of Viscount Systems Inc., entitled “Device, System, Method and Database for Managing Permissions to Use Physical Devices and Logical Assets;”

Canadian Patent No. 2854613, issued September 29, 2015, in the name of Viscount Systems Inc., entitled “Device, System, Method and Database for Managing Permissions to Use Physical Devices and Logical Assets;”

10


SCHEDULE 2 – TRADEMARK REGISTRATIONS AND APPLICATIONS

ENTER PHONE – United States Trademark Reg. No. 1623361, issued November 20, 1990, owned by Viscount Communications and Control Systems Corporation;

ENTERPHONE - Canadian Trademark Reg. No. TMA192854, issued July 27, 1973, in the name of Viscount Communication and Control Systems Inc.;

11


SCHEDULE 3 – COPYRIGHT REGISTRATIONS AND APPLICATIONS

None Registered

12





SUBSIDIARY GUARANTEE

SUBSIDIARY GUARANTEE, dated as of November 24, 2015 (this “Guarantee”), made by each of the signatories hereto (together with any other entity that may become a party hereto as provided herein, the “Guarantors”), in favor of the holders (together with its permitted assigns, the “Holders”) to those certain promissory notes, dated as of the date hereof, between Viscount Systems, Inc., a Nevada corporation (the “Company”) and the Holders (each a “Note” and collectively, the “Notes”).

W I T N E S S E T H:

WHEREAS, the Company has agreed to issue to the Holders the Notes upon conversion of certain shares of Series A Convertible Redeemable Preferred Stock, subject to the terms and conditions set forth therein.

NOW, THEREFORE, in consideration of the premises, each Guarantor hereby agrees with the Holders as follows:

1.     Definitions. The words “hereof,” “herein,” “hereto” and “hereunder” and words of similar import when used in this Guarantee shall refer to this Guarantee as a whole and not to any particular provision of this Guarantee, and Section and Schedule references are to this Guarantee unless otherwise specified. The meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such terms. The following terms shall have the following meanings:

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

Agent” shall have the meaning ascribed to such term in the Security Agreement.

Guarantee” means this Subsidiary Guarantee, as the same may be amended, supplemented or otherwise modified from time to time.

Indebtedness” shall have the meaning ascribed to such term in the Notes.

IP Security Agreement” means that certain intellectual property security agreement, dated November 24, 2015, by and among the Company and the Holders.

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

1


Obligations” means, in addition to all other costs and expenses of collection incurred by Holders in enforcing any of such Obligations and/or this Guarantee, all of the liabilities and obligations (primary, secondary, direct, contingent, sole, joint or several) due or to become due, or that are now or may be hereafter contracted or acquired, or owing to, of the Company or any Guarantor to the Holders, including, without limitation, all obligations under this Guarantee, the Notes and any other instruments, agreements or other documents executed and/or delivered in connection herewith or therewith, in each case, whether now or hereafter existing, voluntary or involuntary, direct or indirect, absolute or contingent, liquidated or unliquidated, whether or not jointly owed with others, and whether or not from time to time decreased or extinguished and later increased, created or incurred, and all or any portion of such obligations or liabilities that are paid, to the extent all or any part of such payment is avoided or recovered directly or indirectly from any of the Holders as a preference, fraudulent transfer or otherwise as such obligations may be amended, supplemented, converted, extended or modified from time to time. Without limiting the generality of the foregoing, the term “Obligations” shall include, without limitation: (i) principal of, and interest on the Notes; (ii) any and all other fees, indemnities, costs, obligations and liabilities of the Company or any Guarantor from time to time under or in connection with this Guarantee, the Notes and any other instruments, agreements or other documents executed and/or delivered in connection herewith or therewith; and (iii) all amounts (including but not limited to post-petition interest) in respect of the foregoing that would be payable but for the fact that the obligations to pay such amounts are unenforceable or not allowable due to the existence of a bankruptcy, reorganization or similar proceeding involving the Company or any Guarantor.

Person” shall have the meaning ascribed to such term in the Notes.

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

Security Agreement” means that certain security agreement, dated November 24, 2015, by and among the Company and the Guarantors.

Transaction Documents” shall mean the Notes, the Security Agreement, the IP Security Agreement and this Guarantee.

2.         Guarantee.

(a)     Guarantee.

(i)     The Guarantors hereby, jointly and severally,unconditionally and irrevocably, guarantee to the Holders and their respective successors, indorsees, transferees and assigns, the prompt and complete payment and performance when due (whether at the stated maturity, by acceleration or otherwise) of the Obligations.

2


(ii)     Anything herein or in any other Transaction Document to the contrary notwithstanding, the maximum liability of each Guarantor hereunder and under the other Transaction Documents shall in no event exceed the amount which can be guaranteed by such Guarantor under applicable federal and state laws, including laws relating to the insolvency of debtors, fraudulent conveyance or transfer or laws affecting the rights of creditors generally (after giving effect to the right of contribution established in Section 2(b)).

(iii)      Each Guarantor agrees that the Obligations may at any time and from time to time exceed the amount of the liability of such Guarantor hereunder without impairing the guarantee contained in this Section 2 or affecting the rights and remedies of the Holders hereunder.

(iv)      The guarantee contained in this Section 2 shall remain in full force and effect until all the Obligations and the obligations of each Guarantor under the guarantee contained in this Section 2 shall have been satisfied by indefeasible payment in full.

(v)      Notwithstanding anything to the contrary in this Guarantee, with respect to any defaulted non-monetary Obligations the specific performance of which by the Guarantors is not reasonably possible (e.g. the issuance of the Company's Common Stock), the Guarantors shall only be liable for making the Holders whole on a monetary basis for the Company's failure to perform such Obligations in accordance with the Transaction Documents.

(b)      Right of Contribution. Each Guarantor hereby agrees that to the extent that a Guarantor shall have paid more than its proportionate share of any payment made hereunder, such Guarantor shall be entitled to seek and receive contribution from and against any other Guarantor hereunder which has not paid its proportionate share of such payment. The provisions of this Section 2(b) shall in no respect limit the obligations and liabilities of any Guarantor to the Holders and each Guarantor shall remain liable to the Holders for the full amount guaranteed by such Guarantor hereunder.

(c)      Amendments, Etc. With Respect to the Obligations. Each Guarantor shall remain obligated hereunder notwithstanding that, without any reservation of rights against any Guarantor and without notice to or further assent by any Guarantor, any demand for payment of any of the Obligations made by the Holders may be rescinded by the Holders and any of the Obligations continued, and the Obligations, or the liability of any other Person upon or for any part thereof, or any collateral security or guarantee therefor or right of offset with respect thereto, may, from time to time, in whole or in part, be renewed, extended, amended, modified, accelerated, compromised, waived, surrendered or released by the Holders, and the Transaction Documents and any other documents executed and delivered in connection therewith may be amended, modified, supplemented or terminated, in whole or in part, as the Holders may deem advisable from time to time, and any collateral security, guarantee or right of offset at any time held by the Holders for the payment of the Obligations may be sold, exchanged, waived, surrendered or released. The Holders shall have no obligation to protect, secure, perfect or insure any Lien at any time held by the Agent for the benefit of the Holders as security for the Obligations or for the guarantee contained in this Section 2 or any property subject thereto.

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(d)      Guarantee Absolute and Unconditional. Each Guarantor waives any and all notice of the creation, renewal, extension or accrual of any of the Obligations and notice of or proof of reliance by the Holders upon the guarantee contained in this Section 2 or acceptance of the guarantee contained in this Section 2; the Obligations, and any of them, shall conclusively be deemed to have been created, contracted or incurred, or renewed, extended, amended or waived, in reliance upon the guarantee contained in this Section 2; and all dealings between the Company and any of the Guarantors, on the one hand, and the Holders, on the other hand, likewise shall be conclusively presumed to have been had or consummated in reliance upon the guarantee contained in this Section 2. Each Guarantor waives to the extent permitted by law diligence, presentment or protest to or upon the Company or any of the Guarantors with respect to the Obligations. Each Guarantor understands and agrees that the guarantee contained in this Section 2 shall be construed as a continuing, absolute and unconditional guarantee of payment and performance without regard to (a) the validity or enforceability of the Transaction Documents, any of the Obligations or any other collateral security therefor or guarantee or right of offset with respect thereto at any time or from time to time held by the Holders or (b) any other circumstance whatsoever (with or without notice to or knowledge of the Company or such Guarantor) which constitutes, or might be construed to constitute, an equitable or legal discharge of the Company for the Obligations, or of such Guarantor under the guarantee contained in this Section 2, in bankruptcy or in any other instance. When making any demand hereunder or otherwise pursuing its rights and remedies hereunder against any Guarantor, the Holders may, but shall be under no obligation to, make a similar demand on or otherwise pursue such rights and remedies as they may have against the Company, any other Guarantor or any other Person or against any collateral security or guarantee for the Obligations or any right of offset with respect thereto, and any failure by the Holders to make any such demand, to pursue such other rights or remedies or to collect any payments from the Company, any other Guarantor or any other Person or to realize upon any such collateral security or guarantee or to exercise any such right of offset, or any release of the Company, any other Guarantor or any other Person or any such collateral security, guarantee or right of offset, shall not relieve any Guarantor of any obligation or liability hereunder, and shall not impair or affect the rights and remedies, whether express, implied or available as a matter of law, of the Holders against any Guarantor. For the purposes hereof, “demand” shall include the commencement and continuance of any legal proceedings.

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(e)      Reinstatement. The guarantee contained in this Section 2 shall continue to be effective, or be reinstated, as the case may be, if at any time payment, or any part thereof, of any of the Obligations is rescinded or must otherwise be restored or returned by the Holders upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of the Company or any Guarantor, or upon or as a result of the appointment of a receiver, intervenor or conservator of, or trustee or similar officer for, the Company or any Guarantor or any substantial part of its property, or otherwise, all as though such payments had not been made.

3.      Representations and Warranties. Each Guarantor hereby makes the following representations and warranties to Holders as of the date hereof:

(a)      Organization and Qualification. The Guarantor is a corporation, duly incorporated, validly existing and in good standing under the laws of the applicable jurisdiction set forth on Schedule 1, with the requisite corporate power and authority to own and use its properties and assets and to carry on its business as currently conducted. The Guarantor has no subsidiaries other than those identified as such on Schedule 3(a) hereto. The Guarantor is duly qualified to do business and is in good standing as a foreign corporation in each jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary, except where the failure to be so qualified or in good standing, as the case may be, could not, individually or in the aggregate, (x) adversely affect the legality, validity or enforceability of any of this Guarantee in any material respect, (y) have a material adverse effect on the results of operations, assets, prospects, or financial condition of the Guarantor or (z) adversely impair in any material respect the Guarantor's ability to perform fully on a timely basis its obligations under this Guarantee (a “Material Adverse Effect”).

(b)      Authorization; Enforcement. The Guarantor has the requisite corporate power and authority to enter into and to consummate the transactions contemplated by this Guarantee, and otherwise to carry out its obligations hereunder. The execution and delivery of this Guarantee by the Guarantor and the consummation by it of the transactions contemplated hereby have been duly authorized by all requisite corporate action on the part of the Guarantor. This Guarantee has been duly executed and delivered by the Guarantor and constitutes the valid and binding obligation of the Guarantor enforceable against the Guarantor in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally the enforcement of, creditors' rights and remedies or by other equitable principles of general application.

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(c)      No Conflicts. The execution, delivery and performance of this Guarantee by the Guarantor and the consummation by the Guarantor of the transactions contemplated thereby do not and will not (i) conflict with or violate any provision of its certificate of incorporation or bylaws, each as amended, or (ii) conflict with, constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, indenture or instrument to which the Guarantor is a party, or (iii) result in a violation of any law, rule, regulation, order, judgment, injunction, decree or other restriction of any court or governmental authority to which the Guarantor is subject (including Federal and State securities laws and regulations), or by which any material property or asset of the Guarantor is bound or affected, except in the case of each of clauses (ii) and (iii), such conflicts, defaults, terminations, amendments, accelerations, cancellations and violations as could not, individually or in the aggregate, have or result in a Material Adverse Effect. The business of the Guarantor is not being conducted in violation of any law, ordinance or regulation of any governmental authority, except for violations which, individually or in the aggregate, do not have a Material Adverse Effect.

(d)      Consents and Approvals. The Guarantor is not required to obtain any consent, waiver, authorization or order of, or make any filing or registration with, any court or other federal, state, local, foreign or other governmental authority or other person in connection with the execution, delivery and performance by the Guarantor of this Guarantee.

(e)      Transaction Documents. The representations and warranties of the Company set forth in the Transaction Documents as they relate to such Guarantor, each of which is hereby incorporated herein by reference, are true and correct as of each time such representations are deemed to be made pursuant to such Transaction Documents, and the Holders shall be entitled to rely on each of them as if they were fully set forth herein, provided that each reference in each such representation and warranty to the Company's knowledge shall, for the purposes of this Section 3, be deemed to be a reference to such Guarantor's knowledge.

(f)      Foreign Law. Each Guarantor has consulted with appropriate foreign legal counsel with respect to any of the above representations for which non-U.S. law is applicable. Such foreign counsel have advised each applicable Guarantor that such counsel knows of no reason why any of the above representations would not be true and accurate. Such foreign counsel were provided with copies of this Subsidiary Guarantee and the Transaction Documents prior to rendering their advice.

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4.      Miscellaneous.

(a)      Amendments in Writing. None of the terms or provisions of this Guarantee may be waived, amended, supplemented or otherwise modified except in writing by the Agent (or, in the event the Agent no longer holds the Notes, in writing by the holder of the Notes).

(b)      Notices. All notices, requests and demands to or upon the Holders or any Guarantor hereunder shall be effected in the manner provided for in the Notes, provided that any such notice, request or demand to or upon any Guarantor shall be addressed to such Guarantor at its notice address set forth on Schedule 4(b).

(c)      No Waiver By Course Of Conduct; Cumulative Remedies. The Holders shall not by any act (except by a written instrument pursuant to Section 4(a)), delay, indulgence, omission or otherwise be deemed to have waived any right or remedy hereunder or to have acquiesced in any default under the Transaction Documents. No failure to exercise, nor any delay in exercising, on the part of the Holders, any right, power or privilege hereunder shall operate as a waiver thereof. No single or partial exercise of any right, power or privilege hereunder shall preclude any other or further exercise thereof or the exercise of any other right, power or privilege. A waiver by the Holders of any right or remedy hereunder on any one occasion shall not be construed as a bar to any right or remedy which the Holders would otherwise have on any future occasion. The rights and remedies herein provided are cumulative, may be exercised singly or concurrently and are not exclusive of any other rights or remedies provided by law.

(d)      Enforcement Expenses; Indemnification.

(i)      Each Guarantor agrees to pay, or reimburse the Holders for,all its costs and expenses incurred in collecting against such Guarantor under the guarantee contained in Section 2 or otherwise enforcing or preserving any rights under this Guarantee and the other Transaction Documents to which such Guarantor is a party, including, without limitation, the reasonable fees and disbursements of counsel to the Holders.

(ii)      Each Guarantor agrees to pay, and to save the Holders harmless from, any and all liabilities with respect to, or resulting from any delay in paying, any and all stamp, excise, sales or other taxes which may be payable or determined to be payable in connection with any of the transactions contemplated by this Guarantee.

(iii)      The agreements in this Section shall survive repayment of the Obligations and all other amounts payable under the Transaction Documents.

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(e)      Successor and Assigns. This Guarantee shall be binding upon the successors and assigns of each Guarantor and shall inure to the benefit of the Holders and their respective successors and assigns; provided that no Guarantor may assign, transfer or delegate any of its rights or obligations under this Guarantee without the prior written consent of the Holders.

(f)      Counterparts. This Guarantee may be executed by one or more of the parties to this Guarantee on any number of separate counterparts (including by telecopy), and all of said counterparts taken together shall be deemed to constitute one and the same instrument.

(g)      Severability. Any provision of this Guarantee which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.

(h)      Section Headings. The Section headings used in this Guarantee are for convenience of reference only and are not to affect the construction hereof or be taken into consideration in the interpretation hereof.

(i)      Integration. This Guarantee and the other Transaction Documents represent the agreement of the Guarantors and the Holders with respect to the subject matter hereof and thereof, and there are no promises, undertakings, representations or warranties by the Holders relative to subject matter hereof and thereof not expressly set forth or referred to herein or in the other Transaction Documents.

(j)      Governing Laws. All questions concerning the construction, validity, enforcement and interpretation of this Guarantee shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflicts of law thereof. Each of the Company and the Guarantors agree that all proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by this Guarantee (whether brought against a party hereto or its respective affiliates, directors, officers, shareholders, partners, members, employees or agents) shall be commenced exclusively in the state and federal courts sitting in the City of New York, Borough of Manhattan. Each of the Company and the Guarantors hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the City of New York, Borough of Manhattan for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such proceeding is improper. Each party hereto hereby irrevocably waives personal service of process and consents to process being served in any such proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Guarantee and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. Each party hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Guarantee or the transactions contemplated hereby.

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(k)      Acknowledgements. Each Guarantor hereby acknowledges that:

(i)      it has been advised by counsel in the negotiation, execution and delivery of this Guarantee and the other Transaction Documents to which it is a party; and

(ii)      no joint venture is created hereby or by the other Transaction Documents or otherwise exists by virtue of the transactions contemplated hereby among the Guarantors and the Holders.

(l)      Additional Guarantors. The Company shall cause each of its subsidiaries formed or acquired on or subsequent to the date hereof to become a Guarantor for all purposes of this Guarantee by executing and delivering an Assumption Agreement in the form of Annex 1 hereto.

(m)      Release of Guarantors. Each Guarantor will be released from all liability hereunder concurrently with the indefeasible repayment in full of all amounts owed under the Notes and the other Transaction Documents.

(n)      WAIVER OF JURY TRIAL. EACH GUARANTOR AND, BY ACCEPTANCE OF THE BENEFITS HEREOF, THE HOLDERS, HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS GUARANTEE AND FOR ANY COUNTERCLAIM THEREIN.

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

(Signature Pages Follow)

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IN WITNESS WHEREOF, each of the undersigned has caused this Guarantee to be duly executed and delivered as of the date first above written.

VISCOUNT COMMUNICATION AND
CONTROL SYSTEMS INC.
   
By:  
Name:  
Title:  

AGREED TO AND ACCEPTED:
as Agent
ONE EAST CAPITAL ADVISORS
   
By:  
Name:  
Title:  

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SCHEDULE 1

GUARANTORS

The following are the names, notice addresses and jurisdiction of organization of each Guarantor.

    COMPANY
  JURISDICTION OF OWNED BY
  INCORPORATION PERCENTAGE
 ----------
------------- ----------

 

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Annex 1 to
SUBSIDIARY GUARANTEE

ASSUMPTION AGREEMENT, dated as of ____ __, ______ made by ______________________________ , a ______________ corporation (the “Additional Guarantor”), in favor of the Holders pursuant to the Notes referred to below. All capitalized terms not defined herein shall have the meaning ascribed to them in the Guarantee (as defined below).

W I T N E S S E T H :

WHEREAS, Viscount Systems, Inc., a Nevada corporation (the “Company”), has issued to the Holders promissory notes, dated as of [___________, 20__ (as amended, supplemented or otherwise modified from time to time, the “Notes”);

WHEREAS, in connection with the Notes, Viscount Communication and Control Systems Inc., a wholly-owned subsidiary of the Company (the “Subsidiary”), has entered into the Subsidiary Guarantee, dated as of [__________________, 20__ (as amended, supplemented or otherwise modified from time to time, the “Guarantee”) in favor of the Holders;

WHEREAS, the Notes require the Additional Guarantor to become a party to the Guarantee; and

WHEREAS, the Additional Guarantor has agreed to execute and deliver this Assumption Agreement in order to become a party to the Guarantee;

NOW, THEREFORE, IT IS AGREED:

1.      Guarantee. By executing and delivering this Assumption Agreement, the Additional Guarantor, as provided in Section 4(l) of the Guarantee, hereby becomes a party to the Guarantee as a Guarantor thereunder with the same force and effect as if originally named therein as a Guarantor and, without limiting the generality of the foregoing, hereby expressly assumes all obligations and liabilities of a Guarantor thereunder. The information set forth in Annex 1 hereto is hereby added to the information set forth in Schedule 1 to the Guarantee. The Additional Guarantor hereby represents and warrants that each of the representations and warranties contained in Section 3 of the Guarantee is true and correct on and as the date hereof as to such Additional Guarantor (after giving effect to this Assumption Agreement) as if made on and as of such date.

2.      Governing Law. THIS ASSUMPTION AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.

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IN WITNESS WHEREOF, the undersigned has caused this Assumption Agreement to be duly executed and delivered as of the date first above written.

[ADDITIONALGUARANTOR]
   
By:  
Name:  
Title:  

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