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Adamis Pharmaceuticals Corporation 8-K [adamis-8k_061112.htm]
 
Exhibit 10.2
 
NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS CONVERTIBLE
HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE
SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES
ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS.  THIS SECURITY AND THE SECURITIES ISSUABLE UPON CONVERSION OF
THIS SECURITY MAY BE PLEDGED TO AN ACCREDITED INVESTOR IN CONNECTION WITH A BONA
FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.

Original Issue Date:  June 11, 2012
Original Conversion Price (subject to adjustment herein): $0.55

Original Principal Amount:  $500,000

ADAMIS PHARMACEUTICALS CORPORATION
10% SENIOR CONVERTIBLE NOTE

THIS NOTE is a duly authorized and validly issued 10% Senior Convertible Note of
ADAMIS PHARMACEUTICALS CORPORATION, a Delaware corporation (the “Company”),
having its principal place of business at 11455 El Camino Real, Suite 310, San
Diego, CA 92130 (this “Note”).

FOR VALUE RECEIVED, the Company promises to pay to the order of GEMINI MASTER
FUND, LTD. or its registered assigns (the “Holder”), or shall have paid pursuant
to the terms hereunder, the principal sum of US$500,000 on the date which is
nine (9) months following the Original Issue Date hereof (the “Maturity Date”)
or such earlier date as this Note is required or permitted to be repaid as
provided hereunder, and to pay accrued and unpaid interest to the Holder on the
aggregate unconverted and then outstanding principal amount of this Note in
accordance with the provisions hereof.

The Company’s obligations under this Note shall be, effective as of the Original
Issue Date, guaranteed pursuant to subsidiary guaranty executed and delivered by
certain of the Company’s Subsidiaries.  This Note shall constitute “Senior
Indebtedness” under and as defined in the G-Max Note.

This Note is subject to the following additional provisions:

Section 1.                      Definitions.  For the purposes hereof, in
addition to the terms defined elsewhere in this Note (a) initially capitalized
terms not otherwise defined herein shall have the meanings set forth in the
Purchase Agreement (including without limitation those incorporated therein by
reference) and (b) the following terms shall have the following meanings:

“Alternate Consideration” shall have the meaning set forth in Section 5(e).
 
 
 

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“Buy-In” shall have the meaning set forth in Section 4(d)(v).

“Common Stock Equivalents” mean Convertible Securities and/or Options.

“Conversion Date” shall have the meaning set forth in Section 4(a).

“Conversion Price” shall have the meaning set forth in Section 4(b).

“Conversion Shares” means, collectively, the shares of Common Stock issued or
issuable upon conversion or redemption of this Note in accordance with the terms
hereof, including without limitation shares of Common Stock issued or issuable
as interest hereunder or as damages under the Transaction Documents.

“Default Conversion Price” shall mean the lesser of (a) the Conversion Price
otherwise in effect at the time of the applicable Conversion Date and (b) 50% of
the average of the three (3) lowest Closing Bid Prices during the twenty (20)
consecutive Trading Days immediately preceding the applicable Conversion Date.

“Event of Default” shall have the meaning set forth in Section 8.

“G-Max Note” means that certain convertible promissory note issued by the
Company on or about June 11, 2012 to The G-Max Trust in the original principal
amount of $500,000.

“Late Fees” shall have the meaning set forth in Section 2(b).

“Mandatory Default Amount”  means the sum of (i) the greater of (A) 120% of the
outstanding principal amount of this Note, plus 100% of accrued and unpaid
interest hereon, or (B) the outstanding principal amount of this Note, plus all
accrued and unpaid interest hereon, divided by the Conversion Price on the date
the Mandatory Default Amount is either (a) demanded (if demand or notice is
required to create an Event of Default) or otherwise due or (b) paid in full,
whichever has a lower price, multiplied by the VWAP on the date the Mandatory
Default Amount is either (x) demanded or otherwise due or (y) paid in full,
whichever has a higher VWAP, and (ii) all other amounts, costs, expenses and
liquidated damages due in respect of this Note.
 
 
“New York Courts” shall have the meaning set forth in Section 9(d).

“Note Register” shall have the meaning set forth in Section 2(a).

“Notice of Conversion” shall have the meaning set forth in Section 4(a).

“Original Issue Date” means the date of the issuance of this Note, regardless of
any transfers of any Note and regardless of the number of instruments which may
be issued to evidence this Note.

 
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“Permitted Indebtedness” means (a) the indebtedness evidenced by the Note or
other notes issued on and with substantially similar terms to the Note, (b) the
Indebtedness existing on the Closing Date, provided that the terms of any such
Indebtedness have not been changed in a manner substantially adverse to either
the Company or the Holder from the terms existing on the Closing Date, (c) lease
obligations and purchase money indebtedness of up to $200,000, in the aggregate,
incurred in connection with the acquisition of capital assets and lease
obligations with respect to newly acquired or leased assets, (d) Indebtedness in
connection with any Exempt Issuance, and (e) Indebtedness that (i) is expressly
subordinate to the Note pursuant to a written subordination agreement with the
Purchaser that is acceptable to the Purchaser in its sole and absolute
discretion, (ii) matures on a date no earlier than 91 days following the
Maturity Date, (iii) is unsecured, and (iv) is approved in advance in writing by
the Purchaser (which approval may be denied in the Purchaser’s sole and absolute
discretion, provided that the Purchaser shall not unreasonably withhold approval
for up to $500,000 in the aggregate of such Indebtedness incurred after the
Original Issue Date).

“Permitted Lien” means the individual and collective reference to the following:
(a) Liens for taxes, assessments and other governmental charges or levies not
yet due or Liens for taxes, assessments and other governmental charges or levies
being contested in good faith and by appropriate proceedings for which adequate
reserves (in the good faith judgment of the management of the Company) have been
established in accordance with GAAP; (b) Liens in connection with any Exempt
Issuance, and (c) Liens imposed by law which were incurred in the ordinary
course of the Company’s business, such as carriers’, warehousemen’s and
mechanics’ Liens, statutory landlords’ Liens, and other similar Liens arising in
the ordinary course of the Company’s business, and which (x) do not individually
or in the aggregate materially detract from the value of such property or assets
or materially impair the use thereof in the operation of the business of the
Company and its consolidated Subsidiaries or (y) are being contested in good
faith by appropriate proceedings, which proceedings have the effect of
preventing for the foreseeable future the forfeiture or sale of the property or
asset subject to such Lien.
 
“Purchase Agreement” means the Securities Purchase Agreement pursuant to which
this Note was issued, dated on or about the date hereof, among the Company and
the Purchaser, as amended, modified or supplemented from time to time in
accordance with its terms.

“Share Delivery Date” shall have the meaning set forth in Section 4(d).

Section 2.                      Interest; Late Fees.

a) Interest.  Interest shall accrue daily on the outstanding principal amount of
this Note at a rate per annum equal to 10% and shall be due and payable on the
Maturity Date in cash to the extent not converted hereunder.  On the Maturity
Date, the Company shall pay to the Holder all accrued but unpaid interest
hereunder.  Interest shall be calculated on the basis of a 360-day year and
actual days elapsed.  Interest hereunder will be paid to the Person in whose
name this Note is registered on the records of the Company regarding
registration and transfers of this Note (the “Note Register”).
 
 
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b) Late Fees.  All overdue accrued and unpaid amounts to be paid hereunder shall
entail a late fee at an interest rate equal to the lesser of 24% per annum or
the maximum rate permitted by applicable law (“Late Fees”) which shall accrue
daily from the date such amount is due hereunder through and including the date
of actual payment in full.

Section 3.                      Registration of Transfers and Exchanges.
 
 
a) Different Denominations. This Note is exchangeable for an equal aggregate
principal amount of Note of different authorized denominations, as requested by
the Holder surrendering the same.  No service charge will be payable for such
exchange.
 
 
b) Investment Representations.  This Note has been issued subject to certain
investment representations of the original Holder set forth in the Purchase
Agreement and may be transferred, assigned, pledged or exchanged only in
compliance with the Purchase Agreement and applicable federal and state
securities laws and regulations.

c) Reliance on Note Register.  Prior to due presentment for transfer to the
Company of this Note, the Company and any agent of the Company may treat the
Person in whose name this Note is duly registered on the Note Register as the
owner hereof for the purpose of receiving payment as herein provided and for all
other purposes, whether or not this Note is overdue, and neither the Company nor
any such agent shall be affected by notice to the contrary.

Section 4.                      Conversion.
 
 
a) Voluntary Conversion. At any time after the Original Issue Date until this
Note is no longer outstanding, this Note shall be convertible, in whole or in
part, into shares of Common Stock at the option of the Holder, at any time and
from time to time (subject to the conversion limitations set forth in
Section 4(c) hereof).  The Holder shall effect conversions by delivering to the
Company a Notice of Conversion, the form of which is attached hereto as Annex A
(a “Notice of Conversion”), specifying therein the principal amount of this Note
to be converted, including accrued but unpaid interest thereon, and the date on
which such conversion shall be effected (such date, which date shall be no
earlier than the date on which the Company is deemed to receive the Notice of
Conversion, the “Conversion Date”).  If no Conversion Date is specified in a
Notice of Conversion, the Conversion Date shall be the date that such Notice of
Conversion is deemed delivered hereunder.  To effect conversions hereunder, the
Holder shall not be required to physically surrender this Note to the Company
unless the entire principal amount of this Note, plus all accrued and unpaid
interest thereon, has been so converted. Conversions hereunder shall have the
effect of lowering the outstanding principal amount of this Note in an amount
equal to the applicable conversion.  The Holder and the Company shall maintain
records showing the principal amount(s) converted and the date of such
conversion(s).  In the event of any dispute or discrepancy, the records of the
Holder shall be controlling and determinative in the absence of manifest error.
The Holder, and any assignee by acceptance of this Note, acknowledge and agree
that, by reason of the provisions of this paragraph, following conversion of a
portion of this Note, the unpaid and unconverted principal amount of this Note
may be less than the amount stated on the face hereof.

 
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b) Conversion Price.  The conversion price shall be equal to $0.55, subject to
adjustment herein (the “Conversion Price”).

c) Conversion Limitation – Holder’s Restriction on Conversion. Notwithstanding
anything to the contrary contained herein, the Company shall not effect any
conversion of this Note, and the Holder shall not have the right to convert any
portion of this Note (or otherwise acquire Conversion Shares with respect to
this Note), to the extent that after giving effect to the issuance of Common
Stock upon such conversion (or other issuance), the Holder Group would
beneficially own in excess of the Maximum Ownership Percentage of the number of
shares of the Common Stock outstanding immediately after giving effect to the
issuance of shares of Common Stock upon such conversion (including for such
purpose the shares of Common Stock issuable upon such conversion or issuance)
(“Beneficial Ownership Limitation”).  For purposes of calculating the Beneficial
Ownership Limitation, the number of shares of Common Stock beneficially owned by
the Holder Group shall be determined in accordance with Section 13(d) of the
Exchange Act and the rules and regulations promulgated thereunder (including
without limitation Regulation 13D-G), provided, however, that such beneficial
ownership shall exclude any shares of Common Stock issuable upon conversion,
exchange or exercise of (or purchase of Common Stock under) any Convertible
Securities or Options outstanding at the time of determination and beneficially
owned by the Holder Group which contain a limitation on conversion, exchange,
exercise or purchase analogous to the Beneficial Ownership Limitation contained
herein.  To the extent that the Beneficial Ownership Limitation contained herein
applies, the determination of whether and to what extent this Note is
convertible (vis-à-vis other Convertible Securities or Options, including
without limitation other Notes, beneficially owned by the Holder Group) shall be
on the basis of first submission to the Company for conversion, exchange,
exercise or purchase, as the case may be, or as otherwise determined in the sole
discretion of the Holder, and the submission of a Notice of Conversion shall be
deemed to be the Holder’s determination of whether and to what extent this Note
is convertible (vis-à-vis such other Convertible Securities or Options), in each
case subject to the Beneficial Ownership Limitation.  In determining the number
of outstanding shares of Common Stock for purposes of calculating the Beneficial
Ownership Limitation, the Holder may rely on the number of outstanding shares of
Common Stock as reflected in (i) the Company’s most recent Periodic Report
containing such information, (ii) a more recent public announcement by the
Company, or (iii) any other notice or disclosure by the Company or the Company’s
Transfer Agent setting forth the number of shares of Common Stock outstanding,
and the Holder may rely on knowledge it may have concerning any shares of Common
Stock issued which are not reflected in the preceding clauses (i) through (iii)
(e.g., issuances to the Holder upon a prior Note conversion since the date as of
which such number of outstanding shares of Common Stock was reported).  Upon the
written or oral request of the Holder, the Company shall within two (2) Business
Days confirm orally and in writing to the Holder the number of shares of Common
Stock then outstanding.  Each delivery of a Notice of Conversion by the Holder
will constitute a representation by the Holder that it has evaluated the
limitation set forth in this Section 4(c) and determined, based on this Section
4(c), that the issuance of the
 
 
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full number of Conversion Shares requested in such Notice of Conversion is
permitted under this Section 4(c), and the Company shall have no obligation to
verify or confirm such determination.  No conversion of this Note in violation
of this Section 4(c) but otherwise in accordance with this Note shall affect the
status of the Conversion Shares as validly issued, fully-paid and
nonassessable.  The Maximum Ownership Percentage shall be 9.9%.  By written
notice to the Company, the Holder may at any time and from time to time increase
or decrease the Maximum Ownership Percentage to any other percentage specified
in such notice (or specify that the Beneficial Ownership Limitation shall no
longer be applicable), provided, however, that (A) any such increase (or
inapplicability) shall not be effective until the sixty-first (61st) day after
such notice is delivered to the Company, (B) any such increase or decrease shall
apply only to the Holder, and (C) the Maximum Ownership Percentage shall not be
less than 4.9%.  The provisions of this Section 4(c) shall be construed and
implemented in a manner otherwise than in strict conformity with the terms of
this Section 4(c) to correct this provision (or any portion hereof) which may be
defective or inconsistent with the intended Beneficial Ownership Limitation
contained herein or to make changes or supplements necessary or desirable to
properly give effect to such limitation.  The Beneficial Ownership Limitation
contained in this Section shall apply to a successor Holder of this Note.  If at
any time the Beneficial Ownership Limitation makes this Note unconvertible in
whole or in part, the Company shall not by reason thereof be relieved of its
obligation to issue shares of Common Stock at any time or from time to time
thereafter upon conversion of this Note as and when shares of Common Stock may
be issued in compliance with such limitation.
 
 
d)  
Mechanics of Conversion.

 
i. Conversion Shares Issuable Upon Conversion of Principal Amount.  The number
of Conversion Shares issuable upon a conversion hereunder shall be determined by
the quotient obtained by dividing (x) the outstanding principal amount of this
Note to be converted plus any accrued but unpaid interest thereon, by (y) the
Conversion Price.

ii. Delivery of Certificate Upon Conversion. Not later than three Trading Days
after each Conversion Date (the “Share Delivery Date”), the Company shall
deliver, or cause to be delivered, to the Holder a certificate or certificates
representing the Conversion Shares which, on or after the Legend Removal Date
and provided that the Conversion Shares may be sold without restrictions
pursuant to the provisions of Rule 144, shall be free of restrictive legends and
trading restrictions (other than those which may then be required by the
Purchase Agreement) representing the number of Conversion Shares being acquired
upon the conversion of this Note.  On or after the date which is six months
following the Original Issue Date on which this Note is issued, the Company
shall use its best efforts to deliver any certificate(s) or shares required to
be delivered by the Company under this Section 4 electronically through the
Depository Trust Company or another established clearing corporation performing
similar functions (provided that to the extent reasonably requested the Holder
may be required to covenant to the Company in writing that it will sell such
shares only in compliance with Rule 144 or Section 4(1) of the Securities Act if
such shares are not registered for resale under the Securities Act).  The
Company’s obligation in the immediately preceding sentence shall not apply with
respect to a Holder that is an Affiliate.
 
 
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iii. Failure to Deliver Certificates.  If in the case of any Notice of
Conversion such certificate(s) or shares are not delivered to or as directed by
the applicable Holder by the third Trading Day after the Conversion Date, the
Holder shall be entitled to elect by written notice to the Company at any time
on or before its receipt of such certificate or certificates, to rescind such
Conversion, in which event the Company shall promptly return to the Holder any
original Note delivered to the Company and the Holder shall promptly return to
the Company the Common Stock certificates representing the principal amount of
this Note unsuccessfully tendered for conversion to the Company.

iv. Obligation Absolute; Partial Liquidated Damages.  The Company’s obligations
to issue and deliver the Conversion Shares upon conversion of this Note 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 the Holder in connection with the issuance of such Conversion Shares;
provided, however, that such delivery shall not operate as a waiver by the
Company of any such action the Company may have against the Holder.  In the
event the Holder of this Note shall elect to convert any or all of the
outstanding principal amount hereof, the Company may not refuse conversion based
on any claim that the Holder or anyone associated or affiliated with the Holder
has been engaged in any violation of law, agreement or for any other reason,
unless an injunction from a court, on notice to the Holder, restraining and or
enjoining conversion of all or part of this Note shall have been sought and
obtained, and the Company posts a surety bond for the benefit of the Holder in
the amount of 150% of the outstanding principal amount of this Note, 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 the Holder to the extent it obtains judgment.  In
the absence of such injunction, the Company shall issue Conversion Shares or, if
applicable, cash, upon a properly noticed conversion.  If the Company fails for
any reason to deliver to the Holder such certificate(s) or shares pursuant to
Section 4(d)(ii) by the second Trading Day after the Share Delivery Date, the
Company shall pay to the Holder, in cash, as liquidated damages and not as a
penalty, for each $1,000 of principal amount being converted, $10 per Trading
Day (increasing to $20 per Trading Day on the fifth Trading Day after such
liquidated damages begin to accrue) for each Trading Day after such second
Trading Day after the Share Delivery Date until such certificates are
delivered.  Nothing herein shall limit a Holder’s right to pursue actual damages
or declare an Event of Default pursuant to Section 8 hereof for the Company’s
failure to deliver Conversion Shares within the period specified herein and the
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.  The exercise of any such rights shall not prohibit
the Holder from seeking to enforce damages pursuant to any other Section hereof
or under applicable law.

 
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v. 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 to deliver to the Holder such certificate(s) or
shares by the Share Delivery Date pursuant to Section 4(d)(ii), and if after
such Share Delivery Date the 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 the Holder of the Conversion Shares which the 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 the Holder (in addition to any other
remedies available to or elected by the Holder) the amount by which (x) the
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 the Holder was entitled 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 the Holder, either reissue (if
surrendered) this Note in a principal amount equal to the principal amount of
the attempted conversion or deliver to the Holder the number of shares of Common
Stock that would have been issued if the Company had timely complied with its
delivery requirements under Section 4(d)(ii).  For example, if the Holder
purchases Common Stock having a total purchase price of $11,000 to cover a
Buy-In with respect to an attempted conversion of this 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) of the immediately preceding sentence, the Company shall be
required to pay the Holder $1,000.  The Holder shall provide the Company written
notice indicating the amounts payable to the 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 deliver certificates representing shares of Common Stock upon
conversion of this Note as required pursuant to the terms hereof, provided that
the liquidated damages provided for in subsection 4(d)(iv) above with respect to
Conversion Shares subject to a Buy-In shall cease accruing on the date on which
the Company pays the Holder such Buy-In amount payable pursuant to this
paragraph if the Holder elects to then cancel such conversion pursuant to clause
(B) above.

 
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vi. Reservation of Shares Issuable Upon Conversion. The Company covenants that
it will at all times reserve and keep available out of its authorized and
unissued shares of Common Stock for the sole purpose of issuance upon conversion
of this Note and payment of interest on this Note, each as herein provided, free
from preemptive rights or any other actual contingent purchase rights of Persons
other than the Holder, not less than such aggregate number of shares of the
Common Stock as shall (subject to the terms and conditions set forth in the
Purchase Agreement) be issuable (taking into account the adjustments of Section
5) upon the conversion of the outstanding principal amount of this Note and
payment of interest hereunder.  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.

vii. Fractional Shares. No fractional shares or scrip representing fractional
shares shall be issued upon the conversion of this Note.  As to any fraction of
a share which the Holder would otherwise be entitled to purchase upon such
conversion, the Company shall at its election, either pay a cash adjustment in
respect of such final fraction in an amount equal to such fraction multiplied by
the Conversion Price or round up to the next whole share.

viii. Transfer Taxes.  The issuance of certificates for shares of the Common
Stock on conversion of this Note shall be made without charge to the Holder
hereof for any documentary stamp or similar taxes that may be payable in respect
of the issue or delivery of such certificates, provided that the Company shall
not be required to pay any tax that may be payable in respect of any transfer
involved in the issuance and delivery of any such certificate upon conversion in
a name other than that of the Holder of this Note and the Company shall not be
required to issue or deliver such certificates unless or until the person or
persons requesting the issuance thereof shall have paid to the Company the
amount of such tax or shall have established to the satisfaction of the Company
that such tax has been paid.

Section 5.                      Certain Adjustments.
 
 
a) Stock Dividends and Stock Splits.  If the Company, at any time while this
Note is outstanding: (A) pays a stock dividend or otherwise makes a distribution
or distributions payable in shares of Common Stock on shares of Common Stock as
a class or any Common Stock Equivalents (which, for avoidance of doubt, shall
not include any shares of Common Stock issued by the Company upon conversion of,
or payment of interest on, the Note); (B) subdivides outstanding shares of
Common Stock into a larger number of shares; (C) combines (including by way of a
reverse stock split) outstanding shares of Common Stock into a smaller number of
shares; or (D) issues, in the event of a reclassification of shares of the
Common Stock, any shares of capital stock of the Company, then the Conversion
Price shall be multiplied by a fraction of which the numerator shall be the
number of shares of Common Stock (excluding any treasury shares of the Company)
outstanding immediately before such event and of which the denominator shall be
the number of shares of Common Stock outstanding immediately after such
event.  Any adjustment made pursuant to this Section shall become effective
immediately after the record date for the determination of stockholders entitled
to receive such dividend or distribution and shall become effective immediately
after the effective date in the case of a subdivision, combination or
re-classification.
 
 
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b) Subsequent Equity Sales.  The Conversion Price is subject to Full Ratchet
Anti-Dilution Adjustment.  Notwithstanding the above sentence, a transaction
with an effective conversion price that is equal to or greater than the
effective conversion price of this Note with substantially similar terms, or on
terms no more favorable to the investor than as provided to the Purchaser under
the Purchase Agreement, shall not be subject to any adjustment under this
Section 5(b).
 
c) Subsequent Rights Offerings.  If the Company, at any time while the Note is
outstanding, shall issue rights, options or warrants to all holders of Common
Stock (and not to Holder) entitling them to subscribe for or purchase shares of
Common Stock at a price per share that is lower than the VWAP on the record date
referenced below, then the Conversion Price shall be multiplied by a fraction of
which the denominator shall be the number of shares of the Common Stock
outstanding on the date of issuance of such rights or warrants plus the number
of additional shares of Common Stock offered for subscription or purchase, and
of which the numerator shall be the number of shares of the Common Stock
outstanding on the date of issuance of such rights or warrants plus the number
of shares which the aggregate offering price of the total number of shares
issued (assuming delivery to the Company in full of all consideration payable
upon exercise of such rights, options or warrants) would purchase at such
VWAP.  Such adjustment shall be made whenever such rights or warrants are
issued, and shall become effective immediately after the record date for the
determination of stockholders entitled to receive such rights, options or
warrants.
 
 
d) Pro Rata Distributions. If the Company, at any time while this Note is
outstanding, distributes to all holders of Common Stock (and not to the Holder
in its capacity as holder of this Note) evidences of its indebtedness or assets
(including cash and cash dividends) or rights or warrants to subscribe for or
purchase any security (other than the Common Stock, which shall be subject to
Section 5(b)), then in each such case the Conversion Price shall be adjusted by
multiplying such Conversion Price in effect immediately prior to the record date
fixed for determination of stockholders entitled to receive such distribution by
a fraction of which the denominator shall be the VWAP determined as of the
record date mentioned above, and of which the numerator shall be such VWAP on
such record date less the then fair market value at such record date of the
portion of such assets or evidence of indebtedness so distributed applicable to
1 outstanding share of the Common Stock as determined by the Board of Directors
of the Company in good faith.  In either case the adjustments shall be described
in a statement delivered to the Holder describing the portion of assets or
evidences of indebtedness so distributed or such subscription rights applicable
to 1 share of Common Stock.  Such adjustment shall be made whenever any such
distribution is made and shall become effective immediately after the record
date mentioned above.

 
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e) Fundamental Transaction. If, at any time while this Note is outstanding, the
Company effects or there otherwise occurs a Fundamental Transaction, then, upon
any subsequent conversion of this Note, the Holder shall have the right to
receive, for each Conversion Share that would have been issuable upon such
conversion immediately prior to the occurrence of such Fundamental Transaction,
the same kind and amount of securities, cash or property as it would have been
entitled to receive upon the occurrence of such Fundamental Transaction if it
had been, immediately prior to such Fundamental Transaction, the holder of 1
share of Common Stock (the “Alternate Consideration”).  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 1 share of Common Stock in such
Fundamental Transaction, and the Company shall apportion the 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 this
Note following such Fundamental Transaction.  To the extent necessary to
effectuate the foregoing provisions, any successor to the Company or surviving
entity in such Fundamental Transaction shall issue to the Holder a new Note
consistent with the foregoing provisions and evidencing the Holder’s right to
convert such Note into Alternate Consideration.  The terms of any agreement
pursuant to which a Fundamental Transaction is effected shall include terms
requiring any such successor or surviving entity to comply with the provisions
of this Section 5(e) and insuring that this Note (or any such replacement
security) will be similarly adjusted upon any subsequent transaction analogous
to a Fundamental Transaction.

f) Calculations.  All calculations under this Section 5 shall be made to the
nearest cent or the nearest 1/100th of a share, as the case may be.  For
purposes of this Section 5, the number of shares of Common Stock deemed to be
issued and outstanding as of a given date shall be the sum of the number of
shares of Common Stock (excluding any treasury shares of the Company) issued and
outstanding.

g) Notice to the Holder.

i. Adjustment to Conversion Price.  Whenever the Conversion Price is adjusted
pursuant to any provision of this Section 5, the Company shall promptly deliver
to each Holder a notice setting forth the Conversion Price after such adjustment
and setting forth a brief statement of the facts requiring such adjustment.

 
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ii. Notice to Allow Conversion by Holder.  If (A) the Company shall declare a
dividend (or any other distribution in whatever form) on the Common Stock as a
class, (B) the Company shall declare a special nonrecurring cash dividend on or
a redemption of the Common Stock as a class, (C) the Company shall authorize the
granting to all holders of the Common Stock of rights or warrants to subscribe
for or purchase any shares of capital stock of any class or of any rights, (D)
the approval of any stockholders of the Company shall be required in connection
with any reclassification of the Common Stock, any consolidation or merger to
which the Company is a party, any sale or transfer of all or substantially all
of the assets of the Company, of any compulsory share exchange whereby the
Common Stock is converted into other securities, cash or property or (E) the
Company shall authorize the voluntary or involuntary dissolution, liquidation or
winding up of the affairs of the Company, then, in each case, the Company shall
cause to be filed at each office or agency maintained for the purpose of
conversion of this Note, and shall cause to be delivered to the Holder at its
last address as it shall appear upon the Note Register, at least 15 calendar
days prior to the applicable record or effective date hereinafter specified, a
notice stating (x) the date on which a record is to be taken for the purpose of
such dividend, distribution, redemption, rights or warrants, or if a record is
not to be taken, the date as of which the holders of the Common Stock of record
to be entitled to such dividend, distributions, redemption, rights or warrants
are to be determined or (y) the date on which such reclassification,
consolidation, merger, sale, transfer or share exchange is expected to become
effective or close, and the date as of which it is expected that holders of the
Common Stock of record shall be entitled to exchange their shares of the Common
Stock for securities, cash or other property deliverable upon such
reclassification, consolidation, merger, sale, transfer or share exchange,
provided that the failure to deliver such notice or any defect therein or in the
delivery thereof shall not affect the validity of the corporate action required
to be specified in such notice.  The Holder is entitled to convert this Note
during the 15-day period commencing on the date of such notice through the
effective date of the event triggering such notice.
 
 
Section 6.                      No Prepayment/Redemption.  The Company may not
prepay or redeem this Note in whole or in part without the prior written consent
of the Holder.

Section 7.                      Negative Covenants. As long as any portion of
this Note remains outstanding, the Company shall not, and shall not permit any
of its subsidiaries (whether or not a Subsidiary on any Closing Date) to,
directly or indirectly:

a) other than Permitted Indebtedness, enter into, create, incur, assume,
guarantee or suffer to exist any Indebtedness for of any kind, including but not
limited to, a guarantee, on or with respect to any of its property or assets now
owned or hereafter acquired or any interest therein or any income or profits
therefrom;

b) other than Permitted Liens, enter into, create, incur, assume or suffer to
exist any Liens of any kind, on or with respect to any of its property or assets
now owned or hereafter acquired or any interest therein or any income or profits
therefrom;
 
 
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c) amend its charter documents, including, without limitation, its certificate
of incorporation and bylaws, in any manner that materially and adversely affects
any rights of the Holder;

d) repay, repurchase or offer to repay, repurchase or otherwise acquire more
than a de minimis number of shares of its Common Stock or Common Stock
Equivalents other than as to the Conversion Shares as permitted or required
under the Transaction Documents and other than the repurchase of shares at a
nominal price from current or former officers, directors or key employees of the
Company pursuant to the terms of written agreements existing on the Original
Issue Date of this Note;

e) repay, repurchase or offer to repay, repurchase or otherwise acquire any
Indebtedness, other than regularly scheduled principal and interest payments as
such terms are in effect as of the Closing Date;

f) repay, repurchase or offer to repay, repurchase or otherwise acquire any
Indebtedness to any current or former employees, officers or directors of the
Company;

g) pay cash dividends or distributions on any equity securities of the Company;

h) enter into any transaction with any Affiliate of the Company which would be
required to be disclosed in any public filing with the Commission, unless such
transaction is made on an arm’s-length basis and expressly approved by a
majority of the directors of the Company other than the Affiliate who is a party
to the transaction (even if less than a quorum otherwise required for board
approval); or

i) enter into any agreement with respect to any of the foregoing.
 
 
Section 8.                      Events of Default.

a) “Event of Default” means, wherever used herein, any of the following events
(whatever the reason for such event and whether such event shall be voluntary or
involuntary or effected by operation of law or pursuant to any judgment, decree
or order of any court, or any order, rule or regulation of any administrative or
governmental body):

              i. any default in the payment of (A) the principal amount of any
Note or (B) interest, liquidated damages and other amounts owing to a Holder on
any Note, as and when the same shall become due and payable (whether on a
Conversion Date or the Maturity Date or by acceleration or otherwise) which
default, solely in the case of an interest payment or other default under clause
(B) above, is not cured within 5 Trading Days;

 
 
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ii. the Company shall fail to observe or perform in any material respect any
other covenant or agreement contained in the Note (other than a breach by the
Company of its obligations to deliver shares of Common Stock to the Holder upon
conversion, which breach is addressed in clause (xi) below) which failure is not
cured, if possible to cure, within the earlier to occur of (A) 10 Trading Days
after notice of such failure sent by the Holder or by any other Holder and (B)
10 Trading Days after the Company has become or should have become aware of such
failure, or the Company shall be in default under the G-Max Note;

iii. a material default or material 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;

iv. any representation or warranty made in this Note, any other Transaction
Document, any written statement pursuant hereto or thereto or any other report,
financial statement or certificate made or delivered to the Holder or any other
Holder shall be untrue or incorrect in any material respect as of the date when
made or deemed made;

v. the Company or any Significant Subsidiary shall be subject to a Bankruptcy
Event;
 
 
vi.  
the Company or any Subsidiary shall default on any of its obligations under any
mortgage, credit agreement or other facility, indenture agreement, factoring
agreement or other instrument under which there may be issued, or by which there
may be secured or evidenced, any Indebtedness, or money due under any long term
leasing or factoring arrangement, including without limitation the G-Max Note,
that (a) involves an obligation greater than $100,000, whether such Indebtedness
now exists or shall hereafter be created, and (b) results in such Indebtedness
becoming or being declared due and payable prior to the date on which it would
otherwise become due and payable;

vii. if at any time the capital stock issuable upon conversion of this Note
shall not be eligible for listing or quotation for trading on an Eligible Market
and shall not be eligible to resume listing or quotation for trading thereon
within five (5) Trading Days;

viii. the Company shall be a party to any Change of Control Transaction or
Fundamental Transaction (other than an Exempt Issuance) or shall agree to sell
or dispose of all or in excess of 33% of its assets (other than inventory in the
ordinary course of business) in one transaction or a series of related
transactions (whether or not such sale would constitute a Change of Control
Transaction);

ix. if at any time after three months following the Closing Date the Company is
not subject to the reporting requirements of Section 13 or 15(d) of the Exchange
Act or has failed to file all reports required to be filed thereunder during the
then preceding 12 months (or such shorter period that the Company was required
to file such reports);

 
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x. if at any time after six months following the Closing Date, all the shares of
Common Stock issued or issuable upon conversion of this Note are not either (i)
freely tradable pursuant to an effective Registration Statement which contains a
current and available Prospectus covering the resale of such shares by the
Holder, or (ii) freely tradable pursuant to Rule 144 without any volume
restrictions, manner of sale requirements or notice requirements (or may be sold
pursuant to Rule 144 with volume restrictions, manner of sale requirements or
notice requirements if the Holder is an Affiliate of the Company), which shall
be confirmed by counsel to the Company (reasonably acceptable to the Holder) in
a legal opinion in form and substance typically provided under Rule 144 and
reasonably acceptable to the Holder;

xi. the Company shall fail for any reason to deliver certificates to a Holder
prior to the fifth Trading Day after a Conversion Date pursuant to Section 4(d)
or the Company shall provide at any time notice to the Holder, including by way
of public announcement, of the Company’s intention to not honor requests for
conversions of the Note in accordance with the terms hereof;

xii. any monetary judgment, writ or similar final judicial or arbitration
process shall be entered or filed against the Company, any subsidiary or any of
their respective property or other assets for more than $100,000, and such
judgment, writ or similar final process shall remain unvacated, unbonded or
unstayed for a period of 45 calendar days; or

xiii. if Dennis J. Carlo ceases to (a) serve in the capacity with the Company in
which he serves as of the Closing Date and (b) perform the duties consistent
with such capacity for similarly situated companies, provided that if such
cessation is due to death, permanent disability, voluntary termination or
termination by the Company for cause, then (A) an Event of Default shall not be
deemed to have occurred unless and until the Company shall have failed to retain
a replacement reasonably acceptable to the Purchaser within 60 days following
such death, permanent disability, voluntary termination or termination by the
Company for cause, and (B) following any such acceptable replacement this clause
shall apply to such replacement in lieu of such person.

b) Remedies Upon Event of Default. While an Event of Default occurs and is
continuing, the outstanding principal amount of this Note, plus accrued but
unpaid interest, liquidated damages and other amounts owing in respect thereof
through the date of acceleration, shall become, at the Holder’s election,
immediately due and payable in cash at the Mandatory Default
Amount.  Notwithstanding any such election to accelerate, upon any Event of
Default (i) the outstanding principal amount hereunder shall be automatically
increased to equal 120% of the outstanding principal hereunder, and (ii) the
 
 
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Conversion Price hereunder shall be automatically adjusted to equal the Default
Conversion Price.  After the occurrence and during the continuance of any Event
of Default, the interest rate on this Note shall accrue at an interest rate
equal to the lesser of 24% per annum or the maximum rate permitted under
applicable law.  Upon the payment in full of the Mandatory Default Amount, the
Holder shall promptly surrender this Note to or as directed by the Company.  In
connection with such acceleration described herein, the Holder need not provide,
and the Company hereby waives, any presentment, demand, protest or other notice
of any kind, and the Holder may immediately and without expiration of any grace
period enforce any and all of its rights and remedies hereunder and all other
remedies available to it under applicable law.  Such acceleration may be
rescinded and annulled by Holder at any time prior to payment hereunder and the
Holder shall have all rights as a holder of the Note until such time, if any, as
the Holder receives full payment pursuant to this Section 8(b).  No such
rescission or annulment shall affect any subsequent Event of Default or impair
any right consequent thereon.  For clarification and without limiting any of the
foregoing, if an Event of Default occurs pursuant to Section 8(a)(x) above, the
Conversion Price hereunder shall automatically be irrevocably adjusted to equal
the Default Conversion Price and the outstanding principal amount hereunder
shall be automatically and irrevocably increased to equal 120% of the
outstanding principal hereunder.

c)  Due on Sale.  If the Company shall be a party to any Change of Control
Transaction or Fundamental Transaction which constitutes an Exempt Issuance,
then the outstanding principal amount of this Note, plus accrued but unpaid
interest, liquidated damages and other amounts owing in respect thereof through
the date of acceleration, shall become, at the Holder’s election, immediately
due and payable in cash.

Section 9.                      Miscellaneous.
 
a) 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, by
email, or sent by a nationally recognized overnight courier service, addressed
to the Company, at the address set forth above, or such other facsimile number,
email address or mailing address as the Company may specify for such purpose by
notice to the Holder delivered in accordance with this Section 9.  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, by email
or sent by a nationally recognized overnight courier service addressed to each
Holder at the facsimile number or address of the Holder appearing on the books
of the Company, or if no such facsimile number or address appears, at the
principal place of business of the Holder.  Except as may otherwise be provided
herein, 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 by email prior to
4:30 p.m. (New York City time) on a Trading Day, with electronic confirmation of
such delivery, (ii) the first Trading Day immediately following the date of
transmission, if such notice or communication is delivered via facsimile or by
email not on a Trading Day or between 4:30 p.m. (New York City time) and  11:59
p.m. (New York City time) on any date, with electronic confirmation of such
delivery, (iii) the second Business 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.  The address,
facsimile and email address for such notices and communications shall be as set
forth on the signature pages attached to the Purchase Agreement.

 
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b) Absolute Obligation. Except as expressly provided herein, no provision of
this Note shall alter or impair the obligation of the Company, which is absolute
and unconditional, to pay the principal of, liquidated damages and accrued
interest, as applicable, on this Note at the time, place, and rate, and in the
coin or currency, herein prescribed.  This Note is a direct debt obligation of
the Company.

c) Lost or Mutilated Note.  If this Note shall be mutilated, lost, stolen or
destroyed, the Company shall execute and deliver, in exchange and substitution
for and upon cancellation of a mutilated Note, or in lieu of or in substitution
for a lost, stolen or destroyed Note, a new Note for the principal amount of
this Note so mutilated, lost, stolen or destroyed, but only upon receipt of
evidence of such loss, theft or destruction of such Note, and of the ownership
hereof, reasonably satisfactory to the Company.

d) Governing Law.  All questions concerning the construction, validity,
enforcement and interpretation of this Note 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 conflict of laws thereof.  Each party agrees
that all legal proceedings concerning the interpretation, enforcement and
defense of the transactions contemplated by any of the Transaction Documents
(whether brought against a party hereto or its respective Affiliates, directors,
officers, shareholders, employees or agents) shall be commenced in the state and
federal courts sitting in the City of New York, Borough of Manhattan (the “New
York Courts”).  Each party hereto hereby 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 (including with respect to the enforcement of any of the
Transaction Documents), and hereby irrevocably 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.  Each party hereby
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.
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 Note or the transactions contemplated hereby.
If either party shall commence an action or proceeding to enforce any provisions
of this Note, then the prevailing party in such action or proceeding shall be
reimbursed by the other party for its reasonable attorney’s fees and other
reasonable costs and expenses reasonably incurred in the investigation,
preparation and prosecution of such action or proceeding.

 
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e) Waiver.  Any waiver by the Company or the Holder of a breach of any provision
of this Note shall not operate as or be construed to be a waiver of any other
breach of such provision or of any breach of any other provision of this
Note.  The failure of the Company or the Holder to insist upon strict adherence
to any term of this Note on one or more occasions shall not be considered a
waiver or deprive that party of the right thereafter to insist upon strict
adherence to that term or any other term of this Note.  Any waiver by the
Company or the Holder must be in writing.

f) Severability.  If any provision of this Note is invalid, illegal or
unenforceable, the balance of this Note shall remain in effect, and if any
provision is inapplicable to any Person or circumstance, it shall nevertheless
remain applicable to all other Persons and circumstances.  If it shall be found
that any interest or other amount deemed interest due hereunder violates the
applicable law governing usury, the applicable rate of interest due hereunder
shall automatically be lowered to equal the maximum rate of interest permitted
under applicable law. The Company covenants (to the extent that it may lawfully
do so) that it shall not at any time insist upon, plead, or in any manner
whatsoever claim or take the benefit or advantage of, any stay, extension or
usury law or other law which would prohibit or forgive the Company from paying
all or any portion of the principal of or interest on this Note as contemplated
herein, wherever enacted, now or at any time hereafter in force, or which may
affect the covenants or the performance of this indenture, and the Company (to
the extent it may lawfully do so) hereby expressly waives all benefits or
advantage of any such law, and covenants that it will not, by resort to any such
law, hinder, delay or impeded the execution of any power herein granted to the
Holder, but will suffer and permit the execution of every such as though no such
law has been enacted.

g) Next Business Day.  Whenever any payment or other obligation hereunder shall
be due on a day other than a Business Day, such payment shall be made on the
next succeeding Business Day.

h) Headings.  The headings contained herein are for convenience only, do not
constitute a part of this Note and shall not be deemed to limit or affect any of
the provisions hereof.

i) Assumption.  Any successor to the Company or any surviving entity in a
Fundamental Transaction shall (i) assume, prior to such Fundamental Transaction,
all of the obligations of the Company under this Note and the other Transaction
Documents pursuant to written agreements in form and substance satisfactory to
the Holder (such approval not to be unreasonably withheld or delayed) and (ii)
issue to the Holder a new Note of such successor entity evidenced by a written
instrument substantially similar in form and substance to this Note, including,
without limitation, having a principal amount and interest rate equal to the
principal amount and the interest rate of this Note and having similar ranking
to this Note, which shall be reasonably satisfactory to the Holder (any such
approval not to be unreasonably withheld or delayed).  The provisions of this
Section 9(i) shall apply similarly and equally to successive Fundamental
Transactions and shall be applied without regard to any limitations of this
Note.

 
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j) Usury.  This Note shall be subject to the anti-usury limitations contained in
the Purchase Agreement.

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

 
 
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IN WITNESS WHEREOF, the Company has caused this Note to be duly executed by a
duly authorized officer as of the date first above indicated.

 

   
ADAMIS PHARMACEUTICALS CORPORATION
         
By:
/s/
   
Name:
Dennis J. Carlo    
Title:
CEO

 
 

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ANNEX A

NOTICE OF CONVERSION

The undersigned hereby elects to convert principal under the 10% Senior
Convertible Note due _______________________ of ADAMIS PHARMACEUTICALS
CORPORATION, a Delaware corporation (the Company”), into shares of common stock
(the “Common Stock”), of the Company according to the conditions hereof, as of
the date written below.  If shares of Common Stock are to be issued in the name
of a person other than the undersigned, the issuance shall comply with the
transfer restrictions in the Purchaser Agreement and the undersigned will pay
all transfer taxes payable with respect thereto and is delivering herewith such
certificates and opinions as reasonably requested by the Company in accordance
therewith.  No fee will be charged to the holder for any conversion, except for
such transfer taxes, if any.

By the delivery of this Notice of Conversion the undersigned represents and
warrants to the Company that its ownership of the Common Stock does not exceed
the amounts specified under Section 4 of this Note, as determined in accordance
with Section 13(d) of the Exchange Act.

The undersigned agrees to comply with the prospectus delivery requirements under
the applicable securities laws in connection with any transfer of the aforesaid
shares of Common Stock pursuant to any prospectus.

Conversion calculations:
 

   
Date to Effect Conversion:
             
Principal Amount of Note to be Converted:
              Interest Accrued on Account
of Conversion at Issue: 
              Number of shares of Common Stock to be issued:              
Signature:                   
Name:
              Address for Delivery of Common Stock Certificates:               
              Or               DWAC Instructions:               Broker No:     
      Account No:   

           
 

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