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Adamis Pharmaceuticals Corporation 8-K [admp-8k_062613.htm]
Exhibit 10.1
 
SUBSCRIPTION AGREEMENT

THIS SUBSCRIPTION AGREEMENT (this “Agreement”), is dated as of June 26, 2013, by
and between Adamis Pharmaceuticals Corporation, a Delaware corporation (the
“Company”), and the subscribers identified on Schedule 1 hereto, which may be
amended from time to time prior to Closing (the “Subscribers”).

WHEREAS, the Company and the Subscribers are executing and delivering this
Agreement in reliance upon an exemption from securities registration afforded by
the provisions of Section 4(2), Section 4(6) and/or Regulation D (“Regulation
D”) as promulgated by the United States Securities and Exchange Commission (the
“Commission”) under the Securities Act of 1933, as amended (the “1933 Act”); and

WHEREAS, the parties desire that, upon the terms and subject to the conditions
contained herein, the Company shall issue and sell to the Subscribers, as
provided herein, and the Subscribers shall purchase for up to $6,300,000
(“Purchase Price”), in the aggregate, (i) convertible secured promissory notes
of the Company (“Note” or “Notes”) having an aggregate principal amount of up to
$7,000,000 (“Principal Amount”), a form of which is annexed hereto as Exhibit A,
convertible into shares of the Company’s common stock, $0.0001 par value (the
“Common Stock”) at a per share conversion price set forth in the Notes
(“Conversion Price”); and (ii) warrants (the “Warrants”) in the form attached
hereto as Exhibit B, to purchase shares of the Company’s Common Stock (the
“Warrant Shares”) (the “Offering”).  The Notes, shares of Common Stock issuable
upon conversion of the Notes (the “Conversion Shares”), the Warrants, and the
Warrant Shares are collectively referred to herein as the “Securities”; and

WHEREAS, Gemini Master Fund, Ltd. (“Gemini”), one of the Subscribers, currently
holds that certain 10% Senior Convertible Note issued to Gemini by the Company
in the original principal amount of $500,000 on or about June 11, 2012 (“Gemini
Note”), which Gemini Note currently has an outstanding balance consisting of
$500,000 in principal and accrued but unpaid interest thereunder; and

WHEREAS, the aggregate proceeds of the sale of the Notes and the Warrants
contemplated hereby, including the Gemini Note, shall be held in escrow by
Grushko & Mittman, P.C., 515 Rockaway Avenue, Valley Stream, New York 11581 (the
“Escrow Agent”) pursuant to the terms of an Escrow Agreement to be executed by
the parties substantially in the form attached hereto as Exhibit C (the “Escrow
Agreement”).

NOW, THEREFORE, in consideration of the mutual covenants and other agreements
contained in this Agreement the Company and the Subscribers hereby agree as
follows:

1.           Closing.

(a)           Subject to the satisfaction or waiver of the terms and conditions
of this Agreement, on the “Closing Date” Subscribers shall purchase and the
Company shall sell to such Subscribers the Notes and Warrants as described in
Section 2 below.  The minimum amount of Purchase Price that a Subscriber may
invest shall not be less than $500,000.  The date the Escrow Agent releases the
funds received from one or more Subscribers to the Company and releases the
Escrow Documents (as defined in the Escrow Agreement) to the parties in
accordance with the provisions of the Escrow Agreement shall be the Closing Date
with respect to such released funds and Escrow Documents, and such release is
referred to herein as the “Closing.”  There shall be only one Closing.

(b)           The Purchase Price payable by each Subscriber hereunder shall
equal 90% of the original principal amount of the Note being purchased by such
Subscriber hereunder.  Each Subscriber’s payment of its Purchase Price hereunder
shall be payable by wire transfer of immediately funds to the Escrow Agent, or,
in the case of Gemini, the surrender of the Gemini Note to the Escrow
Agent.  Gemini’s surrender of the Gemini Note shall constitute payment in full
for its Purchase Price hereunder, and the Notes and Warrants being issued to
Gemini hereunder are being issued in substitution and exchange for the Gemini
Note.   Pursuant to Rule 144 promulgated under the 1933 Act (“Rule 144”), the
holding period for the Note issued to Gemini hereunder (and the Conversion
Shares thereunder) shall tack back to June 11, 2012 (the original issue date of
the Gemini Note).  Subject to the remainder of this Section, the Company agrees
not to take a position contrary to this paragraph, and the Company agrees to
take all actions, including without limitation the issuance by its legal counsel
of any necessary legal opinions, necessary to issue such Conversion Shares
without restriction and not containing any restrictive legend without the need
for any action by Gemini.  Notwithstanding anything contained herein or the
other Transaction Documents, Gemini agrees that it will not sell, transfer or
otherwise dispose of any Conversion Shares until the earliest to occur of (i)
the Effective Date of the Registration Statement (as such terms are defined
below), (ii) the date which is six months following the Closing Date, or (iii)
the date on which all of Conversion Shares issued or issuable to the other
Subscribers may otherwise be freely sold by such other Subscribers pursuant to
Rule 144 or otherwise.

2.           Notes and Warrants.

(a)           Notes.   Subject to the satisfaction or waiver of the terms and
conditions of this Agreement, on the Closing Date, each Subscriber shall
purchase from the Company, and the Company shall sell to each such Subscriber, a
Note in the Principal Amount designated on Schedule 1 hereto for each such
Subscriber’s Purchase Price indicated thereon.
 
 
 

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(b)           Warrants.  On the Closing Date, the Company will issue and deliver
the Warrants to the Subscribers.  A Warrant to purchase one Warrant Share for
each Conversion Share issuable upon conversion of the Notes at the Conversion
Price in effect on the Closing Date.  The initial exercise price to acquire a
Warrant Share upon exercise of a Warrant shall be 110% of the closing price of
the Common Stock as reported by Bloomberg L.P. for the Principal Market [as
defined in Section 9(b)] for the last Trading Day preceding the Closing Date,
subject to reduction as described in the Warrants.  The Warrants shall be
exercisable until five years after the issue date of the Warrants.

(c)           Allocation of Purchase Price.   The Purchase Price will be
allocated by each Subscriber, at each Subscriber’s election, among the
components of the Securities so that each component of the Securities will be
fully paid and non-assessable, and acquired for value.

3.           Security Interest.   On the Closing Date, the Subscribers will
appoint a collateral agent (the “Collateral Agent”) to act on behalf of the
Subscribers as set forth in a “Security Agreement,” a form of which is annexed
hereto as Exhibit D.  The Collateral Agent will be granted a senior security
interest in the assets of the Company on behalf of the Subscribers, which
security interest will be memorialized in the Security Agreement.  The Company
will acknowledge the appointment of the Collateral Agent to act on behalf of the
Subscribers as set forth in the Security Agreement.   The Company will execute
such other agreements, documents and financing statements reasonably requested
by the Subscribers and the Collateral Agent to memorialize and further protect
the security interest described herein, which will be filed at the Company’s
expense with the jurisdictions, states and counties reasonably designated by the
Subscribers.  Subsequent to the Closing, the Company will also execute all such
documents reasonably necessary in the opinion of the Collateral Agent to
memorialize and further protect the security interest described herein which
will be prepared and filed at the Company’s expense with the jurisdictions,
states and filing offices designated by the Collateral Agent.
 
 
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4.           Subscriber Representations and Warranties.  Each of the Subscribers
hereby represents and warrants to and agrees with the Company with respect only
to such Subscriber that:

(a)           Organization and Standing of the Subscriber.  Subscriber, to the
extent applicable, is an entity duly formed, validly existing and in good
standing under the laws of the jurisdiction of its formation.

(b)           Authorization and Power.  Such Subscriber has the requisite power
and authority to enter into and perform this Agreement and the other Transaction
Documents (as defined herein) and to purchase the Note and Warrants being sold
to it hereunder.  The execution, delivery and performance of this Agreement and
the other Transaction Documents by such Subscriber and the consummation by it of
the transactions contemplated hereby and thereby have been duly authorized by
all necessary corporate or similar action, and no further consent or
authorization of Subscriber or its board of directors, members or stockholders,
if applicable, is required.  This Agreement and the other Transaction Documents
have been duly authorized, executed and delivered by such Subscriber and
constitutes, or shall constitute, when executed and delivered, a valid and
binding obligation of such Subscriber, enforceable against Subscriber in
accordance with the terms thereof.

(c)           No Conflicts.  The execution, delivery and performance of this
Agreement and the other Transaction Documents and the consummation by such
Subscriber of the transactions contemplated hereby and thereby or relating
hereto do not and will not (i) result in a violation of such Subscriber’s
charter documents, bylaws or other organizational documents, if applicable; (ii)
conflict with nor constitute a default (or an event which with notice or lapse
of time or both would become a default) under any agreement to which such
Subscriber is a party; or (iii) result in a violation of any law, rule, or
regulation, or any order, judgment or decree of any court or governmental agency
applicable to such Subscriber or its properties (except for such conflicts,
defaults and violations as would not, individually or in the aggregate, have a
material adverse effect on Subscriber).  Such Subscriber is not required to
obtain any consent, authorization or order of, or make any filing or
registration with, any court or governmental agency in order for it to execute,
deliver or perform any of its obligations under this Agreement and the other
Transaction Documents  nor to purchase the Securities in accordance with the
terms hereof, provided that for purposes of the representation made in this
sentence, such Subscriber is assuming and relying upon the accuracy of the
relevant representations and agreements of the Company herein.

(d)           Information on Company.   Such Subscriber has been furnished with
or has had access to the EDGAR Website of the Commission to the Company’s
filings made with the Commission during the period from the date that is two
years preceding the date hereof through the tenth Business Day (as defined in
Section 13(h) herein) preceding the Closing Date (including the documents filed
as exhibits to such filings, hereinafter referred to collectively as the
“Reports”).  Subscribers are not deemed to have any knowledge of any information
not included in the Reports unless such information is delivered in the manner
described in the next sentence.  In addition, such Subscriber may have received
in writing from the Company such other information concerning its operations,
financial condition and other matters as such Subscriber has requested in
writing, identified thereon as OTHER WRITTEN INFORMATION (such other information
is collectively, the “Other Written Information”), and considered all factors
such Subscriber deems material in deciding on the advisability of investing in
the Securities.  Such Subscriber was afforded (i) the opportunity to ask such
questions as such Subscriber deemed necessary of, and to receive answers from,
representatives of the Company concerning the merits and risks of acquiring the
Securities; (ii) the right of access to information about the Company and its
financial condition, results of operations, business, properties, management and
prospects sufficient to enable such Subscriber to evaluate the Securities; and
(iii) the opportunity to obtain such additional information that the Company
possesses or can acquire without unreasonable effort or expense that is
necessary to make an informed investment decision with respect to acquiring the
Securities.
 
 
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(e)           Information on Subscriber.   Such Subscriber is, and will be at
the time of the conversion of the Notes, exercise of the Warrants, an
“accredited investor,” as such term is defined in Regulation D promulgated by
the Commission under the 1933 Act, is experienced in investments and business
matters, has made investments of a speculative nature and has purchased
securities of United States publicly-owned companies in private placements in
the past and, with its representatives, has such knowledge and experience in
financial, tax and other business matters as to enable such Subscriber to
utilize the information made available by the Company to evaluate the merits and
risks of and to make an informed investment decision with respect to the
proposed purchase, which represents a speculative investment.  Such Subscriber
has the authority and is duly and legally qualified to purchase and own the
Securities.  Such Subscriber is able to bear the risk of such investment for an
indefinite period and to afford a complete loss thereof.  The information set
forth on Schedule 1 hereto regarding such Subscriber is accurate.

(f)           Purchase of Notes and Warrants.  On the Closing Date, such
Subscriber will purchase the Note and Warrants as principal for its own account
and not with a view toward, or for resale in connection with, the public sale or
any distribution thereof.

(g)           Restricted Securities.   Such Subscriber understands that the
Securities have not been registered under the 1933 Act nor under any state
securities laws or regulations and such Subscriber shall not sell, offer to
sell, assign, pledge, hypothecate or otherwise transfer any of the Securities
unless pursuant to an effective registration statement under the 1933 Act, or
unless an exemption from registration is available.  Notwithstanding anything to
the contrary contained in this Agreement, such Subscriber may transfer (without
restriction and without the need for an opinion of counsel) the Securities to
its Affiliates (as defined below), provided that each such Affiliate is an
“accredited investor,” as such term is defined under Regulation D, and such
Affiliate agrees in writing to be bound by the terms and conditions of this
Agreement.  For the purposes of this Agreement, an “Affiliate” of any person or
entity means any other person or entity directly or indirectly controlling,
controlled by or under direct or indirect common control with such person or
entity.   For purposes of this definition, “control” means the power to direct
the management and policies of such person, directly or indirectly, whether
through the ownership of voting securities, by contract or otherwise.   In any
event, and subject to compliance with applicable securities laws, commencing 180
days after the Closing Date, Subscriber may enter into lawful hedging
transactions in the course of hedging the position they assume and the
Subscriber may also enter into lawful Short Sales or other derivative
transactions relating to the Securities, or interests in the Securities, and
deliver the Securities, or interests in the Securities, to close out their short
or other positions or otherwise settle other transactions, or loan or pledge the
Securities, or interests in the Securities, to third parties who in turn may
dispose of these Securities.  Subscriber agrees not to engage in Short Sales
prior to 180 days after the Closing Date.  “Short Sales” means all “short sales”
as defined in rule 200 of Regulation SHO under the Exchange Act (but shall not
be deemed to include the location and/or reservation of borrowable shares of
Common Stock).
 
 
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(h)           Conversion Shares and Warrant Shares Legend.  The Conversion
Shares and Warrant Shares shall bear the following or similar legend:

“THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAS NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, NOR APPLICABLE
STATE SECURITIES LAWS.  THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD,
TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
(B) AN OPINION OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER), IN A
FORM REASONABLY ACCEPTABLE TO THE COMPANY, THAT REGISTRATION IS NOT REQUIRED
UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID
ACT.  NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION
WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED
BY THE SECURITIES.”

(i)           Notes and Warrants Legend.  The Notes and Warrants shall bear the
following legend:

“NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE
NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE [CONVERTIBLE
-OR-  EXERCISABLE] HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR APPLICABLE STATE SECURITIES LAWS.  THE SECURITIES MAY NOT BE OFFERED
FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR (B) AN OPINION OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE
HOLDER), IN A FORM REASONABLY ACCEPTABLE TO THE COMPANY, THAT REGISTRATION IS
NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE
144A UNDER SAID ACT.  NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE
PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING
ARRANGEMENT SECURED BY THE SECURITIES.”

(j)           Communication of Offer.  The offer to sell the Securities was
directly communicated to such Subscriber by the Company.  At no time was such
Subscriber presented with or solicited by any leaflet, newspaper or magazine
article, radio or television advertisement, or any other form of general
advertising or solicited or invited to attend a promotional meeting otherwise
than in connection and concurrently with such communicated offer.

(k)           No Governmental Review.  Such Subscriber understands that no
United States federal or state agency or any other governmental or state agency
has passed on or made recommendations or endorsement of the Securities or the
suitability of the investment in the Securities nor have such authorities passed
upon or endorsed the merits of the offering of the Securities.

(l)            Correctness of Representations.  Subscriber represents that the
foregoing representations and warranties are true and correct as of the date
hereof and, unless Subscriber otherwise notifies the Company prior to the
Closing Date, shall be true and correct as of the Closing Date.

(m)           Independent Decision.  The decision of such Subscriber to purchase
Securities has been made by such Subscriber independently of any other
Subscriber and independently of any information, materials, statements or
opinions as to the business, affairs, operations, assets, properties,
liabilities, results of operations, condition (financial or otherwise) or
prospects of the Company which may have been made or given by any other
Subscriber or by any agent or employee of any other Subscriber, and no
Subscriber or any of its agents or employees shall have any liability to any
other Subscriber (or any other person) relating to or arising from any such
information, materials, statements or opinions.
 
 
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(n)           No General Solicitation.  Such Subscriber is not purchasing the
Securities as a result of any advertisement, article, notice or other
communication regarding the Securities published in any newspaper, magazine or
similar media or broadcast over television or radio or presented at any seminar
or any other general solicitation or general advertisement.

(o)           Survival.  The foregoing representations and warranties shall
survive the Closing Date.

5.           Company Representations and Warranties.  Except as set forth in the
Schedules or in the Reports, the Company represents and warrants to and agrees
with each Subscriber that:

(a)           Due Incorporation.   The Company is a corporation duly
incorporated, validly existing and in good standing under the laws of the
jurisdiction of its incorporation and has the requisite corporate power to own
its properties and to carry on its business as presently conducted.  The Company
is duly qualified as a foreign corporation to do business and is in good
standing in each jurisdiction where the nature of the business conducted or
property owned by it makes such qualification necessary, other than those
jurisdictions in which the failure to so qualify would not have a Material
Adverse Effect (as defined herein).  For purposes of this Agreement, a “Material
Adverse Effect” shall mean a material adverse effect on the financial condition,
results of operations, properties or business of the Company and its
Subsidiaries taken as a whole.  For purposes of this Agreement, “Subsidiary”
means, with respect to any entity at any date, any direct or indirect
corporation, limited or general partnership, limited liability company, trust,
estate, association, joint venture or other business entity of which (A) more
than 30% of (i) the outstanding capital stock having (in the absence of
contingencies) ordinary voting power to elect a majority of the board of
directors or other managing body of such entity, (ii) in the case of a
partnership or limited liability company, the interest in the capital or profits
of such partnership or limited liability company or (iii) in the case of a
trust, estate, association, joint venture or other entity, the beneficial
interest in such trust, estate, association or other entity business is, at the
time of determination, owned or controlled directly or indirectly through one or
more intermediaries, by such entity, or (B) is under the actual control of the
Company.  The Company represents that as of the date of this Agreement and the
Closing Date, the Company owns the Subsidiaries identified on Schedule 5(a) and
the amount of equity of each such Subsidiary as set forth on Schedule 5(a).  The
Company further represents that other than the name “Cellegy Pharmaceuticals,
Inc.,” it has not been known by any other names for the five (5) years preceding
the date of this Agreement.  The value of the assets of the Company’s Biosyn,
Inc. Subsidiary is not significant and is insignificant relative to the value of
the Company as a whole.  So long as any Notes are outstanding, without the prior
written Consent of the Subscribers, the Company shall not transfer, or permit
any Affiliate of the Company to transfer, any significant dollar amount or value
of assets to Biosyn, and the Company shall ensure that Biosyn  does not engage
in any operations other than operations that are immaterial relative to the
value of Biosyn.  The Company further represents that the Company and each of
its Subsidiaries owns no real property.  Upon occurrence of an Event of Default
that is not cured during any applicable cure period, the Company shall cause
Biosyn to deliver to the Subscribers an executed Additional Debtor Joinder and
Subsidiary Guaranty.

(b)           Outstanding Stock.  All issued and outstanding shares of capital
stock and equity interests in the Company have been duly authorized and validly
issued and are fully paid and non-assessable.
 
 
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(c)           Authority; Enforceability.  This Agreement, the Notes, Warrants,
Security Agreement, Subsidiary Guarantees, Intercreditor Agreement, Waiver and
Consent Agreement, the Escrow Agreement, and any other agreements delivered or
required to be delivered together with or pursuant to this Agreement or in
connection herewith (collectively “Transaction Documents”) have been duly
authorized, executed and delivered by the Company and are valid and binding
agreements of the Company enforceable in accordance with their terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditors’ rights
generally and to general principles of equity.   The Company has full corporate
power and authority necessary to enter into and deliver the Transaction
Documents and to perform its obligations thereunder.

(d)           Capitalization and Additional Issuances.   The authorized and
outstanding capital stock of the Company on a fully diluted basis and all
outstanding rights to acquire or receive, directly or indirectly, any equity of
the Company or any Subsidiary as of the date of this Agreement and the Closing
Date (not including the Securities) are set forth on Schedule 5(d).  Except as
set forth on Schedule 5(d), there are no options, warrants, or rights to
subscribe to, securities, rights, understandings or obligations convertible into
or exchangeable for or granting any right to subscribe for any shares of capital
stock or other equity interest of the Company.  The only officer, director,
employee and consultant stock option or stock incentive plans or similar plans
currently in effect or currently contemplated by the Company (as the same may be
amended only to extend the expiration of the term of the plan) are described in
the Reports.  Except as set forth on Schedule 5(d), there are no preemptive
rights, rights of first refusal, rights of participation or any similar right to
participate in the transactions contemplated by the Transaction Documents.

(e)           Consents.  No consent, approval, authorization or order of any
court, governmental agency or body or arbitrator having jurisdiction over the
Company, Subsidiaries or any of their Affiliates, any Principal Market [as
defined in Section 9(b)], or the Company’s stockholders (except for such
stockholder approvals, if any, as may be required in order to increase the
number of authorized shares of Common Stock under the Company’s amended and
restated certificate of incorporation if required by virtue of anti-dilution or
other adjustments to the conversion price or the exercise price of the Notes or
Warrants after the Closing Date) is required for the execution by the Company of
the Transaction Documents and compliance and performance by the Company of its
obligations under the Transaction Documents, including, without limitation, the
issuance and sale of the Securities.  The Transaction Documents and the
Company’s performance of its obligations thereunder have been approved by the
Company’s board of directors in accordance with the Company’s certificate of
incorporation and applicable law.  Any such qualifications and filings will, in
the case of qualifications, be effective upon Closing and will, in the case of
filings, be made within the time prescribed by law.

(f)           No Violation or Conflict.  Except as set forth on Schedule 5(f),
and subject to the execution and receipt of the approvals set forth in Schedule
5(f) and assuming the representations and warranties of the Subscriber in
Section 4 are true and correct, neither the issuance nor the sale of the
Securities nor the performance of the Company’s obligations under the
Transaction Documents by the Company, will:

(i)           violate, conflict with, result in a breach of, or constitute a
default (or an event which with the giving of notice or the lapse of time or
both would be reasonably likely to constitute a default) under (A) the articles
or certificate of incorporation, charter or bylaws of the Company, (B) to the
Company’s knowledge, any decree, judgment, order, law, treaty, rule, regulation
or determination applicable to the Company of any court, governmental agency or
body, or arbitrator having jurisdiction over the Company or over the properties
or assets of the Company or any of its Affiliates, (C) the terms of any bond,
debenture, note or any other evidence of indebtedness, or any agreement, except
for third party license agreements, stock option or other similar plan,
indenture, lease, mortgage, deed of trust or other instrument to which the
Company or any of its Affiliates is a party, by which the Company or any of its
Affiliates is bound, or to which any of the properties of the Company or any of
its Affiliates is subject, or (D) the terms of any “lock-up” or similar
provision of any underwriting or similar agreement to which the Company, or any
of its Affiliates is a party, except in each of the above cases the violation,
conflict, breach, or default of which would not have a Material Adverse Effect;
or

 
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(ii)          result in the creation or imposition of any lien, charge or
encumbrance upon the Securities or any of the assets of the Company or any of
its Affiliates except in favor of each Subscriber as described herein; or

(iii)         other than those that will have been validly waived as of the
Closing, result in the activation of any rights of first refusal, participation
rights, pre-emptive rights, anti-dilution rights or a reset or repricing of any
debt, equity or security instrument of any creditor or equity holder of the
Company, or the holder of the right to receive any debt, equity or security
instrument of the Company nor result in the acceleration of the due date of any
obligation of the Company; or

(iv)         result in the triggering of any piggy-back or other registration
rights that have not been waived as of the Closing of any person or entity
holding securities of the Company or having the right to receive securities of
the Company.

(g)           The Securities.  The Securities upon issuance:

(i)           are, or will be, free and clear of any security interests, liens,
claims or other encumbrances, subject only to restrictions upon transfer under
the 1933 Act and any applicable state securities laws;

(ii)          have been, or will be, duly and validly authorized and on the
dates of issuance of the Notes, Warrants, the Conversion Shares upon conversion
of the Notes, and the Warrant Shares upon exercise of the Warrants, such Notes,
Warrants, Conversion Shares and Warrant Shares will be duly and validly issued,
fully paid and non-assessable and if registered pursuant to the 1933 Act and
resold pursuant to an effective registration statement or an exemption from
registration, will be free trading, unrestricted and unlegended;

(iii)         will not have been issued or sold in violation of any preemptive
or other similar rights of the holders of any securities of the Company or
rights to acquire securities or debt of the Company;

(iv)         will not subject the holders thereof to personal liability by
reason of being such holders;
 
(v)         assuming the representations and warranties of the Subscribers as
set forth in Section 4 hereof are materially true and correct, will not result
in a violation of Section 5 under the 1933 Act.

(h)           Litigation.  Other than as disclosed in the Reports, there is no
pending or, to the best knowledge of the Company, threatened action, suit,
proceeding or investigation before any court, governmental agency or body, or
arbitrator having jurisdiction over the Company or any of its Affiliates that
would affect the execution by the Company or the complete and timely performance
by the Company of its obligations under the Transaction Documents.  Except as
disclosed in the Reports, there is no pending or, to the best knowledge of the
Company, basis for or threatened action, suit, proceeding or investigation
before any court, governmental agency or body, or arbitrator having jurisdiction
over the Company, or any of its Affiliates which litigation if adversely
determined would have a Material Adverse Effect.
 
 
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(i)            No Market Manipulation.  The Company and its Affiliates have not
taken, and will not take, directly or indirectly, any action designed to, or
that might reasonably be expected to, cause or result in stabilization or
manipulation of the price of the Common Stock to facilitate the sale or resale
of the Securities or affect the price at which the Securities may be issued or
resold in violation of Regulation M promulgated under the 1934 Act.

(j)            Information Concerning Company.  As of the date of this Agreement
and the Closing Date, the Reports and Other Written Information contain all
material information relating to the Company and its operations and financial
condition as of their respective dates required to be disclosed therein. Since
March 31, 2012, and except as disclosed in the Reports or modified in the
Reports and Other Written Information or in the Schedules hereto, there has been
no Material Adverse Effect relating to the Company’s business, financial
condition or affairs. The Reports and Other Written Information including the
financial statements included therein do not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, taken as a whole, not misleading in
light of the circumstances and when made.  The financial statements of the
Company included in the Reports comply as to form in all material respects with
applicable accounting requirements and the published rules and regulations of
the Commission or other applicable rules and regulations with respect
thereto.  Such financial statements have been prepared in accordance with United
States generally accepted accounting principles (“GAAP”) applied on a consistent
basis during the periods involved (except (i) as may be otherwise indicated in
such financial statements or the notes thereto or (ii) in the case of unaudited
interim statements, to the extent they may not include footnotes or may be
condensed or summary statements), and fairly present in all material respects
the financial position of the Company and Subsidiaries as of the dates thereof
and the results of operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments).

(k)           Solvency.  Based on the consolidated financial condition of the
Company as of the Closing Date, after giving effect to the receipt by the
Company of the proceeds from the Offering, (i) the Company’s fair saleable value
of its assets exceeds the amount that will be required to be paid on or in
respect of the Company’s existing debts and other liabilities (including known
contingent liabilities) as they mature; (ii) the Company’s assets do not
constitute unreasonably small capital to carry on its business for the current
fiscal year as now conducted and as proposed to be conducted including its
capital needs taking into account the particular capital requirements of the
business conducted by the Company, and projected capital requirements and
capital availability thereof; and (iii) the current cash flow of the Company,
together with the proceeds the Company would receive, were it to liquidate all
of its assets, after taking into account all anticipated uses of the cash, would
be sufficient to pay all amounts on or in respect of its debt when such amounts
are required to be paid.  The Company does not intend to incur debts beyond its
ability to pay such debts as they mature (taking into account the timing and
amounts of cash to be payable on or in respect of its debt).

(l)            Defaults.  The Company is not in violation of its certificate of
incorporation or bylaws.   To its knowledge, the Company is (i) not in default
under or in violation of any other material agreement or instrument to which it
is a party or by which it or any of its properties are bound or affected, which
default or violation would have a Material Adverse Effect, (ii) not in default
with respect to any order of any court, arbitrator or governmental body or
subject to or party to any order of any court or governmental authority arising
out of any action, suit or proceeding under any statute or other law respecting
antitrust, monopoly, restraint of trade, unfair competition or similar matters
which default would have a Material Adverse Effect, or (iii) not in violation of
any statute, rule or regulation of any governmental authority which violation
would have a Material Adverse Effect.
 
 
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(m)          No Integrated Offering.   Except as set forth on Schedule 5(m),
neither the Company, nor any of its Affiliates, nor any person acting on its or
their behalf, has directly or indirectly made any offers or sales of any
security of the Company nor solicited any offers to buy any security of the
Company under circumstances that would cause the offer of the Securities
pursuant to this Agreement to be integrated with prior offerings by the Company
for purposes of the 1933 Act in a way that would jeopardize the availability of
any applicable federal or state securities law exemption for the offer and sale
of the Securities, or any applicable stockholder approval provisions of,
including, without limitation, under the rules and regulations of the OTCQB [as
defined in Section 5(v)], if any.  No prior offering will impair the exemptions
relied upon in this Offering or the Company’s ability to timely comply with its
obligations hereunder.  Neither the Company nor any of its Affiliates will take
any action or suffer any inaction or conduct any offering other than the
transactions contemplated hereby that may be integrated with the offer or
issuance of the Securities or that would impair the exemptions relied upon in
this Offering or the Company’s ability to timely comply with its obligations
hereunder.

(n)           No General Solicitation.  Neither the Company, nor any of its
Affiliates, nor to its knowledge, any person acting on its or their behalf, has
engaged in any form of general solicitation or general advertising (within the
meaning of Regulation D under the 1933 Act) in connection with the offer or sale
of the Securities.

(o)           No Undisclosed Liabilities.  The Company has no liabilities or
obligations that should be disclosed in its financial statements in accordance
with GAAP which are material, individually or in the aggregate, other than those
set forth on its financial statements contained in the Reports or those incurred
in the ordinary course of the Company’s business since March 31, 2012, and
which, individually or in the aggregate, would reasonably be expected to have a
Material Adverse Effect.

(p)           No Undisclosed Events or Circumstances.  Since March 31, 2012,
except as disclosed in the Reports, no event or circumstance has occurred or
exists with respect to the Company or its businesses, properties, operations or
financial condition, that, under applicable law, rule or regulation, requires
public disclosure or announcement prior to the date hereof by the Company but
which has not been so publicly announced or disclosed in the Reports.

(q)           Dilution.   The Company’s executive officers and directors
understand the nature of the Securities being sold hereby and recognize that the
issuance of the Securities will have a potential dilutive effect on the equity
holdings of other holders of the Company’s equity or rights to receive equity of
the Company.  The board of directors of the Company has concluded, in its good
faith business judgment, that the issuance of the Securities is in the best
interests of the Company.  The Company specifically acknowledges that its
obligation to issue the Conversion Shares upon conversion of the Notes and the
Warrant Shares upon exercise of the Warrants is binding upon the Company and
enforceable regardless of the dilution such issuance may have on the ownership
interests of other stockholders of the Company or parties entitled to receive
equity of the Company.

(r)            No Disagreements with Accountants and Lawyers.  There are no
material disagreements of any kind presently existing, or reasonably anticipated
by the Company to arise between the Company and the accountants and lawyers
previously and presently employed by the Company, including but not limited to
disputes or conflicts over payment owed to such accountants and lawyers, nor
have there been any such disagreements during the two years prior to the Closing
Date.  The Company’s accounting firm is set forth on Schedule 5(r).  To the
knowledge and belief of the Company, such accounting firm: (i) is a registered
public accounting firm as required by the Exchange Act and (ii) shall express
its opinion with respect to the financial statements to be included in the
Company’s Annual Report for the fiscal year ending March 31, 2013.

 
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(s)           Investment Company.  Neither the Company nor any Affiliate of the
Company is an “investment company” within the meaning of the Investment Company
Act of 1940, as amended.

(t)            Foreign Corrupt Practices.   Neither the Company, nor to the
knowledge of the Company, any agent or other person acting on behalf of the
Company, has (i) directly or indirectly, used any funds for unlawful
contributions, gifts, entertainment or other unlawful expenses related to
foreign or domestic political activity, (ii) made any unlawful payment to
foreign or domestic government officials or employees or to any foreign or
domestic political parties or campaigns from corporate funds, (iii) failed to
disclose fully any contribution made by the Company (or made by any person
acting on its behalf of which the Company is aware) which is  in violation of
law, or (iv) violated in any material respect any provision of the Foreign
Corrupt Practices Act of 1977, as amended.

(u)           Reporting Company/Shell Company.  The Company is a publicly-held
company subject to reporting obligations pursuant to Section 13 of the
Securities Exchange Act of 1934, as amended (the “1934 Act”), and has a class of
securities registered pursuant to Section 12(g) of the 1934 Act.  Pursuant to
the provisions of the 1934 Act, the Company has timely filed all reports and
other materials required to be filed thereunder with the Commission during the
preceding twelve months.  As of the Closing Date, the Company is not a “shell
company” nor a “former shell company” as those terms are employed in Rule 144
under the 1933 Act.

(v)           Listing.  The Company’s Common Stock is quoted on the OTC QB
Marketplace of the OTC Market Groups, Inc. (“OTCQB”) under the symbol ADMP.  The
Company has not received any pending oral or written notice that its Common
Stock is not eligible nor will become ineligible for quotation on the OTCQB nor
that its Common Stock does not meet all requirements for the continuation of
such quotation.

(w)          DTC Status.  The Company’s transfer agent is a participant in and
the Common Stock is eligible for transfer pursuant to the Depository Trust
Company Automated Securities Transfer Program.   The name, address, telephone
number, fax number, contact person and email address of the Company transfer
agent is set forth on Schedule 5(w) hereto.

(x)            Title to Assets.  The Company owns no real property.  Except as
may be sold in the ordinary course of business, the Company has good title to
all of its personal property reflected in the Reports as owned by the Company,
free and clear of any mortgages, pledges, charges, liens, security interests or
other encumbrances, except for those that, individually or in the aggregate, do
not cause and are not reasonably likely to cause a Material Adverse Effect.  All
leases of the Company are valid and subsisting and in full force and effect.

(y)           Compliance with Law. To its knowledge, the business of the Company
has been and is presently being conducted in accordance with all applicable
federal, state, local and foreign governmental laws, rules, regulations and
ordinances, except for such noncompliance that, individually or in the
aggregate, would not cause a Material Adverse Effect. The Company has all
franchises, permits, licenses, consents and other governmental or regulatory
authorizations and approvals necessary for the conduct of its business as now
being conducted by it unless the failure to possess such franchises, permits,
licenses, consents and other governmental or regulatory authorizations and
approvals, individually or in the aggregate, would not reasonably be expected to
have a Material Adverse Effect.
 
 
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(z)            Taxes. The Company has accurately prepared and filed all federal,
state, foreign and other tax returns required by law to be filed by it, has paid
or made provisions for the payment of all taxes shown to be due and all
additional assessments, and adequate provisions have been and are reflected in
the financial statements of the Company for all current taxes and other charges
to which the Company is subject and that are not currently due and payable. None
of the federal income tax returns of the have been audited by the Internal
Revenue Service (the “IRS”). The Company has no knowledge of any additional
assessments, adjustments or contingent tax liability (whether federal or state)
of any nature whatsoever, whether pending or threatened against the Company for
any completed tax period, nor of any basis for any such assessment, adjustment
or contingency.

(aa)         Intellectual Property.

(i)            The term “Intellectual Property Rights” includes:

1.    
 the Company’s rights regarding the name of the Company and each Subsidiary and
all fictional business names, trading names, registered and unregistered
trademarks, service marks, and applications of the Company and each Subsidiary
owned by the Company that are (A) identified in the Reports, or (B) material for
the operation of the Company’s businesses as it is currently conducted or as
represented, in writing, to the Purchaser to be conducted (collectively,
“Marks'');

2.    
all patents, patent applications, and inventions and discoveries that may be
patentable and in each case that are owned by the Company or any
Subsidiary  that are (A) identified in the Reports, or (B) material for the
operation of the Company’s businesses as it is currently conducted or as
represented, in writing, to the Purchaser to be conducted (collectively,
“Patents'');

 
3.    
all copyrights in both published works and published works owned by the Company
or any Subsidiary that are (A) identified in the Reports, or (B) material for
the operation of the Company’s businesses as it is currently conducted or as
represented, in writing, to the Purchaser to be conducted (collectively,
“Copyrights”);

 
4.    
all rights in mask works owned by the Company or any Subsidiary (collectively,
“Rights in Mask Works''); and

 
5.    
all know-how, trade secrets, confidential information, customer lists, software,
technical information, data, process technology, plans, drawings, and blue
prints (collectively, “Trade Secrets''); owned by the Company or any Subsidiary
that are (A) identified in the Reports, or (B) material for the operation of the
Company’s businesses as it is currently conducted or as represented, in writing,
to the Purchaser to be conducted.

 
(ii)           Agreements. There are no outstanding and, to Company’s knowledge,
no threatened disputes or disagreements with respect to any agreements relating
to any Intellectual Property Rights to which the Company is a party or by which
the Company is bound.
 
 
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(iii)          Know-How Necessary for the Business.  Except for such instances,
if any, as would not, individually or in the aggregate, reasonably be expected
to have a Material Adverse Effect, the Intellectual Property Rights (together
with intellectual property rights licensed by the Company) are all those
necessary for the operation of the Company’s businesses as it is currently
conducted or as represented, in writing, to the Purchaser to be conducted. The
Company is the owner of all right, title, and interest in and to each of the
Intellectual Property Rights, free and clear of all liens, security interests,
charges, encumbrances, equities, and other adverse claims, and has the right to
use all of the Intellectual Property Rights.  No employee of the Company has
entered into any contract that restricts or limits in any way the scope or type
of work in which the employee may be engaged or requires the employee to
transfer, assign, or disclose information concerning his work to anyone other
than of the Company.
 
(iv)          Patents.  Except for such instances, if any, as would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect:  (A) the Company is the owner of all right, title and interest
in and to each of the Patents, free and clear of all Liens and other adverse
claims; (B) all of the issued Patents are currently in compliance with formal
legal requirements (including payment of filing, examination, and maintenance
fees and proofs of working or use), are valid and enforceable, and are not
subject to any maintenance fees or taxes or actions falling due within ninety
days after the Closing Date; (C) no Patent has been or is now involved in any
interference, reissue, reexamination, or opposition proceeding; (D) except as
set forth in Schedule 3.1(o), (1) there is no potentially interfering patent or
patent application of any third party, and (2) no Patent is infringed or has
been challenged or threatened in any way; and (E) none of the products
manufactured and sold, nor any process or know-how used, by the Company
infringes or is alleged to infringe any patent or other proprietary right of any
other Person.
 
(v)           Trademarks.  Except for such instances, if any, as would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect:  (A) the Company is the owner of all right, title, and interest
in and to each of the Marks, free and clear of all Liens and other adverse
claims; (B) all Marks that have been registered with the United States Patent
and Trademark Office are currently in compliance with all formal legal
requirements (including the timely post-registration filing of affidavits of use
and incontestability and renewal applications), are valid and enforceable, and
are not subject to any maintenance fees or taxes or actions falling due within
ninety days after the Closing Date; (C) except as set forth in Schedule 3.1(o),
no Mark has been or is now involved in any opposition, invalidation, or
cancellation proceeding and, no such action is currently threatened with respect
to any of the Marks; (D) (1) there is no potentially interfering trademark or
trademark application of any third party, and (2) no Mark is infringed or has
been challenged or threatened in any way; and (E) none of the Marks used by the
Company infringes or is alleged to infringe any trade name, trademark, or
service mark of any third party.
 
(vi)          Copyrights.  Except for such instances, if any, as would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect:  (i) to the Company’s knowledge, the Company is the owner of all
right, title, and interest in and to each of the Copyrights, free and clear of
all Liens and other adverse claims; (ii) the Company does not have any
registered Copyrights; (iii) to the Company’s knowledge, none of the subject
matter of any of the Copyrights infringes or is alleged to infringe any
copyright of any third party or is a derivative work based on the work of a
third party; and (iv) all works encompassed by the Copyrights have been marked
with the proper copyright notice, if required to establish copyright protection
for such works.
 
 
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(vii)         Trade Secrets.  Except for such instances, if any, as would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect:  (A) with respect to each Trade Secret, the documentation
relating to such Trade Secret is current, accurate, and sufficient in detail and
content to identify and explain it and to allow its full and proper use without
reliance on the knowledge or memory of any individual; (B) the Company has taken
all reasonable precautions to protect the secrecy, confidentiality, and value of
its Trade Secrets; (C) the Company has good title and an absolute (but not
necessarily exclusive) right to use the Trade Secrets; (D) the Trade Secrets are
not part of the public knowledge or literature, and, to the Company’s knowledge,
have not been used, divulged, or appropriated either for the benefit of any
Person (other the Company) or to the detriment of the Company; and (E) no Trade
Secret is subject to any adverse claim or has been challenged or threatened in
any way.  The Company’s material Intellectual Property Rights are described in
the Reports.

(bb)         Books and Record Internal Accounting Controls. The books and
records of the Company accurately reflect in all material respects the
information relating to the business of the Company, the location and collection
of its assets, and the nature of all transactions giving rise to the obligations
or accounts receivable of the Company. Except as disclosed in the Reports under
the heading “Controls and Procedures,” the Company maintains a system of
internal accounting controls sufficient, in the judgment of the Company, to
provide reasonable assurance that (i) transactions are executed in accordance
with management’s general or specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with GAAP and to maintain asset accountability, (iii) access to
assets is permitted only in accordance with management’s general or specific
authorization and (iv) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate actions are taken
with respect to any differences. The Company has established disclosure controls
and procedures (as defined in 1934 Act Rules 13a-15(e) and 15d-15(e)) for the
Company and designed such disclosure controls and procedures to ensure that
material information relating to the Company, including its Subsidiaries, is
made known to the certifying officers by others within those entities.

(cc)         Material Agreements.  The Company is not a party to any written or
oral contract, instrument, agreement, commitment, obligation, plan or
arrangement, a copy of which would be required to be filed with the Commission
as an exhibit to a registration statement on Form S-1 or applicable form
(collectively, “Material Agreements”) if the Company was registering securities
under the Securities Act, that has not been so filed.  To the Company’s
knowledge, the Company has in all material respects performed all the
obligations required to be performed by them to date under the foregoing
agreements, has received no notice of default and are not in default under any
Material Agreement now in effect, in each of the above cases where the failure
to perform such obligations or the result of which default would reasonably be
expected to cause a Material Adverse Effect.  Except as set forth in the
Company’s certificate of incorporation or in the Transaction Documents or as
disclosed in the Reports, no written or oral contract, instrument, agreement,
commitment, obligation, plan or arrangement of the Company limits the payment of
dividends on the Common Stock.

 
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(dd)         Transactions with Affiliates. Except as set forth in the Reports,
there are no loans, leases, agreements, contracts, royalty agreements,
management contracts or arrangements or other continuing transactions between
(i) the Company on the one hand, and (ii) on the other hand, any officer or
director of the Company, or any Affiliate.

(ee)         Sarbanes-Oxley Act. Except as disclosed in the Reports under the
heading “Controls and Procedures,” the Company is in material compliance with
the applicable provisions of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley
Act”), and the rules and regulations promulgated thereunder that are effective,
and applicable to the Company as of the date hereof.

(ff)           Insurance.  The Company is insured by insurers of recognized
financial responsibility against such losses and risks and in such amounts as
are prudent and customary in the businesses in which the Company is engaged in
light of the size and activities of the Company and its Subsidiaries.  To the
best of Company’s knowledge, such insurance contracts and policies are valid and
in full force and effect.  The Company has no reason to believe that it will not
be able to renew its existing insurance coverage as and when such coverage
expires or to obtain similar coverage from similar insurers as may be necessary
to continue its business on terms consistent with market for the Company’s
business.

(gg)         Application Of Takeover Protections. The Company and its Board of
Directors have taken all necessary action, if any, in order to render
inapplicable, as of the Closing Date, any control share acquisition, business
combination, poison pill (including any distribution under a rights agreement)
or other similar anti-takeover provision under the Company’s certificate of
incorporation or the laws of its state of incorporation that is or could become
applicable to the Subscribers as a result of the Subscribers and the Company
fulfilling their obligations or exercising their rights under the Transaction
Documents, including without limitation the Company’s issuance of the Securities
and the Subscribers’ ownership of the Securities.

(hh)         Off-Balance Sheet Arrangements. There is no transaction,
arrangement, or other relationship between the Company and an unconsolidated or
other off balance sheet entity that is not disclosed in its financial statements
that should be disclosed in accordance with GAAP and that would be reasonably
likely to have a Material Adverse Effect.

(ii)           Material Non-Public Information. Except with respect to the
transactions contemplated hereby that will be publicly disclosed, and with
respect to information given to the Subscriber, if any, which the Company hereby
confirms will not constitute material non-public information as of the date that
is earlier to occur of (a) three months after the Closing Date, or (b) the
filing date of the registration statement contemplated by Section 11 below, the
Company has not provided any Subscriber or its agents or counsel with any
information that the Company believes constitutes material non-public
information.  The Company acknowledges that the Subscriber will rely on the
above representation when effecting sales of the Securities.

(jj)           Environmental Compliance. The Company has obtained all approvals,
authorization, certificates, consents, licenses, orders and permits or other
similar authorizations of all governmental authorities, or from any other
person, that are required under any Environmental Laws and used in its business
or in the business of any of its Subsidiaries, unless the failure to possess
such approvals, authorizations, certificates, consents, licenses, orders or
permits, individually or in the aggregate could not reasonably be expected to
have a Material Adverse Effect. “Environmental Laws” shall mean all applicable
laws relating to the protection of the environment, including, without
limitation, all requirements pertaining to reporting, licensing, permitting,
controlling, investigating or remediating emissions, discharges, releases or
threatened releases of hazardous substances, chemical substances, pollutants,
contaminants or toxic substances, materials or wastes, whether solid, liquid or
gaseous in nature, into the air, surface water, groundwater or land, or relating
to the manufacture, processing,
 
 
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distribution, use, treatment, storage, disposal, transport or handling of
hazardous substances, chemical substances, pollutants, contaminants or toxic
substances, material or wastes, whether solid, liquid or gaseous in nature.
Except for such instances as would not individually or in the aggregate have a
Material Adverse Effect, the Company is also in compliance with all other
limitations, restrictions, conditions, standards, requirements, schedules and
timetables required or imposed under all Environmental Laws and there are no
past or present events, conditions, circumstances, incidents, actions or
omissions relating to or in any way affecting the Company that violate or may
violate any Environmental Law after the Closing Date or that may give rise to
any environmental liability, or otherwise form the basis of any claim, action,
demand, suit, proceeding, hearing, study or investigation (i) under any
Environmental Law, or (ii) based on or related to the manufacture, processing,
distribution, use, treatment, storage (including without limitation underground
storage tanks), disposal, transport or handling, or the emission, discharge,
release or threatened release of any hazardous substance.

(kk)         Money Laundering.  The operations of the Company and its
Subsidiaries are and have been conducted at all times in compliance with
applicable financial record-keeping and reporting requirements of the Currency
and Foreign Transactions Reporting Act of 1970, as amended, applicable money
laundering statutes and applicable rules and regulations thereunder
(collectively, the “Money Laundering Laws”), and no action, suit or proceeding
by or before any court or governmental agency, authority or body or any
arbitrator involving the Company or any Subsidiary with respect to the Money
Laundering Laws is pending or, to the knowledge of the Company or any
Subsidiary, threatened.

(ll)           Stock Option Plans. Each stock option granted by the Company
under the Company’s stock option plan was granted (i) in accordance with the
terms of the Company’s stock option plan and (ii) with an exercise price at
least equal to the fair market value of the Common Stock on the date such stock
option would be considered granted under GAAP and applicable law. No stock
option granted under the Company’s stock option plan has been backdated.  The
Company has not knowingly granted, and there is no and has been no Company
policy or practice to knowingly grant, stock options prior to, or otherwise
knowingly coordinate the grant of stock options with, the release or other
public announcement of material information regarding the Company or its
Subsidiaries or their financial results or prospects.

(mm)       Office of Foreign Assets Control.  Neither the Company nor any
Subsidiary nor, to the Company's knowledge, any director, officer, agent,
employee or affiliate of the Company is currently subject to any U.S. sanctions
administered by the Office of Foreign Assets Control of the U.S. Treasury
Department (“OFAC”).

(nn)         Correctness of Representations.   The Company represents that the
foregoing representations and warranties are true and correct as of the date
hereof in all material respects, and, unless the Company otherwise notifies the
Subscribers prior to the Closing Date, shall be true and correct in all material
respects as of the Closing Date; provided, that, if such representation or
warranty is made as of a different date, in which case such representation or
warranty shall be true as of such date.  The Company makes each of the
representations contained in Sections 5(a), (b), (c), (d), (e), (f), (h), (j),
(k), (l), (o), (p), (r), (s), (t), (x), (y), (z), (aa), (bb), (cc), (dd), (ff),
(gg), (hh), (jj), (kk), (ll), and (mm) of this Agreement, as same relate or
could be applicable to each Subsidiary, mutatis mutandum, provided, that in each
case any determination of materiality or “Material Adverse Effect” shall be made
with respect to the Company and all Subsidiaries, taken together.  All
representations made by or relating to the Company of a historical or
prospective nature and all undertakings described in Section 9 shall relate,
apply and refer to the Company and Subsidiaries and their predecessors and
successors.

(oo)        Survival.  The foregoing representations and warranties shall
survive the Closing Date.

 
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6.           Regulation D Offering/Legal Opinion.  The offer and issuance of the
Securities to the Subscribers is being made pursuant to the exemption from the
registration provisions of the 1933 Act afforded by Section 4(2) or Section 4(6)
of the 1933 Act and/or Rule 506 of Regulation D promulgated thereunder.  On the
Closing Date, the Company will provide opinions reasonably acceptable to the
Subscribers in substantially the form annexed hereto as Exhibit E from the
Company’s legal counsel opining on the availability of an exemption from
registration under the 1933 Act as it relates to the offer and issuance of the
Securities and other matters reasonably requested by Subscribers.   The Company
will provide, at the Company’s expense, to the Subscribers, such other legal
opinions as are reasonably necessary in each Subscriber’s reasonable opinion for
the issuance of the Securities and the resale of the Securities pursuant to an
effective registration statement, Rule 144 under the 1933 Act or an exemption
from registration at the time of disposition of the Securities, provided the
sale of such Securities qualifies for such exemption or is covered by a
Registration Statement.

7.           Maximum Conversion.  A Subscriber shall not be entitled to convert
on a Conversion Date that amount of a Note nor may the Company make any payment
including principal, interest, or liquidated or other damages by delivery of
Conversion Shares in connection with that number of Conversion Shares which
would be in excess of the sum of (i) the number of shares of Common Stock
beneficially owned by such Subscriber and its Affiliates on a Conversion Date or
payment date, and (ii) the number of Conversion Shares issuable upon the
conversion of the Note with respect to which the determination of this provision
is being made on a calculation date, which would result in beneficial ownership
by Subscriber and its Affiliates of more than 4.99% of the outstanding shares of
Common Stock of the Company on such Conversion Date.  For the purposes of the
immediately preceding sentence, beneficial ownership shall be determined in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended, and Rule 13d-3 thereunder.  Subject to the foregoing, the Subscriber
shall not be limited to aggregate conversions of only 4.99% and aggregate
conversions by the Subscriber may exceed 4.99%.  The Subscriber shall have the
authority to determine whether the restriction contained in this Section 7.3
will limit any conversion of a Note and the extent such limitation applies and
to which convertible or exercisable instrument or part thereof such limitation
applies.  The Subscriber may increase the permitted beneficial ownership amount
up to 9.99% upon and effective after 61 days prior written notice to the
Company.  Subscriber may allocate which of the equity of the Company deemed
beneficially owned by Subscriber shall be included in the 4.99% amount described
above and which shall be allocated to the excess above 4.99%.

8.           Fees.

(a)           Broker’s Commission.  The Company on the one hand, and each
Subscriber (for such Subscriber only) on the other hand, agrees to indemnify the
other against and hold the other harmless from any and all liabilities to any
persons claiming brokerage commissions or similar fees on account of services
purported to have been rendered on behalf of the indemnifying party in
connection with this Agreement or the transactions contemplated hereby and
arising out of such party’s actions.  The Company represents that to the best of
its knowledge, except as set forth on Schedule 8(a), there are no parties
entitled to receive fees, commissions, finder’s fees, due diligence fees or
similar payments for the Company in connection with the Offering.  The Company
agrees to pay, upon Closing the fees described on Schedule 8(a) hereto
(“Fees”).  Anything in this Agreement to the contrary notwithstanding, each
Subscriber is providing indemnification only for such Subscriber’s own actions
and not for any action of any other Subscriber.  The liability of the Company
and each Subscriber’s liability hereunder is several and not joint.

 
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(b)           Subscriber’s Legal Fees.   The Company shall pay to Grushko &
Mittman, P.C., a cash fee of $30,000 (“Legal Fees”) (of which $10,000 has been
paid) as reimbursement for services rendered in connection with the transactions
described in the Transaction Documents.  The Legal Fees will be payable out of
funds held pursuant to the Escrow Agreement.  Grushko & Mittman, P.C. will be
reimbursed at Closing by the Company for all lien searches, filing fees, and
reasonable printing and shipping costs for the closing statements to be
delivered to Subscribers.

9.           Covenants of the Company.  The Company covenants and agrees with
the Subscribers as follows:

(a)           Stop Orders.  Subject to the prior notice requirement described in
Section 9(n), the Company will advise the Subscribers within twenty-four hours
after it receives notice of issuance by the Commission, any state securities
commission or any other regulatory authority of any stop order or of any order
preventing or suspending any offering of any securities of the Company, or of
the suspension of the qualification of the Common Stock of the Company for
offering or sale in any jurisdiction, or the initiation of any proceeding for
any such purpose.  The Company will not issue any stop transfer order or other
order impeding the sale, resale or delivery of any of the Securities, except as
may be required by any applicable federal or state securities laws, provided to
the extent not in violation of such federal or state securities law at least
five (5) days prior notice of such instruction is given to the Subscribers.

(b)           Listing/Quotation.   The Company shall promptly secure the
quotation or listing of and include the Conversion Shares and Warrant Shares for
listing upon each national securities exchange, electronic bulletin board, or
automated quotation system upon which the Company’s Common Stock is quoted or
listed and shall maintain same so long as any Securities are outstanding or are
issuable.  The Company will maintain the quotation or listing of its Common
Stock on the New York Stock Exchange, NYSE MKT, NASDAQ Capital Market, NASDAQ
Global Market, NASDAQ Global Select Market, the OTC Bulletin Board, the OTCQB,
or the OTC QX Marketplace, or New York Stock Exchange (whichever of the
foregoing is at the time the principal trading exchange or market for the Common
Stock (the “Principal Market”), and will comply in all respects with the
Company’s reporting, filing and other obligations under the bylaws or rules of
the Principal Market, as applicable.  Subject to the limitation set forth in
Section 9(n), the Company will provide Subscribers with copies of all notices it
receives notifying the Company of the threatened and actual delisting of the
Common Stock from any Principal Market.  As of the date of this Agreement and
the Closing Date, the OTCQB is the Principal Market.

(c)           Market Regulations.  If required, the Company shall notify the
Commission, the Principal Market and applicable state authorities, in accordance
with their requirements, of the transactions contemplated by this Agreement, and
shall take all other necessary action and proceedings as may be required and
permitted by applicable law, rule and regulation, for the legal and valid
issuance of the Securities to the Subscribers and promptly provide copies
thereof to the Subscribers.

(d)           Filing Requirements.   From the date of this Agreement and until
the later to occur of (i) none of the Notes are outstanding (the “End Date”), or
(ii) all the Conversion Shares and Warrant Shares (assuming cashless exercise)
have been resold or transferred or are eligible to be transferred by the
Subscribers pursuant to a registration statement or pursuant to Rule
144(b)(1)(i), the Company will (A) comply in all respects with its reporting and
filing obligations under the 1934 Act, (B) voluntarily comply with all reporting
requirements that are applicable to an issuer with a class of shares registered
pursuant to Section 12(g) of the 1934 Act even if the Company is not subject to
such reporting requirements sufficient to permit Subscriber to be able to resell
the Conversion Shares and Warrant Shares pursuant to Rule 144(b)(i), (C) comply
with all requirements related to any registration statement filed pursuant to
this Agreement, (D) use its commercially reasonable best efforts not to take any
action or file any document (whether or not permitted by the 1933 Act or the
1934 Act or the rules thereunder) to terminate or suspend such registration or
to terminate or suspend its reporting and filing obligations under said acts
until the End Date.  Until the later of the End Date or no Warrants are
outstanding, the Company will satisfy its obligations to continue the listing or
quotation of the Common Stock on a Principal Market and comply in all respects
with the Company’s reporting, filing and other obligations under the bylaws or
rules of the Principal Market.  The Company agrees to timely file a Form D with
respect to the Securities if required under Regulation D promulgated under the
1934 Act.

 
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(e)           Use of Proceeds.   The proceeds of the Offering will be
substantially employed by the Company for the purposes set forth on Schedule
9(e) hereto.  Except as described on Schedule 9(e), the proceeds of the Offering
may not and will not be used for accrued and unpaid officer and director
salaries, nor payment of financing related debt nor redemption of outstanding
notes or equity instruments of the Company nor non-trade payables outstanding on
the Closing Date.

(f)            Reservation.   Prior to the Closing, the Company undertakes to
reserve on behalf of Subscribers from its authorized but unissued Common Stock,
a number of shares of Common Stock equal to 150% of the amount of Common Stock
necessary to allow Subscribers to be able to convert all of the Notes (including
interest that would accrue thereon through the Maturity Date (as defined in the
Notes)) and 100% of the amount of Warrant Shares issuable upon exercise of the
Warrants (“Required Reservation”).   Failure to have sufficient shares reserved
pursuant to this Section 9(f) at any time shall be a material default of the
Company’s obligations under this Agreement and an Event of Default under the
Notes.  Without waiving the foregoing requirement, if at any time Notes and
Warrants are outstanding the Company has reserved on behalf of the Subscribers
less than 125% of the amount necessary for full conversion of the outstanding
Note principal and interest at the conversion price in effect on every such date
and 100% of the Warrant Shares issuable upon exercise of outstanding Warrants
(“Minimum Required Reservation”), the Company will promptly reserve the Minimum
Required Reservation, or if there are insufficient authorized and available
shares of Common Stock to do so, the Company will take all action necessary to
increase its authorized capital to be able to fully satisfy its reservation
requirements hereunder, including the filing of a preliminary proxy with the
Commission not later than fifteen (15) days after the first day the Company has
reserved less than the Minimum Required Reservation.  The Company agrees to
provide notice to the Subscribers not later than five days after the date the
Company has less than the Minimum Required Reservation reserved on behalf of the
Subscribers.

(g)           DTC Program.  At all times that Notes or Warrants are outstanding,
the Company will employ as the transfer agent for the Common Stock, Conversion
Shares and Warrant Shares a participant in the Depository Trust Company
Automated Securities Transfer Program and such Common Stock, Conversion Shares
and Warrant Shares will be maintained as eligible for transfer pursuant to the
Depository Trust Automated Securities Transfer Program.

(h)           Taxes.  From the date of this Agreement and until the End Date,
the Company will promptly pay and discharge, or cause to be paid and discharged,
when due and payable, all lawful taxes, assessments and governmental charges or
levies imposed upon the income, profits, property or business of the Company;
provided, however, that any such tax, assessment, charge or levy need not be
paid if the validity thereof shall currently be contested in good faith by
appropriate proceedings and if the Company shall have set aside on its books
adequate reserves with respect thereto, and provided, further, that the Company
will pay all such taxes, assessments, charges or levies forthwith upon the
commencement of proceedings to foreclose any lien which may have attached as
security therefore.
 
 
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(i)            Insurance.  As reasonably necessary as determined by the Company,
from the date of this Agreement and until the End Date, the Company will keep
its assets which are of an insurable character insured by financially sound and
reputable insurers against loss or damage by fire, explosion and other risks
customarily insured against by companies in the Company’s line of business and
location, in amounts and to the extent and in the manner customary for companies
in similar businesses similarly situated and located and to the extent available
on commercially reasonable terms.

(j)            Books and Records.  From the date of this Agreement and until the
End Date, the Company will keep true records and books of account in which full,
true and correct entries will be made of all dealings or transactions in
relation to its business and affairs in accordance with GAAP applied on a
consistent basis.

(k)           Governmental Authorities.   From the date of this Agreement and
until the End Date, the Company shall use all commercially reasonable efforts to
duly observe and conform in all material respects to all requirements of
governmental authorities relating to the conduct of its business and to its
properties or assets, where failure to observe and conform to such requirements
would reasonably be expected to have a Material Adverse Effect.

(l)            Intellectual Property.  From the date of this Agreement and until
the End Date, the Company shall use commercially reasonable efforts to maintain
in full force and effect its corporate existence, rights and franchises and all
licenses and other rights to Intellectual Property Rights.  Schedule 9(l) hereto
identifies its Intellectual Property Rights.

(m)          Properties.  From the date of this Agreement and until the End
Date, the Company will keep its properties in good repair, working order and
condition, reasonable wear and tear excepted, and from time to time make all
necessary and proper repairs, renewals, replacements, additions and improvements
thereto; and the Company will at all times comply with each provision of all
leases and claims to which it is a party or under which it occupies or has
rights to property if the breach of such provision could reasonably be expected
to have a Material Adverse Effect.  The Company will not abandon any of its
assets except for those assets which have negligible or marginal value or for
which it is prudent, in the Company’s reasonable judgment, to do so under the
circumstances.

(n)           Confidentiality.   From the date of this Agreement and until the
End Date, the Company agrees that except in connection with a Form 8-K, Form
10-Q, Form 10-K and any registration statement which registers the Securities or
statements regarding the Subscribers’ ownership of the Securities or in
correspondence with the Commission regarding same, it will not disclose publicly
or privately the identity of the Subscribers unless (i) expressly agreed to in
writing by Subscribers, (ii) as needed in any dispute or proceeding with a
Subscriber, (iii) in response to an inquiry by a governmental agency or a
self-regulatory organization or (iv) to the extent required by law and then only
upon not less than four (4) days prior notice to Subscribers.   Upon 
delivery by the Company to the Subscribers after the Closing Date of any notice
or information, in writing, electronically or otherwise, and while a Note and
Warrants, Conversion Shares or Warrant Shares are held by such Subscribers,
unless the  Company has in good faith determined that the matters relating to
such notice or information do not constitute material, nonpublic information
relating to the Company or Subsidiaries or unless such information is delivered
to such Subscriber pursuant to a nondisclosure agreement between the Company and
such Subscriber whereby such Subscriber has agreed to maintain material
nonpublic information in confidence, the Company shall within four (4) days
after any such delivery publicly disclose such  material, 
nonpublic information on a Report on Form 8-K.  In the event that
the Company believes that a notice or communication to Subscribers contains
material, nonpublic information relating to the Company or Subsidiaries, except
as required to be delivered in connection with this Agreement, the Company shall
so indicate to Subscribers prior to delivery of such notice or
information.  Subscribers will be granted five (5) days to notify the Company
that Subscriber elects not to receive such information.  In the case that
Subscriber elects not to receive such information, the Company will not deliver
such information to Subscribers; provided that such failure to provide such
information will not be deemed to be a default by the Company under the
Transaction Documents.  In the absence of any such Company
indication, Subscribers shall be allowed to presume that all matters relating to
such notice and information do not constitute material, nonpublic information
relating to the Company or Subsidiaries, taken together.  Notwithstanding
anything to the contrary herein, the Company shall have no obligation to file a
Report on Form 8-K and/or provide prior notification to a Subscriber in advance
of delivering any notice or information that contains material nonpublic
information to any Subscriber who is serving as a director or officer of the
Company at the time of disclosure.  The Company agrees that any information
known to Subscriber as of the Closing Date not already made public by the
Company on or after the filing of the Form 8-K required to be filed pursuant to
Section 9(o) below may be made public and disclosed by the Subscriber unless and
to the extent that such information was disclosed to such Subscriber pursuant to
a nondisclosure agreement between the Company and such Subscriber whereby such
Subscriber has agreed to maintain material nonpublic information in confidence.
 
 
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(o)         Disclosure of Offering.  The Company covenants and agrees that it
will, within four (4) business days after the Closing Date, file a Report on
Form 8-K with respect to the Transaction Documents and the material terms of the
Offering.

(p)         Negative Covenants.   So long as Notes are outstanding, without the
consent of a Majority in Interest (defined in Section 13(j) below), the Company
will not and will not permit any of its Subsidiaries to directly or indirectly:

(i)           other than Liens identified on Schedule 9(p)(i), create, incur,
assume or suffer to exist any pledge, hypothecation, assignment, deposit
arrangement, lien, charge, claim, security interest, security title, mortgage,
security deed or deed of trust, easement or encumbrance, or preference, priority
or other security agreement or preferential arrangement of any kind or nature
whatsoever (including any lease or title retention agreement, any financing
lease having substantially the same economic effect as any of the foregoing, and
the filing of, or agreement to give, any financing statement perfecting a
security interest under the Uniform Commercial Code or comparable law of any
jurisdiction) (each, a “Lien”) upon any of its property, whether now owned or
hereafter acquired except for (a) Liens upon the Company’s intellectual property
in connection with a license, development, manufacturing, or distribution
transaction or other partnering arrangement; (b) Liens imposed by law for taxes
that are not yet due or are being contested in good faith and for which adequate
reserves have been established in accordance with GAAP; (c) carriers’,
warehousemen’s, mechanic’s, materialmen’s, repairmen’s and other like Liens
imposed by law and arising in the ordinary course of business and securing
obligations that are not overdue by more than 30 days or that are being
contested in good faith and by appropriate proceedings; (d) pledges and deposits
made in the ordinary course of business in compliance with workers’
compensation, unemployment insurance and other social security laws or
regulations; (e) deposits to secure the performance of bids, trade contracts,
leases, statutory obligations, surety and appeal bonds, performance bonds and
other obligations of a like nature, in each case in the ordinary course of
business; (f) Liens created with respect to the financing of the purchase of new
property in the ordinary course of the Company’s business up to the amount of
the purchase, lease or licensing price of such property; and (g) easements,
zoning restrictions, rights-of-way and similar encumbrances on real property
imposed by law or arising in the ordinary course of business that do not secure
any monetary obligations and do not materially detract from the value of the
affected property (each of (a) through (g), a “Permitted Lien”);

(ii)          amend its certificate of incorporation or bylaws so as to
materially and adversely affect any rights of the Subscribers with respect to
the Securities except to increase the number of shares of Common Stock
authorized or to designate a new series of Preferred Stock, or to effect a stock
split or reverse stock split;
 
 
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(iii)         repay, repurchase or offer to repay, repurchase or otherwise
acquire or make any dividend or distribution in respect of any of its Common
Stock, preferred stock, or other equity securities other than to the extent
permitted or required under the Transaction Documents and except pursuant to
written agreements with employees, directors, officers or consultants providing
for a right of repurchase at the original purchase price of such securities upon
cessation of service, cessation of vesting, employment termination or similar
events;

(iv)        except pursuant to agreements, plans, arrangements or instruments
described in the Reports or as set forth on Schedule 9(p)(iv), or for awards
pursuant to equity incentive plans described in the Reports as set forth on
Schedule 5(d), engage in any transactions with any officer, director, employee
or any Affiliate of the Company, including any contract, agreement or other
arrangement providing for the furnishing of services to or by, providing for
rental of real or personal property to or from, or otherwise requiring payments
to or from any officer, director or such employee or, to the knowledge of the
Company, any entity in which any officer, director, or any such employee has a
substantial interest or is an officer, director, trustee or partner, in each
case in excess of $100,000 in any rolling 12 month period [in one or more
transactions, all of which will be aggregated for purposes of this Section
9(p)(iv)] other than (i) for payment of salary, or fees for services rendered,
pursuant to and on the terms of a written contract in effect at least five (5)
days prior to the Closing Date, a copy of which has been provided to the
Subscriber at least four (4) days prior to the Closing Date or disclosed in the
Reports at least ten (10) days prior to the Closing Date, which contracts may be
extended on terms customary and reasonable within the marketplace, (ii)
reimbursement for authorized expenses incurred on behalf of the Company, (iii)
for other employee benefits, including stock option or other equity agreements
under any equity incentive plan of the Company disclosed in the Reports or on
Schedule 5(d), (iv) or with respect to newly hired employees and officers on
terms, conditions and arrangements, in the ordinary course of business, that is
consistent with the foregoing, or (v) other transactions disclosed in the
Reports; or

(v)         pay or redeem any financing related debt or securities, except as
permitted pursuant to the Intercreditor Agreement.
 
(q)          Offering Restrictions.   Subject to the consent of a Majority in
Interest, for so long as the Notes are outstanding, the Company will not enter
into nor exercise any Equity Line of Credit or similar agreement, nor issue nor
agree to issue any floating or Variable Priced Equity Linked Instruments nor any
of the foregoing or equity with price reset rights (collectively, the “Variable
Rate Restrictions”).   For purposes hereof, “Equity Line of Credit” shall
include any transaction involving a written agreement between the Company and an
investor or underwriter whereby the Company has the right to “put” its
securities to the investor or underwriter over an agreed period of time and at
an agreed price or price formula, and “Variable Priced Equity Linked
Instruments” shall include: (A) any debt or equity securities which are
convertible into, exercisable or exchangeable for, or carry the right to receive
additional shares of Common Stock either (1) at any conversion, exercise or
exchange rate or other price that is based upon and/or varies with the trading
prices of or quotations for Common Stock at any time after the initial issuance
of such debt or equity security, or (2) with a fixed conversion, exercise or
exchange price that is subject to being reset at some future date at any time
after the initial issuance of such debt or equity security due to a change in
the market price of the Company’s Common Stock since date of initial issuance,
and (B) any amortizing convertible security which amortizes prior to its
maturity date, where the Company is required or has the option to (or any
investor in such transaction has the option to require the Company to) make such
amortization payments in shares of Common Stock which are valued at a price that
is based upon and/or varies with the trading prices of or quotations for Common
Stock at any time after the initial issuance of such debt or equity security
(whether or not such payments in stock are subject to certain equity
conditions).  Variable Priced Equity Linked Instruments excludes any of same
identified on Schedule 9(q).
 
 
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(r)           Seniority.   Except for Permitted Liens, until the Notes are fully
satisfied or converted, without written consent of a Majority in Interest, the
Company and Subsidiaries shall not grant nor allow any security interest to be
taken in any assets of the Company or any Subsidiary or any Subsidiary’s assets;
nor issue or amend any debt, equity or other instrument which would give the
holder thereof directly or indirectly, a right in any assets of the Company or
any Subsidiary or any right to payment equal to or superior to any right of the
Subscribers as holders of the Notes in or to such assets or payment.

(s)          Notices.   For so long as the Subscribers hold any Notes or
Warrants is outstanding, the Company will maintain a United States address and
United States fax number for notice and delivery purposes under the Transaction
Documents.

(t)           Transactions with Insiders.  Except as permitted pursuant to
Section 9(p)(iv), so long as the Notes are outstanding, without a consent of a
Majority in Interest, the Company shall not, and shall cause each of its
Subsidiaries not to, enter into, materially amend, materially modify or
materially supplement, or permit any Subsidiary to enter into, materially amend,
materially modify or materially supplement, any agreement, transaction,
commitment, or arrangement, in each case relating to the sale, transfer or
assignment of any of the Company’s tangible or intangible assets with any of its
Insiders (as defined below)(or any persons who were Insiders at any time during
the previous two (2) years), or any Affiliates (as defined below) thereof, or
with any individual related by blood, marriage, or adoption to any such
individual, singularly or in the aggregate in a manner that materially adversely
affects the rights of the Subscriber under the Transaction Documents and other
than the payment of salary and other compensation made in the ordinary course of
the Company’s business consistent with past practices and industry standards for
entities similarly situated as the Company.  “Affiliate” for purposes of this
Section 9(t) means, with respect to any person or entity, another person or
entity that, directly or indirectly, (i) has a ten percent (10%) or more equity
interest in that person or entity, (ii) has ten percent (10%) or more common
ownership with that person or entity, (iii) controls that person or entity, or
(iv) shares common control with that person or entity.  For purposes hereof,
“Insiders” shall mean any officer, or director of the Company, including but not
limited to the Company’s president, chief executive officer, chief financial
officer and chief operations officer, and any of their Affiliates or family
members.

(u)         Reserved.

(v)         Notice of Event of Default.  The Company agrees to notify Subscriber
of the occurrence of an Event of Default (as defined and employed in the
Transaction Documents) not later than five (5) days after any of the Company’s
officers or directors becomes aware of such Event of Default.

(w)         Further Registration Statements. The Company will not file any
registration statements until there is an effective Registration Statement for
the unrestricted resale of Subscriber’s Securities a further described in
Section 11.1(a) below.
 
 
(x)          Intercreditor Agreement.   The Company will deliver to the
Subscribers on or before the Closing Date and enforce the provisions of an
Intercreditor Agreement, the form of which is annexed hereto as Exhibit F.

(y)         Waiver and Consent Agreement.   The Company will deliver to the
Subscribers on or before the Closing Date and enforce the provisions of a Waiver
and Consent Agreement, the form of which is annexed hereto as Exhibit G.
 
 
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(z)          The Company acknowledges and agrees that a Subscriber may from time
to time pledge pursuant to a bona fide margin agreement with a registered
broker-dealer or grant a security interest in some or all of the Securities to a
financial institution that is an “accredited investor” as defined in Rule 501(a)
under the 1933 Act and who agrees in writing with the Company to be bound by the
provisions of this Agreement and, if required under the terms of such
arrangement and subject to compliance with applicable federal and state
securities laws, such Subscriber may transfer pledged or secured Securities to
the pledgees or secured parties in the event of a default relating to such
pledge.  Absent special circumstances and subject to compliance with applicable
federal and state securities laws, such a pledge or transfer would not be
subject to approval of the Company and no legal opinion of legal counsel of the
pledgee, secured party or pledgor shall be required in connection therewith.  
Further, no notice shall be required of such pledge.  At the appropriate
Subscriber’s expense, the Company will execute and deliver such reasonable
documentation as a pledgee or secured party of Securities may reasonably request
in connection with a pledge or transfer of the Securities.

(aa)        Additional Debtor Joinder and Subsidiary Guaranty.  Each Subsidiary
other than those expressly excluded on Schedule 5(a) will deliver to Subscribers
upon Closing an executed Additional Debtor Joinder and Subsidiary Guaranty,
forms of which are annexed to the Security Agreement annexed hereto as Exhibit
D.

10.         Covenants of the Company Regarding Indemnification.

(a)          The Company agrees to indemnify, hold harmless, reimburse and
defend the Subscribers, the Subscribers’ officers, directors, agents, counsel,
Affiliates, members, managers, control persons, and principal shareholders,
against any claim, cost, expense, liability, obligation, loss or damage
(including reasonable legal fees) of any nature, incurred by or imposed upon the
Subscribers or any such person which results, arises out of or is based upon (i)
any breach of any representation or warranty, or material misrepresentation, by
Company in this Agreement or in any Exhibits or Schedules attached hereto in any
Transaction Document; or (ii) after any applicable notice and/or cure periods,
any breach or default in performance by the Company of any covenant or
undertaking to be performed by the Company hereunder, or any other Transaction
Document entered into by the Company and Subscribers relating hereto.

(b)         In no event shall the liability of the Subscribers or permitted
successor hereunder or under any Transaction Document or other agreement
delivered in connection herewith be greater in amount than the dollar amount of
the net proceeds actually received by such Subscriber or successor upon the sale
of Registrable Securities (as defined herein).

11.1.      Registration Rights.  The Company hereby grants the following
registration rights to holders of the Securities.

(a)          The Company shall file with the Commission a registration statement
on Form S-1 (the “Registration Statement”) (or such other form that it is
eligible to use) in order to register the Registrable Securities for resale and
distribution under the 1933 Act on or before sixty (60) days after the Closing
Date (the “Filing Date”). The Company shall use commercially reasonable efforts
to cause the Registration Statement to be declared effective by the Commission
as soon as practicable following the Filing Date (including filing with the
Commission a request for acceleration of its effectiveness in accordance with
Rule 461 within three (3) Business Days of the date that the Company is notified
(orally or in writing, whichever is earlier) by the staff of the Commission that
such Registration Statement will not be reviewed, or not be subject to further
review), but in any event not later than one hundred and twenty (120) days after
the Closing Date (the “Effective Date”).  
 
 
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To the extent permitted by the Commission, the Company will register not less
than a number of shares of common stock in the aforedescribed Registration
Statement that is equal to 125% of the Conversion Shares issued and issuable
upon conversion of all the Notes issued on the Closing Date including interest
for the entire term of the Notes and 100% of the Warrant Shares issuable upon
exercise of the Warrants (collectively the “Registrable Securities”).   Any
security which is Registrable Security (including Warrant Shares after giving
effect to cashless exercise of the Warrants) shall cease being a Registrable
Security once such Registrable Security has been issued without further transfer
restrictions after a sale or transfer pursuant to Rule 144 under the 1933 Act or
may be resold under Rule 144 without volume limitations or manner of sale
requirements pursuant to Rule 144b(i)(i) (including, with respect to Warrant
Shares, giving effect to the ability to net exercise the Warrants), and at such
time as there are no longer any “Registrable Securities” as defined above (and
in all events one year after the Closing Date), the Company may terminate the
Registration Statement.  The Registrable Securities shall be reserved and set
aside exclusively for the benefit of each Subscriber and Warrant holder, pro
rata, and not issued, employed or reserved for anyone other than each Subscriber
and Warrant holder.  The Company represents that there are no securities of the
Company which would or could be aggregated with the Registrable Securities for
purposes of Rule 415 and the Company will not take any action that could cause
such aggregation.  Not later than twenty (20) days after first being permitted
by applicable Commission rules and regulations, the registration statement will
be amended by the Company or additional registration statements will be filed by
the Company as necessary to register additional shares of Common Stock to allow
the public resale of all Common Stock included in and issuable by virtue of the
Registrable Securities.  Without the written consent of a Majority in Interest,
no securities of the Company other than the Registrable Securities will be
included in the Registration Statement.  It shall be deemed a default of the
Company’s obligations if at any time after the date the Registration Statement
is declared effective by the Commission (“Actual Effective Date”) the Company
has registered for unrestricted resale on behalf of the Holders fewer than 90%
of the amount of shares of Common Stock required to be registered therein (the
difference between the amount required to be registered therein and the actual
amount of shares registered being the “Shortfall”).  In such event the Company
shall take all actions necessary to cause at least the amount of shares of
Common Stock required to be registered therein to be registered within
forty-five (45) days after the first day such Shortfall exists.  Failure to file
the registration statement in accordance with the preceding sentence within
thirty (30) days after the first day such Shortfall first exists or failure to
cause such registration to become effective within forty-five (45) days after
such Shortfall first exists shall be included in the definition of a
Non-Registration Event set forth in Section 11.4.

If at any time after the date the Registration Statement is declared effective
by the Commission (“Actual Effective Date”) the Company has registered for
unrestricted resale on behalf of the Holders fewer than 90% of the amount of
shares of Common Stock required to be registered therein (with any Cut Back
Shares being deemed as not required to be registered) (the difference between
the amount required to be registered therein and the actual amount of shares
registered being the “Shortfall”), the Company will use its commercially
reasonable best efforts to file a registration statement as soon as reasonably
practicable but in all events within forty-five (45) days after the first day
such Shortfall exists, and to cause such registration statement to become
effective as soon as reasonably practicable thereafter.  If at any time the
Commission takes the position that the offering of some or all of the
Registrable Securities in a registration statement is not eligible to be made on
a delayed or continuous basis under the provisions of Rule 415 under the 1933
Act or requires any holder of Registrable Securities (a “Holder”) to be named as
an “underwriter,” the Company shall use all reasonable efforts to persuade the
Commission that the offering contemplated by the registration statement is a
valid secondary offering and not an offering “by or on behalf of the issuer” as
defined in Rule 415 and that none of the Holders is an “underwriter.”  The
Holders (through a single counsel for all Holders) shall have the right to
participate in and comment on any written submission made to the Commission with
respect thereto.  No such written submission shall be made to the Commission
regarding such issues to which such counsel reasonably objects.  In the event
that, despite the Company’s efforts and compliance with the terms of this
Section, the Commission refuses to alter its position, the Company shall (i)
remove from the registration statement such portion of the Registrable
Securities (the “Cut Back Shares”) and/or
 
 
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(ii) agree to such restrictions and limitations on the registration and resale
of the Registrable Securities as the Commission may require to assure the
Company’s compliance with the requirements of Rule 415 and that no Holder is
named as an “underwriter” in the registration statement without that Holder’s
prior written consent (collectively, the “SEC Restrictions”).  Any cut-back
imposed on the Holders pursuant to this Section shall be allocated first, to any
shares included in the Registration Statement on behalf of any one who is not a
Holder and then, among the Holders on a pro rata basis and shall be applied
first to any Warrant Shares covered by such registration statement and then to
any other shares of Common Stock covered by such registration statement, unless
the SEC Restrictions otherwise require or provide or the Holders otherwise
agree.  Provided that the number of Registrable Securities included in the
Registration Statement after the application of any cutback is not less than
17.6 million shares [subject to adjustment as set forth in Section 13(p)], no
limitation on the number of Registrable Securities included in the registration
statement as a result of the application of Rule 415 shall be deemed to be a
breach of any provision of the Transaction Documents, and no penalties,
liquidated damages or other damages or other consequences under the Transaction
Documents shall result from or accrue due to such initial cutback but shall
accrue in connection with the obligation described in the next sentence.  In the
event the Company amends the initial Registration Statement in accordance with
the foregoing, the Company will use its best efforts to file with the
Commission, as promptly as allowed by Commission or SEC Guidance provided to the
Company or to registrants of securities in general, one or more registration
statements on Form S-1 or such other form available to register for resale those
Registrable Securities that were not registered for resale on the initial
Registration Statement, as amended.  In the event of a cutback hereunder, the
Company shall give the Holder at least five (5) Trading Days prior written
notice along with the calculations as to such Holder’s allotment.

(b)         If the Company at any time proposes to register any of its
securities under the 1933 Act for sale to the public, whether for its own
account or for the account of other security holders or both, except with
respect to registration statements on Forms S-4, S-8 or another form not
available for registering the Registrable Securities for sale to the public,
provided the Registrable Securities are not otherwise registered for resale by
the Subscribers or Holder pursuant to an effective registration statement, each
such time it will give at least ten (10) days’ prior written notice to the
record holder of the Registrable Securities of its intention so to do. Upon the
written request of the holder, received by the Company within ten (10) days
after the giving of any such notice by the Company, to register any of the
Registrable Securities not previously registered pursuant to the Registration
Statement which has not ceased to be a Registrable Security, the Company will
cause such Registrable Securities as to which registration shall have been so
requested to be included with the securities to be covered by the registration
statement proposed to be filed by the Company, all to the extent required to
permit the sale or other disposition of the Registrable Securities so registered
by the holder of such Registrable Securities (the “Seller” or “Sellers”). In the
event that any registration pursuant to this Section 11.1(ii) shall be, in whole
or in part, an underwritten or a registered direct public offering of common
stock of the Company, the number of shares of Registrable Securities to be
included in such an underwriting or registered direct offering may be reduced by
the managing underwriter or managing placement agent if and to the extent that
the Company and the underwriter or managing placement agent shall reasonably be
of the opinion that such inclusion would adversely affect the marketing of the
securities to be sold by the Company therein; provided, however, that the
Company shall notify the Seller in writing of any such reduction.
 
 
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(c)          The Subscribers hereby acknowledge that there may be times when the
Company must suspend the use of a prospectus until such time as an amendment to
the related registration statement has been filed by the Company and declared
effective by the Commission or until the Company has amended or supplemented
such prospectus.  Each Subscriber hereby covenants that it will not sell any
securities pursuant to any prospectus during the period commencing at the time
at which the Company gives the Sellers notice of the suspension of the use of
such prospectus and ending at the time the Company gives the Sellers notice that
the Sellers may thereafter effect sales pursuant to such
prospectus.  Notwithstanding anything herein to the contrary, the Company shall
not suspend use of any registration statement by the Sellers unless in the good
faith determination of the Company such suspension is necessary (A) to delay the
disclosure of material non-public information concerning the Company, the
disclosure of which at the time is not, in the good faith opinion of the
Company, in the best interests of the Company or (B) to amend or supplement the
affected registration statement or the related prospectus as required by the
federal securities laws or so that such registration statement or prospectus
shall not include an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein, in the case of the prospectus in light of the circumstances under which
they were made, not misleading, or (C) because it would be detrimental to the
Company or its shareholders for sales to be made from such Registration
Statement at such time, or that there exists a material development or potential
material development involving the Company which the Company would be obligated
to disclose in the prospectus contained in such registration statement, which
disclosure would, in the good faith judgment of the Company, be materially
detrimental to the Company at such time, or that it is advisable to suspend use
of the prospectus not to exceed the period of time described below due to
material undisclosed pending corporate developments or pending public filings
with the Commission (which need not be described in detail) (an “Allowed
Delay”); provided, however, that (X) except as otherwise provided by clause (Y)
below, in the event that such suspension is required by the need for an
amendment or supplement to a registration statement or a related prospectus, the
Company shall promptly (taking into account the above factors) file such
required amendments or supplements as shall be necessary for the disposition of
the Registrable Securities to recommence, (Y) if the Company has determined in
good faith that offers and sales pursuant to a prospectus should not be made by
reason of the presence of potential material undisclosed circumstances or
developments with respect to which the disclosure that would be required in the
related registration statement would have a material adverse effect on the
Company and its business, the Company may suspend the use of such prospectus and
defer the filing of any required amendment or supplement for the minimum period
of time reasonably necessary (taking into account the above factors) to avoid
such adverse effect, and (Z) Allowed Delays may be imposed for not more than
forty-five (45) days (which need not be consecutive days) in any twelve (12)
month period (defined as every rolling period of three hundred and sixty-five
(365) consecutive days commencing on the effective date).  Notwithstanding
anything else herein, a Subscriber’s inability to sell Registrable Securities
during an Allowed Delay shall not be deemed to be a breach or default, but will
result in the accrual of liquidated damages hereunder.

11.2.      Registration Procedures. If and whenever the Company is required by
the provisions of Section 11.1 to effect the registration of any Registrable
Securities under the 1933 Act, the Company will, as expeditiously as possible:

(a)          subject to the timelines provided in this Agreement, prepare and
file with the Commission a registration statement required by Section 11.1 with
respect to such securities and use its commercially reasonable best efforts to
cause such registration statement to become and remain effective for the period
of the distribution contemplated thereby (determined as herein provided),
promptly provide to the holders of the Registrable Securities copies of all
filings and Commission letters of comment and notify the Sellers  (by facsimile
and by e-mail to an address, if any, provided by the Subscribers) and Grushko &
Mittman, P.C. (by email to counslers@aol.com) on or before the second  Business
Day thereafter that the Company receives notice that (i) the Commission has no
comments or no further comments on the registration statement, and (ii) the
registration statement has been declared effective (failure to timely provide
notice as required by this Section 11.2(a) shall be a material breach of the
Company’s obligation and an Event of Default as defined in the Notes and a
Non-Registration Event as defined in Section 11.4 of this Agreement);

 
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(b)         prepare and file with the Commission such amendments and supplements
to such registration statement and the prospectus used in connection therewith
as may be necessary to keep such registration statement effective until such
registration statement has been effective for a period of one (1) year, and
comply with the provisions of the 1933 Act with respect to the disposition of
all of the Registrable Securities covered by such registration statement in
accordance with the Sellers’ intended method of disposition set forth in such
registration statement for such period;
 
 
(c)          furnish to the Sellers, at the Company’s expense, such number of
copies of the registration statement and the prospectus included therein
(including each preliminary prospectus) as such persons reasonably may request
in order to facilitate the public sale or their disposition of the securities
covered by such registration statement or make them electronically available;

(d)         [reserved];

(e)          list the Registrable Securities covered by such registration
statement with any securities exchange on which the Common Stock of the Company
is then listed;

(f)           notify the Sellers within twenty-four (24) hours of the happening
of any event of which the Company has knowledge as a result of which the
prospectus contained in such registration statement, as then in effect, includes
an untrue statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading in light of the circumstances then existing or which becomes subject
to a Commission, state or other governmental order suspending the effectiveness
of the registration statement covering any of the Registrable Securities;

(g)         provided same would not be in violation of the provision of
Regulation FD under the 1934 Act, make available for inspection by the Sellers
during reasonable business hours,  and any attorney, accountant or other agent
retained by the Sellers, all publicly available, non-confidential financial and
other records, pertinent corporate documents and properties of the Company, and
cause the Company’s officers, directors and employees to supply all publicly
available, non-confidential information reasonably requested by the Sellers,
attorney, accountant or agent in connection with such registration statement at
such requesting Seller’s expense; and

(h)         provide to the Sellers copies of the registration statement and
amendments thereto five (5) Business Days prior to the filing thereof with the
Commission.  Any Seller’s failure to comment on any registration statement or
other document provided to a Subscriber or its counsel shall not be construed to
constitute approval thereof nor the accuracy thereof.

11.3.      Provision of Documents.  In connection with each registration
described in this Section 11, each Seller will furnish to the Company in writing
such information and representation letters with respect to itself and the
proposed distribution by it as reasonably shall be necessary in order to assure
compliance with federal and applicable state securities laws.
 
 
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11.4.      Non-Registration Events.  The Company agrees that the Sellers will
suffer damages if the registration statement is not filed or is not declared
effective by the Commission by the dates described herein and accordingly, if
(A) due to the action or inaction of the Company a registration statement is not
declared effective within five days after receipt by the Company or its
attorneys of a written or oral communication from the Commission that the
registration statement will not be reviewed or that the Commission has no
further comments, (B) any registration statement described in Section 11.1(a) is
not filed by the Filing Date, or is not declared effective by the Effective Date
or any other date set forth in Section 11.1(a), or (C) any registration
statement described in Sections 11.1(a), 11.1(b) or 11.1(c) is filed and
declared effective but shall thereafter cease to be effective without being
succeeded within twenty-two (22) Business Days by an effective replacement or
amended registration statement or for a period of time which shall exceed thirty
(30) days in the aggregate per year (defined as every rolling period of three
hundred and sixty-five (365) consecutive days commencing on the effective date)
(each such event shall be a “Non-Registration Event”), then the Company shall
pay to the holder of Registrable Securities, as Liquidated Damages, an amount
equal to one and one-half percent (1.5%) for each thirty (30) days (or such
lesser pro-rata amount for any period of less than thirty (30) days) of the
principal amount of the outstanding Notes and purchase price of Conversion
Shares and Warrant Shares issued upon conversion of Notes and exercise of
Warrants held by Subscribers which are subject to such Non-Registration
Event.  The Company must pay the Liquidated Damages in cash.  The Liquidated
Damages must be paid within ten (10) days after the end of each thirty (30) day
period or shorter part thereof for which Liquidated Damages are payable.  In the
event a registration statement is filed but is withdrawn prior to being declared
effective by the Commission, then such registration statement will be deemed to
have not been filed and Liquidated Damages will be calculated accordingly.  All
oral or written communications received from the Commission relating to a
registration statement must be responded to within ten (10) Business Days after
receipt of such communication from the Commission.  Failure to timely respond to
Commission communications is a Non-Registration Event for which Liquidated
Damages shall accrue and be payable by the Company to the holders of Registrable
Securities at the same rate and amounts set forth above calculated from the date
the response was required to have been made.  Liquidated Damages shall not be
payable pursuant to this Section 11.4 in connection with Registrable Securities
for such times as such Registrable Securities may be freely sold by the holder
thereof pursuant to Rule 144(b)(1)(i) without volume limitations.

11.5.      Expenses.  All expenses incurred by the Company in complying with
Section 11, including, without limitation, all registration and filing fees,
printing expenses (if required), fees and disbursements of counsel and
independent public accountants for the Company, fees and expenses (including
reasonable counsel fees) incurred in connection with complying with state
securities or “blue sky” laws, fees of FINRA, transfer taxes, and fees of
transfer agents and registrars (but excluding such fees relating to any transfer
of Common Stock by a Subscriber that is unrelated to a resale under a
Registration Statement), are called “Registration Expenses.” All underwriting
discounts and selling commissions applicable to the sale of Registrable
Securities are called “Selling Expenses.”  The Company will pay all Registration
Expenses in connection with any registration statement described in Section
11.  Selling Expenses in connection with each such registration statement shall
be borne by the Seller and may be apportioned among the Sellers in proportion to
the number of shares included on behalf of the Seller relative to the aggregate
number of shares included under such registration statement for all Sellers, or
as all Sellers thereunder may agree.

11.6.      Indemnification and Contribution.

(a)          In the event of a registration of any Registrable Securities under
the 1933 Act pursuant to Section 11, the Company will, to the extent permitted
by law, indemnify and hold harmless the Seller, each of the officers, directors,
agents, Affiliates, members, managers, control persons, and principal
shareholders of the Seller, each underwriter of such Registrable Securities
thereunder and each other person, if any, who controls such Seller or
underwriter within the meaning of the 1933 Act, against any losses, claims,
damages or liabilities, joint or several, to which the Seller, or such
underwriter or controlling person may become subject under the 1933 Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any registration statement
under which such Registrable Securities was registered under the 1933 Act
pursuant to Section 11, any preliminary prospectus or final prospectus contained
therein, or any amendment or supplement thereof, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading
in light of the circumstances when made,
 
 
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and will subject to the provisions of Section 11.6(c) reimburse the Seller, each
such underwriter and each such controlling person for any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, however,
that the Company shall not be liable to the Seller to the extent that any such
damages arise out of or are based upon an untrue statement or omission made in
any preliminary prospectus if (i) the Seller failed to send or deliver a copy of
the final prospectus delivered by the Company to the Seller with or prior to the
delivery of written confirmation of the sale by the Seller to the person
asserting the claim from which such damages arise, (ii) the final prospectus
would have corrected such untrue statement or alleged untrue statement or such
omission or alleged omission, or (iii) to the extent that any such loss, claim,
damage or liability arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission so made in conformity
with information furnished by any such Seller in writing specifically for use in
such registration statement or prospectus.

(b)          In the event of a registration of any of the Registrable Securities
under the 1933 Act pursuant to Section 11, each Seller severally but not jointly
will, to the extent permitted by law, indemnify and hold harmless the Company,
and each person, if any, who controls the Company within the meaning of the 1933
Act, each officer of the Company who signs the registration statement, each
director of the Company, each underwriter and each person who controls any
underwriter within the meaning of the 1933 Act, against all losses, claims,
damages or liabilities, joint or several, to which the Company or such officer,
director, underwriter or controlling person may become subject under the 1933
Act or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact contained in the registration
statement under which such Registrable Securities were registered under the 1933
Act pursuant to Section 11, any preliminary prospectus or final prospectus
contained therein, or any amendment or supplement thereof, or arise out of or
are based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, and will reimburse the Company and each such officer, director,
underwriter and controlling person for any legal or other expenses reasonably
incurred by them in connection with investigating or defending any such loss,
claim, damage, liability or action; provided, however, that the Seller will be
liable hereunder in any such case if and only to the extent that any such loss,
claim, damage or liability arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in reliance upon
and in conformity with information pertaining to such Seller, as such, furnished
in writing to the Company by such Seller specifically for use in such
registration statement or prospectus, and provided, further, however, that the
liability of the Seller hereunder shall be limited to the net proceeds actually
received by the Seller from the sale of Registrable Securities pursuant to such
registration statement.

(c)          Promptly after receipt by an indemnified party hereunder of notice
of the commencement of any action, such indemnified party shall, if a claim in
respect thereof is to be made against the indemnifying party hereunder, notify
the indemnifying party in writing thereof, but the omission so to notify the
indemnifying party shall not relieve it from any liability which it may have to
such indemnified party other than under this Section 11.6(c) and shall only
relieve it from any liability which it may have to such indemnified party under
this Section 11.6(c), except and only if and to the extent the indemnifying
party is prejudiced by such omission. In case any such action shall be brought
against any indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate in
and, to the extent it shall wish, to assume and undertake the defense thereof
with counsel satisfactory to such indemnified party, and, after notice from the
indemnifying party to such indemnified party of its election so to assume and
undertake the defense thereof, the indemnifying party shall not be liable to
such indemnified party under this Section 11.6(c) for any legal expenses
subsequently incurred by such indemnified party in connection with the defense
thereof other than reasonable costs of investigation and of liaison with counsel
so selected, provided, however, that, if the defendants in any such action
include both the indemnified party and the indemnifying party and the
indemnifying party shall have reasonably concluded that there may be reasonable
defenses available to indemnified party which are different from or additional
to those available to the indemnifying party or if the interests of the
indemnified party reasonably may be deemed to conflict with the interests of the
indemnifying party, the indemnified parties, as a group, shall have the right to
select one separate counsel, reasonably satisfactory to the indemnified and
indemnifying party, and to assume such legal defenses and otherwise to
participate in the defense of such action, with the reasonable expenses and fees
of such separate counsel and other expenses related to such participation to be
reimbursed by the indemnifying party as incurred.
 
 
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(d)         In order to provide for just and equitable contribution in the event
of joint liability under the 1933 Act in any case in which either (i) a Seller,
or any controlling person of a Seller, makes a claim for indemnification
pursuant to this Section 11.6 but it is judicially determined (by the entry of a
final judgment or decree by a court of competent jurisdiction and the expiration
of time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact that
this Section 11.6 provides for indemnification in such case, or (ii)
contribution under the 1933 Act may be required on the part of the Seller or
controlling person of the Seller in circumstances for which indemnification is
not provided under this Section 11.6; then, and in each such case, the Company
and the Seller will contribute to the aggregate losses, claims, damages or
liabilities to which they may be subject (after contribution from others) in
such proportion so that the Seller is responsible only for the portion
represented by the percentage that the public offering price of its securities
offered by the registration statement bears to the public offering price of all
securities offered by such registration statement, provided, however, that, in
any such case, (y) the Seller will not be required to contribute any amount in
excess of the public offering price of all such securities sold by it pursuant
to such registration statement; and (z) no person or entity guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 1933 Act) will be
entitled to contribution from any person or entity who was not guilty of such
fraudulent misrepresentation and provided, further, however, that the liability
of the Seller hereunder shall be limited to the net proceeds actually received
by the Seller from the sale of Registrable Securities pursuant to such
registration statement.

11.7.      Unlegended Shares and 144 Sales.

(a)          Delivery of Unlegended Shares.  Within three (3) Business Days
(such fifth day being the “Unlegended Shares Delivery Date”) after the day on
which the Company has received (i) a notice that Conversion Shares, Warrant
Shares or any other Common Stock (acquired pursuant to or in connection with
this Agreement or the Transaction Documents) held by the Subscriber has been
sold pursuant to a registration statement or Rule 144 under the 1933 Act, or are
eligible for sale under Rule 144, without the requirement for the Company to be
in compliance with the current public information requirements under rule 144 as
to such shares are without volume and manner of sale restrictions or if such
legend is not otherwise required under the 1933 Act, (ii) a representation that
the prospectus delivery requirements, or the requirements of Rule 144, as
applicable and if required, have been satisfied, (iii) the original share
certificates representing the shares of Common Stock that have been sold, and
(iv) in the case of sales under Rule 144, customary representation letters of
the Subscriber and, if required, Subscriber’s broker regarding compliance with
the requirements of Rule 144 and any other documents reasonably required by the
Company’s transfer agent, the Company at its expense, (y) shall deliver, and
shall cause legal counsel selected by the Company to deliver to its transfer
agent (with copies to Subscriber) an appropriate instruction and opinion of such
counsel, directing the delivery of shares of Common Stock without any legends
including the legend set forth in Section 4(h) above (the “Unlegended Shares”);
and (z) cause the transmission of the certificates representing the Unlegended
Shares together with a legended certificate representing the balance of the
submitted Common Stock certificate, if any, to the Subscriber at the address
specified in the notice of sale, via express courier, by electronic transfer or
otherwise on or before the Unlegended Shares Delivery Date.  Provided Unlegended
Shares may be resold pursuant to the effective registration statement or Rule
144(b)(1) without volume or manner of sale limitations, the Company may deliver
uncertificated shares in lieu of share certificates.

 
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(b)         DWAC.   In lieu of delivering physical certificates representing the
Unlegended Shares, upon request of Subscribers, so long as the certificates
therefor do not bear a legend and the Subscriber is not obligated to return such
certificate for the placement of a legend thereon, the Company shall cause its
transfer agent to electronically transmit the Unlegended Shares by crediting the
account of Subscriber’s prime broker with the Depository Trust Company through
its Deposit Withdrawal Agent Commission system, provided that the Company’s
Common Stock is DTC eligible and the Company’s transfer agent participates in
the Deposit Withdrawal Agent Commission system.  Such delivery must be made on
or before the Unlegended Shares Delivery Date.

(c)          Late Delivery of Unlegended Shares.   The Company understands that
a delay in the delivery of the Unlegended Shares pursuant to Section 11.7 hereof
later than the Unlegended Shares Delivery Date could result in economic loss to
a Subscriber.  As compensation to a Subscriber for such loss, the Company agrees
to pay late payment fees (as liquidated damages and not as a penalty) to the
Subscriber for late delivery of Unlegended Shares in the amount of $100 per
Business Day (increasing to $200 per Business Day after the tenth Business Day)
after the Unlegended Shares Delivery Date for each $10,000 of purchase price of
the Unlegended Shares subject to the delivery default.  If during any three
hundred and sixty (360) day period, the Company fails to deliver Unlegended
Shares as required by this Section 11.7 for an aggregate of thirty (30) days,
then each Subscriber or assignee holding Securities subject to such default may,
at its option, require the Company to redeem all or any portion of the
Unlegended Shares subject to such default at a price per share equal to the
greater of (i) 120% of the purchase price paid or deemed paid by the Subscriber
for the Unlegended Shares that were not timely delivered, or (ii) a fraction in
which the numerator is the highest closing price of the Common Stock during the
aforedescribed thirty (30) day period and the denominator of which is the lowest
conversion price or exercise price, as the case may be, during such thirty (30)
day period, multiplied by the price paid by Subscriber for such Common Stock
(“Unlegended Redemption Amount”).  The Company shall pay any payments incurred
under this Section in immediately available funds upon demand.    To the extent
that liquidated damages accrues under this Section, Section 2.5A of the Note and
Section 2(d)(i) of the Warrant, then the Holder may elect which one of the
Sections referring to such liquidated damages shall apply.

(d)         Injunction.  In the event a Subscriber shall request delivery of
Unlegended Shares as described in Section 11 and the Company is required to
deliver such Unlegended Shares pursuant to Section 11.7, the Company may not
refuse to deliver Unlegended Shares based on any claim that such Subscriber or
anyone associated or affiliated with such Subscriber has not complied with
Subscriber’s obligations under the Transaction Documents, or for any other
reason, unless, an injunction or temporary restraining order from a court, on
notice, restraining and or enjoining delivery of such Unlegended Shares shall
have been sought and obtained by the Company and the Company has posted a surety
bond for the benefit of such Subscriber in the amount of the greater of (i) 120%
of the amount of the aggregate purchase price of the Common Stock which is
subject to the injunction or temporary restraining order, or (ii) the closing
price of the Common Stock on the Trading Day (as defined in Section 13(h)
herein) before the issue date of the injunction multiplied by the number of
Unlegended Shares to be subject to the injunction, which bond shall remain in
effect until the completion of arbitration/litigation of the dispute and the
proceeds of which shall be payable to such Subscriber to the extent Subscriber
obtains judgment in Subscriber’s favor.

 
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(e)          Buy-In.   In addition to any other rights available to Subscriber,
if the Company fails to deliver to a Subscriber Unlegended Shares as required
pursuant to this Agreement and after the Unlegended Shares Delivery Date the
Subscriber, or a broker on the Subscriber’s behalf, purchases (in an open market
transaction or otherwise) shares of common stock to deliver in satisfaction of a
sale by such Subscriber of the shares of Common Stock which the Subscriber was
entitled to receive from the Company (a “Buy-In”), then the Company shall
promptly pay in cash to the Subscriber (in addition to any remedies available to
or elected by the Subscriber) the amount by which (A) the Subscriber’s total
purchase price (including brokerage commissions, if any) for the shares of
common stock so purchased exceeds (B) the aggregate purchase price of the shares
of Common Stock delivered to the Company for reissuance as Unlegended Shares,
together with interest thereon at a rate of 15% per annum accruing until such
amount and any accrued interest thereon is paid in full (which amount shall be
paid as liquidated damages and not as a penalty).  For example, if a Subscriber
purchases shares of Common Stock having a total purchase price of $11,000 to
cover a Buy-In with respect to $10,000 of purchase price of shares of Common
Stock delivered to the Company for reissuance as Unlegended Shares, the Company
shall be required to pay the Subscriber $1,000, plus interest. The Subscriber
shall provide the Company written notice indicating the amounts payable to the
Subscriber in respect of the Buy-In.

(f)          144 Default.   At any time commencing six months after the Closing
Date and ending on the End Date, in the event the Subscriber is not permitted to
sell any of the Conversion Shares or Warrant Shares without such shares
thereafter being subject to any resale restrictions or without any restrictive
legend being put on the shares following their sale or if such sales are
permitted but subject to volume limitations or further restrictions on resale as
a result of the unavailability to Subscriber of Rule 144 (a “144 Default”), for
any reason including but not limited to failure by the Company to file
quarterly, annual or any other filings required to be made by the Company by the
required filing dates (provided that any filing made within the time for a valid
extension shall be deemed to have been timely filed), or the Company’s failure
to make information publicly available which would allow Subscriber’s reliance
on Rule 144 in connection with sales of Conversion Shares or Warrant Shares,
except due to a change in current applicable securities laws or because the
Subscriber is an Affiliate (as defined under Rule 144) of the Company, then the
Company shall pay such Subscriber as liquidated damages and not as a penalty for
each thirty (30) days (or such lesser pro-rata amount for any period less than
thirty (30) days) an amount equal to one and one-half percent (1.5%) of the
purchase price of the Conversion Shares and Warrant Shares subject to such 144
Default.  Liquidated Damages shall not be payable pursuant to this Section
11.7(f) in connection with Shares for such times as such Shares may be sold by
the holder thereof without any legend or volume or other restrictions (other
than the availability of current public information) pursuant to Section
144(b)(1)(i) of the 1933 Act or pursuant to an effective registration statement.
 
12.         (a)            Favored Nations Provision.  Other than in connection
with (i) full or partial consideration in connection with a bona fide strategic
merger, acquisition, consolidation or purchase of substantially all of the
securities or assets of a corporation or other entity, or pursuant to
acquisitions of assets or intellectual property (or licensing of or rights to
use assets or intellectual property) or similar strategic transactions approved
by a majority of the non-employee directors of the Company, in each case so long
as such issuances are not for the purpose of raising capital and which holders
of such securities or debt are not at any time granted registration rights, (ii)
the Company’s issuance of securities in connection with bona fide strategic
license agreements and other bona fide partnering arrangements so long as such
issuances are not for the purpose of raising capital and which holders of such
securities or debt are not at any time granted registration rights, (iii) the
Company’s issuance of Common Stock or the issuances or grants of options,
restricted stock, restricted stock units or other equity awards to purchase
Common Stock to officers, employees, and directors, and up to 200,000 shares or
awards to consultants who perform consulting services to the Company,  pursuant
to any option or equity incentive plan or agreement duly adopted for such
purpose approved by a majority of the non-employee directors of the Company,
 
 
33

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(iv) the exercise or exchange of or conversion of any securities exercisable or
exchangeable for or convertible into shares of Common Stock issued and
outstanding on the date of this Agreement on the unamended terms disclosed in
the Reports and which securities are also described on Schedule 12(a), (v) as a
result of the exercise of Warrants or conversion of Notes which are granted or
issued pursuant to this Agreement, (vi) securities issued pursuant to stock
splits, stock dividends, combinations, capital reorganizations and similar
events relating to the Common Stock resulting in a proportionate and an
equitable adjustment to the conversion price of the Notes or the exercise price
of the Warrants, and (vii) placement agent warrants issuable to licensed broker
dealers in connection with the transactions contemplated by this Agreement as
described on Schedule 12(a) or underwriter warrants issued as compensation to
licensed broker dealers in connection with underwritten public offerings
(collectively, the foregoing (i) through (vii) are “Excepted Issuances”), if at
any time the Notes or Warrants are outstanding, the Company shall agree to or
issue (the “Lower Price Issuance”) any Common Stock or securities convertible
into or exercisable for shares of Common Stock (or modify any of the foregoing
which may be outstanding) to any person or entity at a price per share or
conversion or exercise price per share which shall be less than the Conversion
Price in effect at such time, or if less than the Warrant exercise price in
effect at such time, without the consent of the a Majority in Interest, then the
Conversion Price and Warrant exercise price shall automatically be reduced to
such other lower price.  The Conversion Price of the Conversion Shares and
exercise price in relation to the Warrant Shares shall be calculated separately
for the Conversion Shares and Warrant Shares.  Common Stock issued or issuable
by the Company for no consideration or for consideration that cannot be
determined at the time of issue will be deemed issuable or to have been issued
for $0.001 per share of Common Stock.  For purposes of the adjustments described
in this paragraph, the issuance of any security of the Company carrying the
right to convert such security into shares of Common Stock or any warrant, right
or option to purchase Common Stock shall result in the adjustment described
above upon the sooner of (A) public announcement of, (B) the agreement to, or
(C) actual issuance of such convertible security, warrant, right or options and
again at any time upon any subsequent issuances of shares of Common Stock upon
exercise of such conversion or purchase rights if such issuance is at a price
lower than the Conversion Price or Warrant exercise price in effect upon such
issuance.  A convertible instrument (including a right to purchase equity of the
Company) issued, subject to an original issue or similar discount or which
principal amount is directly or indirectly increased after issuance will be
deemed to have been issued for the actual cash amount received by the Company in
consideration of such convertible instrument.  The rights of Subscribers set
forth in this Section 12(a) are in addition to any other rights the Subscribers
have pursuant to this Agreement, the Notes, Warrants, any other Transaction
Document, and any other agreement referred to or entered into in connection
herewith or to which Subscribers and Company are parties.

(b)         Right of Participation.  Until twelve (12) months following the
Closing Date, the Subscribers hereunder shall be given not less than ten
(10)  days prior written notice of any proposed sale by the Company of its
Common stock or other securities or equity linked debt obligations including but
not limited to a registered direct offering; in connection with the Excepted
Issuances (“Other Offering”).  If Subscribers elect to exercise their rights
pursuant to this Section 12(b), the Subscribers shall have the right during the
ten (10) days following receipt of the notice, to purchase in the aggregate up
to all of such offered common stock, debt or other securities in accordance with
the terms and conditions set forth in the notice of sale, relative to each other
in proportion to the amount of Note Principal issued to them on Closing
Date.  Subscribers who participate in such Other Offering shall be entitled at
their option to purchase, in proportion to each other, the amount of such Other
Offering that could have been purchased by Subscribers who do not exercise their
rights hereunder until up to the entire Other Offering is purchased by
Subscribers.  In the event such terms and conditions are modified during the
notice period, Subscribers shall be given prompt notice of such modification and
shall have the right during the ten (10) days following the notice of
modification to exercise such right.
 
 
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(c)          Until the later of (a) eighteen (18) months after the Closing Date,
or (b) the Notes are no longer outstanding, the Subscriber is granted the right
to elect to substitute any term or terms of any other offering in connection
with which the Subscriber has rights as described in Section 12(a) or Section
12(b), for any term or terms of the Offering in connection with Securities owned
by Subscriber as of the date the Subscriber’s rights pursuant to Section 12(a)
are triggered or the date notice described in Section 12(b) is required to be
given to Subscriber, at Subscriber’s election.

(d)         Maximum Exercise of Rights.  In the event the exercise of the rights
described in Section 12(a), Section 12(b) and Section 12(c) would or could
result in the issuance of an amount of Common Stock of the Company that would
exceed the maximum amount that may be issued to a Subscriber calculated in the
manner described in Section 7.3 of this Agreement, then the issuance of such
additional shares of Common Stock of the Company to such Subscriber (but not the
payment to the Company of the purchase price for the common stock or other
securities or equity linked debt obligations sold in the Other Offering) will be
deferred in whole or in part until such time as such Subscriber is able to
beneficially own such Common Stock without exceeding the applicable maximum
amount set forth calculated in the manner described in Section 7.3 of this
Agreement and such Subscriber notifies the Company accordingly.

13.         Special Conditions.   The Company issued promissory notes (“Prior
Notes”) to the persons and entities identified on Schedule 13 hereto (“Prior
Lenders”), in the principal amounts and on the dates indicated thereon.  The
amount outstanding to the Prior Lenders in connection with the Prior Notes as of
the Closing Date is set forth on Schedule 13 (“Outstanding Prior Debt”).  Each
Prior Lender may participate in the Offering and tender as payment of such Prior
Lender’s Purchase Price, dollar-for-dollar the amount outstanding and owed to
such Prior Lender in connection with such Prior Notes.  The Prior Lenders will
deliver the Prior Notes to the Escrow Agent on or prior to the Closing Date to
be exchanged for Notes.

14.         Miscellaneous.

(a)          Notices.  All notices, demands, requests, consents, approvals, and
other communications required or permitted hereunder shall be in writing and,
unless otherwise specified herein, shall be (i) personally served, (ii)
deposited in the mail, registered or certified, return receipt requested,
postage prepaid, (iii) delivered by reputable air courier service with charges
prepaid, or (iv) transmitted by hand delivery or facsimile, addressed as set
forth below or to such other address as such party shall have specified most
recently by written notice in accordance with this Section 13(a).  Any notice or
other communication required or permitted to be given hereunder shall be deemed
effective (a) upon hand delivery or delivery by facsimile, with accurate
confirmation generated by the transmitting facsimile machine, at the address or
number designated below (if delivered on a Business Day during normal business
hours where such notice is to be received), or the first Business Day following
such delivery (if delivered other than on a Business Day during normal business
hours where such notice is to be received) or (b) on the second Business Day
following the date of mailing by express courier service, fully prepaid,
addressed to such address, or upon actual receipt of such mailing, whichever
shall first occur.  The addresses for such communications shall be:  if to the
Company, to: Adamis Pharmaceuticals Corporation, 11455 El Camino Real, Suite
310, San Diego, CA 92130, Attn: Dennis J. Carlo, Ph.D., CEO, facsimile:
866.893.3622, with a copy by fax only to (which shall not constitute notice):
Weintraub Tobin Chediak Coleman Grodin, 400 Capitol Mall, 11th Floor,
Sacramento, CA 95814, Attn: C. Kevin Kelso, Esq., facsimile: (916) 446-1611, and
(ii) if to the Holder, to the address and facsimile number listed on Schedule 1
hereto, with a copy by fax only to (which shall not constitute notice): Grushko
& Mittman, P.C., 515 Rockaway Avenue, Valley Stream, New York 11581, facsimile:
(212) 697-3575.
 
 
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(b)         Entire Agreement; Assignment.  This Agreement and other documents
delivered in connection herewith represent the entire agreement between the
parties hereto with respect to the subject matter hereof and may be amended only
by a writing executed by both parties.  Neither the Company nor the Subscribers
has relied on any representations not contained or referred to in this Agreement
and the documents delivered herewith.   No right or obligation of the Company
shall be assigned without prior notice to and the written consent of the
Subscribers.

(c)          Counterparts/Execution.  This Agreement may be executed in any
number of counterparts and by the different signatories hereto on separate
counterparts, each of which, when so executed, shall be deemed an original, but
all such counterparts shall constitute but one and the same instrument.  This
Agreement may be executed by facsimile transmission, PDF, electronic signature
or other similar electronic means with the same force and effect as if such
signature page were an original thereof.

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

(e)          Specific Enforcement, Consent to Jurisdiction.  The Company and
Subscribers acknowledge and agree that irreparable damage would occur in the
event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached.  It is
accordingly agreed that the parties shall be entitled to seek an injunction or
injunctions to prevent or cure breaches of the provisions of this Agreement and
to enforce specifically the terms and provisions hereof, this being in addition
to any other remedy to which any of them may be entitled by law or
equity.  Subject to Section 13(d) hereof, the Company and each Subscriber hereby
irrevocably waives, and agrees not to assert in any such suit, action or
proceeding, any claim that it is not personally subject to the jurisdiction in
New York of such court, that the suit, action or proceeding is brought in an
inconvenient forum or that the venue of the suit, action or proceeding is
improper.  Nothing in this Section shall affect or limit any right to serve
process in any other manner permitted by law.
 
 
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(f)          Damages.   In the event the Subscriber is entitled to receive any
liquidated or other damages pursuant to the Transactions Documents, the
Subscriber may elect to receive the greater of actual damages or such liquidated
damages.  In the event the Subscriber is granted rights under different sections
of the Transaction Documents relating to the same subject matter or which may be
exercised contemporaneously, or pursuant to which damages or remedies are
different, Subscriber is granted the right in Subscriber’s absolute discretion
to proceed under such section as Subscriber elects.

(g)         Maximum Payments.   Nothing contained herein or in any document
referred to herein or delivered in connection herewith shall be deemed to
establish or require the payment of a rate of interest or other charges in
excess of the maximum permitted by applicable law.  In the event that the rate
of interest or dividends required to be paid or other charges hereunder exceed
the maximum permitted by such law, any payments in excess of such maximum shall
be credited against amounts owed by the Company to the Subscribers and thus
refunded to the Company.  The Company agrees that it may not and actually waives
any right to challenge the effectiveness or applicability of this Section 13(g).

(h)         Calendar Days.   All references to “days” in the Transaction
Documents shall mean calendar days unless otherwise stated.  The terms “Business
Days” and “Trading Days” shall mean days that the New York Stock Exchange is
open for trading for three or more hours.  Time periods shall be determined as
if the relevant action, calculation or time period were occurring in New York
City.  Any deadline that falls on a non-Business Day in any of the Transaction
Documents shall be automatically extended to the next Business Day and interest,
if any, shall be calculated and payable through such extended period.

(i)           Captions: Certain Definitions.  The captions of the various
sections and paragraphs of this Agreement have been inserted only for the
purposes of convenience; such captions are not a part of this Agreement and
shall not be deemed in any manner to modify, explain, enlarge or restrict any of
the provisions of this Agreement.  As used in this Agreement the term “person”
shall mean and include an individual, a partnership, a joint venture, a
corporation, a limited liability company, a trust, an unincorporated
organization and a government or any department or agency thereof.

(j)           Consent.   As used in this Agreement and the other Transaction
Documents and any other agreement delivered in connection herewith, “Consent of
the Subscribers” or similar language means the consent of holders of more than
fifty percent (50%) of each affected component of the Securities on the date
consent is requested (such holders being a “Majority in Interest”).  A Majority
in Interest may consent to take or forebear from any action permitted under or
in connection with the Securities and Transaction Documents, modify any of the
Securities and Transaction Documents or waive any default or requirement
applicable to the Company, Subsidiaries or Subscribers under the Securities and
Transaction Documents provided the effect of such action is equally applied or
applicable to all the Subscribers.

(k)          Severability.  In the event that any term or provision of this
Agreement shall be finally determined to be superseded, invalid, illegal or
otherwise unenforceable pursuant to applicable law by an authority having
jurisdiction and venue, that determination shall not impair or otherwise affect
the validity, legality or enforceability: (i) by or before that authority of the
remaining terms and provisions of this Agreement, which shall be enforced as if
the unenforceable term or provision were deleted, or (ii) by or before any other
authority of any of the terms and provisions of this Agreement.

(l)           Successor Laws.  References in the Transaction Documents to laws,
rules, regulations and forms shall also include successors to and functionally
equivalent replacements of such laws, rules, regulations and forms.  A successor
rule to Rule 144(b)(1)(i) shall include any rule that would be available to a
non-Affiliate of the Company for the sale of Common Stock not subject to volume
restrictions and after a six month holding period.
 
 
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(m)         Maximum Liability.   In no event shall the liability of the
Subscribers or permitted assign hereunder or under any Transaction Document or
other agreement delivered in connection herewith be greater in amount than the
dollar amount of the net proceeds actually received by such Subscriber or
successor upon the sale of Conversion Shares or Warrant Shares.

(n)         Independent Nature of Subscribers.     The Company acknowledges that
the obligations of each Subscriber under the Transaction Documents are several
and not joint with the obligations of any other Subscriber, and no Subscriber
shall be responsible in any way for the performance of the obligations of any
other Subscriber under the Transaction Documents. The Company acknowledges that
each Subscriber has represented that the decision of each Subscriber to purchase
Securities has been made by such Subscriber independently of any other
Subscriber and independently of any information, materials, statements or
opinions as to the business, affairs, operations, assets, properties,
liabilities, results of operations, condition (financial or otherwise) or
prospects of the Company which may have been made or given by any other
Subscriber or by any agent or employee of any other Subscriber, and no
Subscriber or any of its agents or employees shall have any liability to any
other Subscriber (or any other person) relating to or arising from any such
information, materials, statements or opinions.  The Company acknowledges that
nothing contained in any Transaction Document, and no action taken by any
Subscriber pursuant hereto or thereto shall be deemed to constitute the
Subscribers as a partnership, an association, a joint venture or any other kind
of entity, or create a presumption that the Subscribers are in any way acting in
concert or as a group with respect to such obligations or the transactions
contemplated by the Transaction Documents.  The Company acknowledges that it has
elected to provide all Subscribers with the same terms and Transaction Documents
for the convenience of the Company and not because Company was required or
requested to do so by the Subscribers.  The Company acknowledges that such
procedure with respect to the Transaction Documents in no way creates a
presumption that the Subscribers are in any way acting in concert or as a group
with respect to the Transaction Documents or the transactions
contemplated thereby.

(o)         Equal Treatment.   No consideration shall be offered or paid to any
person to amend or consent to a waiver or modification of any provision of the
Transaction Documents unless the same consideration is also offered and paid to
all the Subscribers and their permitted successors and assigns.

(p)         Adjustments.   The conversion price, Warrant exercise price, amount
of Conversion Shares and Warrant Shares, trading volume amounts, price/volume
amounts and similar figures in the Transaction Documents shall be equitably
adjusted and as otherwise described in this Agreement, the Notes and Warrants.
 
[-SIGNATURE PAGES FOLLOW-]
 
 
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IN WITNESS WHEREOF, the parties hereto have caused this Subscription Agreement
to be duly executed by their respective authorized signatories as of the date
first indicated above.

ADAMIS PHARMACEUTICALS CORPORATION
 
 
Address for Notice:
 
11455 El Camino Real, Suite 310,
San Diego, CA 92130

 

By:
/s/ DENNIS J. CARLO
 
Fax: (866) 893-3622
  Name: Dennis J. Carlo          Title: Chief Executive Officer    

 
With a copy to (which shall not constitute notice):
 
Weintraub Tobin Chediak Coleman Grodin
400 Capitol Mall, 11th Floor
Sacramento, CA 95814
Attn: C. Kevin Kelso, Esq.
Fax: (916) 446-1611
 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOR SUBSCRIBER FOLLOWS]
 
 
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[SUBSCRIBER SIGNATURE PAGES TO
ADAMIS PHARMACEUTICALS CORPORATION SUBSCRIPTION AGREEMENT]

IN WITNESS WHEREOF, the undersigned have caused this Subscription Agreement to
be duly executed by their respective authorized signatories as of the date first
indicated above.
 
Name of Subscriber: ________________________________________________________
 
Signature of Authorized Signatory of Subscriber:
__________________________________
 
Name of Authorized Signatory:
____________________________________________________
 
Title of Authorized Signatory:
_____________________________________________________
 
Email Address of Authorized Signatory:
_____________________________________________
 
Facsimile Number of Authorized Signatory:
__________________________________________
 
Address for Notice to Purchaser:
 
 
Address for Delivery of Securities to Purchaser (if not same as address for
notice):
 
 
Purchase Price: $______________

Principal Amount of Note: $_________________

Warrant Shares: _________________

EIN Number: _______________________
 

[SIGNATURE PAGES CONTINUE]
 
 
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LIST OF EXHIBITS AND SCHEDULES
 
Exhibit A
 
Form of Note
Exhibit B
 
Form of Warrant
Exhibit C
 
Escrow Agreement
Exhibit D
 
Form of Security Agreement
Exhibit E
 
Form of Legal Opinion
Exhibit F
 
Form of Intercreditor Agreement
Exhibit G
 
Form of Waiver and Consent Agreement
Schedule 1
 
List of Subscribers
Schedule 5(a)
 
Subsidiaries
Schedule 5(d)
 
Capitalization
Schedule 5(f)
 
Exceptions
Schedule 5(r)
 
Accountants
Schedule 5(w)
 
Transfer Agent
Schedule 5(ff)
 
Insurance Policy
Schedule 8(a)
 
Fees
Schedule 9(e)
 
Use of Proceeds
Schedule 9(l)
 
Intellectual Property
Schedule 9(p)(i)
 
Liens
Schedule 9(p)(iv)
 
Transactions with Affiliates
Schedule 9(q)
 
Variable Priced Equity Linked Instruments
Schedule 12(a)
 
Excepted Issuances

 
 
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SCHEDULE 1
 
SUBSCRIBERS
 
PURCHASE
PRICE
   
NOTE PRINCIPAL
   
WARRANTS
                                                                               
                                                                               
                                                 

 
 
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TOTALS
                       

*  Surrender of Note with Interest in lieu of cash
 
 
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SCHEDULES TO SUBSCRIPTION AGREEMENT

In connection with that certain Subscription Agreement dated on or about June
26, 2013 (the “Agreement” or the “Subscription Agreement”) and entered into by
and among Adamis Pharmaceuticals Corporation (the “Company”) and each person or
entity executing the Agreement as a “Subscriber,” the Company hereby delivers
these schedules as contemplated by the Agreement.  The schedules and the
information and disclosures contained herein are intended only to qualify and
limit the representations, warranties and covenants of the Company contained in
the Agreement, and shall not be deemed to expand in any way the scope or effect
of any of such representations, warranties or covenants.  No reference or
disclosure of any information or document in these Schedules shall be construed
as a statement or admission that it is material unless otherwise indicated or
that such item or other matter is required to be referred to or disclosed in
these Schedules. Matters reflected in the schedules are not necessarily limited
to matters required by the Subscription Agreement to be reflected in these
schedules.   Such additional matters are set forth for informational purposes
and do not necessarily include other matters of a similar nature.  Capitalized
terms used but not defined herein shall have the same meanings given them in the
Subscription Agreement.
 
Schedule 5(a)
Subsidiaries

The Company owns 100% of the outstanding common stock and all other equity of
each of the following Subsidiaries.  All of the following Subsidiaries are
incorporated in Delaware except Biosyn, Inc., which is a Pennsylvania
corporation.

Adamis Laboratories, Inc. (“Adamis Labs”)
 
Adamis Viral Therapies, Inc. (“Adamis Viral”)
 
Adamis Corporation (“Adamis Corp.”)
 
Biosyn, Inc.
 
Biosyn, Inc. will not initially execute or deliver to Subscribers an Additional
Debtor Joinder and Subsidiary Guaranty or any other Transaction Document in
connection with the transactions contemplated by the Transaction Documents.
 
Schedule 5(d)
Capitalization
 
Authorized capital stock:
 
·
200,000,000 shares of common stock, $0.0001 par value

 
·
10,000,000 shares of preferred stock, $0.0001 par value, none of which are
issued or outstanding.

 
Outstanding Equity:
 
(a)
There are 104,496,046 outstanding shares of Common Stock.

 
(b)
There are outstanding options to purchase 6,824,296 shares of Common Stock.

 
 
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(c)
There are outstanding restricted stock units granted under the 2009 Plan to
acquire 716,691 shares of Common Stock.

 
(d)
There are outstanding warrants to acquire 1,800,505 shares of Common Stock.

 
(e)
The Company has entered into agreements with licensed broker dealers providing
for placement agent warrants in connection with the transactions contemplated by
the Transaction Documents, as described in Schedule 8(a), or underwriter
warrants customarily issued in connection with underwritten public offerings.

 
(f)
12% Convertible Debentures dated April 5, 2013 and securities issuable pursuant
to such transaction agreements (the “April 2013 Debentures”), in the aggregate
principal amount of $570,000, which are convertible into shares of Common
Stock.  The April 2013 Debentures include anti-dilution and other provisions
pursuant to which the conversion price of the April 2013 Debentures will be
reduced, and the number of shares issuable upon conversion of the April 2013
Debentures increased, upon the issuance (with certain exceptions) of securities
below the then-conversion price of the April 2013 Debentures or the occurrence
of certain events of default.  The securities purchase agreement relating to
these debentures provides that as long as an investor holds any of the
debentures, the investor has a right of first refusal, which has been waived
with respect to the transactions contemplated by the Transaction Documents, to
purchase new securities (with certain exceptions) that the Company may propose
to offer and sell while any debentures are outstanding.  The investors have
agreed that following the closing of the transactions contemplated by the
Subscription Agreement, their right of first refusal will apply to new
securities that the Subscribers have elected not to purchase under the rights
granted to the Subscribers under the Transaction Documents.

 
(g)
Convertible Promissory Note dated December 31, 2012 and securities issuable
pursuant to such transaction agreements (the “December 2012 Note”), in the
aggregate principal amount of $600,000, convertible into shares of Common Stock.

 
(h)
Under the Company’s 2009 Equity Incentive Plan (the “2009 Plan”), non-employee
directors are entitled to receive annual automatic awards of options.

 
(i)
On the Closing Date, the Company will issue to the holder of the December 2012
Note a warrant to purchase 375,000 shares of Common Stock, at an exercise price
per share equal to 110% of the closing price of the Common Stock on the trading
day preceding the Closing Date.

 
Schedule 5(f)
No Violation of Conflict

In connection with the transactions contemplated by the Transaction Documents,
the Company will obtain the waivers, consents and approvals of the holders of
the April 2013 Debentures, December 2012 Note and June 2012 Note.  In connection
with the grant of the security interest contemplated by the Security Agreement,
the Company will obtain the consents and approvals of the Regents of the
University of California (as represented by the University of California, San
Diego), Dana Farber Institute, Inc., and Wisconsin Alumni Research Foundation,
as licensors under the License Agreements (as defined below) pursuant to which
the Company has licensed certain intellectual property rights, to the grant of
the security interests contemplated by the Security Agreement, subject to the
terms and conditions set forth in such consents and approvals.
 
 
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The Company’s obligations under the April 2013 Debentures and the June 2012 Note
and related transaction agreements are guaranteed by the Company’s Adamis Labs,
Adamis Viral and Adamis Corp. subsidiaries pursuant to Guarantees executed by
such subsidiaries.
 
Schedule 5(r)
Accountants

Mayer Hoffman McCann P.C., was the independent accountant with respect to the
Company’s financial statements for the years ended March 31, 2012 and 2011 and
is expected to express its opinion with respect to the financial statements to
be included in the Company’s Annual Report for the fiscal year ending March 31,
2013.
 
Schedule 5(w)
Transfer Agent
 
First American Stock Transfer
4747 N. 7th Street, Suite 170
Phoenix, AZ 85014
602-759-5512 Phone
602-759-5522 Fax
Contact: Robyn Brand
Email: robyn@firstamericanstock.com
 
Schedule 8(a)
Fees

LifeTech Capital (“LTC”) is entitled to receive a cash fee equal to 5.0% of the
gross proceeds of Securities issued by the Company to the investors that LTC
introduced by LTC to the Company (“LTC Investors”).  In addition, LTC is
entitled to receive placement agent warrants to purchase common stock equal to
5.0% of the number of shares initially issuable by the Company upon conversion
or exercise of the notes and warrants issued in the offering contemplated by the
Transaction Documents.  The warrants will have a term of five years, include a
cashless exercise feature, and will have an exercise price per share equal to
the exercise price of the Warrants issued to the Subscribers.

Alpha Capital Anstalt will receive a due diligence fee of $70,000.

No fees will be paid in connection with the rolling in of the Prior Notes
described in Section 13 of the subscription Agreement.
 
 
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Schedule 9(e)
Use of Proceeds

The Company will use a portion of the proceeds to make scheduled interest
payments under the December 2012 Note of $5,167 per month.  The Company will use
approximately 67% of the cash proceeds substantially for acquisition of rights
regarding products, assets or technologies, and to enable the FDA filing for the
Company’s epinephrine syringe product candidate.  The balance will be used for
payment of operating, general and administrative expenses including current and
accrued salaries to employees, fees to directors, and other obligations incurred
in the ordinary course of the Company’s business.

Schedule 9(l)
Intellectual Property

The Company’s Biosyn, Inc. subsidiary holds the following issued patents.  The
Company makes no representations or warranties concerning whether such patents
have been or will be maintained:

Program
Country
Status
Filing Date (Issue Date)
Patent # (where applicable)
C31G/Savvy
African Union (OAPI)
Issued
7/17/1991 (9/15/1994)
9911
C31G/Savvy
Namibia
Issued
3/19/1992 (11/25/1992)
92/0017
C31G/Savvy
U.S.
Issued
3/22/1991 (5/24/1994)
5,314,917
C31G/Savvy
U.S.
Issued
4/4/1994 (10/2/2001)
6,297,278

 
Registered copyrights:  None.

Registered trademarks:  None, other than the following:

MARK
Registration Number or Application Serial #
International Class
AEROKID
2,946,639
5
AEROKID LOGO
3,025,733
5
LOGO
2,969,548
5
AEROHIST
3,000,259
5
ANA-TOTE
2,805,731
5

These trademarks relate to certain allergy and respiratory products that the
Company has not sold for more than two years.  The Company makes no
representations or warranties concerning the status of such marks or whether
they have been or will be maintained.

Pursuant to its license agreements (the “License Agreements”) with (i) The
Regents of the University of California (as represented by University of
California San Diego) and Dana Farber Cancer Institute, Inc., (ii) Wisconsin
Alumni Research Foundation, and (iii) Nevagen, LLC, the Company has licensed
rights to use certain patents and intellectual property rights held by such
licensors, pursuant to the terms of the applicable license agreements, as
described in the Reports.  The Company has separately provided to the investors
a schedule containing information concerning the licensed patents and patent
applications, and the Company hereby represents that the information provided on
such schedule that is not included in information filed on the exhibits to the
License Agreement filed with the SEC does not constitute material non-public
information.
 
 
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The Company own rights to the following Domain Names:

Adamislaboratories.com
Adamislabs.com
Adamispharmaceutical.com
Adamispharmaceuticals.com
Adamispharma.com
 
Schedule 9(p)(i)
Negative Covenants

The Company’s rights to use the intellectual property covered by the License
Agreements are subject to the terms of such License Agreements and to the
licensors’ ability to terminate the applicable License Agreement pursuant to the
provisions of the License Agreements.

The Company’s obligations under the April 2013 Debentures and the June 2012 Note
and related transaction agreements are guaranteed by the Company’s Adamis Labs,
Adamis Viral and Adamis Corp. subsidiaries (the “Guarantors”) pursuant to
Guarantees executed by such subsidiaries.  Such guarantees will be subordinated
to the guarantees provided to the Subscribers by the Guarantors in the
Transaction Documents.

The Company has outstanding promissory notes to Dennis Carlo, Ph.D., the
president and chief executive officer of the Company, evidencing loans made by
Dr. Carlo to the Company in 2009.  As of  May 31, 2013, the outstanding
principal balance under the Carlo Notes was $81,232.  The Company's obligations
under the Carlo Notes are secured by a security interest in the Company’s
assets, although no financing statement has been filed with respect to such
notes.  Dr. Carlo will be a party to the Intercreditor Agreement and will
subordinate such security interest to the rights of the Subscribers under the
Transaction Documents, pursuant to the terms of the Intercreditor Agreement.
 
Schedule 9(q)
Variable Priced Equity Linked Instruments

The June 2012 Note and the April 2013 Notes contain provisions relating to
possible future adjustments to the conversion price of such notes upon price
anti-dilution events or events of default that may be regarded as including
Variable Rate Restrictions and as making such notes Variable Priced Equity
Linked Instruments, as modified pursuant to the Waiver and Consent executed by
the holders of such notes.

Schedule 12(a)
Excepted Issuances

·
Outstanding options to purchase 6,824,296 shares of Common Stock.

 
·
Outstanding restricted stock units granted under the 2009 Plan to acquire
716,691 shares of Common Stock.

 
 
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·
Outstanding warrants to acquire 1,800,505 shares of Common Stock.

 
·
Securities issuable upon conversion of the April 2013 Debentures.  Subject to
the modified terms of the Consent and Waiver, the principal amount and all
accrued interest are convertible into shares of Common Stock at any time at the
discretion of the holder at an initial conversion price per share of $0.50,
subject to adjustment for stock splits, reverse stock splits, stock dividends
and other similar transactions and subject to the terms of the Debentures.  The
conversion price is also subject to full-ratchet anti-dilution protection as
provided in the Debentures.

 
·
Securities issuable upon conversion of the December 2012 Note.  Subject to the
modified terms of the Consent and Waiver, the investor has the right to convert
part or all of the principal and interest owed under the December 2012 Note into
Common Stock at a conversion price equal to $0.55 per share (subject to
adjustment for stock dividends, stock splits, reverse stock splits,
reclassifications or other similar events affecting the number of outstanding
shares of Common Stock).

 
·
Securities issuable upon exchange of Old Adamis stock certificates for common
stock of the Company pursuant to the 2009 merger of Old Adamis and Old Cellegy.
Warrants issued to LTC to purchase common stock equal to 5.0% of the number of
shares initially issuable by the Company upon conversion or exercise of the
notes and warrants issued in the offering contemplated by the Transaction
Documents.  The warrants will have a term of five years, include a cashless
exercise feature, and will have an exercise price per share equal to the
exercise price of the Warrants issued to the Subscribers.

 
Schedule 13
Special Conditions

Gemini Master Fund, Ltd. is the holder of the June 2012 Note.  The amount of
principal and accrued interest under the June 2012 Note is $551,944.44 as of
June 21, 2013.
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