**Exhibit10.7**

 

THIS NOTE AND THE SECURITIES ISSUABLE UPON CONVERSIONHEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,OR UNDER THE PROVISIONS OF ANY APPLICABLE STATE SECURITIES LAWS.  THIS NOTE AND THE SECURITIES ISSUABLE UPON CONVERSIONHEREOF MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED OROTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN OPINION OF COUNSEL SATISFACTORY TO THECOMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.

 

**CONVERTIBLEPROMISSORY NOTE**

 
| $150,000 | September 25, 2008 |
|----------|-------------------------|

 

FOR VALUE RECEIVED, ProUroCare Medical Inc., a Nevadacorporation (the “Company”), hereby promises to pay to James L. Davis (“Holder”), the principal sum of One Hundred andFifty Thousand DOLLARS ($150,000), together with interest as provided forherein, in lawful currency of the United States of America.  This Convertible Promissory Note (this “Note”)shall bear interest at a rate of 10% per annum.

 

# SECTION 1

# Terms

#  

## Section 1.1     InterestRate.  The Company agrees thatinterest shall accrue on the outstanding principal amount of this Note from thedate of this Note until the principal and interest have been converted inaccordance with the provisions hereof or paid in full, with interest accruingat a fixed rate per annum equal to ten percent (10.0%).  Such interest shall be computed on the basisof actual days elapsed and a year of 360 days.

##  

## Section 1.2     AnnualInterest Payment.  Subject to theearlier conversion of this Note, the interest accrued on this Note from thedate of this Note through September 25, 2009 shall be payable to theHolder in cash on September 25, 2009. At the option of the Holder, such accrued interest, in whole or in part,may be converted into that number of fully paid and nonassessable shares of theCompany’s common stock, $0.00001 par value (the “Common Stock”) as isobtained by dividing (A) the amount of such accrued interest by (B) theclosing price of the Common Stock on September 25, 2009.

##  

## Section 1.3     Maturity.  Subject to the earlier conversion of thisNote, the entire outstanding principal amount of this Note, together with theinterest accrued on this Note from the date of this Note through the date ofpayment shall be payable to the Holder in cash on the earlier of seven daysafter the date the Company closes a Public Offering (as defined below) or March 25,2010 (the “Maturity Date”).

##  

## Section 1.4     Warrant.  The Company agrees, as further considerationfor the loan evidenced by this Note, to grant to Holder a warrant to purchaseOne Hundred Thousand (100,000) fully paid and nonassessable shares of theCompany’s common stock, $0.00001 par 

 

----

 

## value (the “Common Stock”) exercisable at anytime or from time to time through September 25, 2013 at an exercise priceof One Dollar and Fifty Cents ($1.50) per share of Common Stock.

##  

## Section 1.5     OptionalConversion Upon a Public Offering. In the event that a Public Offering is completed before March 25,2010, within the seven days following completion of such Public Offering, atthe option of the Holder, all or any portion of the outstanding principalamount of this Note, and the interest accrued thereon (such principal andaccrued interest, the “Converted Balance”) may be converted into thatnumber of shares of Common Stock as is obtained by dividing (A) theConverted Balance by (B) the product of (i) the Offering Price and (ii) 0.70.  For purposes of this Note, (i) “PublicOffering” shall mean an underwritten public offering of equity securitiesof the Company and (ii) “Offering Price” shall mean the per shareor other unit price at which equity securities of the Company are offered inthe Public Offering.

##  

## Section 1.6     OptionalPrepayment.  Subject to the Holder’sright to have some or all of the principal and accrued interest on this Noteconverted into Common Stock in accordance with Section 1.4 hereof, theCompany may, at its option, without premium or penalty, upon five (5) daysprior written notice to the Holder, repay the unpaid principal amount of thisNote, at any time in whole or from time to time in part, together with interestaccrued thereon to the date of prepayment. Any such prepayment shall be applied first to the payment of accruedinterest and then to repayment of principal. Upon any partial prepayment of the unpaid principal amount of this Note,the Holder shall make notation on this Note of the portion of the principal soprepaid.

##  

## Section 1.7     Subordination.  This Note shall be subordinated in allrespects (including right of payment) to all other indebtedness of the Company,now existing or hereafter owing, to banks and other such financialinstitutions.

##  

Section 1.7 No Fractional Shares or Scrips. No fractional shares or scrip representing fractional shares shall beissued upon the conversion of this Note. In lieu of issuing such fractional shares, the Company shall pay all ofthe cash value of any fractional interest to Holder.

 

Section 1.8 No Impairment.  Withoutlimiting or altering the provisions or obligations of the Company under thisNote, the Company shall not avoid or seek to avoid the observance orperformance of any of the terms to be observed or performed by it pursuant tothis Note and shall at all times in good faith assist in the observance orperformance of any of the terms to be observed or performed by it pursuant to thisNote.

 

Section 1.9 Issuance of Shares.  Holder acknowledges that the Companycurrently has insufficient authorized shares of Common Stock to permit theconversion of this Note and all of the other similar outstanding notes.

 

Section 1.10 Release of Obligations. Upon conversion or prepayment of this Note, the Company shall be foreverreleased from all its obligations and liabilities under this Note.

 

Section 1.11 Adjustment.

 

### (a)                                  Adjustmentsfor Dividends and Distributions.  Inthe event the Company at any time or from time to time after the date hereofshall make, issue, or fix a record 

 

2

----

 

### date for thedetermination of holders of capital stock entitled to receive a dividend orother distribution (including a stock split or subdivision) payable insecurities of the Company, then and in such event provisions shall be made sothat the Holder shall receive, upon conversion of this Note, in addition to thenumber of shares of Common Stock receivable thereupon, the amount of securitiesof the Company that the Holder would have received had this Note been convertedinto Common Stock on the date of such event and had the Holder thereafter,during the period from the date of such event to and including the conversiondate, retained such securities receivable by the Holder as aforesaid duringsuch period, giving application to all adjustments called for during suchperiod under this Note with respect to the rights of the Holder under the Note.

###  

### (b)                                 Adjustmentfor Reclassifications, Exchanges, or Substitutions.  If the Common Stock issuable upon theconversion of this Note shall be changed into the same or different number ofshares of any class or classes of capital stock, whether by capitalreorganization, reclassification, or otherwise (other than a subdivision orcombination of shares or stock dividend, or a reorganization, merger,consolidation, or sale of assets provided for elsewhere), then and in each suchevent the Holder shall have the right thereafter to convert this Note into thekind and amount of shares of capital stock and other securities and propertyreceivable upon such reorganization, reclassification, or other change, byholders of the number of shares of Common Stock into which this Note might havebeen converted immediately prior to such reorganization, reclassification orchange, all subject to further adjustment as provided herein.

###  

### (c)                                  Reorganization;Mergers; Consolidations; Sales of Assets. If at any time or from time to time there shall be a capitalreorganization of the Common Stock issuable on conversion of this Note (otherthan a subdivision, combination, reclassification, or exchange of sharesprovided for elsewhere) or a merger or consolidation of the Company with orinto another corporation, or the sale of all or substantially all of theCompany’s properties and assets to any other entity, then, as a part of suchreorganization, merger, consolidation, or sale, provision shall be made so thatthe Holder shall thereafter be entitled to receive upon conversion of thisNote, the number of shares of capital stock or other securities or property ofthe Company, or of the successor corporation resulting from such merger orconsolidation or sale, to which a holder of Common Stock deliverable uponconversion would have been entitled on such capital reorganization, merger,consolidation, or sale. In any such case, appropriate adjustment shall be madein the application of the provisions of this Note with respect to the rights ofthe Holder after the reorganization, merger, consolidation, or sale to the endthat the provisions of this Note shall be applicable after the event as nearlyequivalent as may be practicable.

###  

### (d)                                 Adjustmentfor Stock Splits and Combinations. If the Company at any time or from time to time effects a subdivision ofthe outstanding capital stock, the Conversion Price then in effect immediatelybefore that subdivision shall be proportionately decreased, and conversely, ifthe Company at any time or from 

 

3

----

 

### time to timecombines the outstanding shares of capital stock, the Conversion Price then ineffect immediately before the combination shall be proportionately increased.Any adjustment under this subsection (d) shall become effective at theclose of business on the date the subdivision or combination becomes effective.

###  

### (e)                                  Effects of Reverse Stock Split. Notwithstanding any of the foregoing, the price at which this Noteconverts under Section 1.4 hereof in the event of a Public Offering shallnot be adjusted under this Section 1.11 for the Company’s Reverse StockSplit.  For purposes of this Note, “ReverseStock Split” shall mean the ten-for-one reverse split of the Company’sCommon Stock effective on February 14, 2008.

###  

# SECTION 2

# Events of Default

#  

Section 2.1  Events of Default.   The Outstanding Balance of this Note shallbecome due and payable without any action on the part of the Holder thereofupon the happening of any of the following events (each, an “Event ofDefault”):

 

### (a)                                  theCompany shall generally not pay its debts as such debts become due, or shalladmit in writing its inability to pay its debts generally, or shall make ageneral assignment for the benefit of creditors; or any proceeding shall beinstituted by or against the Company seeking to adjudicate it bankrupt orinsolvent, or seeking liquidation, winding up, reorganization, arrangement,adjustment, custodianship, protection, or relief of it or its debts under anylaw relating to bankruptcy, insolvency or reorganization or relief of debtors,or seeking the entry of an order for relief or the appointment of a receiver,custodian trustee, or other similar official for it or for any substantial partof its property; or

###  

### (b)                                 theCompany shall default in the due performance or observance of any expressed orimplied covenant, agreement or provision of this Note or the Unit PurchaseAgreement and such default shall have continued uncured for a period of thirty(30) days after written notice thereof to the Company from the Holder of anyoutstanding Note.

###  

Section 2.2 Suits for Enforcement.  Incase any one or more Events of Default shall have occurred and be continuing,unless such Events of Default shall have been waived in the manner provided in Section 3.5,Holder may proceed to protect and enforce his rights under this Section 2.2by suit in equity or action at law.  It is agreed that in the event the Holderprevails in such action, the Holder shall be entitled to receive all reasonablefees, costs and expenses incurred, including without limitation such reasonablefees and expenses of attorneys (whether or not litigation is commenced) andreasonable fees, costs and expenses of appeals.

 

# SECTION 3

# Miscellaneous

#  

## Section 3.1     Lost,Stolen or Mutilated Notes.  Upon receiptof evidence satisfactory to the Company of the loss, theft, destruction ormutilation of this Note, and in case of any such loss, 

 

4

----

 

## theft or destruction, upon delivery of any customaryindemnity agreement reasonably satisfactory to the Company, or in any case ofany such mutilation, upon surrender and cancellation of this Note, the Companyat its expense will issue and deliver a new Note of like tenor in an amountequal to the amount of such lost, stolen or mutilated Note and any such lost,stolen or destroyed Note shall thereupon become void.

##  

## Section 3.2     Benefitof Note.  This Note shall be bindingupon, and shall inure to the benefit of and be enforceable by, Holder and itssuccessors and assigns.  All of thecovenants and the agreements contained in this Note by or on behalf of theCompany are binding on the Company’s successors and assigns, whether byconsolidation, merger, transfer or license of all or substantially all of theproperty of the Company.

##  

## Section 3.3     Costsof Collection.  The Company herebywaives presentment for payment, notice of dishonor, protest and notice ofprotest and, following an Event of Default, the Company shall pay all of Holder’scosts of collecting or attempting to collect any amount due hereunder,including but not limited to, all reasonable attorneys’ fees and legalexpenses.

##  

Section 3.4 Notices.  All noticesrequired under this Note shall be deemed to have been given or made for allpurposes (i) upon personal delivery, (ii) upon confirmation receiptthat the communication was successfully sent to the applicable number if sentby facsimile; (iii) one day after being sent, when sent by professionalovernight courier service, or (iv) five days after posting when sent byregistered or certified mail.  Notices tothe Company shall be sent to the principal office of the Company (or at suchother place as the Company shall notify the Holder hereof in writing).  Notices to the Holder shall be sent to theaddress of the Holder as set forth in the books and records of the Company onthe date hereof (or at such other place as the Holder shall notify the Companyhereof in writing).

 

Section 3.5 Amendment; Waiver.  Anyterm of this Note may be amended, changed or modified, and the observance ofany term of this Note may be waived (either generally or in a particularinstance and either retroactively or prospectively), only with the writtenconsent of the Company and the Holder

 

Section 3.6 Governing Law and Construction. This Note shall be construed in accordance with and governed by the lawsof the State of Minnesota, without regard to the principles of conflicts oflaw.  Whenever possible, each provisionof this Note and any other statement, instrument or transaction contemplatedhereby and valid under such applicable law, but, if any provision of this Noteor any other statement, instrument or transaction contemplated hereby orrelating hereto shall be held to be prohibited or invalid under such applicablelaw, such provision shall be ineffective only to the extent of such prohibitionor invalidity, without invalidating the remainder of such provision or theremaining provisions of this Note or any other statement, instrument ortransaction contemplated hereby or relating hereto.  In the event of any conflict with, between oramong the provisions of this Note or the Unit Purchase Agreement, the UnitPurchase Agreement shall govern.

 

**IN WITNESS WHEREOF**,the Company has executed this Note as of the date first above written.

 

5

----

 
|   | PROUROCARE  MEDICAL INC. |
|--------|--------------------------|
|   |                     |
|   |                     |
|   | By:                      |    /s/Richard  C. Carlson |
|   |                     | Name:  Richard  C. Carlson |
|   |                     | Title:  CEO |

 

6

----