EXHIBIT 10.31
FORM OF
ALLONGE TO
10% SERIES A CONVERTIBLE NOTES
This Allonge (the "Allonge"), dated as of March 5, 2007, attached to
and forming a part of certain 10% Series A Convertible Promissory Notes, dated
in November and December, 2005 (collectively, the "Note"), made by AETHLON
MEDICAL, INC., a Nevada corporation (the "Company"), payable to the order of the
Ellen R. Weiner Family Revocable Trust (the "Holder"), in the total principal
amount of $760,000.
1. Paragraph 1, "Interest," is hereby amended and restated in its
entirety as follows:
1. INTEREST
1.1 This Note shall bear interest ("Interest") equal to ten
percent (10%) per annum on the unpaid principal balance,
computed on a three hundred sixty (360)-day year, during the
term of the Note. Interest will accrue on each Advance
commencing on the date of the Advance, as set forth on Exhibit
A to this Note. The Company shall pay all accrued Interest
after the date of the Allonge on a quarterly basis on the
first day of April, July, October and on the Maturity Date. In
no event shall the rate of Interest payable on this Note
exceed the maximum rate of Interest permitted to be charged
under applicable law.
1.2 Within five (5) business days of the execution date of
this Allonge, the Company will pay accrued Interest through
February 15, 2007. The Company will pay the Interest in units
(the "Units") at the rate of $.20 per Unit (the "Interest
Payment Rate"). Each Unit is composed of one share of the
Company's Common Stock and one Class A Common Stock Purchase
Warrant (the "Class A Warrant"). The Company will pay the
accrued Interest through February 15, 2007 by issuing 527,577
Units and will pay all accrued Interest thereafter in Units at
the Interest Payment Rate. Each Class A Warrant will be
exercisable to purchase one share of Common Stock at a price
of $.20 per share (the Exercise Price"). If the Holder
exercises Class A Warrants on or before July 3, 2008, the
Company will issue the Holder one Class B Common Stock
Purchase Warrant (the "Class B Warrant") for every two Class A
Warrants exercised. Each Class B Warrant will be exercisable
to purchase one share of Common Stock at a price equal to the
greater of $.20 per share or seventy-five percent (75%) of the
average of the closing bid prices of the Common Stock for the
five (5) trading days immediately preceding the date of the
notice of conversion. The forms of the Class A Warrant and
Class B Warrant are set forth as Exhibits B and C,
respectively. The Class A Warrants and Class B Warrants are
referred to as the "Warrants."
1.3 All Interest payable under the Note after the date of the
Allonge will, at the option of the Holder, be payable in cash
or Units, valued at the Interest Payment Rate, as such term is
defined in this Note. The Company will pay any Interest that
cannot be paid in full Units in cash.
1.4 Paragraph 3 of the Note is hereby amended and restated in
its entirety as follows:
3. PRE-PAYMENTS AND MATURITY DATE. This Note shall be due and
payable in full, including all accrued Interest thereon, on
January 3, 2008 (the "Maturity Date"). At any time prior to
the Maturity Date, the Company shall have the right to prepay
this Note, in whole or in part, without penalty, on ten (10)
days' advance written notice to the Holder, subject to the
right of the Holder to convert in advance of such prepayment
date and provided that on such prepayment date the Company
will pay in respect of the redeemed Note cash equal to the
face amount plus accrued Interest on the Note (or portion)
redeemed. If the Company plans to pay the Note in full on or
after the Maturity Date, it will give the Holder the
opportunity to convert at the Conversion Price for a period of
ten (10) days after delivery of written notice of the payment
to the Holder. The Company may prepay this Note at anytime
after issuance without penalty.
1.5 Paragraph 5.1 of the Note is hereby amended and restated
in its entirety as follows:
5.1 CONVERSION OF NOTE/CONVERSION PRICE. This Note is
convertible, at the option of the Holder, into Units at any
time after the Issue Date prior to the close of business on
the Business Day preceding the Maturity Date at the rate of
$.20 per Unit (the "Conversion Price"), subject to adjustment
as hereinafter provided. Each Unit is composed of one share of
Common Stock and one Class A Warrant. Each Class A Warrant is
exercisable to purchase one share of Common Stock at the
Exercise Price. If the Holder exercises Class A Warrants on or
before July 3, 2008, the Company will issue the Holder one
Class B Warrant for every two Class A Warrants exercised. The
Common Stock comprising the Units shall be deemed to have a
value of $0.199 per share and the Class A Warrant and Class B
Warrant shall each be deemed to have a value of $0.001. No
fractional shares will be issued. In lieu thereof, the Company
will pay cash for fractional share amounts equal to the fair
market value of the Common Stock as quoted as the closing bid
price of the Common Stock on the date of conversion.
1.6 Paragraphs 11.1.2 and 11.1.3 are amended and restated in
their entirety as follows:
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11.1.2 Failure of the Company to pay Interest when due
hereunder; or
11.1.3 Except for Events of Default set forth in Paragraphs
11.1.1 and 11.1.2, failure of the Company to perform any of
the covenants, conditions, provisions or agreements contained
herein, or in any other agreement between the Company and
Holder, which failure continues for a period of thirty (30)
days after notice of default has been given to the Company by
the Holders of not less than twenty-five percent (25%) of the
principal amount of the Notes then outstanding; provided,
however, that if the nature of the Company's obligation is
such that more than thirty (30) days are required for
performance, then an Event of Default shall not occur if the
Company commences performance within such thirty (30) day
period and thereafter diligently prosecutes the same to
completion; or
2. Paragraph 26, "Covenants of the Company," is hereby added as
follows:
26. COVENANTS OF THE COMPANY. The Company covenants to perform
the following:
26.1 The Company does not have a sufficient number of
authorized shares of its Common Stock to make all of the share
issuances pursuant to the Note, the Warrants and this Allonge.
The Company will use its best efforts to obtain shareholder
approval to increase the number of authorized shares by an
amount sufficient to satisfy the requirements of the Note, the
Warrants and this Allonge, but not less than five (5) million
shares, at its annual meeting of shareholders, which meeting
will be held no later than March 31, 2007. The Company will
reserve such number of shares of Common Stock as are required
for issuance under the Notes, the Warrants and this Allonge;
26.2 The Class A Warrants will have a term expiring on January
2, 2011 and the Class B Warrants will have a term of three
years from their respective dates of issuance. All Warrants
will be assignable by their holders;
26.3 The Company will amend its Registration Statement No.
333-130915 and/or file a new registration statement with the
SEC on or before March 31, 2007 to cover the shares of Common
Stock that may be issued under the Notes, the Warrants and
this Allonge, but not fewer than 20,000,000 shares. The
Company will use its best efforts to have such amendment or
new Registration Statement declared effective promptly and
will cause such registration statement to remain effective
while the Notes and Warrants are outstanding;
26.4 The Company will collaborate with the Holder to expand
its Board of Directors by appointing or electing one
additional director who has background in life sciences that
the Holder may designate after the date of this Allonge. Such
additional director will remain on the Board while the
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Notes are outstanding. If the Holder elects not to designate
such a person for appointment or election to the Board, the
Holder will be entitled to an observer at the Board meetings,
which observer shall be included in all meetings of the Board;
26.5 The Company will hold Board of Directors meetings,
whether formal or informal, at least once per month; and
26.6 The Company will give written notice to the Holder within
three (3) Business Days of the Company's receipt of any
proposed financing and disclose its terms and conditions. The
Company will consult with Holder respecting the proposed
financing before it concludes such financing.
26.7 The Company grants the Holder the right, for a period of
seven (7) Business Days after the Company gives written notice
to the Holder, to purchase any of the Company's securities at
the same price and on the same terms and conditions at any
time that the Company proposes to sell to a third party in A
BONA FIDE transaction or a series of transactions in an amount
up to
(i) all of the securities proposed to be sold if the
Company proposes to sell its Common Stock at a price of $0.20
per share or less; and
(ii) the principal amount of the Note converted and
total purchase price of the Common Stock for the Warrants
exercised if the Company proposes to sell its Common Stock at
a price above $0.20 per share.
This right of first refusal in favor of the Holder will apply
to all securities of the Company convertible into Common Stock
and will expire upon the later of the payment of the Notes in
full or exercise of all of the Warrants. This right of first
refusal shall not apply to securities issuable under the
Fusion funding facility; and
26.8 The Company will execute such other documents as may be
necessary or appropriate to carry out the provisions of the
Notes, the Warrants and this Allonge. The Company will bear
all reasonable costs associated with the preparation and
implementation of this Allonge.
2.1 The following definitions in Paragraph 24, "Definitions,"
are hereby amended and restated as follows:
"Maturity Date" means January 3, 2008.
"Senior Indebtedness" means any Indebtedness of the Company,
outstanding prior to the date of this Allonge, unless such
Indebtedness is PARI PASSU with or contractually subordinate
or junior in right of payment to the Notes, except
Indebtedness to any Affiliate of the Company, which shall be
junior and subordinate to the Notes.
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"Subordinated Indebtedness of the Company" means any
Indebtedness of the Company incurred after the date of this
Allonge.
2.2 Paragraph 27, "Senior Subordinated Indebtedness" is hereby
added as follows:
27. SENIOR SUBORDINATED INDEBTEDNESS.
27.1 This Note constitutes Senior Subordinated Indebtedness of
the Company and is unsecured.
27.2 The Indebtedness evidenced by this Note and all of the
Notes will be subordinated to the prior payment when due of
the principal of, and premium, if any, and accrued and unpaid
interest on, all existing Senior Indebtedness. The Notes will
be senior to, in right of payment of principal of, premium, if
any, and accrued and unpaid interest on, any Subordinated
Indebtedness of the Company.
27.3 Upon any distribution of assets of the Company in any
dissolution, winding up, liquidation or reorganization of the
Company, all holders of Senior Indebtedness of the Company
must be paid in full before any payment or distribution is
made with respect to the Notes. The Company shall pay all
principal and accrued and unpaid Interest on the Notes before
it makes any payment or distribution to the holders of
Subordinated Indebtedness.
2.3 In all other respects, the Note is confirmed, ratified,
and approved and, as amended by this Allonge, shall continue
in full force and effect.
IN WITNESS WHEREOF, the Company and Holder have caused this Allonge to
be executed and delivered by their respective duly authorized officer and
trustee on March 5, 2007, to be effective as of the date and year first above
written.
AETHLON MEDICAL, INC.
/s/ James A. Joyce
James A. Joyce
Its: Chairman and CEO
Accepted and agreed to:
Ellen R. Weiner Family Revocable Trust
By: /s/ Ellen R. Weiner
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Ellen R. Weiner
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