EXHIBIT 10.39
THIS NOTE AND THE UNITS ISSUABLE UPON CONVERSION OF THE NOTE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE
SECURITIES LAWS. NEITHER THE NOTE NOR SUCH UNITS MAY BE OFFERED FOR SALE, SOLD,
TRANSFERRED, PLEDGED OR HYPOTHECATED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT AND UNDER ANY APPLICABLE STATE SECURITIES LAWS, OR AN
OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY, THAT AN EXEMPTION FROM SUCH
REGISTRATION IS AVAILABLE.
AETHLON MEDICAL, INC.
AMENDED AND RESTATED
10% SERIES A CONVERTIBLE NOTE
No. ____ $____________
FOR VALUE RECEIVED, Aethlon Medical, Inc., a Nevada corporation (the
"Company"), promises to pay to ________________________________________, or
registered assigns (the "Holder"), the sum ________________________ in lawful
money of the United States of America on or before the Maturity Date as defined
herein, with all Interest thereon as defined and specified herein. This Note
includes various advances (the "Advances") that the Holder has made to the
Company since July 2005. This Note is issued in exchange for those certain
promissory notes previously issued by the Company to the Holder prior to the
Issue Date (the "Prior Notes"), and all amendments to the Prior Notes, including
that certain allonge entered into between the Company and the Holder on March 5,
2007 (the "Allonge").
1. INTEREST AND LIQUIDATED DAMAGES.
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 accrues 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 on a quarterly basis on
the fifteenth day of January, April, July and October of each year until the
Maturity Date, when all accrued but unpaid Interest will be due and payable. 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 On January 3, 2008, the Company will pay accrued Interest
and Default Interest through December 31, 2007. The Company will pay the
Interest in units ("Units") at the rate of $0.20 per Unit (the "Interest Payment
Rate"). Each Unit shall be composed of one share of the Company's Common Stock
and one Class A Common Stock Purchase Warrant (the "Class A Warrant"). The
Company shall pay the accrued Interest and Default Interest by issuing
________________ Units and shall 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 $0.20 per share (the "Exercise Price").
If the Holder exercises Class A Warrants on or before February 15, 2010, the
Company will issue the Holder one Class B Common Stock Purchase Warrant (the
"Class B Warrant"), for every two Class A Warrants exercised. No half Class B
Warrants will be issued. Each Class B Warrant will be exercisable to purchase
one share of Common Stock at an exercise price of $0.60 per share. The Class A
Warrant and Class B Warrant are set forth as Exhibit C and Exhibit D,
respectively.
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1.3 All Interest accrued under this Note after December 31,
2007 will, at the option of the Company, be payable in cash or in Units, valued
at the Interest Payment Rate, as such term is defined in this Note. 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.
1.4 On January 3, 2008, the Company will pay the liquidated
damages ("Liquidated Damages") due under the Registration Rights Agreement
through November 29, 2007. The Company will pay the Liquidated Damages in units
("Damages Units") at the rate of $0.40 per Damages Unit (the "Damages Interest
Payment Rate"). Each Damages Unit shall be composed of one share of the
Company's Common Stock and one Class A-1 Common Stock Purchase Warrant (the
"Class A-1 Warrant"). The Company shall pay the Liquidated Damages and all
interest accrued on the Liquidated Damages by issuing ____________ Units. Each
Class A-1 Warrant will be exercisable to purchase one share of Common Stock at a
price of $0.40 per share (the "Damages Exercise Price"). If the Holder exercises
Class A-1 Warrants on or before February 15, 2010, the Company will issue the
Holder one Class B-1 Common Stock Purchase Warrant (the "Class B-1 Warrant"),
for every two Class A-1 Warrants exercised. No half Class B-1 Warrants will be
issued. Each Class B-1 Warrant will be exercisable to purchase one share of
Common Stock at an exercise price of $0.40 per share. The forms of Class A-1
Warrant and Class B-1 Warrant are set forth as Exhibit E and Exhibit F,
respectively. The Class A-1 Warrants together with the Class A Principal
Warrants, Class A Warrants, the Class B Warrants and the Class B-1 Warrants are
referred to collectively as the "Warrants."
1.5 Concurrent herewith, the Company will issue to the Holder
one Class A Warrant (the "Class A Principal Warrant"). The Class A Principal
Warrant will be exercisable to purchase a total of ________________ shares of
Common Stock on the same terms and conditions as set forth in 1.2 above
regarding the Class A Warrant. The Class A Principal Warrant is set forth as
Exhibit G.
1.6 SERIES OF NOTES. This Note has been issued in exchange for
certain Prior Notes issued to the Holder as follows: ______________________.
This Note is one of a Series of Notes issued by the Company as of the date
hereof in exchange for the surrender of prior notes outstanding by Holder.
2. PAYMENTS. All payments under this Note shall first be credited
against costs and expenses provided for in this Note, second to the payment of
any penalties, third to the payment of accrued and unpaid Interest, if any, and
the remainder shall be credited against principal. All cash payments due
hereunder shall be payable in legal tender of the United States of America, and
in same day funds delivered to Holder by cashier's check, certified check, bank
wire transfer or any other means of guaranteed funds to the mailing address
provided below, or at such other place as the Holder shall designate in writing
for such purpose from time to time. If a payment under this Note otherwise would
become due and payable on a Saturday, Sunday or legal holiday (any other day
being a "Business Day"), the due date of the payment shall be extended to the
next succeeding Business Day, and Interest, if any, shall be payable thereon
during such extension.
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3. PRE-PAYMENTS AND MATURITY DATE. This Note shall be due and payable
in full, including all accrued Interest thereon, on February 15, 2009 (the
"Maturity Date"). At any time on or prior to the Maturity Date, the Company
shall have the right to prepay this Note, in whole or in part, on ten (10) days'
advance notice to the Holder and 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 thereof) redeemed. At any
time after the Maturity Date, the Company shall have the right to repay this
Note, in whole or in part, on ten (10) days' advance notice to the Holder and
subject to the right of the Holder to convert in advance of such repayment date.
The Company may prepay this Note at any time after issuance without penalty.
4. EQUAL RANK. This Note represents one of a series of One Million
Dollars ($1,000,000) principal amount of 10% Series A Convertible Notes (the
"Notes") issued or to be issued by the Company. All Notes rank equally and
ratably without priority over one another.
5. CONVERSION OF NOTE AND ISSUANCE OF WARRANTS.
5.1 The principal amount of this Note is convertible, at the
option of the Holder, into shares of the Company's Common Stock (the "Common
Stock") at any time after the Issue Date prior to the close of business on the
Business Day prior to the Maturity Date at the rate of $0.20 per share (the
"Conversion Price"), subject to adjustment as hereinafter provided. 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 on
the date of conversion.
5.2 INTENTIONALLY OMITTED.
5.3 LIMITATION ON CONVERSION RIGHTS. Notwithstanding any other
provision of Paragraph 5 to the contrary, the Holder shall not be entitled to
convert this Note, in excess of that number of shares of Common Stock which,
upon giving effect to such conversion, would cause the aggregate number of
shares of Common Stock beneficially owned by the Holder and its Affiliates to
exceed 9.9% of the outstanding shares of the Common Stock following such
conversion. For purposes of the foregoing provision, the aggregate number of
shares of Common Stock beneficially owned by the Holder and its Affiliates shall
include the number of shares of Common Stock beneficially owned and those shares
issuable upon conversion of this Note and all Related Notes with respect to
which the determination of such proviso is being made, but shall exclude the
number of shares of Common Stock that would be issuable upon (i) conversion of
the remaining principal amount of this Note and the Related Notes beneficially
owned by the Holder and its Affiliates and (ii) exercise or conversion of the
unexercised or unconverted portion of any other securities of the Company into
Common Stock beneficially owned by the Holder and its Affiliates that are
subject to a limitation on conversion or exercise analogous to the limitation
contained in this Note. For purposes of this Paragraph, in determining the
number of outstanding shares of Common Stock the Holder may rely on the number
of outstanding shares of Common Stock as reflected in (a) the Company's most
recent Form 10-Q or Form 10-K, as the case may be, or (b) more recent public
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announcement by the Company or (c) any other written communication by the
Company or its Transfer Agent setting forth the number of shares of Common Stock
outstanding. Upon the reasonable written or oral request of the Holder, the
Company shall promptly confirm orally and in writing to the Holder the number of
shares of Common Stock then outstanding. In any case, the number of outstanding
shares of Common Stock shall be determined after giving effect to any
conversions, exercises or purchases by the Holder since the date as of which
such number of outstanding shares of Common Stock was reported. Except as
otherwise set forth herein, beneficial ownership shall be determined in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended. If the foregoing 9.9% limitation is ever reached and the Holder desires
to convert this Note or part thereof into equity, the Company will acknowledge
the conversion in writing, but not issue the Holder any additional shares of
Common Stock at that point. Under such circumstances the Holder will have the
right to receive additional shares of Common Stock as a result of the conversion
only at such point and to the extent that its beneficial ownership subsequently
becomes less than 9.9% and such issuance will not cause the Holder's beneficial
ownership to exceed 9.9%. Upon written notice to this effect given by the
Holder, the Company will issue such additional shares in accordance with
Paragraph 5.8, "Issuance of Certificate."
5.4 ADJUSTMENT BASED UPON STOCK DIVIDENDS, COMBINATION OF
SHARES OR RECAPITALIZATION. The Conversion Price shall be adjusted in the event
that the Company shall at any time (i) pay a stock dividend on the Common Stock;
(ii) subdivide its outstanding Common Stock into a greater number of shares;
(iii) combine its outstanding Common Stock into a smaller number of shares; (iv)
issue by reclassification of its Common Stock any other special capital stock of
the Company; or (v) distribute to all holders of Common Stock evidences of
indebtedness or assets (excluding cash dividends) or rights or warrants to
subscribe for Common Stock (other than those mentioned above). No adjustment of
the Conversion Price will be required until cumulative adjustments amount to One
Dollar ($1.00) per Note or more. Upon the occurrence of an event requiring
adjustment of the Conversion Price, and thereafter, the Holder, upon surrender
of this Note for conversion, shall be entitled to receive the number of shares
of Common Stock or other capital stock of the Company that the Holder would have
owned or have been entitled to receive after the happening of any of the events
described above had this Note been converted immediately prior to the happening
of such event.
5.5 ADJUSTMENT BASED UPON MERGER OR CONSOLIDATION. In case of
any consolidation or merger to which the Company is a party (other than a merger
in which the Company is the surviving entity and which does not result in any
reclassification of or change in the outstanding Common Stock of the Company),
or in case of any sale or conveyance to another person, firm, or corporation of
the property of the Company as an entirety or substantially as an entirety, the
Holder shall have the right to convert this Note into the kind and amount of
securities and property (including cash) receivable upon such consolidation,
merger, sale or conveyance by the Holder of the number of Units into which such
Note might have been converted immediately prior thereto.
5.6 Exercise of Conversion Privilege.
5.6.1 The Conversion Privilege provided for in this Note
shall be exercisable by the Holder by written notice to the Company or its
successor and the surrender of this Note in exchange for the number of shares
(or other securities and property, including cash, in the event of an adjustment
of the Conversion Price) into which this Note is convertible based upon the
Conversion Price.
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5.6.2 The Holder's conversion right set forth in this
Paragraph 5 may be exercised at any time and from time to time but prior to
payment in full of the principal amount and the accrued interest on this Note.
Conversion rights will expire at the close of business on the Business Day prior
to the Maturity Date or redemption date of this Note.
5.6.3 The Holder may exercise the right to convert all or
any portion of the principal amount and accrued Interest on this Note by
delivery of (i) this Note and (ii) a completed Conversion Notice in the form
attached as Exhibit B on a Business Day to the Company's principal executive
offices. Such conversion shall be deemed to have been made immediately prior to
the close of business on the Business Day of such delivery a conversion notice
(the "Conversion Date"), and the Holder shall be treated for all purposes as the
record holder of the Units into which this Note is converted as of such date.
5.6.4 Upon conversion of the entire principal amount and
accrued Interest of this Note and the delivery of Units upon conversion of this
Note, except as otherwise provided in Paragraph 22, "Representations and
Warranties to Survive Closing," the Company shall be forever released from all
of its obligations and liabilities under this Note.
5.7 CORPORATE STATUS OF COMMON STOCK TO BE ISSUED. All Units
(or other securities in the event of an adjustment of the Conversion Price)
which may be issued upon the conversion of this Note shall, upon issuance, be
fully paid and nonassessable.
5.8 ISSUANCE OF CERTIFICATE. Upon the conversion of this Note,
the Company shall, within five (5) Business Days of such conversion, issue to
the Holder a certificate or certificates representing the number of Units (or
other securities in the event of an adjustment of the Conversion Price) to which
the conversion relates.
6. STATUS OF HOLDER OF NOTE. This Note shall not entitle the Holder
to any voting rights or other rights as a shareholder of the Company or to any
rights whatsoever except the rights herein expressed, and no dividends shall be
payable or accrue in respect of this Note or the securities issuable upon the
conversion hereof unless and until this Note shall be converted. Upon the
conversion of this Note, the Holder shall, to the extent permitted by law, be
deemed to be the holder of record of the shares of Common Stock and Warrants
issuable upon such conversion, notwithstanding that the stock transfer books of
the Company shall then be closed or that the certificates representing such
shares of Common Stock and Warrants shall not then be actually delivered.
7. RESERVE OF SHARES OF COMMON STOCK. The Company shall reserve out
of its authorized shares of Common Stock, and other securities in the event of
an adjustment of the Conversion Price, a number of shares sufficient to enable
it to comply with its obligation to issue shares of Common Stock, and other
securities in the event of an adjustment of the Conversion Price, upon the
conversion of this Note.
8. TRANSFER RESTRICTIONS; EXEMPTION FROM REGISTRATION.
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8.1 The Holder agrees that (i) this Note and the Units issuable
upon conversion have not been registered under the Act and may not be sold or
transferred without registration under the Act or unless an exemption from such
registration is available; (ii) the Holder has acquired this Note and will
acquire the Common Stock for its own account for investment purposes only and
not with a view toward resale or distribution; and (iii) if a registration
statement that includes the Common Stock is not effective at the time Common
Stock is issued to Holder upon conversion under this Note, and the Common Stock
is not exempt from registration under Rule 144, then the Common Stock shall be
inscribed with the following legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES
LAWS. THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED
FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF HOLDER'S COUNSEL,
IN A CUSTOMARY FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR
APPLICABLE STATE SECURITIES LAWS OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID
ACT.
8.2 If an opinion of counsel of Holder provides that
registration is not required for the proposed conversion or transfer of this
Note or the proposed transfer of the shares of Units issuable upon conversion
and that the proposed conversion or transfer in the absence of registration
would require the Company to take any action including executing and filing
forms or other documents with the Securities and Exchange Commission (the "SEC")
or any state securities agency, or delivering to the Holder any form or document
in order to establish the right of the Holder to effectuate the proposed
conversion or transfer, the Company agrees promptly, at its expense, to take any
such action; and provided, further, that the Company will reimburse the Holder
in full for any expenses (including but not limited to the fees and
disbursements of such counsel, but excluding brokers' commissions) incurred by
the Holder or owner of Units on his, her or its behalf in connection with such
conversion or transfer of the Note or transfer of the Units.
9. Registration Rights.
The Holder shall have the right, under the terms of a Registration Rights
Agreement dated November 29, 2007, the "New Registration Rights Agreement"
between the Holder and the Company, to cause the Company to register the Common
Stock underlying the Warrants (the "Underlying Common Stock") in a Registration
Statement under the Securities Act of 1993, as amended (the "Act"), filed by the
Company with the Securities and Exchange Commission (the "SEC").
10. Rule 144
If the Company (a) has or registers a class of securities under Section
12 of the Securities Exchange Act of 1934, as amended (the "Exchange Act") or
(b) has or commences to file reports under Section 13 or 15(d) of the Exchange
Act, then, at the request of any Holder who proposes to sell securities in
compliance with Rule 144 of the SEC, the Company will (i) forthwith furnish to
such holder a written statement of compliance with the filing requirements of
the SEC as set forth in Rule 144, as such rules may be amended from time to time
and (ii) make available to the public and such Holder such information and take
such other action as is requested by the Holder to enable the Holder to make
sales pursuant to Rule 144.
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11. DEFAULT. The Company shall perform its obligations and covenants
hereunder and in each and every other agreement between the Company and Holder
pertaining to the Indebtedness evidenced hereby. The following provisions shall
apply upon failure of the Company so to perform.
11.1 EVENT OF DEFAULT. Any of the following events shall
constitute an "Event of Default" hereunder:
11.1.1 Failure by the Company to pay principal of any of
this Note when due and payable on the Maturity Date;
11.1.2 Failure of the Company to pay Interest when due
hereunder; or
11.1.3 Except as 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
11.1.4 The entry of an order for relief under Federal
Bankruptcy Code as to the Company or entry of any order appointing a receiver or
trustee for the Company or approving a petition in reorganization or other
similar relief under bankruptcy or similar laws in the United States of America
or any other competent jurisdiction, and if such order, if involuntary, is not
satisfied or withdrawn within sixty (60) days after entry thereof; or the filing
of a petition by the Company seeking any of the foregoing, or consenting
thereto; or the filing of a petition to take advantage of any debtor's act; or
making a general assignment for the benefit of creditors; or admitting in
writing inability to pay debts as they mature.
11.2 ACCELERATION. Upon any Event of Default (in addition to any
other rights or remedies provided for under this Note), at the option of the
Holders of not less than twenty-five percent (25%) of the principal amount of
the Notes then outstanding, all sums evidenced hereby, including all principal,
Interest, fees and all other amounts due hereunder, shall become immediately due
and payable. If an Event of Default in the payment of principal or Interest
should occur and be continuing with respect to the Note, any one or more holders
of the Notes then outstanding may declare the principal of the Notes to be
immediately due and payable. In the Event of a Default due to a breach of any
other covenant or term, Holders representing twenty-five percent (25%) of the
principal amount of the Notes may take action to accelerate the Notes.
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11.3 NOTICE BY COMPANY. Upon the happening of any Event of
Default specified in this paragraph that is not cured within the respective
periods prescribed above, the Company will give prompt written notice thereof to
the Holder of this Note.
11.4 NO WAIVER. Failure of the Holder to exercise any option
hereunder shall not constitute a waiver of the right to exercise the same in the
event of any subsequent Event of Default, or in the event of continuance of any
existing Event of Default after demand or performance thereof.
11.5 DEFAULT INTEREST. Default Interest will accrue on an unpaid
principal or Interest due hereunder at the rate of fifteen percent (15%) per
annum upon the occurrence of any Event of Default until the Event of Default is
cured.
11.6 PURSUIT OF ANY REMEDY. No Holder of a Note may pursue any
remedy under the Notes unless (i) the Company shall have received written notice
of a continuing Event of Default from the Holder and (ii) the Company shall have
received a request from Holders of at least twenty-five percent (25%) of
principal amount of the Notes to pursue such remedy. The Holders of fifty-one
percent (51%) of principal amount of the Notes then outstanding have the right
to direct the time, method and place of conducting any proceeding for exercising
any remedy available to the Noteholders under the Notes.
12. Assignment, Transfer or Loss of the Note.
12.1 No Holder of this Note may assign, transfer, hypothecate or
sell all or any part of this Note or in any way alienate or encumber the Note
without the express written consent of the Company, the granting or denial of
which shall be within the absolute discretion of the Company. Any attempt to
effect such transfer without the consent of the Company shall be null and void.
The Company has not registered this Note under the Act or the applicable
securities laws of any state in reliance on exemptions from registration. Such
exemptions depend upon the investment intent of the Holder at the time he
acquires his Note. The Holder is acquiring this Note for his own account for
investment purposes only and not with a view toward distribution or resale of
such Note within the meaning of the Act and the applicable securities laws of
any state. The Company shall be under no duty to register the Note or to comply
with an exemption in connection with the sale, transfer or other disposition
under the applicable laws and regulations of the Act or the applicable
securities laws of any state. The Company may require the Holder to provide, at
his expense, an opinion of counsel satisfactory to the Company to the effect
that any proposed transfer or other assignment of the Note will not result in a
violation of the applicable federal or state securities laws or any other
applicable federal or state laws or regulations.
12.2 All expenses, including reasonable legal fees incurred by
the Company in connection with any permitted transfer, assignment or pledge of
this Note will be paid by the Holder requesting such transfer, assignment or
pledge.
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12.3 Upon receipt of evidence reasonably satisfactory to the
Company of the loss, theft, destruction or mutilation of any Note and, in the
case of any such loss, theft or destruction of any Note, upon delivery of an
indemnity bond in such reasonable amount as the Company may determine (or, in
the case of any Note held by the original Noteholder, of an indemnity agreement
reasonably satisfactory to the Company), or, in the case of any such mutilation,
upon the surrender of such Note to the Company at is principal office for
cancellation, the Company at its expense will execute and deliver, in lieu
thereof, a new Note of like tenor, dated the date to which interest hereunder
shall have been paid on such lost, stolen, destroyed or mutilated Note.
12.4 Subject to Subparagraph 12.1 above, the Holder may, at his
option, either in person or by duly authorized attorney, surrender this Note for
registration of transfer at the principal office of the Company and, upon
payment of any expenses associated with the transfer, receive in exchange
therefor a Note or Notes, dated as of the date to which interest has been paid
on the Note so surrendered, each in the principal amount of $1,000 or any
multiple thereof, for the same aggregate unpaid principal amount as the Note so
surrendered and registered as payable to such person or persons as may be
designated by the Holder. Every Note surrendered for registration of transfer
shall be duly endorsed or shall be accompanied by a written instrument of
transfer duly executed by the Holder or his attorney duly authorized in writing.
Every Note, so made and delivered by the Company in exchange for any Note
surrendered, shall in all other respects be in the same form and have the same
terms as the Note surrendered. No transfer of any Note shall be valid unless
made in such manner at the principal office of the Company.
12.5 The Company may treat the person in whose name this Note is
registered as the owner and Holder of this Note for the purpose of receiving
payment of all principal of and all Interest on this Note, and for all other
purposes whatsoever, whether or not such Note shall be overdue and, except for
transfers effected in accordance with this subparagraph, the Company shall not
be affected by notice to the contrary.
13. MODIFICATIONS AND AMENDMENTS. After notice given by the Company to
the Holders of all Notes at the time outstanding, the Company may from time to
time and at any time enter into an agreement or agreements supplemental to the
provisions of this Note for the purpose of adding any provisions to or changing
in any manner or eliminating any of the provisions of the Notes or of modifying
in any manner the rights of the Holders of the Notes; PROVIDED, HOWEVER, that no
such supplemental agreement, modification or amendment may, without the consent
of the holder of each Note then outstanding affected thereby, (i) reduce the
percentage of principal amount of Notes whose Holders may consent to an
amendment, supplement or waiver; (ii) reduce the rate or change the time for
payment of interest, including Default Interest, on any Note; (iii) reduce the
principal amount of any Note or change the Maturity Date of the Notes; (iv) make
any Note payable in money other than that stated in the Note; (v) impair the
right to institute suit for the enforcement of any payment of principal of, or
premium, if any, or interest on, any Note; (vi) make any change in the
percentage of principal amount of Notes necessary to waive compliance with
certain provisions of the Note; or (vii) waive a continuing default or Event of
Default in the payment of principal of, premium, if any, or Interest on the
Notes. The modifications and amendments of the Notes may be made by the Company
without the consent of any Holders of Notes in certain limited circumstances,
including (a) to cure any ambiguity, omission, defect or inconsistency, (b) to
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provide for the assumption of the obligations of the Company under the Notes
upon the merger, consolidation or sale or other disposition of all or
substantially all of the assets of the Company, or (c) to make any change that
does not adversely affect the rights of any holder of Notes. The Holders of a
majority in aggregate principal amount of the Notes then outstanding may waive
any past default under the Notes, except a default in the payment of principal,
premium, if any, or Interest. Promptly after execution by the Company and
Holders of the Notes of a supplemental agreement pursuant to the provisions of
this paragraph, the Company shall deliver a copy of such supplemental agreement
to all Holders of the Notes at the time outstanding.
14. NOTICES. All notices provided for herein shall be validly given if
in writing and delivered personally or sent by certified mail, postage prepaid,
to the office of the Company or such other address as the Company may from time
to time designate in writing sent by certified mail, postage prepaid, to the
Holder at his address set forth below or such other address as the Holder may
from time to time designate in writing to the Company by certified mail, postage
prepaid.
15. USURY. All Interest, Default Interest, fees, charges, goods,
things in action or any other sums or things of value, or other contractual
obligations (collectively, the "Additional Sums") paid by the Company hereunder,
whether pursuant to this Note or otherwise, with respect to the Indebtedness
evidenced hereby, or any other document or instrument in any way pertaining to
the Indebtedness, which, under the laws of the State of California may be deemed
to be Interest with respect to such loan or Indebtedness, shall, for the purpose
of any laws of the State of California, which may limit the maximum amount of
Interest to be charged with respect to such loan or Indebtedness, be payable by
the Company as, and shall be deemed to be, Interest and for such purposes only,
the agreed upon and contracted rate of Interest shall be deemed to be increased
by the Additional Sums. Notwithstanding any provision of this Note to the
contrary, the total liability for payments in the nature of Interest under this
Note shall not exceed the limits imposed by applicable law. The Company shall
not assert a claim, and shall actively resist any attempts to compel it to
assert a claim, respecting a benefit under any present or future usury laws
against any Holder of this Note.
16. BINDING EFFECT. This Note shall be binding upon the parties hereto
and their respective heirs, executors, administrators, representatives,
successors and permitted assigns.
17. COLLECTION FEES. Except as otherwise provided herein, the Company
shall pay all costs of collection, including reasonable attorneys' fees and all
costs of suit and preparation for such suit (and whether at trial or appellate
level), in the event the unpaid principal amount of this Note, or any payment of
Interest is not paid when due, or in the event Holder is made party to any
litigation because of the existence of the Indebtedness evidenced by this Note,
or if at any time Holder should incur any attorneys' fees in any proceeding
under the Federal Bankruptcy Code (or other similar laws for the protection of
debtors generally) in order to collect any Indebtedness hereunder or to
preserve, protect or realize upon any security for, or guarantee or surety of,
such Indebtedness whether suit be brought or not, and whether through courts of
original jurisdiction, as well as in courts of appellate jurisdiction, or
through a bankruptcy court or other legal proceedings.
10
18. CONSTRUCTION. This Note shall be governed as to its validity,
interpretation, construction, effect and in all other respects by and in
accordance with the laws and interpretations thereof of the State of California.
Unless the context otherwise requires, the use of terms in singular and
masculine form shall include in all instances singular and plural number and
masculine, feminine and neuter gender.
19. SEVERABILITY. In the event any one or more of the provisions
contained in this Note or any future amendment hereto shall for any reason be
held to be invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect any other provision of this Note
or such other agreement, and in lieu of each such invalid, illegal or
unenforceable provision there shall be added automatically as a part of this
Note a provision as similar in terms to such invalid, illegal or unenforceable
provision as may be possible and be valid, legal and enforceable.
20. ENTIRE AGREEMENT. This Note Agreement represents the entire
agreement and understanding between the parties concerning the subject matter
hereof and supersede all prior and contemporaneous agreements, understandings,
representations and warranties with respect thereto.
21. GOVERNING LAW; JURISDICTION; JURY TRIAL. The corporate laws of the
State of Nevada shall govern all issues concerning the relative rights of the
Company and its shareholders. All other questions concerning the construction,
validity, enforcement and interpretation of this Note shall be governed by the
internal laws of the State of California, without giving effect to any choice of
law or conflict of law provision or rule (whether of the State of California or
any other jurisdictions) that would cause the application of the laws of any
jurisdictions other than the State of California. Each party hereby irrevocably
submits to the exclusive jurisdiction of the state and federal courts sitting in
the City of San Diego for the adjudication of any dispute hereunder or in
connection herewith or therewith, or with any transaction contemplated hereby or
discussed herein, or in any manner arising in connection with or related to the
transactions contemplated hereby or involving the parties hereto whether at law
or equity and under any contract, tort or any other claim whatsoever and hereby
irrevocably waives, and agrees not to assert in any suit, action or proceeding,
any claim that it is not personally subject to the jurisdiction of any such
court, that such suit, action or proceeding is brought in an inconvenient forum
or that the venue of such suit, action or proceeding is improper. Each party
hereby irrevocably waives personal service of process and consents to process
being served in any such suit, action or proceeding by mailing or faxing a copy
thereof to such party at the address for such notices as listed in this Note and
agrees that such service shall constitute good and sufficient service of process
and notice thereof. Nothing contained herein shall be deemed to limit in any way
any right to serve process in any manner permitted by law. EACH PARTY HEREBY
IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY
TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR
ARISING OUT OF THIS NOTE OR ANY TRANSACTION CONTEMPLATED HEREBY.
22. REPRESENTATIONS AND WARRANTIES TO SURVIVE CLOSING. All
representations, warranties and covenants contained herein shall survive the
execution and delivery of this Note and the issuance of any Conversion Shares
upon the conversion hereof.
11
23. HEADINGS. The headings used in this Note are used for convenience
only and are not to be considered in construing or interpreting this Note.
24. DEFINITIONS.
"AFFILIATE" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any specified Person means the power to
direct the management and policies of such Person directly or indirectly,
whether through the ownership of Voting Stock, by contract or otherwise; and the
terms "controlling" and "controlled" have meanings correlative to the foregoing.
"BOARD OF DIRECTORS" means, with respect to any Person, the Board of
Directors of such Person or any committee of the Board of Directors of such
Person duly authorized to act on behalf of the Board of Directors of such
Person.
"CAPITAL STOCK" means, with respect to any Person, any and all shares,
interests, equity participations or other equivalents (however designated) of
corporate stock or partnership interests and any and all warrants, options and
rights with respect thereto (whether or not currently exercisable), including
each class of common stock and preferred stock of such Person.
"FAIR MARKET VALUE" means, as of any date, the value of a share of the
Company's Common Stock determined as follows:
(a) if such Common Stock is publicly traded and is then listed
on a national securities exchange, its closing price on the date of
determination on the principal national securities exchange on which the
Common Stock is listed or admitted to trading;
(b) if such Common Stock is quoted on the NASDAQ National
Market or the NASDAQ Capital Market, its closing price on the NASDAQ
National Market or the NASDAQ Capital Market, respectively, on the date
of determination;
(c) if such Common Stock is not listed on a national securities
exchange or quoted on the NASADQ National Market or the NASDAQ Capital
Market, but is traded in the over-the-counter market, the average of the
bid and ask prices for a share of Common Stock on the most recent date on
which the Common Stock was publicly traded;
(d) if none of the foregoing is applicable, by the Committee in
good faith.
"GAAP" means generally accepted accounting principles as in effect in the
United States of America as of the Issue Date.
"HOLDER" means a Person in whose name a Note is registered on the
Company's books.
12
"INDEBTEDNESS" means, without duplication, with respect to any Person,
(a) all obligations of such Person (i) in respect of borrowed money (whether or
not the recourse of the lender is to the whole of the assets of such person or
only to a portion thereof); (ii) evidenced by bonds, notes, debentures or
similar instruments; (iii) representing the balance deferred and unpaid of the
purchase price of any property or services (other than accounts payable or other
obligations arising in the ordinary course of business); (iv) evidenced by
bankers' acceptances or similar instruments issued or accepted by banks, (v) for
the payment of money relating to a capitalized lease obligation under GAAP; or
(vi) evidenced by a letter of credit or a reimbursement obligation of such
Person with respect to any letter of credit; (b) all net obligations of such
Person under interest rate swap obligations and foreign currency hedges; (c) all
liabilities of others of the kind described in the preceding clauses (a) or (b)
that such Person has guaranteed or that are otherwise its legal liability; (d)
Indebtedness (as otherwise defined in this definition) of another Person secured
by lien on any asset of such Person, whether or not such Indebtedness is assumed
by such Person, the amount of such obligations being deemed to be the lesser of
(1) the full amount of such obligations so secured, and (2) the fair market
value of such asset, as determined in good faith by the Board of Directors of
such Person, which determination shall be evidenced by a board resolution; and
(e) any and all deferrals, renewals, extensions, refinancings and refundings
(whether direct or indirect) of, or amendments, modifications or supplements to,
any liability of the kind described in any of the preceding clauses (a), (b),
(c), (d) or this clause (e), whether or not between or among the same parties.
"ISSUE DATE" means the date on which the Note is originally issued.
"MATURITY DATE" means February 15, 2009.
"PERSON" means any individual, corporation, partnership, joint venture,
trust, estate, unincorporated organization or government or any agency or
political subdivision thereof.
"SENIOR INDEBTEDNESS" means any Indebtedness of the Company, outstanding
prior to the date of this Note, unless such Indebtedness is PARI PASSU with or
contractually subordinate or junior in right to payment of this Note, except
Indebtedness to any Affiliate of the Company, which shall be junior and
subordinate to this Note.
"SUBORDINATED INDEBTEDNESS OF THE COMPANY" means any Indebtedness of the
Company incurred after the date of this Note.
A "SUBSIDIARY" of any Person means (i) a corporation a majority of whose
Voting Stock is at the time, directly or indirectly, owned by such Person, by
one or more subsidiaries of such Person or by such Person and one or more
subsidiaries of such Person, (ii) a partnership in which such Person or a
subsidiary of such Person is, at the date of determination, a general or limited
partner of such partnership, but only if such Person or its subsidiary is
entitled to receive more than fifty percent (50%) of the assets of such
partnership upon its dissolution, or (iii) any other Person (other than a
corporation or partnership) in which such Person, directly or indirectly, at the
date of determination thereof, has (x) at least a majority ownership interest or
(y) the power to elect or direct the election of a majority of directors or
other governing body of such Person.
"SUBSIDIARY" means any subsidiary of the Company.
13
"VOTING STOCK" means, with respect to any Person, securities of any class
or classes of Capital Stock in such Person entitling the holders thereof,
whether at all times or only so long as no senior class of stock has voting
power by reason of any contingency to vote in the election of members of the
Board of Directors or other governing body of such Person.
25. MISCELLANEOUS. Except as otherwise provided herein, the Company
waives demand, diligence, presentment for payment and protest, notice of
extension, dishonor, maturity and protest. Time is of the essence with respect
to the performance of each and every covenant, condition, term and provision
hereof.
26. COVENANTS OF THE COMPANY. The Company covenants to perform the
following:
26.1 The Warrants will have a term expiring five years from
their respective date of issuance. Each Warrant will have a term of five years
from its respective date of issuance. All Warrants will be assignable by their
holders.
26.2 The Company will collaborate with the Holder to expand its
Board of Directors (the "Board") by appointing or electing one additional
director who has background in life sciences that the Holder may designate after
the date of this Note. Such additional director will remain on the Board while
the 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 be an
observer at the Board meetings, which observer shall be included in all meetings
of the Board.
26.3 The Company will hold Board meetings, whether formal or
informal, at least once per month.
26.4 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.
26.5 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.
26.6 The Company will pay all of the fees and related costs of
legal counsel of the Holder before January 3, 2008.
26.7 The Company will execute such other documents as may be
necessary or appropriate to carry out the provisions of this Note and the
Warrants. The Company will bear all reasonable costs associated with the
preparation and implementation of this Note and the Warrants.
14
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. This Note 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 this Note. The Company shall pay
all principal or distribution to the holders of Subordinated Indebtedness.
15
IN WITNESS WHEREOF, this Note has been issued on the 29 day of November,
2007.
AETHLON MEDICAL, INC.
By: /s/ James A. Joyce
----------------------------
James A. Joyce
Its Chairman and CEO
Accepted and agreed to:
By: ____________________________
Mailing Address of Holder:
__________________________
__________________________
__________________________
Mailing Address of Company:
3030 Bunker Hill Street
Suite 4000
San Diego, CA 92109
16
EXHIBIT A
SCHEDULE OF ADVANCES
17
EXHIBIT B
CONVERSION NOTICE
(To be signed only upon conversion of this Note)
TO: AETHLON MEDICAL, INC.
The undersigned, the registered holder of the 10 % Series A Convertible Note
(the "Note") of AETHLON MEDICAL, INC. (the "Company"), hereby surrenders the
Note for conversion into shares of Common Stock of the Company (the "Common
Stock") to the extent of $____________ unpaid principal amount of the Note and
$__________ unpaid accrued Interest due under the Note, all in accordance with
the provisions of such Note. The undersigned requests (i) that a certificate
representing the shares, bearing the appropriate legends, be issued to the
undersigned, and (ii) if the unpaid principal amount so converted is less than
the entire unpaid principal amount of the Note, that a new substitute note
representing the portion of said unpaid principal amount that is not so
converted be issued in accordance with the provisions of the Note.
______________________________________________
(Signature and name of the registered holder)
______________________________________________
Print Name
Dated:________________________________________
18
EXHIBIT C
CLASS A WARRANT
[Attached hereto]
19
EXHIBIT D
FORM OF CLASS B WARRANT
[Attached hereto]
20
EXHIBIT E
CLASS A-1 WARRANT
[Attached hereto]
21
EXHIBIT F
FORM OF CLASS B-1 WARRANT
[Attached hereto]
22
EXHIBIT G
FORM OF CLASS A PRICIPAL WARRANT
[Attached hereto]
23