aethlon_s8-ex1005.htm


    
      
        

      

    

    EXHIBIT
10.5

     

    NEITHER
THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE
SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE 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 GENERALLY
ACCEPTABLE FORM, 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.

     

    
      	      
              Principal
      Amount:
      $660,000.00                                                                                                

              Purchase
      Price: $600,000.00

            	Issue Date:
      February 12, 2010


    

     

    
      
CONVERTIBLE PROMISSORY
NOTE

    


    FOR VALUE
RECEIVED, AETHLON MEDICAL, INC., a Nevada corporation (hereinafter called “Borrower”), hereby promises to
pay to the order of GEMINI MASTER FUND, LTD., c/o Gemini Strategies, LLC, 135
Liverpool Drive, Suite C, Cardiff, California 92007 (the “Holder”), without demand, the
sum of Six Hundred Sixty Thousand Dollars ($660,000.00) (“Principal Amount”), with
interest accruing thereon, on February 15, 2011 (the “Maturity Date”), if not sooner
paid.

     

    This
Convertible Promissory Note (“Note”) is being issued
pursuant to that certain Securities Purchase Agreement entered into between the
Borrower and the Holder on or about the date hereof (“Securities Purchase Agreement”
or “Subscription
Agreement”); capitalized terms used herein and not otherwise defined
shall have the meaning set forth in the Subscription Agreement.

    


    


    ARTICLE
I

    


    GENERAL
PROVISIONS

    


    1.1   Interest
Rate.   Interest payable on this Note shall accrue at the
annual rate of ten percent (10%) and be payable on the first business day of
each month and on the Maturity Date, accelerated or otherwise, when the
principal and remaining accrued but unpaid interest shall be due and payable, or
sooner as described below.

     

    1.2   Payment
Grace Period.  The Borrower shall not
have any grace period to pay any monetary amounts due under this
Note.  During the pendency of an Event of Default (as described in
Article III), a default interest rate of fifteen percent (15%) per annum shall
be in effect.

     

    1.3   Conversion
Privileges.  The Conversion Rights set forth in Article II shall
remain in full force and effect immediately from the date hereof and until the
Note is paid in full regardless of the occurrence of an Event of
Default.  This Note shall be payable in full on the Maturity Date,
unless previously converted into Common Stock in accordance with Article II
hereof.

     

    
      
         

      

      
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    1.4   No
Prepayment.  This Note may not be prepaid or redeemed in whole
or in part without the prior written consent of the Holder.

    


    ARTICLE
II

    


    CONVERSION
RIGHTS

    


    The
Holder shall have the right to convert the principal and any interest due under
this Note into shares (“Conversion Shares”) of the
Borrower's Common Stock, $.001 par value per share (“Common Stock”) as set forth
below.

     

    2.1   Conversion into the
Borrower's Common Stock.

     

    (a)    The Holder
shall have the right at any time and from time to time to convert any
outstanding and unpaid principal portion of this Note, and accrued interest, at
the election of the Holder (the date of giving of such notice of conversion
being a "Conversion
Date") into fully paid and non-assessable shares of Common Stock as such
stock exists on the date of issuance of this Note, or any shares of capital
stock of Borrower into which such Common Stock shall hereafter be changed or
reclassified, at the conversion price as defined in Section 2.1(b) hereof
(the "Conversion
Price"), determined as provided herein.  Upon delivery to the
Borrower of a completed Notice of Conversion, a form of which is annexed hereto
as Exhibit A,
Borrower shall issue and deliver to the Holder within three (3) business days
after the Conversion Date (such third day being the “Delivery Date”) that number of
shares of Common Stock for the portion of the Note converted in accordance with
the foregoing.  At the election of the Holder, the Borrower will
deliver accrued but unpaid interest on the Note, if any, through the Conversion
Date directly to the Holder on or before the Delivery Date.  The
number of shares of Common Stock to be issued upon each conversion of this Note
shall be determined by dividing that portion of the principal of the Note and
interest, if any, to be converted, by the Conversion Price.

     

    (b)   Subject
to adjustment as provided in Section 2.1(c)
hereof, the conversion price per share shall be equal to eighty percent (80%) of
the average of the three lowest closing bid prices of the Common Stock as
reported by Bloomberg L.P. on the Principal Market for the ten (10) trading days
preceding the Conversion Date.  Subject to adjustment as described
herein, the Conversion Price may not be more than $0.30 (“Max Price”) nor less than
$0.20 (“Floor
Price”).  For clarification, in connection with any adjustment
to the Conversion Price pursuant to subsection (c) below, such Floor Price and
Max Price figures shall be adjusted accordingly.

     

    (c)    The
Conversion Price and number and kind of shares or other securities to be issued
upon conversion determined pursuant to Section 2.1(a), shall
be subject to adjustment from time to time upon the happening of certain events
while this conversion right remains outstanding, as follows:

     

    A.   Merger, Sale of Assets,
etc.  If (A) the Borrower effects any merger
or  consolidation of the Borrower with or into another entity, (B) the
Borrower effects any sale of all or substantially all of its assets in one or a
series of related transactions,  (C) any tender offer or exchange
offer (whether by the Borrower or another entity) is completed pursuant to which
holders of Common Stock are permitted to tender or exchange their shares for
other securities, cash or property, (D) the Borrower consummates a stock
purchase agreement or other business combination (including, without limitation,
a reorganization, recapitalization, spin-off or scheme of arrangement) with one
or more persons or entities whereby such other persons or entities acquire more
than the 50% of the outstanding shares of Common Stock (not including any shares
of Common Stock held by such other persons or entities making or party to, or
associated or affiliated with the other persons or entities making or party to,
such stock purchase agreement or other business combination), (E) any "person"
or "group" (as these terms are used for purposes of Sections 13(d) and 14(d) of
the 1934 Act) is or shall become the "beneficial owner" (as defined in Rule
13d-3 under the 1934 Act), directly or indirectly, of 50% of the aggregate
Common Stock of the Borrower, or (F) the Borrower effects any reclassification
of the Common Stock or any compulsory share exchange pursuant to which the
Common Stock is effectively converted into or exchanged for other securities,
cash or property (in any such case, a "Fundamental  Transaction"),
this Note, as to the unpaid principal portion thereof and accrued interest
thereon, shall thereafter be deemed to evidence the right to convert into such
number and kind of shares or other securities and property as would have been
issuable or distributable on account of such Fundamental Transaction, upon or
with respect to the securities subject to the conversion right immediately prior
to such Fundamental Transaction.  The foregoing provision shall
similarly apply to successive Fundamental Transactions of a similar nature by
any such successor or purchaser.  Without limiting the generality of
the foregoing, the anti-dilution provisions of this Section shall apply to such
securities of such successor or purchaser after any such Fundamental
Transaction.

     

    
      
         

      

      
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    B.   Reclassification,
etc.  If the Borrower at any time shall, by reclassification or
otherwise, change the Common Stock into the same or a different number of
securities of any class or classes that may be issued or outstanding, this Note,
as to the unpaid principal portion thereof and accrued interest thereon, shall
thereafter be deemed to evidence the right to purchase an adjusted number of
such securities and kind of securities as would have been issuable as the result
of such change with respect to the Common Stock immediately prior to such
reclassification or other change.

     

    C.   Stock Splits, Combinations
and Dividends.  If the shares of Common Stock are subdivided or
combined into a greater or smaller number of shares of Common Stock, or if a
dividend is paid on the Borrower’s capital stock in shares of Common Stock, the
Conversion Price shall be proportionately reduced in case of subdivision of
shares or stock dividend or proportionately increased in the case of combination
of shares, in each such case by the ratio which the total number of shares of
Common Stock outstanding immediately after such event bears to the total number
of shares of Common Stock outstanding immediately prior to such
event.

     

    D.   Share
Issuance.   So long as this Note is outstanding, if the
Borrower shall issue any Common Stock except for the Exempt Issuances, prior to
the complete conversion or payment of this Note, for a consideration per share
that is less than the Conversion Price that would be in effect at the time of
such issue, then, and thereafter successively upon each such issuance, the
Conversion Price shall be reduced to such other lower issue
price.  For purposes of this adjustment, the issuance of any security
or debt instrument of the Borrower carrying the right to convert such security
or debt instrument into Common Stock or of any warrant, right or option to
purchase Common Stock shall result in an adjustment to the Conversion Price upon
the issuance of the above-described security, debt instrument, warrant, right,
or option and again upon the issuance of shares of Common Stock upon exercise of
such conversion or purchase rights if such issuance is at a price lower than the
then applicable Conversion Price.  Common Stock issued or issuable by
the Borrower for no consideration will be deemed issuable or to have been issued
for $0.001 per share of Common Stock.  The reduction of the Conversion
Price described in this paragraph is in addition to the other rights of the
Holder described in the Subscription Agreement.  For clarification,
following any Subsequent Issuance which has a fixed conversion price less than
the then applicable Max Price, the Max Price shall be reduced to equal such
conversion fixed price. Notwithstanding anything contained herein, if the
Borrower effects any Subsequent Issuance which has a fixed conversion price less
than the Floor Price or a variable rate conversion price with a floor price less
than the Floor Price, then there shall no longer be any Floor Price hereunder
(i.e., the Floor Price shall be zero).

     

    E.   Pro Rata
Distributions.   If the Borrower, at any time while this
Note is outstanding, distributes to all holders of Common
Stock  evidences of its indebtedness or assets (including cash and
cash dividends) or rights or warrants to subscribe for or purchase any security
(other than the Common Stock, which shall be subject to subsection (C) above),
then in each such case the Conversion Price shall be adjusted by multiplying
such Conversion Price in effect immediately prior to the record date fixed for
determination of stockholders entitled to receive such distribution by a
fraction of which the denominator shall be the VWAP determined as of the record
date mentioned above, and of which the numerator shall be such VWAP on such
record date less the then fair market value at such record date of the portion
of such assets or evidence of indebtedness so distributed applicable to 1
outstanding share of the Common Stock as determined by the Board of Directors of
the Borrower in good faith.  In either case the adjustments shall be
described in a statement delivered to the Holder describing the portion of
assets or evidences of indebtedness so distributed or such subscription rights
applicable to 1 share of Common Stock.  Such adjustment shall be made
whenever any such distribution is made and shall become effective immediately
after the record date mentioned above.

     

    
      
         

      

      
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    (d)    Whenever the
Conversion Price is adjusted pursuant to Section 2.1(c) above,
the Borrower shall promptly mail to the Holder a notice setting forth the
Conversion Price after such adjustment and setting forth a statement of the
facts requiring such adjustment.

     

    (e)    During the
period the conversion right exists, Borrower will reserve from its authorized
and unissued Common Stock not less than an amount of Common Stock equal to 150%
of the amount of shares of Common Stock issuable upon the full conversion of
this Note.  Borrower represents that upon issuance, such shares will
be duly and validly issued, fully paid and non-assessable.  Borrower
agrees that its issuance of this Note shall constitute full authority to its
officers, agents, and transfer agents who are charged with the duty of executing
and issuing stock certificates to execute and issue the necessary certificates
for shares of Common Stock upon the conversion of this Note.

    


    2.2   Method of
Conversion.  This Note may be converted by the Holder in whole
or in part as described in Section 2.1(a)
hereof.  Upon partial conversion of this Note, a new Note containing
the same date and provisions of this Note shall, at the request of the Holder,
be issued by the Borrower to the Holder for the principal balance of this Note
and interest which shall not have been converted or paid.

     

    2.3   Maximum
Conversion.  Notwithstanding anything to the contrary contained
herein, the Borrower shall not effect any conversion of this Note, and the
Holder shall not have the right to convert any portion of this Note (or
otherwise acquire Conversion Shares with respect to this Note), to the extent
that after giving effect to the issuance of Common Stock upon such conversion
(or other issuance), the Holder Group would beneficially own in excess of the
Maximum Ownership Percentage of the number of shares of the Common Stock
outstanding immediately after giving effect to the issuance of shares of Common
Stock upon such conversion (including for such purpose the shares of Common
Stock issuable upon such conversion or issuance) (“Beneficial Ownership
Limitation”).  For purposes of calculating the Beneficial
Ownership Limitation, the number of shares of Common Stock beneficially owned by
the Holder Group shall be determined in accordance with Section 13(d) of the
Exchange Act and the rules and regulations promulgated thereunder (including
without limitation Regulation 13D-G), provided, however, that such
beneficial ownership shall exclude any shares of Common Stock issuable upon
conversion, exchange or exercise of (or purchase of Common Stock under) any
Convertible Securities or Options outstanding at the time of determination and
beneficially owned by the Holder Group which contain a limitation on conversion,
exchange, exercise or purchase analogous to the Beneficial Ownership Limitation
contained herein.  To the extent that the Beneficial Ownership
Limitation contained herein applies, the determination of whether and to what
extent this Note is convertible (vis-à-vis other Convertible Securities or
Options, including without limitation other Notes and the Warrant, beneficially
owned by the Holder Group) shall be on the basis of first submission to the
Borrower for conversion, exchange, exercise or purchase, as the case may be, or
as otherwise determined in the sole discretion of the Holder, and the submission
of a Notice of Conversion shall be

     

    
      
         

      

      
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    deemed to
be the Holder’s determination of whether and to what extent this Note is
convertible (vis-à-vis such other Convertible Securities or Options), in each
case subject to the Beneficial Ownership Limitation.  In determining
the number of outstanding shares of Common Stock for purposes of calculating the
Beneficial Ownership Limitation, the Holder may rely on the number of
outstanding shares of Common Stock as reflected in (i) the Borrower’s most
recent Periodic Report containing such information, (ii) a more recent public
announcement by the Borrower, or (iii) any other notice or disclosure by the
Borrower or the Borrower’s Transfer Agent setting forth the number of shares of
Common Stock outstanding, and the Holder may rely on knowledge it may have
concerning any shares of Common Stock issued which are not reflected in the
preceding clauses (i) through (iii) (e.g., issuances to the Holder
upon a prior Note conversion since the date as of which such number of
outstanding shares of Common Stock was reported).  Upon the written or
oral request of the Holder, the Borrower shall within two (2) Business Days
confirm orally and in writing to the Holder the number of shares of Common Stock
then outstanding.  Each delivery of a Notice of Conversion by the
Holder will constitute a representation by the Holder that it has evaluated the
limitation set forth in this Section 4(c) and determined, based on this Section
4(c), that the issuance of the full number of Conversion Shares requested in
such Notice of Conversion is permitted under this Section 4(c), and the Borrower
shall have no obligation to verify or confirm such determination.  No
conversion of this Note in violation of this Section 4(c) but otherwise in
accordance with this Note shall affect the status of the Conversion Shares as
validly issued, fully-paid and nonassessable.  By written notice to
the Borrower, the Holder may at any time and from time to time increase or
decrease the Maximum Ownership Percentage to any other percentage specified in
such notice (or specify that the Beneficial Ownership Limitation shall no longer
be applicable), provided,
however, that (A) any such increase (or inapplicability) shall not be
effective until the sixty-first (61st) day after such notice is delivered to the
Borrower, (B) any such increase or decrease shall apply only to the Holder and
not to any other holder of Notes, and (C) the Maximum Ownership Percentage shall
not be less than 4.9%.  The provisions of this Section 4(c) shall be
construed and implemented in a manner otherwise than in strict conformity with
the terms of this Section 4(c) to correct this provision (or any portion hereof)
which may be defective or inconsistent with the intended Beneficial Ownership
Limitation contained herein or to make changes or supplements necessary or
desirable to properly give effect to such limitation.  The Beneficial
Ownership Limitation contained in this Section shall apply to a successor Holder
of this Note.  If at any time the Beneficial Ownership Limitation
makes this Note unconvertible in whole or in part, the Borrower shall not by
reason thereof be relieved of its obligation to issue shares of Common Stock at
any time or from time to time thereafter upon conversion of this Note as and
when shares of Common Stock may be issued in compliance with such
limitation.

     

    2.4   Delivery of Conversion
Shares.

     

    (a)    Upon the
conversion of this Note or part thereof, the Borrower shall, at its own cost and
expense, take all necessary action, including obtaining and delivering an
opinion of counsel, to assure that the Borrower's transfer agent shall issue
stock certificates in the name of Holder (or its permitted nominee) or such
other persons as designated by Holder and in such denominations to be specified
at conversion representing the number of shares of Common Stock issuable upon
such conversion. If such opinion of counsel is not rendered by the Borrower's
counsel, Borrower shall instruct its transfer agent to accept an opinion of
counsel selected by the Holder.

     

    (b)    Within three
(3) business days (such third business day being the "Unlegended Shares Delivery
Date") after the business day on which the Borrower has received (i) a
notice that Conversion Shares, or any other Common Stock held by Holder has been
sold pursuant to a registration statement or Rule 144 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 Holder and, if required, Holder's broker regarding compliance with the
requirements of Rule 144, the Borrower at its expense, (y) shall deliver, and
shall cause legal counsel selected by the Borrower to deliver to its transfer
agent (with copies to Holder) an appropriate instruction and opinion of such
counsel, directing the delivery of shares of Common Stock without any legends
(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 Holder 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.

     

    
      
         

      

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

     

    (d)    The Borrower
understands that a delay in the delivery of the Unlegended Shares pursuant to
Section later than the Unlegended Shares Delivery Date could result in economic
loss to the Holder. As compensation to the Holder for such loss, the Borrower
agrees to pay late payment fees (as liquidated damages and not as a penalty) to
the Holder for late delivery of Unlegended Shares in the amount of $100 per
business day after the Delivery Date for each $10,000 of purchase price of the
Unlegended Shares subject to the delivery default. If during any 360 day period,
the Borrower fails to deliver Unlegended Shares as required by this Section for
an aggregate of thirty days, then each Holder or assignee holding Securities
subject to such default may, at its option, require the Borrower to redeem all
or any portion of the Shares subject to such default at a price per share equal
to the greater of (i) 120%, or (ii) a fraction in which the numerator is the
highest closing price of the Common Stock during the aforedescribed thirty day
period and the denominator of which is the lowest conversion price during such
thirty day period, multiplied by the price paid by Holder for such Common Stock
("Unlegended Redemption
Amount"). The Borrower shall pay any payments incurred under this Section
in immediately available funds upon demand.

     

    (e)    In the event
a Holder shall request delivery of Unlegended Shares as described in this
Section and the Borrower is required to deliver such Unlegended Shares pursuant
to this Section, the Borrower may not refuse to deliver Unlegended Shares based
on any claim that the Holder or anyone associated or affiliated with the Holder
has been engaged in any violation of law, or for any other reason, unless, an
injunction or temporary restraining order from a court, on notice, restraining
and or enjoining delivery of the Unlegended Shares shall have been sought and
obtained by the Borrower and the Borrower has posted a surety bond for the
benefit of such Holder in the amount of 120% of the amount of the aggregate
purchase price of the Common Stock which are subject to the injunction or
temporary restraining order, which bond shall remain in effect until the
completion of arbitration/litigation of the dispute and the proceeds of which
shall be payable to the Holder to the extent Holder obtains judgment in Holder's
favor.

     

    (f)    In addition
to any other rights available to Holder, if the Borrower fails to deliver to a
Holder Unlegended Shares as required pursuant to this Note and after the
Unlegended Shares Delivery Date, the Holder or a broker on the Holder's behalf,
purchases (in an open market transaction or otherwise) shares of common stock to
deliver in satisfaction of a sale by such Holder of the shares of Common Stock
which the Holder was entitled to receive from the Borrower (a "Buy-In"), then the Borrower
shall pay in cash to the Holder (in addition to any remedies available to or
elected by the Holder) the amount by which (A) the Holder'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 Borrower 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 Holder 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 Borrower for reissuance as Unlegended Shares, the Borrower
shall be required to pay the Holder $1,000, plus interest. The Holder shall
provide the Borrower written notice indicating the amounts payable to the Holder
in respect of the Buy-In.

     

    
      
         

      

      
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    (g)    In the event
commencing six months after the Closing Date and ending twenty-four months
thereafter, the Holder is not permitted to resell any of the Conversion Shares
without any restrictive legend or if such sales are permitted but subject to
volume limitations or further restrictions on resale as a result of the
unavailability to Holder of Rule 144(b)(1)(i) under the 1933 Act or any
successor rule (a "144
Default"), for any reason other than as a result of an action taken or
omitted to be taken by Holder, and except for Holder's status as an Affiliate or
"control person" of the Borrower, then the Borrower shall pay such Holder as
liquidated damages and not as a penalty an amount equal to two percent (2%) for
each thirty days (or such lesser pro-rata amount for any period less than thirty
days) thereafter of the purchase price of the Conversion Shares subject to such
144 Default during the pendency of the 144 Default. Liquidated Damages shall not
be payable pursuant to this Section in connection with Shares for such times as
such Shares may be sold by the holder thereof without volume or other
restrictions pursuant to Rule 144(b)(1)(i) promulgate under the 1933 Act or
pursuant to an effective registration statement.

     

    ARTICLE
III

     

    EVENT
OF DEFAULT

    


    The
occurrence of any of the following events of default ("Event of Default") shall, at
the option of the Holder hereof, make all sums of principal and interest then
remaining unpaid hereon and all other amounts payable hereunder immediately due
and payable, upon demand, without presentment, or grace period, all of which
hereby are expressly waived, except as set forth below:

     

    3.1   Failure to Pay Principal or
Interest.  The Borrower fails to pay any installment of
principal, interest or other sum due under this Note when due.

     

    3.2   Breach of
Covenant.  The Borrower breaches any material covenant or other
term or condition of the Subscription Agreement, Transaction Documents or this
Note in any material respect and such breach, if subject to cure, continues for
a period of ten (10) business days after written notice to the Borrower from the
Holder.

     

    3.3   Breach of Representations
and Warranties.  Any material representation or warranty of the
Borrower made herein, in the Subscription Agreement, Transaction Documents, or
in any agreement, written statement or certificate given in writing pursuant
hereto or in connection therewith shall be false or misleading in any material
respect as of the date made and the Closing Date.

     

    3.4   Liquidation.   Any
dissolution, liquidation or winding up of Borrower or any substantial portion of
its business.

     

    3.5   Cessation of
Operations.   Any cessation of operations by Borrower or
Borrower admits it is otherwise generally unable to pay its debts as such debts
become due.

     

    
      
         

      

      
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    3.6   Maintenance of
Assets.   The failure by Borrower to maintain any material
intellectual property rights, personal, real property or other assets which are
necessary to conduct its business (whether now or in the future).

     

    3.7   Receiver or
Trustee.  The Borrower or any Subsidiary of Borrower shall make
an assignment for the benefit of creditors, or apply for or consent to the
appointment of a receiver or trustee for it or for a substantial part of its
property or business; or such a receiver or trustee shall otherwise be
appointed.

     

    3.8   Judgments.  Any
money judgment, writ or similar final process shall be entered or filed against
Borrower or any of its property or other assets for more than $100,000, unless
stayed vacated or satisfied within forty-five (45) days.

     

    3.9   Bankruptcy.  Bankruptcy,
insolvency, reorganization or liquidation proceedings or other proceedings or
relief under any bankruptcy law or any law, or the issuance of any notice in
relation to such event, for the relief of debtors shall be instituted by or
against the Borrower or any Subsidiary of Borrower.

     

    3.10   Delisting.   Delisting
of the Common Stock from any Eligible Market; failure to comply with the
requirements for continued listing on an Eligible Market for a period of ten
(10) consecutive trading days.

     

    3.11   Non-Payment.   A
default by the Borrower under any one or more obligations in an aggregate
monetary amount in excess of $100,000 for more than twenty (20) days after the
due date, unless the Borrower is contesting the validity of such obligation in
good faith, except for those defaults disclosed in the Recent Reports (including
future occurrences of the same such defaults) provided such defaults are not
reasonably likely to have a Material Adverse Effect .

     

    3.12   Stop
Trade.  An SEC or judicial stop trade order or Principal Market
trading suspension that lasts for five or more consecutive trading
days.

     

    3.13   Failure to Deliver Common
Stock or Replacement Note.  Borrower's failures to timely
deliver Common Stock to the Holder pursuant to and in the form required by this
Note, including without limitation Section 2.4 above, or, if required, a
replacement Note.

     

    3.14   Reservation
Default.   Failure by the Borrower to have reserved for
issuance upon conversion of the Note or upon exercise of the Warrants issued in
connection with the Subscription Agreement, the number of shares of Common Stock
as required in the Subscription Agreement, this Note and the
Warrants.

     

    3.15   Financial Statement
Restatement.  The restatement after the date hereof of any
financial statements filed by the Borrower with the Securities and Exchange
Commission for any date or period from two years prior to the Issue Date of this
Note and until this Note is no longer outstanding, if the result of such
restatement would, by comparison to the unrestated financial statements, have
constituted a Material Adverse Effect.

     

    3.16   Other Note
Default.  The occurrence of any Event of Default under any
Other Note.

     

    3.17   Cross
Default.  A default by the Borrower of a material term,
covenant, warranty or undertaking of any other agreement to which the Borrower
and Holder are parties, or the occurrence of a material event of default under
any such other agreement to which Borrower and Holder are parties which is not
cured after any required notice and/or cure period.

     

    
      
         

      

      
        8

        
          

        

      

      
         

      

    

    
ARTICLE
IV

    


    MISCELLANEOUS

    


    4.1   Failure or Indulgence Not
Waiver.  No failure or delay on the part of the Holder hereof
in the exercise of any power, right or privilege hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any such power,
right or privilege preclude other or further exercise thereof or of any other
right, power or privilege.  All rights and remedies existing hereunder
are cumulative to, and not exclusive of, any rights or remedies otherwise
available.

     

    4.2   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, telegram, or facsimile (or email of a PDF or
similar image format file for delivery of Notices of Conversion), addressed as
set forth below or to such other address as such party shall have specified most
recently by written notice.  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 first 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: (i) if to the Borrower to: Aethlon
Medical, Inc., 8910 University Center Lane, Suite 660, San Diego, CA 92122,
Attn: James A. Joyce, CEO, facsimile: (858) 272-2738, Email: jj@aethlonmedical.com,
with a copy (not for Notices of Conversion) by telecopier only to: Law Office of
Jennifer A. Post, 340 North Camden Drive, Suite 302, Beverly Hills, California
90210, Attn: Jennifer A. Post, Esq., facsimile: (800) 783–2983, and (ii) if to
the Holder, to the name, address and facsimile number set forth on the front
page of this Note.

     

    4.3   Amendment
Provision.  The term “Note” and all reference thereto, as used
throughout this instrument, shall mean this instrument as originally executed,
or if later amended or supplemented, then as so amended or
supplemented.

     

    4.4   Assignability.  This
Note shall be binding upon the Borrower and its successors and assigns, and
shall inure to the benefit of the Holder and its successors and
assigns.  The Borrower may not assign its obligations under this
Note.

     

    4.5   Cost of
Collection.  If default is made in the payment of this Note,
Borrower shall pay the Holder hereof reasonable costs of collection, including
reasonable attorneys’ fees.

     

    4.6   Governing
Law.  This Note shall be governed by and construed in
accordance with the laws of the State of New York without regard to conflicts of
laws principles that would result in the application of the substantive laws of
another jurisdiction.  Any action brought by either party against the
other concerning the transactions contemplated by this Agreement must be brought
only in the civil or state courts of New York or in the federal courts located
in the State and county of New York.  Both parties and the individual
signing this Agreement on behalf of the Borrower agree to submit to the
jurisdiction of such courts.  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 Note 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 unenforceability of any other provision of this Note.
Nothing contained herein shall be deemed or operate to preclude the Holder from
bringing suit or taking other legal action against the Borrower in any other
jurisdiction to collect on the Borrower's obligations to Holder, to realize on
any collateral or any other security for such obligations, or to enforce a
judgment or other decision in favor of the Holder.

     

    
      
         

      

      
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    4.7   Maximum
Payments.  Nothing contained herein shall be deemed to
establish or require the payment of a rate of interest or other charges in
excess of the maximum rate permitted by applicable law.  In the event
that the rate of interest required to be paid or other charges hereunder exceed
the maximum rate permitted by applicable law, any payments in excess of such
maximum rate shall be credited against amounts owed by the Borrower to the
Holder and thus refunded to the Borrower.

     

    4.8   Non-Business
Days.   Whenever any payment or any action to be made
shall be due on a Saturday, Sunday or a public holiday under the laws of the
State of New York, such payment may be due or action shall be required on the
next succeeding business day and, for such payment, such next succeeding day
shall be included in the calculation of the amount of accrued interest payable
on such date.

     

    4.9   Redemption.  This
Note may not be prepaid, redeemed or called without the consent of the
Holder.

     

    4.10   Shareholder
Status.  The Holder shall not have rights as a shareholder of
the Borrower with respect to unconverted portions of this
Note.  However, the Holder will have the rights of a shareholder of
the Borrower with respect to the Shares of Common Stock to which it is
entitled  to receive after delivery by the Holder of a Conversion
Notice to the Borrower.

    


    [Signature Page
Follows]

     

    
      
         

      

      
        10

        
          

        

      

      
         

      

    

     

    IN WITNESS WHEREOF, Borrower
has caused this Note to be signed in its name by an authorized officer as of the
12th day
of February, 2010.

     

     

    
      
        	 	AETHLON
      MEDICAL, INC.	 
	 	 	 	 
	
                 

              	
                By:
      

              	/s/ James
      A. Joyce	 
	 	 	Name:
      James A. Joyce	 
	 	 	Title:
      President	 
	 	 	 	 


      



     

    WITNESS:

    


    


    /s/ James B.
Frakes                                                    


     

    
      
         

      

      
        11

        
          

        

      

      
         

      

    

     

    NOTICE OF
CONVERSION

    


    (To be
executed by the Registered Holder in order to convert the Note)

    


    


    The
undersigned hereby elects to convert $_________ of the principal and $_________
of the interest due on the Note issued by AETHLON MEDICAL, INC. on February 12,
2010 into Shares of Common Stock of AETHLON MEDICAL, INC. (the “Borrower”)
according to the conditions set forth in such Note, as of the date written
below.

    


    


    


    Date of
Conversion:____________________________________________________________________

    


    


    Conversion
Price:______________________________________________________________________

    


    


    Number of Shares of
Common Stock Beneficially Owned on the Conversion Date: Less than 5% of the
outstanding Common Stock of AETHLON MEDICAL,
INC.

    


    


    Shares To
Be
Delivered:_________________________________________________________________

    


    


    Signature:____________________________________________________________________________

    


    


    Print
Name:__________________________________________________________________________

    


    


    Address:_____________________________________________________________________________

    


       ____________________________________________________________________________

    


    
      
         

      

      
        12