aethlon_s8-ex1007.htm


    
      
        

      

    

    EXHIBIT 10.7


    SECURED PROMISSORY
NOTE

     

    
      	 
      	 
      
	 
      	
              Date
      of Issuance:

            
	
              $300,000

            	
              February
      12, 2010

            


    

     

     

    FOR VALUE
RECEIVED, GEMINI MASTER FUND, LTD., a Caymans Islands corporation (the
“Company”), hereby promises to pay AETHLON MEDICAL, INC. (the “Lender”), the
principal sum of Three Hundred Thousand Dollars ($300,000.00) (the “Principal
Amount”), plus interest calculated pursuant to Section 1 below.  Unless
earlier paid under the terms hereof, the principal and accrued interest shall be
due and payable by the Company on demand by the Lender at any time after April
1, 2011 (the “Maturity Date”).

     

    This
Secured Promissory Note (the “Promissory Note”) is issued in connection with
that certain Securities Purchase Agreement between the parties hereto, dated as
of the date hereof (the “Purchase Agreement”), and initially capitalized terms
used but not defined herein shall have the meaning set forth in the Purchase
Agreement.

     

    1.   Interest.  The Company promises to pay
interest to Lender at the rate of five percent (5%) per annum, simple interest,
on the outstanding principal amount of this Promissory Note, which interest
shall be calculated from the date of this Promissory Note, until the date on
which all amounts due and payable on this Promissory Note are paid in full or
this Promissory Note is otherwise cancelled (the “Payoff Date”).  Interest
hereunder shall be paid on a monthly basis, commencing on the 15th date of the month following the month
of issuance of this Promissory Note.  All accrued and unpaid interest shall
be due and payable on the Payoff Date.  All computations of interest shall
be made on the basis of a year of 365 or 366 days, as the case may be, for the
actual number of days (including the first day but excluding the last day)
occurring in the period for which such interest is payable.  Nothing
contained in this Promissory Note shall require the Company at any time to pay
interest at a rate exceeding the maximum rate allowable under applicable law and
any payments in excess of such maximum shall be refunded to the Company or
credited to reduce the principal amount hereunder.

     

    2.   Payment.  All payments shall be made in
lawful money of the United States of America at the principal office of the
Company, or at such other place as the holder hereof may from time to time
designate in writing to the Company.  Payment shall be credited first to
Costs (as defined below), if any, then to accrued interest due and payable and
any remainder applied to principal.  Prepayment of principal, in part or in
full, together with accrued interest, may be made from time to time in the sole
discretion of the Company without the Lender’s consent.  Any amounts
payable hereunder, either pursuant to Section 3 below, at maturity or otherwise,
may be paid, at the election of the Company, by reducing the outstanding balance
under the Note (as defined in the Purchase Agreement) by such
amount.  Without limiting the foregoing, if an Event of Default (as
defined in the Note) occurs under the Note, the Company may offset any amounts
due under the Note from the balance outstanding under this Promissory
Note.

     

    3.   Prepayment
Obligation.
 Notwithstanding the option of the Company to prepay any portion of this
Promissory Note, as set forth in Section 2 hereof, the Company shall prepay, on
a monthly basis beginning on the first business day of the seventh
(7th) full calendar month after the Closing
Date (each date referred to herein as the “Periodic Prepayment Date”), an amount
of principal equal to not less than One Hundred Thousand Dollars ($100,000.00)
(or such lesser amount that equals the remaining outstanding principal and
accrued and unpaid interest under this Promissory Note), with the amount, if
any, in excess of such sum to be determined by and in the sole and absolute
discretion of the Company, until all principal and accrued and unpaid interest
under this Promissory Note has been paid, subject to the satisfaction of each of
the following conditions on each Periodic Prepayment Date:

     

    3.1   The Company may immediately sell all of
the Cash Conversion Shares pursuant to Rule 144, as such Rule may be amended
from time to time, or any similar rule or regulation hereafter adopted by the
Commission  having substantially the same effect as such Rule, where
“Cash Conversion Shares” shall mean any and all Conversion Shares (as defined in
the Note) issued or issuable upon conversion of such portion of the Note which
has been effectively paid for in cash (either upon the Closing Date or pursuant
to prepayments or repayments hereunder);

     

    
      
         

      

      
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    3.2   No Event of Default (as defined in the
Note) of a material nature has occurred and is continuing under the
Note;

     

    3.3   The average VWAP for every period of
ten consecutive Trading Days during the term of this Promissory Note shall not
be less than $0.20 per share (as adjusted for any stock splits, stock dividends,
combinations, subdivisions, recapitalizations or the like);
and

     

    3.4   The Lender shall have honored all
conversion requests under the Note within the applicable time period set forth
in the Note.

     

    The
amount of any such prepayment made by the Company under the terms of this
Section 3 (each such prepayment referred to herein as a “Periodic Prepayment”)
shall be credited first to Costs, if any, then to accrued interest due and
payable under this Promissory Note and the remainder applied to principal.
 Any prepayment made by the Company under this Promissory Note in excess of
any otherwise required Periodic Prepayment may be applied to any future required
Periodic Prepayment at the option of the Company, subject to the sole and
absolute discretion of the Company.  In the event that the Company fails to
deliver any Periodic Prepayment that is otherwise required under the terms of
this Section 3, the Lender’s sole and exclusive remedy shall be limited to the
Interest Rate being increased by 0.25 percentage points per Periodic Prepayment
required under this Section 3 that is not paid by the Company to the Lender,
provided however, that in no event shall the Interest Rate exceed an amount
equal to twelve and one-half percent (12.5%).  In no event shall any
failure by the Company to pay any Periodic Prepayment required hereunder give
any right to the Lender to collect upon the Collateral or otherwise collect any
outstanding sums under this Promissory Note.

     

    4.   Recourse.  Each
party hereto accepts and agrees that this Promissory Note is a full recourse
promissory note and that subject to the terms of this Promissory Note, Lender
may exercise any and all remedies available to it under the terms of this
Promissory Note and under law.

     

    5.   Security
Interest.  

     

    5.1           To secure the payment and performance
of the Company’s obligations under this Promissory Note, provided however that
any obligations of the Company to prepay any amounts under this Promissory Note
pursuant to Section 3 are not so secured, the Company hereby grants to Lender a
security interest in the Company’s entire right, title, and interest in and to
all of the following, wherever located and whether now existing or owned or
hereafter acquired or arising (collectively, the
“Collateral”):

     

    (a)   all accounts, accounts receivable,
contract rights, rights to payment, letters of credit, documents, securities,
promissory notes, debentures, money, and investment property, whether held
directly or through a securities intermediary, and other obligations of any kind
owed to the Company, however evidenced; and

     

    (b)   all products and proceeds, including
insurance proceeds, of any and all of the foregoing.

     

    Notwithstanding
the foregoing, no security interest is granted in any contract rights if such
grant causes a default enforceable under applicable law or if a third party has
the right enforceable under applicable law to terminate the Company’s rights
under or with respect to any such contract and such third party has exercised
such right of termination.  The Company represents and covenants that
the Collateral has, and shall at all times so long as this Note is outstanding
have, a fair market value greater than $1 million (without consideration of the
value of the Note or Conversion Shares).  The Company represents and
warrants that it has full authority to grant the foregoing security interest and
that no consent or approval of any third party is required for the granting of
the security interest. The Company represents and warrants that notwithstanding
Section 14, the provisions of this Section 5.1 are sufficient to grant a
security interest under the laws of the Cayman Islands and that such grant is
enforceable against the Company under the laws of the Cayman Islands and that no
other corporate or governmental action is required to vest in favor of Lender a
security interest in the Collateral.

     

    5.2   The security interest on the Collateral
granted by this Promissory Note shall continue and remain in effect until
terminated pursuant to subsection 5.4 below.

     

    
      
         

      

      
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    5.3   The Company shall execute any further
documents reasonably requested by Lender, which are necessary or appropriate to
perfect Lender’s security interest in the Collateral.

     

    5.4    Upon the
Payoff Date, the security interest granted pursuant to this Section 5 shall
terminate, and Lender shall promptly execute and deliver to the Company such
documents and instruments reasonably requested by the Company as shall be
necessary to evidence termination of all security interests given by the Company
to Lender hereunder.

     

    5.5   So long as an Event of Default does not
exist, the Company shall have the right to possess the Collateral, manage its
property and sell its inventory in the ordinary course of
business.

     

    6.   Event of
Default.  An “Event
of Default” shall exist under this Promissory Note upon the happening of a
failure of the Company to pay the outstanding Principal Amount and all other
outstanding sums under this Promissory Note, including accrued and unpaid
interest thereon, on the Maturity Date, provided that such sums have not
previously been paid, at the Company’s sole option, prior to the Maturity Date,
which failure is not cured within 15 days after the Company’s receipt of written
notice thereof sent by Lender to the Company.  Any failure by the Company
to pay any Periodic Prepayment that may otherwise be due under this Promissory
Note shall not be an Event of Default under this Promissory Note.  Upon the
occurrence of an Event of Default, Lender shall have all of the rights and
remedies afforded by the Uniform Commercial Code as from time to time in effect
in the State of California or afforded by other applicable
law.

     

    7.    [Intentionally
omitted.]

     

    8.   Amendments
and Waivers; Cure Period.
 This Promissory Note may not be amended without the prior written consent
of each of the Company and the Lender.  Any waiver by the Company or the
Lender of a breach of any provision of this Promissory Note shall not operate as
or be construed to be a waiver of any other breach of such provision or of any
breach of any other provision of this Promissory Note.  The failure of the
Company or the Lender to insist upon strict adherence to any term of this
Promissory Note on one or more occasions shall not be considered a waiver or
deprive that party of the right thereafter to insist upon strict adherence to
that term or any other term of this Promissory Note.  Any waiver by the
Company or the Lender must be in writing.  Any amendment or waiver effected
in accordance with this Section 8 shall be binding upon Lender and Lender’s
successors and assigns.  Any party to this Promissory Note shall have a
cure period of not less than thirty (30) days after receipt of written notice of
any alleged breach or default (except as may otherwise be provided for a payment
default) under the terms of this Promissory Note to cure such alleged breach or
default.

     

    9.   Transmittal
of Notices.  Except
as may be otherwise provided herein, any notice or other communication or
delivery required or permitted hereunder shall be in writing and shall be
delivered personally, or sent by telecopier machine or by a nationally
recognized overnight courier service, and shall be deemed given when so
delivered personally, or by telecopier machine or overnight courier service as
follows:

     

    If to the
Lender, to:

    AETHLON
MEDICAL, INC.

    8910
University Center Lane, Suite 660

    San
Diego, CA 92122

    Attn:
James A. Joyce, CEO

    Facsimile:
(858) 272-2738

     

    If to the
Company, to:

     

    GEMINI
MASTER FUND, LTD.

    c/o
Gemini Strategies, LLC

    135
Liverpool Drive, Suite C

    Cardiff,
California 92007

    Fax:  (858)
509-8808

     

    Each of
the Lender or the Company may change the foregoing address by notice given
pursuant to this Section 9.

     

    
      
         

      

      
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    10.   Successors
and Assigns.  This
Promissory Note applies to, inures to the benefit of, and binds the successors
and assigns of the parties hereto.  Neither the Lender nor the Company may
assign its rights under this Promissory Note without the written consent of the
other party to this Promissory Note, provided, however, that the Company may
assign its obligations under this Promissory Note to any Affiliate of the
Company in the sole and absolute discretion of the Company, without any prior
consent by the Lender, provided that such transferee or assignee agrees in
writing to be bound by and subject to the terms and conditions of this
Promissory Note including the granting of a security interest in such
Affiliate's assets in accordance with the terms of Section 5.1.  Upon any
such transfer of this Promissory Note by the Company or the Lender, the Lender
shall, upon notice, surrender this Promissory Note to the Company for reissuance
of a new note to the transferee.  Any transfer of this Promissory Note may
be effected only pursuant to the terms hereof and by surrender of this
Promissory Note to the Company and reissuance of a new note to the transferee.
 The Lender and any subsequent holder of this Promissory Note receives this
Promissory Note subject to the foregoing terms and conditions, and agrees to
comply with the foregoing terms and conditions for the benefit of the Company
and any other Lenders.

     

    11.   Officers
and Directors Not Liable.
 In no event shall any officer or director or affiliate of the Company be
liable for any amounts due and payable pursuant to this Promissory
Note.

     

    12.   Expenses.  Should any party hereto employ
an attorney for the purpose of enforcing or construing this Promissory Note, or
any judgment based on this Promissory Note, in any legal proceeding whatsoever,
including insolvency, bankruptcy, arbitration, declaratory relief or other
litigation, the prevailing party shall be entitled to receive from the other
party or parties thereto reimbursement for all reasonable attorneys' fees and
all reasonable costs, including but not limited to service of process, filing
fees, court and court reporter costs, investigative costs, expert witness fees,
and the cost of any bonds, whether taxable or not (collectively, “Costs”), and
that such reimbursement shall be included in any judgment or final order issued
in that proceeding.  The "prevailing party" means the party determined by
the court to most nearly prevail and not necessarily the one in whose favor a
judgment is rendered.

     

    13.   Remedies
Not Waived.  No
course of dealing between the parties hereto or any delay in exercising any
rights hereunder shall operate as a waiver by such party.

     

    14.   Governing Law.
 This Promissory Note shall be governed by and construed under the laws of
the State of California as applied to other instruments made by California
residents to be performed entirely within the State of California.  With
respect to any suit, action or proceedings relating to this Promissory Note,
each of the Lender and the Company irrevocably submits to the exclusive
jurisdiction of the courts of the State of California sitting in San Diego and
the United States District Court located in the City of San Diego and hereby
waives, to the fullest extent permitted by applicable law, any claim that any
such suit, action or proceeding has been brought in an inconvenient forum.
 Subject to applicable law, each of the Company and the Lender agrees that
final judgment against it in any legal action or proceeding arising out of or
relating to this Promissory Note shall be conclusive and may be enforced in any
other jurisdiction within the United States by suit on the judgment, a certified
copy of which judgment shall be conclusive evidence thereof and the amount of
the indebtedness, or by such other means provided by law.

     

    [Signature Page
Follows]

     

    
      
         

      

      
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    IN
WITNESS WHEREOF, the Company has duly caused this Promissory Note to be executed
and delivered on the date first above written.

    


    


    GEMINI
MASTER FUND, LTD.

    By: GEMINI
STRATEGIES, LLC, as investment manager

    


    By: 
/s/ Steven
Winters                                                

    Steven
Winters, Managing Member

     

     

     

     

    
      
         

      

      
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