Document:

EXHIBIT 10.01 

 

PROMISSORY NOTE

FACE AMOUNT

       

$462,000

PRICE

       

$385,000

INTEREST RATE

       

0% per annum

NOTE NUMBER

       

May-2007-101

ISSUANCE DATE

 

      

May 15, 2007

MATURITY DATE

       

April 15, 2008

FOR VALUE RECEIVED, Human Biosystems, Inc., a California corporation, and all of its subsidiaries (the “Company”) (OTC BB: HBSC) hereby promises to pay to the order of DUTCHESS PRIVATE EQUITIES FUND, LTD., a Cayman Island exempted company (the “Holder”), by the Maturity Date, or earlier, the Face Amount of Four Hundred and Sixty- Two Thousand Dollars ($462,000) plus accrued interest  U.S., (this “Note”) in such amounts, at such times and on such terms and conditions as are specified herein.  The Company and the Holder are sometimes hereinafter collectively referred to as the “Parties” and each a “Party” to this Agreement.

Article 1

Method of Payment

Section 1.1

Payments made to the Holder by the Company in satisfaction of this Note (referred to as a “Payment,” or “Payments”, or the amounts outlined as the “Payment Amount”) shall be in an amount of the greater of 1) one hundred percent (100%) of proceeds raised from Puts given to the Dutchess Private Equities Fund (as the “Investor”) by the Company, exceeding one hundred and twenty thousand ($120,000) per month (“Threshold Amount”) or 2) fifty-one thousand three hundred and thirty-three dollars ($51,333.00) per month on the Face Amount.

Payments shall be due on the 15th of each month or upon immediately available funds exceeding the Threshold Amount (“Payment Date”).

Upon such time as the terms and conditions of Article 20 have been met, or in the event the Company fails to comply fully with the obligations under Article 20, the Payment Amount shall be changed to the total Face Amount remaining on the Note divided by the months left until Maturity.  For example, if there is two hundred thousand dollars ($200,000) remaining on the Face Amount of the Note and there is two (2) months until the Maturity Date, the Holder may elect to request the monthly payment to one hundred thousand ($100,000) per month.

Payments made during a month that exceed the Payment Amount due shall NOT be applied to the any future Payments due to the Holder by the Company.

Section 1.2

If the Company raises any funds from a third-party, whether involving the issuance of debt or equity, including any equity line agreements with the Holder or a third party (a “Financing”), then the Company shall pay to the Holder one hundred percent (100%) of the net proceeds in excess of two million dollars ($2,000,000) therefrom as prepayment of the Face Amount of this Note and penalties, if any, then due.  A Financing will also include the sale by the Company of any of its assets (excluding assets sold in the normal course of business).  All 

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prepayments described in this Section 1.2 shall be made to the Holder within one (1) business day of the Company’s receipt of proceeds from the Financing.  Failure to comply with this Section 1.2 shall constitute an Event of Default (as described in Article 4 hereof).  The Holder may, but is not required to, waive all or part of this Section 1.2 upon request from the Company.

Article 2

Intentionally Omitted

Article 3

Unpaid Amounts

Section 3.1

In the event that the Company has not repaid the Face Amount by the Maturity Date (the “Residual Amount”), then as liquidated damages (the “Liquidated Damages”), the Face Amount shall be increased by ten percent (10.0%) and an additional two and one-half percent (2.5%) per month (pro rata for partial periods), compounded daily, for each month until the Face Amount is paid in full.  Further, if a Residual Amount remains at Maturity, it shall constitute an Event of Default hereunder.  The Parties acknowledge that the Liquidated Damages are not interest under this Note and shall not constitute a penalty.

Article 4

Defaults and Remedies

Section 4.1

Events of Default. An “Event of Default” occurs if any one of the following occur:

(a)

The Company does not make a Payment within ten (10) business days of a Payment Date, or a Residual Amount on the Note exists on the Maturity Date;

(b)

The Company, pursuant to or within the meaning of any Bankruptcy Law (as defined below): (i) commences a voluntary case; (ii) consents to the entry of an order for relief against it in an involuntary case; (iii) consents to the appointment of a Custodian (as defined below) of the Company or for its property; (iv) makes an assignment for the benefit of its creditors; or (v) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that: (A) is for relief against the Company in an involuntary case; (B) appoints a Custodian of the Company or for its property; or (C) orders the liquidation of the Company, and the order or decree remains unstayed and in effect for sixty (60) calendar days;

(c)

The Company’s no par value common stock (the “Common Stock”) is suspended or is no longer listed on any recognized exchange, including an electronic over-the-counter bulletin board, in excess of two (2) consecutive trading days;

(d)

The registration statement for the shares underlying the current Equity Line of Credit is not effective for any reason; 

(e)

The Company breaches a material term of this Agreement or any of the Company’s representation or warranties hereunder were false when made;

(f)

The Company fails to carry out Puts, including any paperwork needed, in a timely manner;

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 (g)

The occurrence of any event which is described elsewhere in this Note as constituting an Event of Default hereunder.

(h)

The Company is delinquent in any public filings.

As used in this Section 4.1, the term “Bankruptcy Law” means Title 11 of the United States Code or any similar federal or state law for the relief of debtors, and the term “Custodian” means any receiver, trustee, assignee, liquidator or similar official under any Bankruptcy Law.

Section 4.2

Remedies.  Upon the occurrence of each and every Event of Default, the Holder may seek any or all of the following remedies:

(a)

The Holder may elect to execute the Puts in an amount that will repay the Holder and fully enforce the Holder’s rights under this Agreement.

(b)

The Holder may increase the Face Amount of the Note by ten percent (10.0%) and an additional two and one-half percent (2.5%) per month (pro rata for partial periods), compounded daily, until such Event of Default is cured (if capable of being cured) or this Note is repaid in full (i.e., exercise the Liquidated Damages option).  The Parties acknowledge that the Liquidated Damages are not interest under this Note and shall not constitute a penalty.

(c)

The Holder may elect to stop any further funding to the Company excluding the Equity Line of Credit.

(d)

The Holder may also do either (i) or (ii) below, but not both:

(i)

Switch the Residual Amount to a three-year (“Convertible Maturity Date”), eighteen percent (18%) interest bearing convertible debenture at a floating rate discount of fifty percent (50%) to the prevailing market price during conversion, and with such other terms described hereinafter (the “Convertible Debenture”).  The Convertible Debenture shall be considered closed (“Convertible Closing Date”) as of the date of the Event of Default.  If the Holder chooses to convert the Residual Amount to a Convertible Debenture, then the Company shall have ten (10) business days after notice of default from the Holder (the “Notice of Convertible Debenture”) to file a registration statement covering an amount of shares equal to three hundred percent (300%) of the Residual Amount, plus interest thereon and any Liquidated Damages due at such time.  In the event the Company does not file such registration statement within such period of time, or such registration statement is not declared by the Commission to be effective under the Securities Act within sixty (60) days of the Convertible Closing Date, then the Residual Amount shall increase by five thousand dollars ($5,000) per day.  In the event the Company is given the option for accelerated effectiveness of the registration statement, the Company will cause such registration statement to be declared effective as soon as reasonably practicable and will not take any action to delay the registration to become effective.  In the event that the Company is given the option for accelerated effectiveness of the registration statement, but chooses not to cause such registration statement to be declared effective on such 

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accelerated basis, the Residual Amount shall increase by five thousand dollars ($5,000) per day commencing on the earliest date as of which such registration statement would have been declared to be effective if subject to accelerated effectiveness.

(ii)

The Holder may increase the Payment Amount described under Article 1 hereof to fulfill the repayment of the Residual Amount.  The Company shall provide full cooperation to the Holder in directing funds owed to the Holder on any Put made by the Company to the Investor.  The Company agrees to diligently carry out the terms outlined in the Equity Line for delivery of any such shares.  In the event the Company is not diligently fulfilling its obligation to direct funds owed to the Holder from Puts to the Investor, as reasonably determined by the Holder, the Holder may, after giving the Company two (2) business days advance notice to cure same, elect to increase the Face Amount of the Note by two and one-half percent (2.5%) per day, compounded daily, in addition to and on top of any additional remedies available to the Holder under this Note.

Section 4.3

Conversion Privilege

(a)

The Holder shall have the right to convert the Convertible Debenture into shares of Common Stock at any time following the Convertible Closing Date and before the close of business on the Convertible Maturity Date.  The number of shares of Common Stock issuable upon the conversion of the Convertible Debenture shall be determined pursuant to Section 4.4 hereof, but the number of shares issuable shall be rounded up to the nearest whole share.

(b)

In the event all or any portion of the Convertible Debenture remains outstanding on the Convertible Maturity Date (the “Debenture Residual Amount”), the unconverted portion of such Convertible Debenture will automatically be converted into shares of Common Stock on such date in the manner set forth in Section 4.4 hereof.

Section 4.4

Conversion Procedure

(a)

The Holder may elect to convert the Debenture Residual Amount in whole or in part any time and from time to time following the Convertible Closing Date.  Such conversion shall be effectuated by providing the Company, or its attorney, with that portion of the Convertible Debenture to be converted together with a facsimile or electronic mail of the signed notice of conversion (the “Notice of Conversion”).  The date on which the Notice of Conversion is effective (“Conversion Date”) shall be deemed to be the date on which the Holder has delivered to the Company a facsimile or electronically mailed the Notice of Conversion (receipt being via a confirmation of the time such facsimile or electronic mail to the Company as provided by the Holder).  The Holder can elect to either reissue the Convertible Debenture, or continually convert the existing Debenture.

(a)

(b)

Common Stock to be Issued.

Upon the conversion of the Convertible Debenture by the Holder, the Company shall instruct its transfer agent to issue stock certificates without restrictive legends or stop transfer instructions, if, at that time, the aforementioned registration statement described in Section 4.2 hereof has been declared effective 

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(or with proper restrictive legends if the registration statement has not as yet been declared effective), in specified denominations representing the number of shares of Common Stock issuable upon such conversion.  In the event that the Convertible Debenture is deemed saleable under Rule 144 of the Securities Act, the Company shall, upon a Notice of Conversion, instruct the transfer agent to issue free trading certificates without restrictive legends, subject to other applicable securities laws.  The Company is responsible to for all costs associated with the issuance of the shares, including but not limited to the opinion letter, whether issued by the Company’s counsel or the Holder’s counsel, overnight delivery of the certificates and any other costs that arise.  In the event the Holder’s counsel writes the opinion, the Company shall instruct the transfer agent to authorize and rely on such opinion.  The Company hereby acknowledges that the date of consideration for the Debenture is the Issuance Date of the Note and shall use all commercially reasonable best efforts to facilitate sales under Rule 144 of the Securities Act.  The Company shall act as registrar of the Shares of Common Stock to be issued and shall maintain an appropriate ledger containing the necessary information with respect to each Convertible Debenture.  The Company warrants that no instructions have been given or will be given to the transfer agent which limit, or otherwise prevent resale and that the Common Stock shall otherwise be freely resold, except as may be set forth herein or subject to applicable law.

(c)

Conversion Rate.  The Holder is entitled to convert the Convertible Debenture Residual Amount, plus accrued interest and penalties, anytime following the Convertible Closing Date, at the lesser of either (i) fifty percent (50%) of the lowest closing bid price during the fifteen (15) trading days immediately preceding the Notice of Conversion or (ii) 100% of the lowest bid price for the twenty (20) trading days immediately preceding the Convertible Closing Date (“Fixed Conversion Price”).  No fractional shares or scrip representing fractions of shares will be issued on conversion, but the number of shares issuable shall be rounded up to the nearest whole share.

(d)

Nothing contained in the Convertible Debenture shall be deemed to establish or require the Company to pay interest to the Holder at a rate in excess of the maximum rate permitted by applicable law.  In the event that the rate of interest required to be paid exceeds the maximum rate permitted by governing law, the rate of interest required to be paid thereunder shall be automatically reduced to the maximum rate permitted under the governing law and such excess shall be returned with reasonable promptness by the Holder to the Company.  In the event this Section 4.4(d) applies, the Parties agree that the terms of this Note shall remain in full force and effect except as is necessary to make the interest rate comply with applicable law.

(e)

The Holder shall be treated as a shareholder of record on the date the Company is required to issue the Common Stock to the Holder.  If prior to the issuance of stock certificates, the Holder designates another person as the entity in the name of which the stock certificates requesting the Convertible Debenture are to be issued, the Holder shall provide to the Company evidence that either no tax shall be due and payable as a result of such transfer or that the applicable tax has been paid by the Holder or such person.  If the Holder converts any part of the Convertible Debentures, or will be, the Company shall issue to the Holder a new Convertible Debenture equal to the unconverted amount, immediately upon request by the Holder.

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(f)

Within four (4) business days after receipt of the documentation referred to in this Section, the Company shall deliver a certificate for the number of shares of Common Stock issuable upon the conversion.  In the event the Company does not make delivery of the Common Stock as instructed by Holder within four (4) business days after the Conversion Date, the Company shall pay to the Holder an additional one percent (1.0%) per day in cash of the full dollar value of the Debenture Residual Amount then remaining after conversion, compounded daily.

(g)

The Company shall at all times reserve (or make alternative written arrangements for reservation or contribution of shares) and have available all Common Stock necessary to meet conversion of the Convertible Debentures by the Holder of the entire amount of Convertible Debentures then outstanding.  If, at any time, the Holder submits a Notice of Conversion and the Company does not have sufficient authorized but unissued shares of Common Stock (or alternative shares of Common Stock as may be contributed by stockholders of the Company) available to effect, in full, a conversion of the Convertible Debentures (a “Conversion Default,” the date of such default being referred to herein as the “Conversion Default Date”), the Company shall issue to the Holder all of the shares of Common Stock which are available.  Any Convertible Debentures, or any portion thereof, which cannot be converted due to the Company’s lack of sufficient authorized common stock (the “Unconverted Debentures”), may be deemed null and void upon written notice sent by the Holder to the Company.  The Company shall provide notice of such Conversion Default (“Notice of Conversion Default”) to the Holder, by facsimile, within one (1) business days of such default.

(h)

The Company agrees to pay the Holder payments for a Conversion Default (“Conversion Default Payments”) in the amount of (N/365) multiplied by 0.24, the product of which is then multiplied by the initial issuance price of the outstanding or tendered but not converted Convertible Debentures held by the Holder, where N equals the number of days from the Conversion Default Date to the date (the “Authorization Date”) that the Company authorizes a sufficient number of shares of Common Stock to effect conversion of all remaining Convertible Debentures.  The Company shall send notice (“Authorization Notice”) to the Holder that additional shares of Common Stock have been authorized, the Authorization Date, and the amount of Holder’s accrued Conversion Default Payments.  The accrued Conversion Default shall be paid in cash or shall be convertible into Common Stock at the conversion rate set forth in Section 4.4(c) hereof, upon written notice sent by the Holder to the Company, which Conversion Default shall be payable as follows: (i) in the event the Holder elects to take such payment in cash, cash payment shall be made to the Holder within five (5) business days, or (ii) in the event Holder elects to take such payment in stock, the Holder may convert at  the conversion rate set forth in Section 4.4(c) hereof until the expiration of the conversion period.

(i)

The Company acknowledges that its failure to maintain a sufficient number of authorized but unissued shares of Common Stock to effect in full a conversion of the Convertible Debentures in full will cause the Holder to suffer irreparable harm, and that the actual damages to the Holder will be difficult to ascertain.  Accordingly, the parties agree that it is appropriate to include in this Agreement a provision for liquidated damages.  The Parties acknowledge and agree that the liquidated damages provision set forth in this section represents the parties’ good faith effort to quantify such damages and, as such, agree that the form and 

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amount of such liquidated damages are reasonable, and under the circumstances, do not constitute a penalty.  The payment of liquidated damages shall not relieve the Company from its obligations to deliver the Common Stock pursuant to the terms of this Convertible Debenture.

(j)

If, by the fourth (4th) business day after the Conversion Date, any portion of the shares of the Convertible Debentures have not been delivered to the Holder and the Holder purchases, in an open market transaction or otherwise, shares of Common Stock (the “Covering Shares”) necessary to make delivery of shares which would had been delivered if the full amount of the shares to be converted had been delivered to the Holder, then the Company shall pay to the Holder, in addition to any other amounts due to Holder pursuant to this Convertible Debenture, and not in lieu thereof, the Buy-In Adjustment Amount (as defined below).  The “Buy In Adjustment Amount” is the amount equal to the excess, if any, of (x) the Holder’s total purchase price (including brokerage commissions, if any) for the Covering Shares, minus (y) the net proceeds (after brokerage commissions, if any) received by the Holder from the sale of the Sold Shares.  The Company shall pay the Buy-In Adjustment Amount to the Holder in immediately available funds within five (5) business days of written demand by the Holder.  By way of illustration only and not in limitation of the foregoing, if the Holder purchases shares of Common Stock having a total purchase price (including brokerage commissions) of $11,000 to cover a Buy-In with respect to shares of Common Stock it sold for net proceeds of $10,000, the Buy-In Adjustment Amount which the Company will be required to pay to the Holder will be $1,000.

Article 5

Additional Financing and Registration Statements

Section 5.1

The Company will not enter into any additional financing agreements whether for debt or equity,  without prior expressed written consent from the Holder, which may be given or withheld in Holder’s sole and absolute discretion.

Section 5.2

The Company agrees that it shall not file any registration statement which includes any of its Common Stock exceeding one million (1,000,000) shares, including those on Form S-8 exceeding a total of eight hundred thousand shares (800,000), until such time as the Note is paid in full (the “Lock-Up Period”) or unless and until Holder gives its prior written consent (which may be given or withheld in Holder’s sole and absolute discretion).  The Holder shall also permit one registration statement to be filed on form SB-2 not to exceed twenty-five million (25,000,000) shares as a shelf registration.  The Company agrees not to name a selling shareholder, if so allowed by the SEC.  Any issuance of shares from the SB-2 shall require the Holder’s prior written consent while there is an outstanding balance on this Note.

Section 5.3

If at any time while this Note is outstanding, the Company issues or agrees to issue to any entity or person (“Third-Party”) for any reason whatsoever, any common stock or securities convertible into or exercisable for shares of common stock (or modify any such terms in effect prior to the execution of this Note) (a “Third Party Financing”), at terms deemed by the Holder to be more favorable to the Third-Party, then the Company grants to the Holder the right, at the Holder’s election, to modify the terms of this Note to match or conform to the more favorable term or terms of the Third-Party Financing.  The rights of the Holder in this Section 

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5.3 are in addition to all other rights the Holder has pursuant to this Note and the related Security Agreement between the Holder and the Company.

Violation of any Section under this Article 5 shall constitute an Event of Default and the Holder may elect to take the action or actions outlined in Article 4 hereof.

Article 6

Notice

Section 6.1

Any notices, consents, waivers or other communications required or permitted to be given under the terms of this Note must be in writing and will be deemed to have been delivered (i) upon delivery, when delivered personally; (ii) upon receipt, when sent by facsimile (provided a confirmation of transmission is mechanically or electronically generated and kept on file by the sending party); or (iii) one (1) day after deposit with a nationally recognized overnight delivery service, so long as it is properly addressed.  The addresses and facsimile numbers for such communications shall be:

If to the Company:

Harry Masuda

Human Biosystems

1127 HARKER AVENUE 

PALO ALTO, CALIFORNIA 94301 

Telephone: 650-323-0943 

Facsimile:    

With copy to:

Cathryn Gawne, Attorney at Law

Silicon Valley Law Group

25 Metro Drive, Suite 600

San Jose, CA 95110

Fax: 408-573-5701

Direct tel: 408-573-5775

If to the Holder:

Dutchess Capital Management, LLC

Douglas Leighton

50 Commonwealth Ave, Suite 2

Boston, MA 02116

Telephone: (617) 301-4700

Facsimile: (617) 249-0947

Section 6.2

The Parties are required to provide each other with five (5) business days prior notice to the other party of any change in address, phone number or facsimile number.

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Article 7

Time

Where this Note authorizes or requires the payment of money or the performance of a condition or obligation on a Saturday or Sunday or a holiday on which the United States Stock Markets (“US Markets”) are closed (“Holiday”), such payment shall be made or condition or obligation performed on the last business day preceding such Saturday, Sunday or Holiday.  A “business day” shall mean a day on which the US Markets are open for a full day or half day of trading.

Article 8

No Assignment.

This Note and the obligations hereunder shall not be assigned.

Article 9

Rules of Construction.

In this Note, unless the context otherwise requires, words in the singular number include the plural, and in the plural include the singular, and words of the masculine gender include the feminine and the neuter, and when the tense so indicates, words of the neuter gender may refer to any gender.  The numbers and titles of sections contained in the Note are inserted for convenience of reference only, and they neither form a part of this Note nor are they to be used in the construction or interpretation hereof.  Wherever, in this Note, a determination of the Company is required or allowed, such determination shall be made by a majority of the Board of Directors of the Company and, if it is made in good faith, it shall be conclusive and binding upon the Company.

Article 10

Governing Law

The validity, terms, performance and enforcement of this Note shall be governed and construed by the provisions hereof and in accordance with the laws of the Commonwealth of Massachusetts applicable to agreements that are negotiated, executed, delivered and performed solely in the Commonwealth of Massachusetts. 

Article 11

Disputes Subject to Arbitration

The Parties shall submit all disputes arising under this Note to arbitration in Boston, Massachusetts before a single arbitrator of the American Arbitration Association (the “AAA”).  The arbitrator shall be selected by application of the rules of the AAA, or by mutual agreement of the Parties, except that such arbitrator shall be an attorney admitted to practice law in the Commonwealth of Massachusetts.  No Party will challenge the jurisdiction or venue provisions provided in this Article 11.  Nothing in this Article 11 shall limit the Holder’s right to obtain an injunction for a breach of this Note from any court of law.  Any injunction obtained shall remain in full force and effect until the arbitrator, as set forth in this Article 11 fully adjudicates the dispute.

Article 12

Conditions to Closing

The Company shall have delivered the proper Collateral to the Holder before Closing of this Note.

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Article 13

Closing Costs

The Company agrees to pay for related expenses associated with the proposed transaction of thirty-five thousand dollars ($35,000).  This amount shall cover, but is not limited to, the following: due diligence expenses, document creation expenses, closing costs, and transaction administration expenses.  All such structuring and administration expenses shall be deducted from the Closing.

Article 14

Indemnification

In consideration of the Holder’s execution and delivery of this Agreement and the acquisition and funding by the Holder of this Note and in addition to all of the Company’s other obligations under the documents contemplated hereby, the Company shall defend, protect, indemnify and hold harmless the Holder and all of its shareholders, officers, directors, employees, counsel, and direct or indirect investors and any of the foregoing person’s agents or other representatives (including, without limitation, those retained in connection with the transactions contemplated by this Agreement) (collectively, the “Indemnities”) from and against any and all actions, causes of action, suits, claims, losses, costs, penalties, fees, liabilities and damages, and expenses in connection therewith (irrespective of whether any such Indemnitee is a party to the action for which indemnification hereunder is sought), and including, without limitation, reasonable attorneys’ fees and disbursements (the “Indemnified Liabilities”), incurred by any Indemnitee as a result of, or arising out of, or relating to (i) any misrepresentation or breach of any representation or warranty made by the Company in the Note, or any other certificate, instrument or document contemplated hereby or thereby, or (ii) any breach of any covenant, agreement or obligation of the Company contained in the Note or any other certificate, instrument or document contemplated hereby or thereby, except insofar as any such misrepresentation, breach or any untrue statement, alleged untrue statement, omission or alleged omission is made in reliance upon and in conformity with written information furnished to the Company by, or on behalf of, the Holder or is based on illegal trading of the Common Stock by the Holder.  To the extent that the foregoing undertaking by the Company may be unenforceable for any reason, the Company shall make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities that is permissible under applicable law.  The indemnity provisions contained herein shall be in addition to any cause of action or similar rights the Holder may have, and any liabilities the Holder may be subject to.

Article 15

Incentive Shares

The Company shall issue to the Holder two hundred and fifty thousand (250,000) shares of unregistered, restricted Common Stock (the “Incentive Shares”) as an incentive for the Holder entering into this Note.  The Incentive Shares shall be issued and delivered to the Holder immediately.  The Company’s failure to issue the Incentive Shares shall constitute an Event of Default and the Holder may elect to enforce the remedies outlined in Article 4 hereof.  The Company’s obligation to provide the Holder with the Incentive Shares, as set forth herein, shall survive the termination of this Note and any default on this obligation shall provide the Holder with all rights, remedies and default provisions set forth in this Note or otherwise available by law.

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Article 16

Use of Proceeds

The Company shall use the funds for working capital purposes.

Article 17

Waiver

The Holder’s delay or failure at any time or times hereafter to require strict performance by Company of any obligations, undertakings, agreements or covenants shall not waive, affect, or diminish any right of the Holder under this Note to demand strict compliance and performance herewith.  Any waiver by the Holder of any Event of Default shall not waive or affect any other Event of Default, whether such Event of Default is prior or subsequent thereto and whether of the same or a different type.  None of the undertakings, agreements and covenants of the Company contained in this Note, and no Event of Default, shall be deemed to have been waived by the Holder, nor may this Note be amended, changed or modified, unless such waiver, amendment, change or modification is evidenced by a separate instrument in writing specifying such waiver, amendment, change or modification and signed by the Holder.

Article 18

Senior Obligation

The Company shall cause this Note to be senior in right of payment to all other current or future debt of the Company, including the Note number November 2006 101, by and between the Company and the Holder.  The Company warrants that it has taken all necessary steps to subordinate its other obligations to the rights of the Holder under this Note and the failure to do so shall constitute an Event of Default.

Article 19

Transactions With Affiliates

The Company shall not, and shall cause each of its Subsidiaries to not enter into, amend, modify or supplement, or permit any Subsidiary to enter into, amend, modify or supplement, any agreement, transaction, commitment or arrangement with any of its or any Subsidiary’s officers, directors, persons who were officers or directors at any time during the previous two (2) years, shareholders who beneficially own five percent (5%) or more of the Common Stock, or affiliates or with any individual related by blood, marriage or adoption to any such individual or with any entity in which any such entity or individual owns a five percent (5%) or more beneficial interest (each a “Related Party”) during the Lock-Up Period.

Article 20

Equity Line Obligations

Within thirty (30) days of the Issuance Date, the Company’s shall file a registration statement for a new Equity Line of Credit with the Investor, (“Registration Statement”) for the maximum amount of shares permitted under Rule 415 of the United States Securities and Exchange Commission (the “SEC” or the “Commission”).  The terms and conditions of the new Equity Line of Credit shall be on the same terms and conditions as the current Equity Line of Credit.    The Company shall respond to any and all SEC comments or correspondence, whether written or oral, direct or indirect, formal or informal (“Comments”), within seven (7) business days of the date of such Comments.  The seven (7) business day period shall be extended as may be required by delays caused by Investor; and, provided further, that such seven (7) business day 

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period shall be extended two (2) business days for responses to SEC Staff accounting comments.  The Company shall cause the Registration Statement relating to the registrable securities to become effective no later than two (2) business days after notice from the SEC that the Registration Statement has been cleared of all comments.  The Company agrees the Registration Statement shall be declared effective by the SEC no later than ninety (90) days after Closing.  Failure to do any action outlined in this Article 20 shall constitute an Event of Default and the Holder may seek to take actions as outlined in Article 4.

Article 21

Reserved

Article 22

Miscellaneous

Section 22.1

This Note may be executed in two (2) or more counterparts, all of which taken together shall constitute one instrument.  Execution and delivery of this Note by exchange of facsimile copies bearing the facsimile signature of a Party shall constitute a valid and binding execution and delivery of this Note by such Party.  Such facsimile copies shall constitute enforceable original documents.

Section 22.2

The Company warrants that the execution, delivery and performance of this Note by the Company and the consummation by the Company of the transactions contemplated hereby and thereby will not (i) result in a violation of the Articles of Incorporation, any Certificate of Designations, Preferences and Rights of any outstanding series of preferred stock of the Company or the Bylaws, (ii) conflict with, or constitute a material default (or an event which with notice or lapse of time or both would become a material default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any material agreement, contract, indenture mortgage, indebtedness or instrument to which the Company or any of its Subsidiaries is a party, or (iii) result in a violation of any law, rule, regulation, order, judgment or decree, including United States federal and state securities laws and regulations and the rules and regulations of the principal securities exchange or trading market on which the Common Stock is traded or listed (the “Principal Market”), applicable to the Company or any of its Subsidiaries (which for purposes of this Note means any entity in which the Company, directly or indirectly, owns capital stock or holds an equity or similar interest) or by which any property or asset of the Company or any of its Subsidiaries is bound or affected.  Neither the Company nor its Subsidiaries is in violation of any term of, or in default under, the Articles of Incorporation, any Certificate of Designations, Preferences and Rights of any outstanding series of preferred stock of the Company or the Bylaws or their organizational charter or Bylaws, respectively, or any contract, agreement, mortgage, indebtedness, indenture, instrument, judgment, decree or order or any statute, rule or regulation applicable to the Company or its Subsidiaries, except for possible conflicts, defaults, terminations, amendments, accelerations, cancellations and violations that would not individually or in the aggregate have a Material Adverse Effect (as defined below).  The business of the Company and its Subsidiaries is not being conducted, and shall not be conducted, in violation of any law, statute, ordinance, rule, order or regulation of any governmental authority or agency, regulatory or self-regulatory agency, or court, except for possible violations the sanctions for which either individually or in the aggregate would not have a Material Adverse Effect.  The Company is not required to obtain any consent, authorization, permit or order of, or make any filing or registration (except the filing 

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2

of a registration statement)  with, any court, governmental authority or agency, regulatory or self-regulatory agency or other third party in order for it to execute, deliver or perform any of its obligations under, or contemplated by, this Note in accordance with the terms hereof or thereof. All consents, authorizations, permits, orders, filings and registrations which the Company is required to obtain pursuant to the preceding sentence have been obtained or effected on or prior to the date hereof and are in full force and effect as of the date hereof.  The Company and its Subsidiaries are unaware of any facts or circumstances which might give rise to any of the foregoing.  The Company is not, and will not be, in violation of the listing requirements of the Principal Market as in effect on the date hereof and is not aware of any facts which would lead to delisting of the Common Stock by the Principal Market.

Section 22.3

The Company and its Subsidiaries are corporations duly organized and validly existing in good standing under the laws of the respective jurisdictions of their incorporation, and have the requisite corporate power and authorization to own their properties and to carry on their business as now being conducted.  Both the Company and its Subsidiaries are duly qualified to do business and are in good standing in every jurisdiction in which their ownership of property or the nature of the business conducted by them makes such qualification necessary, except to the extent that the failure to be so qualified or be in good standing would not have a Material Adverse Effect.  As used in this Note, “Material Adverse Effect” means any material adverse effect on the business, properties, assets, operations, results of operations, financial condition or prospects of the Company and its Subsidiaries, if any, taken as a whole, or on the transactions contemplated hereby or by the agreements and instruments to be entered into in connection herewith, or on the authority or ability of the Company to perform its obligations under the Note.

Section 22.4

Authorization; Enforcement; Compliance with Other Instruments.  (i) The Company has the requisite corporate power and authority to enter into and perform its obligations under this Note, and to issue this Note and Incentive Shares in accordance with the terms hereof and thereof; (ii) the execution and delivery of this Note by the Company and the consummation by it of the transactions contemplated hereby and thereby, including without limitation the reservation for issuance and the issuance of the Incentive Shares pursuant to this Note, have been duly and validly authorized by the Company’s Board of Directors and no further consent or authorization is required by the Company, its Board of Directors, or its shareholders; (iii) this Note has been duly and validly executed and delivered by the Company; and (iv) this Note constitutes the valid and binding obligations of the Company enforceable against the Company in accordance with their terms, except as such enforceability may be limited by general principles of equity or applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally, the enforcement of creditors’ rights and remedies.

Section 22.5

The execution and delivery of this Note shall not alter the prior written agreements between the Company and the Holder, consisting of the Note numbered “November  2006 101”.  This Note is the final agreement between the Company and the Holder with respect to the terms and conditions set forth herein, and, the terms of this Note may not be contradicted by evidence of prior, contemporaneous, or subsequent oral agreements of the Parties.  

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2

Section 22.6

There are no disagreements of any kind presently existing, or reasonably anticipated by the Company to arise, between the Company and the accountants, auditors and lawyers formerly or presently used by the Company, including but not limited to disputes or conflicts over payment owed to such accountants, auditors or lawyers.

Section 22.7

All representations made by or relating to the Company of a historical nature and all undertakings described herein shall relate and refer to the Company, its predecessors, and the Subsidiaries.

Section 22.8

The only officer, director, employee and consultant stock option or stock incentive plan currently in effect or contemplated by the Company has been submitted to the Holder or is described or within past filings with the SEC.  The Company agrees not to initiate or institute any new stock option or stock incentive plan without the prior written consent of the Holder.

Section 22.9

The Company acknowledges that its failure to timely meet any of its obligations hereunder, including, but without limitation, its obligations to make Payments, deliver shares and, as necessary, to register and maintain sufficient number of Shares, will cause the Holder to suffer irreparable harm and that the actual damage to the Holder will be difficult to ascertain.  Accordingly, the parties agree that it is appropriate to include in this Note a provision for liquidated damages.  The parties acknowledge and agree that the liquidated damages provision set forth in this section represents the parties’ good faith effort to quantify such damages and, as such, agree that the form and amount of such liquidated damages are reasonable and do not constitute a penalty.  The payment of liquidated damages shall not relieve the Company from its obligations to deliver the Common Stock pursuant to the terms of this Note.

Section 22.10

In the event that any rules, regulations, oral or written interpretations or Comments from the SEC, NASD, NYSE, NASDAQ or other governing or regulatory body, prohibit or hinder any operation of this Agreement or the Equity Line, the Parties hereby agree that those specific terms and conditions shall be negotiated in good faith on similar terms within five (5) business days, and shall not alter, diminish or affect any other rights, duties, obligations or covenants in this Note and that all terms and conditions will remain in full force and effect except as is necessary to make those specific terms and conditions comply with applicable rule, regulation, interpretation or Comment.  Failure for the Company to agree to on such new terms as necessary to achieve the intent of the original documents, shall constitute an Event of Default and the Holder may therefore elect to take actions as outlined in Article 4 hereof.

Section 22.11

The Company hereby represent and warrants to the Holder that: (i) it is voluntarily issuing this Note of its own freewill, (ii) it is not issuing this Note under economic duress, (iii) the terms of this Note are reasonable and fair to the Company, and (iv) the Company has had independent legal counsel of its own choosing review this Note, advise the Company with respect to this Note, and represent the Company in connection with its issuance of this Note.

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2

Section 22.12  Any capitalized term used but not defined in this Note shall have the meaning ascribed to it in the Investment Agreement between the Company and the Investor.

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2

IN WITNESS WHEREOF, the Company has caused this Note to be duly executed by its authorized officer as of the date first indicated above.

HUMAN BIOSYSTEMS, INC.

By:

Name:

Harry Masuda

Title:

Chief Executive Officer

DUTCHESS PRIVATE EQUITIES FUND, LTD.

By:

Name:

Douglas H. Leighton

Title:

Director

  ________     ________    

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2================================================================================

                             SETTLEMENT AND RELEASE

         THIS SETTLEMENT AND RELEASE (this "Agreement") is made and entered into
as of the 15th day of May, 2007, by and among Diverse Talent Group, Inc., a
California corporation ("DTG"), Christopher Nassif, an individual ("Nassif" and,
together with DTG, "DT"), CirTran Corporation, a Nevada corporation ("CTC") and
Diverse Media Group Corp., a Utah corporation and wholly-owned subsidiary of CTC
("DMG" and, together with CTC, "CirTran"). DTG, Nassif, CTC and DMG may be
individually referred to herein as a "Party" and collectively as the "Parties."

                                 R E C I T A L S

         WHEREAS, DT and DMG are parties to that certain Assignment and
Exclusive Services Agreement effective April 1, 2006 (the "Original Assignment
Agreement") , DMG and Nassif are parties to that certain Employment Agreement
dated May ___, 2006 (the "Employment Agreement"), DT and DMG are parties to that
certain Loan Agreement dated as of May 24, 2006 (the "Loan Agreement") and
related Promissory Note dated May 24, 2006 in the principal amount of $200,000
from DTG to DMG (the "Note"), Nassif has executed that certain Fraudulent
Transaction Guarantee dated as of May 24, 2006 (the "Fraudulent Transfer
Guarantee"), DMG and DTG are parties to that certain Security Agreement dated as
of May 24, 2006 (the "Security Agreement"), and related assignments and
guaranties (the "Related Documents" and, together with the Original Assignment
Agreement, the Employment Agreement, the Note, the Fraudulent Transfer Guarantee
and the Security Agreement, the "Original Agreements");

         WHEREAS, disputes have arisen between the Parties regarding the
Original Agreements; and

         WHEREAS, the Parties desire to resolve their existing disputes by
entering into this Agreement.

         NOW, THEREFORE, in consideration of the premises, covenants and
agreements made herein, and for other good and valuable consideration, the
sufficiency of which is hereby acknowledged, the Parties agree as follows:

         1.   Rescission. DT hereby withdraws its purported rescission of the
Original Agreements pursuant to its counsel's letter dated March 12, 2007.

         2.   Termination of Original Agreements. The Parties hereby terminate
as of March 31, 2007 (the "Effective Date"): (i) each Original Agreement, and
(ii) any other agreements between the Parties relating to or arising from such
agreements.

         3.   Assignment of Talent Contracts. Upon full execution of this
Agreement and the issuance of the ShellCo Shares (as defined below), CirTran
assigns to DTG as of the Effective Date all Talent Contracts (as defined in the
Original Assignment Agreement) assigned to DMG under the Original Assignment

                                       1
<PAGE>

Agreement. CirTran represents that it has not previously assigned the Talent
Contracts or any interest therein to any third party and none of the Talent
Contracts is subject to any lien, pledge, mortgage, claim, option, security
interest, claim, charge, easement, limitation, commitment, encroachment,
restriction or other encumbrance of any kind or nature whatsoever (whether
absolute or contingent). The assignment of the Talent Contracts is otherwise
without representation, warranty, guaranty or recourse of any kind.

         4.   Surrender of Name; Assignment of Web Site.

              a. CirTran hereby surrenders the right to use the name "Diverse
Media Group" as a business name and agrees to file within three (3) business
days of the date hereof, the necessary documents to change the name of DMG to a
name not containing the word "Diverse". CirTran will immediately and permanently
discontinue the use of the name "Diverse Media Group" and "Diverse Media Group
Corp." or any similar name containing the word "Diverse." The surrender of the
name will not preclude DMG from notifying vendors, customers and other persons
of its change of name as reasonably necessary and with a valid DMG business
purpose and to identify itself in legal documents, to the extent legally
required, as "formerly known as Diverse Media Group Corp." or words to that
effect.

              b. CirTran hereby assigns to ShellCo any and all of the CirTran's
rights, title and interest, in and to the domain name of
www.diversemediagroup.com (the "Domain Name"), free of all pledges, liens,
encumbrances, charges or security interests, attachments or any third party
rights. Within three (3) business day of execution of this Agreement and
issuance of the ShellCo Shares, CirTran will deliver to ShellCo assignment forms
in the form specified by the domain name registrar for the Domain Name and
reasonably acceptable to ShellCo; provided that it shall be ShellCo's
responsibility to provide its technical contact, administrative contact, domain
server(s) and any other information required by the domain name registrar.
CirTran may continue to use the content currently hosted at the Domain Name at
another domain name owned or controlled by CirTran; provided that (i) DMG's new
business name will be substituted for "Diverse Media Group Corp." as provided in
Section 4(a), and (ii) all references to DTG or DMG's Talent Division will be
removed.

         5.   Waiver of DTG Name Change, Talent Representation and Operation of
Business. CirTran hereby acknowledges and agrees that notwithstanding anything
to the contrary in any Original Agreement, including, without limitation Section
7(d) of the Original Assignment Agreement, DTG (a) shall not be required to
change its corporate or business name; (b) may represent talent which was under
contract with DMG at any time prior to or as of the Effective Date; and (c) may
operate, directly or through an affiliate, a talent agency located within Los
Angeles County. Notwithstanding anything to the contrary herein or as otherwise
provided in the Original Agreements, DT shall not be restricted in the operation
of its business(es) as currently conducted or otherwise by any of the Parties
hereto or any provision of the Original Agreements.

         6.   UCC Termination Statements. Within three (3) business day of
execution of this Agreement and issuance of the ShellCo Shares, CirTran will
file UCC-3 termination statements with respect to any financing statements filed
by it in connection with the Original Agreements with respect to DT and any of
its affiliates. CirTran will promptly provide DT with copies of such termination
statements and evidence of filing with and acceptance by the appropriate

                                       2
<PAGE>

jurisdiction(s). If CirTran fails to file the termination statements within the
time period prescribed in this Section 6, DT is hereby authorized to file the
UCC-3 termination statements on CirTran's behalf. Each Security Document (as
defined in the Loan Agreement) is hereby terminated and CirTran hereby releases,
assigns, transfers and delivers to DT all of the Collateral (as defined in the
relevant Security Document). CirTran hereby acknowledges that the security
interests and liens granted under each Security Document and otherwise in
connection with the Loan Agreement and all related documents have terminated and
have been released, and CirTran agrees to execute and deliver to DT, such
documents as DT shall reasonably request to evidence the termination of the
security interests and release of the Collateral pursuant to this Section 6.

         7.   Return of Note. Within one (1) business day of the date hereof,
CirTran shall return to DTG the executed original of the Note marked "CANCELLED"
and shall take all other actions reasonably necessary to terminate the Note.

         8.   Issuance of ShellCo Shares. In consideration of CirTran entering
into this Agreement and subject to Section 9 below, DTG will cause Diverse Media
Group, Inc., a Delaware corporation and affiliate of DT ("ShellCo"), to issue
9,000,000 shares of ShellCo common stock (the "Shares") to Wilson-Davis & Co.,
Inc. ("Escrow Agent") for the benefit of DMG pursuant to the Escrow Agreement
(the "Escrow Agreement") attached hereto as Exhibit A. DT will cause ShellCo to
enter into the Escrow Agreement and the Investor Rights Agreement (the "Investor
Rights Agreement"), attached hereto as Exhibit B, simultaneously with the
execution of this Agreement. Pursuant to the Escrow Agreement, the Shares will
be held in escrow pending the registration, sale or return of the Shares by DMG.
It is a condition precedent to the issuance of the Shares by ShellCo that each
party to the Investor Rights Agreement and each party to the Escrow Agreement,
other than ShellCo in each such case, shall have executed and delivered to
ShellCo the Investor Rights Agreement and the Escrow Agreement, as applicable.

         9.   Return of ShellCo Shares. If DMG has sold ShellCo Shares for
proceeds equal to an aggregate of $2,000,000, less transaction fees, any
remaining ShellCo Shares received pursuant this Agreement by DMG shall be
returned to and retired by ShellCo for no additional consideration, all as set
forth in the Investor Rights Agreement.

         10.  Representations and Warranties.

              a. The Parties represent and warrant to each other that, in
deciding to enter into this Agreement, they each: (i) made their own
investigation and evaluation; (ii) had all of the information they needed; (iii)
did not rely on any statements, acts or omissions except as expressly set forth
in this Agreement; (iv) were not acting under any duress, compulsion or undue
influence; (v) have had advice of counsel of their own choosing in negotiations
for and the preparation of this Agreement; and (vi) have read the provisions of
this Agreement and are fully aware of its contents and legal effect.

              b. DT represents and warrants that, as of the date hereof, ShellCo
has approximately 103,000,000 shares outstanding and that the Original

                                       3
<PAGE>

Agreements and other rights being transferred to DT pursuant to this Agreement
will be owned, directly or indirectly, by ShellCo.

              c. The Parties, and each of them, represent and warrant to the
other that they have the authority to enter into this Agreement.

              d. Each Party represents and warrants that this Agreement
constitutes a legal, valid, and binding obligation of each of them, enforceable
in accordance with its terms.

              e. Each Party represents and warrants that it has not transferred
or assigned or purported to transfer or assign any of the claims, causes of
action, demands, costs, obligations, damages, or liabilities being released
under this Agreement, and each Party agrees to indemnify the other from and
against any claim based upon, connected with, or arising out of any such
assignment or transfer or purported assignment or transfer.

         11.  Disclosure and Press Releases. The Parties shall promptly issue a
joint press release upon execution of this Agreement accurately describing the
terms of this Agreement in substantially the form attached hereto as Exhibit C.

         12.  Mutual Release and Waiver.

              a. Each Party, in consideration of the covenants and agreements of
the other Parties contained herein, does hereby knowingly and voluntarily
release and forever discharge and hold harmless each of the other Parties, and
any of its subsidiaries, affiliates, suppliers, predecessors, successors, or
assigns, and the respective agents, trustees, beneficiaries, officers,
directors, shareholders, attorneys, employees, independent contractors,
partners, members, managers and representatives of any of the foregoing
(collectively, the "Released Parties"), of and from any and all claims, demands,
damages, action and causes of action or suits at law or equity of whatsoever
kind or nature, whether fixed or contingent, presently know or unknown,
suspected or unsuspected that such Party has ever had, now has or in the future
may have against another Party arising from, or based upon, any of the Original
Agreements, including, but without limitation, any loss, liability, expense
and/or detriment, of any kind or character, in any way arising out of, connected
with, or resulting from the acts or omissions of the Released Parties or any of
them, any breach of contract, any breach of fiduciary duty, breach of any duty
of fair dealing, breach of confidence, cause of action or defenses based on the
negligence or intentional acts or omissions of the Released Parties or any of
them, and any and all related matters occurring or taking place on or before the
date of this Agreement and excluding only such matters that arise solely from
and relate directly to the obligations of the Parties with respect to this
Agreement (collectively, the "Released Claims").

              b. Each Party hereby represents and warrants to the Released
Parties that it is the sole owner of any and all of the Released Claims and that
it has not assigned, pledged, or contracted to assign or pledge or otherwise
disposed of any of the Released Claims.

              c. By executing this Agreement, each of the Parties hereby
covenants that it shall not (i) sue, prosecute or participate in any manner in
or assign any Released Claim (nor has it assigned any Released Claim) that it

                                       4
<PAGE>

may have or have had against any other Released Party; and (ii) participate,
fund, assist or encourage (explicitly or implicitly) any third party to file a
lawsuit or make a claim of any kind against a Released Party with respect to
matters arising prior to the Effective Date.

              d. Without limiting the generality of the releases contained in
this Section 12, Nassif acknowledges that CirTran is released from any
obligation to issue or vest options to have been issued to Nassif pursuant to
the Employment Agreement other than the 20% of the 500,000 share option which
vested upon grant as described in the Employment Agreement. The vested portion
of such 500,000 share option shall expire if not exercised within 90 days after
the Effective Date of this Agreement.

         13.  Unknown Facts. It is expressly agreed and understood that, except
as expressly limited, the release and waiver of claims set forth in this
Agreement releases all losses, injuries, damages, and claims of every kind and
character that a Party may have against the Released Parties from the beginning
of time to the date of execution of this Agreement arising out of or connected
with the Original Agreements. The Parties also acknowledge that they may
hereafter discover facts that occurred prior to the execution of this Agreement,
that are different from, or in addition to, those which they now know to be true
and agree that this Agreement and the releases contained herein be and remain
effective in all respects notwithstanding such different or additional facts or
discovery thereof. The Parties expressly waive the benefit of any statute or
rule of law, if any, that might otherwise limit the scope of this Agreement
because of unknown matters existing from the beginning of time to the date of
execution of this Agreement, whether material or otherwise, excluding only such
matters that arise solely from and relate directly to the obligations of the
Parties with respect to this Agreement. In particular, the Parties waive the
benefit of and acknowledge that they have been advised by legal counsel and are
familiar with the provisions of California Civil Code ss.1542, which provides as
follows:

              "A general release does not extend to claims which the creditor
              does not know or suspect to exist in his or her favor at the time
              of executing the release, which if known by him or her must have
              materially affected his or her settlement with the debtor."

         14.  No Admissions. This Agreement shall not be construed as an
admission of liability on the part of any of the Parties of any kind or nature
whatsoever as to any matter.

         15.  No Disparagement. Each Party agrees not to make any oral or
written statement that disparages the other Party or any of their affiliates
(including any of their past or present officers, employees, members, managers,
parents, subsidiaries, operations, products, services, competitive practices or
reputation).

         16.  Confidentiality. Except pursuant to Section 11, as a material
inducement to the Parties to enter into this Agreement and as an indivisible
part of the consideration to be received for entering into this Agreement for
the performance of obligations under this Agreement by each Party to this
Agreement, each Party agrees that it will not disclose, disseminate and/or

                                       5
<PAGE>

publicize or cause or permit to be disclosed, disseminated and/or publicized,
any of the specific terms of this Agreement, including any negotiations or
discussions concerning this Agreement and/or any of its terms, any claims or
allegations or the basis for any claims or allegations, which were or could have
been made against the other Party, or any of their past or present officers,
managers, investors, members, employees, representatives, agents, parent or
affiliated companies, benefit plans, partners, heirs and attorneys which concern
and are within the scope of this Agreement, directly or indirectly, specifically
or generally, to any person, corporation, association, governmental agency, or
other entity except: (a) to the extent necessary to report income to appropriate
taxing authorities, including without limitation, disclosure to such Party's
lawyers and accountants or, as may be required in connection with any audit by
any taxing authority or to disclose the tax treatment or the tax structure of
the transactions contemplated by this Agreement; (b) in response to an order of
a court of competent jurisdiction or a subpoena issued under the authority
thereof; (c) in response to any subpoena issued by a state or federal
governmental agency; or (d) as otherwise required by law, including the
requirements of the Securities Exchange Act of 1934, as amended, applicable to
the Parties. Each Party agrees to provide the other Party prompt written notice
if such Party receives a subpoena or court order regarding information made
confidential by this Section 16 and agrees to notify the other Party prior to
making any such disclosure pursuant to any subpoena or court order. Each Party
agrees to cooperate fully with the other Party's efforts and if any, to seek a
protective order or any other legal proceedings regarding the disclosure of
information pertaining to this Section 16, at the expense of the Party seeking
such protective order or other legal proceeding.

         17.  Effect of Non-Disparagement, Confidentiality Provisions. Each of
the Parties will inform its officers and directors who were previously engaged
in the relationship between DTG and Cirtran of the restrictions contained in
Sections 15 and 16 and each Party shall be responsible for breaches of such
Sections 15 and 16 by its officers or directors.

         18.  Notice. Any notice or other communication required or permitted
hereunder shall be in writing and shall be deemed to have been given when
delivered by hand, within one (1) business day of facsimile with receipt
confirmed or upon receipt when mailed by United States mail, registered or
certified, postage prepaid, return receipt requested, addressed as follows:

              If to DT:                 Diverse Talent Group
                                        1875 Century Park East, Suite 2250
                                        Los Angeles, CA 90067
                                        Attention: Christopher Nassif
                                        Facsimile: _______________________

              With a copy to:           Katten Muchin Rosenman LLP
                                        2029 Century Park East, Suite 2600
                                        Los Angeles, California 90067
                                        Attention: Daniel Platt, Esq.
                                        Facsimile: 310.712.8412

                                       6
<PAGE>

              If to CirTran:            CirTran Corporation
                                        4125 South 6000 West
                                        West Valley City, Utah 84128
                                        Attention: Iehab Hawatmeh
                                        Fax: 801-963-5180

              With a copy to:           Callister Nebeker & McCullough
                                        2180 S. 1300 East, Suite 600
                                        Salt Lake City, Utah 84106
                                        Attention:  Paul H. Shaphren, Esq.
                                        Facsimile: 801.746.8607

         Each of the Parties shall be entitled to specify a different address by
giving notice in writing as aforesaid to the others.

         19.  Dispute Resolution.

              a. Any controversy, claim or dispute arising out of or related to
this Agreement or the interpretation, performance or breach hereof, including,
without limitation, alleged violations of state or federal statutory or common
law rights or duties (each, a "Dispute"), shall be resolved according to the
procedures set forth in this Section 19, which shall constitute the sole dispute
resolution mechanisms hereunder. In the event that the Parties are unable to
resolve any Dispute after meeting and attempting in good faith to reach a
negotiated resolution, such Dispute(s) shall first be mediated by a retired
judge or justice of any California state or federal court. If the Parties are
unable to agree upon a mediator, any Party may apply to the Los Angeles office
of JAMS/Endispute, or its successor ("JAMS"), for the appointment of a mediator
from a panel of retired judges and justices maintained by that organization.

              b. If the Parties are unable to resolve one or more Dispute(s) by
mediation, then any Party may initiate arbitration of such Dispute(s). The
arbitration shall be initiated and conducted according to the JAMS/Endispute
Comprehensive Arbitration Rules and Procedures in effect as of the date hereof,
including the Optional Appeal Procedure provided for in such rules (the
"Arbitration Rules"). The arbitration shall be conducted in Los Angeles County
before a single neutral arbitrator appointed in accordance with the Arbitration
Rules. Any appeal shall be heard and decided by a panel of three neutral
arbitrators. The neutral arbitrator and the members of any Appeal Panel shall be
retired judges or justices of any California state or federal court. In all
their substantive (as opposed to procedural or discovery-related) rulings, the
arbitrator and Appeal Panel shall apply California law. If any Party refuses to
perform any or all of its obligations under the final arbitration award
(following appeal, if applicable) within thirty (30) calendar days of such award
being rendered, then the other Party or Parties may enforce the final award in
any court of competent jurisdiction in Los Angeles County.

              c. Any Dispute or portion thereof, or any claim for a particular
form of relief (not otherwise precluded by any other provision of this
Agreement), that may not be arbitrated pursuant to applicable state or federal
law may be heard only in a court of competent jurisdiction in Los Angeles,

                                       7
<PAGE>

California, to be tried without a jury. To the maximum extent permitted by
applicable law, the Parties hereby irrevocably waive their respective rights to
trial by jury of any cause of action, claim, counterclaim or cross-complaint in
any action or other proceeding brought by any Party against any other Party or
Parties with respect to any matter arising out of, or in any way connected with
or related to, this Agreement or any portion thereof, whether based upon
contractual, statutory, tortious or other theories of liability.

              d. If a Party believes in good faith that all or part of a
Dispute, or any claim for relief or remedy sought, is not subject to arbitration
under then-prevailing law, then that Party may seek a determination to that
effect from a court of competent jurisdiction in Los Angeles, California. If the
court determines that the matter is not arbitrable or that the remedy sought is
not available in arbitration, then the specific matter or request for remedy in
question may be resolved by the court. All other matters and claims for relief
shall be subject to arbitration as set forth above.

         20.  General Provisions.

              a. All of the terms of this Agreement shall be binding upon and
inure to the benefit of and be enforceable by the Parties and their respective
successors, permitted assigns, heirs, and legal representatives, and nothing in
this Agreement is intended to confer any right, remedy, or benefit upon any
other person. This Agreement shall inure to the benefit of each of the Released
Parties and their successors and assigns.

              b. No assignment or delegation of this Agreement, including an
assignment or delegation by operation of law or of any of the rights or
obligations under this Agreement by any of the Parties shall be valid without
the written consent of DT and CirTran, provided that the written consent of DT
may be given by DTG or Nassif and the written consent of CirTran may be given by
CTC or DMG.

              c. This Agreement supersedes all prior agreements or
understandings of the Parties on the subject matter of this Agreement. Any prior
negotiations, term sheets, correspondence, agreements, proposals, or
understandings relating to the subject matter of this Agreement shall be deemed
to be merged into this Agreement and to the extent inconsistent with this
Agreement, such negotiations, correspondence, agreements, proposals, or
understandings shall be deemed to be of no force or effect. There are no
representations, warranties, or agreements, whether express or implied, or oral
or written, with respect to the subject matter of this Agreement, except as set
forth in this Agreement.

              d. This Agreement may not be modified by any oral agreement,
either express or implied, and all amendments or modifications of this Agreement
shall be in writing and be signed by all of the Parties.

              e. The Section headings in this Agreement are for the purpose of
convenience only and shall not limit or otherwise affect any of the terms of
this Agreement.

              f. The failure of any of the Parties to insist, in any one or more
instances, upon strict performance of any of the terms or conditions of this
Agreement shall not be construed to constitute a waiver or relinquishment of any

                                       8
<PAGE>

right granted under this Agreement or of the future performance of any such
term, covenant, or condition, and the obligations of the appropriate Party with
respect to any such term or condition shall continue in full force and effect.

              g. Where the context requires, the singular shall include the
plural, the plural shall include the singular, and any gender shall include all
other genders.

              h. Except as otherwise expressly provided in this Agreement, each
Party to this Agreement will bear its respective expenses incurred in connection
with the preparation, execution, and performance of this Agreement and the
transactions contemplated hereby, including all fees and expenses of agents,
representatives, counsel, and accountants.

              i. Should any of the Parties default in or breach of any of the
covenants contained in this Agreement, or in the event a dispute shall arise as
to the meaning of any term of this Agreement, the defaulting or non-prevailing
Party shall pay all costs and expenses, including reasonable attorneys' fees,
that may arise or accrue from enforcing this Agreement, securing an
interpretation of any provision of this Agreement, or in pursuing any remedy
provided by applicable law whether such remedy is pursued or interpretation is
sought by the filing of a lawsuit, an appeal, or otherwise.

              j. This Agreement shall be governed by and construed in accordance
with the internal laws of the State of California, which internal laws exclude
any provision or interpretation of such laws that would call for, or permit, the
application of the laws of any other state or jurisdiction, and any dispute
arising therefrom and the remedies available shall be determined solely in
accordance with such internal laws.

              k. This Agreement may be signed in one or more counterparts, each
of which shall be deemed an original and which taken together shall constitute a
single instrument. The delivery of a counterpart signature by facsimile shall be
effective as delivery of a manually signed original and the receiving party may
rely thereon for all purposes.

              l. After the date of this Agreement, each Party will from time to
time, at the other Party's request and without further cost to the Party
receiving the request, execute and deliver to the requesting Party such other
instruments and take such other action as the requesting Party may reasonably
request so as to enable it to exercise and enforce its rights under and fully
enjoy the benefits and privileges with respect to this Agreement and to carry
out the provisions and purposes hereof.

              m. Each of the Parties hereby acknowledges that monetary damages
alone would be an inadequate remedy for the injuries and damage that would be
suffered by the aggrieved Party as a result of a breach of the other Party's
obligations under Section 12, 13, 15 or 16 of this Agreement. Accordingly, if
either Party should breach any of its obligations under Section 12, 13, 15 or 16
of this Agreement, the aggrieved Party, in addition to any other remedies it may
have at law or under this Agreement, will be entitled to equitable relief
therefore and to specifically enforce such provisions, without the requirement
of first pursuing any other remedy, posting any bond or other security or
establishing any monetary damages.

                                       9
<PAGE>

              n. In entering into this Agreement, each Party assumes the risk of
any mistake of fact or law on its behalf. If any Party should subsequently
discover that its understanding of the facts or of the law was or is incorrect,
such Party shall not be entitled to relief in connection therewith, including,
without limitation of the generality of the foregoing, any alleged right or
claim to set aside or rescind this Agreement. This Agreement is intended to be,
and is, final and binding upon the Parties hereto according to the terms hereof
regardless of any claims of mistake of fact or law.

                  [Remainder of page left intentionally blank]

                                       10
<PAGE>

         IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as
of the date first above written.

                                        DIVERSE TALENT GROUP, INC.

                                        By: _______________________________
                                            Christopher Nassif, its President

                                        Christopher Nassif, individually

                                        CIRTRAN CORPORATION

                                        By: _______________________________
                                            Iehab Hawatmeh, its President

                                        DIVERSE MEDIA GROUP CORP.

                                        By: _______________________________
                                            Iehab Hawatmeh, its President

                   [Signature Page to Settlement and Release]

<PAGE>
                                    Exhibit A
                                    ---------

                                Escrow Agreement

                                   [Exhibit A]

<PAGE>
                                    Exhibit B
                                    ---------

                            Investor Rights Agreement

                                   [Exhibit B]

<PAGE>

                                    Exhibit C

                               Joint Press Release

                               [Draft in Process]

                                   [Exhibit C]

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