Document:

Exhibit 10.14

 

CONSULTING AGREEMENT

 

THIS CONSULTING AGREEMENT
(the “Agreement”), made this 9th day of February, 2016 is entered into by Aethlon Medical,
Inc., a Nevada corporation with its principal place of business at 9635 Granite Ridge Drive, Suite 100, San Diego, California 92123
(the “Company”), and Richard H. Tullis, residing at 3886 Spanish Oak Court, Oceanside, CA 92058 (the
“Consultant”) .

 

INTRODUCTION

 

The Company and the Consultant are parties
to that certain Employment Agreement dated January 10, 2000 (the “Employment Agreement”). The Company
and the Consultant desire to terminate the Employment Agreement and to enter into this Agreement pursuant to which the Company
will retain the services of the Consultant and the Consultant will perform certain services for the Company. In consideration of
the mutual covenants and promises contained herein and other good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged by the parties hereto, the parties agree as follows:

 

1.              
Services. The Consultant agrees to perform services to and for the Company largely consistent with the services he
previously provided to the Company in his employment as Chief Science Officer of the Company and such other services as the Company
may request (the “Services”). The Consultant shall be solely responsible for determining the method,
details and means of performing the Services. The Consultant will perform the Services under the title “Chief Science Officer”;
provided, however, that he shall no longer be deemed a corporate officer of the Company notwithstanding such title. The Consultant
agrees to provide consulting services not to exceed 20 hours per week, provided such hours may be adjusted upon mutual agreement
of the parties. During the Term (as defined below), the Consultant shall not engage in any activity of which the consultant is
aware that has a direct conflict of interest with the Company, and to which the consultant has direct knowledge, including any
competitive employment, business, or other activity, and shall not assist any other person or organization that competes, or intends
to compete, with the business of the Company.

 

2.              
Payment for Prior Services/Stock Options. Prior to the execution of this Agreement, the Company agrees to pay the
Consultant any unpaid compensation, bonuses and/or expenses incurred to date in the performance of his duties and responsibilities
as Chief Science Officer under the Employment Agreement, and unpaid vacation days of six (6) weeks earned in 2015. The Company
will also work with the Consultant to transfer his 401(k) retirement savings account to a new 401(k) administrator chosen by the
Consultant. In addition, the stock options granted to the Consultant under various stock option agreements dated December 15, 2008,
September 27, 2010, July 1, 2013 and June 6, 2014 (the “Stock Options”) will remain in full force and
effect, will continue to be exercisable and will continue vesting under their amended terms until such time as the Consultant is
no longer performing services for the Company under this Agreement. Each of the Stock Options shall be amended to set the exercise
period after termination for any reason except for cause (including death and disability) to thirty-six (36) months after the date
of termination, or the expiration date of the Stock Option, whichever occurs first.

 

3.              
Term. This Agreement shall commence on the date hereof and shall continue for a two-month period (such period, as
it may be extended, being referred to as the “Term”), unless sooner terminated in accordance with the
provisions of Section 5. Unless terminated in accordance with Section 5, the Term shall be automatically extended for additional
one-month periods. The parties agree that the Term will be for no less than two (2) months in duration.

 

 

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4.              
Compensation.

 

4.1           
Consulting Fees. The Company shall pay to the Consultant consulting fees of $10,000 per month, payable in arrears
on the last day of each month. Payment for any partial month shall be prorated. The Company will have a 5 day grace period to make
such payment, after which a 5% late fee will be added to the total for each month the payment has not been made.

 

4.2           
Reimbursement of Expenses. The Company shall reimburse the Consultant for all reasonable and necessary expenses incurred
or paid by the Consultant in connection with, or related to, the performance of the Services under this Agreement. The Consultant
shall submit to the Company itemized monthly statements, in a form satisfactory to the Company, of such expenses incurred in the
previous month. The Company shall pay to the Consultant amounts shown on each such statement within 30 days after receipt thereof.
The Company will have a 5 day grace period to make such payment, after which a 5% late fee will be added to the total for each
month the payment has not been made. Notwithstanding the foregoing, the Consultant shall not incur total expenses in excess of
$500 per month without the prior written approval of the Company.

 

4.3           
Benefits. The Consultant shall not be entitled to any benefits, coverages or privileges, including, without limitation,
social security, unemployment, medical or pension payments, made available to employees of the Company. In addition, the Consultant
shall obtain and maintain, at his own expense, medical insurance coverage for himself, and shall be responsible for the cost of
his cellular phone service. The Consultant shall be permitted to continue the use of the laptop computer provided to him by the
Company; provided that, upon termination or expiration of this Agreement, the Consultant shall return said computer to the Company,
as required by Section 5.2.

 

5.              
Termination.

 

5.1           
Termination of this Agreement. Both the Company and Consultant may, without prejudice to any right or remedy it may
have under this Agreement, terminate the Agreement (and not permit the Term to automatically renew) upon 30 days’ prior written
notice to the other (which notice shall be given at least 30 days prior to the end of the Term). In the event of such termination
by either party, the Consultant shall be entitled to payment for Services performed and expenses paid or incurred prior to the
effective date of termination, subject to the limitation on reimbursement of expenses set forth in Section 4.2. Such payments shall
constitute full settlement of any and all claims of the Consultant against the Company pertaining to compensation under this Agreement.
Notwithstanding the foregoing, the Company may terminate the Agreement, effective immediately upon receipt of written notice, if
the Consultant breaches any provision of this Agreement including but not limited to Section 7.

 

5.2           
Return of Company Property. Upon the termination or expiration of this Agreement, the Consultant shall transfer to
the Company all files (including, but not limited to, electronic files), records, documents, data, financial information, and similar
items in his possession relating to the business of the Company or its Proprietary Information (as defined in the Employment Agreement
(including any work product of the Consultant created pursuant to this Agreement), as well as any equipment or other property owned
by the Company. All the collections required will be returned within one month of the date of final separation

 

6.              
Cooperation. The Consultant shall use his best efforts in the performance of his obligations under this Agreement.
The Company shall provide such access to its information and property as may be reasonably required in order to permit the Consultant
to perform his obligations hereunder. The Consultant shall cooperate with the Company’s personnel, shall not interfere with
the conduct of the Company’s business and shall observe all rules, regulations and security requirements of the Company concerning
the safety of persons and property.

 

 

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7.              
Restrictive Covenants. The Consultant shall remain subject to the restrictive covenants set forth in Article V of
the Employment Agreement attached hereto as Appendix I. Provided the covenants of Article V of the Employment Agreement
are complied with, and the limitation on conflicting activities set forth in Section 1 are complied with, Contractor shall be entitled
to perform services or become employed by other persons or entities as Contractor so determines.

 

8.              
Independent Contractor Status. The Consultant shall perform all Services under this Agreement as an “independent
contractor” and not as an employee or agent of the Company. The Consultant is not authorized to assume or create any obligation
or responsibility, express or implied, on behalf of, or in the name of, the Company or to bind the Company in any manner. The Consultant
acknowledges and agrees that the Consultant is not an employee of the Company, that this Agreement is not an agreement of employment,
and that the Services will not transition into an employment arrangement with the Company. The Consultant shall have full responsibility
for applicable withholding taxes for all compensation paid the Consultant and for compliance with all applicable tax, labor and
employment requirements with respect to the Consultant’s self-employment, sole proprietorship or other form of business organization.
The Consultant agrees to indemnify, defend and hold the Company harmless from any liability for, or assessment of, any claims or
penalties with respect to such withholding taxes or labor or employment requirements, including any liability for, or assessment
of, withholding taxes imposed on the Company by the relevant taxing authorities with respect to any compensation paid to the Consultant.

 

9.              
Notices. All notices required or permitted under this Agreement shall be in writing and shall be deemed effective
upon personal delivery or upon deposit in the United States Mail, by registered or certified mail, postage prepaid, or by deposit
to and delivery by an overnight delivery service, addressed to the other party at the address shown above, or at such other address
or addresses as either party shall designate to the other in accordance with this Section 9.

 

10.           
Pronouns. Whenever the context may require, any pronouns used in this Agreement shall include the corresponding masculine,
feminine or neuter forms, and the singular forms of nouns and pronouns shall include the plural, and vice versa.

 

11.           
Entire Agreement; Termination of Employment Agreement. This Agreement constitutes the entire agreement between the
parties and supersedes all prior agreements and understandings, whether written or oral, relating to the subject matter of this
Agreement. The parties acknowledge and agree that the Employment Agreement hereby is terminated and is of no further force and
effect, except with respect to the terms thereof that specifically survive termination of the Employment Agreement or that are
incorporated herein under Section 7. Contractor acknowledges and agrees that he has freely determined to terminate the Employment
Agreement and to waive any and all benefits to which employees of the Company are entitled.

 

12.           
Amendment. This Agreement may be amended or modified only by a written instrument executed by both the Company and
the Consultant.

 

13.           
Governing Law. This Agreement shall be construed, interpreted and enforced in accordance with the laws of the State
of California.

 

14.           
Successors and Assigns. This Agreement shall be binding upon, and inure to the benefit of, both parties and their
respective successors and assigns, including any corporation with which, or into which, the Company may be merged or which may
succeed to its assets or business; provided, however, that the obligations of the Consultant are personal and shall not be assigned
by him.

 

 

 

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15.           
Arbitration. Any dispute or claim arising out of or in connection with any provision of this Agreement will be finally
settled by binding arbitration in San Diego County, California, in accordance with the rules of the American Arbitration Association
by one arbitrator appointed in accordance with said rules. The arbitrator shall apply California law, without reference to rules
of conflicts of law or rules of statutory arbitration, to the resolution of any dispute. Judgment on the award rendered by the
arbitrator may be entered in any court having jurisdiction thereof. Notwithstanding the foregoing, the parties may apply to any
court of competent jurisdiction for preliminary or interim equitable relief, or to compel arbitration in accordance with this paragraph,
without breach of this arbitration provision.

 

16.           
Advice of Counsel. Each party acknowledges that, in executing this Agreement, such party has had the opportunity
to seek the advice of independent legal counsel and has read and understood all of the terms and provisions of this Agreement.
This Agreement shall not be construed against any party by reason of the drafting or preparation hereof.

 

17.           
Miscellaneous.

 

17.1        
No delay or omission by the Company in exercising any right under this Agreement shall operate as a waiver of that or any
other right. A waiver or consent given by the Company on any one occasion shall be effective only in that instance and shall not
be construed as a bar or waiver of any right on any other occasion.

 

17.2        
The captions of the sections of this Agreement are for convenience of reference only and in no way define, limit or affect
the scope or substance of any section of this Agreement.

 

17.3        
In the event that any provision of this Agreement shall be invalid, illegal or otherwise unenforceable, the validity, legality
and enforceability of the remaining provisions shall in no way be affected or impaired thereby.

 

 

 

 

 

REMAINDER OF PAGE BLANK. SIGNATURE PAGE
FOLLOWS DIRECTLY

 

 

 

 

 

 

 

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IN WITNESS WHEREOF,
the parties hereto have executed this Agreement as of the day and year set forth above.

 

 

COMPANY:

 

AETHLON MEDICAL, INC.

 

 

By: /s/ James B. Frakes                      

 

Name:James B. Frakes

 

Title:Chief Financial Officer

 

 

 

 

CONSULTANT:

 

/s/ Richard H. Tullis                        

Richard
H. Tullis

 

 

 

 

 

 

 

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Appendix I

 

Employment Agreement

 

This Employment Agreement (the "Agreement")
is made and entered into as of January 10, 2000, by and between BISHOP EQUITIES, INC., dba AETHLON MEDICAL, a Nevada corporation
(the "Company") and RICHARD H. TULLIS ("Executive").

 

ARTICLE I

DUTIES AND TERM

 

1.1 EMPLOYMENT. In consideration of their
mutual covenants and other good and valuable consideration, the receipt, adequacy and sufficiency of which is hereby acknowledged,
the Company agrees to hire Executive, and Executive agrees to remain in the employ of the Company, upon the terms and conditions
herein provided.

 

1.2 POSITION AND RESPONSIBILITIES.

 

1.2.1 Executive shall serve as the Vice
President--Business Development of the Company and President of Aethlon, Inc., a wholly-owned subsidiary of the Company (or in
a capacity and with a title of at least substantially equivalent quality) reporting directly to Chief Executive Officer of the
Company. Executive agrees to perform services not inconsistent with his position as shall from time to time be assigned to him
by the Chief Executive Officer of the Company. Such services to be performed by Executive shall include, but not be limited to,
the following:

 

1.2.1.1 Management and supervision of government
grant proposals;

 

1.2.1.2 Technical due diligence for potential
acquisitions by the Company;

 

1.2.1.3 Liaison with the Company's scientific
staff and advisory board;

 

1.2.1.4 Scientific representation of the
Company to the financial community;

 

1.2.1.5 Identification of new business opportunities;
and

 

1.2.1.6 Management of the anticipated Cell
Activation subsidiary.

 

1.2.2 Executive further agrees to serve,
if elected, as a director of the Company and as an officer or director of any subsidiary or affiliate of the Company.

 

1.2.3 During the period of his employment
hereunder, Executive shall devote substantially all of his business time, attention, skill and efforts to the faithful performance
of his duties hereunder.

 

1.3 TERM. The term of Executive's employment under this Agreement shall commence on the date first above
written and shall continue, unless sooner terminated, until January 9, 2002, and it will continue thereafter for successive One
(1) year periods unless and until either party gives the other party written notice of termination at least Sixty (60) days prior
to the end of a term.

 

 

 

 

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ARTICLE II

COMPENSATION

 

For all services rendered by Executive in
any capacity during his employment under this Agreement, including, without limitation, services as a director, officer or member
of any committee of the Board of the Company or of the Board of Directors of any subsidiary or affiliate of the Company, the Company
shall compensate Executive as follows:

 

2.1 BASE SALARY. The Company shall pay to
Executive an annual base salary commencing January 10, 2000 of not less than $80,000.00 (the "Base Salary"). The Base
Salary shall be reviewed annually by the Board or a committee designated by the Board and the Board or such committee may, in its
discretion, increase the Base Salary.

 

2.2 INCENTIVE PAYMENT. During the period
of Executive's employment under this Agreement, the Executive shall be eligible to participate in an incentive compensation program
implemented by the Board (the "Annual Incentive Bonus") whereby Executive have the potential to earn an additional $30,000
per annum.

 

2.3 ADDITIONAL BENEFITS. Executive shall
be entitled to participate in all employee benefit and welfare programs, plans and arrangements (including, without limitation,
pension, profit-sharing, supplemental pension and other retirement plans, insurance, hospitalization, medical and group disability
benefits, travel or accident insurance plans) and to receive fringe benefits, such as dues and fees of professional organizations
and associations, which are from time to time available to the Company's executive personnel; PROVIDED, HOWEVER, there shall be
no duplication of termination or severance benefits, and to the extent that such benefits are specifically provided by the Company
to Executive under other provisions of this Agreement, the benefits available under the foregoing plans and programs shall be reduced
by any benefit amounts paid under such other provisions. Executive shall during the period of his employment hereunder continue
to be provided with benefits at a level which shall in no event be less in any material respect than the benefits made available
to Executive by the Company as of the date of this Agreement. Notwithstanding the foregoing, the Company may terminate or reduce
benefits under any benefit plans and programs to the extent such reductions apply uniformly to all Senior Executives entitled to
participate therein, and Executive's benefits shall be reduced or terminated accordingly. Specifically, without limitation, Executive
shall receive the following benefits:

 

2.3.1 HEALTH INSURANCE. The Company shall
provide Executive a monthly cash allowance for payment of health insurance premiums obtained by and for Executive (and Executive's
spouse and/or dependents) up to a maximum of Four Hundred Dollars ($400.00) per month. Executive must submit to the Company statements
showing the actual amount of the health insurance premiums, and the Company shall have the option to either pay the health insurance
premiums directly or to reimburse Executive for the health insurance premiums. The Company shall have the option to obtain a group
medical insurance plan which covers Executive in place and stead of providing this monthly cash allowance. However, in no event
shall Executive be entitled to a cash payment for any unused portion of the monthly allowance (i.e., if Executive's health insurance
premiums are $300.00 per month, Executive is not entitled to receive cash for the unused $100.00 portion of the allowance).

 

2.3.2 DISABILITY BENEFITS. In the event
of Executive's failure substantially to perform his duties hereunder on a full-time basis for a period not exceeding 180 consecutive
days or for periods aggregating not more than 180 days during any twelve-month period as a result of incapacity due to physical
or mental illness, the Company shall continue to pay the Base Salary to Executive during the period of such incapacity, but only
in the amounts and to the extent that disability benefits payable to Executive under Company-sponsored insurance policies are less
than Executive's Base Salary. Additionally, during the term of this Agreement, including any renewals hereof, the Company shall
procure and maintain, at its own expense, a long-term disability insurance policy for the benefit of Executive in the event of
Executive's total disability (as defined in Section 6.1).

 

 

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2.3.3 REIMBURSEMENT OF BUSINESS EXPENSES.
The Company shall, in accordance with standard Company policies, pay, or reimburse Executive for all reasonable travel and other
expenses incurred by Executive in performing his obligations under this Agreement.

 

2.3.4 VACATIONS. Executive shall be entitled
to twenty (20) business days excluding Company holidays, of paid vacation during each year of employment hereunder. Executive may
accrue and carry forward no more than ten (10) unused vacation days from any particular year of his employment under this Agreement
to the next.

 

ARTICLE III

TERMINATION OF EMPLOYMENT

 

3.1 DEATH OR RETIREMENT OF EXECUTIVE. Executive's
employment under this Agreement shall automatically terminate upon the death or retirement (as defined in Section 6.1) of Executive.

 

3.2 BY EXECUTIVE. Executive shall be entitled
to terminate his employment under this Agreement by giving Notice of Termination (as defined in Section 6.1) to the Company:

 

3.2.1 For good reason (as defined in Section
6.1);

 

3.2.2 At any time commencing with the date
six (6) months following the date of a change in control (as defined in Section 6.1) and ending with the date twelve (12) months
after the date of such change in control (a "Change in Control Resignation"); and

 

3.2.3 At any time without good reason.

 

3.3 BY COMPANY. The Company shall be entitled
to terminate Executive's employment under this Agreement by giving Notice of Termination (as defined in Section 6.1) to Executive:

 

3.3.1 In the event of Executive's total
disability (as defined in Section 6.1);

 

3.3.2 For cause (as defined in Section 6.1);
and

 

3.3.3 At any time without cause.

 

ARTICLE IV

COMPENSATION UPON TERMINATION OF EMPLOYMENT

 

If Executive's employment hereunder is terminated
in accordance with the provisions of Article III hereof except for any other rights or benefits specifically provided for herein
following his period of employment, the Company shall be obligated to provide compensation and benefits to Executive only as follows,
subject to the provisions of Section 5.4 hereof:

 

4.1 UPON TERMINATION FOR DEATH OR DISABILITY.
If Executive's employment hereunder is terminated by reason of his death or total disability, the Company shall:

 

4.1.1 Pay Executive (or his estate) or beneficiaries
any Base Salary Which has accrued but not been paid as of the termination date (the "Accrued Base Salary");

 

4.1.2 Pay Executive (or his estate) or beneficiaries
for unused vacation days accrued as of the termination date in an amount equal to his Base Salary multiplied by a fraction the
numerator of which is the number of accrued unused vacation days and the denominator of which is 360 (the "Accrued Vacation
Payment");

 

 

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4.1.3 Reimburse Executive (or his estate)
or beneficiaries for expenses incurred by him prior to the date of termination which are subject to reimbursement pursuant to this
Agreement (the "Accrued Reimbursable Expenses");

 

4.1.4 Provide to Executive (or his estate)
or beneficiaries any accrued and vested benefit required to be provided by the terms of any Company sponsored benefit plans or
programs (the "Accrued Benefits"), together with any benefits required to be paid or provided in the event of Executive's
death or total disability under applicable law;

 

4.1.5 Pay Executive (or his estate) or beneficiaries
any Annual Incentive Bonus with respect to a prior fiscal year which has accrued but has not been paid, plus a portion of the Annual
Incentive Bonus for the year in which Executive's employment is terminated hereunder computed at the end of the fiscal year and
pro rated to reflect the portion of the fiscal year that Executive was employed by the Company (collectively, the "Accrued
Annual Incentive Bonus"); and in addition,

 

4.1.6 Executive (or his estate) or beneficiaries
shall have the right to exercise all vested unexercised stock options and warrants outstanding at the termination date in accordance
with terms of the plans and agreements pursuant to which such options or warrants were issued.

 

4.2 UPON TERMINATION BY COMPANY FOR CAUSE
OR BY EXECUTIVE OTHER THAN FOR GOOD REASON. If Executive's employment is terminated by the Company for Cause, or if Executive terminates
his employment with the Company other than (x) upon Executive's death or total disability, (y) for good reason, or (z) pursuant
to a Change In Control Resignation (as defined in Section 3.2.2, the Company shall:

 

4.2.1 Pay Executive the Accrued Base Salary;

 

4.2.2 Pay Executive the Accrued Vacation
Payment;

 

4.2.3 Pay Executive the Accrued Reimbursable
Expenses;

 

4.2.4 Pay Executive the Accrued Benefits,
together with any benefits required to be paid or provided under applicable law;

 

4.2.5 Pay Executive any Annual Incentive
Bonus with respect to a prior fiscal year which has accrued but has not been paid; and in addition

 

4.2.6 Executive shall have the right to
exercise vested options and warrants in accordance with Section 4.1.6.

 

4.3 UPON TERMINATION BY THE COMPANY WITHOUT
CAUSE OR BY EXECUTIVE FOR GOOD REASON OR PURSUANT TO A CHANGE IN CONTROL RESIGNATION. If Executive's employment is terminated (i)
by the Company Without Cause, or (ii) by Executive for Good Reason, or (iii) pursuant to a Change in Control Resignation, the Company
shall:

 

4.3.1 Pay Executive the Accrued Base Salary;

 

4.3.2 Pay Executive the Accrued Vacation
Payment;

 

4.3.3 Pay Executive the Accrued Reimbursable
Expenses;

 

4.3.4 Pay Executive the Accrued Benefits,
together with any benefits required to be paid or provided under applicable law;

 

4.3.5 Pay Executive the Accrued Annual Incentive
Bonus;

 

4.3.6 Pay Executive commencing on the thirtieth
(30th) day following the termination date twelve (12) monthly payments equal to one-twelfth (1/12th) of Executive's Base Salary
in effect immediately prior to the time such termination occurs;

 

 

 

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4.3.7 Maintain in full force and effect,
for Executive's and his eligible beneficiaries' continued benefit, until the first to occur of (x) his attainment of alternative
employment or (y) twelve (12) months following the termination date of his employment hereunder the employee benefits provided
pursuant to Company-sponsored benefit plans. programs or other arrangements in which Executive was entitled to participate as a
full-time employee immediately prior to such termination in accordance with Section 2.4 hereof, subject to the terms and conditions
of such plans and programs (the "Continued Benefits"). If Executive's continued participation is not permitted under
the general terms and provisions of such plans, programs and arrangements, the Company shall arrange to provide Executive with
Continued Benefits substantially similar to those which Executive would have been entitled to receive under such plans, programs
and arrangements; and in addition

 

4.3.8 Executive shall have the right to
exercise all vested unexercised stock options and warrants in accordance with Section 4.1.6.

 

ARTICLE V

RESTRICTIVE COVENANTS

 

5.1 CONFIDENTIALITY.

 

5.1.1 Executive covenants and agrees to
hold in strictest confidence, and not disclose to any person without the express written consent of the Company, any and all of
the Company's proprietary information, as defined in Subparagraph 5.1.3 below, except as such disclosure may be required in connection
with his employment hereunder. This covenant and agreement shall survive this Agreement and continue to be binding upon Executive
after the expiration or termination of this Agreement, whether by passage of time or otherwise, so long as such information and
data shill remain proprietary information.

 

5.1.2 Upon expiration or termination of
this Agreement for any reason, Executive shall immediately turnover to the Company any "Proprietary Information." Executive
shall have no right to retain any copies of any material qualifying as Proprietary Information for any reason whatsoever after
expiration or termination of his employment hereunder without the express written consent of the Company.

 

5.1.3 For purposes of this Agreement, "Proprietary
Information" means and includes the following: the identity of clients or customers or potential clients or customers of the
Company or its affiliates; any written, typed or printed lists, or other materia1s identifying the clients or customers of the
Company or its affiliates; Research & Development programs, plans and discoveries; product development, marketing, and plans;
any business plans or strategic contracts, partnerships or alliances; any financial or other information supplied by clients or
customers of the Company or its affiliates; any and all data or information involving the Company, its affiliates, programs, methods
or contacts employed by the Company or its affiliates in the conduct of their business; any lists, documents. manuals, records,
forms or other materials used by the Company or its affiliates in the conduct of their business; any descriptive materials describing
the methods and procedures employed by the Company or its affiliates in the conduct of their business; and any other secret or
confidential information concerning the Company's or its affiliates' business or affairs. The terms "list," "document"
or their equivalents, as used in this Subparagraph (c), are not limited to a physical writing or compilation but also include any
and all information whatsoever regarding the subject matter of the "list" or "documents," whether or not such
compilation has been reduced to writing. "Proprietary Information" shall not include any information which: (i) is or
becomes publicly available through no act or failure of Executive; (ii) was or is rightfully learned by Executive from a source
other than the Company before being received from the Company; or (iii) becomes independently available to Executive as a matter
of right from a third party. If only a portion of the Proprietary Information is or becomes publicly available, then only than
portion shall not be Proprietary Information hereunder.

 

 

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5.1.4 Executive acknowledges that he is
the Vice President--Business Development of the Company and President of Aethlon, Inc. and in such capacity he will be a representative
of the Company with respect to clients and potential clients of the Company. Executive also acknowledges that he has had and will
continue to have access to confidential information about the Company, its affiliates, and their clients and that "Proprietary
Information" acquired by him at the expense of the Company is for use in its business. Executive has substantial experience
in the management of medical research and development and possesses special, unique, extraordinary skills and knowledge in this
field. Executive's management and scientific services to the Company are special, unique and extraordinary and the success or failure
of the Company is dependent upon his discharge of his duties and obligations. Accordingly, by execution of this Agreement, and
subject to Subparagraph 5.1.3 hereof, Executive agrees that during his employment with the Company and for a period of Two (2)
years immediately after termination of his employment with the Company (the "Non-Competition Period"), he shall not violate
the provisions of Section 5.2.

 

5.2 COMPETITION.

 

5.2.1 During the Non-Competition Period
specified in Section 5.1.4, Executive shall not:

 

5.2.1.1 Except as a passive investor in
publicly-held companies, and except for investments held as of the date hereof, directly or indirectly own, operate, mange, consult
with, control, participate in the management or control of, be employed by, maintain or continue any interest whatsoever in any
company that directly competes with the Company or any parent corporation, subsidiary corporations or affiliated entity or company
(hereinafter referred to as an "Affiliate") in the United States; or

 

5.2.1.2 Directly or indirectly solicit any
business of a nature that is directly competitive with the business of the Company or an Affiliate from any individual or entity
that obtained such products or services from the Company or its Affiliates at any time during his employment with the Company;
or

 

5.2.1.3 Directly or indirectly solicit any
business of a nature that is directly competitive with the business of the Company or an Affiliate from any individual or entity
solicited by him on behalf of the Company or its Affiliates; or

 

5.2.1.4 Employ, or directly or indirectly
solicit, or cause the solicitation of, any employees of the Company or its Affiliates who are in the employ of the Company or
its Affiliates on the termination date of his employment hereunder for employment by others.

 

5.2.2 Executive expressly agrees and
acknowledges that:

 

5.2.2.1 The Company and its Affiliates have
protected business interests throughout North America, Europe, and Asia and that competition with and against such business interests
would be harmful to the Company and/or its Affiliates;

 

5.2.2.2 This covenant not to compete is
reasonable as to time and geographical area and does not place any unreasonable burden upon him;

 

5.2.2.3 The general public will not be harmed
as a result of enforcement of this covenant not to compete;

 

5.2.2.4 He has had the opportunity to review
this covenant not to compete with his own independent legal counsel; and

 

 

 

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5.2.2.5 He understands and hereby agrees
to each and every term and condition of to this covenant not to compete (including, without limitation, the provisions of Section
5.4).

 

5.3 NON-DISPARAGEMENT. During the term of
this Agreement and the Non-Competition Period, neither Executive nor the Company shall disparage the other, and neither shall disclose
to any third party the conditions of Executive's employment with the Company except as may be required (1) pursuant to applicable
law or regulations, including the rules and regulations of the Securities and Exchange Commission, (ii) to effectuate the provisions
of employee plans or programs and insurance policies, or (iii) as may be otherwise contemplated herein or unless such information
becomes publicly available without fault of the party making such disclosure.

 

5.4 REMEDIES. Executive expressly agrees
and acknowledges that this covenant not to compete is necessary for the protection of the Company and its affiliates because of
the nature and scope of their business and his position with the Company. Further, Executive acknowledges that any breach of this
covenant not to compete would result in irreparable damage to the Company, and in the event of his breach of this covenant not
to compete, money damages will not sufficiently compensate the Company for its injury caused thereby, and that the remedy at law
for any breach or threatened breach of Sections 5.1, 5.2 and 5.3 will be inadequate and, accordingly agrees, that the Company shall,
in addition to all other available remedies (including without limitation, seeking such damages as it can show it has sustained
by reason of such breach), be entitled to injunctive relief or specific performance and that in addition to such money damages
he may be restrained and enjoined from any continuing breach of this covenant not to compete without any bond or other security
being required of any court. Executive further acknowledges and agrees that if the covenant not to compete herein is deemed to
be unenforceable and/or the Executive fails to comply with this Article V, the Company has no obligation to provide any compensation
or other benefits described in Article IV hereof.

 

5.5 OWNERSHIP OF INVENTIONS.

 

5.5.1 During the employment by the Company,
Executive will have access to trade secrets, data, know-how, knowledge or other confidential information originated in the Company
or disclosed to the Company by others under agreements to hold the same confidential (collectively referred to as "Confidential
Information"). Executive acknowledges that Confidential Information includes any information not readily available to the
public, and includes not only technical information but also business information. In addition, Executive may, during the period
of employment, create, make, develop or conceive inventions, discoveries, concepts, ideas, designs, works of authorship, developments,
information, improvements, or trade secrets, whether patentable or not, and whether solely or jointly with others, which may or
may not also constitute Confidential Information (collectively referred to as "Inventions"). Executive agrees that all
works of authorship to which Executive contributes shall be considered "works made for hire" and shall be the sole property
of the Company.

 

5.5.2 Executive agrees that Executive will
neither utilize any Confidential Information for Executive's own benefit or for the benefit of anyone except the Company, nor disclose,
disseminate, lecture upon or publish articles about any Confidential Information to any one outside the Company, or to any officer
or employee of the~ Company not also having access to Confidential Information, at any time either during or after employment by
the Company.

 

 

    	 	12	 

     

    

 

 

5.5.3 Executive agrees to disclose promptly,
in writing to Executive's Supervisor, Company's Counsel and Chief Executive Officer, any Inventions that Executive may make, develop
or conceive, solely or jointly, during the period of employment by the Company, or by its predecessors, successors in business,
subsidiaries, parents or affiliates. All such Inventions shall be and remain the property of the Company. Executive hereby assigns
to the Company all Executive's rights, titles and interests in and to any such Inventions, whether or not such Inventions may
be reduced to practice during the period of Executive's employment, and to execute all patent or copyright applications, assignments
and other documents, and to take all other steps necessary, to vest in the Company the entire right, title and interest in and
to those Inventions and in and to any patents or copyrights obtainable therefor in the United States and in foreign countries,
all at the Company's expense, but for no consideration to Executive in addition to Executive's salary or wages. Executive agrees
to keep adequate records of all Inventions and make such records available to the Company.

 

5.5.4 If the Company chooses to prosecute
applications for patents or copyrights for any such Inventions, the Company shall assume the entire expense of preparing, filing
and prosecuting such applications, through counsel appointed by the Company; provided, however, that the Company is under no obligation
to prosecute such applications. Executive agrees to cooperate with the Company and do whatever is necessary or appropriate to
obtain patents, copyrights or other legal protections for Inventions. If Executive is incapacitated or refuses to so cooperate
for any reason, Executive hereby authorizes the Company to act as Executive's agent and to take whatever actions, or execute whatever
documents, may be needed to carry out this Agreement.

 

5.5.5 All records and other material pertaining
to Confidential Information, whether developed by Executive or others, shall be and remain the property of the Company. Upon termination
of Executive's employment with the Company, all documents, records, notebooks and other material of any kind pertaining to or containing
Confidential Information then in Executive's possession, or under Executive's control, whether prepared by Executive or others,
will be returned to the Company unconditionally.

 

5.5.6 Executive shall not be obligated to
assign any Invention which/relates to or would be useful in any business or activities in which the Company is engaged if such
Invention was conceived and reduced to practice by Executive prior to Executive's employment with the Company, provided that all
such Inventions are listed at the time of employment on the attached Exhibit "B." If no entry is made on Exhibit `B,"
then such entry shall be deemed to be "none," whether or not Exhibit "B" is signed by Executive. Except as
listed on Exhibit "B," Executive will not assert any rights to any Inventions, as having been made or acquired by Executive
prior to being employed by the Company.

 

5.5.7 Executive shall not be obligated to
assign any Invention which may be wholly conceived by Executive after Executive leaves the employ of the Company, except that Executive
is so obligated if such Invention shall involve the utilization of Confidential Information of the Company.

 

5.5.8 Notwithstanding anything in this Agreement
to the contrary, Executive shall not be obligated to assign to the Company and of Executive's rights in an Invention that the Executive
developed entirely on Executive's own time without using the Company's equipment, supplies, facilities or Confidential Information,
except for those Inventions that either: (i) relate, at the time of conception or reduction to practice of Invention, to either
the Company's business, or actual or demonstrably anticipated research or development of the Company, or (ii) result from any work
performed by the Executive for the Company. THIS AGREEMENT DOES NOT APPLY TO ANY INVENTION WHICH QUALIFIES FULLY UNDER THE PROVISIONS
OF CALIFORNIA LABOR CODE SECTION 2870 OR ANY OTHER SUBSTANTIALLY EQUIVALENT LAW IN THE STATE IN WHICH THE EXECUTIVE IS EMPLOYED.
With regard to those Inventions which Executive is not obligated to assign to the Company, Executive shall give the Company a right
of first refusal on any and all such Inventions and the right to meet any firm offer of another for such Inventions. The Company
must exercise such right of first refusal within thirty (30) days of receipt of written notice from Executive setting forth such
offer.

 

 

 

    	 	13	 

     

    

 

ARTICLE VI

MISCELLANEOUS

 

6.1 DEFINITIONS. For purposes of this Agreement,
the following terms shall have the following meanings:

 

6.1.1 "Accrued Annual Incentive Bonus"
- as defined in Section 4.1.5;

 

6.1.2 "Accrued Base Salary" -
as defined in Section 4.1.1;

 

6.1.3 "Accrued Benefits" - as
defined in Section 4.1.4;

 

6.1.4 "Accrued Reimbursable Expenses"
- as defined in Section 4.1.3;

 

6.1.5 "Annual Vacation Payment" - as defined in Section 4.1.2;

 

6.1.6 "Annual Incentive Bonus"
- as defined in Section 2.2;

 

6.1.7 "Base Salary" - as defined
in Section 2.1;

 

6.1.8 "Board" - shall mean the
Board of Directors of the Company ;

 

6.1.9 "Cause" shall mean the occurrence
of any of the following:

 

6.1.9.1 Executive's gross and willful misconduct
which is injurious to the Company;

 

6.1.9.2 Executive's engaging in fraudulent
conduct with respect to the Company's business or in conduct of a criminal nature that may have an adverse impact on the Company's
standing and reputation;

 

6.1.9.3 The continued and unjustified failure
or refusal by Executive to perform the duties required of him by this Agreement which failure or refusal shall not be cured within
fifteen (15) days following (a) receipt of Executive of written notice from the Board specifying the factors or events constituting
such failure or refusal, and (b) a reasonable opportunity for Executive to correct such deficiencies;

 

6.1.9.4 Executive's use of drugs and/or
alcohol in violation of then current Company policy; or

 

6.1.9.5 Executive's breach of his obligation
under Section 1.2.3 hereof which shall not be cured within fifteen (15) days after written notice thereof to Executive.

 

6.1.10 "Change In Control" shall
mean and shall be deemed to have occurred if:

 

6.1.10.1 After the date of this Agreement,
any "person" (as such term is used in Section 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), or any successor provision thereto) shall become the beneficial owner (within the meaning of Rule 13d-3
under the Exchange Act or any successor provision thereof) directly or indirectly of securities of the Company representing fifteen
percent (15%) or more of the combined voting power of the Company's then outstanding securities ordinarily having the right to
vote at an election of directors; PROVIDED, HOWEVER, that, for purposes of this Subparagraph, "person" shall exclude
the Company, its subsidiaries, any person acquiring such securities directly from the Company, any employee benefit plan sponsored
by the Company or from Executive or any stockholder owning fifteen percent (15%) or more of the combined voting power of the Company's
outstanding securities as of the date of this Agreement; or

 

 

 

    	 	14	 

     

    

 

6.1.10.2 Any stockholder of the Company
owning fifteen percent or more of the combined voting power of the Company's outstanding securities as of the date of this Agreement
shall become the beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act) directly or indirectly of securities
of the Company (other than through the acquisition of securities directly from the Company or from Executive) representing thirty-three
and one-third percent (33 1/3%) or more of the combined voting power of the Company's then outstanding securities ordinarily having
the right to vote at an election of directors; or

 

6.1.10.3 Individuals who, as of the date
hereof, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least eighty percent (80%)
of the Board; provided, however, that any person becoming a member of the Board subsequent to the date hereof whose election, or
nomination for election by the Company's stockholders, was approved by a vote of at least eighty percent (80%) of the members then
comprising the Incumbent Board (other than an election or nomination of an individual whose initial assumption of office is in
connection with an actual or threatened election contest relating to the election of directors of the Company, as such terms are
used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act or any successor provision thereto) shall be, for purposes
of this Agreement, considered as though such person were a member of the Incumbent Board; or

 

6.1.10.4 Approval by the stockholders of
the Company and consummation of (a) a reorganization, merger, consolidation, or sale or other disposition of all or substantially
all of the assets of the Company, in each case, with or to a corporation or other person or entity of which persons who were the
stockholders of the Company immediately prior to such transaction do not, immediately thereafter, own more than sixty percent (60%)
of the combined voting power of the outstanding voting securities entitled to vote generally in the election of directors of the
reorganized, merged, consolidated or purchasing corporation (or, in the case of a noncorporate person or entity) were not members
of the Incumbent Board at the time of the execution of the initial agreement providing for such reorganization, merger, consolidation
or sale, or (b) a liquidation or dissolution of the Company.

 

6.1.11 "Change In Control Resignation"
- as defined in Section 3.2.2;

 

6.1.12 "Continued Benefits" - as defined in Section 4.3.7;

 

6.1.13 "Expiration" shall mean
the expiration of Executive's employment hereunder in accordance with Section 1.3;

 

6.1.14 "Good Reason" shall mean
the occurrence of any of the following:

 

6.1.14.1 The Company's failure to elect
or reelect or to appoint or reappoint Executive to offices, titles or positions carrying comparable authority, responsibilities,
dignity and importance to that of Executive's offices and positions as of January 10, 2000;

 

6.1.14.2 Material change by the Company
in Executive's function, duties or responsibilities (including reporting responsibilities) which would cause Executive's position
with the Company to become of less dignity, responsibility and importance than those associated with his functions, duties or responsibilities
as of January 10, 2000; or

 

6.1.14.3 Other material breach of this Agreement
by the Company, which breach is not cured within fifteen (15) days after written notice thereof is, received by the Company.

 

6.1.15 "Non-Competition Period"
- as defined in Section 5.1.4;

 

 

 

 

    	 	15	 

     

    

 

6.1.16 "Notice of Termination"
shall mean a notice which shall indicate the specific termination provision of this Agreement relied upon and shall set forth in
reasonable detail the facts and circumstances claimed to provide a basis for termination of Executive's employment under the provisions
so indicated. Each Notice of Termination shall be delivered at least sixty (60) days prior to the effective date of termination;

 

6.1.17 "Proprietary Information"
- as defined in Section 5.1.3;

 

6.1.18 "Retirement" shall mean
normal retirement at age as determined by the Board;

 

6.1.19 "Senior Executives" shall
mean the chief executive officer and the four (4) most highly compensated executive officers of the Company determined in accordance
with the rules and regulations of the Securities and Exchange Commission under the Exchange Act;

 

6.1.20 "Termination" shall mean
the termination of Executive's employment hereunder other than upon expiration of the term of such employment in accordance with
Section 1.3;

 

6.1.21 "Total Disability" shall
mean Executive's failure substantially to perform his duties hereunder on a full-time basis for a period exceeding one hundred
eighty (180) consecutive days or for periods aggregating more than 180 days during any twelve-month period as a result of incapacity
due to physical or mental illness. If there is a dispute as to whether Executive is or was physically or mentally unable to perform
his duties under this Agreement, such dispute shall be submitted for resolution to a licensed physician agreed upon by the Board
and Executive, or if an agreement cannot be promptly reached, the Board and Executive each shall promptly select a physician, and
if these physicians cannot agree, the physicians shall promptly select a third physician whose decision shall be binding on all
parties. If such a dispute arises, Executive shall submit to such examinations and shall provide such information as such physician(s)
may request, and the determination of the physician(s) as to Executive's physical or mental condition shall be binding and conclusive.
Notwithstanding the foregoing, if Executive participates in any group disability plan provided by the Company which offers long-term
disability benefits, "Total Disability" shall mean total disability as defined therein.

 

6.2 KEY MAN INSURANCE. The Company shall
have the right, in its sole discretion, to purchase "key man" insurance on the life of Executive. The Company shall be
the owner and beneficiary of any such policy. If the Company elects to purchase a policy, Executive shall take such physical examinations
and supply such information as may be reasonably requested by the insurer.

 

6.3 MITIGATION OF DAMAGES; NO SET-OFF; DISPUTE
RESOLUTION.

 

6.3.1 Executive shall not be required to
mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise, nor shall the amount
of any payment provided for in this Agreement be reduced by any compensation earned by Executive as the result of employment by
another employer after the date of termination of his employment hereunder or otherwise. The Company's obligation to make the payments
provided for in this Agreement shall not be affected by any set-off, counterclaim, recoupment, defense or other claim or action
which the Company may have against Executive.

 

 

 

    	 	16	 

     

    

 

 

6.3.2 If there shall be any dispute between
the Company and Executive (i) in the event of any termination of Executive's employment by the Company, whether such termination
was for Cause, or (ii) in the event of any termination of employment by Executive, whether Good Reason existed, or (iii) otherwise,
the dispute shall be resolved in accordance with the dispute resolution procedures set forth in Exhibit "A" hereto, the
provisions of which are incorporated as a part hereof, and the parties hereto hereby agree that such dispute resolution procedures
shall be the exclusive method for resolution of disputes under this Agreement. In the event of a dispute hereunder as to whether
a termination by the Company was for Cause or by the Executive for Good Reason, until there is a resolution and award as provided
in Exhibit "A," the Company shall pay all amounts, and provide all benefits, to Executive and/or Executive's family or
other beneficiaries, as the case may be, that the Company would be required to pay or provide hereunder as though such termination
were by the Company without Cause or by Executive for Good Reason and shall pay the reasonable legal fees and expenses of counsel
for Executive in connection with such dispute resolution; provided, however, that the Company shall not be required to pay any
disputed amounts or any legal fees and expenses pursuant to this Subparagraph (b) except upon receipt of a written undertaking
by or on behalf of Executive (and/or Executive's family or other beneficiaries, as the case may be) to repay, without interest
or penalty, as soon as practicable after completion of the dispute resolution (A) all such amounts to which Executive (or Executive's
family or other beneficiaries, as the case may be) is ultimately adjudged to not be entitled with respect to the payment of such
disputed amount(s) and (B) in addition, in the case of legal fees and expenses, a proportionate amount of legal fees and expenses
attributable to any of Executive's claim(s) or any of Executive's defenses or counter-claim(s), if any, which shall have been found
by the dispute resolver to have been frivolous or without merit.

 

6.4 SUCCESSORS; BINDING AGREEMENT. This
Agreement shall be binding upon any successor to the Company and shall inure to the benefit of and be enforceable by Executive's
personal or legal representatives, beneficiaries, designees, executors, administrators, heirs, distributees, devisees and legatees.

 

6.5 MODIFICATION; NO WAIVER. This Agreement
may not be modified or amended except by an instrument in writing signed by the parties hereto. No term or condition of this Agreement
shall be deemed to have been waived, nor shall there be any estoppel against the enforcement of any provision of this Agreement,
except by written instrument by the party charged with such waiver or estoppel. No such written waiver shall be deemed a continuing
waiver unless specifically stated therein, and each such waiver shall operate only as to the specific term or condition waived
and shall not constitute a waiver of such term or condition for the future or as to any other term or condition.

 

6.6 SEVERABILITY. The covenants and agreements
contained herein are separate and severable and the invalidity or unenforceability of any one or more of such covenants or agreements,
if not material to the employment arrangement that is the basis for this Agreement, shall not affect the validity or enforceability
of any other covenant or agreement contained herein. If, in any judicial proceeding, a court shall refuse to enforce one or more
of the covenants or agreements contained herein because the duration thereof is too long, or the scope thereof is too broad, it
is deemed reduced to the extent necessary to permit the enforcement of such covenants or agreements.

 

6.7 NOTICES. All the notices and other communications
required or permitted hereunder shall be in writing and shall be delivered personally or sent by registered or certified mail,
return receipt requested, to the parties hereto at the following addresses:

 

If to the Company, to it at:

 

Bishop Equities, Inc. dba Aethlon Medical

7825 Fay Avenue

Suite 200

La Jolla, California 92037

 

If Executive, to him at:

 

Mr. Richard H. Tullis

7825 Fay Avenue

Suite 200

La Jolla, California 92037

 

 

 

 

    	 	17	 

     

    

 

6.8 ASSIGNMENT. This Agreement and any rights
hereunder shall not be assignable by either party without the prior written consent of the other party except as otherwise specifically
provided for herein.

 

6.9 ENTIRE UNDERSTANDING. This Agreement
(together with the Exhibit incorporated as a part hereof) constitutes the entire understanding between the parties hereto and no
agreement, representation, warranty or covenant has been made by either party except as expressly set forth herein.

 

6.10 EXECUTIVE'S REPRESENTATIONS. Executive
represents and warrants that neither the execution and delivery of this Agreement nor the performance of his duties hereunder violates
the provisions of any other agreement to which he is a party or by which he is bound.

 

6.11 LIABILITY OF COMPANY WITH RESPECT TO
INSURANCE POLICY. Executive has selected the insurer and policy referred to in Section 2.4(a) hereof, and the Company shall not
have any liability to Executive (or his beneficiaries) should the insurance company which issues the policy referred to therein
fail or refuse to pay (whether voluntarily or by reason of any order, injunction or otherwise) thereunder or if any rights or elections
otherwise available to Executive thereunder are restricted or eliminated.

 

6.12 GOVERNING LAW. This Agreement shall
be construed in accordance with and governed for all purposes by the laws of the State of California applicable to contracts executed
and wholly performed within such state.

 

IN WITNESS WHEREOF, the parties hereto
have duly executed this Agreement as of the day and year first above written.

 

COMPANY

 

BISHOP EQUITIES, INC., a Nevada

corporation dba Aethlon Medical

 

By: /s/ Franklyn S. Barry,
Jr.              

Franklyn S. Barry, Jr.

Its President and C.E.O.

 

 

EXECUTIVE

 

/s/ Richard H. Tullis                          

RICHARD
H. TULLIS

 

 

 

 

 

    	 	18	 

     

    

 

 

EXHIBIT "A"

DISPUTE RESOLUTION PROCEDURES

 

A. If a controversy should arise which is
covered by Section 6.3 of Article VI, then not later than twelve (12) months from the date of the event which is the subject of
dispute either party may serve on the other a written notice specifying the existence of such controversy and setting forth in
reasonably specific detail the grounds thereof ("Notice of Controversy"); PROVIDED that, in any event, the other party
shall have at least thirty (30) days from and after the date of the Notice of Controversy to serve a written notice of any counterclaim
("Notice of Counterclaim"). The Notice of Counterclaim shall specify the claim or claims in reasonably specific detail.
If the Notice of Controversy or the Notice of Counterclaim, as the case may be, is not served within the applicable period, the
claim set forth therein will be deemed to have been waived, abandoned and rendered unenforceable.

 

B. Following receipt of the Notice of Controversy
(or the Notice of Counterclaim, as the case may be), there shall be a three (3) week period during which the parties will make
a good faith effort to resolve the dispute through negotiation ("Period of Negotiation"). Neither party shall take any
action during the Period of Negotiation to initiate arbitration proceedings.

 

C. If the parties should agree during the
Period of Negotiation to mediate the dispute, then the Period of Negotiation shall be extended by an amount of time to be agreed
upon by the parties to permit such mediation. In no event, however, may the Period of Negotiation be extended by more than five
(5) weeks or, stated differently, in no event may the Period of Negotiation be extended to encompass more than a total of eight
(8) weeks.

 

D. If the parties agree to mediate the dispute
but are thereafter unable to agree within one (1) week on the format and procedures for the mediation, then the effort to mediate
shall cease, and the Period of Negotiation shall terminate four (4) weeks from the Notice of Controversy (or the Notice of Counterclaim,
as the case may be).

 

E. Following the termination of the Period
of Negotiation, the dispute (including the main claim and counterclaim, if any) shall be settled by arbitration, and judgment upon
the award may be entered in any court having jurisdiction thereof. The format and procedures of the arbitration are set forth below
(referred to below as the "Arbitration Agreement").

 

F. A notice of intention to arbitrate ("Notice
of Arbitration") shall be served within forty-five (45) days of the termination of the Period of Negotiation. If the Notice
of Arbitration is not served within this period, the claim set forth in the Notice of Controversy (or the Notice of Counterclaim,
as the case may be) will be deemed to have been waived, abandoned and rendered unenforceable.

 

G. The arbitration, including the Notice
of Arbitration, will be governed by the Commercial Rules of the American Arbitration Association except that the terms of this
Arbitration Agreement shall control in the event of any difference or conflict between such Rules and the terms of this Arbitration
Agreement. The arbitration shall be scheduled to take place in San Diego, California.

 

H. The dispute resolver shall reach a decision
on the merits on the basis of applicable legal principles as embodied in the law of the State of California.

 

 

 

    	 	19	 

     

    

 

I. There shall be one dispute resolver,
regardless of the amount in controversy. The dispute resolver will be empowered to render an award and interim decisions and shall
be a member of the bar of any of the fifty States of the United States or of the District of Columbia. The dispute resolver shall
be promptly appointed pursuant to Rule 13 of the Commercial Rules of the American Arbitration Association ("AAA"). If
the dispute resolver has not been appointed within forty-five (45) days of the AAA's initial transmission of lists of potential
arbitrators, then the AAA shall unilaterally designate the dispute resolver.

 

J. At the time of appointment and as a condition
thereto, the dispute resolver will be apprised of the time limitations and other provisions of this Arbitration Agreement and shall
indicate such dispute resolver's agreement to the Tribunal Administrator to comply with such provisions and time limitations.

 

K. During the 30-day period following appointment
of the dispute resolver, either party may serve on the other a request for limited numbers of documents directly related to the
dispute. Such documents will be produced within seven (7) days of the request.

 

L. Following the 30-day period of document
production, there will be a forty-five (45) day period during which limited depositions will be permissible. Neither party will
take more than five (5) depositions, and no deposition will exceed three (3) hours of direct testimony.

 

M. Disputes as to discovery or prehearing
matters of a procedural nature shall be promptly submitted to the dispute resolver pursuant to telephone conference call or otherwise.
The dispute resolver shall make every effort to render a ruling on such interim matters at the time of the hearing (or conference
call) or within five (5) business days thereafter.

 

N. Following the promptly commence. The
dispute hearing within thirty (30) days of the will make every effort to conduct the period of depositions, the arbitration hearing
shall resolver will make every effort to commence the conclusion of the deposition period and, in addition, hearing on consecutive
business days to conclusion.

 

O. An award will be rendered, at the latest,
within nine (9) months of the date of the Notice of Arbitration and within thirty (30) days of the close of the arbitration hearing.
The award shall set forth the grounds for the decision in reasonably specific detail and shall also specify whether any claim (or
defense or counterclaim) of Executive is found to be frivolous or without merit and what proportion, if any, of his legal fees
and expenses which have been paid by the Company Executive shall be required to repay to the Company in accordance with Section
6.3.2. The award shall be final and nonappealable.

 

 

 

 

    	 	20	 

     

    

 

P. THE PARTIES HEREBY ACKNOWLEDGE AND AGREE
THAT THEY ARE WAIVING THEIR RIGHTS TO A TRIAL IN A STATE OR FEDERAL COURT AND ARE ALSO WAIVING THEIR RIGHT TO A JURY TRIAL.

 

 

	 	COMPANY	 	EXECUTIVE
	 	 	 	 
	 	BISHOP EQUITIES, INC.,	 	 
	 	a Nevada corporation dba	 	 
	 	Aethlon Medical	 	 
	 	 	 	 
	 	 	 	 
	 	By: /s/ Franklyn S. Barry, Jr.               	 	/s/ Richard H. Tullis             
	 	Franklyn S. Barry, Jr.	 	Richard H. Tullis
	 	Its: President and C.E.O.	 	 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    	 	21ex1040.htm

NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS.   THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER), IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT.  NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.

Principal Amount: $80,000.00                                                                                                Issue Date: October 31, 2015

Debt Settlement Price: $80,000.00

CONVERTIBLE PROMISSORY NOTE

Grid Petroleum Corporation, a Nevada  corporation (hereinafter  called  the “Borrower”),  hereby  promises  to  pay  to  the  order  of  Direct Capital Group, Inc., a Nevada corporation, or registered assigns (the “Holder”) the sum of $80,000.00 together with any interest as set forth herein, on April 30, 2016 (the “Maturity Date”), and to pay interest on the unpaid principal balance hereof at the rate of eight percent (8%) (the “Interest Rate”) per annum from the date hereof (the “Issue Date”) until the same becomes due and payable, whether at maturity or upon acceleration or by prepayment or otherwise.  This Note may not be prepaid in whole or in part except as otherwise explicitly set forth herein. Any amount of principal or interest on this Note, which is not paid when due shall bear interest at the rate of twenty two percent (22%) per annum from the due date thereof until the same is paid (“Default Interest”).  Interest shall commence accruing on the date that the Note is fully paid and shall be computed on the basis of a 365-day year and the actual number of days elapsed.  All payments due hereunder (to the extent not converted into Common free trading stock, $0.00001par value per share (the “Common Stock”) in accordance with the terms hereof) shall be made in lawful money of the United States of America.  All payments shall be made at such address as the Holder shall hereafter give to the Borrower by written notice made in accordance with the provisions of this Note.  Whenever any amount expressed to be due by the terms of this Note is due on any day which is not a business day, the same shall instead be due on the next succeeding day which is a business day and, in the case of any interest payment date which is not the date on which this Note is paid in full, the extension of the due date thereof shall not be taken into account for purposes of determining the amount of interest due on such date.  As used in this Note, the term “business day” shall mean any day other than a Saturday, Sunday or a day on which commercial banks in the city of Las Vegas, Nevada are authorized or required by law or executive order to remain closed.  Each capitalized term used herein, and not otherwise defined, shall have the meaning ascribed thereto in that certain Securities Debt Settlement Agreement dated the date hereof, pursuant to which this Note was originally issued (the “Debt Settlement Agreement”).

This Note is free from all taxes, liens, claims and encumbrances with respect to the issue thereof and shall not be subject to preemptive rights or other similar rights of shareholders of the Borrower and will not impose personal liability upon the holder thereof.

The following terms shall apply to this Note:

ARTICLE I. CONVERSION RIGHTS

1.1           Conversion Right.  The Holder shall have the right from time to time, and at any time during the period beginning on the date, which is one hundred eighty (180) days, following the dates listed for each invoice listed in Exhibit B.  The Maturity Date for invoice in the amount of $80,000.00, April 30, 2016 (i) the Maturity Date and (ii) the date of payment of the Default Amount (as defined in Article III) pursuant to Section 1.6(a) or Article III, each in respect of the remaining outstanding principal amount of this Note to convert all or any part of the outstanding and unpaid principal amount of this Note into fully paid and non-assessable shares of Common Stock, as such Common Stock exists on the Issue Date, or any shares of capital stock or other securities of the Borrower into which such Common Stock shall hereafter be changed or reclassified at the conversion price (the “Conversion Price”) determined as provided herein (a “Conversion”); provided, however, that in no event shall the Holder be entitled to convert any portion of this Note in excess of that portion of this Note upon conversion of which the sum of (1) the number of shares of Common Stock beneficially owned by the Holder and its affiliates (other than shares of Common Stock which may be deemed beneficially owned through the ownership of the unconverted portion of the Notes or the unexercised or unconverted portion of any other security of the Borrower subject to a limitation on conversion or exercise analogous to the limitations contained herein) and (2) the number of shares of Common Stock issuable upon the conversion of the portion of this Note with respect to which the determination of this proviso is being made, would result in beneficial ownership by the Holder and its affiliates of more than 4.99% of the outstanding shares of Common Stock.

For purposes of the proviso to the immediately preceding sentence, beneficial ownership shall be determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended  (the “Exchange Act”), and  Regulations 13D-G  thereunder, except  as  otherwise provided in clause (1) of such proviso, provided, further, however, that the limitations on conversion may be waived by the Holder upon, at the election of the Holder, not less than 61 days’ prior notice to the Borrower, and the provisions of the conversion limitation shall continue to apply until such 61st day (or such later date, as determined by the Holder, as may be specified in such notice of waiver).  The number of shares of Common Stock to be issued upon each conversion of this Note shall be determined by dividing the Conversion Amount (as defined below) by the applicable Conversion Price then in effect on the date specified in the notice of conversion, in the form attached hereto as Exhibit A (the “Notice of Conversion”), delivered to the Borrower by the Holder in accordance with Section 1.4 below; provided that the Notice of Conversion is submitted by facsimile or e-mail (or by other means resulting in, or reasonably expected to result in, notice) to the Borrower before 6:00 p.m., Las Vegas, Nevada time on such conversion date (the “Conversion Date”).

The term “Conversion Amount” means, with respect to any conversion of this Note, the sum of (1) the principal amount of this Note to be converted in such conversion plus (2) at the Borrower’s option, accrued and unpaid interest, if any, on such principal amount at the interest rates provided in this Note to the Conversion Date, plus (3) at the Borrower’s option, Default Interest, if any, on the amounts referred to in the immediately preceding clauses (1) and/or (2) plus (4) at the Holder’s option, any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof.

1.2           Conversion Price.

(a)           Calculation of Conversion Price.  The  conversion  price (the “Conversion Price”) shall equal the Variable Conversion Price (as defined herein) (subject to equitable adjustments for stock splits, stock dividends or rights offerings by the Borrower relating to the Borrower’s securities or the securities of any subsidiary of the Borrower, combinations, recapitalization, reclassifications, extraordinary distributions and similar events).  The "Conversion Price" shall mean par .00001 multiplied by the number of Common Stock converted at the time.

  

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(b)           Conversion Price During Major Announcements.  Notwithstanding anything contained in Section 1.2(a) to the contrary, in the event the Borrower (i) makes a public announcement that it intends to consolidate or merge with any other corporation (other than a merger in which the Borrower is the surviving or continuing corporation and its capital stock is unchanged) or sell or transfer all or substantially all of the assets of the Borrower or (ii) any person, group or entity (including the Borrower) publicly announces a tender offer to Purchase 50% or more of the Borrower’s Common Stock (or any other takeover scheme) (the date of the announcement referred to in clause (i) or (ii) is hereinafter referred to as the “Announcement Date”), then the Conversion Price shall, effective upon the Announcement Date and continuing through the Adjusted Conversion Price Termination Date (as defined below), be equal to the lower of (x) the Conversion Price which would have been applicable for a Conversion occurring on the Announcement Date and (y) the Conversion Price that would otherwise be in effect. From and after the Adjusted Conversion Price Termination Date, the Conversion Price shall be determined as set forth in this Section 1.2(a).  For purposes hereof, “Adjusted Conversion Price Termination Date” shall mean, with respect to any proposed transaction or tender offer (or takeover scheme) for which a public announcement as contemplated by this Section 1.2(b) has been made, the date upon which the Borrower (in the case of clause (i) above) or the person, group or entity (in the case of clause (ii) above) consummates or publicly announces the termination or abandonment of the proposed transaction or tender offer (or takeover scheme) which caused this Section 1.2(b) to become operative.

1.3           Authorized Shares.  The Borrower covenants that during the period the conversion right exists, the Borrower will reserve from its authorized and unissued Common Stock a sufficient number of shares, free from preemptive rights, to provide for the issuance of Common Stock upon the full conversion of this Note issued pursuant to the Debt Settlement Agreement.  The Borrower is required at all times to have authorized and reserved two times the number of shares that is actually issuable upon full conversion of the Note (based on the Conversion Price of the Notes in effect from time to time)(the “Reserved Amount”).

The Reserved Amount shall be increased from time to time in accordance with the Borrower’s obligations pursuant to Section 4(g) of the Debt Settlement Agreement.  The Borrower represents that upon issuance, such shares will be duly and validly issued, fully paid and non-assessable.  In addition, if the Borrower shall issue any securities or make any change to its capital structure which would change the number of shares of Common Stock into which the Notes shall be convertible at the then current Conversion Price, the Borrower shall at the same time make proper provision so that thereafter there shall be a sufficient number of shares of Common Stock authorized and reserved, free from preemptive rights, for conversion of the outstanding Notes.  The Borrower (i) acknowledges that it has irrevocably instructed its transfer agent to issue certificates for the Common Stock issuable upon conversion of this Note, and (ii) agrees that its issuance of this Note shall constitute full authority to its officers and agents who are charged with the duty of executing stock certificates to execute and issue the necessary certificates for shares of Common Stock in accordance with the terms and conditions of this Note.

If, at any time the Borrower does not maintain the Reserved Amount it will be considered an Event of Default under Section 3.2 of the Note.

1.4           Method of Conversion.

(a)           Mechanics of Conversion.  Subject to Section 1.1, this Note may be converted by the Holder in whole or in part at any time from time to time after the Issue Date, by (A) submitting to the Borrower a Notice of Conversion (by facsimile, e-mail or other reasonable means of communication dispatched on the Conversion Date prior to 6:00 p.m., Las Vegas, Nevada time) and (B) subject to Section 1.4(b), surrendering this Note at the principal office of the Borrower.

(b)           Surrender of Note Upon Conversion.  Notwithstanding anything to the contrary set forth herein, upon conversion of this Note in accordance with the terms hereof, the Holder shall not be required to physically surrender this Note to the Borrower unless the entire unpaid principal amount of this Note is so converted.  The Holder and the Borrower shall maintain records showing the principal amount so converted and the dates of such conversions or shall use such other method, reasonably satisfactory to the Holder and the Borrower, so as not to require physical surrender of this Note upon each such conversion.  In the event of any dispute or discrepancy, such records of the Borrower shall, prima facie, be controlling and determinative in the absence of manifest error.  Notwithstanding the foregoing, if any portion of this Note is converted as aforesaid, the Holder may not transfer this Note unless the Holder first physically surrenders this Note to the Borrower, whereupon the Borrower will forthwith issue and deliver upon the order of the Holder a new Note of like tenor, registered as the Holder (upon payment by the Holder of any applicable transfer taxes) may request, representing in the aggregate the remaining unpaid principal amount of this Note.  The Holder and any assignee, by acceptance of this Note, acknowledge and agree that, by reason of the provisions of this paragraph, following conversion of a portion of this Note, the unpaid and unconverted principal amount of this Note represented by this Note may be less than the amount stated on the face hereof.

(c)           Payment of Taxes.  The Borrower shall not be required to pay any tax which may be payable in respect of any transfer involved in the issue and delivery of shares of Common Stock or other securities or property on conversion of this Note in a name other than that of the Holder (or in street name), and the Borrower shall not be required to issue or deliver any such shares or other securities or property unless and until the person or persons (other than the Holder or the custodian in whose street name such shares are to be held for the Holder’s account) requesting the issuance thereof shall have paid to the Borrower the amount of any such tax or shall have established to the satisfaction of the Borrower that such tax has been paid.

(d)           Delivery of Common Stock Upon Conversion.  Upon receipt by the Borrower from the Holder of a facsimile transmission or e-mail (or other reasonable means of communication) of a Notice of Conversion meeting the requirements for conversion as provided in this Section 1.4, the Borrower shall issue and deliver or cause to be issued and delivered to or upon the order of the Holder certificates for the Common Stock issuable upon such conversion within three (3) business days after such receipt (the “Deadline”) (and, solely in the case of conversion of the entire unpaid principal amount hereof, surrender of this Note) in accordance with the terms hereof and the Debt Settlement Agreement.

(e)           Obligation of Borrower to Deliver Common Stock.  Upon receipt by the Borrower of a Notice of Conversion, the Holder shall be deemed to be the holder of record of the Common Stock issuable upon such conversion, the outstanding principal amount and the amount of accrued and unpaid interest on this Note shall be reduced to reflect such conversion, and, unless the Borrower defaults on its obligations under this Article I, all rights with respect to the portion of this Note being so converted shall forthwith terminate except the right to receive the Common Stock or other securities, cash or other assets, as herein provided, on such conversion.  If the Holder shall have given a Notice of Conversion as provided herein, the Borrower’s obligation to issue and deliver the certificates for Common Stock shall be absolute and unconditional, irrespective of the absence of any action by the Holder to enforce the same, any waiver or consent with respect to any provision thereof, the recovery of any judgment against any person or any action to enforce the same, any failure or delay in the enforcement of any other obligation of the Borrower to the holder of record, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder of any obligation to the Borrower, and irrespective of any other circumstance which might otherwise limit such obligation of the Borrower to the Holder in connection with such conversion.  The Conversion Date specified in the Notice of Conversion shall be the Conversion Date so long as the Notice of Conversion is received by the Borrower before 6:00 p.m., Las Vegas, Nevada time, on such date.

  

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(f)           Delivery of Common Stock by Electronic Transfer.  In lieu of delivering physical certificates representing the Common Stock issuable upon conversion, provided  the  Borrower  is  participating  in  the  Depository  Trust  Company (“DTC”)  Fast Automated  Securities  Transfer (“FAST”)  program,  upon  request  of  the  Holder  and  its compliance with the provisions contained in Section 1.1 and in this Section 1.4, the Borrower shall use its best efforts to cause its transfer agent to electronically transmit the Common Stock issuable upon conversion to the Holder by crediting the account of Holder’s Prime Broker with DTC through its Deposit Withdrawal Agent Commission (“DWAC”) system.

 

(g)           Failure to Deliver Common Stock Prior to Deadline.  Without in any way limiting the Holder’s right to pursue other remedies, including actual damages and/or equitable relief, the parties agree that if delivery of the Common Stock issuable upon conversion of this Note is not delivered by the Deadline (other than a failure due to the circumstances described in Section 1.3 above, which failure shall be governed by such Section) the Borrower shall pay to the Holder $2,000 per day in cash, for each day beyond the Deadline that the Borrower fails to deliver such Common Stock.  Such cash amount shall be paid to Holder by the fifth day of the month following the month in which it has accrued or, at the option of the Holder (by written notice to the Borrower by the first day of the month following the month in which it has accrued), shall be added to the principal amount of this Note, in which event interest shall accrue thereon in accordance with the terms of this Note and such additional principal amount shall be convertible into Common Stock in accordance with the terms of this Note.  The Borrower agrees that the right to convert is a valuable right to the Holder.  The damages resulting from a failure, attempt to frustrate, interference with such conversion right are difficult if not impossible to qualify.  Accordingly the parties acknowledge that the liquidated damages provision contained in this Section 1.4(g) are justified.

1.5           Concerning the Shares.  The shares of Common Stock issuable upon conversion of this Note may not be sold or transferred unless  (i) such shares are sold pursuant to an effective registration statement under the Act or (ii) the Borrower or its transfer agent shall have been furnished with an opinion of  counsel (which opinion shall be in form, substance and scope customary for opinions of counsel in comparable transactions) to the effect that the shares to be sold or transferred may be sold or transferred pursuant to an exemption from such registration or (iii) such shares are sold or transferred pursuant to Rule 144 under the Act (or a successor rule) (“Rule 144”) or (iv) such shares are transferred to an “affiliate” (as defined in Rule 144) of the Borrower who agrees to sell or otherwise transfer the shares only in accordance with this Section 1.5 and who is an Accredited Investor (as defined in the Debt Settlement Agreement). Except as otherwise provided in the Debt Settlement Agreement (and subject to the removal provisions set forth below), until such time as the shares of Common Stock issuable upon conversion of this Note have been registered under the Act or otherwise may be sold pursuant to Rule 144 without any restriction as to the number of securities as of a particular date that can then be immediately sold, each certificate for shares of Common Stock issuable upon conversion of this Note that has not been so included in an effective registration statement or that has not been sold pursuant to an effective registration statement or an exemption that permits removal of the legend, shall bear a legend substantially in the following form, as appropriate:

“NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER), IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED   BY THE SECURITIES.”

 The legend set forth above shall be removed and the Borrower shall issue to the Holder a new certificate therefore free of any transfer legend if (i) the Borrower or its transfer agent shall have received an opinion of counsel, in form, substance and scope customary for opinions of counsel in comparable transactions, to the effect that a public sale or transfer of such Common Stock may be made without registration under the Act, which opinion shall be accepted by the Company so that the sale or transfer is effected or (ii) in the case of the Common Stock issuable upon conversion of this Note, such security is registered for sale by the Holder under an effective registration statement filed under the Act or otherwise may be sold pursuant to Rule 144 without any restriction as to the number of securities as of a particular date that can then be immediately sold.  In the event that the Company does not accept the opinion of counsel provided by the Buyer with respect to the transfer of Securities pursuant to an exemption from registration, such as Rule 144 or Regulation S, at the Deadline, it will be considered an Event of Default pursuant to Section 3.2 of the Note.

1.6           Effect of Certain Events.

(a)           Effect of Merger, Consolidation, Etc.  At the option of the Holder, the sale, conveyance or disposition of all or substantially all of the assets of the Borrower, the effectuation by the Borrower of a transaction or series of related transactions in which more than 50% of the voting power of the Borrower is disposed of, or the consolidation, merger or other business combination of the Borrower with or into any other Person (as defined below) or Persons when the Borrower is not the survivor shall either: (i) be deemed to be an Event of Default (as defined in Article III) pursuant to which the Borrower shall be required to pay to the Holder upon the consummation of and as a condition to such transaction an amount equal to the Default Amount (as defined in Article III) or (ii) be treated pursuant to Section 1.6(b) hereof. “Person” shall  mean  any  individual,  corporation,  limited  liability  company,  partnership, association, trust or other entity or organization.

  

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(b)           Adjustment Due to Merger, Consolidation, Etc.  If, at any time when this Note is issued and outstanding and prior to conversion of all of the Notes, there shall be any merger, consolidation, exchange of shares, recapitalization, reorganization, or other similar event, as a result of which shares of Common Stock of the Borrower shall be changed into the same or a different number of shares of another class or classes of stock or securities of the Borrower or another entity, or in case of any sale or conveyance of all or substantially all of the assets of the Borrower other than in connection with a plan of complete liquidation of the Borrower, then the Holder of this Note shall thereafter have the right to receive upon conversion of this Note, upon the basis and upon the terms and conditions specified herein and in lieu of the shares  of  Common  Stock  immediately  theretofore  issuable  upon  conversion,  such  stock, securities or assets which the Holder would have been entitled to receive in such transaction had this Note been converted in full immediately prior to such transaction (without regard to any limitations on conversion set forth herein), and in any such case appropriate provisions shall be made with respect to the rights and interests of the Holder of this Note to the end that the provisions hereof (including, without limitation, provisions for adjustment of the Conversion Price and of the number of shares issuable upon conversion of the Note) shall thereafter be applicable, as nearly as may be practicable in relation to any securities or assets thereafter deliverable upon the conversion hereof.

The Borrower shall not affect any transaction described in this Section 1.6(b) unless (a) it first gives, to the extent practicable, thirty (30) days prior written notice (but in any event at least fifteen (15) days prior written notice) of the record date of the special meeting of shareholders to approve, or if there is no such record date, the consummation   of,   such   merger,   consolidation,   exchange   of   shares,   recapitalization, reorganization or other similar event or sale of assets (during which time the Holder shall be entitled to convert this Note) and (b) the resulting successor or acquiring entity (if not the Borrower) assumes by written instrument the obligations of this Section 1.6(b).  The above provisions shall similarly apply to successive consolidations, mergers, sales, transfers or share exchanges.

(c)           Adjustment Due to Distribution.  If the Borrower shall declare or make any distribution of its assets (or rights to acquire its assets) to holders of Common Stock as a dividend, stock repurchase, by way of return of capital or otherwise (including any dividend or distribution to the Borrower’s shareholders in cash or shares (or rights to acquire shares) of capital stock of a subsidiary (i.e., a spin-off)) (a “Distribution”), then the Holder of this Note shall be entitled, upon any conversion of this Note after the date of record for determining shareholders entitled to such Distribution, to receive the amount of such assets which would have been payable to the Holder with respect to the shares of Common Stock issuable upon such conversion had such Holder been the holder of such shares of Common Stock on the record date for the determination of shareholders entitled to such Distribution.

(d)           Adjustment Due to Dilutive Issuance.  If, at any time when any Notes are issued and outstanding, the Borrower issues or sells, or in accordance with this Section 1.6(d) hereof is deemed to have issued or sold, any shares of Common Stock for no consideration or for a consideration per share (before deduction of reasonable expenses or commissions or underwriting discounts or allowances in connection therewith) less than the Conversion Price in effect on the date of such issuance (or deemed issuance) of such shares of Common Stock (a “Dilutive Issuance”), then immediately upon the Dilutive Issuance, the Conversion Price will be reduced to the amount of the consideration per share received by the Borrower in such Dilutive Issuance.

The Borrower shall be deemed to have issued or sold shares of Common Stock if the Borrower in any manner issues or grants any warrants, rights or options (not including employee stock option plans), whether or not immediately exercisable, to subscribe for or to purchase Common Stock or other securities convertible into or exchangeable for Common Stock (“Convertible Securities”) (such warrants, rights and options to Purchase Common Stock or Convertible Securities are hereinafter referred to as “Options”) and the price per share for which Common Stock is issuable upon the exercise of such Options is less than the Conversion Price then in effect, then the Conversion Price shall be equal to such price per share.  For purposes of the preceding sentence, the “price per share for which Common Stock is issuable upon the exercise of such Options” is determined by dividing (i) the total amount, if any, received or receivable by the Borrower as consideration for the issuance or granting of all such Options, plus the minimum aggregate amount of additional consideration, if any, payable to the Borrower upon the exercise of all such Options, plus, in the case of Convertible Securities issuable upon the exercise of such Options, the minimum aggregate amount of additional consideration payable upon the conversion or exchange thereof at the time such Convertible Securities first become convertible or exchangeable, by (ii) the maximum total number of shares of Common Stock issuable upon the exercise of all such Options (assuming full conversion of Convertible Securities, if applicable).  No further adjustment to the Conversion Price will be made upon the actual issuance of such Common Stock upon the exercise of such Options or upon the conversion or exchange of Convertible Securities issuable upon exercise of such Options.

Additionally, the Borrower shall be deemed to have issued or sold shares of Common Stock if the Borrower in any manner issues or sells any Convertible Securities, whether or not immediately convertible (other than where the same are issuable upon the exercise of Options), and the price per share for which Common Stock is issuable upon such conversion or exchange is less than the Conversion Price then in effect, then the Conversion Price shall be equal to such price per share.  For the purposes of the preceding sentence, the “price per share for which Common Stock is issuable upon such conversion or exchange” is determined by dividing (i) the total amount, if any, received or receivable by the Borrower as consideration for the issuance or sale of all such Convertible Securities, plus the minimum aggregate amount of additional consideration, if any, payable to the Borrower upon the conversion or exchange thereof at the time such Convertible Securities first become convertible or exchangeable, by (ii) the maximum total number of shares of Common Stock issuable upon the conversion or exchange of all such Convertible Securities.  No further adjustment to the Conversion Price will be made upon the actual issuance of such Common Stock upon conversion or exchange of such Convertible Securities.

(e)           Share Purchase Rights.  If, at any time when any Notes are issued and outstanding, the Borrower issues any convertible securities or rights to Common stock, warrants, securities or other property (the “Purchase Rights”) pro rata to the record holders of any class of Common Stock, then the Holder of this Note will be entitled to acquire, upon the terms applicable to such Share Purchase Rights, the aggregate Share Purchase Rights which such Holder could have acquired if such Holder had held the number of shares of Common Stock acquirable upon complete conversion of this Note (without regard to any limitations on conversion contained herein) immediately before the date on which a record is taken for the grant, issuance or sale of such Debt Settlement Rights or, if no such record is taken, the date as of which the record holders of Common Stock are to be determined for the grant, issue or sale of such Debt Settlement Rights.

  

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(f)           Notice of Adjustments.  Upon the occurrence of each adjustment or readjustment of the Conversion Price as a result of the events described in this Section 1.6, the Borrower, at its expense, shall promptly compute such adjustment or readjustment and prepare and furnish to the Holder a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based.  The Borrower shall, upon the written request at any time of the Holder, furnish to such Holder a like certificate setting forth (i) such adjustment or readjustment, (ii) the Conversion Price at the time in effect and (iii) the number of shares of Common Stock and the amount, if any, of other securities or property which at the time would be received upon conversion of the Note.

1.7           Trading Market Limitations.  Unless permitted by the applicable rules and regulations of the principal securities market on which the Common Stock is then listed or traded, in no event shall the Borrower issue upon conversion of or otherwise pursuant to this Note and the other Notes issued pursuant to the Debt Settlement Agreement more than the maximum number of shares of Common Stock that the Borrower can issue pursuant to any rule of the principal United States securities market on which the Common Stock is then traded (the “Maximum Share Amount”), which shall be 4.99% of the total shares outstanding on the Closing Date (as defined in the Debt Settlement Agreement), subject to equitable adjustment from time to time for stock splits, stock dividends, combinations, capital reorganizations and similar events relating to the Common Stock occurring after the date hereof.  Once the Maximum Share Amount has been issued, if the Borrower fails to eliminate any prohibitions under applicable law or the rules or regulations of any stock exchange, interdealer quotation system or other self-regulatory organization with jurisdiction over the Borrower or any of its securities on the Borrower’s ability to issue shares of Common Stock in excess of the Maximum Share Amount, in lieu of any further right to convert this Note, this will be considered an Event of Default under Section 3.3 of the Note.

1.8           Status as Shareholder.  Upon submission of a Notice of Conversion by a Holder, (i) the shares covered thereby (other than the shares, if any, which cannot be issued because their issuance would exceed such Holder’s allocated portion of the Reserved Amount or Maximum Share Amount) shall be deemed converted into shares of Common Stock and (ii) the Holder’s rights as a Holder of such converted portion of this Note shall cease and terminate, excepting only the right to receive certificates for such shares of Common Stock and to any remedies provided herein or otherwise available at law or in equity to such Holder because of a failure by the Borrower to comply with the terms  of this Note. Notwithstanding the foregoing, if a Holder has not received certificates for all shares of Common Stock prior to the tenth (10th) business day after the expiration of the Deadline with respect to a conversion of any portion of this Note for any reason, then (unless the Holder otherwise elects to retain its status as a holder of Common Stock by so notifying the Borrower) the Holder shall regain the rights of a Holder of this Note with respect to such unconverted portions of this Note and the Borrower shall, as soon as practicable, return such unconverted Note to the Holder or, if the Note has not been surrendered, adjust its records to reflect that such portion of this Note has not been converted.  In all cases, the Holder shall retain all of its rights and remedies (including, without limitation, (i) the right to receive Conversion Default Payments pursuant to Section 1.3 to the extent required thereby for such Conversion Default and any subsequent Conversion Default and (ii) the right to have the Conversion Price with respect to subsequent conversions determined in accordance with Section 1.3) for the Borrower’s failure to convert this Note.

1.9           Prepayment.  Notwithstanding anything to the contrary contained in this Note, at any time during the period beginning on the Issue Date and ending on the date which is ninety (90) days following the issue date, the Borrower shall have the right, exercisable on not less than three (3) Trading Days prior written notice to the Holder of the Note to prepay the outstanding Note (principal and accrued interest), in full, in accordance with this Section 1.9. Any notice of prepayment hereunder (an “Optional Prepayment Notice”) shall be delivered to the Holder of the Note at its registered addresses and shall state: (1) that the Borrower is exercising its right to prepay the Note, and (2) the date of prepayment which shall be not more than three (3) Trading Days from the date of the Optional Prepayment Notice.  On the date fixed for prepayment (the “Optional Prepayment Date”), the Borrower shall make payment of the Optional Prepayment Amount (as defined below) to or upon the order of the Holder as specified by the Holder in writing to the Borrower at least one (1) business day prior to the Optional Prepayment Date.  If the Borrower exercises its right to prepay the Note, the Borrower shall make payment to the Holder of an amount in cash (the “Optional Prepayment Amount”) equal to 140%, multiplied by the sum of: (w) the then outstanding principal amount of this Note plus (x) accrued and unpaid interest on the unpaid principal amount of this Note to the Optional Prepayment Date plus (y) Default Interest, if any, on the amounts referred to in clauses (w) and (x) plus (z) any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof.  If the Borrower delivers an Optional Prepayment Notice and fails to pay the Optional Prepayment Amount due to the Holder of the Note within two (2) business days following the Optional Prepayment Date, the Borrower shall forever forfeit its right to prepay the Note pursuant to this Section 1.9.

Notwithstanding anything to the contrary contained in this Note, at any time during the period beginning  on the date of the invoices listed on Exhibit B, which is ninety-one (91) days following the issue date and ending on the date of the invoices listed on Exhibit B, which is one hundred fifty (150) days following the issue date, the Borrower shall have the right, exercisable on not less than three (3) Trading Days prior written notice to the Holder of the Note to prepay the outstanding Note (principal and accrued interest), in full, in accordance with this Section 1.9.  Any Optional Prepayment Notice shall be delivered to the Holder of the Note at its registered addresses and shall state: (1) that the Borrower is exercising its right to prepay the Note, and (2) the date of prepayment which shall be not more than three (3) Trading Days from the date of the Optional Prepayment Notice.  On the Optional Prepayment Date, the Borrower shall make payment of the Second Optional Prepayment Amount (as defined below) to or upon the order of the Holder as specified by the Holder in writing to the Borrower at least one (1) business day prior to the Optional Prepayment Date.  If the Borrower exercises its right to prepay the Note, the Borrower shall make payment to the Holder of an amount in cash (the “Second Optional Prepayment Amount”) equal to 145%, multiplied by the sum of: (w) the then outstanding principal amount of this Note plus (x) accrued and unpaid interest on the unpaid principal amount of this Note to the Optional Prepayment Date plus (y) Default Interest, if any, on the amounts referred to in clauses (w) and (x) plus (z) any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof.  If the Borrower delivers an Optional Prepayment Notice and fails to pay the Second Optional Prepayment Amount due to the Holder of the Note within two (2) business days following the Optional Prepayment Date, the Borrower shall forever forfeit its right to prepay the Note pursuant to this Section 1.9.

  

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Notwithstanding anything to the contrary contained in this Note, at any time during the period beginning  on the date of the invoices listed on Exhibit B, which is one hundred fifty-one (151) days following the issue date and ending on the date which is one hundred eighty (180) days following the issue date of the invoices listed on Exhibit B, the Borrower shall have the right, exercisable on not less than three (3) Trading Days prior written notice to the Holder of the Note to prepay the outstanding Note (principal and accrued interest), in full, in accordance with this Section 1.9.  Any Optional Prepayment Notice shall be delivered to the Holder of the Note at its registered addresses and shall state: (1) that the Borrower is exercising its right to prepay the Note, and (2) the date of prepayment which shall be not more than three (3) Trading Days from the date of the Optional Prepayment Notice.  On the Optional Prepayment Date, the Borrower shall make payment of the Third Optional Prepayment Amount (as defined below) to or upon the order of the Holder as specified by the Holder in writing to the Borrower at least one (1) business day prior to the Optional Prepayment Date.  If the Borrower exercises its right to prepay the Note, the Borrower shall make payment to the Holder of an amount in cash (the “Third Optional Prepayment Amount”) equal to 150%, multiplied by the sum of: (w) the then outstanding principal amount of this Note plus (x) accrued and unpaid interest on the unpaid principal amount of this Note to the Optional Prepayment Date plus (y) Default Interest, if any, on the amounts referred to in clauses (w) and (x) plus (z) any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof.  If the Borrower delivers an Optional Prepayment Notice and fails to pay the Third Optional Prepayment Amount due to the Holder of the Note within two (2) business days following the Optional Prepayment Date, the Borrower shall forever forfeit its right to prepay the Note pursuant to this Section 1.9.

After the expiration of one hundred eighty (180) following the date of the Note, the Borrower shall have no right of prepayment.

ARTICLE II.  CERTAIN COVENANTS

2.1           Distributions on Capital Stock.  So long as the Borrower shall have any obligation under this Note, the Borrower shall not without the Holder’s written consent (a) pay, declare or set apart for such payment, any dividend or other distribution (whether in cash, property or other securities) on shares of capital stock other than dividends on shares of Common Stock solely in the form of additional shares of Common Stock or (b) directly or indirectly or through any subsidiary make any other payment or distribution in respect of its capital stock except for distributions pursuant to any shareholders’ rights plan which is approved by a majority of the Borrower’s disinterested directors.

2.2           Restriction on Stock Repurchase.  So long as the Borrower shall have any obligation under this Note, the Borrower shall not without the Holder’s written consent redeem, repurchase or otherwise acquire (whether for cash or in exchange for property or other securities or otherwise) in any one transaction or series of related transactions any shares of capital stock of the Borrower or any warrants, rights or options to purchase or acquire any such shares.

2.3           Borrowings.  So long as the Borrower shall have any obligation under this Note, the Borrower shall not, without the Holder’s written consent, create, incur, assume guarantee, endorse,  contingently  agree  to  purchase or otherwise become  liable  upon  the obligation  of  any  person,  firm,  partnership,  joint  venture  or  corporation,  except  by  the endorsement of negotiable instruments for deposit or collection, or suffer to exist any liability for borrowed money, except (a) borrowings in existence or committed on the date hereof and of which the Borrower has informed Holder in writing prior to the date hereof, (b) indebtedness to trade creditors or financial institutions incurred in the ordinary course of business or (c) borrowings, the proceeds of which shall be used to repay this Note.

2.4           Sale of Assets.  So long as the Borrower shall have any obligation under this Note, the Borrower shall not, without the Holder’s written consent, sell, lease or otherwise dispose of any significant portion of its assets outside the ordinary course of business.  Any consent to the disposition of any assets may be conditioned on a specified use of the proceeds of disposition.

2.5           Advances and Loans.  So long as the Borrower shall have any obligation under this Note, the Borrower shall not, without the Holder’s written consent, lend money, give credit or make advances to any person, firm, joint venture or corporation, including, without limitation, officers, directors, employees, subsidiaries and affiliates of the Borrower, except loans, credits or advances (a) in existence or committed on the date hereof and which the Borrower has informed Holder in writing prior to the date hereof, (b) made in the ordinary course of business or (c) not in excess of $500,000.

ARTICLE III.  EVENTS OF DEFAULT

If any of the following events of default (each, an “Event of Default”) shall occur:

3.1           Failure to Pay Principal or Interest.  The Borrower fails to pay the principal  hereof  or  interest  thereon  when  due  on  this  Note,  whether  at  maturity,  upon acceleration or otherwise.

  

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3.2           Conversion and the Shares.  The  Borrower  fails to issue shares of Common Stock to the Holder (or announces or threatens in writing that it will not honor its obligation to do so) upon exercise by the Holder of the conversion rights of the Holder in accordance with the terms of this Note, fails to transfer or cause its transfer agent to transfer (issue) (electronically or in certificated form) any certificate for shares of Common Stock issued to the Holder upon conversion of or otherwise pursuant to this Note as and when required by this Note, the Borrower directs its transfer agent not to transfer or delays, impairs, and/or hinders its transfer agent in transferring (or issuing) (electronically or in certificated form) any certificate for shares of Common Stock to be issued to the Holder upon conversion of or otherwise pursuant to this Note as and when required by this Note, or fails to remove (or directs its transfer agent not to remove or impairs, delays, and/or hinders its transfer agent from removing) any restrictive legend (or to withdraw any stop transfer instructions in respect thereof) on any certificate for any shares of Common Stock issued to the Holder upon conversion of or otherwise pursuant to this Note as and when required by this Note (or makes any written announcement, statement or threat that it does not intend to honor the obligations described in this paragraph) and any such failure shall continue uncured (or any written announcement, statement or threat not to honor its obligations shall not be rescinded in writing) for three (3) business days after the Holder shall have delivered a Notice of Conversion.  It is an obligation of the Borrower to remain current in its obligations to its transfer agent. It shall be an event of default of this Note, if a conversion of this Note is delayed, hindered or frustrated due to a balance owed by the Borrower to its transfer agent. If at the option of the Holder, the Holder advances any funds to the Borrower’s transfer agent in order to process a conversion, such advanced funds shall be paid by the Borrower to the Holder within forty eight (48) hours of a demand from the Holder.

3.3           Breach of Covenants.  The Borrower breaches any material covenant or other material term or condition contained in this Note and any collateral documents including but not limited to the Debt Settlement Agreement and such breach continues for a period of ten (10) days after written notice thereof to the Borrower from the Holder.

3.4           Breach of Representations and Warranties.  Any representation or warranty of the Borrower made herein or in any agreement, statement or certificate given in writing pursuant hereto or in connection herewith (including, without limitation, the Debt Settlement Agreement), shall be false or misleading in any material respect when made and the breach of which has (or with the passage of time will have) a material adverse effect on the rights of the Holder with respect to this Note or the Debt Settlement Agreement.

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

3.6           Judgments.  Any money judgment, writ or similar process shall be entered or filed against the Borrower or any subsidiary of the Borrower or any of its property or other assets for more than $50,000, and shall remain unvacated, unbonded or unstayed for a period of twenty (20) days unless otherwise consented to by the Holder, which consent will not be unreasonably withheld.

3.7           Bankruptcy.  Bankruptcy, insolvency, reorganization or liquidation proceedings or other proceedings, voluntary or involuntary, for relief under any bankruptcy law or any law for the relief of debtors shall be instituted by or against the Borrower or any subsidiary of the Borrower.

3.8           Delisting of Stock.  The Borrower shall fail to maintain the listing of the Stock on at least one of the OTCBB or an equivalent replacement exchange, the Nasdaq National Market, the Nasdaq SmallCap Market, the New York Stock Exchange, or the American Stock Exchange.

3.9           Failure to Comply with the Exchange Act.  The Borrower shall fail to comply with the reporting requirements of the Exchange Act; and/or the Borrower shall cease to be subject to the reporting requirements of the Exchange Act.

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

3.11           Cessation of Operations.   Any cessation of operations by Borrower or Borrower admits it is otherwise generally unable to pay its debts as such debts become due, provided, however, that any disclosure of the Borrower’s ability to continue as a “going concern” shall not be an admission that the Borrower cannot pay its debts as they become due.

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

3.13           Financial Statement Restatement.     The restatement of any financial statements filed by the Borrower with the SEC for any date or period from two years prior to the Issue Date of this Note and until this Note is no longer outstanding, if the result of such restatement would, by comparison to the unrestated financial statement, have constituted a material adverse effect on the rights of the Holder with respect to this Note or the Debt Settlement Agreement.

3.14           Reverse Splits.  The Borrower effectuates a reverse split of its Common Stock without twenty (20) days prior written notice to the Holder.

3.15           Replacement of Transfer Agent. In the event that the Borrower proposes to replace its transfer agent, the Borrower fails to provide, prior to the effective date of such replacement, a fully executed Irrevocable Transfer Agent Instructions in a form as initially delivered pursuant to the Debt Settlement Agreement (including but not limited to the provision to irrevocably reserve shares of Common Stock in the Reserved Amount) signed by the successor transfer agent to Borrower and the Borrower.

  

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3.16           Cross-Default.  Notwithstanding anything to the contrary contained in this Note or the other related or companion documents, a breach or default by the Borrower of any covenant or other term or condition contained in any of the Other Agreements, after the passage of all applicable notice and cure or grace periods, shall, at the option of the Holder, be considered a default under this Note and the Other Agreements, in which event the Holder shall be entitled (but in no event required) to apply all rights and remedies of the Holder under the terms of this Note and the Other Agreements by reason of a default under said Other Agreement or hereunder. “Other Agreements” means, collectively, all agreements and instruments between, among or by: (1) the Borrower, and, or for the benefit of, (2) the Holder and any affiliate of the Holder, including, without limitation, promissory notes; provided, however, the term “Other Agreements” shall not include the related or companion documents to this Note.  Each of the loan transactions will be cross-defaulted with each other loan transaction and with all other existing and future debt of Borrower to the Holder.

Upon the occurrence and during the continuation of any Event of Default specified in Section 3.1 (solely with respect to failure to pay the principal hereof or interest thereon when due at the Maturity Date), the Note shall become immediately due and payable and the Borrower shall pay to the Holder, in full satisfaction of its obligations hereunder, an amount equal to the Default Sum (as defined herein).  UPON THE OCCURRENCE AND  DURING  THE CONTINUATION OF ANY EVENT OF DEFAULT SPECIFIED IN SECTION 3.2, THE NOTE SHALL BECOME IMMEDIATELY DUE AND PAYABLE AND THE BORROWER SHALL PAY TO THE HOLDER,  IN  FULL SATISFACTION OF ITS OBLIGATIONS HEREUNDER, AN AMOUNT EQUAL TO: (Y) THE DEFAULT SUM (AS DEFINED HEREIN); MULTIPLIED BY (Z) TWO (2). Upon the occurrence and during the continuation of any Event of Default specified in Sections 3.1 (solely with respect to failure to pay the principal hereof or interest thereon when due on this Note upon a Trading Market Prepayment Event pursuant to Section 1.7 or upon acceleration), 3.3, 3.4, 3.6, 3.8, 3.9, 3.11, 3.12, 3.13, 3.14, and/or 3. 15 exercisable through the delivery of written notice to the Borrower by such Holders (the “Default Notice”), and upon the occurrence of an Event of Default specified the remaining sections of Articles III (other than failure to pay the principal hereof or interest thereon at the Maturity Date specified in Section 3,1 hereof), the Note shall become immediately due and payable and the Borrower shall pay to the Holder, in full satisfaction of its obligations hereunder, an amount equal to the greater of (i) 150% times the sum of (w) the then outstanding principal amount of this Note plus (x) accrued and unpaid interest on the unpaid principal amount of this Note to the date of payment (the “Mandatory Prepayment Date”) plus (y) Default Interest, if any, on the amounts referred to in clauses (w) and/or (x) plus (z) any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof (the then outstanding principal amount of this Note to the date of payment plus the amounts referred to in clauses (x), (y) and (z) shall collectively be known as the “Default Sum”) or (ii) the “parity value” of the Default Sum to be prepaid, where parity value means (a) the highest number of shares of Common Stock issuable upon conversion of or otherwise pursuant to such Default Sum in accordance with Article I, treating the Trading Day immediately preceding the Mandatory Prepayment Date as the “Conversion Date” for purposes of determining the lowest applicable Conversion Price, unless the Default Event arises as a result of a breach in respect of a specific Conversion Date in which case such Conversion Date shall be the Conversion Date), multiplied by (b) the highest Closing Price for the Common Stock during the period beginning on the date of first occurrence of the Event of Default and ending one day prior to the Mandatory Prepayment Date (the “Default Amount”) and all other amounts payable hereunder shall immediately become due and payable, all without demand, presentment or notice, all of which hereby are expressly waived, together with all costs,including, without limitation, legal fees and expenses, of collection, and the Holder shall be entitled to exercise all other rights and remedies available at law or in equity.

If the Borrower fails to pay the Default Amount within five (5) business days of written notice that such amount is due and payable, then the Holder shall have the right at any time, so long as the Borrower remains in default (and so long and to the extent that there are sufficient authorized shares), to require the Borrower, upon written notice, to immediately issue, in lieu of the Default Amount, the number of shares of Common Stock of the Borrower equal to the Default Amount divided by the Conversion Price then in effect.

ARTICLE IV. MISCELLANEOUS

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

4.2           Notices.  All notices, demands, requests, consents, approvals, and other communications required or permitted hereunder shall be in writing and, unless otherwise specified herein, shall be (i) personally served, (ii) deposited in the mail, registered or certified, return receipt requested, postage prepaid, (iii) delivered by reputable air courier service with charges prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile, addressed as set forth below or to such other address as such party shall have specified most recently by written notice.  Any notice or other communication required or permitted to be given hereunder shall be deemed effective (a) upon hand delivery or delivery by facsimile, with accurate confirmation generated by the transmitting facsimile machine, at the address or number designated below (if  delivered on a business day during normal business hours where such notice is to be received), or the first business day following such delivery (if delivered other than on a business day during normal business hours where such notice is to be received) or (b) on the second business day following the date of mailing by express courier service, fully prepaid, addressed to such address, or upon actual receipt of such mailing, whichever shall first occur.  The addresses for such communications shall be:

If to the Borrower, to:

Grid Petroleum Corporation

412 N. Main Street

Suite 100

Buffalo, WY 82834

If to the Holder:

Direct Capital Group Inc

1401 Camino Del Mar #202

Del Mar, CA 92014

  

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4.3           Amendments.  This Note and any provision hereof may only be amended by an instrument in writing signed by the Borrower and the Holder.  The term “Note” and all reference thereto, as used throughout this instrument, shall mean this instrument (and the other Notes issued pursuant to the Debt Settlement Agreement) as originally executed, or if later amended or supplemented, then as so amended or supplemented.

4.4           Assignability.  This Note shall be binding upon the Borrower and its successors and assigns, and shall inure to be the benefit of the Holder and its successors and assigns.  Each transferee of this Note must be an “accredited investor” (as defined in Rule 501(a) of the 1933 Act).  Notwithstanding anything in this Note to the contrary, this Note may be pledged  as  collateral  in  connection  with  a  bona  fide  margin  account  or  other  lending arrangement.

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

4.6           Governing Law.  This Note shall be governed by and construed in accordance with the laws of the State of Nevada without regard to principles of conflicts of laws.  Any action brought by either party against the other concerning the transactions contemplated by this Note shall be brought only in the state courts of Nevada or in the federal courts located in the state and county of Clark.  The parties to this Note hereby irrevocably waive any objection to jurisdiction and venue of any action instituted hereunder and shall not assert any defense based on lack of jurisdiction or venue or based upon forum non conveniens. The Borrower and Holder waive trial by jury.  The prevailing party shall be entitled to recover from the other party its reasonable attorney's fees and costs.  In the event that any provision of this Note or any other agreement delivered in connection herewith is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law.

Any such provision which may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision of any agreement.   Each party hereby irrevocably waives personal service of process and consents to process being served in any suit, action or proceeding in connection with this Agreement or any other Transaction Document by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof.  Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by law.

4.7           Certain Amounts.  Whenever pursuant to this Note the Borrower is required to pay an amount in excess of the outstanding principal amount (or the portion thereof required to be paid at that time) plus accrued and unpaid interest plus Default Interest on such interest, the Borrower and the Holder agree that the actual damages to the Holder from the receipt of cash payment on this Note may be difficult to determine and the amount to be so paid by the Borrower represents stipulated damages and not a penalty and is intended to compensate the Holder in part for loss of the opportunity to convert this Note and to earn a return from the sale of shares of Common Stock acquired upon conversion of this Note at a price in excess of the price paid for such shares pursuant to this Note.  The Borrower and the Holder hereby agree that such amount of stipulated damages is not plainly disproportionate to the possible loss to the Holder from the receipt of a cash payment without the opportunity to convert this Note into shares of Common Stock.

4.8           Debt Settlement Agreement.  By its acceptance of this Note, each party agrees to be bound by the applicable terms of the Debt Settlement Agreement.

4.9           Notice of Corporate Events.  Except as otherwise provided below, the Holder of this Note shall have no rights as a Holder of Common Stock unless and only to the extent that it converts this Note into Common Stock. The Borrower shall provide the Holder with prior notification of any meeting of the Borrower’s shareholders (and copies of proxy materials and other information sent to shareholders).  In the event of any taking by the Borrower of a record of its shareholders for the purpose of determining shareholders who are entitled to receive payment of any dividend or other distribution, any right to subscribe for, purchase or otherwise acquire (including by way of merger, consolidation, reclassification or recapitalization) any share of any class or any other securities or property, or to receive any other right, or for the purpose of determining shareholders who are entitled to vote in connection with any proposed sale, lease or conveyance of all or substantially all of the assets of the Borrower or any proposed liquidation, dissolution or winding up of the Borrower, the Borrower shall mail a notice to the Holder, at least twenty (20) days prior to the record date specified therein (or thirty (30) days prior to the consummation of the transaction or event, whichever is earlier), of the date on which any such record is to be taken for the purpose of such dividend, distribution, right or other event, and a brief statement regarding the amount and character of such dividend, distribution, right or other event to the extent known at such time.  The Borrower shall make a public announcement of any event requiring notification to the Holder hereunder substantially simultaneously with the

notification to the Holder in accordance with the terms of this Section 4.9.

4.10           Remedies.    The Borrower acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Holder, by vitiating the intent and purpose of the transaction contemplated hereby.  Accordingly, the Borrower acknowledges that the remedy at law for a breach of its obligations under this Note will be inadequate and agrees, in the event of a breach or threatened breach by the Borrower of the provisions of this Note, that the Holder shall be entitled, in addition to all other available remedies at law or in equity, and in addition to the penalties assessable herein, to an injunction or injunctions restraining, preventing or curing any breach of this Note and to enforce specifically the terms and provisions thereof, without the

IN WITNESS WHEREOF, Borrower has caused this Note to be signed in its name by its duly authorized officer this October 31, 2015

Grid Petroleum Corporation

By: /s/ Edward Aruda

           Edward Aruda

  

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EXHIBIT A

NOTICE OF CONVERSION

The undersigned hereby elects to convert $_________________ principal amount of the Note (defined below) into that number of shares of Common Stock to be issued pursuant to the conversion of the Note (“Common Stock”) as set forth below, of Grid Petroleum Corporation, a Nevada corporation (the “Borrower”) according to the conditions of the convertible note of the Borrower dated as of October 31, 2015 (the “Note”), as of the date written below.  No fee will be charged to the Holder for any conversion, except for transfer taxes, if any.

Box Checked as to applicable instructions:

[            ]           The Borrower shall electronically transmit the Common Stock issuable pursuant to this Notice of Conversion to the account of the undersigned or its nominee with DTC  through  its  Deposit  Withdrawal  Agent  Commission  system (“DWACTransfer”).

Name of DTC Prime Broker: Account Number:

[           ]           The undersigned hereby requests that the Borrower issue a certificate  or certificates for the number of shares of Common Stock set forth below (which numbers are based on the Holder’s calculation attached hereto) in the name(s) specified immediately below or, if additional space is necessary, on an attachment hereto:

Direct Capital Group Inc

1401 Camino Del Mar #202

Del Mar, CA 92014

Attention: Certificate Delivery

Date of Conversion:      _____________

Applicable Conversion Price:       $.00001

Number of Shares of Common Stock to be Issued

Pursuant to Conversion of the Notes:    ______________

Amount of Principal Balance Due remaining

Under the Note after this conversion:   ______________

By:_____________________________

Title:  President.

Date:  ______________

 

  

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