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ntn_10k-ex1026.htm

Exhibit 10.26

 

		
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Master Equipment Lease

 

	
NTN Buzztime, Inc.

	 	
3-10125

	
Name of Lessee

	 	
Master Equipment Lease No.

	 	 	 
	
5966 La Place Court

	 	
9/29/09

	
Street Address

	 	
Date

	 	 	 
	
Carlsbad, CA 92008

	 	 
	
City, State and Zip Code

	 	 
	 	 	 
	
Form of Organization:   o sole proprietor    x Corporation    o limited liability company    o partnership    o other  _________

	 	 	 
	Delaware	 	2033004
	
Lessee State of Organization 

	 	State of Organization No.

 

1. LEASE:

Data Sales Co., Inc. ("Lessor"), by its acceptance hereof at its home office, agrees to lease to Lessee and Lessee agrees to lease from Lessor, in accordance with the terms and conditions hereinafter set forth, the items of equipment and other property (the "Equipment") described in each equipment schedule ("Equipment Schedule") in the form of Exhibit "A" attached hereto, executed from time to time pursuant to this Master Equipment Lease ("Master Equipment Lease"). Each Equipment Schedule shall incorporate the terms of this Master Equipment Lease and shall constitute a separate and enforceable lease of the Equipment described in such Equipment Schedule. Any reference to the "Lease" shall mean each such Equipment Schedule (including all amendments, addenda or riders thereto) to the extent it incorporates this Master Equipment Lease. In the event of any conflict between the terms of an Equipment Schedule and the terms of this Master Equipment Lease, the terms of the Equipment Schedule shall prevail.

 

2. DEFINITIONS:

A.    The "Installation Date" means the date determined in accordance with the Equipment Schedule.

 

B.    The "Commencement Date" means the first day of the month following the Installation Date, unless the Installation Date occurs on the first day of a month, in which case the Commencement Date shall be the Installation Date.

 

3. TERM OF LEASE:

The term of the Lease as to Equipment designated on the Equipment Schedule shall begin on the Installation Date in accordance with the Equipment Schedule, and shall continue for an initial period ending that number of months from the Commencement Date as is specified on the Equipment Schedule (the "Initial Term"). THE LEASE IS NON-CANCELABLE FOR THE INITIAL TERM and Lessee has no right of prepayment unless such right is specifically granted to Lessee in the Equipment Schedule. Lessee shall execute and deliver to Lessor a Certificate of Delivery and Acceptance.

 

("Acceptance") on the date the Equipment has been installed and accepted by Lessee, and Lessor shall have no obligation to advance funds for the Equipment's purchase unless and until Lessor receives such Acceptance.

 

Except as otherwise provided in the Equipment Schedule or any amendment thereto, Lessee or Lessor may terminate the Lease at the expiration of the Initial Term by giving the other at least two (2) months prior written notice of termination. If neither party gives such notice, then the term shall automatically be extended on the same rental terms for successive periods of one (1) month until terminated by either Lessee or Lessor giving the other at least two (2) months written notice of termination.

 

4.  RENTAL PAYMENTS:

The monthly rental payments for each item of Equipment (the "Monthly Rental Payments") shall be set forth in the applicable Equipment Schedule, shall begin to accrue on the Installation Date of the Equipment and shall be due and payable by Lessee in advance on the first day of each month. If the Installation Date does not fall on the first day of the month, the rental for that period of time from the Installation Date until the first day of the succeeding month shall be a pro rata portion of the Monthly Rental Payment, calculated on a 30-day basis, due and payable on the Installation Date. Lessee shall pay a late charge on all Monthly Rental Payments unpaid after the due date thereof equal to one and one-half percent (1-1/2%), or the highest rate permissible by law, whichever is less.

 

5.  NET AND NON-CANCELABLE LEASE:

This is a net Lease and Lessee's obligation to pay the rent and other amounts due hereunder is unconditional and not subject to abatement, reduction or set off, defense, counterclaim or interruption of any kind. The Lease is a non-cancelable lease and will not terminate in the event of any damage to or destruction of the equipment. The lease may be terminated only as expressly provided herein. To the extent permitted by law, Lessee waives the right to (i) cancel the Lease; (ii) repudiate the Lease; (iii) revoke acceptance of the equipment; (iv) recover damages from Lessor for any breaches of warranty or for any other reasons; (v) grant a security interest in the equipment to a third party; (vi) deduct from rents all or any part of claimed damages resulting from Lessors default, if any.

  

  

  

 

6.  PAYMENT OF TAXES:

Lessee shall also pay all taxes, however designated, which are levied or based on the Lease, the Equipment or its purchase, use, lease, operation, control or value, including, without limitation, personal property taxes, state and local privilege or excise taxes based on gross revenue, and any penalties or interest in connection therewith, or taxes or amounts in lieu thereof paid or payable by Lessor or Lessee in respect of the foregoing, but excluding taxes based on Lessors net income. Charges for taxes, penalties and interest, if any, shall be promptly paid by Lessee. In the event Lessee defaults in the payment of any such tax, Lessor may pay such tax and shall be promptly reimbursed by Lessee, with interest (plus attorneys' fees and costs if any) as additional rent.

 

7.  ARTICLE 2A LEASE; DISCLAIMER OF WARRANTIES:

This Lease is a true lease, which is a "finance lease", as that term is defined under Uniform Commercial Code ("UCC") Article 2A-103. Lessor has not selected, manufactured or supplied the Equipment. Lessee has selected the Equipment from the manufacturer, supplier or distributor of the Equipment (the "Vendor"). Lessor acquired the Equipment or the right to possession and use of the Equipment only in connection with this Lease. Either Lessee has assigned to Lessor its acquisition agreement for the Equipment on or before signing this Lease or Lessee's approval of the contract evidencing Lessor's purchase of the Equipment is a condition to the effectiveness of this Lease (and Lessee's execution of this Lease evidences its approval of said contract). Lessor hereby informs Lessee that Lessee may have rights under the contract evidencing Lessor's purchase of the Equipment and advises Lessee to contact the Vendor for a description of any such rights. If Lessee has entered into any acquisition agreement with Vendor, Lessee shall perform all of the obligations set forth therein as if this Lease did not exist. LESSOR HAS NOT MADE AND MAKES NO, AND HEREBY EXPRESSLY DISCLAIMS ANY REPRESENTATION OR EXPRESS OR IMPLIED WARRANTY WHATSOEVER HEREUNDER, INCLUDING ANY WARRANTY OF MERCHANTABILITY, FITNESS FOR ANY PURPOSE, OR OTHERWISE, REGARDING THE EQUIPMENT OR ANY PART OR THE DESIGN, QUALITY, OPERATION OR CONDITION THEREOF OR WITH RESPECT TO PATENT INFRINGEMENT OR THE LIKE. Lessor hereby grants, transfers and assigns to Lessee during the term of this Lease all of its right, title and interest in any express or implied warranties, indemnities or service agreements of the Vendor which are assignable by Lessor. Lessor shall permit Lessee, as Lessee's sole remedy, to enforce any such representation, warranty, indemnity or service agreement against the Vendor in the name of Lessor, and not against Lessor or Assignee (as hereinafter defined).

 

Lessee acknowledges that it is not relying on Lessor's skill or judgment to select or furnish goods suitable for any particular purpose and that there are no warranties which are not contained in this Lease. LESSOR SHALL NOT BE LIABLE FOR DAMAGES, INCLUDING SPECIAL, INCIDENTAL, INDIRECT OR CONSEQUENTIAL DAMAGES, arising out of or in connection with the performance of the Equipment or the use thereof by Lessee and shall not be liable for any special, incidental or consequential damages, arising out of or in connection with Lessors failure to perform its obligations hereunder. Upon written request from the Lessee, Lessor shall take all reasonable action requested by Lessee to enforce any manufacturers warranty express or implied, relating to the condition or performance of the Equipment which is enforceable by Lessor in its own name, provided, however, that Lessor shall not be obligated to resort to litigation to enforce any such warranty unless Lessee shall pay all expenses incurred in connection therewith. Similarly, if any such warranty shall be enforceable by Lessee in its own name, Lessee shall take reasonable action requested by Lessor to enforce any such warranty Lessee shall indemnify and hold Lessor and its assigns harmless from any liability, claim, loss, damage or expense (including reasonable attorneys' fees) of any kind or nature caused, directly or indirectly by (1) inadequacy of any Equipment for any purpose, (2) any deficiency or defect in any Equipment, (3) the use or performance of any Equipment, (4) any interruption or loss of service, use or performance of any Equipment, (5) any patent, copyright, or other infringement, or (6) any loss of business or other consequential damage whether or not resulting directly from any or all of the above. Lessee acknowledges that it has made the selection of the Equipment based on its own judgment, and expressly disclaims any reliance upon statements made by Lessor. Lessee acknowledges that Lessor has made no statements or representations upon which Lessee is relying in leasing the Equipment, and that this Lease contains all agreements and understandings between the parties.

 

8. RISK OF LOSS:

A.    Lessor shall not be responsible for, nor shall the Monthly Rental Payments or other sums due hereunder abate for any reason, including, but not limited to, any interruption in or loss of the service or use of the Equipment or any part thereof, or any loss or damage caused thereby, or by error in programming or instruction to the Equipment, latent defect, wear and tear, or gradual deterioration of the Equipment or any part thereof.

 

B.    Lessee assumes and shall bear the entire risk of partial or complete loss, theft, damage, destruction or other interruption or termination of use of the Equipment from any cause whatsoever, from the date of delivery of the Equipment to Lessee until the Equipment is returned to and received by Lessor.

 

During the term of the Lease, and until the Equipment is redelivered to Lessor, Lessee shall be liable for the prompt repair of the Equipment at its sole expense. If the Equipment or any portion thereof is lost, stolen, destroyed or damaged beyond repair, Lessee, at its option, will (i) continue to make the Monthly Rental Payments, and, at Lessee's sole expense, replace the Equipment with equipment of identical manufacture and equal or greater capacity, utility and residual value to that of the Equipment replaced (in which case Lessee will transfer title to the replacement Equipment to the Lessor free of all liens, claims and encumbrances), or (ii) pay Lessor on the next Monthly Rental Payment date following the loss, theft, damage or destruction of the Equipment an amount equal to the replacement value or the minimum casualty value, whichever is greater, attached to the applicable Equipment Schedule for such Equipment in effect on the date of the loss, theft, damage or destruction thereof and all rent accrued on such Equipment up to the date of payment and all other amounts then due in connection with such Equipment. Upon such payment, the Equipment Schedule, or portion thereof, as applicable, will terminate with respect to the Equipment so paid for, and Lessor will transfer full ownership and title to such Equipment to Lessee, free of liens, claims and encumbrances created by Lessor.

 

 

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9. INSURANCE AND INDEMNITY:

Lessee shall at all times during the term of this Lease, at its own expense, maintain: (A) all-risk property damage insurance covering the Equipment in an amount not less than the greater of (i) the replacement value of the Equipment, or (ii) the minimum casualty value of such Equipment as set forth in the Equipment Schedule, and (B) public liability coverage in such amounts, and with such companies as are in general usage by companies owning or operating similar property and engaged in a business similar to Lessees. The insurance required by this Section 9 may be obtained by Lessee by endorsement on any blanket insurance policies maintained by Lessee or its parent. All insurance so maintained shall provide for a thirty-day (30) prior written notice to Lessor and Assignee of any cancellation or reduction of coverages and an option in favor of Lessor or Assignee to prevent cancellation by payment of premiums, which shall promptly be repaid by Lessee, and further shall provide that all insurance proceeds shall be payable to the Lessee, Lessor and any Assignee as their respective interests may appear. Lessor and any such Assignee shall be named as loss payee and additional insured on all public liability insurance policies so maintained. Lessee shall furnish to Lessor copies of such insurance policies and satisfactory insurance certificates on or before the Installation Date. Lessee's above obligation shall commence on the date of delivery of the Equipment and shall continue until the Initial Term (or any extension or renewal thereof) of each Equipment Schedule expires and the Equipment is returned to Lessor. By this Section 9, Lessor does not modify or limit any provision of this Lease relating to disclaimer of warranties and liability, or indemnity.

 

Lessee assumes all risk and liabilities, whether or not covered by insurance, and shall indemnify and hold Lessor and its assigns (including any Assignee) harmless of and from any liability, claim, loss, damage or expense (including reasonable attorneys' fees) for injuries or deaths of persons and for damage to property, howsoever arising from or incident to the use, operation or storage of the Equipment, whether such injury or death to person be of agents or employees of Lessee or be of third persons and whether such damage to property be of Lessee, or to property of others.

 

10. MAINTENANCE, REPAIRS, INSTALLATION AND RETURN:

Unless otherwise agreed to by Lessor in writing, Lessee shall, at its expense, obtain and keep in full effect, throughout the term of this Lease, a contract from the manufacturer of the Equipment (or another reputable maintenance organization approved by Lessor) providing for prime shift maintenance service (as that term is defined by the manufacturer) and will otherwise maintain the Equipment in good working order and appearance and make all necessary adjustments and repairs thereto. Lessee will at all times cooperate with Lessor in allowing the manufacturer or Lessor to control and install all engineering changes on the Equipment as when determined necessary or desirable by the manufacturer or Lessor. Upon termination of the Lease, Lessee, at its sole expense, shall return the Equipment, together with manufacturer's certificate of authenticity, if provided, to Lessor, or to such other location within the Continental U.S. designated by Lessor, in good condition and repair excepting only reasonable wear and tear, and eligible for a manufacturer's standard, full service maintenance contract. If the Equipment returned is not so eligible, Lessee shall reimburse Lessor for the cost of qualifying the Equipment for such maintenance contract eligibility. Lessee shall pack the Equipment to be so returned in accordance with the manufacturer's guidelines.

 

If Lessee fails to return the Equipment in accordance with the preceding paragraph upon the expiration of the Initial Term or any extension thereof, Lessee shall be obligated to pay to Lessor per diem rent until the Equipment is returned in addition to all other remedies available to Lessor pursuant to Section 16 hereunder.

 

Lessee will provide the required suitable electric current to operate the Equipment, with all appropriate facilities as specified by the manufacturer. Lessee will grant access to the Equipment to Lessor, its designee, or the manufacturer, during normal working hours for inspection, repair, maintenance, installation or engineering changes, and for any other reasonable purpose. Lessee shall immediately notify Lessor of all details concerning any accident arising out of the alleged or apparent improper manufacture, functioning or operation of the Equipment.

 

11.  ALTERATION AND ATTACHMENTS:

No alterations or attachments to the Equipment shall be made without first obtaining in each instance the prior written approval of Lessor, which approval shall not unreasonably be withheld. If, after such written approval has been obtained, the alterations or attachments interfere with the normal or satisfactory maintenance, operation or insurability of the Equipment, or any part thereof, in such manner as to increase the cost of maintenance or insurance thereof, or create a safety hazard, Lessee will, upon notice from Lessor to that effect, promptly remove the alterations or attachments and restore the Equipment to its normal condition. In the case of increased cost of maintenance and insurance, or either, Lessee shall pay such increase.

 

12.  ASSIGNMENTS:

Lessee may not assign the Lease or any of Lessee's rights hereunder or sublease any Equipment or its use without the prior written consent of Lessor or any such assignment or sublease shall be void. Any permitted sublessee or assignee of Lessee must execute an assumption of this Lease in form and substance acceptable to Lessor, but no sublease or assignment shall relieve Lessee of any of its obligations or liabilities under this Lease.

 

Lessor may assign or transfer this Lease to an assignee or may grant a security interest in all or part of this Lease, the Equipment and/or sums payable hereunder as collateral security for any loans or advances made or to be made to Lessor by a financial institution (such assignee or financial institution, herein, the "Assignee"), Lessee hereby consents to such assignment, transfer and/or grant of security interest. Lessee, upon receipt of notice of any such transfer, assignment, or grant to an Assignee and instructions from Lessor, shall pay all outstanding Monthly Rental Payments and all other sums when due under this Lease (hereafter, collectively, the "Payments"), to such Assignee in the manner specified in said instructions, and Lessee's obligation to make the Payments to such Assignee shall be absolute and unconditional. Upon notice of any intended transfer, assignment, or granting of a security interest: (a) Lessee shall promptly submit to Lessor such documents as may be reasonably required by the intended Assignee, in form and substance satisfactory to the intended Assignee, including, without limitation: (i) A certificate that the equipment was delivered and accepted; (2) if Lessee is a corporation, a certified copy of resolutions adopted by Lessee's Board of Directors authorizing execution of the Lease; (3) an acknowledgement to the Lessor's transfer, assignment or granting of a security interest; (4) a UCC Financing Statement; (b) In the event of any such assignment, transfer, or granting of a security interest: (1) Lessee shall send copies of any notices which are required hereunder to be sent to Lessor to the Assignee as well as to Lessor; (2) Lessee shall not permit the Lease to be amended or any provision thereof to be waived without the prior written consent of the Assignee; (3) Lessee agrees not to look to the Assignee to perform any of Lessor's obligations hereunder; (4) Lessee agrees that Assignee shall be exclusively entitled to all of the rights and remedies provided to the Lessor under the Lease; (c) no such transfer, assignment or granting of a security interest by Lessor shall relieve Lessor of any of its obligations hereunder the Lease, or shall limit Lessee's rights to look to Lessor for the performance for such obligations.

 

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Notwithstanding any assignment, transfer or grant by Lessor, and so long as the Lessee shall not be in default hereunder, neither Lessor, nor any Assignee, shall interfere with Lessee's right of quiet enjoyment and use of the Equipment. In the event that Lessor notifies Lessee of its intention to transfer, assign, or grant a security interest in all or any part of this Lease, the Equipment and/or sums payable hereunder, Lessee agrees to execute such documents as may be reasonably necessary to secure and/or complete such transfer, assignment or grant.

 

13.  USE OF EQUIPMENT:

The Equipment will be kept by Lessee in its sole possession and control, will at all times be located at the location stated in the Equipment Schedule, and will not be removed therefrom, without prior written consent of Lessor, which shall not be unreasonably withheld. Notwithstanding the preceding sentence, Lessor shall allow Lessee, in the normal course of Lessee's business, to locate Equipment at Lessee's customer premises where Lessee has an existing contract with said customer to provide services and where delivery of such services requires Equipment to be located at Lessee's customer's premises. Lessee shall provide to Lessor the address of Equipment located at customer premises as soon as it is reasonably available and provide updated address should Equipment be re-located during the Lease. Lessee and Lessee's applicable customers will not use the Equipment for any purpose other than which it was designed and in accordance with the manufacturer's specification. Lessee and Lessee's applicable customers will keep and maintain the Equipment free and clear of all liens, charges and encumbrances (except any placed thereon by Lessor). This Lease shall be binding upon, and shall inure to, the benefit of the parties hereto and their respective successors and assigns.

 

14.  TRANSPORTATION AND INSTALLATION:

The Equipment is to be installed at the location indicated on the Equipment Schedule.

 

All transportation, rigging, drayage, and any other charges for the delivery of the Equipment to Lessee's premises shall be paid by the Lessee, unless indicated otherwise on the Equipment Schedule. All installation charges shall be paid by Lessee unless indicated otherwise on the Equipment Schedule. All charges for the deinstallation shall be paid by Lessee. Transportation, rigging, and drayage from Lessee's premises at the termination of the Lease shall be arranged for by Lessor and paid by Lessee.

 

15.  DEFAULT:

Any one of the following events shall constitute an "Event of Default" hereunder: (a) Lessee shall fail to pay when due any installment of rent or other amount due hereunder; (b) Lessee shall fail to observe or perform any other agreement to be observed or performed by Lessee hereunder; (c) Lessee, any guarantor of the Lease, or any partner of Lessee if Lessee is a partnership shall cease doing business as a going concern or make an assignment for the benefit of creditors; (d) Lessee, any guarantor of the Lease, or any partner of Lessee if Lessee is a partnership shall voluntarily file, take any action to authorize the filing, or have filed against it involuntarily, a petition for liquidation, reorganization, adjustment of debt or similar relief under the federal or state bankruptcy or insolvency law; (e) a trustee, receiver, or liquidator be appointed for Lessee, any guarantor of the Lease, or for all or a substantial part of the assets of Lessee or any guarantor; (f) any individual Lessee or individual guarantor of the Lease, or partner of Lessee if Lessee is a partnership, shall die; (g) an event of default shall occur under any other obligation Lessee or any guarantor of the Lease owes to Lessor; (h) an event of default by Lessee shall occur under any agreement involving Lessee's or a guarantor's indebtedness to a lender for borrowed money; or (i) Lessee shall have terminated its corporate existence, consolidated with, merged into, or conveyed or leased substantially all of its assets as an entity to any person unless:(i) such person executes and delivers to Lessor an agreement satisfactory in form and substance to Lessor, in its sole discretion, containing such person's effective assumption and its agreement to pay, perform, comply with and otherwise be liable for all of Lessee's obligations having previously arisen, or then or thereafter arising, under the Lease together with any documents, Agreements investments, certificates, opinions and filings by Lessor; and (ii) Lessor (and any Assignee) is satisfied as to the creditworthiness of such person.

 

16.  REMEDIES:

Upon the occurrence of an Event of Default and at any time thereafter, Lessor or Assignee may exercise from time to time any one or more of the following remedies: (a) terminate this Lease as to any portion or all of the Equipment; (b) take immediate possession of any or all of the Equipment; wherever situated, and for such purpose enter upon any premises without liability for so doing or requirement to post bond in any legal proceeding; (c) hold, use, lease, sell or otherwise dispose of any or all of the Equipment in such manner as Lessor in its sole discretion may decide. With respect to any exercise of its rights to recover and/or dispose of any Equipment, Lessee acknowledges and agrees that Lessor shall have no obligation, subject to the requirements of commercial reasonableness, to clean up or otherwise prepare the Equipment for disposition; (d) accelerate the due date of all remaining rent payments due hereunder for the entire remaining Initial Term of this Lease or any amendment thereto, including any renewal term then in effect, whereupon said amounts shall be immediately due and payable; (e) recover the sum of: (i) any accrued and unpaid rent, plus (ii) the present value of all future rentals reserved in this Lease and contracted to be paid over the unexpired Initial Term of this Lease (or any renewal period then in effect), discounted at the rate of four percent (4%) per annum; plus (iii) the anticipated residual value of the Equipment as of the expiration of this Lease or any renewal thereof discounted at the rate of four percent (4%) per annum, (iv) any indemnity payment, if then determinable; (v) all reasonable costs and expenses incurred by Lessor in any repossession, recovery, storage, repair, sale, re­lease or other disposition of the Equipment, including but not limited to costs of transportation, possession, storage, refurbishing, advertising and broker's fees together with all attorney's fees and cost incurred in connection therewith or otherwise resulting from Lessee's default (including any incurred at trial, on appeal or any other proceeding) of the foregoing at the rate of one and one-half (1 1/2%) per month ("default interest") (f) expend such monies as Lessor deems appropriate to cure or mitigate the effect of the Event of Default, or to protect the Lessor's interest in the Equipment and this Lease, with all such sums to be immediately reimbursed to Lessor by Lessee; (g) setoff Lessee's security deposit or any other property of Lessee held by Lessor against any amount owed by Lessee to Lessor; and (h) exercise any other remedy permitted by law, equity or any other agreements with Lessee or any guarantor of this Lease. No remedy given in this paragraph is intended to be exclusive and each shall be cumulative. No express or implied waiver by Lessor of any Event of Default shall constitute a waiver of any subsequent Event of Default.

 

 

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17.  REPRESENTATIONS AND WARRANTIES BY LESSEE: 

Lessee represents and warrants to Lessor that: (a) the Lease constitutes the Lessee's legal, valid and binding obligation and is enforceable against Lessee in accordance with its terms; (b) Lessee's entry into and performance under the Lease will not result in any breach, default or violation under Lessee's charter documents (articles of incorporation and bylaws in the case of a corporation or partnership agreement in the case of a partnership or articles of organization and operating agreement in the case of a limited liability company) or any other agreement to which Lessee is a party or to which it or its property is subject; (c) there are no suits or proceedings pending or threatened before any court, government agency or arbitrator which, if determined adversely to Lessee, would have a material adverse effect on its financial condition or ability to perform its obligations under the Lease; (d) that any financial statements or other information which Lessee has fumished Lessor concerning the business or condition of Lessee was true, correct and complete at the time furnished or as of the date of such financial statements; (e) the Equipment shall remain personal property; with respect to any Equipment that is the subject of any sale and leaseback transaction pursuant hereto, Lessee has good title to, rights in, and/or power to transfer all of the same. The Equipment is removable from and is not essential to the premises upon which it is located regardless of its attachment to realty, and Lessee agrees to take such action at its expense as may be necessary to prevent any third party from acquiring any interest in the Equipment as a result of its attachment to realty with respect to all of the Equipment leased hereto.

 

18. GENERAL:

A.    The Equipment remains the personal property of Lessor and may be removed at any time, without notice, after termination of this Lease. The Equipment is removable from and is not essential to the premises at which the Equipment is located.

 

B.    At Lessor's request, Lessee shall affix to the Equipment and each unit or element thereof, in a prominent place, appropriate tags, decals, or plates stating that the Equipment is owned by Lessor, and Lessee shall not cause or permit any such tags, decals, or plates to be removed, defaced or covered in any way.

 

C.    Each Equipment Schedule (and this Master Equipment Lease to the extent incorporated therein), shall constitute the entire agreement between Lessor and Lessee with respect to the lease of the Equipment described in each Equipment Schedule. No waiver, consent, modification or change of terms of this Lease shall bind either party, including Lessor's Assignee, unless in writing and signed by an officer of the waiving party, and then such waiver, consent, modification or change shall be effective only in the specific instance and for the specific purpose given.

 

D.    Each Equipment Schedule shall be executed in counterparts. Only that counterpart of an Equipment Schedule marked "Secured Party's Original" (together with a copy of this Master Equipment Lease) shall constitute "chattel paper" under the UCC and be effective to transfer Lessor's rights therein and all other counterparts of such Equipment Schedule have been marked to indicate that they are not the "Secured Party's Original."

 

E.    All notices and other communications hereunder shall be in writing and shall be transmitted by hand, overnight courier, United States first class mail or certified mail (return receipt requested), postage prepaid. Such notices and other communications shall be addressed to the respective party at the address set forth above or at such other address as any party may from time to time designate by notice duly given in accordance with this section. Notices shall be deemed received on the earlier of (i) three days after deposit, postage prepaid, in the United States mail, if sent by United States first class, certified, or registered mail; (ii) the next day after delivery to an overnight courier, expenses prepaid, or (iii) the date of actual delivery if delivered by hand.

 

F.    Any provision hereof prohibited by, or unlawful or unenforceable under, any applicable law of any jurisdiction shall, at the sole option of the Lessor, be ineffective as to such jurisdiction without invalidating the remaining provisions of this Lease; provided, however, that where the provisions of any such applicable law may be waived, they are hereby waived by Lessee to the full extent permitted by law, and this shall be deemed to be a valid and binding Lease enforceable in accordance with its terms.

 

H.  TITLE:

Title to the Equipment shall at all times remain with Lessor and Lessee shall protect and defend the title of Lessor and keep it free of all claims and liens other than those of Lessee hereunder or created by Lessor. If the Lease shall be construed by a court to be a lease "intended as security" and not a "true" lease, then Lessee, to secure all of Lessee's payment and performance obligations under the Lease, hereby grants to Lessor a first priority security interest in the Equipment and any and all insurance or other proceeds of the property and other collateral to which a security interest is granted.

 

I.    This Lease shall be binding upon and inure to the benefit of Lessor and Lessee and their respective successors, assigns and permitted sublessees (subject, with respect to Lessee, to the provisions of Section 12 setting forth restrictions on Lessee's ability to assign this Lease or sublease the Equipment).

 

J.    Lessee hereby authorizes Lessor to execute and/or file against Lessee in any public filing office deemed advisable by Lessor, any and all UCC financing statements (and amendments thereto) describing the Equipment and this Lease, and Lessee further irrevocably appoints Lessor as Lessee's attorney in fact to execute and/or file any and all such UCC financing statements (and amendments thereto) as Lessor considers advisable.

 

The filing of UCC Financing Statements against Lessee is precautionary and shall not be evidence that the Lease is intended as security.

 

K.    Notwithstanding any other provisions of this Lease Agreement to the contrary, Lessee agrees, following the execution of the Lease by Lessee, to provide to Lessor at Lessor's demand, from time to time, any and all information reasonably required to establish Lessee's creditworthiness, including, but not limited to, financial statements and profit and loss statements, for the current period and for the proceeding three fiscal years. Lessor agrees that such information shall be kept confidential.

 

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During the term of the Lease, as an additional condition of Lessee's performance, Lessee agrees to provide financial statements to Lessor within a reasonable period following the end of Lessee's fiscal year.

 

Lessee and Lessor do each hereby warrant and represent that their respective signatories whose signatures appear below have been and are on the date of this Lease duly authorized by all necessary and appropriate action to execute this Lease.

 

L. This Lease shall be governed by the laws of the State of Minnesota (without giving effect to principles of conflicts of law thereof). Lessee hereby: (i) irrevocably submits to the jurisdiction of any state or federal court located in Minnesota, over any action or proceeding to enforce or defend any matter arising from or related to this Lease; (ii) irrevocably waives, to the fullest extent Lessee may effectively do so, the defense of an inconvenient forum to the maintenance of any such action or proceeding; and (iii) agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in any other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this paragraph shall affect or impair Lessor's right to serve legal process in any manner permitted by law or Lessor's right to bring any action or proceeding against Lessee or its property in the courts of any other jurisdiction.

 

M. LESSEE AND LESSOR HEREBY WAIVE THE RIGHT TO TRIAL BY JURY OF ANY MATTERS ARISING OUT OF THIS LEASE OR ANY OTHER AGREEMENT EXECUTED IN CONNECTION HEREWITH.

 

 

 

 

IN WITNESS WHEREOF, Lessor and Lessee have executed this Master Equipment Lease on the dates specified below. This Master Equipment Lease shall not become effective until accepted by Lessor, as evidenced by its signature below.

617160.5

 

 

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INCUMBENCY CERTIFICATE

 

The undersigned certifies that (s)he is  Kendra Berger               Secretary of  NTN Buzztime, Inc.               , a Corporation organized under the laws of the State of Delaware            (hereinafter called "the Corporation") and that, as such, (s)he is authorized to execute this certificate on behalf of the Corporation, and further certifies that each of the persons specified below is a duly elected, qualified and acting officer of the Corporation, in the capacity or capacities so specified, and that the signature appearing opposite his or her name is his or her true signature.

 

 

	NAME 	TITLE	SIGNATURE
	 	 	 
	Kendra Berger	CFO and Secretary	/s/ Kendra Berger
	 	 	 
	Terry Bateman	CEO and President	/s/ Terry Bateman
	 	 	 
	 	 	 

 

The undersigned, on behalf of the Corporation, further certifies, covenants and represents as follows:

 

1.           That any of the foregoing named officers is duly authorized on behalf of the Corporation to execute and deliver any Promissory Note, Security Agreement, Loan Agreement, Equipment Lease Agreement, Equipment Purchase Agreement, Equipment Sale Agreement, Bill of Sale, Completion Certificate, Assignment, UCC forms and other related documents to Data Sales Co., Inc. and to bind the Corporation thereby, until directed otherwise by the Board of Directors of the Corporation. Any modification or rescission of the authority described herein by the Board of Directors of the Corporation shall be mailed or delivered to Data Sales Co., Inc. in order to be effective.

 

2.           That the Corporation is duly organized, existing and in good standing under the laws of the State of it's incorporation.

 

3.           That the documents referred to in Paragraph 1 above, when executed, constitute the legal, valid and binding obligations of the Corporation, enforceable in accordance with their respective terms.

 

4.           That the authorization, execution, delivery and performance of said documents do not violate any provision of the Corporation's certificate of Incorporation or By-Laws or any restrictions imposed upon the Corporation by any governmental authority or court and do not result in the breach of any encumbrance or security interest upon any asset of the Corporation under any indenture, agreement, or instrument to which the Corporation is a party.

 

		 	
Dated and Sealed this         7th       day of   October, 2009        

 

(Corporate Seal)

____________________________________________

 

Kendra Berger,                                             Secretary

	 	 	 

 

 

  

  

  

 

MINIMUM CASUALTY VALUE

FOR ALL EQUIPMENT SCHEDULES

To

MASTER LEASE 3-10125 AGREEMENT DATED 9/29/09

Between data sales co., Inc. ("Lessor")

And                                NTN Buzztime. Inc.                              ("Lessee")

 

Pursuant to Article 8B (ii) of the Master Lease Agreement, the Minimum Casualty Value payable with respect to any item of Equipment in the above referenced Equipment Schedule will be the percent of Lessor's Acquisition Cost of such item set forth opposite the Monthly Rental Payment number due on the date such Minimum Casualty Value is payable.

 

Payment of the Minimum Casualty Value will be in addition to the then due Monthly Rental Payment for the Equipment.

 

	
On Due Date of 

Monthly Rental 

Payment No.

	
Percentage of the 

Acquisition Cost 

Of the Equipment

	
On Due Date of 

Monthly Rental 

Payment No.

	
Percentage of the

Acquisition Cost 

Of the Equipment

	 	 	 	 
	
1

	
110%

	
25

	
60%

	
2

	
110%

	
26

	
60%

	
3

	
110%

	
27

	
60%

	
4

	
110%

	
28

	
60%

	
5

	
110%

	
29

	
60%

	
6

	
110%

	
30

	
60%

	
7

	
100%

	
31

	
50%

	
8

	
100%

	
32

	
50%

	
9

	
100%

	
33

	
50%

	
10

	
100%

	
34

	
50%

	
11

	
100%

	
35

	
50%

	
12

	
100%

	
36

	
50%

	
13

	
80%

	
37

	
40%

	
14

	
80%

	
38

	
40%

	
15

	
80%

	
39

	
40%

	
16

	
80%

	
40

	
40%

	
17

	
70%

	
41

	
35%

	
18

	
70%

	
42

	
35%

	
19

	
70%

	
43

	
35%

	
20

	
70%

	
44

	
35%

	
21

	
70%

	
45

	
35%

	
22

	
70%

	
46

	
35%

	
23

	
70%

	
47

	
35%

	
24

	
70%

	
48

	
35%

  

  

  

 

Addendum A

Credit for shipment delay

 

Due to the delay in shipping product to Buzztime, DMS agrees to the following changes in the contract:

 

1. Penalty for delay in original production schedule:

 

	
  

	
●

	
DM Sourcing agrees to issue a credit of $26 per unit for 1,500 Playmaker units that must be purchased from another manufacturer.

	
  

	
●

	
Total credit will be $39,000.

	
  

	
●

	
The credit will be applied against the first three 1,000-unit orders placed with DM Sourcing:

	 	
▪

	
First order: $13,000 credit to be deducted from invoice total

	 	
▪

	
Second order: $13,000 credit to be deducted from invoice total

	 	
▪

	
Third order: $13,000 credit to be deducted from invoice total

	 	
●

	
NTN Buzztime's total purchase commitment will be reduced by 1,500 units to 28,500.

 

2. Contingent penalty for future delays:

 

In the event that DM Sourcing fails to deliver Beta test units by September 17, 2009, the following penalty terms will apply:

 

	
  

	
●

	
DM agrees to issue a credit of $26 per unit for 3,000 Playmaker units that must be sourced from another manufacturer.

	 	
●

	
Total credit will be $26,000.

	
  

	
●

	
The credit will be applied against the fourth and fifth 1,000-unit orders placed with DM Sourcing: 

	 	
▪

	
 Fourth order: $13,000 credit to be deducted from invoice total

	 	
▪

	
 Fifth order: $13,000 credit to be deducted from invoice total

	 	
●

	
NTN Buzztime's total purchase commitment will be reduced by 1,000 units to 27,500.

 

	 	
●

	
If the September 17 Beta unit delivery milestone is not met, NTN Buzztime in its sole discretion shall have the right to terminate the agreement.

 

	 	
●

	
Should Approved product not be available to NTN Buzztime by December 1, 2009 —NTN Buzztime will have the right to terminate the agreement and DMS will refund the entire deposit of $38,000.

 

 

 

 

  

  

  

 

 

		
Revocable Assignment

For

Third Party Leasing

 

 

 

  

  

  

 

		 	
Revocable Assignment

For

Third Party Leasing

Customer, (as set forth below), hereby assigns to Assignee, (as set forth below), under the terms and conditions in this Assignment, its rights to purchase equipment and related software and services (the "Products") from Dell Marketing L.P. ("Dell"). The Products will be sold to Assignee under the terms and conditions of this Assignment and Dell's terms and conditions of sale set as forth on the applicable invoice(s) between Assignee and Dell (collectively, the "Sales Documents").

 

	
1.

	
Assignment. Assignee, or Customer on behalf of Assignee, will provide to Dell the purchase order(s) for each order of the Products and in such purchase order(s) will indicate that Assignee is purchasing from Dell for lease to Customer. Customer and Assignee understand and agree that Assignee may only purchase the Products for the purpose of leasing the Products to Customer and may not purchase the Products for its own use or to lease or sell to other third parties.

 

Consent to Assignment effective dates: the period of 9/23/2009 to 9/22/2010

 

	
2.

	
Customer's Continuing Responsibility. Customer agrees that it shall remain liable and responsible for all obligations under the Sales Documents regardless of whether Assignee has executed this Assignment. Assignee's payment obligation under this Assignment is to pay Dell within five (5) business days of the date Customer accepts the Products under the terms of the lease between Assignee as Lessor and Customer as Lessee. However, if Dell has not received payment from Assignee within thirty (30) days of Dell's invoice, Customer agrees to pay to Dell within five (5) days of Dell's request for all invoice balances due on all Products except any Product that Dell has accepted for return under the Dell Total Satisfaction Return Policy. In addition to Dell's other remedies, Dell may discontinue providing warranty, service and technical support or hold shipments if payments to Dell are late.

 

	
3.

	
Warranties, Licenses and Service. Assignee agrees that all rights with respect to warranties, licenses and service, and all rights under the Sales Documents, other than ownership rights of equipment, shall be for the benefit of Customer.

 

	
4.

	
Approval of Subsequent Assignments. Assignee may not assign its rights and obligations under this Assignment or the Sales Documents without Dell's prior written approval.

 

	
5.

	
Integration/Modifications. This Assignment constitutes the entire agreement and understanding between the parties on the subject matter hereof and supersedes and merges all prior agreements related thereto. No modification of or amendment to this Assignment shall be effective unless in writing signed by the parties and stating the parties' intent by such instrument to amend this Assignment. This Assignment shall not be supplemented or modified by any course of dealing or other trade usage.

	  

	
The parties have signed this Assignment on the dates below their signatures. The effective date of this Assignment is the latest of those dates.

 

 

	
NTN Buzztime, Inc.

	 	Date Sales Co., Inc.
	Customer Assignor	 	Leasing Company/Assignee
	 	 	 	 	 
	
By:

	/s/ Kendra Berger	 	By:	/s/ Paul C. Breckner
	 	 	 	 	
Paul C. Breckner

President/CEO

	 	 	 	 	 
	Date:	10/1/09	 	Date:	9/29/09
	 	 	 	 	 
	
Dell Marketing L. P.

	 	 	 
	 	 	 	 	 
	
By:

	 	 	 	 
	 	 	 	 	 
	Date:aethlon_ex1001.htm

EXHIBIT 10.1

 

THIS AMENDED AND RESTATED CONVERTIBLE PROMISSORY NOTE AMENDS AND RESTATES THE CONVERTIBLE PROMISSORY NOTE WHICH WAS ORIGINALLY ISSUED BY THE COMPANY TO THE HOLDER (AS DEFINED BELOW) ON FEBRUARY 12, 2010 (“ORIGINAL ISSUANCE DATE”).  THE HOLDER DID NOT PAY ANY ADDITIONAL CONSIDERATION FOR THE AMENDMENTS MADE TO THIS NOTE, AND FOR PURPOSES OF RULE 144 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, THIS NOTE SHALL BE DEEMED TO HAVE BEEN ISSUED ON ORIGINAL ISSUANCE DATE.

	
Principal Amount: $740,578.00

	  	
Issue Date: February 15, 2011

AMENDED AND RESTATED CONVERTIBLE PROMISSORY NOTE

FOR VALUE RECEIVED, AETHLON MEDICAL, INC., a Nevada corporation (hereinafter called “Borrower”), hereby promises to pay to the order of GEMINI MASTER FUND, LTD., c/o Gemini Strategies, LLC, 135 Liverpool Drive, Suite C, Cardiff, California 92007 (the “Holder”), without demand, the sum of Seven Hundred Forty Thousand Five Hundred Seventy-Eight  Dollars ($740,578.00 ) (“Principal Amount”), with interest accruing thereon, on October 1, 2011 (the “Maturity Date”), if not sooner paid.  This Note Amends and Restates in its entirety the Note issued by Borrower to Holder on February 12, 2010.

This Convertible Promissory Note (“Note”) is being issued pursuant to that certain Securities Purchase Agreement entered into between the Borrower and the Holder dated February12, 2010 (“Securities Purchase Agreement” or “Subscription Agreement”); capitalized terms used herein and not otherwise defined shall have the meaning set forth in the Subscription Agreement.

ARTICLE I

GENERAL PROVISIONS

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

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

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

 

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

 

 

  

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ARTICLE II

CONVERSION RIGHTS

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

2.1.           Conversion into the Borrower's Common Stock.

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

(b) Subject to adjustment as provided in Section 2.1(c) hereof, the conversion price per share shall be equal to eighty percent (80%) of the average of the three lowest closing bid prices of the Common Stock as reported by Bloomberg L.P. on the Principal Market for the twenty (20) trading days preceding the Conversion Date, provided that in no event will the Conversion Price be more than $0.30 (“Max Price”).  For clarification, in connection with any adjustment to the Conversion Price pursuant to subsection (c) below, such Max Price figure shall be adjusted accordingly.

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

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

 

 

  

2

  

 

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

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

 

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

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

 

 

  

3

  

 

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

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

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

 

2.3.             Maximum Conversion; Common Stock Issuance Limitation.

(A)  Notwithstanding anything to the contrary contained herein, the Borrower shall not effect any conversion of this Note, and the Holder shall not have the right to convert any portion of this Note (or otherwise acquire Conversion Shares with respect to this Note), to the extent that after giving effect to the issuance of Common Stock upon such conversion (or other issuance), the Holder Group would beneficially own in excess of the Maximum Ownership Percentage of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock upon such conversion (including for such purpose the shares of Common Stock issuable upon such conversion or issuance) (“Beneficial Ownership Limitation”).  For purposes of calculating the Beneficial Ownership Limitation, the number of shares of Common Stock beneficially owned by the Holder Group shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder (including without limitation Regulation 13D-G), provided, however, that such beneficial ownership shall exclude any shares of Common Stock issuable upon conversion, exchange or exercise of (or purchase of Common Stock under) any Convertible Securities or Options outstanding at the time of determination and beneficially owned by the Holder Group which contain a limitation on conversion, exchange, exercise or purchase analogous to the Beneficial Ownership Limitation contained herein.  To the extent that the Beneficial Ownership Limitation contained herein applies, the determination of whether and to what extent this Note is convertible (vis-à-vis other Convertible Securities or Options, including without limitation other Notes and the Warrant, beneficially owned by the Holder Group) shall be on the basis of first submission to the Borrower for conversion, exchange, exercise or purchase, as the case may be, or as otherwise determined in the sole discretion of the Holder, and the submission of a Notice of Conversion shall be deemed to be the Holder’s determination of whether and to what extent this Note is convertible (vis-à-vis such other Convertible Securities or Options), in each case subject to the Beneficial Ownership Limitation.  In determining the number of outstanding shares of Common Stock for purposes of calculating the Beneficial Ownership Limitation, the Holder may rely on the number of outstanding shares of Common Stock as reflected in (i) the Borrower’s most recent Periodic Report containing such information, (ii) a more recent public announcement by the Borrower, or (iii) any other notice or disclosure by the Borrower or the Borrower’s Transfer Agent setting forth the number of shares of Common Stock outstanding, and the Holder may rely on knowledge it may have concerning any shares of Common Stock issued which are not reflected in the preceding clauses (i) through (iii) (e.g., issuances to the Holder upon a prior Note conversion since the date as of which such number of outstanding shares of Common Stock was reported).  Upon the written or oral request of the Holder, the Borrower shall within two (2) Business Days confirm orally and in writing to the Holder the number of shares of Common Stock then outstanding.  Each delivery of a Notice of Conversion by the Holder will constitute a representation by the Holder that it has evaluated the limitation set forth in this Section 4(c) and determined, based on this Section 4(c), that the issuance of the full number of Conversion Shares requested in such Notice of Conversion is permitted under this Section 4(c), and the Borrower shall have no obligation to verify or confirm such determination.  No conversion of this Note in violation of this Section 4(c) but otherwise in accordance with this Note shall affect the status of the Conversion Shares as validly issued, fully-paid and nonassessable.  By written notice to the Borrower, the Holder may at any time and from time to time increase or decrease the Maximum Ownership Percentage to any other percentage specified in such notice (or specify that the Beneficial Ownership Limitation shall no longer be applicable), provided, however, that (A) any such increase (or inapplicability) shall not be effective until the sixty-first (61st) day after such notice is delivered to the Borrower, (B) any such increase or decrease shall apply only to the Holder and not to any other holder of Notes, and (C) the Maximum Ownership Percentage shall not be less than 4.9%.  The provisions of this Section 4(c) shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 4(c) to correct this provision (or any portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership Limitation contained herein or to make changes or supplements necessary or desirable to properly give effect to such limitation.  The Beneficial Ownership Limitation contained in this Section shall apply to a successor Holder of this Note.  If at any time the Beneficial Ownership Limitation makes this Note unconvertible in whole or in part, the Borrower shall not by reason thereof be relieved of its obligation to issue shares of Common Stock at any time or from time to time thereafter upon conversion of this Note as and when shares of Common Stock may be issued in compliance with such limitation. Notwithstanding any provision of this Note or any other Transaction Document to the contrary, as of the date of this Note, the Maximum Ownership Percentage calculated in accordance with this Section 2.3(A) shall equal 9.99%.

 

  

4

  

 

(B)             Notwithstanding any provision of this Note or any other Transaction Document to the contrary, the number of shares of Common Stock that may be issued to the Holder pursuant to a conversion of this Note after the date hereof, combined with an exercise of the Exchange Warrant (as defined in the Settlement Agreement dated as of November 22, 2010 between Holder and the Borrower (the "Settlement Agreement")), shall not exceed a cap determined by (a) dividing the sum of (i) the original principal amount of the Note ($740,578), plus (ii) an amount equal to all interest that would accrue under the Note during its term (assuming no payment of principal or interest are made after the date hereof but prior to the Maturity Date), by a price per share of Common Stock equal to $0.16 (subject to adjustment pursuant to Section 2.1(c) of this Note) and (b) then adding the sum calculated pursuant to the foregoing clause (a) to the maximum number of Warrant Shares (as defined in the Exchange Warrant) that may be acquired by the holder thereof upon exercise of the Exchange Warrant (regardless of whether such exercise is a cashless exercise).

2.4           Delivery of Conversion Shares.

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

(b) Within three (3) business days (such third business day being the "Unlegended Shares Delivery Date") after the business day on which the Borrower has received (i) a notice that Conversion Shares, or any other Common Stock held by Holder has been sold pursuant to a registration statement or Rule 144 under the 1933 Act, (ii) a representation that the prospectus delivery requirements, or the requirements of Rule 144, as applicable and if required, have been satisfied, (iii) the original share certificates representing the shares of Common Stock that have been sold, and (iv) in the case of sales under Rule 144, customary representation letters of the Holder and, if required, Holder's broker regarding compliance with the requirements of Rule 144, the Borrower at its expense, (y) shall deliver, and shall cause legal counsel selected by the Borrower to deliver to its transfer agent (with copies to Holder) an appropriate instruction and opinion of such counsel, directing the delivery of shares of Common Stock without any legends (the "Unlegended Shares"); and (z) cause the transmission of the certificates representing the Unlegended Shares together with a legended certificate representing the balance of the submitted Common Stock certificate, if any, to the Holder at the address specified in the notice of sale, via express courier, by electronic transfer or otherwise on or before the Unlegended Shares Delivery Date.

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

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

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

 

 

  

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(f) In addition to any other rights available to Holder, if the Borrower fails to deliver to a Holder Unlegended Shares as required pursuant to this Note and after the Unlegended Shares Delivery Date, the Holder or a broker on the Holder's behalf, purchases (in an open market transaction or otherwise) shares of common stock to deliver in satisfaction of a sale by such Holder of the shares of Common Stock which the Holder was entitled to receive from the Borrower (a "Buy-In"), then the Borrower shall pay in cash to the Holder (in addition to any remedies available to or elected by the Holder) the amount by which (A) the Holder's total purchase price (including brokerage commissions, if any) for the shares of common stock so purchased exceeds (B) the aggregate purchase price of the shares of Common Stock delivered to the Borrower for reissuance as Unlegended Shares together with interest thereon at a rate of 15% per annum accruing until such amount and any accrued interest thereon is paid in full (which amount shall be paid as liquidated damages and not as a penalty). For example, if a Holder purchases shares of Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to $10,000 of purchase price of shares of Common Stock delivered to the Borrower for reissuance as Unlegended Shares, the Borrower shall be required to pay the Holder $1,000, plus interest. The Holder shall provide the Borrower written notice indicating the amounts payable to the Holder in respect of the Buy-In.

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

ARTICLE III

 

EVENT OF DEFAULT

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

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

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

 

 

  

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

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

 

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

 

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

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

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

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

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

3.11           Non-Payment.   A default by the Borrower under any one or more obligations in an aggregate monetary amount in excess of $100,000 for more than twenty (20) days after the due date, unless the Borrower is contesting the validity of such obligation in good faith.

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

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

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

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

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

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

 

  

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ARTICLE IV

MISCELLANEOUS

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

 

4.2           Notices.  All notices, demands, requests, consents, approvals, and other communications required or permitted hereunder shall be in writing and, unless otherwise specified herein, shall be (i) personally served, (ii) deposited in the mail, registered or certified, return receipt requested, postage prepaid, (iii) delivered by reputable air courier service with charges prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile (or email of a PDF or similar image format file for delivery of Notices of Conversion), addressed as set forth below or to such other address as such party shall have specified most recently by written notice.  Any notice or other communication required or permitted to be given hereunder shall be deemed effective (a) upon hand delivery or delivery by facsimile, with accurate confirmation generated by the transmitting facsimile machine, at the address or number designated below (if delivered on a business day during normal business hours where such notice is to be received), or the first business day following such delivery (if delivered other than on a business day during normal business hours where such notice is to be received) or (b) on the first business day following the date of mailing by express courier service, fully prepaid, addressed to such address, or upon actual receipt of such mailing, whichever shall first occur.  The addresses for such communications shall be: (i) if to the Borrower to: Aethlon Medical, Inc., 8910 University Center Lane, Suite 660, San Diego, CA 92122, Attn: James A. Joyce, CEO, facsimile: (858) 272-2738, Email: jj@aethlonmedical.com, with a copy (not for Notices of Conversion) by telecopier only to: Law Office of Jennifer A. Post, 9320 Wilshire Boulevard, Suite 306, Beverly Hills, California 90212, Attn: Jennifer A. Post, Esq., facsimile: (800) 783–2983, and (ii) if to the Holder, to the name, address and facsimile number set forth on the front page of this Note.

 

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

 

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

 

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

 

4.6           Governing Law.  This Note shall be governed by and construed in accordance with the laws of the State of New York without regard to conflicts of laws principles that would result in the application of the substantive laws of another jurisdiction.  Any action brought by either party against the other concerning the transactions contemplated by this Agreement must be brought only in the civil or state courts of New York or in the federal courts located in the State and county of New York.  Both parties and the individual signing this Agreement on behalf of the Borrower agree to submit to the jurisdiction of such courts.  The prevailing party shall be entitled to recover from the other party its reasonable attorney's fees and costs.  In the event that any provision of this Note is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law. Any such provision which may prove invalid or unenforceable under any law shall not affect the validity or unenforceability of any other provision of this Note. Nothing contained herein shall be deemed or operate to preclude the Holder from bringing suit or taking other legal action against the Borrower in any other jurisdiction to collect on the Borrower's obligations to Holder, to realize on any collateral or any other security for such obligations, or to enforce a judgment or other decision in favor of the Holder.

 

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

 

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

 

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

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

[Signature Page Follows]

 

  

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IN WITNESS WHEREOF, Borrower has caused this Note to be signed in its name by an authorized officer as of the 15th day of February, 2011.

 

AETHLON MEDICAL, INC.

 

 

By: /s/ James Joyce      

Name: James Joyce

Title: Chief Executive Officer

WITNESS:

/s/ James Frakes

 

  

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NOTICE OF CONVERSION

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

The undersigned hereby elects to convert $_________ of the principal and $_________ of the interest due on the Note issued by AETHLON MEDICAL, INC. on February 15, 2011 into Shares of Common Stock of AETHLON MEDICAL, INC. (the “Borrower”) according to the conditions set forth in such Note, as of the date written below.

Date of Conversion:____________________________________________________________________

Conversion Price:______________________________________________________________________

Number of Shares of Common Stock Beneficially Owned on the Conversion Dat AETHLON MEDICAL, INC.

Shares To Be Delivered:_________________________________________________________________

Signature:____________________________________________________________________________

Print Name:__________________________________________________________________________

Address:_____________________________________________________________________________

   ____________________________________________________________________________

 

 

 

 

 

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