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EXHIBIT 4.2
THIS CONVERTIBLE PROMISSORY NOTE (THIS
"NOTE") AND THE SHARES OF COMMON STOCK
ISSUABLE UPON THE CONVERSION HEREOF HAVE
NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), OR ANY STATE SECURITIES LAW.
NEITHER THIS NOTE NOR SUCH SHARES OF COMMON
STOCK NOR ANY INTEREST OR
PARTICIPATION HEREIN OR THEREIN MAY BE
SOLD, ASSIGNED, MORTGAGED, PLEDGED,
HYPOTHECATED, ENCUMBERED OR OTHERWISE
TRANSFERRED EXCEPT IN COMPLIANCE WITH THE
ACT AND APPLICABLE STATE SECURITIES
LAWS.
AETHLON MEDICAL, INC.
CONVERTIBLE PROMISSORY NOTE
$30,000.00
MAY 16, 2005
AETHLON MEDICAL, INC., a Nevada corporation (the "Company"), for
value
received, hereby promises to pay to Fusion
Capital Fund II, LLC or its assigns
(the "Holder"), in legal tender of the
United States of America, the principal
sum of THIRTY THOUSAND DOLLARS ($30,000.00)
on August 15, 2005 (the "Maturity
Date"), and to pay interest thereon at the
rate of fifteen percent (15%) per
annum. Interest shall accrue daily, be
compounded, and be computed on the basis
of a 360-day year and the number of actual
days elapsed.
This Convertible Promissory Note is the Convertible Promissory
Note
referred to and issued pursuant to the
terms of that certain Letter Agreement
dated as of the date hereof, by and between
the Company and Holder ("Letter
Agreement").
SECTION 1. TIME AND PLACE OF PAYMENT. (a) The entire unpaid
principal
balance of this Note, together with any
accrued and unpaid interest thereon,
shall be due and payable on the Maturity
Date. Principal and interest on this
Note shall be paid by wire transfer of
immediately available funds or by check
delivered to the Holder's registered
address as it appears upon the books of the
Company. Upon the payment in full of this
Note, the Holder shall immediately
surrender this Note to the Company at its
executive offices.
(b) Any payment made under this Note, whether upon acceleration,
final
maturity or otherwise, shall be applied
first to the payment of any accrued and
unpaid interest and the balance (if any)
shall be applied on account of
principal.
(c) Whenever any payment to be made under this Note shall be due on
a
Saturday, Sunday or any day on which banks
are required or authorized by law or
regulation to close in New York City (any
other day being a "Business Day"),
such payment may be made on the next
succeeding Business Day, and such extension
of time shall in such case not be included
in the computation of interest
accrued.
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(d) Notwithstanding any other provision of this Note, in the event
that
any portion of the principal amount of this
Note is converted into any shares of
the Company's Common Stock in accordance
with the provisions of Section 3 below,
then no interest shall be payable on the
portion so converted for the period
following the date of conversion.
(e) From and after the Maturity Date or after the occurrence of
an
Event of Default (as hereinafter defined)
under this Note then the interest rate
under this Note shall be increased to
twenty percent (20%) per annum and shall
be calculated in accordance with the terms
of the Note.
(f) In no event shall the Holder be entitled to convert this Note
for a
number of Conversion Shares in excess of
that number of Conversion Shares which,
upon giving effect to such conversion,
would cause the aggregate number of
shares of Common Stock beneficially owned
by the Holder to exceed 9.9% of the
outstanding shares of the Common Stock
following such conversion. For purposes
of the foregoing proviso, the aggregate
number of shares of Common Stock
beneficially owned by the Holder shall
include the number of shares of Common
Stock issuable upon exercise of this Note
with respect to which determination of
such proviso is being made, but shall
exclude the shares of Common Stock which
would be issuable upon (i) conversion of
the remaining outstanding Note balance
and accrued interest beneficially owned by
the Holder and (ii) exercise or
conversion of the unexercised or
unconverted portion of any other securities of
the Company beneficially owned by the
Holder subject to a limitation on
conversion or exercise analogous to the
limitation contained herein. Except as
set forth in the preceding sentence, for
purposes of this paragraph, beneficial
ownership shall be calculated in accordance
with Section 13(d) of the Securities
Exchange Act of 1934, as amended. The
Holder may waive the foregoing limitation
by written notice to the Company upon not
less than 61 days prior written notice
(with such waiver taking effect only upon
the expiration of such 61 day notice
period).
SECTION 2. PREPAYMENTS. At any time on or prior to the Maturity
Date,
the Company shall have the right to prepay
this Note, in whole or in part, on 10
days' advance notice to the Holder and
subject to the right of the Holder to
convert in advance of such prepayment date
and provided that on such prepayment
date, the Company will pay in respect of
the redeemed Note cash equal to the
face amount plus accrued interest on the
Note (or portion thereof) redeemed. At
any time after the Maturity Date, the
Company shall have the right to repay this
Note, in whole or in part, on 10 days'
advance notice to the Holder and subject
to the right of the Holder to convert in
advance of such repayment date and
provided that on such repayment date, the
Company will pay in respect of the
redeemed Note cash equal to 150% of the
face amount plus accrued interest on the
Note (or portion thereof).
SECTION 3. CONVERSION.
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(a) The Holder shall have the right from time to time, at its
option,
at any time to convert the principal amount
(or any portion thereof) of this
Note, together with all accrued interest
thereon in accordance with the
provisions of and upon satisfaction of the
conditions contained in this Note,
into fully paid and non-assessable shares
of the Company's common stock (the
"Conversion Shares") at a conversion price
(the "Conversion Price") equal to
$0.20 per share for any conversion
occurring on or prior to the Maturity Date,
or at price equal to the lesser of (i) 75%
of the average of the three (3)
lowest closing sale prices of the common
shares during the twelve (12) trading
days prior to the submission of a
conversion notice or (ii) $0.20 per share, for
any conversions occurring after the
Maturity Date.
(b) The Holder's conversion right set forth in this Section may
be
exercised at any time and from time to time
but prior to payment in full of the
principal amount of and accrued interest on
this Note.
(c) The
Holder may exercise the right to convert all or any portion of
the principal amount and accrue interest of
this Note by delivery of (i) this
Note and (ii) a completed conversion notice
on a Business Day to the Company's
principal executive offices. Such
conversion shall be deemed to have been made
immediately prior to the close of business
on the Business Day of such delivery
a conversion notice (the "Conversion
Date"), and the Holder shall be treated for
all purposes as the record holder of the
shares of Common Stock into which this
Note is converted as of such date.
(d) As promptly as practicable after the conversion of this Note,
the
Company at its expense shall issue and
deliver to the Holder of this Note a
stock certificate or certificates
representing the number of Conversion Shares
into which this Note has been
converted.
(e) Upon conversion of the entire principal amount and accrued
interest
of this Note and the delivery of the items
set forth in Section 3(d), except as
otherwise provided in Section 15 of this
Note, the Company shall be forever
released from all of its obligations and
liabilities under this Note.
(f) If, prior to the Conversion Date, the Company shall (i) pay a
stock
dividend or make a distribution to all
holders of Common Stock in shares of its
Common Stock, (ii) subdivide its
outstanding shares of Common Stock, (iii)
combine its outstanding shares of Common
Stock into a smaller number of shares,
(iv) issue by reorganization,
reclassification or recapitalization of its shares
of Common Stock any shares of capital stock
of the Company, or (v) take any
other action which has the effect of
diluting the number of Conversion Shares
issuable upon conversion of this Note, the
number of Conversion Shares shall be
equitably and proportionately increased or
decreased, as the case may be.
(g) The Company agrees that the Holder shall retain the right
to
convert even if the Company indicates its
willingness to repay the loan.
SECTION 4. RESERVATION OF STOCK, ETC. The Company covenants and
agrees
that it will at all times have authorized,
reserve and keep available, solely
for the purpose of effecting the conversion
of this Note such number of its
shares of such Common Stock as shall from
time to time be sufficient to effect
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the conversion of this Note in full. The
Company further covenants and agrees
that this Note is, and any Notes issued in
substitution for or replacement of
this Note and all Conversion Shares, will
upon issuance be duly authorized and
validly issued and, in the case of
Conversion Shares, upon issuance will be
fully paid and non-assessable and free from
all preemptive rights of any
stockholder, and from all taxes, liens and
charges with respect to the issue
thereof (other than transfer taxes) and, if
the Common Stock of the Company is
then listed on any national securities
exchanges (as defined in the Exchange Act
of 1934, as amended (
