Form: 8-K

Current report filing

January 2, 2009


Published on January 2, 2009

Exhibit 10.1


This Modification and Amendment Agreement is made this 30th day of
December, 2008 ("Agreement") among Aethlon Medical, Inc., a Nevada corporation
(the "Company"), and the subscribers identified on the signature page hereto
(each a "Subscriber" and collectively "Subscribers").

WHEREAS, the Company and the Subscribers are parties to a Subscription
Agreement ("Subscription Agreement") dated December 5, 2007 relating to an
aggregate investment by Subscribers of $450,000 of principal amount of
promissory notes, and (ii) January 18, 2008 relating to an aggregate investment
by Subscribers of $220,000 of principal amount of promissory notes
(collectively, the "Notes") of the Company and Warrants in the amounts set forth
on Schedule A attached hereto; and

WHEREAS, the Company is in default of material terms of the Transaction
Documents and the Subscribers may elect to exercise their rights to accelerate
the Maturity Date of the Notes.

NOW THEREFORE, in consideration of the promises and mutual covenants
contained herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby consent
and agree as follows:

1. All capitalized terms herein shall have the meanings ascribed
to them in the Transaction Documents (as defined in the Subscription Agreement).

2. The Company acknowledges that the Liquidated Damages as
described in Section 11.4 of the Subscription Agreement which will accrue
through March 30, 2009 and agree that such Damages will be payable in the form
of convertible Notes as more fully described on Schedule A hereto ("Liquidated
Damages Notes"). Additionally, the Company acknowledges that interest has
accrued and is due and owing to Subscribers and such interest will be payable to
Subscribers in the form of convertible notes in the amounts described on
Schedule A hereto ("Interest Notes") and which Interest Notes will have an Issue
Date of October 1, 2008. The Liquidated Damages Notes and Interest Notes will be
in substantially the same form and upon the same terms and conditions as the
Notes issued in the Offering as modified herein.

3. The terms of the Notes will be amended as follows:

(a) The interest rate shall be amended to ten percent (10%).

(b) Article IV will be added to the Note as follows:



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


(a) The Holder shall have the right from and after the
date of the issuance of this Note and then at any time until this Note is fully
paid, 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
nonassessable 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 4.1(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 (as defined in the Subscription Agreement). 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 the lesser of (i) $0.25
("Maximum Conversion Price"), and (ii) eighty percent (80%) of the three day
average of the closing bid prices of the Common Stock as reported by Bloomberg
L.P. on the date preceding a Conversion Date ("Variable Conversion Price"),
subject to a "Floor Price" of $0.15.

(c) The Conversion Price and number and kind of shares or
other securities to be issued upon conversion determined pursuant to Section
4.1(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 the Borrower
at any time shall consolidate with or merge into or sell or convey all or
substantially all its assets to any other corporation, this Note, as to the
unpaid principal portion thereof and accrued interest thereon, shall thereafter
be deemed to evidence the right to purchase such number and kind of shares or
other securities and property as would have been issuable or distributable on
account of such consolidation, merger, sale or conveyance, upon or with respect
to the securities subject to the conversion or purchase right immediately prior
to such consolidation, merger, sale or conveyance. The foregoing provision shall
similarly apply to successive 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 consolidation, merger, sale or conveyance.

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 Common 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. Other than in connection
with the Excepted Issuances (as defined in the Subscription Agreement dated
December 5, 2007 ("Subscription Agreement")), if at any time while this Note is
outstanding, the Borrower shall agree to or issue (the "Lower Price Issuance")
any shares of Common Stock or securities convertible into or exercisable
directly or indirectly for shares of Common Stock (or modify any of the
foregoing which may be outstanding) to any person or entity at a price per share
or conversion or exercise price per share which shall be less than the Floor
Price, then the Conversion Price shall automatically be reduced to such other
Lower Price Issuance. For purposes of the adjustment described in this
paragraph, the issuance of any security of the Company carrying the right to
convert such security into shares of Common Stock or of any warrant, right or
option to purchase Common Stock (other than Excepted Issuances) shall result in
the adjustment of the Conversion Price where such right to convert is at a price

lower than the Floor Price. The reduction of the Conversion Price described in
this paragraph is in addition to other rights of the Holder described in this
Note and the Modification Agreement. For the avoidance of doubt, if for example,
the Lower Price Issuance is $0.10, then the Conversion Price shall be reduced to

(d) Whenever the Conversion Price is adjusted pursuant to
Section 4.1(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

4.2 METHOD OF CONVERSION. This Note may be converted by
the Holder in whole or in part as described in Section 4.1(a) hereof and the
Subscription Agreement. 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.

4.3. MAXIMUM CONVERSION. The Holder shall not be entitled
to convert on a Conversion Date that amount of the Note in connection with that
number of shares of Common Stock which would be in excess of the sum of (i) the
number of shares of Common Stock beneficially owned by the Holder and its
affiliates on a Conversion Date, (ii) any Common Stock issuable in connection
with the unconverted portion of the Note, and (iii) the number of shares of
Common Stock issuable upon the conversion of the Note with respect to which the
determination of this provision is being made on a Conversion Date, which would
result in beneficial ownership by the Holder and its affiliates of more than
4.99% of the outstanding shares of Common Stock of the Borrower on such
Conversion Date. For the purposes of the provision to the immediately preceding
sentence, beneficial ownership shall be determined in accordance with Section
13(d) of the Securities Exchange Act of 1934, as amended, and Regulation 13d-3
thereunder. Subject to the foregoing, the Holder shall not be limited to
aggregate conversions of 4.99%. The Holder shall have the authority and
obligation to determine whether the restriction contained in this Section 4.3
will limit any conversion hereunder and to the extent that the Holder determines
that the limitation contained in this Section applies, the determination of
which portion of the Notes are convertible shall be the responsibility and
obligation of the Holder.

4. The Maturity Date of the Notes shall be July 1, 2009 and the
Expiration Date of the Warrants is extended to July 1, 2012.

5. Subscribers undertake to make no sales of the Company's Common
Stock until the earlier of (i) January 15, 2009, or (ii) the ask price of Common
Stock is $0.40 as reported by Bloomberg L.P.

6. The Company acknowledges that the holding period of the Notes,
Interest Notes, Warrants and Common Stock issuable upon conversion of the Notes
commenced on December 5, 2007, for purposes of Rule 144 under the Securities Act
of 1933.

7. The Company undertakes to make a public announcement on Form
8-K describing the terms of this Agreement not later than the fourth business
day after the execution of this Agreement.

8. For the benefit of the parties hereto, the Company hereby
makes all the representations, warranties, covenants undertakings and
indemnifications contained in the Transaction Documents, as if such
representations were made by the Company as of this date.

9. Subject to the modifications and amendments provided herein,
the Transaction Documents shall remain in full force and effect, including but
not limited to the accrual of interest and liquidated damages, if any. Except as
expressly set forth herein, this Agreement shall not be deemed to be a waiver,
amendment or modification of any provisions of the Transaction Documents or of
any right, power or remedy of the Subscribers, or constitute a waiver of any
provision of the Transaction Documents (except to the extent herein set forth),
or any other document, instrument and/or agreement executed or delivered in
connection therewith, in each case whether arising before or after the date
hereof or as a result of performance hereunder or thereunder. Except as set
forth herein, the Subscribers reserve all rights, remedies, powers, or
privileges available under the Transaction Documents, at law or otherwise. This
Agreement shall not constitute a novation or satisfaction and accord of the
Transaction Documents or any other document, instrument and/or agreement
executed or delivered in connection therewith.

10. The obligations of each Subscriber hereunder are several and
not joint with the obligations of any other Subscribers hereunder, and no
Subscriber shall be responsible in any way for the performance of the
obligations of any other Subscriber hereunder. Nothing contained herein or in
any other agreement or document delivered at any closing, and no action taken by
any Subscriber pursuant hereto, shall be deemed to constitute the Subscribers as
a partnership, an association, a joint venture or any other kind of entity, or
create a presumption that the Subscribers are in any way acting in concert with
respect to such obligations or the transactions contemplated by this Agreement.
Each Subscriber shall be entitled to protect and enforce its rights, including
without limitation the rights arising out of this Agreement, and it shall not be
necessary for any other Subscriber to be joined as an additional party in any
proceeding for such purpose, except as otherwise agreed by the Subscribers.

11. This Agreement shall inure to the benefit of and be binding
upon the successors and permitted assigns of each of the parties; PROVIDED,
HOWEVER, that no party may assign this Agreement or the obligations and rights
of such party hereunder without the prior written consent of the other parties
hereto, except as same is permitted under the Transaction Documents.

12. This Agreement constitutes the entire agreement among the
parties regarding the subject matter herein, and supersedes all prior and
contemporaneous agreements and understandings of the parties in connection
herewith. No changes, modifications, terminations or waivers of any of the
provisions hereof shall be binding unless in writing and signed by all of the
parties thereto.

13. All questions concerning the construction, validity,
enforcement and interpretation of this Agreement shall be determined pursuant to
the governing law provisions of the Transaction Documents.

14. The language used in this Agreement will be deemed to be the
language chosen by the parties to express their mutual intent, and no rules of
strict construction will be applied against any party.

15. This Agreement may be executed in two or more counterparts,
all of which when taken together shall be considered one and the same agreement
and shall become effective when counterparts have been signed by each party and
delivered to any other party, it being understood that all parties need not sign
the same counterpart. In the event that any signature is delivered by facsimile
transmission or electronically, such signature shall create a valid and binding
obligation of the party executing (or on whose behalf such signature is
executed) with the same with the same force and effect as if such facsimile
signature were an original thereof.


IN WITNESS WHEREOF, the undersigned have executed and delivered this
Agreement as of the date first written above.

the "Company"



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- -------------------------------------------------------------- ------------------------- ------------------------
- -------------------------------------------------------------- ------------------------- ------------------------
$126,535.00 $203,056.06
- -------------------------------------------------------------- ------------------------- ------------------------
$27,115.00 $43,512.01
- -------------------------------------------------------------- ------------------------- ------------------------
$63,775.00 $109,218.00
- -------------------------------------------------------------- ------------------------- ------------------------



(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
December ____, 2008 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 Date: Less
than 5% of the outstanding Common Stock of Aethlon Medical, Inc.

Shares To Be Delivered:_________________________________________________________


Print Name:_____________________________________________________________________