Document:

ex10-1.htm

    
      
 Exhibit
10.1

     

     

    SECURITIES
PURCHASE AGREEMENT

     

    SECURITIES PURCHASE AGREEMENT
(the “Agreement”), dated
as of July 15, 2010, by and among Applied DNA Sciences, Inc., a Delaware
corporation, with headquarters located at 25 Health Sciences Drive, Stony Brook,
New York 11790 (the “Company”), and the investors
listed on the Schedule of Buyers attached hereto (individually, a “Buyer” and collectively, the
“Buyers”).

     

    WHEREAS:

    
      
        	 	 	 
	 
      	
                A.

              	
                The
      Company and each Buyer is executing and delivering this Agreement in
      reliance upon the exemption from securities registration afforded by
      Section 4(2) of the Securities Act of 1933, as amended (the “1933 Act”), and Rule 506
      of Regulation D (“Regulation D”) as
      promulgated by the United States Securities and Exchange Commission (the
      “SEC”) under the
      1933 Act.

              
	 	 	 
	 
      	
                B.

              	
                The
      Company has authorized a new series of senior secured convertible notes of
      the Company which notes shall be convertible into the Company’s common
      stock, $0.001 par value per share (the “Common Stock”), or into
      other securities in certain circumstances, all in accordance with the
      terms of the Notes (as defined below).

              
	 	 	 
	 
      	
                C.

              	
                Each
      Buyer wishes to purchase on a several and not a joint basis, and the
      Company wishes to sell, upon the terms and conditions stated in this
      Agreement, that aggregate principal amount of the Notes, in substantially
      the form attached hereto as Exhibit A
      (the “Notes”), set
      forth opposite such Buyer’s name in column (3) on the Schedule of Buyers
      attached hereto (which aggregate amount for all Buyers shall be $1,100,000
      (as converted, collectively, the “Conversion
      Shares”).

              
	 	 	 
	 
      	
                D.

              	
                Contemporaneously
      with the execution and delivery of this Agreement, the parties hereto are
      executing and delivering a Registration Rights Agreement, substantially in
      the form attached hereto as Exhibit B
      (the “Registration Rights
      Agreement”), pursuant to which the Company has agreed to provide
      certain registration rights with respect to the Registrable Securities (as
      defined in the Registration Rights Agreement) under the 1933 Act and the
      rules and regulations promulgated thereunder, and applicable state
      securities laws.

              
	 	 	 
	 
      	
                E.

              	
                The
      Notes and the Conversion Shares are collectively are referred to herein as
      the “Securities.”

              
	 	 	 
	 
      	
                F.

              	
                The
      Notes will be secured by a security interest in all of the assets of the
      Company and the stock and assets of each of the Company’s subsidiaries, as
      evidenced by the security agreements, substantially in the form attached
      hereto as Exhibits C and D
      (collectively, the “Security
      Documents).

              

      

    

    
       

      
         

      

      
         

        
          

        

      

      
         

      

    

     

    NOW, THEREFORE, the Company
and each Buyer hereby agree as follows:

     

    1.           
 PURCHASE AND
SALE OF NOTES.

     

    (a)           Purchase of
Notes.  Subject to the satisfaction (or waiver) of the
conditions set forth in Sections 6 and 7 below, the Company shall issue and sell
to each Buyer, and each Buyer severally, but not jointly, agrees to purchase
from the Company on the Closing Date (as defined below), a principal amount of
Notes as is set forth opposite such Buyer’s name in column (3) on the Schedule
of Buyers (the “Closing”).

     

    (b)           Closing.  The
Closing shall occur on the Closing Date (as defined below) at the offices of
Troutman Sanders LLP, 405 Lexington Avenue, New York, New York
10174.

     

    (c)           Purchase
Price.  The purchase price for each Buyer of the Notes to be
purchased by each such Buyer at the Closing shall be the amount set forth
opposite such Buyer’s name in column (4) of the Schedule of Buyers (the “Purchase Price”).

     

    (d)           Closing
Date.  The date and time of the Closing (the “Closing Date”) shall be 10:00
a.m., New York City Time, July 15, 2010 after notification of satisfaction (or
waiver) of the conditions to the Closing set forth in Sections 6 and 7 below (or
such later date as is mutually agreed to by the Company and each
Buyer).

     

    (e)           Delivery and
Payment.  On or prior to the Closing Date, each Buyer shall pay
its Purchase Price for the Notes to be issued and sold to such Buyer at the
Closing by wire transfer of immediately available funds to such account or
accounts of the Company as the Company shall specify, and the Company shall
deliver to each Buyer, the Notes (in the principal amounts as such Buyer shall
request) which such Buyer is then purchasing duly executed on behalf of the
Company and registered in the name of such Buyer or its designee.

     

    2.            
BUYER’S
REPRESENTATIONS AND WARRANTIES.

     

    Each
Buyer represents and warrants with respect to only itself and no other Buyer
that:

     

    (a)           No Public Sale or
Distribution.  Such Buyer is (i) acquiring the Notes and (ii)
upon conversion of the Notes will acquire the Conversion Shares issuable upon
conversion of the Notes, for its own account and not with a view towards, or for
resale in connection with, the public sale or distribution thereof, except
pursuant to sales registered or exempted under the 1933 Act; provided, however, that by
making the representations herein, such Buyer does not agree to hold any of the
Securities for any minimum or other specific term and reserves the right to
dispose of the Securities at any time in accordance with or pursuant to a
registration statement or an exemption under the 1933 Act.  Such Buyer
is acquiring the Securities hereunder in the ordinary course of its
business.  Except as previously disclosed to the Company in writing,
such Buyer (i) does not presently have any agreement or understanding, directly
or indirectly, with any Person (as defined in Section 3(s)) to distribute any of
the Securities, and (ii) is not a broker-dealer registered with the SEC under
the Securities Exchange Act of 1934, as amended (the “1934 Act”), or any entity
engaged in the business that would require it to be so registered as a
broker-dealer.

     

    
      
         

      

      
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    (b)           Accredited Investor
Status.  Such Buyer is an “accredited investor” as that term is
defined in Rule 501(a) of Regulation D.  The information regarding
Buyer set forth in Schedule 2(b) is true and correct in all material
respects.

     

    (c)           Reliance on
Exemptions.  Such Buyer understands that the Securities are
being offered and sold to it in reliance on specific exemptions from the
registration requirements of United States federal and state securities laws and
that the Company is relying in part upon the truth and accuracy of, and such
Buyer’s compliance with, the representations, warranties, agreements,
acknowledgments and understandings of such Buyer set forth herein in order to
determine the availability of such exemptions and the eligibility of such Buyer
to acquire the Securities.

     

    (d)           Information.  Such
Buyer and its advisors, if any, have been furnished with all materials relating
to the business, finances and operations of the Company and materials relating
to the offer and sale of the Securities which have been requested by such
Buyer.  Such Buyer and its advisors, if any, have been afforded the
opportunity to ask questions of the Company.  Neither such inquiries
nor any other due diligence investigations conducted by such Buyer or its
advisors, if any, or its representatives shall modify, amend or affect such
Buyer’s right to rely on the Company’s representations and warranties contained
herein.  Such Buyer understands that its investment in the Securities
involves a high degree of risk.  Such Buyer has sought such
accounting, legal and tax advice as it has considered necessary to make an
informed investment decision with respect to its acquisition of the
Securities.  Such Buyer has not relied on any information or advice
furnished by or on behalf of the Agent (as defined below) in connection with the
transactions contemplated hereby.

     

    (e)           No Governmental
Review.  Such Buyer understands that no United States federal
or state agency or any other government or governmental agency has passed on or
made any recommendation or endorsement of the Securities or the fairness or
suitability of the investment in the Securities nor have such authorities passed
upon or endorsed the merits of the offering of the Securities.

     

    (f)           Transfer or
Resale.  Such Buyer understands that except as provided in the
Registration Rights Agreement: (i) the Securities have not been and are not
being registered under the 1933 Act or any state securities laws, and may not be
offered for sale, sold, assigned or transferred unless (A) subsequently
registered thereunder, (B) such Buyer shall have delivered to the Company an
opinion of counsel, in a generally acceptable form, to the effect that such
Securities to be sold, assigned or transferred may be sold, assigned or
transferred pursuant to an exemption from such registration, or (C) such Buyer
provides the Company with reasonable assurance that such Securities can be sold,
assigned or transferred pursuant to Rule 144 or Rule 144A promulgated under the
1933 Act (or a successor rule thereto) (collectively, “Rule 144”); (ii) any sale of
the Securities made in reliance on Rule 144 may be made only in accordance with
the terms of Rule 144 and further, if Rule 144 is not applicable, any resale of
the Securities under circumstances in which the seller (or the Person) through
whom the sale is made) may be deemed to be an underwriter (as that term is
defined in the 1933 Act) and may require compliance with some other exemption
under the 1933 Act or the rules and regulations of the SEC thereunder; and (iii)
neither the Company nor any other Person is under any obligation to register the
Securities under the 1933 Act or any state securities laws or to comply with the
terms and conditions of any exemption thereunder.  The Securities may
be pledged in connection with a bona fide margin account or other loan or
financing arrangement secured by the Securities and such pledge of Securities
shall not be deemed to be a transfer, sale or assignment of the Securities
hereunder, and no Buyer effecting a pledge of Securities shall be required to
provide the Company with any notice thereof or otherwise make any delivery to
the Company pursuant to this Agreement or any other Transaction Document (as
defined in Section 3(b)), including, without limitation, this Section
2(f).

     

    
      
         

      

      
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    (g)           Legends.  Such
Buyer understands that the certificates or other instruments representing the
Notes and, until such time as the resale of the Conversion Shares have been
registered under the 1933 Act as contemplated by the Registration Rights
Agreement, the stock certificates representing the Conversion Shares, except as
set forth below, shall bear any legend as required by the “blue sky” laws of any
state and a restrictive legend in substantially the following form (and a
stop-transfer order may be placed against transfer of such stock
certificates):

     

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

     

    The
legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of the Securities upon which it is
stamped or issue Securities to such holder by electronic delivery at the
applicable balance account at The Depository Trust Company (“DTC”), if (i) such Securities
are registered for resale under the 1933 Act, (ii) in connection with a sale,
assignment or other transfer, such holder provides the Company with an opinion
of counsel, in a generally acceptable form, to the effect that such sale,
assignment or transfer of the Securities may be made without registration under
the applicable requirements of the 1933 Act,  (iii) in connection with
a sale pursuant to Rule 144 if such holder provides the Company with reasonable
assurance, including reasonable representations and warranties, that the
Securities are being sold, assigned or transferred pursuant to Rule 144 or (iv)
the Securities may be sold without restriction or limitation pursuant to Rule
144 and without the requirement to be in compliance with Rule 144(c)(1) (or any
successor rule thereto). The Company shall be responsible for the fees of its
transfer agent, the costs of any legal opinions required by its transfer agent
and all DTC fees associated with such issuance.

     

    
      
         

      

      
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    (h)           Validity;
Enforcement.  This Agreement, the Registration Rights Agreement
and the Security Documents to which such Buyer is a party have been duly and
validly authorized, executed and delivered on behalf of such Buyer and shall
constitute the legal, valid and binding obligations of such Buyer enforceable
against such Buyer in accordance with their respective terms, except as such
enforceability may be limited by general principles of equity or to applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation or other similar
laws relating to, or affecting generally, the enforcement of applicable
creditors’ rights and remedies.

     

    (i)           Residency.  Such
Buyer is a resident of that jurisdiction specified below its address on the
Schedule of Buyers.

     

    (j)           Brokers and
Finders.  No Person will have, as a result of the transactions
contemplated by the Transaction Documents, any valid right, interest or claim
against or upon the Company for any commission, fee or other compensation
pursuant to any agreement, arrangement or understanding with a placement agent
entered into by or on behalf of such Buyer.

     

    (k)           Short Sales and
Confidentiality Prior To The Date Hereof.  Other than
consummating the transactions contemplated hereunder, such Buyer has not, nor
has any Person acting on behalf of or pursuant to any understanding with such
Buyer, directly or indirectly executed any purchases or sales, including “short
sales,” as defined in Rule 200 of Regulation SHO under the 1934 Act, of the
securities of the Company during the period commencing from the time that such
Buyer was first contacted by the Company or the Agent regarding the transactions
contemplated hereby until the date hereof.  Notwithstanding the
foregoing, in the case of a Buyer that is a multi-managed investment vehicle
whereby separate portfolio managers manage separate portions of such Buyer’s
assets and the portfolio managers have no direct knowledge of the investment
decisions made by the portfolio managers managing other portions of such Buyer’s
assets, the representation set forth above shall only apply with respect to the
portion of assets managed by the portfolio manager that made the investment
decision to purchase the Securities covered by this Agreement.  Other
than to other Persons party to this Agreement, such Buyer has maintained the
confidentiality of all disclosures made to it in connection with this
transaction (including the existence and terms of this
transaction).

     

    3.            
REPRESENTATIONS AND
WARRANTIES OF THE COMPANY.

     

    The
Company represents and warrants to each of the Buyers as of the date hereof
that:

     

    (a)           Organization and
Qualification.  Each of the Company and its “Subsidiaries” (which for
purposes of this Agreement means any entity in which the Company, directly or
indirectly, owns a majority in voting power of the capital stock or equity or
similar interests) are entities duly organized and validly existing in good
standing under the laws of the jurisdiction in which they are formed, and have
the requisite power and authorization to own their properties and to carry on
their business as now being conducted.  Except as set forth on
Schedule 3(a), each of the Company and its Subsidiaries is duly qualified as a
foreign entity to do business and is in good standing in every jurisdiction in
which its ownership of property or the nature of the business conducted by it
makes such qualification necessary, except to the extent that the failure to be
so qualified or be in good standing would not have a Material Adverse
Effect.  As used in this Agreement, “Material Adverse Effect” means
any material adverse effect on the business, properties, assets, operations,
results of operations, condition (financial or otherwise) or prospects of the
Company and its Subsidiaries, taken as a whole, or on the transactions
contemplated by this Agreement and the other Transaction Documents, or on the
authority or ability of the Company to perform its obligations under the
Transaction Documents.  The Company does not, directly or indirectly,
own any of the capital stock or hold an equity or similar interest in any entity
except as set forth on Schedule
3(a).  The Company has no Subsidiaries except as set forth on
Schedule
3(a).

     

    
      
         

      

      
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    (b)           Authorization; Enforcement;
Validity.  The Company and its Subsidiaries each has the
corporate power and authority to enter into and perform its obligations under
this Agreement, the Notes, the Registration Rights Agreement, the Security
Documents, the Irrevocable Transfer Agent Instructions (as defined in Section
5(b)) to which it is a party, and each of the other agreements entered into by
the parties hereto in connection with the transactions contemplated by this
Agreement (collectively, the “Transaction Documents”) and to
issue the Securities in accordance with the terms hereof and
thereof.  The execution and delivery of the Transaction Documents by
the Company and its Subsidiaries and the consummation by the Company and its
Subsidiaries of the transactions contemplated hereby and thereby, including,
without limitation, the issuance of the Notes, the reservation for issuance and
the issuance of the Conversion Shares issuable upon conversion
of the Notes, and the granting of a security interest in the Collateral (as
defined in the Security Documents), have been duly authorized by the Company’s
and such Subsidiaries’ respective Board of Directors and no further consent, or
authorization is required by the Company, such Subsidiaries, their
respective  Board of Directors or their respective
stockholders.  This Agreement and the other Transaction Documents have
been duly executed and delivered by the Company and such Subsidiaries, and
constitute the legal, valid and binding obligations of the Company and such
Subsidiaries, enforceable against the Company and such Subsidiaries in
accordance with their respective terms, except as such enforceability may be
limited by general principles of equity or applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or other similar laws relating to, or
affecting generally, the enforcement of applicable creditors’ rights and
remedies.

     

    (c)           Issuance of
Securities.  The issuance of the Notes are duly authorized and
are free from all taxes, liens and charges with respect to the issue
thereof.  As of the Closing, 19,978,206 shares of Common Stock shall
have been duly authorized and reserved for issuance which equals 100% of the
maximum number of shares Common Stock issuable upon conversion of the
Notes.  Upon conversion in accordance with the Notes, the Conversion
Shares will be validly issued, fully paid and nonassessable and free from all
preemptive or similar rights, taxes, liens and charges with respect to the issue
thereof, with the holders being entitled to all rights accorded to a holder of
Common Stock.  Subject to the accuracy of the representations made by
each Buyer in Section 2, the offer and issuance by the Company of the Securities
is exempt from registration under the 1933 Act.

     

    
      
         

      

      
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    (d)           No
Conflicts.  The execution, delivery and performance of the
Transaction Documents by the Company and its Subsidiaries and the consummation
by the Company and its Subsidiaries of the transactions contemplated hereby and
thereby (including, without limitation, the issuance of the Notes, the granting
of a security interest in the Collateral and reservation for issuance and
issuance of the Conversion Shares) will not (i) result in a violation of the
Certificate of Incorporation (as defined in Section 3(r)) of the Company or any
certificate or articles of incorporation, certificate of formation, any
certificate of designations or other charter document of any of its
Subsidiaries, or Bylaws (as defined in Section 3(r)) of the Company or any of
its Subsidiaries or (ii) conflict with, or constitute a default (or an event
which with notice or lapse of time or both would become a default) under, or
give to others any rights of termination, amendment, acceleration or
cancellation of, any agreement, indenture or instrument to which the Company or
any of its Subsidiaries is a party, or (iii) result in a violation of any law,
rule, regulation, order, judgment or decree (including federal and state
securities laws and regulations and the rules and regulations of the OTC
Bulletin Board (the “Principal
Market”)) applicable to the Company or any of its Subsidiaries or by
which any property or asset of the Company or any of its Subsidiaries is bound
or affected, except in
the case of clauses (ii) and (iii) above, for such conflicts, defaults, rights
or violations that would not, individually or in the aggregate, have a Material
Adverse Effect.

     

    (e)           Consents.  Except
for the filing with the SEC of one or more Registration Statements in accordance
with the requirements of the Registration Rights Agreement, the filing with the
SEC of a Current Report on Form 8-K describing the terms of the transactions
contemplated by the Transaction Documents, the filing of the Form D with the SEC
and for such filings as shall be required under state securities or “blue sky”
laws, neither the Company nor any of its Subsidiaries is required to obtain any
consent, authorization or order of, or make any filing or registration with, any
court, governmental agency or any regulatory or self-regulatory agency or any
other Person in order for it to execute, deliver or perform any of its
obligations under or contemplated by the Transaction Documents, in each case in
accordance with the terms hereof or thereof, which have not been or will not be
obtained or effected on or prior to the Closing Date, and the Company and its
Subsidiaries have no knowledge of any facts or circumstances which might prevent
the Company from obtaining or effecting any of the registration, application or
filings pursuant to the preceding sentence.

     

    (f)           Acknowledgment Regarding
Buyer’s Purchase of Securities.  The Company acknowledges and
agrees that each Buyer is acting solely in the capacity of an arm’s length
purchaser with respect to the Transaction Documents and the transactions
contemplated hereby and thereby and that no Buyer is (i) an officer or director
of the Company, (ii) an “Affiliate” of the Company (as defined in Rule 144) or
(iii) to the knowledge of the Company, a “beneficial owner” of more than 10% of
the shares of Common Stock (as defined for purposes of Rule 13d-3 of the 1934
Act).  The Company further acknowledges that no Buyer is acting as a
financial advisor or fiduciary of the Company (or in any similar capacity) with
respect to the Transaction Documents and the transactions contemplated hereby
and thereby, and any advice given by a Buyer or any of its representatives or
agents in connection with the Transaction Documents and the transactions
contemplated hereby and thereby is merely incidental to such Buyer’s purchase of
the Securities.  The Company further represents to each Buyer that the
Company’s decision to enter into the Transaction Documents has been based solely
on the independent evaluation by the Company and its
representatives.

     

    
      
         

      

      
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    (g)           No General Solicitation;
Placement Agent’s Fees.  Neither the Company, nor any of its
Affiliates, nor any Person acting on its or their behalf, has engaged in any
form of general solicitation or general advertising (within the meaning of
Regulation D) in connection with the offer or sale of the
Securities.  The Company shall be responsible for the payment of any
placement agent’s fees, financial advisory fees, or brokers’ commissions (other
than for persons engaged by any Buyer or its investment advisor) relating to or
arising out of the transactions contemplated hereby.  The Company
shall pay, and hold each Buyer harmless against, any liability, loss or expense
(including, without limitation, attorney’s fees and out-of-pocket expenses)
arising in connection with any such claim.  The Company acknowledges
that it has engaged Basis Financial, LLC, as placement agent (the “Agent”), in connection with
the sale of the Securities.  Other than the Agent, neither the Company
nor any of its Subsidiaries has engaged any placement agent or other agent in
connection with the sale of the Securities.

     

    (h)           No Integrated
Offering.  None of the Company, its Subsidiaries, any of their
Affiliates, and any Person acting on their behalf has, directly or indirectly,
made any offers or sales of any security or solicited any offers to buy any
security, under circumstances that would require registration of any of the
Securities under the 1933 Act or cause this offering of the Securities to be
integrated with prior offerings by the Company for purposes of the 1933
Act.  None of the Company, its Subsidiaries, their affiliates and any
Person acting on their behalf will take any action or steps referred to in the
preceding sentence that would require registration of any of the Securities
under the 1933 Act or cause the offering of the Securities to be integrated with
other offerings.

     

    (i)           Dilutive
Effect.  The Company understands and acknowledges that the
number of Conversion Shares issuable upon conversion of the Notes will increase
in certain circumstances.  The Company further acknowledges that its
obligation to issue Conversion Shares upon conversion of the Notes in accordance
with this Agreement and the Notes is absolute and unconditional regardless of
the dilutive effect that such issuance may have on the ownership interests of
other stockholders of the Company.

     

    (j)           Application of Takeover
Protections; Rights Agreement.  The Company, its Subsidiaries
and their respective Boards of Directors have taken all necessary action, if
any, in order to render inapplicable any control share acquisition, business
combination, poison pill (including any distribution under a rights agreement)
or other similar anti-takeover provision under the Certificate of Incorporation,
other governing documents, or the laws of the jurisdiction of their
incorporation which is or could become applicable to any Buyer as a result of
the transactions contemplated by this Agreement, including, without limitation,
the Company’s issuance of the Securities and any Buyer’s ownership of the
Securities.

     

    
      
         

      

      
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    (k)           SEC Documents; Financial
Statements.  Since September 30, 2009, the Company has filed
all reports, schedules, forms, statements and other documents required to be
filed by it with the SEC pursuant to the reporting requirements of the 1934 Act
(all of the foregoing filed prior to the date hereof or prior to the Closing
Date, and all exhibits included therein and financial statements, notes and
schedules thereto and documents incorporated by reference therein being
hereinafter referred to as the “SEC
Documents”).  The Company has delivered to the Buyers or their
respective representatives true, correct and complete copies of the SEC
Documents not available on the EDGAR system.  As of their respective
filing dates, the SEC Documents complied in all material respects with the
requirements of the 1934 Act and the rules and regulations of the SEC
promulgated thereunder applicable to the SEC Documents, and none of the SEC
Documents, at the time they were filed with the SEC, contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not
misleading.  As of their respective dates, the financial statements of
the Company included in the SEC Documents complied as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto.  Such financial
statements have been prepared in accordance with United States generally
accepted accounting principles, consistently applied, during the periods
involved (except (i) as may be otherwise indicated in such financial statements
or the notes thereto, or (ii) in the case of unaudited interim statements, to
the extent they may exclude footnotes or may be condensed or summary statements)
and fairly present in all material respects the financial position of the
Company as of the dates thereof and the results of its operations and cash flows
for the periods then ended (subject, in the case of unaudited statements, to
normal year-end audit adjustments).  No other information provided by
or on behalf of the Company to the Buyers which is not included in the SEC
Documents, including, without limitation, information referred to in Section
2(d) of this Agreement, contains any untrue statement of a material fact or
omits to state any material fact necessary in order to make the statements
therein, in the light of the circumstance under which they are or were made not
misleading.

     

    (l)           Absence of Certain
Changes.  Since September 30, 2009, there has been no material
adverse change and no material adverse development in the business, properties,
operations, condition (financial or otherwise), results of operations or
prospects of the Company or its Subsidiaries.  Since September 30,
2009, the Company has not (i) declared or paid any dividends, (ii) sold any
assets, individually or in the aggregate, in excess of $100,000 outside of the
ordinary course of business or (iii) had capital expenditures, individually or
in the aggregate, in excess of $100,000.  Neither the Company nor any
of its Subsidiaries have taken any steps to seek protection pursuant to any
bankruptcy law nor does the Company have any knowledge that its creditors intend
to initiate involuntary bankruptcy proceedings.  The Company and its
Subsidiaries, individually and on a consolidated basis, are not as of the date
hereof, and after giving effect to the transactions contemplated hereby to occur
at the Closing as of the Closing Date will not be, Insolvent (as defined
below).  For purposes of this Section 3(l), “Insolvent” means with respect
to any Person, (i) the present fair saleable value of such Person’s assets is
less than the amount required to pay such Person’s total Indebtedness (as
defined in Section 3(s)), (ii) such Person is unable to pay its debts and
liabilities, subordinated, contingent or otherwise, as such debts and
liabilities become absolute and matured, (iii) such Person intends to incur
debts that would be beyond its ability to pay as such debts mature or (iv) such
Person has unreasonably small capital with which to conduct the business in
which it is engaged as such business is now conducted and is proposed to be
conducted.

     

    (m)           No Undisclosed Events,
Liabilities, Developments or Circumstances. No event, liability,
development or circumstance has occurred or exists, or is contemplated by the
Company to occur with respect to the Company, its Subsidiaries or their
respective business, properties, prospects, operations or financial condition,
that would be required to be disclosed by the Company under applicable
securities laws on a registration statement on Form S-1 filed with the SEC
relating to an issuance and sale by the Company of its Common Stock and which
has not been publicly announced.

     

    
      
         

      

      
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    (n)           Conduct of Business;
Regulatory Permits.  Neither the Company nor its Subsidiaries
is in violation of any term of or in default under its Certificate or Articles
of Incorporation or other charter document, or Bylaws.  Neither the
Company nor any of its Subsidiaries is in violation of any judgment, decree or
order or any statute, ordinance, rule or regulation applicable to the Company or
its Subsidiaries, and neither the Company nor any of its Subsidiaries will
conduct its business in violation of any of the foregoing, except in all cases
for possible violations which would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect.  Without
limiting the generality of the foregoing, the Company is not in violation of any
of the rules, regulations or requirements of the Principal Market and has no
knowledge of any facts or circumstances which would reasonably lead to delisting
or suspension of the Common Stock by the Principal Market in the foreseeable
future.  Since August 15, 2001, the Common Stock has been designated
for quotation on the Principal Market. During the two years prior to the date
hereof, (i) trading in the Common Stock has not been suspended by the SEC or the
Principal Market and (ii) the Company has received no communication, written or
oral, from the SEC or the Principal Market regarding the suspension or delisting
of the Common Stock from the Principal Market.  The Company and its
Subsidiaries possess all certificates, authorizations and permits issued by the
appropriate regulatory authorities necessary to conduct their respective
businesses, except where the failure to possess such certificates,
authorizations or permits would not have, individually or in the aggregate, a
Material Adverse Effect, and neither the Company nor any such Subsidiary has
received any notice of proceedings relating to the revocation or modification of
any such certificate, authorization or permit, except where it would not have,
individually or in the aggregate, a Material Adverse Effect.

     

    (o)           Foreign Corrupt
Practices.  Neither the Company, nor any of its Subsidiaries,
nor any director, officer, agent, employee or other Person acting on behalf of
the Company or any of its Subsidiaries has, in the course of its actions for, or
on behalf of, the Company or any of its Subsidiaries (i) used any corporate
funds for any unlawful contribution, gift, entertainment or other unlawful
expenses relating to political activity; (ii) made any direct or indirect
unlawful payment to any foreign or domestic government official or employee from
corporate funds; (iii) violated or is in violation of any provision of the U.S.
Foreign Corrupt Practices Act of 1977, as amended; or (iv) made any unlawful
bribe, rebate, payoff, influence payment, kickback or other unlawful payment to
any foreign or domestic government official or employee.

     

    (p)           Intentionally
Omitted.

     

    (q)           Transactions With
Affiliates.  Except as set forth on Schedule 3(q), none
of the officers, directors or employees of the Company is presently a party to
any transaction with the Company or any of its Subsidiaries (other than for
ordinary course services as employees, officers or directors), including any
contract, agreement or other arrangement providing for the furnishing of
services to or by, providing for rental of real or personal property to or from,
or otherwise requiring payments to or from any such officer, director or
employee or, to the knowledge of the Company or any of its Subsidiaries, any
corporation, partnership, trust or other entity in which any such officer,
director, or employee has a substantial interest or is an officer, director,
trustee or partner.

     

    
      
         

      

      
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    (r)           Equity
Capitalization.  As of the date hereof, the authorized capital
stock of the Company consists of 800,000,000 shares of Common Stock, of which as
of the date hereof, 334,115,403 shares are issued and are outstanding and (ii)
10,000,000 shares
of preferred stock, par value $0.001 per share, of which as of the date hereof,
none are issued and outstanding.  Except as provided on Schedule 3(r), the
Company does not have any shares reserved for issuance pursuant to the Company’s
stock option plan, pursuant to outstanding options, warrants and other
securities exercisable exchangeable for, or convertible into, shares of Common
Stock.  All of such outstanding shares have been, or upon issuance
will be, validly issued and are fully paid and nonassessable.  Except
as set forth on Schedule 3(r), (i)
none of the Company’s capital stock is subject to preemptive rights or any other
similar rights or any liens or encumbrances suffered or permitted by the
Company; (ii) there are no outstanding options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into, or exercisable or exchangeable for, any
capital stock of the Company or any of its Subsidiaries, or contracts,
commitments, understandings or arrangements by which the Company or any of its
Subsidiaries is or may become bound to issue additional capital stock of the
Company or any of its Subsidiaries or options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into, or exercisable or exchangeable for, any
capital stock of the Company or any of its Subsidiaries; (iii) there are no
outstanding debt securities, notes, credit agreements, credit facilities or
other agreements, documents or instruments evidencing Indebtedness of the
Company or any of its Subsidiaries or by which the Company or any of its
Subsidiaries is or may become bound; (iv) there are no effective financing
statements securing obligations in any material amounts, either singly or in the
aggregate, filed in connection with the Company or any of its Subsidiaries that
have not been terminated or that will not be terminated on or prior to the
Closing; (v) there are no agreements or arrangements under which the Company or
any of its Subsidiaries is obligated to register the sale of any of their
securities under the 1933 Act (except pursuant to the Registration Rights
Agreement); (vi) there are no outstanding securities or instruments of the
Company or any of its Subsidiaries which contain any redemption or similar
provisions, and there are no contracts, commitments, understandings or
arrangements by which the Company or any of its Subsidiaries is or may become
bound to redeem a security of the Company or any of its Subsidiaries; (vii)
there are no securities or instruments containing anti-dilution or similar
provisions that will be triggered by the issuance of the Securities; (viii) the
Company does not have any stock appreciation rights or “phantom stock” plans or
agreements or any similar plan or agreement; and (ix) the Company and its
Subsidiaries have no liabilities or obligations required to be disclosed in the
SEC Documents but not so disclosed in the SEC Documents, other than those
incurred in the ordinary course of the Company’s or its Subsidiaries’ respective
businesses and which, individually or in the aggregate, do not or would not have
a Material Adverse Effect.  Not less than $2,150,000 principal amount
of debt securities identified in Schedule 3(r) will automatically convert into
shares Common Stock prior to October 31, 2010.  The Company has
furnished to the Buyers true, correct and complete copies of the Company’s
Certificate of Incorporation, as amended and as in effect on the date hereof
(the “Certificate of
Incorporation”), and the Company’s Bylaws, as amended and as in effect on
the date hereof (the “Bylaws”), and the terms of all
securities convertible into, or exercisable or exchangeable for, shares of
Common Stock and the material rights of the holders thereof in respect
thereto.

     

    
      
         

      

      
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    (s)           Indebtedness and Other
Contracts.  Except as disclosed in Schedule
3(s),  neither the Company nor any of its Subsidiaries (i) has
any outstanding Indebtedness (as defined below), (ii) is a party to any
contract, agreement or instrument, the violation of which, or default under
which, by the other party(ies) to such contract, agreement or instrument would
result in a Material Adverse Effect, (iii) is in violation of any term of or in
default under any contract, agreement or instrument relating to any
Indebtedness, except where such violations and defaults would not result,
individually or in the aggregate, in a Material Adverse Effect, or (iv) is a
party to any contract, agreement or instrument relating to any Indebtedness, the
performance of which, in the judgment of the Company’s officers, has or is
expected to have a Material Adverse Effect.  Schedule 3(s)
provides a detailed description of the material terms of any such outstanding
Indebtedness.  For purposes of this Agreement:  (x) “Indebtedness” of any Person
means, without duplication (A) all indebtedness for borrowed money, (B) all
obligations issued, undertaken or assumed as the deferred purchase price of
property or services (other than trade payables entered into in the ordinary
course of business), (C) all reimbursement or payment obligations with respect
to letters of credit, surety bonds and other similar instruments, (D) all
obligations evidenced by notes, bonds, debentures or similar instruments,
including obligations so evidenced incurred in connection with the acquisition
of property, assets or businesses, (E) all indebtedness created or arising under
any conditional sale or other title retention agreement, or incurred as
financing, in either case with respect to any property or assets acquired with
the proceeds of such indebtedness (even though the rights and remedies of the
seller or bank under such agreement in the event of default are limited to
repossession or sale of such property), (F) all monetary obligations under any
leasing or similar arrangement which, in connection with United States generally
accepted accounting principles, consistently applied for the periods covered
thereby, is classified as a capital lease, (G) all indebtedness referred to in
clauses (A) through (F) above secured by (or for which the holder of such
Indebtedness has an existing right, contingent or otherwise, to be secured by)
any mortgage, lien, pledge, charge, security interest or other encumbrance upon
or in any property or assets (including accounts and contract rights) owned by
any Person, even though the Person which owns such assets or property has not
assumed or become liable for the payment of such indebtedness, and (H) all
Contingent Obligations in respect of indebtedness or obligations of others of
the kinds referred to in clauses (A) through (G) above; (y) “Contingent Obligation” means,
as to any Person, any direct or indirect liability, contingent or otherwise, of
that Person with respect to any indebtedness, lease, dividend or other
obligation of another Person if the primary purpose or intent of the Person
incurring such liability, or the primary effect thereof, is to provide assurance
to the obligee of such liability that such liability will be paid or discharged,
or that any agreements relating thereto will be complied with, or that the
holders of such liability will be protected (in whole or in part) against loss
with respect thereto; and (z) “Person” means an individual, a
limited liability company, a partnership, a joint venture, a corporation, a
trust, an unincorporated organization and a government or any department or
agency thereof.

     

    (t)           Absence of
Litigation.  Except as set forth on Schedule 3(t), there is no
action, suit, proceeding, inquiry or investigation before or by the Principal
Market, any court, public board, government agency, self-regulatory organization
or body pending or, to the knowledge of the Company, threatened against or
affecting the Company or any of its Subsidiaries, the Common Stock or any of the
Company’s or its Subsidiaries’ officers or directors, whether of a civil or
criminal nature or otherwise.

     

    
      
         

      

      
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    (u)           Insurance.  The
Company and each of its Subsidiaries are insured by insurers of recognized
financial responsibility against such losses and risks and in such amounts as
management of the Company believes to be prudent and customary in the businesses
in which the Company and its Subsidiaries are engaged.  Neither the
Company nor any such Subsidiary has been refused any insurance coverage sought
or applied for and neither the Company nor any such Subsidiary has any knowledge
that it will not be able to renew its existing insurance coverage as and when
such coverage expires or to obtain similar coverage from similar insurers as may
be necessary to continue its business at a cost that would not have a Material
Adverse Effect.

     

    (v)           Employee
Relations.  (i)  Neither the Company nor any of its
Subsidiaries is a party to any collective bargaining agreement or employs any
member of a union.  The Company and its Subsidiaries believe that
their relations with their employees are good.  No executive officer
of the Company or any of its Subsidiaries (as defined in Rule 501(f) of the 1933
Act) has notified the Company or any such Subsidiary that such officer intends
to leave the Company or otherwise terminate such officer’s employment with the
Company or any such Subsidiary.  No executive officer of the Company
or any of its Subsidiaries, to the knowledge of the Company, is, or is now
expected to be, in violation of any material term of any employment contract,
confidentiality, disclosure or proprietary information agreement,
non-competition agreement, or any other contract or agreement or any restrictive
covenant, and the continued employment of each such executive officer does not
subject the Company or any of its Subsidiaries to any liability with respect to
any of the foregoing matters.

     

    (ii)           The
Company and its Subsidiaries are in compliance with all federal, state, local
and foreign laws and regulations respecting labor, employment and employment
practices and benefits, terms and conditions of employment and wages and hours,
except where failure to be in compliance would not, either individually or in
the aggregate, reasonably be expected to result in a Material Adverse
Effect.

     

    (w)           Title.  The
Company and its Subsidiaries have good and marketable title in fee simple to all
real property owned by them and good and marketable title to all personal
property owned by them which is material to the business of the Company and its
Subsidiaries, in each case free and clear of all liens, encumbrances and defects
except such as do not materially affect the value of such property and do not
materially affect the value of such property and do not interfere with the use
made and proposed to be made of such property by the Company and any of its
Subsidiaries.  Any real property and facilities held under lease by
the Company and any of its Subsidiaries are held by them under valid, subsisting
and enforceable leases with such exceptions as are not material and do not
interfere with the use made and proposed to be made of such property and
buildings by the Company and its Subsidiaries.

     

    
      
         

      

      
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    (x)           Intellectual Property
Rights.  The Company and its Subsidiaries own or possess
adequate rights or licenses to use all trademarks, trade names, service marks,
service mark registrations, service names, patents, patent rights, copyrights,
inventions, licenses, approvals, governmental authorizations, trade secrets and
other intellectual property rights (“Intellectual Property Rights”)
necessary to conduct their respective businesses as now
conducted.  None of the Company’s Intellectual Property Rights have
expired or terminated, or are expected to expire or terminate, within three
years from the date of this Agreement.  To the Company’s knowledge,
none of the Company or any of its Subsidiaries have infringed upon any of the
Intellectual Property Rights of others.  There is no claim, action or
proceeding being made or brought, or to the knowledge of the Company, being
threatened, against the Company or its Subsidiaries regarding its Intellectual
Property Rights.  Except as set forth on Schedule 3(x), the Company
has no knowledge of any facts or circumstances which might give rise to any of
the foregoing infringements or claims, actions or proceedings.  The
Company and its Subsidiaries have taken reasonable security measures to protect
the secrecy, confidentiality and value of all of their intellectual
properties.

     

    (y)           Environmental
Laws.  The Company and its Subsidiaries (i) are in compliance
with any and all Environmental Laws (as hereinafter defined), (ii) have received
all permits, licenses or other approvals required of them under applicable
Environmental Laws to conduct their respective businesses and (iii) are in
compliance with all terms and conditions of any such permit, license or approval
where, in each of the foregoing clauses (i), (ii) and (iii), the failure to so
comply could be reasonably expected to have, individually or in the aggregate, a
Material Adverse Effect.  The term “Environmental Laws” means all
federal, state, local or foreign laws relating to pollution or protection of
human health or the environment (including, without limitation, ambient air,
surface water, groundwater, land surface or subsurface strata), including,
without limitation, laws relating to emissions, discharges, releases or
threatened releases of chemicals, pollutants, contaminants, or toxic or
hazardous substances or wastes (collectively, “Hazardous Materials”) into the environment, or
otherwise relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of Hazardous Materials, as well as all
authorizations, codes, decrees, demands or demand letters, injunctions,
judgments, licenses, notices or notice letters, orders, permits, plans or
regulations issued, entered, promulgated or approved thereunder.

     

    (z)           Subsidiary
Rights.  The Company or one of its Subsidiaries has the
unrestricted right to vote, and (subject to limitations imposed by applicable
law) to receive dividends and distributions on, all capital securities of its
Subsidiaries as owned by the Company or such Subsidiary.

     

    (aa)         Investment Company
Status.  The Company is not, and upon consummation of the sale
of the Securities will not be, an “investment company,” a company controlled by
an “investment company” or an “affiliated person” of, or “promoter” or
“principal underwriter” for, an “investment company” as such terms are defined
in the Investment Company Act of  1940, as amended.

     

    (bb)        Tax
Status.  The Company and each of its Subsidiaries (i) has made
or filed all foreign, federal and state income and all other tax returns,
reports and declarations required by any jurisdiction to which it is subject,
(ii) has paid all taxes and other governmental assessments and charges shown or
determined to be due on such returns, reports and declarations, except those
being contested in good faith and (iii) has set aside on its books provision
reasonably adequate for the payment of all taxes for periods subsequent to the
periods to which such returns, reports or declarations apply.  There
are no unpaid taxes in any material amount claimed to be due by the taxing
authority of any jurisdiction, and the officers of the Company has no knowledge
of any basis for any such claim.

     

    
      
         

      

      
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    (cc)           Internal Accounting and
Disclosure Controls.  The Company and each of its Subsidiaries
maintain a system of internal accounting controls sufficient to provide
reasonable assurance that (i) transactions are executed in accordance with
management’s general or specific authorizations, (ii) transactions are recorded
as necessary to permit preparation of financial statements in conformity with
generally accepted accounting principles and to maintain asset and liability
accountability, (iii) access to assets or incurrence of liabilities is permitted
only in accordance with management’s general or specific authorization and (iv)
the recorded accountability for assets and liabilities is compared with the
existing assets and liabilities at reasonable intervals and appropriate action
is taken with respect to any difference.  The Company maintains
disclosure controls and procedures (as such term is defined in Rule 13a-14 under
the 1934 Act) that are effective in ensuring that information required to be
disclosed by the Company in the reports that it files or submits under the 1934
Act is recorded, processed, summarized and reported within the time periods
specified in the rules and forms of the SEC, including, without limitation,
controls and procedures designed in to ensure that information required to be
disclosed by the Company in the reports that it files or submits under the 1934
Act is accumulated and communicated to the Company’s management, including its
principal executive officer or officers and its principal financial officer or
officers, as appropriate, to allow timely decisions regarding required
disclosure.  During the twelve months prior to the date hereof neither
the Company nor any of its Subsidiaries have received any notice or
correspondence from any accountant relating to any potential material weakness
in any part of the system of internal accounting controls of the Company or any
of its Subsidiaries.

     

    (dd)         Off Balance Sheet
Arrangements.  There is no transaction, arrangement, or other
relationship between the Company and an unconsolidated or other off balance
sheet entity that is required to be disclosed by the Company in its 1934 Act
filings and is not so disclosed or that otherwise would be reasonably likely to
have a Material Adverse Effect.

     

    (ee)         Ranking of
Notes.  Except as set forth on Schedule 3(ee), no
Indebtedness of the Company is senior to or ranks pari passu with the Notes in
right of payment, whether with respect of payment of redemptions, interest,
damages or upon liquidation or dissolution or otherwise.

     

    (ff)           Form S-1
Eligibility.  The Company is eligible to register the
Conversion Shares for resale by the Buyers using Form S-1 promulgated under the
1933 Act.

     

    (gg)         Transfer
Taxes.  On the Closing Date, all stock transfer or other taxes
(other than income, franchise, gross receipts or similar taxes) which are
required to be paid in connection with the sale and transfer of the Securities
to be sold to each Buyer hereunder will be, or will have been, fully paid or
provided for by the Company, and all laws imposing such taxes will be or will
have been complied with.

     

    
      
         

      

      
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    (hh)         Price of Securities;
Compensation.  The Company has not, and to its knowledge no one
acting on its behalf has, (i) taken, directly or indirectly, any action designed
to cause or to result in the stabilization or manipulation of the price of any
security of the Company to facilitate the sale or resale of any of the
Securities, (ii) other than the Agent, sold, bid for, purchased, or paid any
compensation for soliciting purchases of, any of the Securities, or (iii) other
than the Agent and except as set forth in schedule 3(hh), paid or agreed to pay
to any person any compensation for soliciting another to purchase any other
securities of the Company.

     

    (ii)           Acknowledgement Regarding
Buyers’ Trading Activity.  The Company understands and
acknowledges (i) that none of the Buyers have been asked to agree, nor has any
Buyer agreed, to desist from purchasing or selling, long and/or short,
securities of the Company, or “derivative” securities based on securities issued
by the Company or to hold the Securities for any specified term; (ii) that any
Buyer, and counter parties in “derivative” transactions to which any such Buyer
is a party, directly or indirectly, presently may have a “short” position in the
Common Stock, and (iii) that each Buyer shall not be deemed to have any
affiliation with or control over any arm’s length counter-party in any
“derivative” transaction.  The Company further understands and
acknowledges that (a) one or more Buyers may engage in hedging and/or trading
activities at various times during the period that the Securities are
outstanding, including, without limitation, during the periods that the value of
the Conversion Shares deliverable with respect to Securities are being
determined and (b) such hedging and/or trading activities, if any, can reduce
the value of the existing stockholders’ equity interest in the Company both at
and after the time the hedging and/or trading activities are being
conducted.  The Company acknowledges that such aforementioned hedging
and/or trading activities do not constitute a breach of this Agreement, the
Notes or any of the documents executed in connection herewith.

     

    (jj)           Disclosure.  The
Company confirms that neither it nor any other Person acting on its behalf has
provided any of the Buyers or their agents or counsel with any information that
constitutes or could reasonably be expected to constitute material, nonpublic
information other than the terms of, and the existence of, the transactions
contemplated hereby.  The Company understands and confirms that each
of the Buyers will rely on the foregoing representations in effecting
transactions in securities of the Company.  Taken as a whole, all
disclosure provided to the Buyers regarding the Company, any of its
Subsidiaries, their business and the transactions contemplated hereby, including
the Schedules to this Agreement, furnished by or on behalf of the Company is
true and correct and does not contain any untrue statement of a material fact or
with respect to written information omit to state any material fact necessary in
order to make the statements made therein, in the light of the circumstances
under which they were made, not misleading.  No event or circumstance
has occurred or information exists with respect to the Company or any of its
Subsidiaries or its or their business, properties, prospects, operations or
financial conditions, which, under applicable law, rule or regulation, requires
public disclosure or announcement by the Company but which has not been so
publicly announced or disclosed.

     

    (kk)        
U.S. Real Property
Holding Corporation.  The Company is not, has never been, and
so long as any Securities remain outstanding, shall not become, a U.S. real
property holding corporation within the meaning of Section 897 of the Internal
Revenue Code of 1986, as amended, and the Company shall so certify upon any
Buyer’s request.

     

    
      
         

      

      
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    (ll)           Stock Option Plan.
The stock options granted by the Company were granted (i) in accordance with the
terms of the applicable Company stock option plan and (ii) with an exercise
price at least equal to the fair market value of the Common Stock on the date
such stock option would be considered granted under United States generally
accepted accounting principles and applicable law. No stock option granted under
the Company’s stock option plan has been backdated.  The Company has
not knowingly granted, and there is no and has been no Company policy or
practice to knowingly grant, stock options prior to, or otherwise knowingly
coordinate the grant of stock options with, the release or other public
announcement of material information regarding the Company or its Subsidiaries
or their financial results or prospects.

     

    4.           COVENANTS.

     

    (a)           Reasonable Best
Efforts.  Each party shall use its reasonable best efforts
timely to satisfy each of the covenants and conditions to be satisfied by it as
provided in Sections 6 and 7 of this Agreement.

     

    (b)           Form D and Blue
Sky.  The Company agrees to file a Form D with respect to the
Securities as required under Regulation D and to provide a copy thereof to each
Buyer promptly after such filing.  The Company shall, on or before the
Closing Date, take such action as the Company shall reasonably determine is
necessary in order to obtain an exemption for or to qualify the Securities for
sale to the Buyers at the Closing pursuant to this Agreement under applicable
securities or “Blue Sky” laws of the states of the United States (or to obtain
an exemption from such qualification), and shall provide evidence of any such
action so taken to the Buyers on or prior to the Closing Date.  The
Company shall make all filings and reports relating to the offer and sale of the
Securities required under applicable securities or “Blue Sky” laws of the states
of the United States following the Closing Date.

     

    (c)           Reporting
Status.  Until the earlier of (i) the date on which the Buyers
shall have sold all the Conversion Shares and none of the Notes is outstanding
and (ii) the date on which the Buyers may sell all of the Conversion Shares
without restriction or limitation pursuant to Rule 144 and without the
requirement to be in compliance with Rule 144(c)(1) (or any successor rule
thereto) promulgated under the 1933 Act (the “Reporting Period”), the
Company shall timely file all reports required to be filed with the SEC pursuant
to the 1934 Act, and the Company shall not terminate its status as an issuer
required to file reports under the 1934 Act even if the 1934 Act or the rules
and regulations thereunder would otherwise permit such termination.

     

    (d)           Use of
Proceeds.  The Company will use the proceeds from the sale of
the Securities for general working capital purposes, including, without
limitation, the creation of a sales and marketing organization.

     

    (e)           Intentionally
Omitted

     

    (f)          
Quotation.  The
Company shall maintain the Common Stock’s authorization for quotation on the
Principal Market.  To the extent the Common Stock is subsequently
listed upon a national securities exchange or automated quotation system, the
Company shall promptly secure the listing of all of the Registrable Securities
(as defined in the Registration Rights Agreement) upon each national securities
exchange and automated quotation system, if any, upon which the Common Stock is
then listed (subject to official notice of issuance) and shall maintain such
listing of all Registrable Securities from time to time issuable under the terms
of the Transaction Documents.  Neither the Company nor any of its
Subsidiaries shall take any action which would be reasonably expected to result
in the delisting or suspension of the Common Stock on the Principal
Market.  The Company shall pay all fees and expenses in connection
with satisfying its obligations under this Section 4(f).

     

    
      
         

      

      
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    (g)           Fees.  The
Company shall be responsible for the payment of any placement agent’s fees,
financial advisory fees, or broker’s commissions (other than for Persons engaged
by any Buyer) relating to or arising out of the transactions contemplated
hereby, including, without limitation, any fees or commissions payable to the
Agent.  The Company shall pay, and hold each Buyer harmless against,
any liability, loss or expense (including, without limitation, reasonable
attorney’s fees and out-of-pocket expenses) arising in connection with any claim
relating to any such payment.  Except as otherwise set forth in the
Transaction Documents, each party to this Agreement shall bear its own expenses
in connection with the sale of the Securities to the Buyers.

     

    (h)           Pledge of
Securities.  The Company acknowledges and agrees that the
Securities may be pledged by an Investor (as defined in the Registration Rights
Agreement) in connection with a bona fide margin agreement or other loan or
financing arrangement that is secured by the Securities.  The pledge
of Securities shall not be deemed to be a transfer, sale or assignment of the
Securities hereunder, and no Investor effecting a pledge of Securities shall be
required to provide the Company with any notice thereof or otherwise make any
delivery to the Company pursuant to this Agreement or any other Transaction
Document, including, without limitation, Section 2(f) hereof; provided that an
Investor and its pledgee shall be required to comply with the provisions of
Section 2(f) hereof in order to effect a sale, transfer or assignment of
Securities to such pledgee.  The Company hereby agrees to execute and
deliver such documentation as a pledgee of the Securities may reasonably request
in connection with a pledge of the Securities to such pledgee by an
Investor.

     

    (i)          
 Disclosure of
Transactions and Other Material Information.  On or before 8:30
a.m., New York City time, on the first Business Day following the date of this
Agreement, the Company shall file a Current Report on Form 8-K describing the
terms of the transactions contemplated by the Transaction Documents in the form
required by the 1934 Act and attaching the material Transaction Documents
(including, without limitation, this Agreement (and all schedules to this
Agreement), the form of the Notes, the Registration Rights Agreement and the
Security Documents) as exhibits to such filing (including all attachments, the
“8-K
Filing”).  From and after the filing of the 8-K Filing with the
SEC, without its consent, no Buyer shall be in possession of any material,
nonpublic information received from the Company, any of its Subsidiaries or any
of their respective officers, directors, employees or agents, that is not
disclosed in the 8-K Filing.  The Company shall not, and shall cause
each of its Subsidiaries and its and each of their respective officers,
directors, employees and agents, not to, provide any Buyer with any material,
nonpublic information regarding the Company or any of its Subsidiaries from and
after the filing of the 8-K Filing with the SEC without the express written
consent of such Buyer.  If a Buyer has, or believes it has, received
any such material, nonpublic information regarding the Company or any of its
Subsidiaries, it shall provide the Company with written notice
thereof.  The Company shall, within five (5) trading days of receipt
of such notice, make public disclosure of such material, nonpublic
information.  Subject to the foregoing, neither the Company, its
Subsidiaries nor any Buyer shall issue any press releases or any other public
statements with respect to the transactions contemplated hereby; provided, however, that the
Company shall be entitled, without the prior approval of any Buyer, to make any
press release or other public disclosure with respect to such transactions (i)
in substantial conformity with the 8-K Filing and contemporaneously therewith
and (ii) as is required by applicable law and regulations.  Without
the prior written consent of any applicable Buyer, neither the Company nor any
of its Subsidiaries or Affiliates shall disclose the name of such Buyer in any
filing, announcement, release or otherwise., unless such disclosure is required
by law, regulation or the Principal Market.  As used herein, “Business Day” means any day
other than Saturday, Sunday or other day on which commercial banks in The City
of New York are authorized or required by law to remain closed.

     

    
      
         

      

      
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    (j)           Variable
Securities;

     

    (i)           For
long as any Notes remain outstanding, the Company shall not, in any manner,
issue or sell any rights, warrants or options to subscribe for or purchase
Common Stock or directly or indirectly convertible into or exchangeable or
exercisable for Common Stock at a price which varies or may vary with the market
price of the Common Stock, including by way of one or more reset(s) to any fixed
price unless the conversion, exchange or exercise price of any such security
cannot be less than the then applicable Conversion Price (as defined in the
Notes) with respect to the Common Stock into which any Note is
convertible.  For purposes of clarification, this section does not
prohibit the issuance of securities with customary “weighted average” or “full
ratchet” anti-dilution adjustments that adjust the fixed conversion or exercise
price of securities sold by the Company in the future.

     

    (k)           Corporate
Existence.  So long as any Buyer beneficially owns any
Securities, the Company shall not be party to any Fundamental Transaction (as
defined in the Notes) unless the Company is in compliance with the applicable
provisions governing Fundamental Transactions set forth in the
Notes.

     

    (l)           
Reservation of
Shares.  So long as any Buyer owns any Securities, the Company
shall take all action necessary to at all times have authorized, and reserved
for the purpose of issuance, no less than 100% of the number of shares of Common
Stock issuable upon conversion of the Notes then outstanding (without taking
into account any limitations on the conversion of the Notes set forth in the
Notes).

     

    (m)           Conduct of
Business.  The business of the Company and its Subsidiaries
shall not be conducted in violation of any law, ordinance or regulation of any
governmental entity, except where such violations would not result, either
individually or in the aggregate, in a Material Adverse Effect.

     

    (n)           Additional Issuances of
Securities.

     

    (i)           For
purposes of this Section 4(n), the following definitions shall
apply.

     

    
      
         

      

      
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    (1)           “Convertible Securities” means
any stock or securities (other than Options) convertible into or exercisable or
exchangeable for shares of Common Stock.

     

    (2)           “Options” means any rights,
warrants or options to subscribe for or purchase shares of Common Stock or
Convertible Securities.

     

    (3)           “Common Stock Equivalents”
means, collectively, Options and Convertible Securities.

     

    (ii)           From
the date hereof until the later to occur of (i) the date on which none of the
Notes is outstanding and (ii) the date two years from the date hereof, the
Company will not, directly or indirectly, offer, sell, grant any Option, or
otherwise dispose of (or announce any offer, sale, grant or any Option or other
disposition of) any of its or its Subsidiaries’ equity or equity equivalent
securities, including without limitation any debt, preferred stock or other
instrument or security that is, at any time during its life and under any
circumstances, convertible into or exchangeable or exercisable for shares of
Common Stock or Common Stock Equivalents (any such offer, sale, grant,
disposition or announcement being referred to as a “Subsequent Placement”) unless
the Company shall have first complied with this Section 4(n)(ii).

     

    (1)           The
Company shall deliver to each Buyer an irrevocable written notice (the “Offer Notice”) of any proposed
or intended issuance or sale or exchange (the “Offer”) of the securities
being offered (the “Offered
Securities”) in a Subsequent Placement, which Offer Notice shall (w)
identify and describe the Offered Securities, (x) describe the price and
other terms upon which they are to be issued, sold or exchanged, and the number
or amount of the Offered Securities to be issued, sold or exchanged,
(y) identify the persons or entities (if known) to which or with which the
Offered Securities are to be offered, issued, sold or exchanged and (z) offer to
issue and sell to or exchange with such Buyers all of the Offered Securities,
allocated among such Buyers (a) based on such Buyer’s pro rata portion of the
aggregate principal amount of Notes purchased hereunder (the “Basic Amount”), and (b) with
respect to each Buyer that elects to purchase its Basic Amount, any additional
portion of the Offered Securities attributable to the Basic Amounts of other
Buyers as such Buyer shall indicate it will purchase or acquire should the other
Buyers subscribe for less than their Basic Amounts (the “Undersubscription
Amount”).

     

    (2)           To
accept an Offer, in whole or in part, such Buyer must deliver a written notice
to the Company prior to the end of the tenth Business Day after such Buyer’s
receipt of the Offer Notice (the “Offer Period”), setting forth
the portion of such Buyer’s Basic Amount that such Buyer elects to purchase and,
if such Buyer shall elect to purchase all of its Basic Amount, the
Undersubscription Amount, if any, that such Buyer elects to purchase (in either
case, the “Notice of
Acceptance”).  If the Basic Amounts subscribed for by all
Buyers are less than the total of all of the Basic Amounts, then each Buyer who
has set forth an Undersubscription Amount in its Notice of Acceptance shall be
entitled to purchase, in addition to the Basic Amounts subscribed for, the
Undersubscription Amount it has subscribed for; provided, however, that if
the Undersubscription Amounts subscribed for exceed the difference between the
total of all the Basic Amounts and the Basic Amounts subscribed for (the “Available Undersubscription
Amount”), each Buyer who has subscribed for any Undersubscription Amount
shall be entitled to purchase only that portion of the Available
Undersubscription Amount as the Basic Amount of such Buyer bears to the total
Basic Amounts of all Buyers that have subscribed for Undersubscription Amounts,
subject to rounding by the Company to the extent its deems reasonably
necessary.

     

    
      
         

      

      
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    (3)           The
Company shall have twenty days from the expiration of the Offer Period above to
offer, issue, sell or exchange all or any part of such Offered Securities as to
which a Notice of Acceptance has not been given by the Buyers (the “Refused Securities”), but only
to the offerees described in the Offer Notice (if so described therein) and only
upon terms and conditions (including, without limitation, unit prices and
interest rates) that are not more favorable to the acquiring person or persons
or less favorable to the Company than those set forth in the Offer
Notice.

     

    (4)           In
the event the Company shall propose to sell less than all the Refused Securities
(any such sale to be in the manner and on the terms specified in Section
4(n)(ii)(3) above), then each Buyer may, at its sole option and in its sole
discretion, reduce the number or amount of the Offered Securities specified in
its Notice of Acceptance to an amount that shall be not less than the number or
amount of the Offered Securities that such Buyer elected to purchase pursuant to
Section 4(n)(ii)(2) above multiplied by a fraction, (i) the numerator of which
shall be the number or amount of Offered Securities the Company actually
proposes to issue, sell or exchange (including Offered Securities to be issued
or sold to Buyers pursuant to Section 4(n)(ii)(3) above prior to such reduction)
and (ii) the denominator of which shall be the original amount of the Offered
Securities.  In the event that any Buyer so elects to reduce the
number or amount of Offered Securities specified in its Notice of Acceptance,
the Company may not issue, sell or exchange more than the reduced number or
amount of the Offered Securities unless and until such securities have again
been offered to the Buyers in accordance with Section 4(n)(ii)(1)
above.

     

    (5)           Upon
the closing of the issuance, sale or exchange of all or less than all of the
Refused Securities, the Buyers shall acquire from the Company, and the Company
shall issue to the Buyers, the number or amount of Offered Securities specified
in the Notices of Acceptance, as reduced pursuant to Section 4(o)(ii)(4) above
if the Buyers have so elected, upon the terms and conditions specified in the
Offer.  Notwithstanding anything to the contrary contained in this
Agreement, if the Company does not consummate the closing of the issuance, sale
or exchange of all or less than all of the Refused Securities, within twenty
(20) Business Days of the expiration of the Offer Period, the Company shall
issue to the Buyers, the number or amount of Offered Securities specified in the
Notices of Acceptance, as reduced pursuant to Section 4(n)(ii)(4) above if the
Buyers have so elected, upon the terms and conditions specified in the
Offer.  The purchase by the Buyers of any Offered Securities is
subject in all cases to the preparation, execution and delivery by the Company
and the Buyers of a purchase agreement relating to such Offered Securities
reasonably satisfactory in form and substance to the Buyers and their respective
counsel.

     

    
      
         

      

      
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    (6)           Any
Offered Securities not acquired by the Buyers or other persons in accordance
with Section 4(n)(ii)(3) above may not be issued, sold or exchanged until they
are again offered to the Buyers under the procedures specified in this
Agreement.

     

    (iii)           This
Section 4(n) shall not apply to (1) Options issued under the Company’s 2005
Stock Incentive Plan to officers, directors or employees of or consultants to
the Company for compensation or incentive purposes and (2) Options or any of the
Company’s or its Subsidiaries’ equity or equity equivalent securities, including
without limitation, any debt, preferred stock or other instrument or security
that is, at any time during its life and under any circumstances, convertible
into or exchangeable or exercisable for shares of Common Stock or Common Stock
Equivalents that are (a) outstanding on the date hereof, or (b) issued in
connection with the settlement of the matter entitled Intervex, Inc. v. Applied DNA
Sciences, Inc. (Supreme Court of the State of New York Index No.08-601219)
described on schedule 3(t).

     

    (o)           Corporate Governance
Policies.  Within sixty (60) days of the Closing Date, the
Company will use commercially reasonably efforts to adopt and be in compliance
with the corporate governance standards applicable to companies listed on either
the New York Stock Exchange, the NYSE Amex or the Nasdaq Stock
Market.

     

    (p)           Executive Officers and
Compensation Arrangements.  The Company will use commercially
reasonable efforts to hire additional senior officers and adopt compensation
plans and arrangements that are competitive with comparably situated companies
in the business in which the Company is engaged.

     

    (q)           [Intentionally
omitted]

     

    (r)           
Collateral
Agent.

     

    (i)           Etico
Capital, LLC is hereby appointed Collateral Agent under the Security Documents
and each Buyer hereby authorizes Etico Capital, LLC, in such capacity, to act as
its agent in accordance with the terms of the Security Documents and this
Agreement.  The provisions of this Section 4(r) are solely for the
benefit of the Buyers and the Company and its Affiliates shall not have any
rights as a third party beneficiary of any of the provisions
thereof.  In performing its functions and duties under the Security
Documents and this Agreement, the Collateral Agent shall act solely as an agent
of Buyers and does not assume and shall not be deemed to have assumed any
obligation towards or relationship of agency or trust with the Company or any of
its Affiliates. The Collateral Agent shall be obligated, and shall have the
powers and rights, to make demands, to give notices, to exercise or refrain from
exercising any rights, and to take or refrain from taking any action (including,
without limitation, the release or substitution of Collateral), solely in
accordance with this Agreement and the Security Documents. If any provision,
duty, obligation or right under the Security Documents is in conflict with any
provision, duty, obligation or right under this Agreement then this Agreement
shall control. The Collateral Agent shall not have any duties or
responsibilities, except those expressly set forth herein and in the Security
Documents and such powers as are incidental thereto.

    
      
         

      

      
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    (ii)           Each
Buyer irrevocably authorizes the Collateral Agent to take such action on such
Buyer’s behalf and to exercise such powers, rights and remedies hereunder as are
specifically delegated or granted to the Collateral Agent by the terms of this
Agreement and the Security Documents, together with such powers, rights and
remedies as are reasonably incidental thereto. The Collateral Agent shall have
only those duties and responsibilities that are expressly specified herein and
therein. The Collateral Agent may exercise such powers, rights and remedies and
perform such duties by or through its agents or employees. Notwithstanding any
other provisions hereof or of any provision of the Security Documents, the
Collateral Agent shall not have or be deemed to have any fiduciary relationship
with the Buyers or any other person or entity, and no implied covenants,
functions, responsibilities, duties, obligations or liabilities shall be read
into this Agreement or the Security Documents or otherwise exist against the
Collateral Agent.  Without limiting the generality of the foregoing
sentence, the use of the term “agent” in this Agreement or the Security
Documents with reference to the Collateral Agent is not intended to connote any
fiduciary or other implied (or express) obligations arising under agency
doctrine of any applicable law.

     

    (iii)           The
Collateral Agent may act in reliance upon any writing or instrument or signature
which it, in good faith, believes to be genuine, and may assume the validity and
accuracy of any statement or assertion contained in such a writing or instrument
and may assume that any person or entity purporting to give any writing, notice,
advice or instruction in connection with the provisions hereof has been duly
authorized to do so.  The Collateral Agent may consult with counsel
and shall be entitled to act, and shall be fully protected in any action taken
in good faith, in accordance with advice given by counsel.  The
Collateral Agent shall not be liable to the Company or any of its Affiliates, or
the Buyers for any recitals or warranties herein or in the Security Documents,
nor for the effectiveness, enforceability, validity or due execution of the
Security Documents or any other agreement, document or instrument, nor to make
any inquiry respecting the performance by any party of their respective
obligations thereunder.  Any such inquiry which may be made by the
Collateral Agent shall not obligate it to make any further inquiry or to take
any action.

     

    (iv)           The
Collateral Agent shall not be required to take any action which, in the
Collateral Agent’s sole and absolute judgment, could involve it in expense or
liability unless furnished with security and indemnity which it deems, in its
sole and absolute discretion, to be satisfactory.  In the event the
Collateral Agent receives conflicting instructions hereunder or under any of the
Security Documents, the Collateral Agent shall be fully protected in refraining
from acting until such conflict is resolved to the satisfaction of the
Collateral Agent.  Neither the Collateral Agent nor any of its
directors, officers, employees or agents shall be liable, except for the
Collateral Agent’s bad faith, gross negligence or willful misconduct as finally
determined by a court of competent jurisdiction for any action taken or omitted
under or in connection with this Agreement, the Security Documents or any other
instrument or document in connection herewith or therewith.

     

    
      
         

      

      
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    (v)           The
Company, its Subsidiaries and the Buyers jointly and severally hereby agree to
indemnify the Collateral Agent, its directors, officers, employees and agents
(collectively, the “Indemnified
Parties”), and hold the Indemnified Parties harmless from any and against
all liabilities, losses, actions, suits or proceedings at law or in equity, and
any other expenses, fees or charges of any character or nature, including,
without limitation, attorney’s fees and expenses, which an Indemnified Party may
incur or with which it may be threatened by reason of acting as or on behalf of
the Collateral Agent under this Agreement or the Security Documents, except to
the extent the same shall be caused by the Collateral Agent’s bad faith, gross
negligence or willful misconduct as finally determined by a court of competent
jurisdiction.  The Collateral Agent shall not be required to take any
action hereunder or under the Security Documents, or to prosecute or defend any
suit in respect of this Agreement or the Security Documents, unless it is
indemnified thereunder to its satisfaction.  If any indemnity in favor
of the Collateral Agent shall be or become, in its determination, inadequate,
the Collateral Agent may call for additional indemnification from the Company,
such Subsidiaries and the Buyers and/or cease to do the acts indemnified against
hereunder until such additional indemnity is given. The terms of this clause
(vi) shall survive termination of this Agreement.

     

    (vi)           The
Collateral Agent may resign or be removed by the Buyers (by a vote of the
holders of a majority of the outstanding principal of the Notes) as Collateral
Agent hereunder at any time upon at least thirty (30) days’ prior
notice.  If the Collateral Agent at any time shall resign, the Buyers
shall (by a vote of the holders of a majority of the outstanding principal of
the Notes), within ten (10) days after such notice appoint a successor
Collateral Agent which shall thereupon become the Collateral Agent hereunder and
under the Security Documents.  If no successor Collateral Agent shall
have been so appointed, and shall have accepted such appointment, within the
above time frame the retiring Collateral Agent may appoint a
successor.  Upon the acceptance of any appointment as Collateral Agent
hereunder by a successor Collateral Agent, such successor Collateral Agent shall
be entitled to receive from the retiring Collateral Agent such documents of
transfer and assignment as such successor Collateral Agent may reasonably
request, and shall thereupon succeed to and become vested with all rights,
powers, privileges and duties of the retiring Collateral Agent, and the retiring
Collateral Agent shall be discharged from its duties and obligations under this
Agreement.  After the effective date of any retiring Collateral
Agent’s resignation hereunder as collateral agent, the provisions of this
section shall inure to its benefit as to any actions taken or omitted to be
taken by it while it was Collateral Agent under this Agreement.

     

    (vii)        The
Collateral Agent shall not be deemed to have knowledge or notice of the
occurrence of any default or Event of Default unless the Collateral Agent has
received a copy of a notice thereof from a Buyer referring to this Agreement and
describing such default or Event of Default.  In the event that the
Collateral Agent receives such a notice, the Collateral Agent shall promptly
give notice thereof to the other Buyers and to the Company.  The
Collateral Agent shall be permitted to take such action with respect to any
default or Event of Default as provided in this Agreement and the Security
Documents.

     

    (viii)       Each
Buyer, by its acceptance of the benefits hereof and of the Security Documents,
agrees that it shall have no right individually to realize upon any of the
Collateral, it being understood and agreed by each Buyer that all rights and
remedies may be exercised solely by the Collateral Agent for the benefit of the
Buyer in accordance with the provisions of this Agreement and the Security
Documents in the Collateral Agent’s sole and absolute discretion.

     

    
      
         

      

      
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    (ix)           Upon
any payment or distribution of assets of the Company of any kind or character,
whether in cash, property or securities, to its creditors upon any dissolution
or winding-up or total or partial liquidation or reorganization of the Pledgor,
whether voluntary or involuntary or in bankruptcy, insolvency, receivership or
other proceedings including, without limitation, all amounts received by the
Collateral Agent on behalf of the Buyers, or received by the Buyers, shall be
paid by the in accordance with its outstanding secured Obligations to each of
the Buyers in accordance with clause (xiii) below.  Any and all
amounts referred to in this clause (x) or any other amounts or proceeds of
collateral received by any of the Buyers shall be held in trust for the benefit
of all of the Buyers, shall be immediately delivered by the applicable Buyers to
the Collateral Agent in the amount and form received, and shall be apportioned,
paid over or delivered among the Buyers in accordance with clause (xii) of this
Agreement.

     

    (x)           Except
as provided by law, the security interests in the Collateral shall be for the
ratable benefit of the Buyers and the holders of outstanding debt listed on
Schedule 3(s)
hereto, shall rank equally in priority, none being senior or subordinate
to any other. No Buyer shall contest the validity, perfection, priority or
enforceability of the lien of any other Buyer in the Collateral.  Each
Buyer, by its acceptance of the benefits hereof, agrees that it shall have no
right individually to realize upon any of the Collateral under this Agreement,
the Security Documents, pursuant to applicable law, or otherwise, it being
understood and agreed by each Buyer that all rights and remedies under this
Agreement, the Security Documents, pursuant to applicable law, or otherwise, may
be exercised solely by the Collateral Agent for the benefit of Buyers in
accordance with the provisions of this Agreement and the Security
Documents.

     

    (xi)           Upon
any payment or distribution of assets of the Company of any kind or character,
whether in cash, property or securities, to creditors upon any dissolution or
winding-up or total or partial liquidation or reorganization of the Company,
whether voluntary or involuntary or in bankruptcy, insolvency, receivership or
other proceedings (each such payment, distribution and/or amount is hereafter
referred to as a “Collateral Proceeds
Amount”), shall be disbursed in accordance with clause (xii)
below.

     

    (xii)         Any
and all Collateral Proceeds Amount and any other amounts or proceeds of
Collateral received by any of the Buyers shall be held in trust for the benefit
of all of the Buyers, shall be immediately delivered by the applicable Buyer to
the Collateral Agent in the amount and form received, and, subject to the rights
to any of the Collateral Proceeds Amount or such other amounts or proceeds of
Collateral of the holders of the other security interests in the Collateral
referred to in clause (x) above, shall be apportioned, paid over or delivered as
follows: first,
to the Collateral Agent for the payment or reimbursement of any expenses and
fees of, or any other amount payable to, the Collateral Agent hereunder or under
the Security Documents, and next, among the
Buyers on a pro rata basis to each in accordance with the Company’s outstanding
obligations to each of the Buyers which are secured pursuant to this
Agreement.

     

    (s)           Conduct of
Business.  Neither the Company nor its Subsidiaries will
conduct its business in violation of any term of or in default under its
Certificate of Incorporation or other charter documents, or
Bylaws.  Neither the Company nor any of its Subsidiaries will conduct
its business in violation of any judgment, decree or order or any statute,
ordinance, rule or regulation applicable to the Company or its Subsidiaries,
except for possible violations which would not, individually or in the
aggregate, have a Material Adverse Effect.

     

    
      
         

      

      
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    5.           REGISTER;
TRANSFER AGENT INSTRUCTIONS.

     

    (a)           Register.  The
Company shall maintain at its principal executive offices (or such other office
or agency of the Company as it may designate by notice to each holder of
Securities), a register for the Notes in which the Company shall record the name
and address of the Person in whose name the Notes have been issued (including
the name and address of each transferee), the principal amount of Notes held by
such Person and the number of Conversion Shares issuable upon conversion of the
Notes held by such Person.  The Company shall keep the register open
and available at all times during business hours for inspection of any Buyer or
its legal representatives.

     

    (b)           Transfer Agent
Instructions.  The Company shall issue irrevocable instructions
to its transfer agent, and any subsequent transfer agent, to issue certificates
or credit shares to the applicable balance accounts at DTC, registered in the
name of each Buyer or its respective nominee(s), for the Conversion Shares
issued at the Closing or upon conversion of the Notes in such amounts as
specified from time to time by each Buyer to the Company upon conversion of the
Notes in the form of Exhibit E attached
hereto (the “Irrevocable
Transfer Agent Instructions”).  The Company warrants that no
instruction other than the Irrevocable Transfer Agent Instructions referred to
in this Section 5(b), and stop transfer instructions to give effect to Section
2(g) hereof, will be given by the Company to its transfer agent, and that the
Securities shall otherwise be freely transferable on the books and records of
the Company as and to the extent provided in this Agreement and the other
Transaction Documents.  If a Buyer effects a sale, assignment or
transfer of the Securities in accordance with Section 2(f), the Company shall
permit the transfer and shall promptly instruct its transfer agent to issue one
or more certificates or credit shares to the applicable balance accounts at DTC
in such name and in such denominations as specified by such Buyer to effect such
sale, transfer or assignment.  In the event that such sale, assignment
or transfer involves Conversion Shares sold, assigned or transferred pursuant to
an effective registration statement or pursuant to Rule 144, the transfer agent
shall issue such Securities to the Buyer, assignee or transferee, as the case
may be, without any restrictive legend.  The Company acknowledges that
a breach by it of its obligations hereunder will cause irreparable harm to a
Buyer.  Accordingly, the Company acknowledges that the remedy at law
for a breach of its obligations under this Section 5(b) will be inadequate and
agrees, in the event of a breach or threatened breach by the Company of the
provisions of this Section 5(b), that a Buyer shall be entitled, in addition to
all other available remedies, to an order and/or injunction restraining any
breach and requiring immediate issuance and transfer, without the necessity of
showing economic loss and without any bond or other security being
required.

     

    6.           CONDITIONS
TO THE COMPANY’S OBLIGATION TO SELL.

     

    The
obligation of the Company hereunder to issue and sell the Notes to each Buyer at
the Closing is subject to the satisfaction, at or before the Closing Date, of
each of the following conditions, provided that these conditions are for the
Company’s sole benefit and may be waived by the Company at any time in its sole
discretion by providing each Buyer with prior written notice
thereof:

     

    (i)           Such
Buyer and each other Buyer shall have executed each of the Transaction Documents
to which it is a party and delivered the same to the Company.

     

    
      
         

      

      
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    (ii)           Such
Buyer and each other Buyer shall have delivered to the Company the Purchase
Price for the Notes being purchased by such Buyer and each other Buyer at the
Closing by wire transfer of immediately available funds.

     

    (iii)           The
representations and warranties of such Buyer and each other Buyer shall be true
and correct in all material respects as of the date hereof and as of the Closing
Date as though made at that time (except for representations and warranties that
speak as of a specific date), and such Buyer and each other Buyer shall have
performed, satisfied and complied in all material respects with the covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by such Buyer and each other Buyer at or prior to the Closing
Date.

     

    7.           CONDITIONS
TO EACH BUYER’S OBLIGATION TO PURCHASE.

     

    The
obligation of each Buyer hereunder to purchase the Notes at the Closing is
subject to the satisfaction, at or before the Closing Date, of each of the
following conditions, provided that these conditions are for each Buyer’s sole
benefit and may be waived by such Buyer at any time in its sole discretion by
providing the Company with prior written notice thereof:

     

    (i)           The
Company shall have executed and delivered to such Buyer (A) each of the
Transaction Documents and (B) the Notes (in such principal amounts as such Buyer
shall request) being purchased by such Buyer at the Closing pursuant to this
Agreement.

     

    (ii)           Such
Buyer shall have received the opinion of Fulbright & Jaworski L.L.P., the
Company’s outside counsel, dated as of the Closing Date, substantially in the
form attached hereto as Exhibit F.

     

    (iii)         The
Company shall have delivered to such Buyer a copy of the Irrevocable Transfer
Agent Instructions, substantially in the form attached hereto as Exhibit E, which
instructions shall have been delivered to and acknowledged in writing by the
Company’s transfer agent.

     

    (iv)         The
Company shall have delivered to such Buyer a certificate evidencing the
formation and good standing of the Company and each of its Subsidiaries in such
entity’s jurisdiction of formation issued by the Secretary of State (or
comparable office) of such jurisdiction, as of a date within 10 days of the
Closing Date.

     

    (v)          The
Company shall have delivered to such Buyer a certificate evidencing the
Company’s qualification as a foreign corporation and good standing issued by the
Secretary of State (or comparable office) of each jurisdiction in which the
Company conducts business and the failure to so qualify would have a Material
Adverse Effect, as of a date within 10 days of the Closing Date.

     

    (vi)         The
Company shall have delivered to such Buyer a certified copy of the Certificate
of Incorporation as certified by the Secretary of State of the State of Delaware
within 10 days of the Closing Date.

     

    
      
         

      

      
        27

        
          

        

      

      
         

      

       

    

    (vii)           The
Company shall have delivered to such Buyer a certificate, executed by the
Secretary of the Company and dated as of the Closing Date, as to (i) the
resolutions as adopted by the Company’s Board of Directors in a form reasonably
acceptable to such Buyer, (ii) the Certificate of Incorporation and (iii) the
Bylaws, each as in effect as of the Closing, in the form attached hereto as
Exhibit G.

     

    (viii)         The
representations and warranties of the Company shall be true and correct in all
material respects (except for those representations and warranties that are
qualified by materiality or Material Adverse Effect, which shall be true and
correct in all respects) as of the date when made and as of the Closing Date as
though made at that time (except for representations and warranties that speak
as of a specific date) and the Company shall have performed, satisfied and
complied in all material respects with the covenants, agreements and conditions
required by the Transaction Documents to be performed, satisfied or complied
with by the Company at or prior to the Closing Date.  Such Buyer shall
have received a certificate, executed by the Chief Executive Officer of the
Company, dated as of the Closing Date, to the foregoing effect and as to such
other matters as may be reasonably requested by such Buyer in the form attached
hereto as Exhibit
H.

     

    (ix)           The
Company shall have delivered to such Buyer a letter from the Company’s transfer
agent certifying the number of shares of Common Stock outstanding as of a date
within five days of the Closing Date.

     

    (x)           
The Common Stock (I) shall be designated for quotation or listed on the
Principal Market and (II) shall not have been suspended, as of the Closing Date,
by the SEC or the Principal Market from trading on the Principal Market nor
shall suspension by the SEC or the Principal Market have been threatened, as of
the Closing Date.

     

    (xi)           The
Company shall have obtained all governmental, regulatory or third party consents
and approvals, if any, necessary for the sale of the Securities.

     

    (xii)           In
accordance with the terms of the Security Documents, the Company shall have
delivered to the Collateral Agent appropriate financing statements on Form UCC-1
to be duly filed in such office or offices as may be necessary or, in the
opinion of the Collateral Agent, desirable to perfect the security interests
purported to be created by each Security Document.

     

    (xiii)          The
Company shall have delivered to such Buyer such other documents relating to the
transactions contemplated by this Agreement as such Buyer or its counsel may
reasonably request.

     

    8.           TERMINATION.  In
the event that the Closing shall not have occurred with respect to a Buyer on or
before ten (10) Business Days from the date hereof due to the Company’s or such
Buyer’s failure to satisfy the conditions set forth in Sections 6 and 7 above
(and the nonbreaching party’s failure to waive such unsatisfied condition(s)),
the nonbreaching party shall have the option to terminate this Agreement at the
close of business on such date without liability of any party to any other
party; provided, however, this if this
Agreement is terminated pursuant to this Section 8, the Company shall remain
obligated to reimburse the non-breaching Buyers for the expenses described in
Section 4(g) above.

     

    
      
         

      

      
        28

        
          

        

      

      
         

      

    

    9.           MISCELLANEOUS.

     

    (a)           Governing Law; Jurisdiction;
Jury Trial.  All questions concerning the construction,
validity, enforcement and interpretation of this Agreement shall be governed by
the internal laws of the State of New York, without giving effect to any choice
of law or conflict of law provision or rule (whether of the State of New York or
any other jurisdictions) that would cause the application of the laws of any
jurisdictions other than the State of New York.  Each party hereby
irrevocably submits to the exclusive jurisdiction of the state and federal
courts sitting in The City of New York, Borough of Manhattan, for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is brought in an inconvenient forum or that the
venue of such suit, action or proceeding is improper.  Each party
hereby irrevocably waives personal service of process and consents to process
being served in any such suit, action or proceeding by mailing a copy thereof to
such party at the address for such notices to it under this Agreement and agrees
that such service shall constitute good and sufficient service of process and
notice thereof.  Nothing contained herein shall be deemed to limit in
any way any right to serve process in any manner permitted by
law.  EACH PARTY
HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A
JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH
OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED
HEREBY.

     

    (b)           Counterparts.  This
Agreement may be executed in two or more identical counterparts, all of which
shall be considered one and the same agreement and shall become effective when
counterparts have been signed by each party and delivered to the other party;
provided that a facsimile signature shall be considered due execution and shall
be binding upon the signatory thereto with the same force and effect as if the
signature were an original, not a facsimile signature.

     

    (c)           Headings.  The
headings of this Agreement are for convenience of reference and shall not form
part of, or affect the interpretation of, this Agreement.

     

    (d)           Severability.  If
any provision of this Agreement shall be invalid or unenforceable in any
jurisdiction, such invalidity or unenforceability shall not affect the validity
or enforceability of the remainder of this Agreement in that jurisdiction or the
validity or enforceability of any provision of this Agreement in any other
jurisdiction.

     

    
      
         

      

      
        29

        
          

        

      

      
         

      

       

    

    (e)           Entire Agreement;
Amendments.  This Agreement and the other Transaction Documents
supersede all other prior oral or written agreements between the Buyers, the
Company, their affiliates and Persons acting on their behalf with respect to the
matters discussed herein, and this Agreement, the other Transaction Documents
and the instruments referenced herein and therein contain the entire
understanding of the parties with respect to the matters covered herein and
therein and, except as specifically set forth herein or therein, neither the
Company nor any Buyer makes any representation, warranty, covenant or
undertaking with respect to such matters.  No provision of this
Agreement may be amended other than by an instrument in writing signed by the
Company and the Required Holders (as defined in the Note), and any amendment to
this Agreement made in conformity with the provisions of this Section 9(e) shall
be binding on all Buyers and holders of Securities, as applicable.  No
provision hereof may be waived other than by an instrument in writing signed by
the party against whom enforcement is sought.  No such amendment shall
be effective to the extent that it applies to less than all of the holders of
the applicable Securities then outstanding.  No consideration shall be
offered or paid to any Person to amend or consent to a waiver or modification of
any provision of any of the Transaction Documents unless the same consideration
also is offered to all of the parties to the Transaction Documents or holders of
Notes.  The Company has not, directly or indirectly, made any
agreements with any Buyers relating to the terms or conditions of the
transactions contemplated by the Transaction Documents except as set forth in
the Transaction Documents.  Without limiting the foregoing, the
Company confirms that, except as set forth in this Agreement, no Buyer has made
any commitment or promise or has any other obligation to provide any financing
to the Company or otherwise.

     

    (f)           Notices.  Any
notices, consents, waivers or other communications required or permitted to be
given under the terms of this Agreement must be in writing and will be deemed to
have been delivered:  (i) upon receipt, when delivered personally;
(ii) upon receipt, when sent by facsimile (provided confirmation of transmission
is mechanically or electronically generated and kept on file by the sending
party); or (iii) one Business Day after deposit with an overnight courier
service, in each case properly addressed to the party to receive the
same.  The addresses and facsimile numbers for such communications
shall be:

    
      
        	 	 
	 
      	
                If
      to the Company:

              
	 
      	 
      	 
      
	 
      	 
      	
                Applied
      DNA Sciences, Inc.

              
	 
      	 
      	
                25
      Health Sciences Drive, Suite 113

              
	 
      	 
      	
                Stony
      Brook, New York 11790

              
	 
      	 
      	
                Telephone:

              	
                (631)
      444-6370

              
	 
      	 
      	
                Facsimile:

              	
                (631)
      444-8848

              
	 
      	 
      	
                Attention:

              	
                Chief
      Financial Officer

              
	 
      	 
      	 
      	 
      
	 
      	
                With
      copies to:

              
	 
      	 
      	 
      
	 
      	 
      	
                Fulbright
      & Jaworski L.L.P

              
	 
      	 
      	
                666
      Fifth Avenue

              
	 
      	 
      	
                New
      York, NY 10103-3198

              
	 
      	 
      	
                Telephone:

              	
                (212)
      318-3000

              
	 
      	 
      	
                Facsimile:

              	
                (212)
      318-3400

              
	 
      	 
      	
                Attention:

              	
                Merrill
      Kraines, Esq.

              
	 
      	 
      	 
      	 
      

         

        
          
            
            

          

          
            30

            
              

            

          

          
            
            

          

        

         

        	 
      	
                If
      to the Transfer Agent:

              
	 
      	 
      	 
      
	 
      	 
      	
                American
      Stock Transfer and Trust Company

              
	 
      	 
      	
                6201
      15th Ave.

              
	 
      	 
      	
                Brooklyn,
      New York 11219

              
	 
      	 
      	
                Telephone:
      (718) 921-8210

              
	 
      	 
      	
                Facsimile:
      (718) 921-8355

              
	 
      	 
      	
                Attention:
      Joseph Alicia

              
	 	 	 

      

    

    If to a
Buyer, to its address and facsimile number set forth on the Schedule of Buyers,
with copies to such Buyer’s representatives as set forth on the Schedule of
Buyers, or to
such other address and/or facsimile number and/or to the attention of such other
Person as the recipient party has specified by written notice given to each
other party five (5) days prior to the effectiveness of such
change.  Written confirmation of receipt (A) given by the recipient of
such notice, consent, waiver or other communication, (B) mechanically or
electronically generated by the sender’s facsimile machine containing the time,
date, recipient facsimile number and an image of the first page of such
transmission or (C) provided by an overnight courier service shall be rebuttable
evidence of personal service, receipt by facsimile or receipt from an overnight
courier service in accordance with clause (i), (ii) or (iii) above,
respectively.

     

    (g)           Successors and
Assigns.  This Agreement shall be binding upon and inure to the
benefit of the parties and their respective successors and assigns, including
any purchasers of the Notes.  The Company shall not assign this
Agreement or any rights or obligations hereunder without the prior written
consent of the Required Holders, including by way of a Fundamental Transaction
(unless the Company is in compliance with the applicable provisions governing
Fundamental Transactions set forth in the Notes).  A Buyer may assign
some or all of its rights hereunder without the consent of, but upon prompt
written notice to, the Company, in which event such assignee shall be deemed to
be a Buyer hereunder with respect to such assigned rights.

     

    (h)           No Third Party
Beneficiaries.  This Agreement is intended for the benefit of
the parties hereto and their respective permitted successors and assigns, and is
not for the benefit of, nor may any provision hereof be enforced by, any other
Person.

     

    (i)           Reliance by the
Agent. The parties agree and acknowledge that the Agent may rely on the
representations, warranties, agreements and covenants of the Company contained
in this Agreement and may rely on the representations and warranties to the
respective Buyer set forth in this Agreement as if such representations,
warranties, agreements and covenants, as applicable, were made directly to the
Agent. The parties further agree that the Agent may relay on or, if the Agent so
requests, be specifically named as an addressee of, the legal opinions to be
delivered pursuant to this Agreement. In addition, no representation, warranty
or covenant, express or implied, is or will be made by the Agent with respect to
the Company or the transactions contemplated by this Agreement; and no
responsibility of any kind exists with the Agent with respect to the
completeness or accuracy of, or any other matter concerning, any other
information made or provided by the Company or its representatives to the Buyer
(as to diligence matters or otherwise) or with respect to any statements made
regarding any such information by the Company, its representatives or the Agent
to the Buyers.

     

    
      
         

      

      
        31

        
          

        

      

      
         

      

       

    

    (j)           Survival.  Unless
this Agreement is terminated under Section 8, the representations and warranties
of the Company and the Buyers contained in Sections 2 and 3 and the agreements
and covenants set forth in Sections 4, 5 and 9 shall survive the Closing for a
period of one (1) year from the date hereof.  Each Buyer shall be
responsible only for its own representations, warranties, agreements and
covenants hereunder.

     

    (k)           Further
Assurances.  Each party shall do and perform, or cause to be
done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
any other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.

     

    (l)           Indemnification.  In
consideration of each Buyer’s execution and delivery of the Transaction
Documents and acquiring the Securities thereunder and in addition to all of the
Company’s other obligations under the Transaction Documents, the Company shall
defend, protect, indemnify and hold harmless each Buyer and each other holder of
the Securities and all of their stockholders, partners, members, officers,
directors, employees and direct or indirect investors and any of the foregoing
Persons’ agents or other representatives (including, without limitation, those
retained in connection with the transactions contemplated by this Agreement)
(collectively, the “Indemnitees”) from and against
any and all actions, causes of action, suits, claims, losses, costs, penalties,
taxes, fees, liabilities and damages, and expenses in connection therewith
(irrespective of whether any such Indemnitee is a party to the action for which
indemnification hereunder is sought), and including reasonable attorneys’ fees
and disbursements (the “Indemnified Liabilities”),
incurred by any Indemnitee as a result of, or arising out of, or relating to (a)
any misrepresentation or breach of any representation or warranty made by the
Company in the Transaction Documents or any other certificate, instrument or
document contemplated hereby or thereby, or (b) any breach of any covenant,
agreement or obligation of the Company contained in the Transaction Documents or
any other certificate, instrument or document contemplated hereby or
thereby.  To the extent that the foregoing undertaking by the Company
may be unenforceable for any reason, the Company shall make the maximum
contribution to the payment and satisfaction of each of the Indemnified
Liabilities which is permissible under applicable law.  Except as
otherwise set forth herein, the mechanics and procedures with respect to the
rights and obligations under this Section 9(l) shall be the same as those set
forth in Section 6 of the Registration Rights Agreement.

     

    (m)           No Strict
Construction.  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.

     

    (n)           Remedies.  Each
Buyer and each holder of the Securities shall have all rights and remedies set
forth in the Transaction Documents and all rights and remedies which such
holders have been granted at any time under any other agreement or contract and
all of the rights which such holders have under any law.  Any Person
having any rights under any provision of this Agreement shall be entitled to
enforce such rights specifically (without posting a bond or other security), to
recover damages by reason of any breach of any provision of this Agreement and
to exercise all other rights granted by law.  Furthermore, the Company
recognizes that in the event that it fails to perform, observe, or discharge any
or all of its obligations under the Transaction Documents, any remedy at law may
prove to be inadequate relief to the Buyers.  The Company therefore
agrees that the Buyers shall be entitled to seek temporary and permanent
injunctive relief in any such case without the necessity of proving actual
damages and without posting a bond or other security.

     

    
      
         

      

      
        32

        
          

        

      

      
         

      

       

    

    (o)           Rescission and Withdrawal
Right.  Notwithstanding anything to the contrary contained in
(and without limiting any similar provisions of) the Transaction Documents,
whenever any Buyer exercises a right, election, demand or option under a
Transaction Document and the Company does not timely perform its related
obligations within the periods therein provided, then such Buyer may rescind or
withdraw, in its sole discretion from time to time upon written notice to the
Company, any relevant notice, demand or election in whole or in part without
prejudice to its future actions and rights.

     

    (p)           Payment Set
Aside.  To the extent that the Company makes a payment or
payments to the Buyers hereunder or pursuant to any of the other Transaction
Documents or the Buyers enforce or exercise their rights hereunder or
thereunder, and such payment or payments or the proceeds of such enforcement or
exercise or any part thereof are subsequently invalidated, declared to be
fraudulent or preferential, set aside, recovered from, disgorged by or are
required to be refunded, repaid or otherwise restored to the Company, a trustee,
receiver or any other Person under any law (including, without limitation, any
bankruptcy law, foreign, state or federal law, common law or equitable cause of
action), then to the extent of any such restoration the obligation or part
thereof originally intended to be satisfied shall be revived and continued in
full force and effect as if such payment had not been made or such enforcement
or setoff had not occurred.

     

    (q)           Independent Nature of
Buyers’ Obligations and Rights.  The obligations of each Buyer
under any Transaction Document are several and not joint with the obligations of
any other Buyer, and no Buyer shall be responsible in any way for the
performance of the obligations of any other Buyer under any Transaction
Document.  Nothing contained herein or in any other Transaction
Document, and no action taken by any Buyer pursuant hereto or thereto, shall be
deemed to constitute the Buyers as a partnership, an association, a joint
venture or any other kind of entity, or create a presumption that the Buyers are
in any way acting in concert or as a group with respect to such obligations or
the transactions contemplated by the Transaction Documents and the Company
acknowledges that the Buyers are not acting in concert or as a group with
respect to such obligations or the transactions contemplated by the Transaction
Documents.  Each Buyer confirms that it has independently participated
in the negotiation of the transaction contemplated hereby with the advice of its
own counsel and advisors.  Each Buyer shall be entitled to
independently protect and enforce its rights, including, without limitation, the
rights arising out of this Agreement or out of any other Transaction Documents,
and it shall not be necessary for any other Buyer to be joined as an additional
party in any proceeding for such purpose.

     

     

    [Signature
Page Follows]

     

    
      
         

      

      
        33

        
          

        

      

      
         

      

    

     

    IN WITNESS WHEREOF, each Buyer
and the Company have caused their respective signature page to this Securities
Purchase Agreement to be duly executed as of the date first written
above.

    
      
        	 	 	 
	 	 	 
	 	COMPANY:	 
	 	 	 
	 	APPLIED
      DNA SCIENCES, INC.	 
	 	 	 
	
                 

              	
                By:
      

              	 	 
	 	 	Name:
      Dr. James A. Hayward	 
	 	 	Title:  
      President and Chief Executive Officer	 
	 	 	 	 

      

    

    
      
         

      

      
        
        

        
          

        

      

      
         

      

    

    

    IN WITNESS WHEREOF, each Buyer
and the Company have caused their respective signature page to this Securities
Purchase Agreement to be duly executed as of the date first written
above.

     

    Attestation
of Receipt of Documents

     

    Each
Buyer hereby attests to receipt and review of the following
documents:

    

    1.)
Purchase Agreement (including all exhibits and schedules)

    

    2.)
Registration Rights Agreement

    

    3.)
Security Agreements

    

    4.) Form
of Note

    

    5.)
Executive Summary and Execution Memorandum

    
      
        	 	 	 
	 	
                BUYERS:

              	 
	 	 	 	 
	 	 	 	 
	
                 

              	
                By:
      

              	 	 
	 	 	Name:	 
	 	 	Title:	 
	 	 	 	 

      

    

    
      
         

      

      
        
        

        
          

        

      

      
         

      

    

    SCHEDULE
OF BUYERS

    
      	
              (1)

            	
              (2)

            	
              (3)

            	
              (4)

            	
              (5)

            
	 	 	 	 	 
	
              
                Buyer

              

            	
              
                Address
      and

                Facsimile
      Number

              

            	
              
                Aggregate

                Principal

                Amount
      of

                Notes

              

            	
              
                Purchase
      Price

              

            	
              
                Legal
      Representative’s Address and
Facsimile Number

              

            
	 
      	 
      	 
      	 
      	 
      

    

    
      
         

      

      
        
        

        
          

        

      

      
         

      

    

    
      EXHIBITS

    

    
      
        	 	 
      
	
                Exhibit
      A

              	
                Form
      of Notes

              
	
                Exhibit
      B

              	
                Registration
      Rights Agreement

              
	
                Exhibit
      C

              	
                Form
      of Security Agreement of the Company

              
	
                Exhibit
      D

              	
                Form
      of Security Agreement of APDN (B.V.I.) Inc.

              
	
                Exhibit
      E

              	
                Irrevocable
      Transfer Agent Instructions

              
	
                Exhibit
      F

              	
                Form
      of Outside Company Counsel Opinion

              
	
                Exhibit
      G

              	
                Form
      of Secretary’s Certificate

              
	
                Exhibit
      H

              	
                Form
      of Officer’s Certificate

              

      

      

      
        	
                SCHEDULES

              
	 
      	 
      
	
                Schedule
      2(b)

              	
                Investor
      Suitability

              
	
                Schedule
      3(a)

              	
                Subsidiaries

              
	
                Schedule
      3(r)

              	
                Equity
      Capitalization

              
	
                Schedule
      3(s)

              	
                Indebtedness
      and Other Contracts

              
	
                Schedule
      3(t)

              	
                Litigation

              
	
                Schedule
      3(x)

              	
                Intellectual
      Property Rights

              
	
                Schedule
      3(ee)

              	
                Ranking
      of Notes

              
	
                Schedule
      3(hh)

              	
                Price
      of Securities; Compensation

              

      

      

        
          
             

          

          
            
            

            
              

            

          

          
             

          

        

    

    Exhibit
A

    

    Form of
Notes

    
      
         

      

      
        
        

        
          

        

      

      
         

      

    

     

    Exhibit
B

    

    Registration
Rights Agreement

    
      
         

      

      
        
        

        
          

        

      

      
         

      

    

     

    Exhibit
C

    

    Form of
Security Agreement of the Company

    
      
         

      

      
        
        

        
          

        

      

      
         

      

    

    
Exhibit
D

    

    Form of
Security Agreement of the APDN (B.V.I.) Inc.

    
      
         

      

      
        
        

        
          

        

      

      
         

      

    

     

    Exhibit
E

    

    TRANSFER
AGENT INSTRUCTIONS

    APPLIED
DNA SCIENCES, INC.

    July 15,
2010

     

     

    American
Stock Transfer and Trust Company, LLC

    Operations
Center

    6201 15th
Avenue, Third Floor

    Brooklyn,
NY 11219

    Attention:  Jessenia
Tejada

    

    Ladies
and Gentlemen:

     

    Reference
is made to that certain Securities Purchase Agreement, dated as of July 15, 2010
(the “Agreement”), by
and among Applied DNA Sciences, Inc., a Delaware corporation (the “Company”), and the investors
listed on the Schedule of Buyers attached thereto (collectively, the “Buyers”), pursuant to which
the Company is issuing to the Buyers senior secured convertible notes of the
Company (the “Notes”),
which will be convertible into shares of the Company’s common stock, $0.001 par
value per share (the ”Common Stock”).  The
shares of Common Stock to be converted thereunder are referred to herein as the
“Conversion
Shares.”

     

    This
letter shall serve as our authorization and direction to you (provided that you
are the transfer agent of the Company at such time) to issue the Conversion Shares to or
upon the order of a Buyer from time to time upon delivery to you of a properly
completed and duly executed Conversion Notice, in the form attached hereto as
Exhibit I,
which has been acknowledged by the Company as indicated by the signature of a
duly authorized officer of the Company thereon.

     

    Specifically,
upon receipt by the Company of a copy of a Conversion Notice, the Company shall
as soon as practicable, but in no event later than one (1) Business Day (as
defined below) after receipt of such Conversion Notice, send, via facsimile, a
Conversion Notice, which shall constitute an irrevocable instruction to you to
process such Conversion Notice in accordance with the terms of these
instructions. Upon your receipt of a copy of the executed Conversion Notice, you
shall use your best efforts to, (A) provided you are participating in The
Depository Trust Company (“DTC”) Fast Automated Securities Transfer Program,
within five (5) Business Days following the date of receipt of the Conversion
Notice credit such aggregate number of shares of Common Stock to which the Buyer
shall be entitled to the Buyer’s or its designee’s balance account with DTC
through its Deposit Withdrawal Agent Commission (“DWAC”) system or (B) provided
you are not participating in the DTC Fast Automated Securities Transfer Program
or if a Buyer otherwise requests, within ten (10) Business Days following the
date of receipt of the Conversion Notice issue and surrender to a common carrier
for overnight delivery to the address as specified in the Conversion Notice, a
certificate, registered in the name of the Buyer or its designee, for the number
of shares of Common Stock to which the Buyer shall be entitled as set forth in
the Conversion Notice (“Business Day” shall mean any day other than Saturday,
Sunday or other day on which commercial banks in The City of New York are
authorized or required by law to remain closed.)

     

    
      
         

      

      
        
        

        
          

        

      

      
         

      

       

    

    You
acknowledge and agree that so long as you have previously received (a) written
confirmation from the outside legal counsel of the Company that either (i) a
registration statement covering resales of the Conversion Shares has been
declared effective by the Securities and Exchange Commission (the “SEC”) under the Securities Act
of 1933, as amended (the “1933
Act”), or (ii) that sales of the Conversion Shares may be made in
conformity with Rule 144 under the 1933 Act, and (b) if applicable, a copy of
such registration statement, then, as soon as practicable after your receipt of
a notice of transfer or Conversion Notice, you shall issue the certificates
representing the Conversion Shares and such certificates shall not bear any
legend restricting transfer of the Conversion Shares thereby and should not be
subject to any stop-transfer restriction; provided, however, that if such
Conversion Shares are not registered for resale under the 1933 Act or able to be
sold under Rule 144, then the certificates for such Conversion Shares shall bear
the following legend:

     

    THE
SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES
LAWS.  THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED
OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR
THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION
OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED
UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID
ACT.  NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN
CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING
ARRANGEMENT SECURED BY THE SECURITIES.

     

    A form of
written confirmation from the Company’s outside legal counsel that a
registration statement covering resales of the Conversion Shares has been
declared effective by the SEC under the 1933 Act is attached hereto as Exhibit
II.

     

    
      
         

      

      
        
        

        
          

        

      

      
         

      

    

    
       

      Please
execute this letter in the space indicated to acknowledge your agreement to act
in accordance with these instructions.  Should you have any questions
concerning this matter, please contact me at (631) 444-6841.

    

    
      
        	 	 	 
	 	 	 
	 	
                Very
      truly yours,

              	 
	 	 	 	 
	 	APPLIED
      DNA SCIENCES, INC.	 
	 	 	 	 
	
                 

              	
                By:
      

              	 	 
	 	 	Name:
      Dr. James A. Hayward	 
	 	 	Title:
      President and Chief Executive Officer	 

      

    

    
      
         

      

      
        
        

        
          

        

      

      
         

      

    

     

    THE
FOREGOING INSTRUCTIONS ARE

    ACKNOWLEDGED
AND AGREED TO

    this
15th day of June,
2010

    AMERICAN
STOCK TRANSFER AND TRUST COMPANY, LLC

     

     

    
      
        	
                By:
      

              	 	 	 
	 	 Name:	 	 
	 	 Title:	 	 

      

    

     

    
      Enclosures

    

     

    
      
         

      

      
        
        

        
          

        

      

      
         

      

    

     

    EXHIBIT
I

    APPLIED
DNA SCIENCES, INC.

    CONVERSION
NOTICE

    

    Reference
is made to the Senior Secured Convertible Note (the “Note”) issued to the
undersigned by Applied DNA Sciences, Inc. (the “Company”).  In
accordance with and pursuant to the Note, the undersigned hereby elects to
convert the Conversion Amount (as defined in the Note) of the Note indicated
below into Conversion Shares (as defined in the Note) of the Company, as of the
date specified below.

     

    
      
        	 
      	
                Date
      of Conversion: 

              	 
      

      

       

      
        	 
      	
                Aggregate
      Conversion Amount to be converted: 

              	 
      

      

       

      
        Please
confirm the following information:

         

      

      
        	 
      	
                Conversion
      Price: 

              	 
      

      

       

      
        	 
      	
                Number
      of shares of [Common Stock] [Subsequent Financing Securities] [Qualified
      Financing Securities] to be issued:

              	 
      	 
      

      

       

      
        Please
issue the [Common Stock] [Subsequent Financing Securities] [Qualified Financing
Securities] into which the Conversion Amount of the Note is being converted in
the following name and to the following address:

         

      

      
        	 
      	
                Issue
      to:

              	 
      
	 	 	 
	 
      	 	 
      
	 	 	 
	 
      	 	 
      
	 
      	 	 
      

      

      
        	 
      	
                Facsimile
      Number: 

              	 
      

      

       

      
        	 
      	
                Authorization: 

              	 
      

      

       

      
        	 
      	 
      	
                By:

              	 
      

      

       

      
        	 
      	 
      	
                Title:

              	 
      

      

       

      
        	
                Dated:

              	 
      

      

       

      
        	 
      	
                Account
      Number: 

              	 
	 
      	
                (if
      electronic book entry transfer)

              

      

       

      
        	 
      	
                Transaction
      Code Number: 

              	 
      
	 
      	
                (if
      electronic book entry transfer)

              

      

       

      
        	
                Installment
      Amount to be reduced and amount

              	 
      
	
                of
      reduction for each Installment Date:

              	 
      

      

       

    

    
      
         

      

      
        
        

        
          

        

      

      
         

      

    

     

    ACKNOWLEDGMENT

     

    The
Company hereby acknowledges this Conversion Notice and hereby directs American
Stock Transfer and Trust Company, LLC to issue the above indicated number of
shares of Common Stock in accordance with the Transfer Agent Instructions dated
July 15, 2010 from the Company and acknowledged and agreed to by American Stock Transfer and Trust Company,
LLC.

    
      
        	 	 	 
	 	 	 
	 	
                APPLIED
      DNA SCIENCES, INC

              	 
	 	 	 	 
	
                 

              	
                By:
      

              	 	 
	 	 	Name:	 
	 	 	Title:	 

      

    

    
      
         

      

      
        
        

        
          

        

      

      
         

      

    

     

    EXHIBIT
II

    FORM
OF NOTICE OF EFFECTIVENESS

    OF
REGISTRATION STATEMENT

     

    American
Stock Transfer and Trust Company, LLC

    Operations
Center

    6201 15th
Avenue, Third Floor

    Brooklyn,
NY 11219

    Attention:  [_______]

     

    Re:           Applied
DNA Sciences, Inc.

     

    Ladies
and Gentlemen:

     

    [We are]
counsel to Applied DNA Sciences, Inc., a Delaware corporation, (the “Company”), and have
represented the Company in connection with that certain Securities Purchase
Agreement (the “Securities
Purchase Agreement”) entered into by and among the Company and the buyers
named therein (collectively, the “Buyers”) pursuant to which the
Company issued to the Buyers senior secured convertible notes (the “Notes”) convertible into the
Company’s common stock, $0.001 par value per share (the ”Common
Stock”).  Pursuant to the Securities Purchase Agreement, the
Company also has entered into a Registration Rights Agreement with the Buyers
(the “Registration Rights
Agreement”) pursuant to which the Company agreed, among other things, to
register the Registrable Securities (as defined in the Registration Rights
Agreement), including the shares of Common Stock issuable upon conversion of the
Notes, under the Securities Act of 1933, as amended (the “1933 Act”).  In
connection with the Company’s obligations under the Registration Rights
Agreement, on ____________ ___, 200_, the Company filed a Registration Statement
on Form S-1 (File No. 333-_____________) (the “Registration Statement”) with
the Securities and Exchange Commission (the “SEC”) relating to the
Registrable Securities which names each of the Buyers as a selling stockholder
thereunder.

     

    In
connection with the foregoing, we advise you that a member of the SEC’s staff
has advised us by telephone that the SEC has entered an order declaring the
Registration Statement effective under the 1933 Act at [ENTER TIME OF
EFFECTIVENESS] on [ENTER DATE OF
EFFECTIVENESS] and we
have no knowledge, after telephonic inquiry of a member of the SEC’s staff, that
any stop order suspending its effectiveness has been issued or that any
proceedings for that purpose are pending before, or threatened by, the SEC and
the Registrable Securities are available for resale under the 1933 Act pursuant
to the Registration Statement.

    
      
         

      

      
        
        

        
          

        

      

      
         

      

    

     

    This
letter shall serve as our standing instruction to you that the shares of Common
Stock are freely transferable by the Buyers pursuant to the Registration
Statement.  You need not require further letters from us to effect any
future legend-free issuance or reissuance of shares of Common Stock to the
Holders as contemplated by the Company’s Irrevocable Transfer Agent Instructions
dated July 15, 2010, provided at the time of such reissuance, the Company has
not otherwise notified you that the Registration Statement is unavailable for
the resale of the Registrable Securities.

     

    
      
        	 	Very truly yours,	 
	 	 	 	 
	 	[ISSUER’S
      COUNSEL]	 
	 	 	 	 
	
                 

              	
                By:
      

              	 	 
	CC:           
      [LIST NAMES OF
      BUYERS]	 	 	 

      

    

    
      
         

      

      
        
        

        
          

        

      

      
         

      

    

    Exhibit
F

    

    Form of
Outside Company Counsel Legal Opinion

    
      
         

      

      
        
        

        
          

        

      

      
         

      

    

     

    
      Fulbright
& Jaworski l.l.p.

      A
Registered Limited Liability Partnership

      666 Fifth
Avenue, 31st Floor

      New York,
New York  10103-3198

      www.fulbright.com

       

      
        	
                telephone:    (212)
      318-3000

              	
                facsimile:    (212)
      318-3400

              

      

    

    
       

      July 15,
2010

       

      To the
Buyers listed on the

      Schedule
of Buyers to the

      Securities
Purchase Agreement

      dated as
of July 15, 2010

      

      Etico
Capital, LP

      Basis
Financial, LLC

      405
Lexington Avenue

      Seventh
Floor

      New York,
NY 10174

      

      
        	 
      	
                Re:

              	
                Applied
      DNA Sciences, Inc.

              

      

       

      Ladies
and Gentlemen:

       

      We have
acted as counsel to Applied DNA Sciences, Inc., a Delaware corporation (the
“Company”), and
the BVI Sub (as hereinafter defined), in connection with the issuance and sale
by the Company of the Securities pursuant to a Securities Purchase Agreement,
dated as of July 15, 2010, by and between the Company and the investors listed
on the Schedule of Buyers attached thereto (the “Purchase
Agreement”).  In connection with our representation of the
Company, we have been asked to render an opinion letter pursuant to Section
7(ii) of the Purchase Agreement with respect to those matters set forth
herein.  Each capitalized term used herein and not otherwise defined
or provided for herein shall have the meaning ascribed to such term in the
Purchase Agreement.

       

      In
arriving at the opinions expressed below, we have examined and relied on the
originals, or copies certified on otherwise identified to our satisfaction
of:

      
        
          	 	 	 
	 
      	
                  (i)

                	
                  the
      Purchase Agreement;

                
	 	 	 
	 
      	
                  (ii)

                	
                  the
      Registration Rights Agreement dated as of July 15, 2010 between the
      Company and the Buyers;

                
	 	 	 
	 
      	
                  (iii)

                	
                  the
      Notes (as defined in the Purchase Agreement);

                
	 	 	 
	 
      	
                  (iv)

                	
                  the
      Security Agreement dated as of July 15, 2010 between the Company and Etico
      Capital L.L.C., as Collateral Agent (the “Parent Security
      Agreement”);

                

        

        
           

           

           

          Austin
·
Beijing ·
Dallas ·
Denver ·
Dubai ·
Hong Kong ·
Houston ·
London ·
Los Angeles ·
Minneapolis

          Munich
·
New York ·
Riyadh ·
San Antonio ·
St. Louis ·
Washington DC

        

        
          
             

          

          
             

            
              

            

          

          
             

          

        

        July 15, 2010

        Page 2

         

         

        
          	 
      	
                  (v)

                	
                  the
      Security Agreement dated as of July 15, 2010 between APDN (B.V.I.) Inc, a
      British Virgin Islands corporation and a wholly-owned subsidiary of the
      Company (“BVI
      Sub”), and Etico Capital L.L.C., as Collateral Agent (the “Subsidiary Security
      Agreement”);

                
	 	 	 
	 
      	
                  (vi)

                	
                  the
      Patent Security Agreement dated as of July 15, 2010 between the BVI Sub
      and the Collateral Agent;

                
	 	 	 
	 
      	
                  (vii)

                	
                  the
      Patent Security Agreement dated as of July 15, 2010 between the BVI Sub,
      as successor in interest by merger to Rixflex Holdings Limited, and the
      Collateral Agent;

                
	 	 	 
	 
      	
                  (viii)

                	
                  the
      Trademark Security Agreement dated as of July 15, 2010 between the Company
      and the Collateral Agent (the “Parent Trademark
      Security Agreement”);

                
	 	 	 
	 
      	
                  (ix)

                	
                  the
      Trademark Security Agreement dated as of July 15, 2010 between BVI Sub and
      the Collateral Agent;

                
	 	 	 
	 
      	
                  (x)

                	
                  the
      Trademark Security Agreement dated as of July 15, 2010 between the BVI
      Sub, as successor in interest by merger to Rixflex Holdings Limited, and
      the Collateral Agent;

                
	 	 	 
	 
      	
                  (xi)

                	
                  UCC-1
      financing statement to be filed in the State of Delaware (the “Delaware
      UCC financing statement); and

                
	 	 	 
	 
      	
                  (xii)

                	
                  UCC-1
      financing statement to be filed in the District of Columbia (the “D.C. UCC
      financing statement).

                
	 	 	 

        

      

      The
agreements listed in clauses (i) through (x) are herein referred to as the
“Opinion
Documents”. The Opinion Documents referred to in clauses (iv) through (x)
are herein referred to as the “Security
Documents”.  The Opinion Documents referred to in clauses (vi)
and (vii) are herein referred to as the “Subsidiary Patent Security
Agreements”.  The Opinion Documents referred to in clauses (ix)
and (x) are herein referred to as the “Subsidiary Trademark
Security Agreements”.  Each of the Opinion Documents is
governed by New York law.

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      
        July 15, 2010

        Page 3

         

         

      

      In
addition, we have examined such other documents (collectively, “Other Documents”) and
corporate records and such questions of law as we deem necessary for the
purposes of this opinion.  We have also examined such certificates of
public officials and corporate officers of the Company as we have deemed
relevant and appropriate as a basis for the opinions expressed herein, and we
have made no effort to independently verify the facts set forth in such
certificates.  Further, in making the foregoing examinations, we have
assumed the genuineness of all signatures (other than signatures of the Company
and the BVI Sub with respect to the Opinion Documents), the legal capacity of
each person signatory to any of the documents reviewed by us, the authenticity
of all documents submitted to us as originals and the conformity to authentic
original documents of all documents submitted to us as copies.  We
have also assumed, with respect to all agreements or instruments relevant hereto
other than the Opinion Documents, that all parties thereto had the requisite
power and authority (corporate or otherwise) to execute such agreements or
instruments and that such agreements and instruments have been duly authorized,
executed and delivered by such parties and constitute the legal, valid and
binding obligations of each such party thereto, enforceable against it in
accordance with its terms.  We have assumed that each Opinion Document
has been duly authorized, executed and delivered by or on behalf of each of the
parties thereto (other than the Company), that each such party (other than the
Company) has the requisite power and authority to execute, deliver and perform
such Opinion Documents to which it is a party and that such documents constitute
the legal, valid and binding obligations of each such party thereto (other than
the Company and the BVI Sub as provided herein), enforceable in accordance with
their terms.  We have assumed that the Collateral Agent is the duly
appointed agent of each of the Buyers pursuant to the Purchase Agreement and
that there are no extrinsic agreements or understandings among the parties to
the Opinion Documents that would modify or affect the interpretation of the
terms of the Opinion Documents or the respective rights or obligations of the
parties thereunder. In making the foregoing examinations, we have assumed that
all representations and warranties made in the Opinion Documents (other than
those which are expressed herein as our opinion) were and are true, correct and
complete.  In rendering this opinion, we have made no independent
investigation of the facts referred to herein, and have relied for purposes of
this opinion exclusively on the facts set forth in the Opinion Documents and
certificates of the Company, which facts we assume have been and will continue
to be true, accurate and correct in all respects. Moreover, to the extent that
any of the Other Documents is governed by the laws of any jurisdiction other
than the federal laws of the United States or the laws of the State of New York,
our opinion relating to those Other Documents is based solely upon the plain
meaning of their language without regard to interpretation or construction that
might be indicated by the laws governing those Other Documents.

       

      Based
upon the foregoing and in reliance thereon, and subject in all respects to the
assumptions, exceptions, qualifications and limitations herein set forth, we are
of the opinion that:

       

      1.           
The Company is a corporation duly incorporated, validly existing and in good
standing under the laws of the State of Delaware and has the requisite corporate
power to own, lease and operate its properties and to conduct its business as
presently conducted.

       

      2.           
The Company has the requisite corporate power and authority to execute, deliver
and perform its obligations under the Opinion Documents to which it is a party
and each such Opinion Document has been duly authorized, executed and delivered
by the Company.

       

      3.           
The Opinion Documents to which the Company is a party constitute valid and
binding obligations of the Company, enforceable against the Company in
accordance with their respective terms.  The Opinion Documents to
which the BVI Sub is a party constitute valid and binding obligations of the BVI
Sub, enforceable against the BVI Sub in accordance with their respective
terms.

       

      4.           
When issued by the Company to the Buyers in accordance with the Purchase
Agreement, the Notes will be duly authorized and validly issued.  The
Conversion Shares have been duly and validly authorized and, when issued in
accordance with the terms of the Notes, will be validly issued, fully paid and
non-assessable.

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      
        July 15, 2010

        Page 4

         

         

      

      5.            Other
than in connection with any securities laws (with respect to which we direct you
to paragraphs 6 and 7 below), the Company's execution and delivery of, and its
performance and compliance as of the date hereof with the terms of, the Opinion
Documents do not (i) violate the Company’s Certificate of Incorporation or
Bylaws, (ii) violate the Delaware General Corporation Law or any statute, rule
or regulation of United States Federal or New York state law that we have, in
the exercise of customary professional diligence, recognized as applicable to
the Company, or (iii) violate any judgment, order or decree known to us to be
applicable to the Company.

       

      6.           
No consent, approval or authorization of or designation, declaration or filing
with, any federal or New York State governmental authority on the part of the
Company is required in connection with the valid execution, delivery and
performance of the Opinion Documents, or the offer, sale or issuance of the
Notes, other than (i) such as have been made or obtained, (ii) such as may be
required under “Blue Sky” state laws applicable to the offering of the Notes (as
to which we express no opinion) and (iii) as required in connection with the
Company’s obligations under the Registration Rights Agreement.

       

      7.           
The offer and sale of the Notes in accordance with the Purchase Agreement and
the issuance of the Conversion Shares in accordance with the Purchase Agreement
and the Notes constitute transactions exempt from the registration requirements
of the Securities Act of 1933, as amended.

       

      8.           
Under the Uniform Commercial Code as in effect in the State of New York on the
date hereof (the “New
York UCC”), the Parent Security Agreement is effective to create a valid,
binding and enforceable security interest in favor of the Collateral Agent, in
all of the right, title and interest of the Company in and to that portion of
the Collateral (as defined in the Parent Security Agreement) in which a security
interest may be created under Article 9 of the New York UCC (such portion the
“Parent New York
Collateral”).

       

      9.           
Under the New York UCC, the Subsidiary Security Agreement is effective to create
a valid, binding and enforceable security interest in favor of the Collateral
Agent in all of the right, title and interest of the BVI Sub in and to that
portion of the Collateral (as defined in the Subsidiary Security Agreement) in
which a security interest may be created under Article 9 of the New York UCC
(such portion the “Subsidiary New York
Collateral”; together with the Parent New York Collateral, the “Collateral”).

       

      10.           Under
the New York UCC in the case of subparagraph 10(a) below and the Uniform
Commercial Code as in effect in the State of Delaware on the date hereof (the
“Delaware UCC”)
in the case of subparagraphs 10(b) and (c) below:

       

      (a)           the
local law of the State of Delaware governs perfection, by the filing of
financing statements, of the Collateral Agent’s security interest in that part
of the Parent New York Collateral in which a security interest may be perfected
under the Delaware UCC by filing (the “Delaware
Collateral”);

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      
        July 15, 2010

        Page 5

         

         

      

      (b)           the
Office of the Secretary of State of the State of Delaware (the “Delaware Filing
Office”) is the proper office in which to file financing statements in
order to perfect a security interest in that portion of the Delaware Collateral
in which a security interest may be perfected by the filing of a financing
statement in the State of Delaware (the “Delaware Filing
Collateral”);

       

      (c)           upon
the proper filing of the Delaware UCC financing statement in the Delaware Filing
Office, the security interest of the Collateral Agent will be perfected in the
Delaware Filing Collateral; and

       

      (d)           the
Delaware UCC financing statement is sufficient within the meaning of 9-502 of
the Delaware UCC.

       

      11.           Under
the New York UCC in the case of subparagraph 11(a) below and the Uniform
Commercial Code as in effect in the District of Columbia on the date hereof (the
“D.C. UCC”) in
the case of subparagraphs 11(b) and (c) below:

       

      (a)           the
local law of the District of Columbia governs perfection, by the filing of
financing statements, of the Collateral Agent’s security interest in that part
of the Subsidiary New York Collateral in which a security interest may be
perfected under the D.C. UCC by filing (the “D.C.
Collateral”);

       

      (b)           the
Office of the Recorder of Deeds (the “D.C. Filing Office”)
is the proper office in which to file financing statements in order to perfect a
security interest in that portion of the D.C. Collateral in which a security
interest may be perfected by the filing of a financing statement in the District
of Columbia (the “D.C.
Filing Collateral”);

       

      (c)           upon
the proper filing of the D.C. UCC financing statement in the D.C. Filing Office,
the security interest of the Collateral Agent will be perfected in the D.C.
Filing Collateral; and

       

      (d)           the
D.C. UCC financing statement is sufficient within the meaning of 9-502 of the
D.C. UCC.

       

      12.           Upon
the proper filing of (i) financing statements covering the trademarks listed in
Schedule 1 to the Parent Trademark Security Agreement (the “Parent Trademarks”)
in the Delaware Filing Office and (ii) the Parent Trademark Security Agreement
in the United States Patent and Trademark Office, with all applicable filing
fees paid and the filings in such offices in the correct reel and frame
listings, the security interest of the Collateral Agent will be perfected in
that part of the Collateral consisting of the Parent Trademarks in which a
security interest may be perfected by the filing of both (A) a financing
statement in Delaware and (B) the Parent Trademark Security Agreement in the
United States Patent and Trademark Office.

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      
        July 15, 2010

        Page 6

         

         

      

      13.           Upon
the proper filing of (i) financing statements covering the trademarks listed in
Schedule 1 to the Subsidiary Trademark Security Agreements (the “Subsidiary
Trademarks”) and the patents listed in Schedule 1 to the Subsidiary
Patent Security Agreements (the “Subsidiary Patents”)
in the D.C. Filing Office and (ii) the Subsidiary Trademark Security Agreements
and the Subsidiary Patent Security Agreements in the United States Patent and
Trademark Office, with all applicable filing fees paid and the filings in such
offices in the correct reel and frame listings, the security interest of the
Collateral Agent will be perfected in that part of the Collateral consisting of
the Subsidiary Trademarks and the Subsidiary Patents in which a security
interest may be perfected by the filing of both (A) a financing statement in the
District of Columbia and (B) the Subsidiary Trademark Security Agreements and
the Subsidiary Patent Security Agreements in the United States Patent and
Trademark Office.

       

      The
foregoing opinions are subject to the following assumptions, exceptions,
qualifications and limitations.

       

      A.           The
foregoing opinions are expressly limited to matters under and governed by
applicable Federal laws of the United States of America, the internal laws of
the State of New York and the Delaware General Corporation Law, the Delaware UCC
and the D.C. UCC, in each case in effect on the date hereof and which, in our
experience, are normally applicable to the transactions provided for in the
Transaction Documents.

       

      B.           
In rendering the opinion expressed in the first sentence of paragraph 1
regarding valid existence and good standing, we have relied solely on
certificates of public officials as of recent dates. Our opinion expressed in
paragraph 1 as to the Company having the corporate power to conduct its business
as presently conducted is based solely on our understanding that the Company is
a provider of botanical-DNA based security and authentication solutions used to
protect products, brands and intellectual property of companies, governments and
consumers from theft, counterfeiting, fraud and diversion.

       

      C.           With
respect to the opinion expressed in paragraph 3 above:

       

      (1)           The
enforceability of the Opinion Documents and the enforceability of any security
interests created thereby may be limited or affected by (a) bankruptcy,
insolvency, reorganization, moratorium, liquidation, rearrangement, probate,
conservatorship, fraudulent transfer, fraudulent conveyance and other similar
laws (including court decisions) now or hereafter in effect and affecting the
rights and remedies of creditors generally or providing for the relief of
debtors, (b) the refusal of a particular court to grant (i) equitable remedies,
including, without limiting the generality of the foregoing, specific
performance and injunctive relief, or (ii) a particular remedy sought under the
Opinion Documents, respectively, as opposed to another remedy provided for
therein or another remedy available at law or in equity, (c) general principles
of equity (regardless of whether such remedies are sought in a proceeding in
equity or at law) and (d) judicial discretion.

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      July 15, 2010

      Page 7

       

       

      (2)           We
express no opinion as to the legality, validity, enforceability or binding
effect of provisions of the Opinion Documents relating to indemnities and rights
of contribution to the extent prohibited by public policy or which might require
indemnification for losses or expenses caused by negligence, gross negligence,
willful misconduct, fraud or illegality of a party otherwise entitled to
indemnification or contribution.  Further, we express no opinion with
respect to the enforceability of Section 2(c) of the Registration Rights
Agreement as it relates to the treatment of Registration Delay Payments (as
defined in the Registration Rights Agreement) to the Buyers as liquidated
damages and not as a penalty.

       

      (3)           We
express no opinion as to the validity or enforceability of any provision of the
Opinion Documents that purports to (i) waive or otherwise affect any right,
warranty or defense that cannot be waived or otherwise affected as a matter of
law, (ii) permit any Person to deal with, or dispose of, any Collateral, in any
event other than in compliance with, to the extent applicable thereto, the NY
UCC, or stipulate that particular conduct shall be commercially reasonable,
(iii) authorize conclusive determinations by any party or to permit a party to
make determinations in its sole discretion, (iv) restrict access to legal or
equitable remedies, (v) permit any party to increase the obligations of any
person or entity without the consent of such person or entity, (vi) reinstate
any obligation after payment or otherwise, (vii) permit modification thereof
only by means of an agreement signed in writing by the parties, or (viii)
establish property classifications, presumptions or evidentiary
standards.

       

      (4)           We
note that the enforceability of specific provisions of the Opinion Documents may
be subject to standards of reasonableness, care and diligence and “good faith”
limitations and obligations such as those provided in §§ 1-102(3), 1-203 and
1-208 and other provisions of the New York UCC, applicable principles of common
law and judicial decisions.

       

      (5)           In
connection with any provisions of any of the Opinion Documents whereby the
Company or BVI Sub submits to the jurisdiction of the Federal courts located in
the State of New York, we note the limitations of 28 U.S.C. §§ 1331 and 1332 on
Federal court jurisdiction, and we also note that such submissions cannot
supersede such court’s discretion in determining whether to transfer an action
from one Federal court to another under 28 U.S.C. § 1404(a).

       

      D.           The
opinion expressed in paragraph 4 assumes that the Notes are converted in
accordance with their terms, including, without limitation, with respect to the
payment of the applicable conversion price to the Company.

       

      E.           The
opinions expressed in paragraph 5 and 6 above as to the need for any consents,
approvals, permits, orders or authorizations of, or any qualifications,
registrations, designations, declarations or filings with, any federal or New
York authority, and as to violations of laws, rules or regulations applicable to
the Company, is based upon a review of those statutes, rules and regulations
that, in our experience, are normally applicable to the transactions
contemplated by the Opinion Documents.  Further, the opinions
expressed in paragraphs 5 and 6 above do not encompass (i) consents, compliance
with, filings or exemptions from, the registration and prospectus delivery
requirements of the Federal securities laws (which are specifically covered in
paragraph 7 above) or state securities or “Blue Sky” laws or (ii) compliance
with any of the anti-fraud provisions of applicable Federal and state securities
laws, rules or regulations.

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      
        July 15, 2010

        Page 8

         

         

      

      F.           The
opinion expressed in paragraph 7:  (i) assumes (a) the truth and
accuracy of the representations and warranties of each of the Buyers in the
Purchase Agreement, (b) that each of the Buyers will comply with the
restrictions on transfer contained in the Purchase Agreement and (c) that offers
and sales of the Securities by the Company and any person acting behalf of the
Company were not made by means of any form of general solicitation or general
advertising and (ii) does not encompass compliance with any of the anti-fraud
provisions of applicable Federal or state securities laws, rules or
regulations.

       

      G.           We
express no opinion herein as to the creation of any Liens or security interests
except as set forth in the opinions in paragraphs 8 and 9 above.  The
opinions set forth in paragraphs 8 and 9 above regarding the creation of Liens
or security interests, and in paragraph 3 regarding the enforceability of such
Liens and security interests, are subject to the following:

       

      (1)           We
express no opinion regarding the accuracy, completeness or sufficiency of any
property or collateral descriptions contained in the Security
Documents.

       

      (2)           We
express no opinion as to any security interest to which Article 9 of the New
York UCC is inapplicable pursuant to Section 9-109 thereof.

       

      (3)           We
have made no examination of, and express no opinion as to, the title of any
person to any of the Collateral or the value of any security granted to the
Collateral Agent.  We have assumed that each of the Company and BVI
Sub, as applicable, has rights in the Collateral in which it purports to grant a
security interest pursuant to the Security Documents for the purpose of
attachment as contemplated by Section 9-203 of the New York UCC.

       

      (4)           Under
Section 9-315(a) of the New York UCC, the security interests in the Collateral,
other than with respect to identifiable proceeds, if any, received in exchange
therefor, will be lost to the extent that the Collateral Agent authorizes a
sale, lease, license, exchange or other disposition of any part thereof free of
the security interest.

       

      (5)           We
note that Section 9-408(c) of the New York UCC imposes restrictions on the
effectiveness of the security interest in a “general intangible” (as defined in
the New York UCC) that contains terms that prohibit, restrict or require the
consent to the assignment or transfer of, or creation, attachment or perfection
of a security interest in, such general intangible.

       

      (6)           We
express no opinion on the ability of the Collateral Agent, as a secured party,
to become the owner of, or validly transfer or assume, any of the rights and
duties of the Company or BVI Sub, as applicable, as a party to any contract or
agreement under which such Person’s rights, obligations or duties are not freely
or unconditionally assignable or transferable.

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      
        July 15, 2010

        Page 9

         

         

      

      (7)           The rights of the Company or BVI Sub,
as applicable, to create a security interest in any accounts consisting of
claims against any government or governmental agency (including, without
limitation, the United States of America or any state thereof or any agency or
department thereof or of any state) may be limited by the Federal Assignment of
Claims Act or similar state or local statute.

       

      H.           We
express no opinion herein as to the perfection of any Liens or security
interests except as set forth in the opinions in paragraphs 10, 11, 12 and 13
above.  Such opinions are subject to the following:

       

      (1)           We
express no opinion regarding the accuracy, completeness or sufficiency of any
property or collateral descriptions contained in any Security
Documents.

       

      (2)           We
call to your attention that Sections 9-301, 9-307 and 9-316 of the New York UCC,
the D.C. UCC and the Delaware UCC, as applicable, contain and refer to rules
under which the laws of jurisdictions other than New York, the District of
Columbia or Delaware would apply to the perfection, and the effect of perfection
or nonperfection, of a security interest.  We further call to your
attention that Sections 9-310 and 9-312 of the New York UCC, the D.C. UCC and
the Delaware UCC, as applicable, describe situations in which filing is not
necessary or is ineffective to perfect a security interest.

       

      (3)           We
express no opinion as to the creation of a security interest or Lien on any of
the Collateral consisting of real property or interests therein, including
without limitation, any Collateral constituting fixtures or
easements.

       

      (4)           Except
for our opinions in paragraphs 12 and 13 above with respect to the Trademarks
and Patents, we express no opinion as to the perfection of any security interest
as to which, under Section 9-311 of the New York UCC, the D.C. UCC or the
Delaware UCC, a filing of a financing statement is ineffective under any United
States statute, regulation or treaty to perfect a security
interest.

       

      (5)           The
perfection of the Collateral Agent’s security interest in any proceeds of any
Delaware Collateral will be limited as provided in Section 9-315 of the Delaware
UCC and the perfection of the Collateral Agent’s security interest in any
proceeds of the D.C. Collateral will be limited as provided in Section 9-315 of
the D.C. UCC.

       

      (6)           In
rendering the opinion in paragraphs 10(b) and 11(b) above, we have assumed that
no part of the Collateral consists of farm products, as-extracted collateral or
timber to be cut, or goods that are or are to become fixtures or cooperative
interests, each within the meaning of Section 9-501(a) of the New York UCC, the
D.C. UCC and the Delaware UCC.

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      
        July 15, 2010

        Page 10

         

         

      

      (7)           We
call to your attention that: (a) under Section 9-316 of the Delaware UCC and
9-316 of the D.C. UCC, perfection of any security interest in the Delaware
Filing Collateral or the D.C. Filing Collateral, respectively, will lapse (i)
four months after the applicable debtor changes its location to another
jurisdiction or (ii) one year after the applicable debtor transfers the
Collateral to a Person who thereby becomes a debtor under the Opinion Documents
and who is located in another jurisdiction, unless, in either case, appropriate
steps are taken to perfect such security interest in such other jurisdiction
before the expiration of such four-month or one-year period, as applicable; (b)
under Section 9-507 of the Delaware UCC and Section 9-507 of the D.C. UCC, if
the applicable debtor changes its name so as to make its UCC-1 financing
statement seriously misleading, then perfection will lapse as to any Collateral
acquired more than four months after such change unless one or more appropriate
financing statements indicating the new name of such debtor is properly filed
before the expiration of such four-month period; (c) Section 9-508 of the
Delaware UCC and Section 9-508 of the D.C. UCC require the filing of a new
financing statement to continue perfection where the financing statement becomes
seriously misleading as a result of the difference between the name of an
original debtor and a new debtor; and (d) Section 9-515 of the Delaware UCC and
Section 9-515 of the D.C. UCC require the filing of continuation statements
within six-months prior to each five year anniversary of the date of filing of
the UCC-1 financing statement or the filing of any continuation statements in
order to maintain the effectiveness of any UCC-1 financing
statement.

       

      (8)           In
giving the opinion in Section 11(a) above, we have assumed that the chief
executive office of BVI Sub is not located in a jurisdiction in which the law
generally requires information concerning the existence of a nonpossessory
security interest to be made generally available in a filing, recording, or
registration system as a condition or result of a security interest’s obtaining
priority over the rights of a lien creditor with respect to
collateral.

       

      I.           The
opinions set forth in paragraphs 8, 9, 10, 11, 12 and 13 above regarding the
creation and perfection of Liens and security interests are subject to the
following:

       

      (1)           We
express no opinion herein as to the ranking or priority of any Liens, security
interests, rights or claims of any kind on any Collateral.

       

      (2)           We
express no opinion with respect to the effect of Section 552 of the Bankruptcy
Code (11 U.S.C. §552) (relating to property acquired by a pledgor after the
commencement of a case under the United States Bankruptcy Code with respect to
such pledgor) or Section 506(c) of the Bankruptcy Code (11 U.S.C. §506(c))
(relating to certain costs and expenses of a trustee in preserving or disposing
of Collateral).

       

      (3)           We
note that the effectiveness or perfection of the security interests in the
Collateral may be impaired, lost or adversely affected as to such property, or
portions thereof, that (A) to the extent provided in Section 9-336 of the New
York UCC, the Delaware UCC and the D.C. UCC, become commingled goods (as defined
in such Section 9-336), (B) pursuant to Section 9-320 of the New York UCC, the
Delaware UCC and the D.C. UCC are goods purchased by a buyer in the ordinary
course of business, (C) pursuant to Section 9-321 of the New York UCC, the
Delaware UCC and the D.C. UCC are general intangibles licensed or goods leased
in the ordinary course of business, or (D) are goods purchased by a buyer other
than in the ordinary course of business as provided in Section 9-323(d) of the
New York UCC, the Delaware UCC and the D.C. UCC.

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      July 15, 2010

      Page 11

       

       

      J.           We
do not express any opinion with respect to any exhibit to, or other agreement
referred to in, any of the Opinion Documents.

       

      K.           With
respect to references herein to “to our knowledge” or words or phrases of
similar import (whether or not modified by any additional phrases), such
references mean the actual, current knowledge that those attorneys of this Firm
who have devoted substantive attention to the transactions to which this opinion
relates.  In addition, as to certain factual matters, we have relied
on (and assumed the truth, accuracy and completeness of) a certificate of James
A. Hayward and Kurt H. Jensen, Chief Executive Officer and Chief Financial
Officer, respectively, of the Company.  We further advise you that we
did not perform any examination of courts, boards, other tribunals or public
records with respect to any litigation, investigation or proceedings, or
judgments, orders or decrees, in any event applicable to the Company, its
subsidiaries or any of its properties.

       

      The
opinions expressed herein are solely for the benefit of, and may only be relied
upon by, Etico Capital, L.P., Basis Financial, LLC and the Buyers listed in the
Schedule of Buyers to the Purchase Agreement in connection with the transactions
contemplated by the Purchase Agreement.  This opinion may not be
furnished to (except in connection with any legal or arbitral proceedings or as
may be required by applicable law, and in any such events, as shall be directed
or required incident thereto pursuant to a duly issued subpoena, writ, order,
written request of a governmental or regulatory authority or other legal
process), or relied upon by, any other person without our prior written
consent.  The opinions expressed herein are as of the date hereof, and
we make no undertaking to amend or supplement such opinions as facts and
circumstances come to our attention or changes in the law occur which could
affect such opinions.

      
        	 	 	 
	 	 	 
	 
      	
                Very
      truly yours,

              	 
      
	 
      	 
      	 
      
	 
      	 
      	 
      
	 
      	 
      	 
      
	 
      	
                Fulbright &
      Jaworski L.L.P.

              	 
      

      

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    Exhibit
G

    

    Form of
Secretary’s Certificate

     

    APPLIED
DNA SCIENCES, INC.

    

    SECRETARY’S
CERTIFICATE

     

    The
undersigned hereby certifies, on this 15th day of July, 2010,
that he is the duly elected, qualified and acting Secretary of Applied DNA
Sciences, Inc., a Delaware corporation (the “Company”), and that as such he
is authorized to execute and deliver this certificate in the name and on behalf
of the Company and in connection with the Securities Purchase Agreement, dated
as of July 15, 2010 (the “Securities Purchase
Agreement”), by and among the Company and the investors listed on the
Schedule of Buyers attached thereto, and further certifies in his official
capacity, in the name and on behalf of the Company, the items set forth
below.  Capitalized terms used but not otherwise defined herein shall
have the meaning set forth in the Securities Purchase Agreement.

     

    
      	
              (i)

            	
              Attached
      hereto as Exhibit A is a
      true, correct and complete copy of the resolutions duly adopted by the
      Board of Directors of the Company at a meeting of the Board of Directors
      held on June 29, 2010.  Such resolutions have not in any way
      been amended, modified, revoked or rescinded, have been in full force and
      effect since their adoption to and including the date hereof and are now
      in full force and effect.

            

    

     

    
      	
              (ii)

            	
              Attached
      hereto as Exhibit B is a
      true, correct and complete copy of the Certificate of Incorporation of the
      Company, together with any and all amendments thereto currently in effect,
      and no action has been taken to further amend, modify or repeal such
      Certificate of Incorporation, the same being in full force and effect in
      the attached form as of the date
hereof.

            

    

     

    
      	
              (iii)

            	
              Attached
      hereto as Exhibit C is a
      true, correct and complete copy of the Bylaws of the Company and any and
      all amendments thereto currently in effect, and no action has been taken
      to further amend, modify or repeal such Bylaws, the same being in full
      force and effect in the attached form as of the date
    hereof.

            

    

     

     

    [Remainder
of page intentionally left blank]

    
      
         

      

      
        
        

        
          

        

      

      
         

      

    

    

    IN
WITNESS WHEREOF, the undersigned has hereunto set his hand on the date first
written above.

     

     

    
      
        	 	 	 	 
	 	 	Ming-Hwa
      Benjamin Liang	 
	 	 	
                Secretary

              	 

      

    

     

    I, Kurt
H. Jensen, Chief Financial Officer of the Company, hereby certify that Ming-Hwa
Benjamin Liang is the duly elected, qualified and acting Secretary of the
Company and that the signature set forth above is his true
signature.

     

     

    
      
        	
                 

              	
                 

              	 	 
	 	 	Kurt
      H. Jensen	 
	 	 	
                Chief
      Financial Officer

              	 

      

    

    
      
         

      

      
        
        

        
          

        

      

      
         

      

    

     

    Exhibit
H

    

    Form of
Officer’s Certificate

     

    APPLIED
DNA SCIENCES, INC.

     

    OFFICER’S
CERTIFICATE

     

    The undersigned, being and in his
capacity as the duly elected Chief Executive Officer of Applied DNA Sciences,
Inc., a Delaware corporation (the “Company”), on this 15th day of July, 2010,
hereby certifies to the Buyers pursuant to Section 7(viii) of the Securities
Purchase Agreement, dated as of July 15, 2010, by and among the Company and the
investors identified on the Schedule of Buyers attached thereto (the “Securities Purchase
Agreement”), as follows (capitalized terms used but not otherwise defined
herein shall have the meaning set forth in the Securities Purchase
Agreement):

    

    
      	
               
      

            	
              1.

            	
              The
      representations and warranties made by the Company as set forth in Section
      3 of the Securities Purchase Agreement are true and correct in all
      material respects as of the date hereof (or, in the case of
      representations and warranties that speak as of a specific date, are true
      and correct in all material respects as of such date), except for those
      representations and warranties that are qualified by materiality or
      Material Adverse Effect, which are true and correct in all respects as of
      the date hereof (or, in the case of any such representations and
      warranties that speak as of a specific date, are true and correct in all
      respects as of such date); and

            

    

    

    
      	
               
      

            	
              2.

            	
              The
      Company has, in all material respects, performed, satisfied and complied
      with all covenants, agreements and conditions required to be performed,
      satisfied or complied with by it at or prior to the date hereof under the
      Transaction Documents

            

    

     

     

    [Remainder
of page intentionally left blank]

    
      
         

      

      
        
        

        
          

        

      

      
         

      

    

    

    IN WITNESS WHEREOF, the
undersigned has executed this certificate on the date first written
above.

     

     

    
      
        	
                 

              	
                By:
      

              	 	 
	 	 	Name:
      James A. Hawyard	 
	 	 	Title:  Chief
      Executive Officer	 

      

    

     

    
      
         

      

      
        
        

        
          

        

      

      
         

      

    

     

    SCHEDULE
3(a)

    

    Foreign
Qualifications

    

    The
Company is currently not qualified as a foreign entity in the state of New
York.  Upon learning of such failure to be so qualified and as of the
date hereof, the Company has taken all steps necessary to qualify as a foreign
entity in New York.

    

    Subsidiaries

    

    
      	
              1.

            	
              APDN
      (B.V.I.) Inc.

            

    

    

    
      	
              2.

            	
              Applied
      DNA Sciences Europe Limited

            

    

    
      
         

      

      
        
        

        
          

        

      

      
         

      

    

    
    

    
      SCHEDULE
3(q)

    Transactions
with Affiliates

    

    The
Company has issued and sold an aggregate principal amount of $1,675,000 in
currently outstanding secured convertible promissory notes bearing interest at
10% per annum to James A. Hayward, the Chairman, President and Chief Executive
Officer of the Company.  See Items 1, 2, 3, 5, 8 and 12 of Schedule
3(r)(iii).

    
      
         

      

      
        
        

        
          

        

      

      
         

      

    

    
SCHEDULE
3(r)

    

    Equity
Capitalization

    

    The
Company currently has a total of 96,120,000 shares of Common Stock reserved for
issuance pursuant to options granted under the Company’s stock option plan and
outstanding options and warrants.  As of the date hereof, options and
warrants to purchase 11,960,000 of these shares are currently unvested, and
options to purchase 29,000,000 shares are unvested and conditional upon approval
by the Company’s stockholders of an amendment to the Company’s Certificate of
Incorporation to increase the number of authorized shares of common stock from
410,000,000 to 800,000,000 at the Annual Meeting of Stockholders, to be held on
June 29, 2010.  As of the date hereof, the amendment has received
enough votes to be approved at the Annual Meeting.  The options and
warrants to purchase the remaining 55,160,000 shares are currently
underwater.

    

    The
Company also has a total of 65,661,281 shares of Common Stock reserved for
issuance pursuant to an aggregate of $3,375,000 secured convertible promissory
notes currently outstanding.  The Company has the ability to prepay
all of these notes in lieu of issuing shares upon conversion.  Of the
65,661,281 shares reserved for issuance, 38,965,026 shares are convertible
pursuant to and aggregate of $1,675,000 notes held by the Company’s chief
executive officer, James A. Hayward.  Dr. Hayward has agreed to delay
conversion of these notes to a date after the Company’s Certificate of
Incorporation is amended to increase the number of authorized shares upon
approval by the Company’s stockholders, as discussed above.

    

    (i)           None

    

    (ii)          See
Attachment 1 to this Schedule
3(r).

    

    (iii)        The
following are a list of secured convertible promissory notes outstanding as of
the Closing Date (the “Existing Promissory
Notes”):

    

    
      	
              1.

            	
              Promissory
      Note in the aggregate principal amount of $150,000 issued on January 29,
      2009 to James A. Hayward, due January 29, 2010* with interest at 10% per
      annum (the “January Note”) and a warrant (“January Warrant”) to purchase
      300,000 shares of our common stock.  The January Note and
      accrued but unpaid interest thereon shall automatically convert into
      shares of our common stock on January 29, 2010* at a conversion price of
      $0.033337264 per share (“Automatic Conversion Price”), which is equal to a
      20% discount to the average volume, weighted average price of our common
      stock for the ten trading days prior to issuance, and are convertible into
      shares of our common stock at the option of the noteholder at any time
      prior to such automatic conversion at a price equal to the greater of (i)
      50% of the average price of our common stock for the ten trading days
      prior to the date of the notice of conversion and (ii) the Automatic
      Conversion Price.  In addition, any time prior to conversion,
      the Company has the irrevocable right to repay the unpaid principal and
      accrued but unpaid interest under the January Note on three days written
      notice (during which period the holder can elect to convert the January
      Note).  The January Note bears interest at the rate of 10% per
      annum and is due and payable in full on January 29,
      2010*.  Until the principal and accrued but unpaid interest
      under the January Note are paid in full, or converted into shares of our
      common stock, the January Note will be secured by a security interest in
      all of the Company’s assets.  The January Warrant is exercisable
      for a four-year period commencing on January 29, 2010, and expiring on
      January 28, 2014, at a price of $0.50 per share.  The January
      Warrant may be redeemed at the Company’s option at a redemption price of
      $0.01 upon the earlier of (i) January 29, 2012, and (ii) the date the
      Company’s common stock has traded on The Over the Counter Bulletin Board
      at or above $1.00 per share for 20 consecutive trading
    days.

            

    

     

    
      
         

      

      
        
        

        
          

        

      

      
         

      

       

    

    
      	
              2.

            	
              Promissory
      Note in the aggregate principal amount of $200,000 issued on February 27,
      2009 to James A. Hayward, due February 27, 2010* with interest at 10% per
      annum (the “February Note”). The February Note and accrued but unpaid
      interest thereon shall automatically convert into shares of our common
      stock on February 27, 2010* at a conversion price of $0.046892438 per
      share (“Automatic Conversion Price”), which is equal to a 20% discount to
      the average volume, weighted average price of our common stock for the ten
      trading days prior to issuance, and are convertible into shares of our
      common stock at the option of the noteholder at any time prior to such
      automatic conversion at a price equal to the greater of (i) 50% of the
      average price of our common stock for the ten trading days prior to the
      date of the notice of conversion and (ii) the Automatic Conversion
      Price.  In addition, any time prior to conversion, the Company
      has the irrevocable right to repay the unpaid principal and accrued but
      unpaid interest under the February Note on three days written notice
      (during which period the holder can elect to convert the February
      Note).  The February Note bears interest at the rate of 10% per
      annum and is due and payable in full on February 27,
      2010*.  Until the principal and accrued but unpaid interest
      under the February Note are paid in full, or converted into shares of our
      common stock, the February Note will be secured by a security interest in
      all of the Company’s assets.

            

    

     

    
      	
              3.

            	
              Promissory
      Note in the aggregate principal amount of $250,000 issued on March 30,
      2009 to James A. Hayward, due March 30, 2010* with interest at 10% per
      annum (the “March Note”).  The March Note and accrued but unpaid
      interest thereon shall automatically convert into shares of our common
      stock on March 30, 2010* at a conversion price of $0.043239467 per share
      (“Automatic Conversion Price”), which is equal to a 20% discount to the
      average volume, weighted average price of our common stock for the ten
      trading days prior to issuance, and are convertible into shares of our
      common stock at the option of the noteholder at any time prior to such
      automatic conversion at a price equal to the greater of (i) 50% of the
      average price of our common stock for the ten trading days prior to the
      date of the notice of conversion and (ii) the Automatic Conversion
      Price.  In addition, any time prior to conversion, the Company
      has the irrevocable right to repay the unpaid principal and accrued but
      unpaid interest under the March Note on three days written notice (during
      which period the holder can elect to convert the March
      Note).  The March Note bears interest at the rate of 10% per
      annum and is due and payable in full on March 30, 2010*.  Until
      the principal and accrued but unpaid interest under the March Note are
      paid in full, or converted into shares of our common stock, the March Note
      will be secured by a security interest in all of the Company’s
      assets.

            

    

     

    
      
         

      

      
        
        

        
          

        

      

      
         

      

       

    

    
      	
              4.

            	
              Promissory
      Notes in the aggregate principal amount of $250,000 issued on June 22,
      2009 to accredited investors, due June 22, 2010 with interest at 10% per
      annum (the “June 22 Notes”).  The June 22 Notes and accrued but
      unpaid interest thereon shall automatically convert into shares of our
      common stock on June 22, 2010 at a conversion price of $0.110279774 per
      share (“Automatic Conversion Price”), which is equal to a 20% discount to
      the average volume, weighted average price of our common stock for the ten
      trading days prior to issuance, and are convertible into shares of our
      common stock at the option of the noteholders at any time prior to such
      automatic conversion at a price equal to the greater of (i) 50% of the
      average price of our common stock for the ten trading days prior to the
      date of the notice of conversion and (ii) the Automatic Conversion
      Price.  In addition, any time prior to conversion, the Company
      has the irrevocable right to repay the unpaid principal and accrued but
      unpaid interest under the June 22 Notes on three days written notice
      (during which period the holders can elect to convert the June 22
      Notes).  The June 22 Notes bear interest at the rate of 10% per
      annum and are due and payable in full on June 22, 2010.  Until
      the principal and accrued but unpaid interest under the June 22 Notes are
      paid in full, or converted into shares of our common stock, the June 22
      Notes will be secured by a security interest in all of the Company’s
      assets.

            

    

     

    
      	
              5.

            	
              Promissory
      Note in the principal amount of $150,000 issued on June 30, 2009 to James
      A. Hayward, due June 30, 2010 with interest at 10% per annum (the “June
      Note”).  The June Note and accrued but unpaid interest thereon
      shall automatically convert into shares of our common stock on June 30,
      2010 at a conversion price of $0.103059299 per share (“Automatic
      Conversion Price”), which is equal to a 20% discount to the average
      volume, weighted average price of our common stock for the ten trading
      days prior to issuance, and are convertible into shares of our common
      stock at the option of the noteholder at any time prior to such automatic
      conversion at a price equal to the greater of (i) 50% of the average price
      of our common stock for the ten trading days prior to the date of the
      notice of conversion and (ii) the Automatic Conversion
      Price.  In addition, any time prior to conversion, the Company
      has the irrevocable right to repay the unpaid principal and accrued but
      unpaid interest under the June Note on three days written notice (during
      which period the holder can elect to convert the June
      Note).  The June Note bears interest at the rate of 10% per
      annum and is due and payable in full on June 30, 2010.  Until
      the principal and accrued but unpaid interest under the June Note are paid
      in full, or converted into shares of our common stock, the June Note will
      be secured by a security interest in all of the Company’s
      assets.

            

    

     

    
      
         

      

      
        
        

        
          

        

      

      
         

      

       

    

    
      	
              6.

            	
              Promissory
      Notes in the aggregate principal amount of $430,000 issued on August 21,
      2009 to accredited investors, due August 21, 2010 with interest at 10% per
      annum (the “August Notes”).  The August Notes and accrued but
      unpaid interest thereon shall automatically convert into shares of our
      common stock on August 21, 2010 at a conversion price of $0.095312615 per
      share (“Automatic Conversion Price”), which is equal to a 20% discount to
      the average volume, weighted average price of our common stock for the ten
      trading days prior to issuance, and are convertible into shares of our
      common stock at the option of the noteholders at any time prior to such
      automatic conversion at a price equal to the greater of (i) 50% of the
      average price of our common stock for the ten trading days prior to the
      date of the notice of conversion and (ii) the Automatic Conversion
      Price.  In addition, any time prior to conversion, the Company
      has the irrevocable right to repay the unpaid principal and accrued but
      unpaid interest under the August Notes on three days written notice
      (during which period the holders can elect to convert the August
      Notes).  The August Notes bear interest at the rate of 10% per
      annum and are due and payable in full on August 21, 2010.  Until
      the principal and accrued but unpaid interest under the August Notes are
      paid in full, or converted into shares of our common stock, the August
      Notes will be secured by a security interest in all of the Company’s
      assets.

            

    

     

    
      	
              7.

            	
              Promissory
      Notes in the aggregate principal amount of $250,000 issued on September
      30, 2009 to accredited investors, due September 30, 2010 with interest at
      10% per annum (the “September Notes”).  The September Notes and
      accrued but unpaid interest thereon shall automatically convert into
      shares of our common stock on August 21, 2010 at a conversion price of
      $0.121732857 per share (“Automatic Conversion Price”), which is equal to a
      20% discount to the average volume, weighted average price of our common
      stock for the ten trading days prior to issuance, and are convertible into
      shares of our common stock at the option of the noteholders at any time
      prior to such automatic conversion at a price equal to the greater of (i)
      50% of the average price of our common stock for the ten trading days
      prior to the date of the notice of conversion and (ii) the Automatic
      Conversion Price.  In addition, any time prior to conversion,
      the Company has the irrevocable right to repay the unpaid principal and
      accrued but unpaid interest under the September Notes on three days
      written notice (during which period the holders can elect to convert the
      September Notes).  The September Notes bear interest at the rate
      of 10% per annum and are due and payable in full on August 21,
      2010.  Until the principal and accrued but unpaid interest under
      the September Notes are paid in full, or converted into shares of our
      common stock, the September Notes will be secured by a security interest
      in all of the Company’s assets.

            

    

     

    
      	
              8.

            	
              Promissory
      Note in the principal amount of $250,000 issued on September 30, 2009 to
      James A. Hayward, due September 30, 2010 with interest at 10% per annum
      (the “September Hayward Note”). The September Hayward Note and accrued but
      unpaid interest thereon shall automatically convert into shares of our
      common stock on September 30, 2010 at a conversion price of $0.121732857
      per share (“Automatic Conversion Price”), which is equal to a 20% discount
      to the average volume, weighted average price of our common stock for the
      ten trading days prior to issuance, and are convertible into shares of our
      common stock at the option of the noteholder at any time prior to such
      automatic conversion at a price equal to the greater of (i) 50% of the
      average price of our common stock for the ten trading days prior to the
      date of the notice of conversion and (ii) the Automatic Conversion
      Price.  In addition, any time prior to conversion, the Company
      has the irrevocable right to repay the unpaid principal and accrued but
      unpaid interest under the September Hayward Note on three days written
      notice (during which period the holder can elect to convert the September
      Hayward Note).  The September Hayward Note bears interest at the
      rate of 10% per annum and is due and payable in full on September 30,
      2010.  Until the principal and accrued but unpaid interest under
      the September Hayward Note are paid in full, or converted into shares of
      our common stock, the September Hayward Note will be secured by a security
      interest in all of the Company’s
assets.

            

    

     

    
      
         

      

      
        
        

        
          

        

      

      
         

      

       

    

    
      	
              9.

            	
              Promissory
      Notes in the aggregate principal amount of $270,000 issued on October 14,
      2009 to accredited investors, due October 14, 2010 with interest at 10%
      per annum (the “October Notes”).  The October Notes and accrued
      but unpaid interest thereon shall automatically convert into shares of our
      common stock on October 14, 2010 at a conversion price of $0.092674218 per
      share (“Automatic Conversion Price”), which is equal to a 20% discount to
      the average volume, weighted average price of our common stock for the ten
      trading days prior to issuance, and are convertible into shares of our
      common stock at the option of the noteholders at any time prior to such
      automatic conversion at a price equal to the greater of (i) 50% of the
      average price of our common stock for the ten trading days prior to the
      date of the notice of conversion and (ii) the Automatic Conversion
      Price.  In addition, any time prior to conversion, the Company
      has the irrevocable right to repay the unpaid principal and accrued but
      unpaid interest under the October Notes on three days written notice
      (during which period the holders can elect to convert the October
      Notes).  The October Notes bear interest at the rate of 10% per
      annum and are due and payable in full on October 14,
      2010.  Until the principal and accrued but unpaid interest under
      the October Notes are paid in full, or converted into shares of our common
      stock, the October Notes will be secured by a security interest in all of
      the Company’s assets.

            

    

     

    
      	
              10.

            	
              Promissory
      Notes in the aggregate principal amount of $50,000 issued on January 7,
      2010 to Glenn A. Little, due January 7, 2011 with interest at 10% per
      annum (the “Little Note”).  The Little Note and accrued but
      unpaid interest thereon shall automatically convert into shares of our
      common stock on January 7, 2011 at a conversion price of $0.052877384 per
      share, which is equal to a 20% discount to the average volume, weighted
      average price of our common stock for the ten trading days prior to
      issuance, and is convertible into shares of our common stock at the option
      of the noteholder at any time prior to such automatic conversion at a
      price equal to the greater of (i) 50% of the average price of our common
      stock for the ten trading days prior to the date of the notice of
      conversion and (ii) the automatic conversion price.  In
      addition, any time prior to conversion, the Company has the irrevocable
      right to repay the unpaid principal and accrued but unpaid interest under
      the Little Note on three days written notice (during which period the
      holder can elect to convert the Little Note).  The Little Note
      bears interest at the rate of 10% per annum and is due and payable in full
      on January 7, 2011.  Until the principal and accrued but unpaid
      interest under the Little Note are paid in full, or converted into shares
      of our common stock, the Little Note will be secured by a security
      interest in all of the Company’s
assets.

            

    

     

    
      
         

      

      
        
        

        
          

        

      

      
         

      

       

    

    
      	
              11.

            	
              Promissory
      Note in the aggregate principal amount of $450,000 issued on June 4, 2010
      to an accredited investor, due June 4, 2011 with interest at 10% per annum
      (the “June 2010 Note”).  The June 2010 Note and accrued but
      unpaid interest thereon shall automatically convert into shares of our
      common stock on June 4, 2011 at a conversion price of $0.38866151 per
      share (the “Automatic Conversion Price”), which is equal to a 20% discount
      to the average volume, weighted average price of our common stock for the
      ten trading days prior to issuance, and are convertible into shares of our
      common stock at the option of the noteholder at any time prior to such
      automatic conversion at a price equal to the greater of (i) 50% of the
      average price of our common stock for the ten trading days prior to the
      date of the notice of conversion and (ii) the Automatic Conversion
      Price.  In addition, any time prior to conversion, the Company
      has the irrevocable right to repay the unpaid principal and accrued but
      unpaid interest under the June 2010 Note on three days written notice
      (during which period the holder can elect to convert the June 2010
      Note).  The June 2010 Note bears interest at the rate of 10% per
      annum and is due and payable in full on June 4, 2011.  Until the
      principal and accrued but unpaid interest under the June 2010 Note is paid
      in full, or converted into shares of our common stock, the June 2010 Note
      will be secured by a security interest in all of the Company’s
      assets.

            

    

     

    
      	
              12.

            	
              Promissory
      Note in the aggregate principal amount of $675,000 issued on June 4, 2010
      to James A. Hayward, due January 31, 2012 with interest at 10% per annum
      (the “June 2010 Hayward Note”). The June 2010 Hayward Note and accrued but
      unpaid interest thereon shall automatically convert on the earlier of (a)
      January 31, 2012 into shares of our common stock at a conversion price of
      $$0.38866151 per share (the “Automatic Conversion Price”), which is equal
      to a 20% discount to the average volume, weighted average price of our
      common stock for the ten trading days prior to issuance or (b) the closing
      of a Qualified Financing into shares of Qualified Financing Securities at
      a conversion price equal to a 20% discount to the purchase price paid by
      investors in the Qualified Financing.  A Qualified Financing is
      defined in the June 2010 Hayward Note as the issuance and sale by the
      Company, its subsidiaries or any of their affiliates of equity or debt
      securities (“Qualified Financing Securities”) in a single transaction that
      results in gross proceeds of at least $10,000,000.  In addition,
      the June 2010 Hayward Note is convertible into shares of our common stock
      at the option of the noteholder at any time prior to such automatic
      conversion at a price equal to the greater of (i) 50% of the average price
      of our common stock for the ten trading days prior to the date of the
      notice of conversion and (ii) the Automatic Conversion
      Price.  In addition, any time prior to conversion, the Company
      has the irrevocable right to repay the unpaid principal and accrued but
      unpaid interest under the June 2010 Hayward Note on three days written
      notice (during which period the holder can elect to convert the promissory
      note).  The June 2010 Hayward Note bears interest at the rate of
      10% per annum and is due and payable in full on January 31,
      2012.  Until the principal and accrued but unpaid interest under
      the June 2010 Hayward Note is paid in full, or converted into shares of
      our common stock, the June 2010 Hayward Note will be secured by a security
      interest in all of the Company’s assets and the intellectual property of
      APDN (B.V.I.) Inc, the Company’s wholly-owned
  subsidiary.

            

    

     

    
      
         

      

      
        
        

        
          

        

      

      
         

      

    

     

    * These
promissory notes have matured but the Company and James A. Hayward have agreed
to delay payment and conversion of these notes to a future date.

    

    Pursuant
to a security agreement made and entered into as of July 15, 2010, APDN (B.V.I.)
Inc.,  the Company’s wholly-owned subsidiary, granted a security
interest in the Collateral (as defined in the Security Documents) to the holders
of the Existing Promissory Notes, which security interest will be pari passu with the security
interest granted to the Collateral Agent for the benefit of the Buyers pursuant
to the Security Agreement.

    
      	 	 
	(iv) 	A UCC-1 was filed in
      connection with each of the Existing Promissory Notes
	 	 
	(v) 	None
	 	 
	(vi) 	None 
	 	 
	(vii) 	None 
	 	 
	(viii) 	None 
	 	 
	(ix) 	None 

    

     

    
      
         

      

      
        
        

        
          

        

      

      
         

      

    

    
       

      Attachment
1 to Schedule 3(r)

      APDN
Warrants & Options

      
        	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	
                Exercise

              	 
      	
                Number

              	 
      	
                Expiration

              	 
      	 
      	
                Warrant

              	 
      	
                Issue

              
	
                Description

              	 
      	 
      	
                Price

              	 
      	 
      	 
      	
                Date

              	 
      	 
      	
                Life

              	 
      	
                Date

              
	 
      	 
      	 
      	 	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	
                Arjent
      Limited (UK)

              	 
      	 
      	 
      	
                0.06 

              	 
      	
                2,000,000

              	 
      	 
      	
                02/19/2014

              	 
      	 
      	 
      	
                5.00

              	 
      	
                2/20/09

              
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	
                Global
      Asset Management

              	
                1

              	 
      	 
      	
                0.06 

              	 
      	
                10,000,000

              	 
      	 
      	
                04/29/2015

              	 
      	 
      	 
      	
                5.00

              	 
      	
                4/29/10

              
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	
                Consultant
      (CRA)

              	 
      	 
      	 
      	
                0.07 

              	 
      	
                200,000

              	 
      	 
      	
                03/15/2012

              	 
      	 
      	 
      	
                1.00

              	 
      	
                3/16/09

              
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	
                Directors
      & Advisors (Sep ‘06)

              	 
      	 
      	 
      	
                0.09 

              	 
      	
                16,400,000

              	 
      	 
      	
                09/01/2011

              	 
      	 
      	 
      	
                5.00

              	 
      	
                9/1/06

              
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	
                Falkner
      Settlement

              	 
      	 
      	 
      	
                0.10 

              	 
      	
                1,500,000

              	 
      	 
      	
                03/26/2013

              	 
      	 
      	 
      	
                4.00

              	 
      	
                3/27/09

              
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	
                Bridge
      Note Nov 2005

              	 
      	 
      	 
      	
                0.50 

              	 
      	
                5,500,000

              	 
      	 
      	
                11/08/2010

              	 
      	 
      	 
      	
                5.00

              	 
      	
                11/9/05

              
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	
                March
      ‘06 Promissory Note

              	 
      	 
      	 
      	
                0.50 

              	 
      	
                3,000,000

              	 
      	 
      	
                03/07/2011

              	 
      	 
      	 
      	
                5.00

              	 
      	
                3/8/06

              
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	
                7M
      PPM - May 06

              	 
      	 
      	 
      	
                0.50 

              	 
      	
                2,000,000

              	 
      	 
      	
                05/02/2011

              	 
      	 
      	 
      	
                5.00

              	 
      	
                5/3/06

              
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	
                7M
      PPM - June 06

              	 
      	 
      	 
      	
                0.50 

              	 
      	
                5,900,000

              	 
      	 
      	
                05/02/2011

              	 
      	 
      	 
      	
                5.00

              	 
      	
                5/3/06

              
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	
                Directors
      & Advisors - bridge (Apr ‘07)

              	 
      	 
      	 
      	
                0.50 

              	 
      	
                200,000

              	 
      	 
      	
                04/22/2012

              	 
      	 
      	 
      	
                5.00

              	 
      	
                4/23/07

              
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	
                Bridge
      Note - 6/27/07

              	 
      	 
      	 
      	
                0.50 

              	 
      	
                300,000

              	 
      	 
      	
                06/26/2012

              	 
      	 
      	 
      	
                5.00

              	 
      	
                6/27/07

              
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	
                Directors
      & Advisors - bridge (Jun ‘07)

              	 
      	 
      	 
      	
                0.50 

              	 
      	
                500,000

              	 
      	 
      	
                06/29/2012

              	 
      	 
      	 
      	
                5.00

              	 
      	
                6/30/07

              
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	
                Directors
      & Advisors - bridge (Jul ‘07)

              	 
      	 
      	 
      	
                0.50 

              	 
      	
                400,000

              	 
      	 
      	
                07/29/2012

              	 
      	 
      	 
      	
                5.00

              	 
      	
                7/30/07

              
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	
                Bridge
      Note - 8/8/07

              	 
      	 
      	 
      	
                0.50 

              	 
      	
                200,000

              	 
      	 
      	
                08/07/2012

              	 
      	 
      	 
      	
                5.00

              	 
      	
                8/8/07

              
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	
                Directors
      & Advisors - bridge (Sep ‘07)

              	 
      	 
      	 
      	
                0.50 

              	 
      	
                600,000

              	 
      	 
      	
                09/29/2012

              	 
      	 
      	 
      	
                5.00

              	 
      	
                9/30/07

              
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	
                Directors
      & Advisors - bridge (Oct ‘08)

              	 
      	 
      	 
      	
                0.50 

              	 
      	
                1,000,000

              	 
      	 
      	
                10/20/2013

              	 
      	 
      	 
      	
                5.00

              	 
      	
                10/21/08

              
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	
                Directors
      & Advisors - bridge (Oct ‘08)

              	 
      	 
      	 
      	
                0.50 

              	 
      	
                300,000

              	 
      	 
      	
                01/28/2014

              	 
      	 
      	 
      	
                5.00

              	 
      	
                1/29/09

              
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	
                Bridge
      Note - 10/4/07

              	 
      	 
      	 
      	
                0.50 

              	 
      	
                1,100,000

              	 
      	 
      	
                10/03/2012

              	 
      	 
      	 
      	
                5.00

              	 
      	
                10/4/07

              
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	
                Bridge
      Note - 10/30/07

              	 
      	 
      	 
      	
                0.50 

              	 
      	
                1,300,000

              	 
      	 
      	
                10/29/2012

              	 
      	 
      	 
      	
                5.00

              	 
      	
                10/30/07

              
	
                Bridge
      Note - 11/29/07

              	 
      	 
      	 
      	 
      

                0.50 

              	 
      	 
      

                2,000,000

              	 
      	 
      	
                11/28/2012

              	 
      	 
      	 
      	
                5.00

              	 
      	
                11/29/07

              
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	
                Bridge
      Note - 12/20/07

              	 
      	 
      	 
      	
                0.50 

              	 
      	
                900,000

              	 
      	 
      	
                12/19/2012

              	 
      	 
      	 
      	
                5.00

              	 
      	
                12/20/07

              
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	
                Bridge
      Note - 1/17/08

              	 
      	 
      	 
      	
                0.50 

              	 
      	
                900,000

              	 
      	 
      	
                01/16/2013

              	 
      	 
      	 
      	
                5.00

              	 
      	
                1/17/08

              
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	
                Bridge
      Note - 3/4/08

              	 
      	 
      	 
      	
                0.50 

              	 
      	
                500,000

              	 
      	 
      	
                03/03/2013

              	 
      	 
      	 
      	
                5.00

              	 
      	
                3/4/08

              
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	
                Bridge
      Note - 5/7/08

              	 
      	 
      	 
      	
                0.50 

              	 
      	
                200,000

              	 
      	 
      	
                05/06/2013

              	 
      	 
      	 
      	
                5.00

              	 
      	
                5/7/08

              
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	
                Bridge
      Note - 7/31/08

              	 
      	 
      	 
      	
                0.50 

              	 
      	
                300,000

              	 
      	 
      	
                07/30/2013

              	 
      	 
      	 
      	
                5.00

              	 
      	
                7/31/08

              
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	
                Total

              	 
      	 
      	 
      	 
      	 
      	
                57,200,000

              	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	
                ESOP
      - Cashless Options

              	
                2

              	 
      	 
      	
                0.11

              	 
      	
                7,420,000

              	 
      	 
      	
                06/17/2013

              	 
      	 
      	 
      	
                5.00

              	 
      	
                6/17/08

              
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	
                ESOP
      - Cashless Options

              	 
      	 
      	 
      	
                0.09

              	 
      	
                1,500,000

              	 
      	 
      	
                09/01/2011

              	 
      	 
      	 
      	
                5.00

              	 
      	
                9/1/06

              
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	
                ESOP
      - Cashless Options

              	
                3

              	 
      	 
      	
                0.07

              	 
      	
                1,000,000

              	 
      	 
      	
                02/23/2014

              	 
      	 
      	 
      	
                5.00

              	 
      	
                2/23/09

              
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	
                ESOP
      - Cashless Options

              	
                4

              	 
      	 
      	
                0.05

              	 
      	
                29,000,000

              	 
      	 
      	
                05/27/2015

              	 
      	 
      	 
      	
                5.00

              	 
      	
                5/27/10

              
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	
                Total
      With ESOP options

              	 
      	 
      	 
      	 
      	 
      	
                 

                96,120,000

              	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	
                Less
      Unvested portion

              	
                1

              	 
      	 
      	
                0.06

              	 
      	
                7,500,000

              	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	
                2

              	 
      	 
      	
                0.11

              	 
      	
                3,710,000

              	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	
                3

              	 
      	 
      	
                0.07

              	 
      	
                750,000

              	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	
                4

              	 
      	 
      	
                0.05

              	 
      	
                29,000,000

              	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	
                Total
      adjusted for non-vesting

              	 
      	 
      	 
      	 
      	 
      	
                55,160,000

              	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      

      

       

    

    
      
         

      

      
        
        

        
          

        

      

      
         

      

    

    

    SCHEDULE
3(s)

    

    Indebtedness
and Other Contracts

    

    (i)          See
the description of the Existing Promissory Notes as set forth in Schedule 3(r)(iii)
hereto. 

    

    (ii)         None.

    

    (iii)        The
following Promissory Notes have matured but the Company and James A. Hayward
have agreed to delay payment and conversion of these notes to a future
date:

     

    
      	
              1.

            	
              Promissory
      Note in the aggregate principal amount of $150,000 issued on January 29,
      2009 to James A. Hayward, due January 29, 2010 with interest at 10% per
      annum.

            

    

     

    
      	
              2.

            	
              Promissory
      Note in the aggregate principal amount of $200,000 issued on February 27,
      2009 to James A. Hayward, due February 27, 2010 with interest at 10% per
      annum.

            

    

     

    
      	
              3.

            	
              Promissory
      Note in the aggregate principal amount of $250,000 issued on March 30,
      2009 to James A. Hayward, due March 30, 2010 with interest at 10% per
      annum.

            

    

     

    (iv)        None.

    
      
         

      

      
        
        

        
          

        

      

      
         

      

    

     

    SCHEDULE
3(t)

    

    Absence
of Litigation

    

    Intervex,
Inc. v. Applied DNA Sciences, Inc. (Supreme Court of the State of New York Index
No.08-601219):

    

    Intervex,
Inc., or Intervex, the plaintiff, filed a complaint on or about April 23, 2008
related to a claim for breach of contract. In March 2005, the Company entered
into a consulting agreement with Intervex, which provided for, among other
things, a payment of $6,000 per month for a period of 24 months, or an aggregate
of $144,000. In addition, the consulting agreement provided for the issuance by
the Company to Intervex of a five-year warrant to purchase 250,000 shares of the
Company’s common stock with an exercise price of $.75. Intervex asserts that the
Company owes them 17 payments of $6,000, or an aggregate of $102,000, plus
accrued interest thereon, and a warrant to purchase 250,000 shares of the
Company’s common stock. The Company has counterclaimed for compensatory and
punitive damages, restitution, attorneys’ fees and costs, interest and other
relief the court deems proper. The Company filed a motion for summary judgment
and Intervex filed a cross-motion for summary judgment.  The court
denied both motions on April 19, 2010. This matter is in the early stages of
discovery. The Company intends to vigorously defend against the claims asserted
against it.

    
      
         

      

      
        
        

        
          

        

      

      
         

      

    

     

    SCHEDULE
3(x)

    

    Intellectual
Property Rights

    

    In June
2008, the Company received a letter from Trace Tag International Limited (“Trace
Tag”) and 3Si Security Systems Inc. (“3Si”) providing the Company with notice of
the potential infringement of a European patent relating to a marketing
apparatus for nucleic acid marking of items.  The Company supplies its
SigNature DNA markers to a company based in the United Kingdom for use in a
device that marks items.  As of the date hereof, neither Trace Tag nor
3Si has taken any further actions against the Company with respect to this
matter.

     

    
      
         

      

      
        
        

        
          

        

      

      
         

      

    

     

    SCHEDULE
3(ee)

    

    Ranking
of Notes

    

    The
Existing Promissory Notes as set forth in Schedule 3(r)(iii)
hereto rank pari passu
with the Notes.

     

    
      
         

      

      
        
        

        
          

        

      

      
         

      

    

     

    SCHEDULE
3(hh)

    

    Price
of Securities, Compensation

    

    From 2003
through the Closing Date, the Company had engaged Arjent Services LLC and Arjent
Limited, both registered broker dealer firms, (collectively, “Arjent”) to act as
placement agents in connection with sales of promissory notes to accredited
investors (“Private Placements”).  In connection with these Private
Placements, the Company has paid compensation to
Arjent.ex10-2.htm

    
      
        

      

    

    Exhibit
10.2

     

    [FORM
OF SENIOR SECURED CONVERTIBLE NOTE]

     

    NEITHER
THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE
SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES
LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED
(I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL, IN A
GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR
(II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT.
NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH
A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE
SECURITIES. ANY TRANSFEREE OF THIS NOTE SHOULD CAREFULLY REVIEW THE TERMS OF
THIS NOTE, INCLUDING SECTIONS 3(c)(iii) AND 19(a) HEREOF.  THE
PRINCIPAL AMOUNT REPRESENTED BY THIS NOTE AND, ACCORDINGLY, THE SECURITIES
ISSUABLE UPON CONVERSION HEREOF MAY BE LESS THAN THE AMOUNTS SET FORTH ON THE
FACE HEREOF PURSUANT TO SECTION 3(c)(iii) OF THIS NOTE.

     

    Applied
DNA Sciences, Inc.

     

    Senior
Secured Convertible Note

     

    
      	
              Issuance
      Date:  July 15, 2010

            	
              Original
      Principal Amount: U.S. $___________

            

    

     

    FOR
VALUE RECEIVED, Applied DNA Sciences, Inc., an Delaware corporation (the
“Company”),
hereby promises to pay to [___________________] or registered assigns (“Holder”)
the amount set out above as the Original Principal Amount (as reduced pursuant
to the terms hereof pursuant to redemption, conversion or otherwise, the “Principal”)
when due, whether upon the Maturity Date (as defined below), acceleration,
redemption or otherwise (in each case in accordance with the terms hereof) and
to pay interest (“Interest”)
on any outstanding Principal at the applicable Interest Rate from the date set
out above as the Issuance Date (the “Issuance
Date”)
until the same becomes due and payable, whether upon an Interest Date (as
defined below), the Maturity Date, acceleration, redemption, conversion or
otherwise (in each case in accordance with the terms hereof).  This
Senior Secured Convertible Note (including all Senior Secured Convertible Notes
issued in exchange, transfer or replacement hereof, this “Note”)
is one of an issue of Senior Secured Convertible Notes issued pursuant to the
Securities Purchase Agreement on the Closing Date (collectively, the “Notes”
and such other Senior Secured Convertible Notes, the “Other
Notes”).  Certain
capitalized terms used herein are defined in Section 29.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    (1)           PAYMENTS
OF PRINCIPAL.  Subject to the conversion of the Principal and
accrued and unpaid Interest and Late Charges (as defined below) into Conversion
Shares pursuant to Section 8 hereof, on the Maturity Date, the Company shall pay
to the Holder an amount in cash representing all outstanding Principal, accrued
and unpaid Interest and accrued and unpaid Late Charges, if any, on such
Principal and Interest.  The “Maturity
Date”
shall be July 15, 2011.  Other than as specifically permitted by this
Note, the Company may not prepay any portion of the outstanding Principal,
accrued and unpaid Interest or accrued and unpaid Late Charges on Principal and
Interest, if any.

     

    (2)   INTEREST;
INTEREST RATE.  (a)  Interest on this Note shall
commence accruing on the Issuance Date and shall be computed on the basis of a
360-day year comprised of twelve thirty day months and shall be payable in
arrears on the earlier of the Maturity Date or the Conversion Date during the
period beginning on the Issuance Date and ending on, and including, the Maturity
Date or the Conversion Date, as the case may be (the “Interest
Date”).  Subject
to the conversion of the accrued and unpaid Interest into Conversion Shares
pursuant to Section 8 hereof, Interest shall be payable on the Interest Date to
the record holder of this Note on the Interest Date, in
cash.

     

    (b) 
 From
and after the occurrence and during the continuance of an Event of Default, the
Interest Rate shall be increased to 15% per annum, or the maximum rate
permissible by law, whichever is less.  In the event that such Event
of Default is subsequently cured, the adjustment referred to in the preceding
sentence shall cease to be effective as of the date of such cure; provided
that the Interest as calculated and unpaid at such increased rate during
the continuance of such Event of Default shall continue to apply to the extent
relating to the days after the occurrence of such Event of Default through and
including the date of cure of such Event of Default.

     

    (3)           CONVERSION
OF NOTES.  This Note shall be convertible into Conversion
Shares, on the terms and conditions set forth in this Section
3.

     

    (a)          
Conversion
Right.  At any time or times on or after the Issuance Date, the
Holder shall be entitled to convert any portion of the outstanding and unpaid
Conversion Amount (as defined below) into fully paid and nonassessable
Conversion Shares in accordance with Section 3(c), at the Conversion Rate (as
defined below).  The Company shall not issue any fraction of a
Conversion Share upon any conversion.  If the issuance would result in
the issuance of a fraction of a Conversion Share, the Company shall round such
fraction of a Conversion Share up to the nearest whole share.  The
Company shall pay any and all transfer, stamp and similar taxes that may be
payable with respect to the issuance and delivery of Conversion Shares upon
conversion of any Conversion Amount; provided
that the Company shall not be required to pay any tax that may be payable in
respect of the issuance and delivery of Conversion Shares to any Person other
than the Holder or with respect to any income tax due by the Holder with respect
to such Conversion Shares.

     

    (b)          
Conversion
Rate.  The number of Conversion Shares issuable upon conversion
of any Conversion Amount pursuant to Section 3(a) shall be determined by
dividing (x) such Conversion Amount by (y) the Conversion Price (the “Conversion
Rate”).

     

    
      
         

      

      
        - 2
-

        
          

        

      

      
         

      

    

     

    (i)   “Conversion
Amount” means the portion of the Principal to be converted, redeemed or
otherwise with respect to which this determination is being made, plus all
accrued and unpaid Interest and Late Charges on any Conversion Amount up to and
including the Conversion Date (as defined below).

     

    (ii)   “Conversion
Price” means either (1) as
of any Conversion Date or other date of determination, in each case (i) prior to
the occurrence of a Subsequent Financing, or (ii) after a Subsequent Financing
in the event the Holder elects to receive Conversion Shares that are not
Subsequent Financing Securities, upon conversion hereof, $0.04405, or (2) as of
any Conversion Date or other date of determination, in each case that occurs
after a closing of a Subsequent Financing and in the event the Holder elects to
receive Subsequent Financing Securities upon conversion hereof, 80% of the
purchase price paid by the investors in the Subsequent Financing for the
Subsequent Financing Securities, in each case, subject to adjustment as provided
herein.

     

    (c)           Mechanics
of Conversion.

     

    (i)   Optional
Conversion.  To convert any Conversion Amount into Conversion
Shares on any date (a “Conversion
Date”), the Holder shall (A) transmit by facsimile (or otherwise
deliver), for receipt on or prior to 11:59 p.m., New York Time, on such date, a
copy of an executed notice of conversion in the form attached hereto as Exhibit
I (the “Conversion
Notice”) to the Company and (B) if required by Section 3(c)(iii),
surrender this Note to a common carrier for delivery to the Company as soon as
practicable on or following such date (or an indemnification undertaking with
respect to this Note in the case of its loss, theft or
destruction).  On or before the first Business Day following the date
of receipt of a Conversion Notice, the Company shall transmit by facsimile a
confirmation (the “Conversion
Confirmation”) of receipt of such Conversion Notice to the Holder and the
Company’s Transfer Agent.  Any Conversion Confirmation delivered by
the Company shall confirm the Conversion Amount.  On or before the
fifth Business Day following the date of receipt of a Conversion Notice, the
Company shall, provided that the Transfer Agent is participating in the DTC Fast
Automated Securities Transfer Program, credit such aggregate number of
Conversion Shares to which the Holder shall be entitled to the Holder’s or its
designee’s balance account with DTC through its Deposit Withdrawal Agent
Commission system.  If the Transfer Agent is not participating in the
DTC Fast Automated Securities Transfer Program or if a Holder otherwise
requests, on or before the tenth Business Day following the date of receipt of a
Conversion Notice the Company shall issue and deliver to the address as
specified in the Conversion Notice, a certificate, registered in the name of the
Holder or its designee, for the number of Conversion Shares to which the Holder
shall be entitled.  If this Note is physically surrendered for
conversion as required by Section 3(c)(iii) and the outstanding Principal of
this Note is greater than the Principal portion of the Conversion Amount being
converted, then the Company shall as soon as practicable and in no event later
than five Business Days after receipt of this Note and at its own expense, issue
and deliver to the holder a new Note (in accordance with Section 19(d))
representing the outstanding Principal not converted.  The Person or
Persons entitled to receive the Conversion Shares issuable upon a conversion of
this Note shall be treated for all purposes as the record holder or holders of
such Conversion Shares on the Conversion Date.

     

    
      
         

      

      
        - 3
-

        
          

        

      

      
         

      

    

     

    (ii)   Company’s
Failure to Timely Convert.  If the Company shall fail to issue
a certificate to the Holder for the number of Conversion Shares to which the
Holder is entitled upon conversion of any Conversion Amount on or prior to the
date which is five Trading Days after the Conversion Date (a “Conversion
Failure”), and if on or after such Trading Day the Holder purchases (in
an open market transaction or otherwise) Conversion Shares to deliver in
satisfaction of a sale by the Holder of Conversion Shares issuable upon such
conversion that the Holder anticipated receiving from the Company (a “Buy-In”),
then the Company shall, within three Business Days after the Holder’s written
request and in the Holder’s discretion, either (A) pay cash to the Holder in an
amount equal to the Holder’s total purchase price (including brokerage
commissions and other out of pocket expenses, if any) for the Conversion Shares
so purchased (the “Buy-In
Price”), at which point the Company’s obligation to issue and deliver
such certificate or to credit the Holder’s balance account with DTC for the
number of Conversion Shares to which the Holder is entitled upon such Holder’s
conversion of any Conversion Amount shall terminate, or (B) promptly honor its
obligation to deliver to the Holder a certificate or certificates representing
such Conversion Shares and pay cash to the Holder in an amount equal to the
excess (if any) of the Buy-In Price over the product of (1) such number of
Conversion Shares, times (2) the Closing Bid Price on the Conversion
Date.

     

    (iii)   Registration;
Book-Entry.  The Company shall maintain a register (the “Register”)
for the recordation of the names and addresses of the holders of each Note and
the principal amount of the Notes held by such holders (the “Registered
Notes”).  The entries in the Register shall be conclusive and
binding for all purposes absent manifest error.  The Company and the
holders of the Notes shall treat each Person whose name is recorded in the
Register as the owner of a Note for all purposes, including, without limitation,
the right to receive payments of principal and interest hereunder,
notwithstanding notice to the contrary.  A Registered Note may be
assigned or sold in whole or in part only by registration of such assignment or
sale on the Register.  Upon its receipt of a request to assign or sell
all or part of any Registered Note by a Holder, the Company shall record the
information contained therein in the Register and issue one or more new
Registered Notes in the same aggregate principal amount as the principal amount
of the surrendered Registered Note to the designated assignee or transferee
pursuant to Section 19.  Notwithstanding anything to the contrary set
forth herein, upon conversion of any portion of this Note in accordance with the
terms hereof, the Holder shall not be required to physically surrender this Note
to the Company unless (A) the full Principal amount represented by this Note is
being converted or (B) the Holder has provided the Company with prior written
notice (which notice may be included in a Conversion Notice) requesting
reissuance of this Note upon physical surrender of this Note.  The
Holder and the Company shall maintain records showing the Principal, Interest
and Late Charges, if any, converted and the dates of such conversions or shall
use such other method, reasonably satisfactory to the Holder and the Company, so
as not to require physical surrender of this Note upon
conversion.

     

    (iv)   Disputes.  In
the event of a dispute as to the number of Conversion Shares issuable to the
Holder in connection with a conversion of this Note, the Company shall issue to
the Holder the number of Conversion Shares not in dispute and resolve such
dispute in accordance with Section 24.

     

    (4)      RIGHTS
UPON EVENT OF DEFAULT.

     

    (a)   
Event
of Default.  Each of the following events shall constitute an
“Event
of Default:”

     

    
      
         

      

      
        - 4
-

        
          

        

      

      
         

      

    

     

    (i) 
   the
suspension from trading or failure of the Common Stock to be listed on an
Eligible Market for a period of five consecutive Trading Days or for more than
an aggregate of ten Trading Days in any 365-day period;

     

    (ii)
   the
Company’s (A) failure to cure a Conversion Failure by delivery of the required
number of Conversion Shares within five Business Days after the applicable
Conversion Date or (B) notice, written or oral, to any holder of the Notes,
including by way of public announcement or through any of its agents, at any
time, of its intention not to comply with a request for conversion of any Notes
into Conversion Shares that is tendered in accordance with the provisions of the
Notes;

     

    (iii)   the
Company’s failure to pay to the Holder any amount of Principal, Interest,
Redemption Price, Late Charges or other amounts when and as due under this Note
or any other Transaction Document (as defined in the Securities Purchase
Agreement) or any other agreement, document, certificate or other instrument
delivered in connection with the transactions contemplated hereby and thereby to
which the Holder is a party, except, in the case of a failure to pay Interest,
Redemption Price, Late Charges and other amounts when and as due, in which case
only if such failure continues for a period of at least three Business
Days;

     

    (iv)   any
default under, redemption of or acceleration prior to maturity of any
Indebtedness of the Company or any of its Subsidiaries (as defined in Section
3(a) of the Securities Purchase Agreement) which Indebtedness, individually or
in the aggregate, exceeds $300,000;

     

    (v)   the
Company or any of its Subsidiaries, pursuant to or within the meaning of Title
11, U.S. Code, or any similar Federal, foreign or state law for the relief of
debtors (collectively, “Bankruptcy
Law”), (A) commences a voluntary case, (B) consents to the entry of an
order for relief against it in an involuntary case, (C) consents to the
appointment of a receiver, trustee, assignee, liquidator or similar official (a
“Custodian”),
(D) makes a general assignment for the benefit of its creditors or (E) admits in
writing that it is generally unable to pay its debts as they become
due;

     

    (vi)   any
proceeding is instituted against the Company or any of its Subsidiaries in an
involuntary case, or a court of competent jurisdiction enters an order or decree
under any Bankruptcy Law that (A) appoints a Custodian of the Company or any of
its Subsidiaries for all or substantially all of its property or (B) orders the
liquidation of the Company or any of its Subsidiaries and, in each case, such
order or decree is not dismissed or stayed within thirty days of such
entry;

     

    (vii)   a final
judgment or judgments for the payment of money aggregating in excess of $300,000
are rendered against the Company or any of its Subsidiaries and which judgments
are not, within sixty days after the entry thereof, bonded, discharged or stayed
pending appeal, or are not discharged within sixty days after the expiration of
such stay; provided,
however, that any judgment which is covered by insurance or an indemnity
from a credit worthy party shall not be included in calculating the $300,000
amount set forth above so long as the Company provides the Holder a written
statement from such insurer or indemnity provider (which written statement shall
be reasonably satisfactory to the Holder) to the effect that such judgment is
covered by insurance or an indemnity and the Company will receive the proceeds
of such insurance or indemnity within thirty days of the issuance of such
judgment;

     

    
      
         

      

      
        - 5
-

        
          

        

      

      
         

      

    

     

    (viii)   any
representation or warranty made by the Company in any Transaction Document shall
prove to have been incorrect when made or deemed made;

     

    (ix)   the
Company shall fail to perform or observe any covenant, agreement or other
obligation contained in any Transaction Document on its part to be performed or
observed and such failure shall remain unremedied for a period of three Business
Days;

     

    (x)    the
Security Agreement shall, for any reason, cease to create a valid, enforceable
and perfected first priority security interest and Lien in any of the Collateral
(as defined in the Security Agreement) purported to be covered thereby, or the
Company shall so state in writing, or the Company shall in any way challenge, or
shall bring any proceeding which shall in any way challenge, the prior valid,
enforceable or perfected status of such security interest or Lien or the
validity or enforceability thereof;

     

    (xi)   any Event
of Default (as defined in the Other Notes) occurs with respect to any Other
Notes; or

     

    (xii)    the SEC
commences a formal investigation or enforcement action of the Company and/or its
Subsidiaries, or a formal investigation or enforcement action of any of the then
current officers or directors of the Company that is related to the Company, its
Subsidiaries and/or the Common Stock or enters a consent or other order against
the Company and/or its Subsidiaries or any of the then current officers or
directors of the Company that is related to the Company, its Subsidiaries and/or
the Common Stock.

     

    (b)      Remedies.  Upon
the occurrence of an Event of Default, the Company shall within one Business Day
deliver written notice thereof via facsimile and overnight courier (an “Event
of Default Notice”) to the Holder.  At any time after the
earlier of the Holder’s receipt of an Event of Default Notice and the Holder
becoming aware of an Event of Default, the Holder may require the Company to
redeem all or any portion of this Note by delivering written notice thereof (the
“Event
of Default Redemption Notice”) to the Company, which Event of Default
Redemption Notice shall indicate the portion of this Note the Holder is electing
to redeem and, in the case the Holder has not received an Event of Default
Notice, the Event of Default of which the Holder has become aware; provided,
however, that in connection with any Event of Default under Section
4(a)(iv) hereunder, the Holder shall only have the right to require redemption
by the Company until a date that is thirty days following the day the default
under such Indebtedness has been cured or is no longer continuing or, in the
event of any acceleration that has been rescinded, for thirty days after the
date of such acceleration.  Each portion of this Note subject to
redemption by the Company pursuant to this Section 4(b) shall be redeemed by the
Company at a price equal to the greater of (i) the product of (A) the sum of the
Conversion Amount to be redeemed together with accrued and unpaid Interest with
respect to such Conversion Amount and accrued and unpaid Late Charges, if any,
with respect to such Conversion Amount and Interest and (B) the Redemption
Premium and (ii) the product of (A) the Conversion Rate with respect to such sum
of the Conversion Amount together with accrued and unpaid Interest with respect
to such Conversion Amount and accrued and unpaid Late Charges, if any, with
respect to such Conversion Amount and Interest in effect at such time as the
Holder delivers an Event of Default Redemption Notice and (B) the product of (1)
the Equity Value Redemption Premium and (2) the greater of (x) the Closing Sale
Price of the Common Stock on the date immediately preceding such Event of
Default, (y) the Closing Sale Price of the Common Stock on the date immediately
after such Event of Default and (z) the Closing Sale Price of the Common Stock
on the date the Holder delivers the Event of Default Redemption Notice (the
“Event
of Default Redemption
Price”).  Redemptions required by this Section 4(b) shall be
made in accordance with the provisions of Section 12.  To the extent
redemptions required by this Section 4(b) are deemed or determined by a court of
competent jurisdiction to be prepayments of the Note by the Company, such
redemptions shall be deemed to be voluntary prepayments.  The parties
hereto agree that in the event of the Company’s redemption of any portion of the
Note under this Section 4(b), the Holder’s damages would be uncertain and
difficult to estimate because of the parties’ inability to predict future
interest rates and the uncertainty of the availability of a suitable substitute
investment opportunity for the Holder.  Accordingly, any Redemption
Premium due under this Section 4(b) is intended by the parties to be, and shall
be deemed, a reasonable estimate of the Holder’s actual loss of its investment
opportunity and not as a penalty.

     

    
      
         

      

      
        - 6
-

        
          

        

      

      
         

      

    

     

    (5)       RIGHTS
UPON FUNDAMENTAL TRANSACTION AND CHANGE OF CONTROL.

     

    (a)  
   Assumption.  The
Company shall not enter into or be party to a Fundamental Transaction unless the
Successor Entity assumes in writing all of the obligations of the Company under
this Note and the other Transaction Documents in accordance with the provisions
of this Section 5(a) pursuant to written agreements in form and substance
reasonably satisfactory to the Required Holders and approved by the Required
Holders prior to such Fundamental Transaction, including agreements to deliver
to each holder of Notes in exchange for such Notes a security of the Successor
Entity evidenced by a written instrument substantially similar in form and
substance to the Notes, including, without limitation, having a principal amount
and interest rate equal to the principal amounts and the interest rates of the
Notes then outstanding held by such holder, having similar conversion rights and
having similar ranking to the Notes, and satisfactory to the Required
Holders.  Upon the occurrence of any Fundamental Transaction, the
Successor Entity shall succeed to, and be substituted for (so that from and
after the date of such Fundamental Transaction, the provisions of this Note
referring to the “Company” shall refer instead to the Successor Entity), and may
exercise every right and power of the Company and shall assume all of the
obligations of the Company under this Note with the same effect as if such
Successor Entity had been named as the Company herein.  Upon
consummation of the Fundamental Transaction, the Successor Entity shall deliver
to the Holder confirmation that there shall be issued upon conversion or
redemption of this Note at any time after the consummation of the Fundamental
Transaction, in lieu of the shares of the Company’s Common Stock (or other
securities, cash, assets or other property) issuable upon the conversion or
redemption of the Notes prior to such Fundamental Transaction, such shares of
the publicly traded common stock (or their equivalent) of the Successor Entity
(including its Parent Entity), as adjusted in accordance with the provisions of
this Note.  The provisions of this Section shall apply similarly and
equally to successive Fundamental Transactions and shall be applied without
regard to any limitations on the conversion or redemption of this
Note.

     

    
      
         

      

      
        - 7
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    (b)  
   Redemption
Right.  No sooner than fifteen days nor later than ten days
prior to the consummation of a Change of Control, but not prior to the public
announcement of such Change of Control, the Company shall deliver written notice
thereof via facsimile and overnight courier to the Holder (a “Change
of Control Notice”).  At
any time during the period beginning after the Holder’s receipt of a Change of
Control Notice and ending twenty Trading Days after the date of the consummation
of such Change of Control, the Holder may require the Company to redeem all or
any portion of this Note by delivering written notice thereof (“Change
of Control Redemption Notice”) to the Company, which Change of Control
Redemption Notice shall indicate the Conversion Amount the Holder is electing to
redeem.  The portion of this Note subject to redemption pursuant to
this Section 5 shall be redeemed by the Company in cash at a price equal to the
greater of (i) 130% of the sum of (x) the Conversion Amount being redeemed and
(y) the amount of any accrued but unpaid Interest on such Conversion Amount
being redeemed and accrued and unpaid Late Charges, if any, with respect to such
Conversion Amount and Interest through the date of such redemption payment and
(ii) the product of (x) the Equity Value Redemption Premium and (y) the sum of
(1) the product of (A) the Conversion Amount being redeemed multiplied by (B)
the quotient determined by dividing (I) the aggregate cash consideration and the
aggregate cash value of any non-cash consideration per Common Share to be paid
to the holders of the Common Shares upon consummation of the Change of Control
(any such non-cash consideration consisting of marketable securities to be
valued at the higher of the Closing Sale Price of such securities as of the
Trading Day immediately prior to, the Closing Sale Price as of the Trading Day
immediately following the public announcement of such proposed Change of Control
and the Closing Sale Price of the Common Stock immediately prior to the public
announcement of such proposed Change of Control) by (II) the Conversion Price
plus (2) the amount of any accrued but unpaid Interest on such Conversion Amount
being redeemed and accrued and unpaid Late Charges, if any, with respect to such
Conversion Amount and Interest through the date of such redemption payment, (the
“Change
of Control Redemption Price”).  Redemptions required by this
Section 5 shall be made in accordance with the provisions of Section 12 and
shall have priority to payments to stockholders in connection with a Change of
Control.  To the extent redemptions required by this Section 5(b) are
deemed or determined by a court of competent jurisdiction to be prepayments of
the Note by the Company, such redemptions shall be deemed to be voluntary
prepayments.  Notwithstanding anything to the contrary in this Section
5, but subject to Section 3(d), until the Change of Control Redemption Price
(together with any interest thereon) is paid in full, the Conversion Amount
submitted for redemption under this Section 5(b) (together with any interest
thereon) may be converted, in whole or in part, by the Holder into Conversion
Shares pursuant to Section 3.  In the event of a partial redemption of
this Note pursuant hereto, the principal amount redeemed shall be deducted from
the Installment Amounts relating to the applicable Installment Dates as set
forth in the Change of Control Redemption Notice.  The parties hereto
agree that in the event of the Company’s redemption of any portion of the Note
under this Section 5(b), the Holder’s damages would be uncertain and difficult
to estimate because of the parties’ inability to predict future interest rates
and the uncertainty of the availability of a suitable substitute investment
opportunity for the Holder.  Accordingly, any Change of Control
redemption premium due under this Section 5(b) is intended by the parties to be,
and shall be deemed, a reasonable estimate of the Holder’s actual loss of its
investment opportunity and not as a penalty.

     

    
      
         

      

      
        - 8
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    (6)      RIGHTS
UPON ISSUANCE OF PURCHASE RIGHTS AND OTHER CORPORATE
EVENTS.

     

    (a) 
    Purchase
Rights.  If at any time the Company grants, issues or sells any
Options, Convertible Securities or rights to purchase stock, warrants,
securities or other property pro rata to the record holders of any class of
Common Stock, Subsequent Financing Securities or Qualified Financing Securities
(the “Purchase
Rights”), then the Holder will be entitled to acquire, upon the terms
applicable to such Purchase Rights, the aggregate Purchase Rights which the
Holder could have acquired if the Holder had held the number of shares of Common
Stock, Subsequent Financing Securities or Qualified Financing Securities, as the
case may be, acquirable upon complete conversion of this Note (without taking
into account any limitations or restrictions on the convertibility of this Note)
immediately before the date on which a record is taken for the grant, issuance
or sale of such Purchase Rights, or, if no such record is taken, the date as of
which the record holders of Common Stock, Subsequent Financing Securities or
Qualified Financing Securities, as the case may be, are to be determined for the
grant, issue or sale of such Purchase Rights.

     

    (b) 
    Other
Corporate Events.  In addition to and not in substitution for
any other rights hereunder, prior to the consummation of any Fundamental
Transaction pursuant to which holders of shares of Common Stock, Subsequent
Financing Securities or Qualified Financing Securities, as the case may be, are
entitled to receive securities or other assets with respect to or in exchange
for shares of Common Stock, Subsequent Financing Securities or Qualified
Financing Securities, as the case may be (a “Corporate
Event”), the Company shall make appropriate provision to insure that the
Holder will thereafter have the right to receive upon a conversion of this Note,
at the Holder’s option, (i) in addition to the Conversion Shares receivable upon
such conversion, such securities or other assets to which the Holder would have
been entitled with respect to such Conversion Shares had such Conversion Shares
been held by the Holder upon the consummation of such Corporate Event (without
taking into account any limitations or restrictions on the convertibility of
this Note) or (ii) in lieu of the Conversion Shares otherwise receivable upon
such conversion, such securities or other assets received by the holders of
shares of Common Stock, Subsequent Financing Securities or Qualified Financing
Securities, as the case may be, in connection with the consummation of such
Corporate Event in such amounts as the Holder would have been entitled to
receive had this Note initially been issued with conversion rights for the form
of such consideration (as opposed to shares of Common Stock, Subsequent
Financing Securities or Qualified Financing Securities, as the case may be,) at
a conversion rate for such consideration commensurate with the Conversion
Rate.  Provision made pursuant to the preceding sentence shall be in a
form and substance satisfactory to the Required Holders.  The
provisions of this Section shall apply similarly and equally to successive
Corporate Events and shall be applied without regard to any limitations on the
conversion or redemption of this Note.

     

    
      
         

      

      
        - 9
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    (7)      RIGHTS
UPON ISSUANCE OF OTHER SECURITIES.

     

    (a) 
    Stock
Dividends and Stock Splits. If the Company, at any time while this Note
is outstanding (A) pays a stock dividend or otherwise makes a distribution or
distributions on shares of its Common Stock, Subsequent Financing Securities or
Qualified Financing Securities, as the case may be, or any other equity or
equity equivalent securities payable in shares of Common Stock, Financing
Securities or Qualified Financing Securities, as the case may be (which, for
avoidance of doubt, shall not include any shares of Common Stock, Subsequent
Financing Securities or Qualified Financing Securities, as the case may be,
issued by the Company pursuant to this Note), or  (B) subdivides (by
any stock split, stock dividend, recapitalization or otherwise) one or more
classes of its outstanding shares of Common Stock, Subsequent Financing
Securities or Qualified Financing Securities, as the case may be, into a greater
number of shares, the Conversion Price in effect immediately prior to such
subdivision will be proportionately reduced.  If the Company at any
time while this Note is outstanding: combines (by combination, reverse stock
split or otherwise) one or more classes of its outstanding shares of Common
Stock, Financing Securities or Qualified Financing Securities, as the case may
be, into a smaller number of shares, the Conversion Price in effect immediately
prior to such combination will be proportionately increased.

     

    (b) 
    Other
Events.  If any event occurs of the type contemplated by the
provisions of this Section 7 but not expressly provided for by such provisions
(including, without limitation, the granting of stock appreciation rights,
phantom stock rights or other rights with equity features), then the Company’s
Board of Directors will make an appropriate adjustment in the Conversion Price
so as to protect the rights of the Holder under this Note; provided
that no such adjustment will increase the Conversion Price as otherwise
determined pursuant to this Section 7.

     

    (8)   COMPANY’S
RIGHT OF MANDATORY CONVERSION.

     

    (a) 
    Mandatory
Conversion.  Upon the earlier of (A) the first anniversary of
the date hereof, or (B) the closing of a Qualified Financing (a “Mandatory
Conversion Date”), the Conversion Amount then remaining under this Note
shall be automatically converted (the “Mandatory
Conversion”) at the option of the Holder into either (i) fully paid,
validly issued and nonassessable shares of Common Stock in accordance with
Section 3(c) hereof at the Conversion Rate as of the Mandatory Conversion Date
with respect to the Conversion Amount, (ii) fully paid, validly issued and
nonassessable Subsequent Financing Securities in accordance with Section
3(c) hereof at the Conversion Rate as of the Mandatory Conversion Date with
respect to the Conversion Amount, or (iii) validly issued shares of
Qualified Financing Securities at a conversion price equal to 80% of the
purchase price paid by the investors in a Qualified Financing, subject to
adjustment as provided herein. The Company shall deliver a notice to the Holders
on the Mandatory Conversion Date which sets forth the (y) the aggregate
Conversion Amount of the Notes subject to mandatory conversion from all of the
holders of the Notes pursuant hereto (and analogous provisions under the Other
Notes) and (z) the number of Conversion Shares to be issued to the Holder
on the Mandatory Conversion Date.  The mechanics of conversion set
forth in Section 3(c) shall apply to any Mandatory Conversion as if the Company
and the Transfer Agent had received from the Holder on the Mandatory Conversion
Date a Conversion Notice with respect to the Conversion Amount being converted
pursuant to the Mandatory Conversion.

     

    (9)
     SECURITY.  This
Note and the Other Notes are secured to the extent and in the manner set forth
in the Security Documents (as defined in the Securities Purchase
Agreement).

     

    
      
         

      

      
        - 10
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    (10)     NONCIRCUMVENTION.  The
Company hereby covenants and agrees that the Company will not, by amendment of
its Certificate of Incorporation, Bylaws or through any reorganization, transfer
of assets, consolidation, merger, scheme of arrangement, dissolution, issue or
sale of securities, or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of this Note, and will at all
times in good faith carry out all of the provisions of this Note and take all
reasonable action as may be required to protect the rights of the Holder of this
Note.

     

    (11)     RESERVATION
OF AUTHORIZED SHARES.

     

    (a) 
    Reservation.  The
Company shall reserve out of its authorized and unissued stock a number of
shares of Common Stock or other securities issuable upon conversion of the
Notes, as the case may be, for each of the Notes equal to 100% of the Conversion
Rate with respect to the Conversion Amount of each such Note as of the
Issuance Date
and, for so long thereafter as any of the Notes are outstanding, the Company
shall take all action necessary to reserve and keep available out of its
authorized and unissued Common Stock or other securities issuable upon
conversion of the Notes, as the case may be, solely for the purpose of effecting
the conversion of the Notes, 120% of the number of shares of Common Stock or
other securities issuable upon conversion of the Notes, as the case may be, as
shall from time to time be necessary to effect the conversion of all of the
Notes then outstanding; provided
that at no time shall the number of shares of Common Stock or other securities
issuable upon conversion of the Notes, as the case may be, so reserved be less
than the number of shares required to be reserved by the previous sentence
(without regard to any limitations on conversions) (such applicable amount, the
“Required
Reserve Amount”).  The initial number of shares of Common Stock
or other securities issuable upon conversion of the Notes, as the case may be,
reserved for conversions of the Notes and each increase in the number of shares
so reserved shall be allocated pro rata among the holders of the Notes based on
the principal amount of the Notes held by each holder at the Closing (as defined
in the Securities Purchase Agreement) or increase in the number of reserved
shares, as the case may be (the “Authorized
Share Allocation”).  In the event that a holder shall sell or
otherwise transfer any of such holder’s Notes, each transferee shall be
allocated a pro rata portion of such holder’s Authorized Share
Allocation.  Any shares of Common Stock or other securities issuable
upon conversion of the Notes, as the case may be, reserved and allocated to any
Person which ceases to hold any Notes shall be allocated to the remaining
holders of Notes, pro rata based on the principal amount of the Notes then held
by such holders.

     

    (b)     Insufficient
Authorized Shares.  If at any time while any of the Notes
remain outstanding the Company does not have a sufficient number of authorized
and unreserved shares of Common Stock or other securities issuable upon
conversion of the Notes, as the case may be, to satisfy its obligation to
reserve for issuance upon conversion of the Notes at least a number of shares of
Common Stock or other securities issuable upon conversion of the Notes, as the
case may be, equal to the Required Reserve Amount (an “Authorized
Share Failure”), then the Company shall immediately take all action
necessary to increase the Company’s authorized shares of Common Stock or other
securities issuable upon conversion of the Notes, as the case may be, to an
amount sufficient to allow the Company to reserve the Required Reserve Amount
for the Notes then outstanding.  Without limiting the generality of
the foregoing sentence, as soon as reasonably practicable after the date of the
occurrence of an Authorized Share Failure, but in no event later than sixty days
after the occurrence of such Authorized Share Failure, the Company shall hold a
meeting of its stockholders for the approval of an increase in the number of
authorized shares of Common Stock or, if required by applicable law, other
securities issuable upon conversion of the Notes, as the case may
be.  In connection with such meeting, the Company shall provide each
stockholder with a proxy statement and shall use its reasonable efforts to
solicit its stockholders’ approval of such increase in authorized shares of
Common Stock or, if required by applicable law, other securities issuable upon
conversion of the Note, as the case may be, and to cause its board of directors
of the Company to recommend to the stockholders that they approve such
proposal.

     

    
      
         

      

      
        - 11
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    (12)    HOLDER’S
REDEMPTIONS.

     

    (a) 
    Mechanics.  The
Company shall deliver the applicable Event of Default Redemption Price to the
Holder within five Business Days after the Company’s receipt of the Holder’s
Event of Default Redemption Notice.  If the Holder has submitted a
Change of Control Redemption Notice in accordance with Section 5(b), the Company
shall deliver the applicable Change of Control Redemption Price to the Holder
concurrently with the consummation of such Change of Control if such notice is
received at least one Business Day prior to the consummation of such Change of
Control and within five Business Days after the Company’s receipt of such notice
otherwise.  In the event of a redemption of less than all of the
Conversion Amount of this Note, the Company shall promptly cause to be issued
and delivered to the Holder a new Note (in accordance with Section 19(d))
representing the outstanding Principal which has not been
redeemed.  In the event that the Company does not pay the applicable
Redemption Price to the Holder within the time period required, at any time
thereafter and until the Company pays such unpaid Redemption Price in full, the
Holder shall have the option, in lieu of redemption, to require the Company to
promptly return to the Holder all or any portion of this Note representing the
Conversion Amount that was submitted for redemption and for which the applicable
Redemption Price (together with any Late Charges thereon) has not been
paid.  Upon the Company’s receipt of such notice, (x) the applicable
Redemption Notice shall be null and void with respect to such Conversion Amount,
(y) the Company shall immediately return this Note, or issue a new Note (in
accordance with Section 19(d)) to the Holder representing the sum of such
Conversion Amount to be redeemed together with accrued and unpaid Interest with
respect to such Conversion Amount and accrued and unpaid Late Charges with
respect to such Conversion Amount and Interest and (z) the Conversion Price of
this Note or such new Notes shall be adjusted to the lesser of (A) the
Conversion Price as in effect on the date on which the applicable Redemption
Notice is voided and (B) the lowest Closing Bid Price of the Common Stock during
the period beginning on and including the date on which the applicable
Redemption Notice is delivered to the Company and ending on and including the
date on which the applicable Redemption Notice is voided.  The
Holder’s delivery of a notice voiding a Redemption Notice and exercise of its
rights following such notice shall not affect the Company’s obligations to make
any payments of Late Charges which have accrued prior to the date of such notice
with respect to the Conversion Amount subject to such
notice.

     

    (b) 
    Redemption
by Other Holders.  Upon the Company’s receipt of notice from
any of the holders of the Other Notes for redemption or repayment as a result of
an event or occurrence substantially similar to the events or occurrences
described in Section 4(b) or Section 5(b), the Company shall immediately, but no
later than one Business Day of its receipt thereof, forward to the Holder by
facsimile a copy of such notice.

     

    
      
         

      

      
        - 12
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    (13)    VOTING
RIGHTS.  The Holder shall have no voting rights as the holder
of this Note, except as required by law, including, but not limited to, the
Delaware General Corporation Law, and as expressly provided in this
Note.

     

    (14)    COVENANTS.  So
long as this Note is outstanding:

     

    (a) 
    Rank. All
payments due under this Note shall rank pari
passu with all Other Notes and no other Indebtedness of the Company and
its Subsidiaries shall be senior to the Indebtedness of the Company and its
Subsidiaries evidenced by this Note and the Other Notes other than Indebtedness
described on Schedule 3(s) to the Securities Purchase
Agreement.

     

    (b) 
    Incurrence
of Indebtedness.  The Company shall not, and the Company shall
not permit any of its Subsidiaries to, directly or indirectly, incur or
guarantee, assume or suffer to exist any Indebtedness, other than the
Indebtedness evidenced by this Note and the Other Notes and other than Permitted
Indebtedness.

     

    (c)     Amendments
to Indebtedness.  The Company shall not, and the Company shall
not permit any of its Subsidiaries to, amend the terms of any Indebtedness
without the prior written consent of the Required Holders (which consent shall
not be unreasonably withheld).

     

    (d) 
    Existence
of Liens.  The Company shall not, and the Company shall not
permit any of its Subsidiaries to, directly or indirectly, allow or suffer to
exist any mortgage, lien, pledge, charge, security interest or other encumbrance
upon or in any property or assets owned by the Company or any of its
Subsidiaries (collectively, “Liens”)
other than Permitted Liens.

     

    (e) 
    Restricted
Payments.  The Company shall not, and the Company shall not
permit any of its Subsidiaries to, directly or indirectly, redeem, defease,
repurchase, repay or make any payments in respect of, by the payment of cash or
cash equivalents (in whole or in part, whether by way of open market purchases,
tender offers, private transactions or otherwise), all or any portion of any
Permitted Indebtedness, whether by way of payment in respect of principal of (or
premium, if any) or interest on, such Indebtedness if at the time such payment
is due or is otherwise made or, after giving effect to such payment, an event
constituting, or that with the giving of notice or the passage of time, or both,
and without being cured would constitute, an Event of
Default.

     

    (f)  
    Restriction
on Redemption and Cash Dividends.  Until all of the Notes have
been converted, redeemed or otherwise satisfied in accordance with their terms,
the Company shall not, directly or indirectly, redeem or repurchase any of its
capital stock, warrants, stock options or other securities, or declare or pay
any cash dividend or distribution on its capital stock or other securities ,
except that the Company shall be permitted to cancel 235,00 shares of Common
Stock held in treasury and to cancel and replace certain outstanding options
granted pursuant to the Company’s 2005 Stock Incentive Plan.

     

    
      
         

      

      
        - 13
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    (g) 
    Transactions
with Affiliates.  The Company shall not, and the Company shall
not permit any of its Subsidiaries to, enter into directly or indirectly any
transaction or group of related transactions (including without limitation the
purchase, lease, sale or exchange of properties of any kind or the rendering of
any service) with any Affiliate (other than the Company or another Subsidiary),
except (1) in the ordinary course and pursuant to the reasonable requirements of
the Company’s or such Subsidiary’s business and upon fair and reasonable terms
no less favorable to the Company or such Subsidiary than would be obtainable in
a comparable arm’s-length transaction with a Person not an Affiliate and (2)
issuances or sales of Common Stock or convertible securities to directors,
officers and consultants of the Company.

     

    (h) 
    Line
of Business.  The Company shall not, and the Company shall not
permit any of its Subsidiaries to, engage in any business if, as a result, the
general nature of the business in which the Company and its Subsidiaries, taken
as a whole, would then be engaged would be substantially changed from the
general nature of the business in which the Company and its Subsidiaries, taken
as a whole, are engaged on the date hereof other than excluding the technologies
in asset and brand protection.

     

    (i)  
    Prohibition
on Disposition of Assets.  The Company shall not sell, lease,
assign, transfer or otherwise dispose of, or permit any of its Subsidiaries to
sell, lease, assign, transfer or otherwise dispose of, any properties or assets,
whether now owned or hereafter acquired, including, without limitation, the
Collateral, except obsolete, worn out property, or inventory disposed of in the
ordinary course of business.

     

    (j)  
    Certificate
of Incorporation and Bylaws.  Except as set forth in Section
11(b), the Company shall not amend its Certificate of Incorporation or Bylaws
without the prior written consent of the Required Holders (which consent shall
not be unreasonably withheld).

     

    (k) 
    Use
of Proceeds. The
Company will use the proceeds from the sale of the Notes for general working
capital purposes, including, without limitation, the creation of a sales and
marketing organization.

     

    (l)  
    Terms
No More Favorable. If the Company issues any of its securities in the one
year period from the date hereof on terms more favorable than those contained in
this Note (such securities, the “More
Favorable Terms Securities”), the Company shall promptly (but not less
than two Business Days after the issuance of such More Favorable Terms
Securities) amend this Note so that this Note contains the more favorable terms
of the More Favorable Terms Securities.

     

    (m)   Notice of Subsequent Financing and Qualified
Financing. The Company shall give written notice to the Holder of a
Subsequent Financing or a Qualified Financing no later than three Business Days
following the closing thereof.

     

    (15)    [Intentionally
omitted]

     

    
      
         

      

      
        - 14
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    (16)    PARTICIPATION.  The
Holder, as the holder of this Note, shall be entitled to receive such dividends
paid and distributions made to the holders of Common Stock, Subsequent Financing
Securities or Qualified Financing Securities, as the case may be, to the same
extent as if the Holder had converted this Note into Common Stock, Subsequent
Financing Securities or Qualified Financing Securities, as the case may be,
(without regard to any limitations on conversion herein or elsewhere) and had
held such shares of Common Stock, Subsequent Financing Securities or Qualified
Financing Securities, as the case may be, on the record date for such dividends
and distributions.  Payments under the preceding sentence shall be
made concurrently with the dividend or distribution to the holders of Common
Stock, Subsequent Financing Securities or Qualified Financing Securities, as the
case may be.

     

     

    (17)    VOTE
TO ISSUE, OR CHANGE THE TERMS OF, NOTES.  The affirmative vote
of the Required Holders at a meeting duly called for such purpose or the written
consent without a meeting shall be required for any change or amendment to this
Note or the Other Notes.  In no event shall any amendment,
modification or waiver be made to this Note which would adversely effect the
Holder without the written consent of the Holder.

     

    (18)    TRANSFER.  This
Note and any Conversion Shares issued upon conversion of this Note may be
offered, sold, assigned or transferred by the Holder without the consent of the
Company, subject only to the provisions of Section 2(f) of the Securities
Purchase Agreement.

     

    (19)    REISSUANCE
OF THIS NOTE.

     

    (a) 
    Transfer.  If
this Note is to be transferred, the Holder shall surrender this Note to the
Company, whereupon the Company will forthwith issue and deliver upon the order
of the Holder a new Note (in accordance with Section 19(d)), registered as the
Holder may request, representing the outstanding Principal being transferred by
the Holder and, if less then the entire outstanding Principal is being
transferred, a new Note (in accordance with Section 19(d)) to the Holder
representing the outstanding Principal not being transferred.  The
Holder and any assignee, by acceptance of this Note, acknowledge and agree that,
by reason of the provisions of Section 3(c)(iii) following conversion or
redemption of any portion of this Note, the outstanding Principal represented by
this Note may be less than the Principal stated on the face of this
Note.

     

    (b) 
    Lost,
Stolen or Mutilated Note.  Upon receipt by the Company of
evidence reasonably satisfactory to the Company of the loss, theft, destruction
or mutilation of this Note, and, in the case of loss, theft or destruction, of
any indemnification undertaking by the Holder to the Company in customary form
and, in the case of mutilation, upon surrender and cancellation of this Note,
the Company shall execute and deliver to the Holder a new Note (in accordance
with Section 19(d)) representing the outstanding Principal.

     

    (c) 
    Note
Exchangeable for Different Denominations.  This Note is
exchangeable, upon the surrender hereof by the Holder at the principal office of
the Company, for a new Note or Notes representing in the aggregate the
outstanding Principal of this Note, and each such new Note will represent such
portion of such outstanding Principal as is designated by the Holder at the time
of such surrender.

     

    
      
         

      

      
        - 15
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    (d) 
    Issuance
of New Notes.  Whenever the Company is required to issue a new
Note pursuant to the terms of this Note, such new Note (i) shall be of like
tenor with this Note, (ii) shall represent, as indicated on the face of such new
Note, the Principal remaining outstanding (or in the case of a new Note being
issued pursuant to Section 19(a) or Section 19(c), the Principal designated by
the Holder which, when added to the principal represented by the other new Notes
issued in connection with such issuance, does not exceed the Principal remaining
outstanding under this Note immediately prior to such issuance of new Notes),
(iii) shall have an issuance date, as indicated on the face of such new Note,
which is the same as the Issuance Date of this Note, (iv) shall have the same
rights and conditions as this Note, and (v) shall represent accrued and unpaid
Interest and Late Charges, if any, on the Principal and Interest of this Note,
from the Issuance Date.

     

    (20)    REMEDIES,
CHARACTERIZATIONS, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE
RELIEF.  The remedies provided in this Note shall be cumulative
and in addition to all other remedies available under this Note and any of the
other Transaction Documents at law or in equity (including a decree of specific
performance and/or other injunctive relief), and nothing herein shall limit the
Holder’s right to pursue actual and consequential damages for any failure by the
Company to comply with the terms of this Note.  Amounts set forth or
provided for herein with respect to payments, conversion and the like (and the
computation thereof) shall be the amounts to be received by the Holder and shall
not, except as expressly provided herein, be subject to any other obligation of
the Company (or the performance thereof).  The Company acknowledges
that a breach by it of its obligations hereunder will cause irreparable harm to
the Holder and that the remedy at law for any such breach may be
inadequate.  The Company therefore agrees that, in the event of any
such breach or threatened breach, the Holder shall be entitled, in addition to
all other available remedies, to an injunction restraining any breach, without
the necessity of showing economic loss and without any bond or other security
being required.

     

    (21)    PAYMENT
OF COLLECTION, ENFORCEMENT AND OTHER COSTS.  If (a) this Note
is placed in the hands of an attorney for collection or enforcement or is
collected or enforced through any legal proceeding or the Holder otherwise takes
action to collect amounts due under this Note or to enforce the provisions of
this Note or (b) there occurs any bankruptcy, reorganization, receivership of
the Company or other proceedings affecting Company creditors’ rights and
involving a claim under this Note, then the Company shall pay the costs incurred
by the Holder for such collection, enforcement or action or in connection with
such bankruptcy, reorganization, receivership or other proceeding, including,
but not limited to, attorneys’ fees and disbursements.

     

    (22)    CONSTRUCTION;
HEADINGS.  This Note shall be deemed to be jointly drafted by
the Company and all the holders of the Notes and shall not be construed against
any person as the drafter hereof.  The headings of this Note are for
convenience of reference and shall not form part of, or affect the
interpretation of, this Note.

     

    (23)    FAILURE
OR INDULGENCE NOT WAIVER.  No failure or delay on the part of
the Holder in the exercise of any power, right or privilege hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such power, right or privilege preclude other or further exercise thereof or of
any other right, power or privilege.

     

    
      
         

      

      
        - 16
-

        
          

        

      

      
         

      

    

     

    (24)    DISPUTE
RESOLUTION.  In the case of a dispute as to the determination
of (a) the Closing Bid Price, the Closing Sale Price or the Weighted Average
Price or (b) the arithmetic calculation of the Conversion Rate or any Redemption
Price or otherwise of number of Conversion Shares issuable to the Holder in
connection with this Note, the Company shall submit the disputed determinations
or arithmetic calculations via facsimile within one Business Day of receipt, or
deemed receipt, of the Conversion Notice or Redemption Notice or other event
giving rise to such dispute, as the case may be, to the Holder.  If
the Holder and the Company are unable to agree upon such determination or
calculation within one Business Day of such disputed determination or arithmetic
calculation being submitted to the Holder, then the Company shall, within one
Business Day submit via facsimile (a) the disputed determination of the Closing
Bid Price, the Closing Sale Price or the Weighted Average Price to an
independent, reputable investment bank selected by the Company and approved by
the Holder or (b) the disputed arithmetic calculation of the Conversion Rate,
any Redemption Price or the number of shares of Common Stock issuable to the
Company’s independent, outside accountant.  The Company, at the
Company’s expense, shall cause the investment bank or the accountant, as the
case may be, to perform the determinations or calculations and notify the
Company and the Holder of the results no later than five Business Days from the
time it receives the disputed determinations or calculations.  Such
investment bank’s or accountant’s determination or calculation, as the case may
be, shall be binding upon all parties absent demonstrable
error.

     

    (25)    NOTICES;
PAYMENTS.

     

    (a) 
    Notices.  Whenever
notice is required to be given under this Note, unless otherwise provided
herein, such notice shall be given in accordance with Section 10(f) of the
Securities Purchase Agreement.  The Company shall provide the Holder
with prompt written notice of all actions taken pursuant to this Note, including
in reasonable detail a description of such action and the reason
therefore.  Without limiting the generality of the foregoing, the
Company will give written notice to the Holder (i) immediately upon any
adjustment of the Conversion Price, setting forth in reasonable detail, and
certifying, the calculation of such adjustment and (ii) at least twenty days
prior to the date on which the Company closes its books or takes a record (A)
with respect to any dividend or distribution upon the Common Stock, (B) with
respect to any pro rata subscription offer to holders of Common Stock or (C) for
determining rights to vote with respect to any Fundamental Transaction,
dissolution or liquidation, provided in each case that such information shall be
made known to the public prior to or in conjunction with such notice being
provided to the Holder.

     

    (b) 
    Payments.  Whenever
any payment of cash is to be made by the Company to any Person pursuant to this
Note, such payment shall be made in lawful money of the United States of America
by a check drawn on the account of the Company and sent via overnight courier
service to such Person at such address as previously provided to the Company in
writing (which address, in the case of each of the holders of the Notes, shall
initially be as set forth on the Schedule of Buyers attached to the Securities
Purchase Agreement); provided
that the Holder may elect to receive a payment of cash via wire transfer of
immediately available funds by providing the Company with prior written notice
setting out such request and the Holder’s wire transfer
instructions.  Whenever any amount expressed to be due by the terms of
this Note is due on any day which is not a Business Day, the same shall instead
be due on the next succeeding day which is a Business Day and, in the case of
any Interest Date which is not the date on which this Note is paid in full, the
extension of the due date thereof shall not be taken into account for purposes
of determining the amount of Interest due on such date.  Any amount of
Principal or other amounts due under the Transaction Documents, other than
Interest, which is not paid when due shall result in a late charge being
incurred and payable by the Company in an amount equal to interest on such
amount at the rate of fifteen percent (15%) per annum, or the maximum rate
permissible by law, which is less, from the date such amount was due until the
same is paid in full (“Late
Charge”).

     

    
      
         

      

      
        - 17
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    (26)    CANCELLATION.  After
all Principal, accrued Interest and other amounts at any time owed on this Note
have been paid in full, this Note shall automatically be deemed canceled, shall
be surrendered to the Company for cancellation and shall not be
reissued.

     

    (27)    WAIVER
OF NOTICE.  To the extent permitted by law, the Company hereby
waives demand, notice, protest and all other demands and notices in connection
with the delivery, acceptance, performance, default or enforcement of this Note
and the Securities Purchase Agreement.

     

    (28)    GOVERNING
LAW.  This Note shall be construed and enforced in
accor­dance with, and all questions concerning the construction, validity,
interpretation and performance of this Note shall be governed by, the internal
laws of the State of New York, without giving effect to any choice of law or
conflict of law provision or rule (whether of the State of New York or any other
jurisdictions) that would cause the application of the laws of any jurisdictions
other than the State of New York.  The Company hereby irrevocably
submits to the exclusive jurisdiction of the state and federal courts sitting in
The City of New York, Borough of Manhattan, for the adjudication of any dispute
hereunder or in connection herewith or with any transaction contemplated hereby
or discussed herein, and hereby irrevocably waives, and agrees not to assert in
any suit, action or proceeding, any claim that it is not personally subject to
the jurisdiction of any such court, that such suit, action or proceeding is
brought in an inconvenient forum or that the venue of such suit, action or
proceeding is improper.  Nothing contained herein shall be deemed to
limit in any way any right to serve process in any manner permitted by
law.  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 enforceability 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 Company in any other jurisdiction to collect on the Company’s
obligations to the Holder, to realize on any collateral or any other security
for such obligations, or to enforce a judgment or other court ruling in favor of
the Holder.  THE
COMPANY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO
REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN
CONNECTION WITH OR ARISING OUT OF THIS NOTE OR ANY TRANSACTION CONTEMPLATED
HEREBY.

     

    (29)    CERTAIN
DEFINITIONS.  For purposes of this Note, the following terms
shall have the following meanings:

     

    
      
         

      

      
        - 18
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    (a)    “Affiliate”
means any Person that, directly or indirectly through one or more
intermediaries, controls or is controlled by or is under common control with a
Person, as such terms are used in and construed under Rule 144 under the
Securities Act.

     

    (b) “Bloomberg”
means Bloomberg Financial Markets.

     

    (c)    “Business
Day” means any day other than Saturday, Sunday or other day on which
commercial banks in The City of New York are authorized or required by law to
remain closed.

     

    (d)    “Change
of Control” means any Fundamental Transaction other than (i) any
reorganization, recapitalization or reclassification of the Common Stock in
which holders of the Company’s voting power immediately prior to such
reorganization, recapitalization or reclassification continue after such
reorganization, recapitalization or reclassification to hold publicly traded
securities and, directly or indirectly, the voting power of the surviving entity
or entities necessary to elect a majority of the members of the board of
directors (or their equivalent if other than a corporation) of such entity or
entities, or (ii) pursuant to a migratory merger effected solely for the purpose
of changing the jurisdiction of incorporation of the
Company.

     

    (e)    “Closing
Bid Price” and “Closing
Sale Price” means, for any security as of any date, the last closing bid
price and last closing trade price, respectively, for such security on the
Principal Market, as reported by Bloomberg, or, if the Principal Market begins
to operate on an extended hours basis and does not designate the closing bid
price or the closing trade price, as the case may be, then the last bid price or
last trade price, respectively, of such security prior to 4:00:00 p.m., New York
Time, as reported by Bloomberg, or, if the Principal Market is not the principal
securities exchange or trading market for such security, the last closing bid
price or last trade price, respectively, of such security on the principal
securities exchange or trading market where such security is listed or traded as
reported by Bloomberg, or if the foregoing do not apply, the last closing bid
price or last trade price, respectively, of such security in the
over-the-counter market on the electronic bulletin board for such security as
reported by Bloomberg, or, if no closing bid price or last trade price,
respectively, is reported for such security by Bloomberg, the average of the bid
prices, or the ask prices, respectively, of any market makers for such security
as reported in the “pink sheets” by Pink Sheets LLC (formerly the National
Quotation Bureau, Inc.).  If the Closing Bid Price or the Closing Sale
Price cannot be calculated for a security on a particular date on any of the
foregoing bases, the Closing Bid Price or the Closing Sale Price, as the case
may be, of such security on such date shall be the fair market value as mutually
determined by the Company and the Holder.  If the Company and the
Holder are unable to agree upon the fair market value of such security, then
such dispute shall be resolved pursuant to Section 24.  All such
determinations to be appropriately adjusted for any stock dividend, stock split,
stock combination or other similar transaction during the applicable calculation
period.

     

    (f)    “Closing
Date” shall have the meaning set forth in the Securities Purchase
Agreement which corresponds to the date this Note and the Other Notes were
initially issued pursuant to the terms of the Securities Purchase
Agreement.

     

    
      
         

      

      
        - 19
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    (g)    “Common
Stock” means shares of the Company’s common stock, $0.001 par value per
share.

     

    (h)    “Contingent
Obligation” means, as to any Person, any direct or indirect liability,
contingent or otherwise, of that Person with respect to any Indebtedness, lease,
dividend or other obligation of another Person if the primary purpose or intent
of the Person incurring such liability, or the primary effect thereof, is to
provide assurance to the obligee of such liability that such liability will be
paid or discharged, or that any agreements relating thereto will be complied
with, or that the holders of such liability will be protected (in whole or in
part) against loss with respect thereto.

     

    (i)     “Convertible
Securities” means any stock or securities (other than Options) directly
or indirectly convertible into or exercisable or exchangeable for Common
Stock.

     

    (j)     “Conversion
Shares” means, shares of Common Stock, Subsequent Financing Securities or
Qualified Financing Securities, as the case may be, issuable upon conversion of
this Note.

     

    (k) “Eligible
Market” means the Principal Market, The New York Stock Exchange, Inc.,
the NYSE Amex, The Nasdaq Global select Market, The Nasdaq Global Market, The
Nasdaq Capital Market, or any market that is a successor to any of the
foregoing.

     

    (l)    “Equity
Value Redemption Premium” means for any Change of Control Notice or Event
of Default Notice, as applicable, delivered or required to be delivered in
connection with a Change of Control or Event of Default, as applicable,
130%.

     

    (m)    “Fundamental
Transaction” means that the Company shall, directly or indirectly, in one
or more related transactions, (i) consolidate or merge with or into (whether or
not the Company is the surviving corporation) another Person or Persons, or (ii)
sell, assign, transfer, convey or otherwise dispose of all or substantially all
of the properties or assets of the Company to another Person, or (iii) allow
another Person (other than the Holder) to make a purchase, tender or exchange
offer that is accepted by the holders of more than 50% of the outstanding shares
of Voting Stock (not including any shares of Voting Stock held by the Person or
Persons making or party to, or associated or affiliated with the Persons making
or party to, such purchase, tender or exchange offer), or (iv) consummate a
stock purchase agreement or other business combination (including, without
limitation, a reorganization, recapitalization, spin-off or scheme of
arrangement) with another Person whereby such other Person acquires more than
the 50% of the outstanding shares of Voting Stock (not including any shares of
Voting Stock held by the other Person or other Persons making or party to, or
associated or affiliated with the other Persons making or party to, such stock
purchase agreement or other business combination), or (v) reorganize,
recapitalize or reclassify its Common Stock or (vi) any “person” or “group” (as
these terms are used for purposes of Sections 13(d) and 14(d) of the Exchange
Act) is or shall become the “beneficial owner” (as defined in Rule 13d-3 under
the Exchange Act), directly or indirectly, of 50% of the aggregate Voting Stock
of the Company.

     

    
      
         

      

      
        - 20
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    (n)    “GAAP”
means United States generally accepted accounting principles, consistently
applied.

     

    (o)    “Indebtedness”
of any Person means, without duplication (i) all indebtedness for borrowed
money, (ii) all obligations issued, undertaken or assumed as the deferred
purchase price of property or services, including (without limitation) “capital
leases” in accordance with GAAP (other than trade payables entered into in the
ordinary course of business), (iii) all reimbursement or payment obligations
with respect to letters of credit, surety bonds and other similar instruments,
(iv) all obligations evidenced by notes, bonds, debentures or similar
instruments, including obligations so evidenced incurred in connection with the
acquisition of property, assets or businesses, (v) all indebtedness created or
arising under any conditional sale or other title retention agreement, or
incurred as financing, in either case with respect to any property or assets
acquired with the proceeds of such indebtedness (even though the rights and
remedies of the seller or bank under such agreement in the event of default are
limited to repossession or sale of such property), (vi) all monetary obligations
under any leasing or similar arrangement which, in connection with GAAP,
consistently applied for the periods covered thereby, is classified as a capital
lease, (vii) all indebtedness referred to in clauses (i) through (vi) above
secured by (or for which the holder of such Indebtedness has an existing right,
contingent or otherwise, to be secured by) any mortgage, lien, pledge, charge,
security interest or other encumbrance upon or in any property or assets
(including accounts and contract rights) owned by any Person, even though the
Person which owns such assets or property has not assumed or become liable for
the payment of such indebtedness, and (viii) all Contingent Obligations in
respect of indebtedness or obligations of others of the kinds referred to in
clauses (i) through (vii) above.

     

    (p)    “Interest
Rate”
means, 10.00% per annum, subject to adjustment as set forth in Section 2(b)
hereof.

     

    (q)    “Options”
means any rights, warrants or options to subscribe for or purchase shares of
Common Stock or Convertible Securities.

     

    (r)    “Parent
Entity” of a Person means an entity that, directly or indirectly,
controls the applicable Person and whose common stock or equivalent equity
security is quoted or listed on an Eligible Market, or, if there is more than
one such Person or Parent Entity, the Person or Parent Entity with the largest
public market capitalization as of the date of consummation of the Fundamental
Transaction.

     

    (s) “Permitted
Indebtedness” means (i) Indebtedness evidenced by this Note and the Other
Notes, (ii) Indebtedness described on Schedule 3(s) to the Securities Purchase
Agreement, (iii) Indebtedness for borrowed money not in excess of $500,000 at
any time outstanding, and (iv) Indebtedness incurred in a capital raising
transaction for which Basis Financial, LLC acts as placement agent (the “Agent”).

     

    
      
         

      

      
        - 21
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    (t)  “Permitted
Liens” means (i) Liens for taxes, assessments and other governmental
charges or levies not yet due or Liens for taxes, assessments and other
governmental charges or levies being contested in good faith and by appropriate
proceedings for which adequate reserves (in the good faith judgment of the
management of the Company) have been established in accordance with GAAP, (ii)
Liens imposed by law which were incurred in the ordinary course of business,
such as carriers’, warehousemen’s and mechanics’ Liens, statutory landlords’
Liens, and other similar Liens arising in the ordinary course of business, and
(1) which do not individually or in the aggregate materially detract from the
value of such property or assets or materially impair the use thereof in the
operation of the business of the Company and its Subsidiaries and (2) which are
being contested in good faith by appropriate proceedings, which proceedings have
the effect of preventing the forfeiture or sale of the property or asset subject
to such Lien, (iii) Liens incurred in connection with Permitted Indebtedness
under clause (ii), and (iii) thereunder, provided
that with respect to (ii), such Liens are not secured by assets of the Company
or its Subsidiaries other than the assets so acquired or leased, provided
further that such Liens rank pari
passu with or subordinate to the Liens of Etico Capital, LLC under the
Security Documents (as defined in the Securities Purchase
Agreement).

     

    (u)    “Person”
means an individual, a limited liability company, a partnership, a joint
venture, a corporation, a trust, an unincorporated organization, any other
entity and a government or any department or agency thereof.

     

    (v)    “Principal
Market” means the OTC Bulletin Board.

     

    (w)    “Qualified
Financing” means the issuance and sale by the Company, its Subsidiaries
or any of their Affiliates of Qualified Financing Securities in a single
transaction that results in gross proceeds of at least
$10,000,000.

     

    (x)    “Qualified
Financing Securities” means the equity or debt securities issued and sold
in a Qualified Financing.

     

    (y)    “Redemption
Premium” means 120%.

     

    (z)    “Redemption
Prices” means, collectively, the Event of Default Redemption Price or the
Change of Control Redemption Price, each of the foregoing, individually, a
Redemption Price.

     

    (aa)     “Registration
Rights Agreement” means that certain Registration Rights Agreement dated
as of the Subscription Date by and among the Company and the initial holders of
the Notes.

     

    (bb)   “Required
Holders” means the holders of Notes representing at least a majority of
the aggregate principal amount of the Notes then
outstanding.

     

    (cc)   “SEC”
means the United States Securities and Exchange Commission.

     

    (dd)   “Securities
Purchase Agreement” means that certain securities purchase agreement
dated as of the Subscription Date by and among the Company and the initial
holders of the Notes pursuant to which the Company issued the
Notes.

     

    
      
         

      

      
        - 22
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    (ee)   “Subsequent
Financing” means the issuance and sale by the Company, its Subsidiaries
or any of their Affiliates of Subsequent Financing Securities that does not
qualify as a Qualified Financing.

     

    (ff)    “Subsequent
Financing Securities” means the equity or debt securities issued and sold
in a Subsequent Financing.

     

    (gg)   “Subscription
Date” means July 15, 2010.

     

    (hh)   “Successor
Entity” means the Person, which may be the Company, formed by, resulting
from or surviving any Fundamental Transaction or the Person with which such
Fundamental Transaction shall have been made, provided
that if such Person is not a publicly traded entity whose common stock or
equivalent equity security is quoted or listed for trading on an Eligible
Market, Successor Entity shall mean such Person’s Parent
Entity.

     

    (ii)    “Trading
Day” means any day on which the Common Stock is traded on the Principal
Market, or, if the Principal Market is not the principal trading market for the
Common Stock, then on the principal securities exchange or securities market on
which the Common Stock is then traded; provided
that “Trading Day” shall not include any day on which the Common Stock is
scheduled to trade on such exchange or market for less than 4.5 hours or any day
that the Common Stock is suspended from trading during the final hour of trading
on such exchange or market (or if such exchange or market does not designate in
advance the closing time of trading on such exchange or market, then during the
hour ending at 4:00:00 p.m., New York Time).

     

    (jj)    “Voting
Stock” of a Person means capital stock of such Person of the class or
classes pursuant to which the holders thereof have the general voting power to
elect, or the general power to appoint, at least a majority of the board of
directors, managers or trustees of such Person (irrespective of whether or not
at the time capital stock of any other class or classes shall have or might have
voting power by reason of the happening of any contingency).

     

    (kk)   “Weighted
Average Price” means, for any security as of any date, the dollar
volume-weighted average price for such security on the Principal Market during
the period beginning at 9:30:01 a.m., New York Time (or such other time as the
Principal Market publicly announces is the official open of trading), and ending
at 4:00:00 p.m., New York Time (or such other time as the Principal Market
publicly announces is the official close of trading) as reported by Bloomberg
through its “Volume at Price” functions, or, if the foregoing does not apply,
the dollar volume-weighted average price of such security in the
over-the-counter market on the electronic bulletin board for such security
during the period beginning at 9:30:01 a.m., New York Time (or such other time
as such market publicly announces is the official open of trading), and ending
at 4:00:00 p.m., New York Time (or such other time as such market publicly
announces is the official close of trading) as reported by Bloomberg, or, if no
dollar volume-weighted average price is reported for such security by Bloomberg
for such hours, the average of the highest closing bid price and the lowest
closing ask price of any of the market makers for such security as reported in
the “pink sheets” by Pink Sheets LLC (formerly the National Quotation Bureau,
Inc.).  If the Weighted Average Price cannot be calculated for a
security on a particular date on any of the foregoing bases, the Weighted
Average Price of such security on such date shall be the fair market value as
mutually determined by the Company and the Holder.  If the Company and
the Holder are unable to agree upon the fair market value of such security, then
such dispute shall be resolved pursuant to Section 24.  All such
determinations to be appropriately adjusted for any stock dividend, stock split,
stock combination or other similar transaction during the applicable calculation
period.

     

    
      
         

      

      
        - 23
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    (30)   DISCLOSURE.
Upon receipt or delivery by the Company of any notice in accordance with the
terms of this Note, unless the Company has in good faith determined that the
matters relating to such notice do not constitute material, nonpublic
information relating to the Company or its Subsidiaries, the Company shall
within one Business Day after any such receipt or delivery publicly disclose
such material, nonpublic information on a Current Report on Form 8-K or
otherwise.  In the event that the Company believes that a notice
contains material, nonpublic information relating to the Company or its
Subsidiaries, the Company so shall indicate to such Holder contemporaneously
with delivery of such notice, and in the absence of any such indication, the
Holder shall be allowed to presume that all matters relating to such notice do
not constitute material, nonpublic information relating to the Company or its
Subsidiaries.

     

    [Signature
Page Follows]

     

    
      
         

      

      
        - 24
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    IN
WITNESS WHEREOF, the Company has caused this Note to be duly executed as of the
Issuance Date set out above.

    
      
        	 	 	 
	 	 	 
	 	
                APPLIED
      DNA SCIENCES, INC.

              	 
	 	 	 	 
	
                 

              	
                By:
      

              	 	 
	 	 	Name:	 
	 	 	Title:	 

      

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    EXHIBIT
I

     

    APPLIED
DNA SCIENCES, INC.

    CONVERSION
NOTICE

     

    Reference
is made to the Senior Secured Convertible Note (the “Note”)
issued to the undersigned by Applied DNA Sciences, Inc. (the “Company”).  In
accordance with and pursuant to the Note, the undersigned hereby elects to
convert the Conversion Amount (as defined in the Note) of the Note indicated
below into Conversion Shares (as defined in the Note) of the Company, as of the
date specified below.

    

    
      	 
      	
              Date
      of Conversion:

            	 
      

    

     

    
      	 
      	
              Aggregate
      Conversion Amount to be converted:

            	 
      

    

     

    Please
confirm the following information:

     

    
      	 
      	 
      	 
      
	 
      	
              Conversion
      Price:  

            	 
      

    

     

    
      	 
      	
              Number
      of shares of [Common Stock] [Subsequent Financing Securities] [Qualified
      Financing Securities] to be issued:

            	 
      
	 
      	 
      	 
      
	
              Please
      issue the [Common Stock] [Subsequent Financing Securities] [Qualified
      Financing Securities] into which the Conversion Amount of the Note is
      being converted in the following name and to the following
      address:

            

    

     

    
      	 
      	
              Issue
      to:

            	 
      
	 
      	 
      	 
      
	 
      	 
      	 
      
	 
      	 
      	 
      
	 
      	 
      	 
      

    

     

    
      	 
      	
              Facsimile
      Number:

            	 
      

    

     

    
      	 
      	
              Authorization:

            	 
      

    

     

    
      	 
      	
              By:

            	 
      

    

     

    
      	 
      	
              Title:

            	 
      

    

     

    
      	
              Dated:

            	 
      

    

     

    
      	 
      	
              Account
      Number:

            	 
      
	 
      	
                (if
      electronic book entry transfer)

            

    

     

    
      
         

      

      
         

        
          

        

      

      
         

      

       

    

    
      	 
      	
              Transaction
      Code Number:

            	 
      
	 
      	
                (if
      electronic book entry transfer)

            

    

    
      	
              Installment
      Amount to be reduced and amount   

            	 
      
	
              of
      reduction for each Installment Date:

            	 
      

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    
ACKNOWLEDGMENT

     

    The
Company hereby acknowledges this Conversion Notice and hereby directs American
Stock Transfer & Trust Company to issue the above indicated number of shares
of Common Stock in accordance with the Transfer Agent Instructions dated July
15, 2010 from the Company and acknowledged and agreed to by American Stock
Transfer & Trust Company.

    
      
        	 	 	 
	 	 	 
	 	
                APPLIED
      DNA SCIENCES, INC

              	 
	 	 	 	 
	
                 

              	
                By:
      

              	 
	 	 	Name:	 
	 	 	Title:

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00176-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00176-of-00352.parquet"}]]