Document:

ex10-3.htm

    Exhibit
10.3

     

     

    NEITHER
THE SECURITIES REPRESENTED BY THIS WARRANT NOR THE UNDERLYING SHARES OF COMMON
STOCK HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
“1933 ACT”), OR ANY STATE SECURITIES LAWS AND NEITHER SUCH SECURITIES NOR ANY
INTEREST THEREIN MAY BE OFFERED, SOLD, PLEDGED, ASSIGNED OR OTHERWISE
TRANSFERRED UNLESS (1) A REGISTRATION STATEMENT WITH RESPECT THERETO IS
EFFECTIVE UNDER THE 1933 ACT, OR (2) PURSUANT TO AN EXEMPTION FROM REGISTRATION
UNDER THE 1933 ACT AND ANY APPLICABLE STATE SECURITIES LAWS AND THE COMPANY
SHALL HAVE RECEIVED AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY AS TO SUCH
EXEMPTION.

    

    IN
ADDITION, A SECURITIES PURCHASE AGREEMENT DATED AS OF NOVEMBER 30, 2009,
A COPY OF WHICH MAY BE OBTAINED FROM THE COMPANY AT ITS PRINCIPAL EXECUTIVE
OFFICE, CONTAINS CERTAIN ADDITIONAL AGREEMENTS BETWEEN THE PARTIES WITH RESPECT
TO THIS WARRANT.

    

    
      
        

      

    

    

    CHINA
POWER EQUIPMENT, INC.

    

    COMMON
STOCK PURCHASE WARRANT

    

    

    Number of
Shares:  ____________                                                                                                           Holder:
_______________

    

    Original
Issue Date: ___________, 2009

     

    Expiration
Date: ______________, 2012

     

    Exercise
Price per Share: $2.40

    

    

    THIS
COMMON STOCK PURCHASE WARRANT is issued by CHINA POWER EQUIPMENT, INC., a
Maryland corporation (the “Company”) pursuant to a Securities Purchase Agreement
dated November 30, 2009 (“Purchase
Agreement”).

    

    The
Company hereby certifies that, for value received, ________________, or
registered assigns (the “Warrant Holder”), is
entitled, subject to the terms set forth below, to purchase from the Company up
to _______________ shares (as adjusted from time to time as provided in Section
7 of this Warrant, the “Warrant Shares”) of
common stock, $.001 par value (the “Common Stock”), of
the Company at a price of two dollars forty cents ($2.40) per Warrant Share (as
adjusted from time to time as provided in Section 7, the “Exercise Price”), at
any time and from time to time from and after the date thereof and through and
including 5:00 p.m. New York City time on ___________, 2012 (the “Expiration Date”),
and subject to the following terms and conditions:

     

    1.    Registration
of Warrant.  The Company shall register
this Warrant upon records to be maintained by the Company for that purpose (the
“Warrant
Register”), in the name of
the record Warrant Holder hereof from time to time.  The Company may
deem and treat the registered Warrant Holder of this Warrant as the absolute
owner hereof for the purpose of any exercise hereof or any distribution to the
Warrant Holder, and for all other purposes, and the Company shall not be
affected by notice to the contrary.

     

    2.     Investment
Representation.  The Warrant Holder by
accepting this Warrant represents that the Warrant Holder is acquiring this
Warrant for Holder’s own account or the account of an affiliate that is an
accredited investor, which has been identified to and approved by the Company
(such approval not to be unreasonably withheld or delayed), for investment
purposes and not with the view to any offering or distribution and that the
Warrant Holder will not sell or otherwise dispose of this Warrant or the
underlying Warrant Shares in violation of applicable securities
laws.  The Warrant Holder acknowledges that the certificates
representing any Warrant Shares will bear a legend indicating that they have not
been registered under the 1933 Act, and may not be sold by the Warrant Holder
except pursuant to an effective registration statement or pursuant to an
exemption from registration requirements of the 1933 Act and in accordance with
federal and state securities laws.  If this Warrant was acquired by
the Warrant Holder pursuant to the exemption from the registration requirements
of the 1933 Act afforded by Regulation S thereunder, the Warrant Holder
acknowledges and covenants that this Warrant may not be exercised by or on
behalf of a Person during the one year distribution compliance period (as
defined in Regulation S) following the date hereof.  “Person” means an individual, partnership,
firm, limited liability company, trust, joint venture, association, corporation,
or any other legal entity.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    3.     Validity
of Warrant and Issue of Shares.  The Company represents and
warrants that this Warrant has been duly authorized and validly issued and
warrants and agrees that all of Common Stock that may be issued upon the
exercise of the rights represented by this Warrant will, when issued upon such
exercise, be duly authorized, validly issued, fully paid and nonassessable and
free from all taxes, liens and charges with respect to the issue thereof other
than those incurred by the Holder.  The Company further warrants and
agrees that during the Exercise Period, the Company will at all times have
authorized and reserved a sufficient number of Common Stock to provide for the
exercise of the rights represented by this Warrant.

     

    4.     Registration
of Transfers and Exchange of Warrants.

     

    a.   Subject to compliance with the federal
and state securities laws, the Company shall register the transfer of any
portion of this Warrant in the Warrant Register, upon surrender of this Warrant
with the Form of Assignment attached hereto duly completed and signed, to the
Company at the office specified in or pursuant to Section 13.  Upon
any such registration or transfer, a new warrant to purchase Common Stock, in
substantially the form of this Warrant (any such new warrant, a “New
Warrant”), evidencing the
portion of this Warrant so transferred shall be issued to the transferee and a
New Warrant evidencing the remaining portion of this Warrant not so transferred,
if any, shall be issued to the transferring Warrant Holder.  The
acceptance of the New Warrant by the transferee thereof shall be deemed the
acceptance of such transferee of all of the rights and obligations of a Warrant
Holder of a Warrant.

     

    b.   This Warrant is exchangeable, upon the
surrender hereof by the Warrant Holder to the office of the Company specified in
or pursuant to Section 9 for one or more New Warrants, evidencing in the
aggregate the right to purchase the number of Warrant Shares which may then be
purchased hereunder.  Any such New Warrant will be dated the date of
such exchange.

     

    5.     Exercise
of Warrants.

    

    a.   Upon surrender of this Warrant with the
Form of Election to Purchase attached hereto duly completed and signed to the
Company, at its address set forth in Section 13, and upon payment and delivery
of the Exercise Price per Warrant Share multiplied by the number of Warrant
Shares that the Warrant Holder intends to purchase hereunder, in lawful money of
the United States of America, by wire transfer or by certified or official bank
check or checks, to the Company, all as specified by the Warrant Holder in the
Form of Election to Purchase, the Company shall promptly (but in no event later
than 7 business days after the Date of Exercise (as defined herein)) issue or
cause to be issued  and cause to be delivered to or upon the written
order of the Warrant Holder and in such name or names as the Warrant Holder may
designate (subject to the restrictions on transfer described in the legend set
forth on the face of this Warrant), a certificate for the Warrant Shares
issuable upon such exercise, with such restrictive legend as required by the
1933 Act.  Any person so designated by the Warrant Holder to receive
Warrant Shares shall be deemed to have become holder of record of such Warrant
Shares as of the Date of Exercise of this Warrant.

     

    b.   A “Date of
Exercise” means the date
on which the Company shall have received (i) this Warrant (or any New Warrant,
as applicable), with the Form of Election to Purchase attached hereto (or
attached to such New Warrant) appropriately completed and duly signed, and (ii)
payment of the Exercise Price for the number of Warrant Shares so indicated by
the Warrant Holder to be purchased.

     

    c.   This Warrant shall be exercisable at
any time and from time to time during the Exercise Period for such number of
Warrant Shares as is indicated in the attached Form of Election to
Purchase.  If less than all of the Warrant Shares which may be
purchased under this Warrant are exercised at any time, the Company shall issue
or cause to be issued, at its expense, a New Warrant evidencing the right to
purchase the remaining number of Warrant Shares for which no exercise has been
evidenced by this Warrant.

     

    d.   (i) Notwithstanding anything
contained herein to the contrary, but subject to Section 5(e) and Section 6, the
Holder may, at Holder’s election exercise this Warrant, in whole or in part, and
in lieu of making the cash payment otherwise contemplated to be made to the
Company upon such exercise in payment of the Exercise Price, elect instead to
receive upon such exercise the “Net Number” of shares of
Common Stock determined according to the following formula (a “Cashless
Exercise”):

     

    Net
Number = (A x (B - C))/B

     

    (ii)           For
purposes of the foregoing formula:

     

    A= the
total number shares with respect to which this Warrant is then being
exercised.

     

    B= the
last reported sale price (as reported by Bloomberg) of the Common Stock on the
trading day immediately preceding the date of the Exercise Notice.

     

    C= the
Warrant Exercise Price then in effect at the time of such exercise.

     

    e.  The
holder of this Warrant may not make a Cashless Exercise (i) during the six (6)
months following the Original Issue Date (the “Cashless Start Date”)
or (ii) thereafter, if the resale of the Warrant Shares by the Holder of the
Warrant Shares is covered by an effective registration statement.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    6.     Maximum
Exercise.  The Warrant Holder shall
not be entitled to exercise this Warrant on a Date of Exercise in
connection with that number of shares of Common Stock which would be in excess
of the sum of (i) the number of shares of Common Stock beneficially owned by the
Warrant Holder and its affiliates on the Date of Exercise, and (ii) the number
of shares of Common Stock issuable upon the exercise of this Warrant with
respect to which the determination of this limitation is being made on an Date
of Exercise, which would result in beneficial ownership by the Warrant Holder
and its affiliates of more than 4.9% of the outstanding shares of Common Stock
on such date.  This Section 6 may not be waived or amended. As used in
this Warrant, beneficial ownership shall be determined in accordance with
Section 13(d) of the Securities Exchange Act of 1934, as amended (the
“Exchange
Act”), and Regulation
13d-3 thereunder.

     

    7.     Adjustment
of Exercise Price and Number of Shares.  The character of the
shares of stock or other securities at the time issuable upon exercise of this
Warrant and the Exercise Price therefore, are subject to adjustment upon the
occurrence of any of the following events which shall have occurred or which
shall occur at any time on or after the Closing Date, as defined in the Purchase
Agreement and regardless of whether any Warrants were issued on the Closing
Date, and all such adjustments shall be cumulative:

     

    a.   Adjustment for Stock
Splits, Stock Dividends, Recapitalizations, Etc.  The Exercise Price of this
Warrant and the number of shares of Common Stock or other securities at the time
issuable upon exercise of this Warrant shall be appropriately adjusted to
reflect any stock dividend, stock split, stock distribution, combination of
shares, reverse split, reclassification, recapitalization or other similar event
affecting the number of outstanding shares of stock or
securities.

     

    b.   Adjustment for
Reorganization, Consolidation, Merger, Etc.  In case of any
consolidation or merger of the Company with or into any other corporation,
entity or person, or any other corporate reorganization, in which the Company
shall not be the continuing or surviving entity of such consolidation, merger or
reorganization (any such transaction being hereinafter referred to as a
“Reorganization”), then, in each case, the holder of
this Warrant, on exercise hereof at any time after the consummation or effective
date of such Reorganization (the “Effective
Date”), shall receive, in
lieu of the shares of stock or other securities at any time issuable upon the
exercise of the Warrant issuable on such exercise prior to the Effective Date,
the stock and other securities and property (including cash) to which such
holder would have been entitled upon the Effective Date if such holder had
exercised this Warrant immediately prior thereto (all subject to further
adjustment as provided in this Warrant).

     

    c.   Certificate as to
Adjustments.  In
case of any adjustment or readjustment in the price or kind of securities
issuable on the exercise of this Warrant, the Company will promptly give written
notice thereof to the holder of this Warrant in the form of a certificate,
certified and confirmed by the Board of Directors of the Company, setting forth
such adjustment or readjustment and showing in reasonable detail the facts upon
which such adjustment or readjustment is based.

     

    8.     Fractional
Shares.  The Company shall not be
required to issue or cause to be issued fractional Warrant Shares on the
exercise of this Warrant.  The number of full Warrant Shares that
shall be issuable upon the exercise of this Warrant shall be computed on the
basis of the aggregate number of Warrants Shares purchasable on exercise of this
Warrant so presented.  If any fraction of a Warrant Share would,
except for the provisions of this Section 8, be issuable on the exercise of this
Warrant, the Company shall, at its option, (i) pay an amount in cash equal to
the Exercise Price multiplied by such fraction or (ii) round the number of
Warrant Shares issuable, up to the next whole number.

     

    9.     Sale
or Merger of the Company.  Upon a Merger Transaction, the
restriction contained in Section 6 shall immediately be released and the Warrant
Holder will have the right to exercise this Warrant concurrently with such
Merger Transaction.  For purposes of this Warrant, the term “Merger
Transaction” shall mean a consolidation or merger of the Company into another
company or entity in which the Company is not the surviving entity or the sale
of all or substantially all of the assets of the Company to another company or
entity not controlled by the then existing stockholders of the
Company.

     

    10.   Notice
of Intent to Sell or Merge the Company.  The Company will give Warrant Holder
ten (10) business days notice before any Merger Transaction.

     

    11.   Issuance
of Substitute Warrant. In the event of a merger,
consolidation, recapitalization or reorganization of the Company or a
reclassification of Company shares of stock, which results in an adjustment to
the number of shares subject to this Warrant and/or the Exercise Price
hereunder, the Company agrees to issue to the Warrant Holder a substitute
Warrant reflecting the adjusted number of shares and/or Exercise Price upon the
surrender of this Warrant to the Company.  However, in the event that
the Company does not issue a substitute warrant, the number and class of Warrant
Shares or other securities and the Exercise Price shall be adjusted as provided
in this Warrant, and this Warrant shall relate the adjusted number of Warrant
Shares and Exercise Price.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    12.    Right
of Redemption/ Mandatory Exercise.

     

    
      	
                                       a.        

            	
              (i)
      At any time that (a) the Market Price of the Common Stock shall equal or
      exceed the Target Price on each trading day for twenty (20) consecutive
      trading days and (b) there is an effective registration statement covering
      the resale of the Warrant Shares by the Holder, the Company shall have the
      right, upon written notice of at least ten (10) trading days, to require
      that the Holder exercise the Warrant in full (an “Exercise
      Notice”).  In the event that the Holder does not exercise
      the Warrant in full by such date (the “Mandatory Exercise
      Date”),  the Company may redeem the then outstanding
      balance of the Warrant at the Redemption Price of one cent ($.01) per
      share of Common Stock issuable upon exercise of the
      Warrant.  The Exercise Notice shall be mailed by first class
      mail, postage prepaid, and sent by telecopier and e-mail, and shall be
      deemed given on the date of receipt of the notice by the
      Holder.  If the exercise by the Company of its right of
      redemption pursuant to this Section 12(a)(i) would result in a violation
      of the 4.9% Limitation, the Company shall not have the right to redeem the
      Holder’s Warrant to the extent that the exercise of the Warrant as to
      which the Exercise Notice is given would result in such a
      violation.  In such event, the Company may subsequently exercise
      its right to redeem the remaining balance of the Warrant held by the
      Holder on and subject to the provisions of this Section
      12(a)(i).

               

            
	 
      	
              (ii)
      At any time that the Market Price of the Common Stock shall equal or
      exceed the Target Price on each trading day for twenty (20) consecutive
      trading days after the Cashless Start Date, the Company shall have the
      right, upon written notice of at least ten (10) trading days, to require
      that the Holder exercise the Warrant in full pursuant to a Cashless
      Exercise (a “Cashless
      Exercise Notice”).  In the event that the Holder does not
      exercise the Warrant in full by such date (the “Mandatory Cashless Exercise
      Date”), the Company may redeem the then outstanding balance of the
      Warrant at the Redemption Price of one cent ($.01) per share of Common
      Stock issuable upon Cashless Exercise of the Warrant.  The
      Cashless Exercise Notice shall be mailed by first class mail, postage
      prepaid, and sent by telecopier and e-mail, and shall be deemed given on
      the date of receipt of the notice by the Holder.  If the
      exercise by the Company of its right of redemption pursuant to this
      Section 12(a)(ii) would result in a violation of the 4.9% Limitation, the
      Company shall not have the right to redeem the Holder’s Warrant to the
      extent that the exercise of the Warrant as to which the Exercise Notice is
      given would result in such a violation.  In such event, the
      Company may subsequently exercise its right to redeem the remaining
      balance of the Warrant held by the Holder on and subject to the provisions
      of this Section 12(a)(ii).

            

    

     

    
      	 
      	
              (iii)
      As used in this Section 12, the following terms shall have the meanings
      set forth below:

            

    

     

    
      	 
      	
              “Market
      Price” shall mean the closing bid price of the Common Stock (as reported
      by Bloomberg L.P. or, if the Common Stock is traded on the NASDAQ Stock
      Market or the NYSE Amex, as reported by such market or
      exchange).

            

    

     

    
      	 
      	
              “Target
      Price” shall mean three and 50/100 dollars
  ($3.50).

            

    

     

    
      	
               b.

            	
                          Notwithstanding
      any other provision of this Section
12:

            

    

     

    
      	
                

            	
              (i)
      The Redemption Date shall be postponed for two (2) trading days for each
      day after the Warrant is called for redemption that the Market Price of
      the Common Stock is less than the Target Price; provided, however, that if
      the Market Price shall be less than the Target Price for ten (10)
      consecutive trading days or fifteen (15) trading days during the period
      from the date the Warrant is called for redemption to the Redemption Date,
      the Company’s right to redeem any portion of the Warrant not theretofore
      exercised or converted shall terminate, subject to the right of the
      Company to call the remaining portion of the Warrant for redemption
      pursuant to this Section 12.

            

    

     

    
      	
                        
      c.

               

            	
              The
      Exercise Notice shall specify (i) the Redemption Price, (ii) the
      Redemption Date, (iii) the place where the Warrants shall be delivered and
      the Redemption Price shall be paid, (iv) the number of Warrants being
      called for redemption if less than all of the Warrants are being redeemed,
      and (v) that the right to exercise the Warrants shall terminate at 5:30
      p.m. (New York City time) on the trading day immediately preceding the
      Redemption Date.  No failure to mail such notice nor any defect
      therein or in the mailing thereof shall affect the validity of the
      proceedings for such redemption except as to a Holder (x) to whom notice
      was not mailed or (y) whose notice was defective.  An affidavit
      of the Chief Financial Officer of the Company that Exercise Notice has
      been mailed shall, in the absence of fraud, be prima facie evidence of the
      facts stated therein.

            

    

     

    
      	
                       
      d.

            	
              Any
      right to exercise or convert a Warrant to the extent that the Warrant was
      called for redemption shall terminate at 5:30 p.m. (New York City time) on
      the Redemption Date.  After such time, Holders of the Warrants
      shall have no further rights except to receive, upon surrender of the
      Warrant, the Redemption Price without interest, subject to the provisions
      of applicable laws relating to the treatment of abandoned
      property.

            

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    13.   Notice.  All notices and
other communications hereunder shall be in writing and shall be deemed to have
been given (i) on the date they are delivered if delivered in person; (ii) on
the date initially received if delivered by facsimile transmission followed by
registered or certified mail confirmation; (iii) on the date delivered by an
overnight courier service; or (iv) on the date of delivery after it is mailed by
registered or certified mail, return receipt requested with postage and other
fees prepaid as follows:

    

     If to the
Company:

     

                                                    c/o China Power Equipment,
Inc.

    Attn:
Ms. Yarong
Feng

    6th Floor,
Fei Jing International, No. 15 Gaoxin 6 Road, Hi-tech Industrial Xi’an, Shaanxi,
China 710075

    Email:
fyr@xa-fj.com 

    Fax:

    

    with a copy to, which
copy shall not constitute a notice:

    

    Guzov Ofsink, LLC

    600 Madison

    New York, New York 10022

    Attention: Darren Ofsink

    E-mail:
dofsink@golawintl.com

    Fax: (212) 688-7273

     

    If to the Warrant
Holder:

    

    At the
address or facsimile number of such Holder appearing on the books of the
Company.

     

    14.    Miscellaneous.

    

    a.  This Warrant shall be binding on and
inure to the benefit of the parties hereto and their respective successors and
permitted assigns.  This Warrant may be amended only by a writing
signed by the Company and the Warrant Holder.

     

    b.  Nothing in this Warrant shall be
construed to give to any person or corporation other than the Company and the
Warrant Holder any legal or equitable right, remedy or cause of action under
this Warrant; this Warrant shall be for the sole and exclusive benefit of the
Company and the Warrant Holder.

     

    c.  This Warrant shall be governed by,
construed and enforced in accordance with the internal laws of the State of New
York without regard to the principles of conflicts of law
thereof.

     

    d.  The headings herein are for convenience
only, do not constitute a part of this Warrant and shall not be deemed to limit
or affect any of the provisions hereof.

     

    e.  In case any one or more of the
provisions of this Warrant shall be invalid or unenforceable in any respect, the
validity and enforceability of the remaining terms and provisions of this
Warrant shall not in any way be affected or impaired thereby and the parties
will attempt in good faith to agree upon a valid and enforceable provision which
shall be a commercially reasonably substitute therefore, and upon so agreeing,
shall incorporate such substitute provision in this Warrant.

     

    f.  The Warrant Holder shall not, by virtue
hereof, be entitled to any voting or other rights of a stockholder of the
Company, either at law or equity, and the rights of the Warrant Holder are
limited to those expressed in this Warrant.

     

    [Signature
Page Follows]

     

     

     

     

     

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

     

    IN
WITNESS WHEREOF, the Company has caused this Warrant to be duly executed by the
authorized officer as of the date first above stated.

    

    

    Date:
________________                          
CHINA POWER EQUIPMENT,
INC.

    

    

                                                                                By:______________________________                                      

                                                                                Name: Yongxing Song

                                                                               Title:  Chief Executive
Officer

     

     

    

    

    

    

    

    

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    

    

    

    FORM
OF ELECTION TO PURCHASE

    

    (To be
executed by the Warrant Holder to exercise the right to purchase shares
of

    Common
Stock under the foregoing Warrant)

    

    To:  CHINA
POWER EQUIPMENT, INC.:

    

    In
accordance with the COMMON STOCK WARRANT enclosed with this Form of Election to
Purchase, the undersigned hereby irrevocably elects to purchase ______________
shares of Common Stock (“Common Stock”), $.001 par value, of China Power
Equipment, Inc. and encloses the warrant and $____ for each Warrant Share being
purchased or an aggregate of $________________ in cash or certified or official
bank check or checks, which sum represents the aggregate Exercise Price (as
defined in the Warrant) together with any applicable taxes payable by the
undersigned pursuant to the Warrant.

    

    The
undersigned requests that certificates for the shares of Common Stock issuable
upon this exercise be issued in the name of:

     

    
      	 
      	 
      	 
      
	 
      	 
      	 
      
	 
      	 
      	 
      
	 
      	
              (Please
      print name and address)

            	 
      
	 
      	 
      	 
      
	 
      	 
      	 
      
	 
      	
              (Please
      insert Social Security or Tax Identification Number)

            	 
      

    

                                                             

     

    If the
number of shares of Common Stock issuable upon this exercise shall not be all of
the shares of Common Stock which the undersigned is entitled to purchase in
accordance with the enclosed Warrant, the undersigned requests that a New
Warrant (as defined in the Warrant) evidencing the right to purchase the shares
of Common Stock not issuable pursuant to the exercise evidenced hereby be issued
in the name of and delivered to:

                                                                               

     

    
      	 
      	 
      	 
      
	 
      	 
      	 
      
	 
      	 
      	 
      
	 
      	
              (Please
      print name and address)

            	 
      

    

     

     

    
      	Dated:     	
                                      

            	 	
              Name
      of Warrant Holder:

            	 
      	 
      
	 	 
      	 	
              (Print)  

            	 
      	 
      
	 	 
      	 	
              (By:) 

            	 
      	 
      
	 	 
      	 	
              (Name:)  

            	 
      	 
      
	 	 
      	 	
              (Title:)  

            	 
      	 
      

    

     

    (Signature
must conform in all respects to name of Warrant Holder as specified on the face
of the Warrant)ex4-1.htm

EXHIBIT 4.1

 

APPLIED DNA SCIENCES, INC.

2005 INCENTIVE STOCK PLAN

(Amended and Restated as of December 16, 2008)

 

THIS APPLIED DNA SCIENCES, INC. 2005 INCENTIVE STOCK PLAN (the “Plan”) is designed to retain directors, executives and selected employees and consultants and reward them for making major contributions to the success
of the Company. These objectives are accomplished by making long-term incentive awards under the Plan thereby providing Participants with a proprietary interest in the growth and performance of the Company.

 

	
1.  
	
Definitions.

 

	 	
(a)  
	
“Board” - The Board of Directors of the Company.

 

	 	
(b)  
	
“Code” - The Internal Revenue Code of 1986, as amended from time to time.

 

	 	
(c)  
	
“Committee” - The Compensation Committee of the Company’s Board, or such other committee of the Board that is designated by the Board to administer the Plan, composed of not less than two members of the Board whom are disinterested persons, as contemplated by Rule 16b-3 (“Rule
16b-3”) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

 

	 	
(d)  
	
“Company” - APPLIED DNA SCIENCES, INC. and its subsidiaries including subsidiaries of subsidiaries.

 

	 	
(e)  
	
“Exchange Act” - The Securities Exchange Act of 1934, as amended from time to time.

 

	 	
(f)  
	
“Fair Market Value” - The fair market value of the Company’s issued and outstanding Stock as determined in good faith by the Board or Committee.

 

	 	
(g)  
	
“Grant” - The grant of any form of stock option, stock award, or stock purchase offer, whether granted singly, in combination, or in tandem, to a Participant pursuant to such terms, conditions and limitations as the Committee may establish in order to fulfill the objectives of the Plan.

 

	 	
(h)  
	
“Grant Agreement” - An agreement between the Company and a Participant that sets forth the terms, conditions and limitations applicable to a Grant.

 

	 	
(i)  
	
“Option” - Either an Incentive Stock Option, in accordance with Section 422 of Code, or a Nonstatutory Option, to purchase the Company’s Stock, that may be awarded to a Participant under the Plan. A Participant who receives an award of an Option shall be referred to as an “Optionee.”

 

 

 

 

	 	
(j)  
	
“Participant” - A director, officer, employee or consultant of the Company to whom an Award has been made under the Plan.

 

	 	
(k)  
	
“Restricted Stock Purchase Offer” - A Grant of the right to purchase a specified number of shares of Stock pursuant to a written agreement issued under the Plan.

 

	 	
(l)  
	
“Securities Act” - The Securities Act of 1933, as amended from time to time.

 

	 	
(m)  
	
“Stock” - Authorized and issued or unissued shares of common stock of the Company.

 

	 	
(n)  
	
“Stock Award” - A Grant made under the Plan in Stock or denominated in units of Stock for which the Participant is not obligated to pay additional consideration.

 

	
2.  
	
Administration. The Plan shall be administered by the Board, provided however, that the Board may delegate such administration to the Committee. Subject to the provisions of the Plan, the Board and/or the Committee shall have authority to (a) grant, in its discretion, Incentive Stock
Options in accordance with Section 422 of the Code, or Nonstatutory Options, Stock Awards or Restricted Stock Purchase Offers; (b) determine in good faith the fair market value of the Stock covered by any Grant; (c) determine which eligible persons shall receive Grants and the number of shares, restrictions, terms and conditions to be included in such Grants; (d) construe and interpret the Plan; (e) promulgate, amend and rescind rules and regulations relating to its administration, and correct
defects, omissions and inconsistencies in the Plan or any Grant; (f) consistent with the Plan and with the consent of the Participant, as appropriate, amend any outstanding Grant or amend the exercise date or dates thereof; (g) determine the duration and purpose of leaves of absence which may be granted to Participants without constituting termination of their employment for the purpose of the Plan or any Grant; and (h) make all other determinations necessary or advisable for the Plan’s administration.
The interpretation and construction by the Board and/or the Committee of any provisions of the Plan or selection of Participants shall be conclusive and final. No member of the Board or the Committee shall be liable for any action or determination made in good faith with respect to the Plan or any Grant made thereunder.

 

	
3.  
	
Eligibility.

 

	 	
(a)  
	
General: The persons who shall be eligible to receive Grants shall be directors, officers,  employees or consultants to the Company. The term consultant shall mean any person, other than an employee or non-employee director, who is engaged by the Company to render services and is
compensated for such services.  An Optionee may hold more than one Option. Any issuance of a Grant to an officer or director of the Company subsequent to the first registration of any of the securities of the Company under the Exchange Act shall comply with the requirements of Rule 16b-3.

 

 

- 2 -

 

	 	
(b)  
	
Incentive Stock Options:  Incentive Stock Options may only be issued to employees of the Company. Incentive Stock Options may be granted to officers or directors, provided they are also employees of the Company. Payment of a director’s fee shall not be sufficient to constitute
employment by the Company.

 

The Company shall not grant an Incentive Stock Option under the Plan to any employee if such Grant would result in such employee holding the right to exercise for the first time in any one calendar year, under all Incentive Stock Options granted under the Plan or any other plan maintained by the Company, with respect to shares of Stock
having an aggregate fair market value,  determined as of the date of the Option is granted, in excess of $100,000.  Should it be determined that an Incentive Stock Option granted under the Plan exceeds such maximum for any reason other than a failure in good faith to value the Stock subject to such option, the excess portion of such option shall be considered a Nonstatutory Option. To the extent the employee holds two (2) or more such Options which become exercisable for the first time in
the same calendar year, the foregoing limitation on the exercisability of such Option as Incentive Stock Options under the Federal tax laws shall be applied on the basis of the order in which such Options are granted. If, for any reason, an entire Option does not qualify as an Incentive Stock Option by reason of exceeding such maximum, such Option shall be considered a Nonstatutory Option.

 

	 	
(c)  
	
Nonstatutory Option:  The provisions of the foregoing Section 3(b) shall not apply to any Option designated as a “Nonstatutory Option” or which sets forth the intention of the parties that the Option be a Nonstatutory Option.

 

	 	
(d)  
	
Stock Awards and Restricted Stock Purchase Offers:  The provisions of this Section 3 shall not apply to any Stock Award or Restricted Stock Purchase Offer under the Plan.

 

	
4.  
	
Stock.

 

	 	
(a)  
	
Authorized Stock: Stock subject to Grants may be either unissued or reacquired Stock.

 

	 	
(b)  
	
Number of Shares:  Subject to adjustment as provided in Section 5(i) of the Plan, the total number of shares of Stock which may be purchased or granted directly by Options, Stock Awards or Restricted Stock Purchase Offers, or purchased indirectly through exercise of Options granted
under the Plan shall not exceed 100 million. If any Grant shall for any reason terminate or expire, any shares allocated thereto but remaining unpurchased upon such expiration or termination shall again be available for Grants with respect thereto under the Plan as though no Grant had previously occurred with respect to such shares. Any shares of Stock issued pursuant to a Grant and repurchased pursuant to the terms thereof shall be
available for future Grants as though not previously covered by a Grant. No more than 25 million shares of Stock may be issued pursuant to Awards granted in any calendar year to any individual.

 

 

- 3 -

 

	 	
(c)  
	
Reservation of Shares:  The Company shall reserve and keep available at all times during the term of the Plan such number of shares as shall be sufficient to satisfy the requirements of the Plan.  If, after reasonable efforts, which efforts shall not include the registration
of the Plan or Grants under the Securities Act, the Company is unable to obtain authority from any applicable regulatory body, which authorization is deemed necessary by legal counsel for the Company for the lawful issuance of shares hereunder, the Company shall be relieved of any liability with respect to its failure to issue and sell the shares for which such requisite authority was so deemed necessary unless and until such authority is obtained.

 

	 	
(d)  
	
Application of Funds:  The proceeds received by the Company from the sale of Stock pursuant to the exercise of Options or rights under Stock Purchase Agreements will be used for general corporate purposes.

 

	 	
(e)  
	
No Obligation to Exercise:  The issuance of a Grant shall impose no obligation upon the Participant to exercise any rights under such Grant.

 

	
5.  
	
Terms and Conditions of Options. Options granted hereunder shall be evidenced by agreements between the Company and the respective Optionees, in such form and substance as the Board or Committee shall from time to time approve. Option agreements need not be identical, and in each case may
include such provisions as the Board or Committee may determine, but all such agreements shall be subject to and limited by the following terms and conditions:

 

	 	
(a)  
	
Number of Shares:  Each Option shall state the number of shares to which it pertains.

 

	 	
(b)  
	
Exercise Price: Each Option shall state the exercise price, which shall be determined as follows:

 

	 	
(i)  
	
Any Incentive Stock Option granted to a person who at the time the Option is granted owns (or is deemed to own pursuant to Section 424(d) of the Code) stock possessing more than ten percent (10%) of the total combined voting power or value of all classes of stock of the Company (“Ten Percent Holder”)
shall have an exercise price of no less than 110% of the Fair Market Value of the Stock as of the date of grant; and

 

	 	
(ii)  
	
Incentive Stock Options granted to a person who at the time the Option is granted is not a Ten Percent Holder and all Nonstatutory Options shall have an exercise price of no less than 100% of the Fair Market Value of the Stock as of the date of grant.

 

	
  
	

For the purposes of this Section 5(b), the Fair Market Value shall be as determined by the Board in good faith, which determination shall be conclusive and binding; provided however, that if there is a public market for such Stock, the Fair Market Value per share shall be the average of the bid and asked prices (or the closing price if
such stock is listed on the NASDAQ National Market System or Small Cap Issue Market) on the date of grant of the Option, or if listed on a stock exchange, the closing price on such exchange on such date of grant.

 

 

- 4 -

 

	 	
(c)  
	
Medium and Time of Payment:  The exercise price shall become immediately due upon exercise of the Option and shall be paid in cash or check made payable to the Company. Should the Company’s outstanding Stock be registered under Section 12(g) of the Exchange Act at the time
the Option is exercised, then the exercise price may also be paid as follows:

 

	 	
(i)  
	
in shares of Stock held by the Optionee for the requisite period necessary to avoid a charge to the Company’s earnings for financial reporting purposes and valued at Fair Market Value on the exercise date, or

 

	 	
(ii)  
	
through a special sale and remittance procedure pursuant to which the Optionee shall concurrently provide irrevocable written instructions (a) to a Company designated brokerage firm to effect the immediate sale of the purchased shares and remit to the Company, out of the sale proceeds available on the settlement date, sufficient funds to cover the aggregate
exercise price payable for the purchased shares plus all applicable Federal, state and local income and employment taxes required to be withheld by the Company by reason of such purchase and (b) to the Company to deliver the certificates for the purchased shares directly to such brokerage firm in order to complete the sale transaction.

 

At the discretion of the Board, exercisable either at the time of Option grant or of Option exercise, the exercise price may also be paid in such other form of consideration as may be acceptable to the Board, subject to applicable Delaware and federal law, including, without limitation, deemed payment through the delivery of “net
shares” by the Company to the Optionee pursuant to a cashless exercise procedure.

 

	 	
(d)  
	
Term and Exercise of Options:   In no event shall any Option be exercisable after the expiration of ten (10) years from the date it is granted, and no Incentive Stock Option granted to a Ten Percent Holder shall, by its terms, be exercisable after the expiration of five (5)
years from the date of the Option.

 

Each Option shall be exercisable to the nearest whole share, in installments or otherwise, as the respective Option agreements may provide. During the lifetime of an Optionee, the Option shall be exercisable only by the Optionee and shall not be assignable or transferable by the Optionee, and no other person shall acquire any rights therein.
To the extent not exercised, installments (if more than one) shall accumulate, but shall be exercisable, in whole or in part, only during the period for exercise as stated in the Option agreement, whether or not other installments are then exercisable.

 

 

- 5 -

 

Termination of Status as Employee, Consultant or Director: Except as otherwise determined by the Board or the Committee, if an Optionee ceases to be employed by or provided other services to the Company, then, unless sooner terminated, the vested portion of the Option will
terminate if and to the extent it is not exercised within 90 days after the date of the Optionee’s termination of employment or service (or one year if the Optionee’s employment or service terminates by reason of his or her “Disability” (as defined below) or death), provided, however, that, if the Optionee’s employment is terminated by the Company for “Cause” (as defined below), then the Option (whether or not vested) will terminate upon the date of such termination of
employment or service. An Option will be forfeited upon the termination of an Optionee’s employment or service if and to the extent the Option is not or does not become vested at such time.

 

	 	
(e)  
	
Definitions: For the purposes hereof, the term “Cause” means an Optionee’s (a) conviction or plea of nolo contendre to a felony; (b) commission of fraud or a material act or omission involving dishonesty with respect to the Company or its Affiliates, as reasonably determined
by the Company; (c) willful failure or refusal to carry out the material responsibilities of his or her employment, as reasonably determined by the Company; (d) gross negligence, willful misconduct, or engaging in a pattern of behavior which has had or is reasonably likely to have a significant adverse effect on the Company, as reasonably determined by the Company; or (e) willfully engaging in any act or omission that is in material violation of a material policy of the Company, including, without limitation,
policies on business ethics and conduct, and policies on the use of inside information and insider trading. The term “Disability” shall have the meaning ascribed thereto pursuant to Section 22(e)(3) of the Code.

 

	 	
(f)  
	
Nontransferability of Option:  No Option shall be transferable by the Optionee, except by will or by the laws of descent and distribution.

 

	 	
(g)  
	
Recapitalization:  Subject to any required action of shareholders, the number of shares of Stock covered by each outstanding Option, the maximum number of shares of Stock that may be covered by Awards granted to any individual in any calendar year, and the exercise price per share
covered by any Option shall be proportionately adjusted for any increase or decrease in the number of issued shares of Stock of the Company resulting from a stock split, stock dividend, combination, subdivision or reclassification of shares, or the payment of a stock dividend, or any other increase or decrease in the number of such shares affected without receipt of consideration by the Company; provided, however, the conversion of any convertible securities of the Company shall not be deemed to have been “effected
without receipt of consideration” by the Company.

 

 

- 6 -

 

In the event of a proposed dissolution or liquidation of the Company, a merger or consolidation in which the Company is not the surviving entity, or a sale of all or substantially all of the assets or capital stock of the Company (collectively, a  “Reorganization”),
unless otherwise provided by the Board, each Option shall terminate immediately prior to such date as is determined by the Board, which date shall be no later than the consummation of such Reorganization.  In such event, if the entity which shall be the surviving entity does not tender to Optionee an offer, for which it has no obligation to do so, to substitute for any unexercised Option a stock option or capital stock of such surviving of such surviving entity, as applicable, which on an equitable
basis shall provide the Optionee with substantially the same economic benefit as such unexercised Option, then the Board may grant to such Optionee, in its sole and absolute discretion and without obligation, the right for a period commencing thirty (30) days prior to and ending immediately prior to the date determined by the Board pursuant hereto for termination of the Option or during the remaining term of the Option, whichever is the lesser, to exercise any unexpired Option or Options without regard to the
installment provisions of Paragraph 6(d) of the Plan; provided, that any such right granted shall be granted to all Optionees not receiving an offer to receive substitute options on a consistent basis, and provided further, that any such exercise shall be subject to the consummation of such Reorganization.

 

Subject to any required action of shareholders, if the Company shall be the surviving entity in any merger or consolidation, each outstanding Option thereafter shall pertain to and apply to the securities to which a holder of shares of Stock equal to the shares subject to the Option would have been entitled by reason of such merger or
consolidation.

 

In the event of a change in the Stock of the Company as presently constituted, which is limited to a change of all of its authorized shares without par value into the same number of shares with a par value, the shares resulting from any such change shall be deemed to be the Stock within the meaning of the Plan.

 

To the extent that the foregoing adjustments relate to stock or securities of the Company, such adjustments shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided in this Section 5(i), the Optionee shall have no rights by reason of any subdivision or consolidation
of shares of stock of any class or the payment of any stock dividend or any other increase or decrease in the number of shares of stock of any class, and the number or price of shares of Stock subject to any Option shall not be affected by, and no adjustment shall be made by reason of any dissolution, liquidation, merger, consolidation or sale of assets or capital stock, or any issue by the Company of shares of stock of any class or securities convertible into shares of stock of any class.

 

The Grant of an Option pursuant to the Plan shall not affect in any way the right or power of the Company to make any adjustments, reclassifications, reorganizations or changes in its capital or business structure or to merge, consolidate, dissolve, or liquidate or to sell or transfer all or any part of its business or assets.

 

 

- 7 -

 

	 	
(h)  
	
Rights as a Shareholder:  An Optionee shall have no rights as a shareholder with respect to any shares covered by an Option until the effective date of the issuance of the shares following exercise of such Option by Optionee. No adjustment shall be made for dividends (ordinary or
extraordinary, whether in cash, securities or other property) or distributions or other rights for which the record date is prior to the date such stock certificate is issued, except as expressly provided in Section 5(i) hereof.

 

	 	
(i)  
	
Modification, Acceleration, Extension, and, Renewal of Options:  Subject to the terms and conditions and within the limitations of the Plan, the Board may modify an Option, or, once an Option in exercisable, accelerate the rate at which it may be exercised, and may extend or renew
outstanding Options granted under the Plan or accept the surrender of outstanding Options (to the extent not theretofore exercised) and authorize the granting of new Options in substitution for such Options, provided such action is not prohibited by Section 422 of the Code or other applicable law; however, no modification of an Option shall without the consent of the Optionee, alter to the Optionee’s detriment or impair any rights or obligations under any Option theretofore granted under the Plan.

 

	 	
(j)  
	
Exercise Before Exercise Date:  At the discretion of the Board, the Option may, but need not, include a provision whereby the Optionee may elect to exercise all or any portion of the Option prior to the stated exercise date of the Option or any installment thereof. Any shares so
purchased prior to the stated exercise date shall be subject to repurchase by the Company upon termination of Optionee’s employment as contemplated by Section 5(n) hereof prior to the exercise date stated in the Option and such other restrictions and conditions as the Board or Committee may deem advisable.

 

	 	
(k)  
	
Other Provisions: The Option agreements authorized under the Plan shall contain such other provisions, including, without limitation, restrictions upon the exercise of the Options, as the Board or the Committee shall deem advisable. The Board or the Committee may permit Options to be exercised
beyond the time periods described herein; provided, however, that no Option may be exercised more than 10 years after the date it is granted.  Shares shall not be issued pursuant to the exercise of an Option, if, in the opinion of legal counsel for the Company, the exercise of such Option and/or the issuance of shares thereunder would violate applicable law or the rules and regulations of any exchange upon which the shares of the Company are listed. Without limiting the generality of the foregoing,
the exercise of each Option shall be subject to the condition that if at any time the Company shall determine that (i) the satisfaction of withholding tax or other similar liabilities, or (ii) the listing, registration or qualification of any shares covered by such exercise upon any securities exchange or under any state or federal law, or (iii) the consent or approval of any regulatory body, or (iv) the perfection of any exemption from any such withholding, listing, registration, qualification,
consent or approval is necessary or desirable in connection with such exercise or the issuance of shares thereunder, then in any such event, such exercise shall not be effective unless such withholding, listing, registration, qualification, consent, approval or exemption shall have been effected, obtained or perfected free of any conditions not acceptable to the Company.

 

 

- 8 -

 

	
6.  
	
Stock Awards and Restricted Stock Purchase Offers.

 

	 	
(a)  
	
Types of Grants.

 

	 	
(i)  
	
Stock Award.  All or part of any Stock Award under the Plan may be subject to conditions established by the Board or the Committee, and set forth in the Stock Award Agreement, which may include, but are not limited to, continuous service with the Company, achievement of specific
business objectives, increases in specified indices, attaining growth rates and other comparable measurements of Company performance. Such Awards may be based on Fair Market Value or other specified valuation.

 

	 	
(ii)  
	
Restricted Stock Purchase Offer.  A Grant of a Restricted Stock Purchase Offer under the Plan shall be subject to such (i) vesting contingencies related to the Participant’s continued association with the Company for a specified time and (ii) other specified conditions as
the Board or Committee shall determine, in their sole discretion, consistent with the provisions of the Plan.

 

	 	
(b)  
	
Conditions and Restrictions.  Shares of Stock which Participants may receive as a Stock Award under a Stock Award Agreement or Restricted Stock Purchase Offer under a Restricted Stock Purchase Offer may include such restrictions as the Board or Committee, as applicable, shall determine,
including restrictions on transfer, repurchase rights, right of first refusal, and forfeiture provisions. When transfer of Stock is so restricted or subject to forfeiture provisions it is referred to as “Restricted Stock”.  Further, with Board or Committee approval, Stock Awards or Restricted Stock Purchase Offers may be deferred, either in the form of installments or a future lump sum distribution. The Board or Committee may permit
selected Participants to elect to defer distributions of Stock Awards or Restricted Stock Purchase Offers in accordance with procedures established by the Board or Committee to assure that such deferrals comply with applicable requirements of the Code (including, without limitation, Section 409A of the Code) including, at the choice of Participants, the capability to make further deferrals for distribution after retirement. Any deferred distribution, whether elected by the Participant or specified by the Stock
Award Agreement, Restricted Stock Purchase Offers or by the Board or Committee, may require the payment be forfeited in accordance with the provisions of Section 6(c). Dividends or dividend equivalent rights may be extended to and made part of any Stock Award or Restricted Stock Purchase Offers denominated in Stock or units of Stock, subject to such terms, conditions and restrictions as the Board or Committee may establish.

 

 

- 9 -

 

	 	
(c)  
	
Cancellation and Rescission of Grants.  Unless the Stock Award Agreement or Restricted Stock Purchase Offer specifies otherwise, the Board or Committee, as applicable, may cancel any unexpired, unpaid, or deferred Grants at any time if the Participant is not in compliance with all
other applicable provisions of the Stock Award Agreement or Restricted Stock Purchase Offer, the Plan and with the following conditions:

 

	 	
(i)  
	
A Participant shall not render services for any organization or engage directly or indirectly in any business which, in the judgment of the chief executive officer of the Company or other senior officer designated by the Board or Committee, is or becomes competitive with the Company, or which organization or business, or the rendering of services to such
organization or business, is or becomes otherwise prejudicial to or in conflict with the interests of the Company. For Participants whose employment has terminated, the judgment of the chief executive officer shall be based on the Participant’s position and responsibilities while employed by the Company, the Participant’s post-employment responsibilities and position with the other organization or business, the extent of past, current and potential competition or conflict between the Company and the
other organization or business, the effect on the Company’s customers, suppliers and competitors and such other considerations as are deemed relevant given the applicable facts and circumstances.  A Participant who has retired shall be free, however, to purchase as an investment or otherwise, stock or other securities of such organization or business so long as they are listed upon a recognized securities exchange or traded over-the-counter, and such investment does not represent a substantial
investment to the Participant or a greater than ten percent (10%) equity interest in the organization or business.

 

	 	
(ii)  
	
A Participant shall not, without prior written authorization from the Company, disclose to anyone outside the Company, or use in other than the Company’s business, any confidential information or material, as defined in the Company’s Proprietary  Information and Invention Agreement or similar agreement regarding confidential information
and intellectual property, relating to the business of the Company, acquired by the Participant either during or after employment with the Company.

 

	 	
(iii)  
	
A Participant, pursuant to the Company’s Proprietary Information and Invention Agreement, shall disclose promptly and assign to the Company all right, title and interest in any invention or idea, patentable or not, made or conceived by the Participant during employment by the Company, relating in any manner to the actual or anticipated business,
research or development work of the Company and shall do anything reasonably necessary to enable the Company to secure a patent where appropriate in the United States and in foreign countries.

 

 

- 10 -

 

	 	
(iv)  
	
Upon exercise, payment or delivery pursuant to a Grant, the Participant shall certify on a form acceptable to the Committee that he or she is in compliance with the terms and conditions of the Plan. Failure to comply with all of the provisions of this Section 6(c) prior to, or during the six months after, any exercise, payment or delivery pursuant to a
Grant shall cause such exercise, payment or delivery to be rescinded. The Company shall notify the Participant in writing of any such rescission within two years after such exercise, payment or delivery. Within ten days after receiving such a notice from the Company, the Participant shall pay to the Company the amount of any gain realized or payment received as a result of the rescinded exercise, payment or delivery pursuant to a Grant. Such payment shall be made either in cash or by returning to the Company
the number of shares of Stock that the Participant received in connection with the rescinded exercise, payment or delivery.

 

	 	
(d)  
	
Nonassignability.

 

	 	
(i)  
	
Except pursuant to Section 6(e)(iii) and except as set forth in Section (d)(ii), no Grant or any other benefit under the Plan shall be assignable or transferable, or payable to or exercisable by, anyone other than the Participant to whom it was granted.

 

	 	
(ii)  
	
Where a Participant terminates employment and retains a Grant pursuant to Section 6(e)(ii) in order to assume a position with a governmental, charitable or educational institution, the Board or Committee, in its discretion, and to the extent permitted by law, may authorize a third party (including but not limited to the trustee of a “blind”
trust), acceptable to the applicable governmental or institutional authorities, the Participant and the Board or Committee, to act on behalf of the Participant with regard to such awards.

 

	 	
(e)  
	
Termination of Employment.  If the employment or service to the Company of a Participant terminates, other than pursuant to any of the following provisions under this Section 6(e), all unexercised, deferred and unpaid Stock Awards or Restricted Stock Purchase Offers shall be cancelled
immediately, unless the Stock Award Agreement or Restricted Stock Purchase Offer provides otherwise:

 

	 	
(i)  
	
Retirement Under a Company Retirement Plan.  When a Participant’s employment terminates as a result of retirement in accordance with the terms of a Company retirement plan, the Board or Committee may permit Stock Awards or Restricted Stock Purchase Offers to continue in effect
beyond the date of retirement in accordance with the applicable Grant Agreement and the exercisability and vesting of any such Grants may be accelerated.

 

	 	
(ii)  
	
Rights in the Best Interests of the Company.  When a Participant resigns from the Company and, in the judgment of the Board or Committee, the acceleration and/or continuation of outstanding Stock Awards or Restricted Stock Purchase Offers would be in the best interests of the Company,
the Board or Committee may (i) authorize, where appropriate, the acceleration and/or continuation of all or any part of Grants issued prior to such termination and (ii) permit the exercise, vesting and payment of such Grants for such period as may be set forth in the applicable Grant Agreement, subject to earlier cancellation pursuant to Section 9 or at such time as the Board or Committee shall deem the continuation of all or any part of the Participant’s Grants are not in the Company’s best interest.

 

 

- 11 -

 

	 	
(iii)  
	
Death or Disability of a Participant.

 

	 	
(1)  
	
In the event of a Participant’s death, the Participant’s estate or beneficiaries shall have a period up to the expiration date specified in the Grant Agreement within which to receive or exercise any outstanding Grant held by the Participant under such terms as may be specified in the applicable Grant Agreement. Rights to any such outstanding
Grants shall pass by will or the laws of descent and distribution in the following order: (a) to beneficiaries so designated by the Participant; if none, then (b) to a legal representative of the Participant; if none, then (c) to the persons entitled thereto as determined by a court of competent jurisdiction. Grants so passing shall be made at such times and in such manner as if the Participant were living.

 

	 	
(2)  
	
In the event a Participant is deemed by the Board or Committee to be unable to perform his or her usual duties by reason of mental disorder or medical condition which does not result from facts which would be grounds for termination for cause, Grants and rights to any such Grants may be paid to or exercised by the Participant, if legally competent, or
a committee or other legally designated guardian or representative if the Participant is legally incompetent by virtue of such disability.

 

	 	
(3)  
	
After the death or disability of a Participant, the Board or Committee may in its sole discretion at any time (1) terminate restrictions in Grant Agreements; (2) accelerate any or all installments and rights; and (3) instruct the Company to pay the total of any accelerated payments in a lump sum to the Participant, the Participant’s estate, beneficiaries
or representative; notwithstanding that, in the absence of such termination of restrictions or acceleration of payments, any or all of the payments due under the Grant might ultimately have become payable to other beneficiaries.

 

	 	
(4)  
	
In the event of uncertainty as to interpretation of or controversies concerning this Section 6, the determinations of the Board or Committee, as applicable, shall be binding and conclusive.

 

 

- 12 -

 

	
7.  
	
Investment Intent.  All Grants under the Plan are intended to be exempt from registration under the Securities Act provided by Rule 701 thereunder. Unless and until the granting of Options or sale and issuance of Stock
subject to the Plan are registered under the Securities Act or shall be exempt pursuant to the rules promulgated thereunder, each Grant under the Plan shall provide that the purchases or other acquisitions of Stock thereunder shall be for investment purposes and not with a view to, or for resale in connection with, any distribution thereof. Further, unless the issuance and sale of the Stock have been registered under the Securities Act, each Grant shall provide that no shares shall be purchased upon the exercise
of the rights under such Grant unless and until (i) all then applicable requirements of state and federal laws and regulatory agencies shall have been fully complied with to the satisfaction of the Company and its counsel, and (ii) if requested to do so by the Company, the person exercising the rights under the Grant shall (i) give written assurances as to knowledge and experience of such person (or a representative employed by such person) in financial and business matters and the ability of such person (or
representative) to evaluate the merits and risks of exercising the Option, and (ii) execute and deliver to the Company a letter of investment intent and/or such other form related to applicable exemptions from registration, all in such form and substance as the Company may require. If shares are issued upon exercise of any rights under a Grant without registration under the Securities Act, subsequent registration of such shares shall relieve the purchaser thereof of any investment restrictions or representations
made upon the exercise of such rights.

 

	
8.  
	
Amendment, Modification, Suspension or Discontinuance of the Plan. The Board may, insofar as permitted by law, from time to time, with respect to any shares at the time not subject to outstanding Grants, suspend or terminate the Plan or revise or amend it in any respect whatsoever, except
that without the approval of the shareholders of the Company, no such revision or amendment shall (i) increase the number of shares subject to the Plan, (ii) decrease the price at which Grants may be granted, (iii) materially increase the benefits to Participants, or (iv) change the class of persons eligible to receive Grants under the Plan; provided, however, no such action shall alter or impair the rights and obligations under any Option, or Stock Award, or Restricted Stock Purchase Offer outstanding as of
the date thereof without the written consent of the Participant thereunder. No Grant may be issued while the Plan is suspended or after it is terminated, but the rights and obligations under any Grant issued while the Plan is in effect shall not be impaired by suspension or termination of the Plan.

 

In the event of any change in the outstanding Stock by reason of a stock split, stock dividend, combination or reclassification of shares, recapitalization, merger, or similar event, the Board or the Committee may adjust proportionally (a) the number of shares of Stock (i) reserved under the Plan, (ii) issuable under Awards granted
to any individual in any calendar year, (iii) available for Incentive Stock Options and Nonstatutory Options and (iv) covered by outstanding Stock Awards or Restricted Stock Purchase Offers; (b) the Stock prices related to outstanding Grants; and (c) the appropriate Fair Market Value and other price determinations for such Grants. In the event of any other change affecting the Stock or any distribution (other than normal cash dividends) to holders of Stock, such adjustments as may be deemed equitable by
the Board or the Committee, including adjustments to avoid fractional shares, shall be made to give proper effect to such event. In the event of a corporate merger, consolidation, acquisition of property or stock, separation, reorganization or liquidation, the Board or the Committee shall be authorized to issue or assume stock options, whether or not in a transaction to which Section 424(a) of the Code applies, and other Grants by means of substitution of new Grant Agreements for previously issued Grants or an
assumption of previously issued Grants.

 

 

- 13 -

 

Unless sooner terminated, the Plan shall terminate ten years after the date it was originally adopted by the Board.

 

	
9.  
	
Tax Withholding.  The Company shall have the right to deduct applicable taxes from any compensation payable to the Participant, whether or not pursuant to the Plan, including, without limitation, the right to withhold, at the time of delivery or exercise of Options, Stock Awards
or Restricted Stock Purchase Offers or vesting of shares under such Grants, an appropriate number of shares for payment of taxes required by law or to take such other action as may be necessary in the opinion of the Company to satisfy all obligations for withholding of such taxes. If Stock is used to satisfy tax withholding, such stock shall be valued based on the Fair Market Value when the tax withholding is required to be made.

 

	
10.  
	
Notice. Any written notice to the Company required by any of the provisions of the Plan shall be addressed to the chief personnel officer or to the chief executive officer of the Company, and shall become effective when it is received by the office of the chief personnel officer or the chief
executive officer.

 

	
11.  
	
Indemnification of Board.  In addition to such other rights or indemnifications as they may have as directors or otherwise, and to the extent allowed by applicable law, the members of the Board and the Committee shall be indemnified by the Company against the reasonable expenses,
including attorneys’ fees, actually and necessarily incurred in connection with the defense of any claim, action, suit or proceeding, or in connection with any appeal thereof, to which they or any of them may be a party by reason of any action taken, or failure to act, under or in connection with the Plan or any Grant granted thereunder, and against all amounts paid by them in settlement thereof (provided such settlement is approved by independent legal counsel selected by the Company) or paid by them in
satisfaction of a judgment in any such claim, action, suit or proceeding, except in any case in relation to matters as to which it shall be adjudged in such claim, action, suit or proceeding that such Board or Committee member is liable for negligence or misconduct in the performance of his or her duties; provided that within sixty (60) days after institution of any such action, suit or Board proceeding the member involved shall offer the Company, in writing, the opportunity, at its own expense, to handle and
defend the same.

 

	
12.  
	
Governing Law.  All rights and obligations under the Plan and each Award agreement or instrument shall be governed by and construed in accordance with the laws of the State of Delaware, without regard to its principles of conflict of laws.

 

 

-14-

 

 

EMPLOYEE STOCK OPTION AGREEMENT

 

UNDER THE

 

APPLIED DNA SCIENCES, INC.

 

2005 INCENTIVE STOCK PLAN

 

AGREEMENT made as of the ______ day of ______, by and between APPLIED DNA SCIENCES, INC. (the "Company") and _________________________________ (the
"Optionee").

 

1.   Award. Pursuant to the Applied DNA Sciences, Inc. 2005 Incentive Stock Plan (the “Plan”), the Company hereby grants to the Optionee an option (the “Option”)
to purchase up to __________________ shares of the Company’s common stock (the “Common Stock”) at an exercise price per share of $_______ upon the terms and conditions set forth in this Agreement and the Plan. The Optionee acknowledges having received a copy of the Plan. The provisions of the Plan will govern in the event of any
inconsistency with the terms of this Agreement. Capitalized terms used but not defined in this Agreement will have the meanings ascribed to them by the Plan.

 

2.   Option Term. Unless terminated sooner, the Option shall expire if and to the extent it is not exercised within
five years from the date hereof.

 

3.   Vesting Conditions. Except as otherwise provided, the Option will become      % vested
on the date hereof and the balance of the Option will become vested in            equal annual increments (each for        % of the shares covered by the Option) beginning on the first anniversary of the date hereof, subject to the Optionee’s continuous employment with the Company or any of its subsidiaries (“Applied DNA Sciences”) through the applicable vesting date.

 

4.   Termination of Employment.

 

(a)   General. If the Optionee ceases to be employed by Applied DNA Sciences for any reason other than death or disability,
then, unless sooner terminated under the terms hereof, the vested portion of the Option will terminate if and to the extent it is not exercised within three months after the date of the Optionee’s termination of employment, provided, however, that, if the Optionee’s employment is terminated by the Company for “cause” (as defined below), then the Option (whether or not vested) will terminate upon the date of such termination of employment. If the Optionee’s employment is terminated
by reason of the Optionee’s death or disability, then, unless sooner terminated under the terms hereof, the vested portion of the Option will terminate if and to the extent it is not exercised within six months after the date of such termination of employment. The Option will be forfeited by the Optionee and will terminate at the time of the termination of the Optionee’s employment with Applied DNA Sciences if and to the extent the Option is not or does not become vested at such time.

 

(b)   Definitions of Disability and Cause. For the purposes hereof: (1) the term “disability” means the
inability of the Optionee to perform the material duties of the Optionee’s employment by reason of a physical or mental illness or condition that is expected to last indefinitely or result in death, as determined by a duly licensed physician selected by the Company; and (2) the term “cause” means (A) the Optionee’s willful and repeated failure or refusal to perform the duties of the Optionee’s employment after written notice thereof by the Company, (B) the Optionee’s conviction
of a felony or other crime that has or could reasonably be expected to have a material adverse effect on the Company or on the ability of the Optionee to properly perform the duties of the Optionee’s employment, (C) substance abuse by the Optionee which impedes the ability of the Optionee to perform the duties and responsibilities of the Optionee’s employment or which otherwise has or could reasonably be expected to have an adverse effect on the Company; or (C) the Optionee’s violation of material
Company policy, or the Optionee’s gross negligence or other misconduct that has or could reasonably be expected to have a material adverse effect on the Company or on the ability of the Optionee to properly perform the duties of the Optionee’s employment.

 

 

 

 

 

5.   Exercise of Option. If the Option becomes vested, it may be exercised in whole or in part by delivering to the
Company (a) a written notice specifying the number of whole shares of Common Stock with respect to which the Option is being exercised, and (b) payment in full of the exercise price, together with the amount, if any, deemed necessary by the Company to enable it to satisfy any income tax withholding obligations attributable to the exercise. The exercise price and withholding amount shall be payable by bank or certified check or pursuant to such other methods as may be permitted by the Company in accordance with
the Plan, including, without limitation, issuance of net shares, delivery of previously-owned shares of Common Stock and broker-assisted “cashless” exercise in accordance with applicable law.

 

6.   Compliance with Law; Transfer Orders; Legends.  The Company will not be obligated to issue or deliver
shares of Common Stock pursuant to this Option unless the issuance and delivery of such shares complies with applicable law, including, without limitation, the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, and the requirements of any stock exchange or market upon which the Common Stock may then be listed, and shall be further subject to the approval of counsel for the Company with respect to such compliance.  All certificates for shares of Common Stock delivered
under this Option shall be subject to such stock-transfer orders and other restrictions as the Company may deem advisable under the rules, regulations, and other requirements of the Securities and Exchange Commission, any stock exchange or market upon which the Common Stock may then be listed, and any applicable federal or state securities law.  The Company may cause a legend or legends to be placed on any such certificates to make appropriate reference to such restrictions.

 

7.   Rights as a Stockholder. No shares of Common Stock shall be sold or delivered hereunder until full payment for
such shares has been made (including, for this purpose, satisfaction of the applicable withholding tax). The Optionee shall have no rights as a stockholder with respect to any shares covered by this Option unless and until the Option is exercised and the shares covered by the exercise of the Option are issued in the name of the Optionee.

 

8.   Assignment; Beneficiary. The Option and the Optionee’s rights with respect thereto may not be assigned, pledged or transferred except to the Optionee’s beneficiary
following the Optionee’s death (subject to the terms of this Agreement and the Plan), and any attempted assignment, pledge or transfer in violation of this Agreement or the Plan will be void ab initio and of no force or effect. The Optionee may designate a beneficiary by filing a written (or electronic) beneficiary designation form with the Company in a manner prescribed or deemed acceptable for this purpose by the Company. Each such beneficiary designation will automatically revoke all prior designations
by the Optionee. If the Optionee does not make a valid beneficiary designation during the Optionee’s lifetime or if no designated beneficiary survives the Optionee, the Optionee’s beneficiary will be deemed to be the Optionee’s surviving spouse or, if none, the Optionee’s estate.

 

 

-2-

 

 

9.   No Other Rights Conferred. The grant of the Option under this Agreement shall not be deemed to constitute a contract of employment with the Optionee or affect in any way
the right of the Company or a subsidiary to terminate the Optionee’s employment at any time for any or no reason. Compensation attributable to the Option shall not be taken into account as compensation for purposes of determining the Optionee’s benefits or entitlements under any employee pension, savings, group insurance, severance or other benefit plan or arrangement, unless and except to the extent otherwise specifically provided by such plan or arrangement.

 

10.   Withholding. The Company’s obligation to issue shares of Common Stock pursuant to the exercise of the Option shall be subject to and conditioned upon the satisfaction
by the Optionee of applicable tax withholding obligations. The Company and its subsidiaries may require the Optionee to remit an amount sufficient to satisfy applicable withholding taxes or deduct or withhold such amount from any payments otherwise owed the Optionee (whether or not under this Agreement or the Plan). The Optionee expressly elects to authorize the Company to deduct from any compensation or any other payment of any kind due to the Optionee, including withholding the issuance of shares of Common
Stock, the amount of any federal, state, local or foreign taxes required by law to be withheld as a result of the exercise of the Option; provided, however, that the value of the shares withheld may not exceed the statutory minimum withholding amount required by law.

 

11.   Committee Authority. The Board of Directors of the Company (the “Board”) or, if applicable, the Compensation Committee of the (the “Committee”)
shall have complete discretion in the exercise of its rights, powers, and duties under this Agreement. Any interpretation or construction of any provision of, and the determination of any question arising under, this Agreement shall be made by the Board or the Committee, as the case may be, in its discretion and such exercise shall be final, conclusive, and binding.

 

12.   Successors. This Agreement shall be binding upon, and inure to the benefit of, any successor or successors of the Company and any beneficiary of the Optionee.

 

13.   Construction. This Agreement is intended to reflect the grant of the Option upon the terms and conditions authorized by the Plan. Any provisions of this Agreement that
cannot be so administered, interpreted, or construed shall be disregarded. In the event that any provision of this Agreement is held invalid or unenforceable, such provision shall be considered separate and apart from the remainder of this Agreement, which shall remain in full force and effect. In the event that any provision, including any restrictive covenant made as a part of this Agreement, is held to be unenforceable for being unduly broad as written, such provision shall be deemed amended to narrow its
application to the extent necessary to make the provision enforceable according to applicable law and shall be enforced as amended.

 

 

-3-

 

 

14.   Applicable Law. The validity, construction, interpretation and effect of this Agreement shall be governed by and construed in accordance with the laws of the State of
Delaware, without giving effect to the conflicts of laws provisions thereof.

 

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

	  	
APPLIED DNA SCIENCES, INC.
	  
	  	  	  	  
	  	  	  	  
	  	  	  	  
	  	
By:
	  	  
	  	  	  	  
	  	  	  	  
	  	
Optionee
	  	  
	  	
 
	  	  

 

 

 

-4-

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